Tradelink plans to expand store network

As Tradelink moves into profit, it plans an expansion

The 240-plus network of Tradelink plumbing stores will grow in the medium term

Fletcher Building recently announced a net profit after tax of NZD89 million for the first half of 2018-19, compared with a loss of NZD273 million in the same period, a year earlier.

Dual-listed in New Zealand and Australia, the company experienced a 38% decline in earnings before interest and tax to NZD33 million in the first half of 2018-19 in its Australian arm. Revenues from its Australian operations were up 1% to NZD1.55 billion. Australia is the company's biggest division in terms of revenue, but sixth in terms of profit.

Fletcher Building chief executive Ross Taylor, who has been in the role for just over a year, said it was already part-way through a restructuring of its Australian operations, and the housing market downturn would allow it to prune even harder so it could set the operations up to extract maximum benefit when the overall market conditions improved.

Fletcher's Australian operations make up 34% of its entire business and include Tradelink plumbing and bathroom outlets, Iplex pipes, Rocla concrete, Stramit steel products, Tasman Sinkware and Fletcher insulation.

The 240-plus network of Tradelink plumbing stores would be enlarged over the medium term. Mr Taylor told Fairfax Media:

There's probably another 60 or 70 locations we can go to.

Tradelink is now focusing more on small-to-medium business customers and "tradies" after having drifted too far into chasing bigger projects.

Formica sell-off

In December 2018, the company signed an agreement to sell Formica Group to Netherlands-based Broadview Holding BV for NZD1.2 billion, which Mr Taylor said was expected to be finalised by the end of the 2019 financial year.

The sale of Formica marks one of the biggest steps in Mr Taylor's remaking of the building products group into one focused on its core markets of Australasia. He has a five-year strategy of turning Fletcher into a pure-play building products group.

Three-quarters of the company's Australian business is tied to the residential and commercial markets where approvals have dived 10% in recent months. Construction activity had come off faster than the company's expectation, particularly in larger projects around the Sydney area, Mr Taylor told reporters.

Mr Taylor expected that to continue until 2020, triggering more fierce competition among suppliers and distributors of building materials. Its infrastructure business in Australia was stable.

Looking ahead, Mr Taylor said he would be focussed hard on resetting the Australian arm "for its new market reality".

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Reece profit dips

Investments limit earnings

Not known for its transparency, Reece's acquisition costs have impacted on its profit

Plumbing and bathroom supplier, Reece Group's US and New Zealand acquisitions have led to a lift in sales but new costs kept a lid on net profit.

For the six months to December 31, revenue doubled to $2.72 billion while integrating its $1.91 billion MORSCO purchase in the US, and bedding down the Edward Gibbons and Zip Plumbing assets in NZ.

The company said $30 million in acquisition costs and a softening property market in Australia weighed net profit down 7.6% to $97.7 million for the half. Minus the new purchases, net profit rose 20% to $127 million. EBIT increased by 25% to $192.1 million.

Total branch network in Australia and New Zealand was 635 outlets in the period, an increase of 20 outlets. This included establishing a HVAC presence in New Zealand and expanding the network in the South Island. In the US, MORSCO opened two new outlets.

Reece's first half results followed news that Australian home loans rose at their slowest monthly pace in more than four years in January, with the annual rate the weakest on record, as credit tightening by banks and a sharp fall in housing prices turn off demand. CEO and managing director Peter Wilson said:

Reece has had another strong result, including, for the first time, the performance of our newly acquired US business, MORSCO, which is performing in line with expectations.
We are seeing more moderate growth in the residential building market in Australia, while non-residential commencements remain strong. Business momentum in the US continues, with construction and investment in infrastructure returning to long-term averages.

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Supplier update

BGC Group may be sold: sources

Stanley Black & Decker pricing, Home Depot deal and new Portwest site in Australia

BGC Group's rumoured sale is expected to be pitched towards Australian and offshore building and construction companies and private equity groups; power tool maker Stanley Black & Decker forecasts headwinds from cost inflation and tariffs; Irish-owned workwear firm opens Melbourne warehouse.

BGC Group potential sale

The Street Talk column in the Financial Review reports that building materials supplier BGC Group has hired Macquarie Group's investment banking team to run the company's mooted sale.

Sources told the newspaper that investment bank Macquarie Capital was chosen following a pitching process run by BGC Group's board. Macquarie's bankers are expected to start working with the company with a view to having a formal sale process up and running in 2019.

BGC Group generated $2.7 billion in revenue last year and is likely to be worth more than $2 billion. It has been controlled by late founder Len Buckeridge's sons, Sam and Andrew, since 2014.

The board - working on behalf of the company's family shareholders - is understood to be keen to sell the business in one piece, if possible. It believes there are material synergies between the industrial businesses. For example, raw materials for its building materials can be sourced cheaply from the company's network of quarries and the like, and flow into the residential construction arm, which is the country's biggest home builder.

The sale is also expected to include BGC's civil and mining contracting business, which has about $1 billion in annual revenue and services clients across the retail, energy and infrastructure sectors.

However BGC Group's real estate portfolio, which owns office buildings and other commercial property, is expected to be sold separately.

Stanley cuts costs, gains exclusivity deal

Stanley Black & Decker (SBD) announced a USD250 million cost reduction program during its third quarter earnings announcement in late October. The company cited "external headwinds" that included new tariffs, commodity inflation and foreign exchange.

As a result, the company will increase prices for many its tools to mitigate the impact of tariffs the Trump administration placed on Chinese imports. Donald Allan Jr., SBD's executive vice president and chief financial officer, said in a statement:

As we shift to 2019, we are now preparing for the carryover effect of the 2018 headwinds...We will continue to pass on these input cost increases to our customers as price increases. Additionally, we are taking actions to adjust our supply chain and cost structure.

President Donald Trump announced tariffs on billions of dollars of goods earlier this year as a way to try and force China to change trade practices he believes are hurting US manufacturers. Tariffs on certain goods will rise from 10% to 25% at the start of 2019. While the tariffs help US producers competing against overseas companies, they also hurt global companies that purchase raw materials from China as part of their supply chain.

Company executives said during an earnings call that they have been preparing their plan for dealing with tariffs since the trade war began earlier this year. Mr Allan said the products affected will include mechanics tools, power tool accessories vacuums and some hand tools.

CEO James E. Loree said he is not worried about losing demand as a result of price increases because the US economy remains strong.

SBD has favourable positions against its competitors because 50% of the company's North American sales are supported by tools production from North American facilities, Mr Allan said. The company has projected a USD35 million tariff impact in 2018.

The cost-cutting measures would be completed by year-end and the majority of the pricing actions will be implemented in early first quarter 2019, according to Mr Loree.

Q3 and The Home Depot

SBD reported third quarter net sales of USD3.5 billion, a 4% increase from third quarter 2017 net sales of USD3.4 billion. Net earnings declined 9.5% to USD248.3 million from net earnings of USD274.5 million in the same period last year.

Tools and storage net sales increased 3% during the quarter due to a volume increase of more than 5% and a price increase of more than 1%. Industrial net sales increased 10%, partially due to acquisitions while security net sales increased 1%.

Its Stanley Tools subsidiary also announced that it has signed an exclusive agreement with The Home Depot for hand tools and storage products, starting in 2019. The deal includes in-store and online sales, along with the retailer becoming the exclusive retailer of Stanley's Fatmax tape measure brand.

Workwear brand expands in Australia

Irish safety clothing and workwear manufacturer Portwest is investing AUD10 million in its Australian operations.

Portwest said its latest investment will allow the company to continue its global expansion and increase its Australian workforce over the next four years. The announcement was made at the official launch of Portwest's new state-of-the-art warehousing facility in Melbourne. Harry Hughes, CEO of Portwest, told the Irish Independent:

Our vision for the company is clear, by selling more products, in more countries, through more sales people selling to more customers, Portwest will continue its strong growth. Our sights are firmly fixed on our new markets of Australia and the USA where further investments in warehousing, staff and an outstanding pipeline of new designs and innovations will drive this growth.

The company paid AUD10 million for Huski, an Australian workwear brand earlier this year, and AUD7.5 million for Melbourne-based Prime Mover Workwear in 2017.

Portwest's brand is sold in over 130 countries. The family-run business has been based in Mayo, Ireland for over a century where the now global company is run by brothers, Cathal, Harry and Owen Hughes.


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Supplier Update - HI News Vol. 4 No.8

Supplier update

Stanley invests in MTD

James Hardie names a successor for its CEO and Bosch enters the vehicle-sharing business

Stanley Black & Decker buys a 20% stake in MTD Products; James Hardie's executive in charge of international business will replace its current chief executive; Bosch will be trialling an electric van sharing service at a number of hardware stores in Germany; Boral Timber will study making renewable diesel from sawmill residue; Hillman is acquiring a safety and work gear company; and Klein Tools has taken over a manufacturer of safety products.

SBD extends reach in lawn and garden sector

Stanley Black & Decker (SBD) has entered into a definitive agreement to acquire a 20% stake in MTD Products, a privately held global manufacturer of outdoor power equipment, for USD234 million in cash.

Under the terms of the agreement, SBD has the option to acquire the remaining 80% of MTD beginning on July 1, 2021. James Loree, SBD chief executive officer, said:

This investment in MTD increases our presence in the USD20 billion global lawn and garden market in a financially and operationally prudent way. We have always viewed outdoor products as an attractive growth category for us to expand our presence beyond handheld electric products.

SBD said the partnership "significantly enhances" its existing commercial relationship with MTD, which includes the manufacture of select outdoor products under the Craftsman brand. SBD purchased the Craftsman line of tools from Sears in January 2017.

Going forward, the two companies said they will "work together to pursue revenue and cost opportunities, improve operational efficiency and introduce new and innovative products for professional and residential outdoor equipment customers, leveraging their respective portfolios of strong brands".

In an interview with earlier this year, Mr Loree said he wants "to get into the lawn and garden market in a very clever way that avoids some of the downside of the lawn and garden space".

The lawn and garden retail market is a market that is pretty competitive and seasonal, so it has those negative aspects.

Mr Loree also described his growth strategy for SBD, one that makes generous use of acquisitions.

We have pretty good luck finding deals. We have literally become the consolidator of choice in the tool industry, people just come to us with tool deals. We can afford to pay the highest price because we have the highest amount of synergy opportunities. We have a strong ecosystem internally and bankers, etc. Then we have financial screens that we apply and if they meet the needs and we can negotiate a deal then we do it. We just keep doing it year in and year out.

MTD chairman and CEO Robert T. Moll said the investment by SBD gives the companies "more tools in the toolbox". He told Crains Cleveland:

I know it's a bad pun, but it really does give us more tools to work with, with brands and technologies and complementary skills...

Mr Moll said if SBD decides to exercise its option to buy the remaining stakes in MTD, MTD will have "done our job". But the company will have to be profitable and secure its leadership position in the market, he said.

For now, the two companies are still operating independently, though SBD would have board representation at MTD.

The two companies will be able to leverage one another's retail portfolios and expand who they're selling to. MTD sells to a lot of independent retailers, which is a market SBD has not cultivated, Mr Moll said.

Overall, the investment from SBD could also affect manufacturing at both companies is by taking advantage of what Mr Moll referred to as "interesting sourcing opportunities" in terms of materials used and the sharing of technology.

Electrification is a trend in the outdoor power equipment market, and working with a company with the capacity and scale of SBD could be a benefit as MTD works to add electric power to more of its products. Mr Moll said, right now, he's seeing this in smaller products, like hedge trimmers, but he knows the time will come when the market moves toward putting electric power in larger products like lawn mowers and snow throwers.

Those are platforms that SBD doesn't have, and they are opportunities for us to change the fuel source to leverage the skills of both companies.

The deal with MTD is expected to close early next year and must be approved by regulators.

Boral Timber could make renewable diesel

The Australian Renewable Energy Agency (ARENA), on behalf of the Federal Government, has announced up to $500,000 in funding to Boral Timber to investigate the feasibility of building a "second-generation" biofuels refinery using the waste sawmill residues from the Boral Timber Hardwood Sawmill at Herons Creek, near Port Macquarie (NSW).

If the $1.2 million study is successful, the proposed biorefinery, which would cost an estimated $50 million to build, could convert up to 50,000 tonnes of waste sawmill residue produced each year into transport-grade renewable diesel and bitumen.

The sawmill residue - which includes sawdust, remnant woodchips, shavings and offcuts - is currently used for lower value uses such as landscaping and boiler fuel.

The study will consider a mechanical catalytic conversion technology, developed by Spanish-based Global Ecofuel Solutions SL, combined with the potential biorefinery at Herons Creek. It will be the first time the process would be used in a production scale facility.

ARENA CEO Ivor Frischknecht said the project further shows that big businesses are increasingly moving towards renewable energy solutions. He said:

The transport sector is a significant user of energy in Australia, with liquid fuels a key long term energy source for heavy-vehicle road and air transport since they cannot readily be electrified. Bioenergy comprises a growing proportion of Australia's energy mix, and this new technology could see residue from the production process be used to reduce Boral's reliance on diesel and bitumen derived from fossil fuels.
If this ground-breaking technology is successful, we hope to see a transition to similar biorefineries by other companies which have a waste stream in forestry or agriculture.

Boral executive general manager (Building Products) Wayne Manners said that if the feasibility study was successful, the transport-grade renewable diesel produced at the potential new biorefinery could eventually account for up to 15% of Boral's annual diesel needs.

Boral is one of the largest consumers of bitumen and has one of the largest truck fleets in Australia, using approximately 100 million litres of diesel each year.

Infrastructure boost

Boral recently posted a record annual profit, as a result of earnings from a new division in the US and an infrastructure boom that is offsetting Australia's cooling home market.

In the first full year since it bought US-based fly-ash maker Headwaters, net profit to June 30 rose 38% to $473 million, slightly ahead of analyst expectations. Total revenue rose by a third to $5.9 billion.

In Australia, Boral posted double-digit gains in revenue for concrete and asphalt, its biggest earners because of major roadmaking projects along the east coast.

The result underscored how the company's exposure across the building sector, from renovation supplies like roofing to pouring concrete at freeways, has insulated it from a downturn in home construction. Boral chief executive officer, Mike Kane, said:

Volumes from commercial, infrastructure and major projects activity, and margin improvements are expected to more than offset the impacts of a moderating residential construction sector.

Single-family homebuilding in the United States hit its highest level in a decade during the financial year, and while it has slowed a little, Boral expects renovations to drive continued demand for its products.

The a recent weakening of the Australian housing market some economists warning of heightened risks of a downturn. But a road and railway building boom, driven by state government asset sales, is driving steady demand for concrete.

Boral expects growth from all its businesses in 2019, with strong housing starts and benign weather expected to lift core earnings in North America by at least 20% and margin improvements expected in Australia.

Bosch van-sharing business with hardware stores

Bosch is launching an electric van-sharing service in partnership with DIY chain toom, a subsidiary of German retail group Rewe. With 370 stores, toom is a significant player in the home improvement industry in Germany.

From December 2018, it will take just a few clicks or taps via an app for customers at five selected toom hardware stores to directly book an electric van on site, and take items such as stone slabs, timber and outdoor furniture home with them.

The van-sharing service will initially be tested in Germany, at stores located in Berlin, Frankfurt, Leipzig, Troisdorf, and Freiburg. Wolfgang Vogt, toom's managing director for finance and personnel, said:

As a company committed to sustainability, we are always eager to constantly improve our contribution to environmental protection. We're therefore very pleased that we can now offer our customers an eco-friendly way of taking their purchases home.

At these stores, charge spots are already in place for the small electric vans, which are provided by StreetScooter. Vans can be returned to the same station that the shopper picked them up from. Bosch supplies the powertrain components for these vehicles. Users will pay a flat hourly rate that includes mileage and battery recharging in a completely digital process.

Bosch is already well versed in the sharing services business, as demonstrated by Coup, its rental service for electric scooters. Since its launch in 2016, Coup has constantly expanded, and now has a fleet of 3,500 scooters in Berlin, Paris, and Madrid.

In its Coup and van-sharing schemes, Bosch has opted exclusively for electrically powered vehicles. Dr. Rainer Kallenbach, president of the Connected Mobility Solutions division at Bosch, said:

Bosch is growing with digital services for urban mobility. A service for sharing electric vans has huge potential for growth. Fully electric driving is ideal for urban mobility - whether that means downtown delivery traffic or individual mobility in major cities.

Bosch believes that shared electric vans have scope for application outside the hardware retail sector. If the new sharing service proves popular, Bosch plans to expand it to furniture stores, supermarkets, and electronics stores.

Home improvement giant IKEA said recently that it plans to introduce home delivery by electric vehicles in Europe, US and China.

James Hardie confirms succession

Jack Truong, president of international operations at James Hardie, has been chosen to succeed Louis Gries as chief executive. Dr Truong, who currently heads the firm's Asia Pacific fibre cement business and the Europe building products unit, will become global president and chief operating officer for a six-month transition period as Mr Gries winds down his 13-year span in charge of the building materials supplier.

Dr Truong's appointment as chief executive will become effective toward the end of the firm's 2019 fiscal year, at which time Gries will leave the board, the firm said in a statement.

A former chief executive of Electrolux North America, Dr Truong has held his current role since April last year. Chairman Michael Hammes said:

Jack offers the ideal combination of commercial expertise, operational excellence, and leadership in order to continue to grow the business and maintain the industry-leading performance, across multiple geographies, established by Louis over a long period.

Mr Gries, who has been at James Hardie since 1991 and became CEO in 2005, said the establishment of a compensation fund for asbestos victims in 2007 was a highlight of his tenure.

The fund was established after the original fund James Hardie established for those suffering from exposure to asbestos in its products was found to be underfunded by more than $1 billion, attracting court action by ASIC.

Profit jump

James Hardie said its first-quarter profit grew 29% on a stronger US dollar and demand from US house buyers, and flagged further growth in its 2019 earnings.

Adjusted operating profit was USD79.9 million for the three months to June 30, up from USD61.7 million a year ago. Operating profit excludes one-off items like the company's compensation payments to people claiming asbestos-related illness.

The company said it expects adjusted net operating profit to be between USD300 million and USD340 million in fiscal 2019, compared to USD291 million in fiscal 2018.

The company makes most of its revenue in the United States, and benefited from a surge in new US home sales in April and May, although housing sales cooled in June.

The company's North America Fiber Cement segment achieved a 10% rise in sales, and benefited from increased sale prices. It said it expects earnings from the segment to be at the top end of its 20 to 25% growth range in 2019.

James Hardie's unadjusted net profit for the quarter rose 58% to USD90.6 million. The company attributed the jump chiefly to its closing of the Fermacell acquisition, which was incorporated into its first quarter results.

Hillman gains glove company

Hardware solutions supplier, Hillman Group has entered into a definitive agreement to acquire Big Time Products, a provider of personal protection and work gear products. Hillman president and CEO, Greg Gluchowski, said:

With the addition of Big Time, Hillman will expand its portfolio of product solutions for both DIY and pro customers...

The acquisition will enable Hillman to expand into adjacent categories with Big Time's products in the hardware, automotive, garden, and cleaning industries that include work gloves, household gloves, knee pads, tool rigs and aprons, and job site storage. Big Time's products are sold under its portfolio of brands such as Firm Grip, AWP, McGuire-Nicholas, Grease Monkey, and Gorilla Grip.

The transaction is subject to customary closing conditions and receipt of required regulatory approvals.

Klein Tools expands into safety category

US tool maker, Klein Tools has acquired Ergodyne, a manufacturer of safety work gear.

Founded in 1983, Ergodyne spent the last three decades developing products that Make the Workplace A Betterplace[tm]. What started with one product has grown into a line of Tenacious Work Gear designed to provide protection, promote prevention and manage the elements for workers on jobsites.

Tom Votel, president of Ergodyne, said the timing was right for the consolidation - a healthy US economy and a desire to grow the business compelled the agreement.

Klein Tools is family-owned and was established in 1857. Co-president, Tom Klein Jr, said:

Ergodyne and Klein Tools have much in common, including our commitment to innovation, safety, our customers and our reputations for producing high-quality products. We believe that our combined resources and expertise will enable us to grow more quickly together than we could have separately...

Together, Klein and Ergodyne plan to expand their brands and leverage their combined expertise, years of experience and industry know-how to accelerate innovation in the safety products space.

Ergodyne is a subsidiary of Tenacious Holdings Inc. Its current lineup includes ProFlex(r) Hand Protection, ProFlex(r)Knee Pads, ProFlex(r)Supports, Skullerz(r) Head Protection, Skullerz Eye Protection, Trex[tm] Footwear Accessories, Chill-Its(r) Cooling Products, N-Ferno(r) Warming Products, GloWear(r) Hi-Vis Apparel, Squids(r) Lanyards, Arsenal(r) Gear and Tool Storage and SHAX(r) Portable Work Shelters.


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Supplier Update - HI News Vol. 4 No.7

Supplier update

Stanley makes a play for heavy industrial equipment

Swiss-based PU manufacturer is now part of Sika and Methven expansion in China

Stanley buys maker of heavy equipment attachments; Sika acquires specialist foam systems company; Methven has a Chinese deal for its shower technology; Hilti wins Red Dot awards for product design; and a new pipe and drainage laser from Imex.

Stanley invests in industrial tool unit

Stanley Black & Decker (SBD) said it will pay USD690 million for a manufacturer of heavy equipment attachment tools, its third acquisition in two years.

The acquisition of International Equipment Solutions Attachments Group (IES Attachments) will diversify the company's presence in industrial markets and establishes another "well-defined path for continued profitable growth" according to chief executive officer James M. Loree.

IES Attachments' brands include Paladin, which makes excavators, wheel loaders, tractors and truck chassis; Genesis, which makes specialty attachments for the scrap processing, demolition, material handling and decommissioning industries; and Pengo, a manufacturer of augers and related parts for the utility, construction and agriculture markets.

Mr Loree said the brands generate about USD400 million in annual revenue, of which nearly two-thirds comes from after-market sales of heavy-tool attachments, like drilling augers, used in off-highway construction

The IES Attachments acquisition will be integrated into SBD's hydraulic tools business in its industrial segment. It is expected to add US25 cents to US30 cents in earnings per share by 2022. SBD posted USD8.04 in earnings per share last year.

The deal, which must be approved by regulators, will be paid for by available cash and proceeds from borrowing.

Q2 organic sales growth

SBD's 2018 second quarter financial results was led by continued double-digit sales growth year-over-year (YoY), including an acceleration in organic growth powered by its tools & storage segment.

The company posted total Q2 sales of USD3.64 billion, up 10.9% YoY, and up 13.5% from Q1's USD3.21 billion. SBD had approximately 7% organic sales growth in Q2, with strategic pricing actions responsible for one percentage point of that, volume comprising +6%, acquisitions at +3% and currency at +1%.

The company's Q2 profit of USD293.6 million also improved from USD277.6 million a year earlier and USD170.1 million in Q1. Gross margin of 35.3% in Q2 was down from 36.9% a year earlier and 36.3% in Q1, while Q2 operating margin of 13.2% was down from 14.3% a year earlier and up from 11.8% in Q1.

SBD's Q2 sales and profit numbers both exceeded Wall Street expectations.

It also announced the completion of the buyback of USD300 million more of its common stock, bringing its year-to-date repurchase total to USD500 million.

Sika acquires Swiss manufacturer

Sika has agreed to acquire Polypag, a Swiss-based manufacturer and developer of polyurethane foam systems. This acquisition will enhance Sika's expertise in the area of polyurethane foam development, expand its production capacity, and drive forward its specialist trade business.

Polypag was founded in 1980. Last year, it recorded annual sales of some CHF40 million (Swiss francs), with a workforce of 120 employees.

Foams based on polyurethane are used in professional construction applications as well as the DIY market. Sika EMEA regional manager, Ivo Schadler, said:

The acquisition of Polypag will significantly strengthen our sealing and bonding business. The combined technological and development expertise will open up new cross-selling opportunities. Moreover, by expanding the specialist trade business we will drive market penetration and establish growth platforms for both companies...

Sika's H1 profit

The company also reported a better-than-expected profit for the first half of the year recently, the first set of results since it settled its long-running feud with Saint-Gobain.

Sika said its net profit rose 11.4% during the first six months to CHF318.2 million, or AUD440.38 million, from CHF285.7 million (AUD395.62 million) a year earlier, beating analyst forecasts for CHF310 million (AUD429.06 million) in a Reuters poll.

The company said sales rose 16%, from CHF2.99 billion (AUD4.13 billion) to CHF3.47 billion (AUD4.80 billion), and said it was still on track for a more than 10% rise in sales to CHF7 billion (AUD9.68 billion). Sika expects EBIT and net profit to increase at a slightly higher rate than sales in 2018.

Sika repelled a hostile takeover bid from Saint-Gobain earlier in May 2018 after being locked in a bitter battle with the French construction materials company for three-and-a-half years. Under a settlement, Saint-Gobain dropped its plans to take control of Sika by buying the founding family's controlling stake. Instead, it agreed to take a 10.75% holding and not make a tender offer for Sika for at least six years.

Since then, Sika has adopted a simplified share structure and abolished the dual share scheme which enabled the takeover attempt to be launched.

Methven's China deal boosts share price

Tapware and showerware specialist, Methven's shares lifted 5% after it announced a deal with China's Jiangsu RuiZhiShang Building Materials Company to use its shower technology in a series of key projects over the next decade. In a statement to the stock exchange, the New Zealand-based company said:

By adding Methven showerware and tapware into RuiZhiShang's projects, Methven is targeting annual sales of between NZD8.5 and NZD10.5 million by 2020/21.

Methven is pursuing international growth in countries like China as it seeks to benefit from its investment in proprietary shower and tap technology. The Kiwi firm increased Chinese sales to NZD507,000 in the six months to Dec. 31, 2017, from NZD81,000 a year earlier, delivering earnings of NZD3,000 compared to a loss of NZD89,000 a year earlier. The company said it was in final negotiations with a number of new distributors to expand its presence in China.

Methven chief executive David Banfield said the company has delivered over 1 million Chinese yuan, or NZD217,000, in sales per month for the last four months and this current deal together with a national retail distributor it signed in March "further secures consumers' confidence in our brand, and enables us to deliver long-term profitable growth in China". He said:

The opportunity to bring our award-winning showerware and tapware into hundreds of premium hotels and high-end apartments allows us to tell our compelling brand and technology story to discerning Chinese consumers.

RuiZhiShang was set up in 2001 in China and specialises in supplying bathroom fittings. According to Methven, it signed its first distribution agreement with the company in November 2017, and they quickly brought Methven products into two large projects right after that.

Hilti wins product design awards

This year's Red Dot Design Award competition awarded the Hilti TE 50-AVR combihammer as the winner in its category. Judges cited the tool's "pioneering design". The tool provides improved performance at a lower weight than previous generations of the tool and features an optimised slip clutch which provides added user safety.

The sixth generation of the Hilti toolbox also received a Red Dot Design Award. It is equipped with a swivel handle, allowing two toolboxes to be easily carried in one hand, and a new interior which can be individually configured to hold various accessories.

Other Hilti products receiving Red Dot Awards include the range of cordless cutting tool, pipe crimper and punching tool. The TE 6- A36 cordless rotary hammer also received an award.

The Red Dot Design Award is a well-regarded international product design award. Submissions are assessed based on a criteria that includes innovation, ergonomics, functionality and quality.

Laser for major pipe works

Leading Australian supplier, Imex has released its latest technology pipe and drainage laser which combines a number of innovative features that increase efficiency and function for the professional civil contractor.

The new IPL3 series comes in both red and green beam and has a wireless remote setting. It auto tracks the target plate and fits in a 100mm PVC pipe.

This laser is also powered by an 8Ah lithium battery with a USB charging port - an Australian first - and is IP68 fully submersible for the harshest conditions.

A modern use for these pipe lasers is the setting up of columns for solar farms. To meet the needs of this new market, the Imex IPL3 has a unique lock-out grade mode which keeps the beam steady even when working in conjunction with pile driving.

The laser is set remotely via the remote control unit which can be used 100m away from it. The IPL3 has a working range of 300m at 1.5mm @30m accuracy.

The accompanying kit includes three target plates for different sized pipes, five different metal leg sets to suit pipe sizes from 100-500mm, a recharger and a USB charger and a remote. Main features include:

  • 300m range
  • Fits 100mm PVC
  • Auto tracks target plate
  • A -20% to +40% gradient
  • Lock-out grade (for solar farm pile driving)
  • 8 Ah lithium battery
  • IP68 fully submersible
  • 1.5mm @30m accuracy
  • LCD display remote - 100m pick-up from unit
  • Also included is a five-year warranty from Imex, the first calibration free and standard Calibration Certificate. For more details:

    Imex Lasers Australia homepage

    Metcash results FY2017-18

    Food lags, but liquor and hardware lift

    Metcash has done a great job integrating the Home Timber & Hardware Group with Mitre 10 to form the Independent Hardware Group

    Australian food, liquor and hardware wholesaler Metcash released its results for its FY2017/18 (ending 30 April 2018) on 25 June 2018.

    As has become standard practice with Metcash, we will present the results in two sections. This first section will deal with the information that is available, which includes the ASX announcement and financials, plus the slides from the presentation. Hopefully the number 112 company on the ASX 200 will manage to publish the presentation recording before August 2018, and HNN will bring you analysis of that.

    Metcash has produced results that were somewhat mixed. While it performed well operationally, the company was forced to take an impairment on goodwill and other net assets of $345.5 million. This was announced to the Australian Stock Exchange (ASX) on 6 June 2018. The ASX release stated, in part:

    These impairments follow the company's year-end review of the carrying value of its assets. The review has taken into account the information contained in Metcash's ASX release on 28 May 2018 concerning Drakes Supermarkets in South Australia, as well as weakness in the Western Australian economy and the ongoing intensity of competition in the sector.
    The impairment charge comprises $318 million of goodwill and other intangibles, and $34 million of other net assets in the Supermarkets & Convenience pillar.

    As a consequence, Metcash's statutory profit was negative, at $149.5 million. Using Metcash's stated numbers for underlying profit after tax, the result was $215.6 million, up by 10.7% on the figure for the previous corresponding period (pcp), which was FY2016/17.

    Overall Metcash group sales grew by 2.4% on the pcp to reach $14,463.7 million (4.3% based on a 52 week for the pcp).

    In terms of earnings before interest and taxation (EBIT), the company reported this at $332.7 million, up by 9.2% on the pcp. The company also reported a strengthening of its balance sheet, positive to $42.8 million, as compared to net debt of $80.8 million for the pcp.

    Metcash signalled an off-market share buyback valued at circa $125 million.

    Revenue for the company's food business fell by 3.1% to reach $8899.6 million, (1.2% based on a 52 week pcp) while the division's EBIT was broadly flat, recording an increase of 0.3% to $188.6 million. Liquor recorded a sales increase of 4.0% compared to the pcp (5.7% based on a 52 week pcp), coming in at $3465.5 million, with EBIT at $68.4 million, up by 2.0%.


    Metcash's Independent Hardware Group (IHG) was certainly the star of its FY2017/18 results. The pcp benefitted from only seven months of sales and EBIT from acquisition of the Home Timber & Hardware Group (HTH) on 2 October 2016, so the comparative annual results are not truly indicative of operational performance. Revenue came in at $2098.6 million, up by 30.45% on the pcp (33% based on a 52 week pcp), while EBIT was $69.0 million, up by 42.7% on the pcp.

    However, it is possible to compare the numbers for the second half (H2) of the pcp with H2 of the current reporting period, as both periods reflect six months of HTH integration. Sales for H2 of the current period were $1034.4 million, while for H2 of the pcp they were $1027.2, indicating an increase of 0.7%. Adjusted to cancel out the effect of the 53rd trading week in the pcp, sales for H2 of the pcp would have been $996.9 million, indicating an increase in revenue of 3.8%.

    In EBIT terms, the current H2 produced $41.9 million, while the pcp H2 produced $36.0 million, indicating an increase of 16.4%. The EBIT result is obviously very welcome to Metcash, but is likely to largely reflect one-off gains through integration efficiencies. Nonetheless, it does demonstrate that IHG has integrated Mitre 10 and HTH successfully. The company's presentation for IHG indicates it has achieved "gross realised synergies" during the current period of circa $20 million.

    Like-for-like (comp) sales provide a good view of true operational performance. Metcash states that Mitre 10 saw a comp increase in wholesale sales of 6.0%, while HTH recorded a comp increaes of 3.4%. Overall comp sales for the IHG banner group rose by 7.4% (across 104 stores).

    Total wholesale sales were posted as gaining by 5.3%. Mitre 10 saw a lift of 8.6% over the pcp, while HTH gained 1.9%. (Wholesale sales include sales by Mitre 10 and HTH to both independent retailers and company-owned stores, the company states.)

    The company also states that the "wholesales sales margin" for IHG was 2.4%, which we take to be a reference to the EBIT margin. The company states that its weighting to trade sales is now 63%, and that this increase (from around 60% previously) reduced these sales margins.

    The overall EBIT margin for hardware operations was 3.29% in the current period, compared to 3.01% in the pcp. For the current period's H2 it was an impressive 4.05%, compared to 3.50% in the H2 of the pcp.

    The company pointed to a number of developments, including the introduction of Hardings Plumbing into New South Wales and Tasmania, and the opening of four new trade-focused stores. It also states that its "core ranging" program, which defines preferred suppliers, has extended to five categories: fasteners, paint, power tools, hand tools, and cement.

    IHG provided more detail on its continued rollout of its premium store fitout for Mitre 10 stores, known as the Sapphire program. It states this continues to increase sales revenues at participating stores by over 15%. To date, 30 stores have participated, and the company plans to have circa 200 stores in the program within five years.


    The importance of its hardware "pillar" to Metcash can be seen by the fact that while the division is a long way third in terms of sales revenue, it has now moved up to being second in terms of EBIT. Contrasted with the heavy price warfare of both the food and liquor businesses, hardware still manages to return reasonable margins.

    That is despite hardware facing the same basic challenge that food and liquor face: competing against large, well-run retailers from the Wesfarmers group.

    However, there is a good chance some of this might change. As HNN reports in this issue, Bunnings is planning to ramp up its already considerable presence in the commercial/trade sector of hardware. HNN estimates that the Wesfarmers-owned big box retailer could take out an additional $2 billion from this sector over the coming three years.

    The problem facing IHG in these circumstances is a little reflective of that which Woolworths believed itself to face in competing with Coles, and which led it to launch its failed Masters Home Improvement big-box retailer. Woolworths saw Bunnings as providing a lot of EBIT which Coles could then invest in growth. Bunnings today has such a strong (and very high margin) DIY/home business, that it can afford to invest a lot in building its trade/commercial business.

    There are also evident synergies between some trade businesses and consumer business. A good example is the great business Bunnings has built in association with Kaboodle over the years. It provides a very good consumer-level revenue stream, but it also has helped tradespeople establish kitchen businesses. It's easy to see how Bunnings can extend that business, as it has suggested, into bathrooms, outdoor deck living spaces, and even other rooms in the house.

    That simply isn't the case for Metcash.

    Hardware is, in terms of the Metcash strategy (in HNN's opinion), supposed to do exactly what it is doing: generate a very good EBIT margin to fuel further investment in food and liquor. If Bunnings simply manages to curtail further growth for IHG below $2.2 billion in sales and $72 million in EBIT over the next three years, Metcash may be led to rethink its position in IHG.

    For individual hardware retailers faced with choosing a buying group solution to face the future, the questions to be asked are about the effectiveness of IHG's warehouse-based core ranging strategy, and the relevance of the kind of branding that IHG has to offer.

    It is certainly true that IHG has managed to achieve some attractive prices across its core range brands, very close in many cases to the pricing at Bunnings for comparable items. It is simply difficult to predict whether this will last, once Bunnings turns its full attention to many of these categories. IHG then runs the risk of having invested considerable time and effort on a specific strategy - price on familiar brands - which might not help it grow as much as it expects. At the moment this is unclear, but two years from now we will see an answer.

    In terms of the value of the Mitre 10 and the HTH brands, this is difficult to assess. The question that will be raised in the years to come is, what does that brand (and all others in hardware) really represent? HNN believes that one very important component will be what kinds of technological and other assistance the brand promises tradespeople (and DIYers). Bunnings, for example, is moving to providing a kind of automatic checkout for commercial customers using its PowerPass loyalty/credit card. IHG may, in another year, be able to match that - but what about the next development, and the one after that?

    Putting those concerns aside, IHG has managed to achieve some great things with its Sapphire program. While early Sapphire stores seemed "sterile", more recent ones - such as the corporate-owned Danahers in Heidelberg, Victoria, and the Diamond Valley store in Diamond Valley, Victoria - are very good stores, with excellent merchandising, and very competent, friendly staff.

    Even with that, however, at its heart the core difficulty with the warehouse-based, price-conscious, brand-promoted business model that IHG has adopted is that it tends to mitigate against radical innovation. IHG's strategy is something of a bet that the Australian home improvement retail industry will, for the next three or four years, go along the same path it has for the past 15 years or so, with only moderate innovation, and a steady reliance on the "tried and tested".

    That could turn out to be a very good gamble, given the industry's surprising resistance to change. But it is almost as likely that this kind of model will experience an increasing, cumulative pressure to either expand into growing areas of consumer demand, or risk declining in profitability.

    What is undeniable, whatever risks IHG may face in the future, is that IHG's management team has done an excellent job in integrating HTH with Mitre 10. Considering how many such acquisitions have failed, or taken three years to complete, this is a praiseworthy achievement.


    Supplier update

    New chief executive at Fletcher Building Australia

    Reece Group grows presence in NZ and Wesfarmers joint venture with online sportswear company

    Fletcher Building consolidates Australian operations and installs new CEO; Reece snaps up New Zealand plumbing businesses; Wesfarmers's workwear division takes equity stake and forms joint venture with digital business; Reliance buys UK plumbing fittings maker; German manufacturer Knauf takes over Chicago-based USG; Stanley Black & Decker partners with wireless charging startup; and more brands to be distributed by Briggs & Stratton Australia.

    Fletcher's Australian operations gets new boss

    New Zealand's Fletcher Building has consolidated its Australian operations into one division and appointed Dean Fradgley as the new division's head. He was previously chief executive of distribution for the company.

    Fletcher is bringing all of its Australian businesses, which combined generate 30% of Fletcher's total revenues, under the one roof to be managed by Mr Fradgley. They include Tradelink plumbing and bathroom supplies, Iplex pipes, Rocla concrete, Stramit steel products, Tasman Sinkware and Fletcher insulation, and together generate about $3 billion in sales annually.

    Chief executive Ross Taylor has a five-year strategy for rebuilding Fletcher using a simplified model where it will concentrate on improving its New Zealand and Australian operations after a cost blowout crisis in its NZ commercial construction business which suffered AUD1 billion in writedowns.

    Mr Taylor believes the Australasian businesses have room to grow market share. He said:

    As we announced to the market in April, we have made the decision to focus our portfolio by divesting our Formica and Roof Tile Group businesses and focusing our capital and capability behind the New Zealand and Australian markets.
    While we don't expect these markets to experience the same levels of growth they have seen in recent times, we do expect them to remain stable and, with only 15% share of the New Zealand market and 1% in Australia, there is plenty of opportunity to deliver more from our existing operations.

    He has plans to double profit margins from Fletcher's Australian building products operations by 2023.

    Mr Taylor also expects the broader Australian residential construction market to shrink marginally in 2019 and 2020 because of falling demand for apartments. However this would be more than offset by the infrastructure boom on the eastern seaboard of Australia.

    Reece portfolio grows with NZ businesses

    Plumbing and bathroom supply company Reece has acquired New Zealand plumbing business Edward Gibbon and Zip Plumbing Plus stores.

    The company has also agreed to acquire Heatcraft's New Zealand operations from Swedish company, Beijer Ref. Heatcraft is a supplier of wholesale refrigeration. This move expands Reece's footprint across the north and south islands of New Zealand from 11 to 18 locations.

    Edward Gibbon has 10 stores in the main centres of New Zealand's south and north islands, while Zip Plumbing has Christchurch and Takanini stores. Under the agreement the business's existing management will remain in place for the immediate future, with completion expected towards the end of July.

    Wesfarmers workwear JV seeks to disrupt category

    The Workwear Group (WWG), a subsidiary of Wesfarmers Industrial & Safety, has acquired an equity stake in ONTHEGO (OTG), an online retailer of customised uniforms and sports apparel.

    Under the deal, WWG will become another minority shareholder with others that include construction company Doma Group, Chris and Bob Cameron from Rockcote, and TakeABreak co-founder Craig Davis, now CEO of the GRIFFIN Accelerator, and snow sports retailer Neil Ritchie.

    ONTHEGO founder Mick Spencer, who started printing customised jerseys in the garage of his parents' Canberra home while still at university almost eight years ago, said the joint venture would boost the company's revenues to more than $10 million a year.

    WWG, which owns Neat & Trim Uniforms and the Hard Yakka and King Gee brands, will white label ONTHEGO's software. Under a joint venture and profit-share agreement, orders generated through WWG's sales team and its website will be fulfilled by ONTHEGO.

    WWG chief executive Doug Swan said the upfront investment was small in the context of Wesfarmers but ONTHEGO's model - on-demand manufacturing, personalisation and a digital supply chain - could disrupt the uniform and workwear sector by slashing inventories and dramatically improving speed to market. He told Fairfax Media:

    I personally feel that that type of model is potentially the way of the future ...There's almost an element here of keep your friends close and keep your enemies closer. If we can learn from Mick how he's doing it and we can replicate that with our business I think we have an opportunity to transform the uniform industry.

    Mr Swan said there was also scope to take ONTHEGO's model into other Wesfarmers divisions and to other retailers by, for example, setting up kiosks in Officeworks, Bunnings or Rebel Sport, where customers could order and design customised uniforms, sports apparel and team clothing online. He said:

    Longer term it's got big implications for how we can take the core brands King Gee and Hard Yakka to market ... We could have kiosk in resellers like Totally Workwear, where a tradesman comes in and he needs uniforms for his team and he can design it and we can deliver it to him in three weeks - it has far-reaching ramifications.

    Reliance expands into Europe

    Plumbing products maker, Reliance Worldwide Corporation has completed its acquisition of UK based fittings manufacturer, John Guest Holdings. The company will fund the acquisition with a $1.1 billion equity raising and extended debt facility of $750m with existing lenders.

    It now intends to step up in the European market using John Guest as the platform making strong headway in the USA with its Sharkbite brand of push-to-connect plumbing fittings. They are sold in Lowe's and Home Depot.

    Reliance chief executive Heath Sharp said John Guest, which employs 1300 people and has three large manufacturing plants in the UK, was strong in plastic push-to-connect fittings, which were popular in Europe, compared with the US where brass versions of the product were steadily increasing in penetration. Reliance makes brass the brass versions.

    Mr Sharp said plastic push-to-connect fittings were more accepted in the UK for historical reasons, partly to do with the lower water pressure in the pipes.

    John Guest, is reporting profit margins of more than 30% from sales of 145 million fittings in calendar 2017, mainly under the John Guest and Speedfit brands. It services the plumbing, heating and industrial markets with distribution facilities in Germany, France, Italy and Spain.

    Reliance aims to extract $20 million in synergies annually once the business is fully integrated, but Mr Sharp said the company's main goal was to harness the growth. He told Fairfax Media:

    They're doing a lot that's right. The number one goal is to retain the revenue.

    Mr Sharp said Reliance had been a supplier in components for under-floor heating to John Guest for more than a decade, and had been looking to potentially buy the business in 2016 but John Guest aborted a formal sale process then, in which others were also interested as potential acquirers. When the opportunity emerged again, Reliance took advantage.

    Reliance currently generates 70% of its sales from North America and operates 12 manufacturing facilities around the world and this will expand to 15 with the acquisition of John Guest.

    Mr Sharp said John Guest was an ideal fit and its products could be successfully leveraged through Reliance's established North American and Asia-Pacific distribution channels. The company is already working on a "100-day" integration plan, using a similar template as it used in the smaller acquisition of the Holdrite business in the US in mid-2017.

    Reliance said the transaction is expected to be more than 20% accretive to earnings per share on a 2018 financial year basis, before synergies.


    Reliance is acquiring Holdrite - HI News, page 40

    Knauf's deal to buy USG for USD7b

    German manufacturer Knauf has agreed to buy Chicago-based USG for USD7 billion. The transaction, which is expected to close in early 2019, brings together two major building materials companies.

    Under the terms of the deal, Knauf will pay USG shareholders USD44 per share, which represents a 31% premium.

    The proposed merger was unanimously approved by USG's board. Berkshire Hathaway, which owned 31% of USG's shares as of June 11, has agreed to vote its shares in favour of the transaction.

    Warren Buffet, Berkshire Hathaway chairman and CEO, is now exiting USG, an investment he made in 2001 with a loan to the then-bankrupt company.

    USG filed for Chapter 11 bankruptcy protection in 2001 amid spiralling costs for asbestos-related injury lawsuits. The company emerged in 2006 with a reorganisation plan that included funding an asbestos trust to compensate claimants.

    In 2008, Berkshire Hathaway bailed out USG during the housing crisis by buying USD400 million of the company's debt, converting much of it to common stock.

    Privately held Knauf already owns nearly 11% of the outstanding USG shares and has been pursuing the acquisition since last year. In March, USG rejected a USD42 per share bid by Knauf, sparking a shareholder revolt led by Mr Buffett.

    Knauf is financing the current deal from existing cash and committed debt.

    Founded in 1902 as United States Gypsum, USG had 6,800 employees and annual sales of USD3.2 billion as of last year. Knauf generated more than USD8 billion in revenue and employed more than 27,000 people last year, according to the company.


    Knauf's offer to buy USG is rejected - HI News, page 26

    Stanley invests in wireless charging startup

    Stanley Black & Decker is investing, through its Stanley Ventures affiliate, in the Israeli wireless charging startup, Humavox. According to a statement:

    With Humavox technology, everyday objects can turn into 'hidden chargers' including anything from car cup holders and gym bags, and more. The company's technology uses near-field radio frequency charging to transform any of such 'storage instrument/device/object' into a charger, so that users can keep using their portable electronics fully powered.

    The companies did not disclose the amount of Stanley's investment in the Israeli firm. But as part of this strategic partnership, Stanley Black & Decker is the lead investor in Humavox's current funding round.

    Humavox was founded in 2010 by CEO Omri Lachman and vice president of innovation Asaf Elssibony.

    This cooperation signals a significant step in Humavox's progression into the commercial and industrial space. It will help Humavox make wireless charging more feasible and readily available to a wider range of products.

    Briggs & Stratton to distribute more OPE brands

    Yamabiko Corporation said it has entered into a memorandum of understanding (MOU) with Briggs & Stratton to distribute Shindaiwa and ECHO branded products. The companies are finalising the agreement which is expected to provide Briggs & Stratton Australia with exclusive distribution rights in Australia, New Zealand and selected Pacific Islands. Dean Harriott, managing director of Briggs & Stratton Australasia, said:

    Briggs & Stratton is very excited about this new relationship. We see the Shindaiwa and ECHO brands as the perfect complement to our current portfolio in order to deliver a true commercial handheld range.

    Briggs & Stratton has also recently been awarded exclusive distribution for Oregon(r) and Carlton(r) branded products in Australia, by their manufacturer Blount International.

    Based in Portland, Oregon, Blount International sells its products in more than 115 countries around the world. The Oregon brand makes professional-grade replacement parts and whole goods for the forestry and lawn and garden industries, while Carlton offers high-quality saw chain, guide bars, and related accessories.


    Paint 2017-18: The movie

    Plenty of drama in the land of TiO2

    Watching AkzoNobel fend off the advances of PPG is the corporate equivalent of a Hollywood blockbuster

    For a business whose level of excitement has been oft-compared (unfairly) to the activity of watching its chief product dry, the paint industry has embarked on some pretty exciting activities over the past year. At times it has seem to come close to one of those fraught big family movie dramas of tangled marriages and divorces.

    What really kicked off the current situation was the move by US paint company Sherwin Williams to merge with fellow US paint and industrial coatings company Valspar, announced in March 2016, and completed in June 2017. That had been (in part) triggered by Sherwin William paints displacing some Valspar paints in US-based big box home improvement retailer Lowe's Home Improvement stores in early 2016.

    That merger created a company that was comparable in size to the two other leading companies in the market, the US-based PPG and the Dutch-based AkzoNobel. PPG, partly in reaction to that move, then began a process of attempting to acquire AkzoNobel, which would have created the world's largest paint and coatings company. The first proposal was made in March 2017, and offered a 30% premium on the company's share price at the time, with a total valuation of EUR22.4 billion. This was rejected, so PPG made a second bid with some improvements in conditions. Again, this was rejected. PPG made a third big, this time for EUR26.0 billion, which represented a 50% premium on AkzoNobel's share price from the previous March - and, yes, it was rejected as well.

    In the midst of this, AkzoNobel's CEO, Ton Büchner, resigned, citing health reasons. He was replaced by Thierry Vanlancker.

    There were a number of consequences that flowed from all this. The one that most recently came to fruition was the resignation of AkzoNobel chairman Antony Burgmans on 26 April 2018. He has been replaced by Nils Andersen, former CEO of the Danish shipping-to-oil conglomerate AP Moller-Maers and Carlsberg, the Dutch brewer.

    Mr Burgmans led the company's opposition to the takeover by PPG, a role which put him at odds with many investors in AkzoNobel, in particular the US-based hedge fund Elliot Management, which brought a court case to force AkzoNobel to consider the takeover offers (which it lost), and to oust Mr Burgmans. A key part of Elliot's argument was that the Dutch resistance was hypocritical, as AkzoNobel itself had grown through acquisitions, most notably of the Swedish based Nobel, and the UK-based ICI.

    PPG's offer for AkzoNobel took place immediately before a hotly contested Dutch election, and it led to calls for legislation to be enacted which would have introduced a mandatory one-year "cooling down" period for any foreign company attempting to take over a Dutch-based one. However, the law was widely ridiculed by academics and others, who pointed out that it would have a strongly negative effect on the business environment and economy of Holland.

    The real ongoing legacy of all this, however, has been a series of promises made by Mr Büchner prior to his resignation regarding a series of reforms AkzoNobel would undertake. The purpose of those promises was to present the company as one that could produce the same level of shareholder return as would have been generated by simply accepting one of PPG's offers. To quote from an article published in The Economist newspaper on 22 April 2017, entitled: "AkzoNobel, under siege, makes unrealistic promises about growth":

    The future for AkzoNobel is dazzling - if you believe Ton Büchner, its chief executive. The boss of the Dutch paint-and-coatings firm reported a solid set of quarterly earnings on April 19th, then promised a new era of rapid growth and investments. Shareholders are to get lavish dividends this year. The firm will break up its ungainly conglomerate structure. A speciality-chemicals part of the business will be sold or listed separately next year.
    Mr Büchner has no choice but to talk things up, if he is to justify rebuffing two recent takeover offers from a similar-sized American rival, PPG.
    Akzo's promises were welcome. But like a newly opened tin of paint, they made some heads spin. After years of eking out smallish gains mostly through cost-cutting, the firm is suddenly to boom. Akzo had previously forecast that returns on sales would be 11% by 2018, already well over its average of less than 9% since 2008; now the CEO promises a rate of 14% by 2020. The firm, which had revenues of EUR14.2 billion in 2016, has emerged from a difficult period. It bought Britain's Imperial Chemical Industries (ICI), the owner of Dulux paint and other products, a decade ago, absorbing it as Europe fell into a slump. The group's recovery since looks solid, but not of the sort to match Mr Büchner's bold targets. "It is a huge stretch, it looks really tough," is the verdict of Jeremy Redenius of Sanford C. Bernstein, a research firm.

    To carry on the cinematic comparison, if you were looking for an analogy for the way AkzoNobel has behaved for the past 12 months, a good one would be one of those chase scenes from a thriller movie. You know the ones, where a protagonist is chased down alleyways and through buildings, all the time knocking over file cabinets, slamming doors, rolling out garbage dumpsters in an effort to impede the progress of his or her pursuers, usually to little or no avail.

    AkzoNobel's version of this has included moves such as a mooted merger with US-based paint company Axalta, an effort which eventually failed on 21 November 2017. Had AkzoNobel completed that merger, it would have ended any effort by PPG to acquire it, as Axalta pursues many of the same markets as PPG, and the anti-trust complications alone would have caused it to fail.

    Then there is the sale of Specialty Chemicals to The Carlyle Group and GIC for EUR10.1 billion. Though with that move, some of the double-bind the company finds itself in is evident. In order to keep its shareholders satisfied, it is going to return the profits from that sale to them, which means it can't use those funds to leverage acquisitions, or fund its restructuring program.

    Meanwhile, AkzoNobel's results for its 2017 were somewhere between "flat" and "dismal", depending on which analysts you read, and it has followed that up with a first quarter for 2018 that also missed expectations.

    In its results the company promotes the many changes and new things it is creating, while downplaying these results as the consequence of "temporary headwinds", brought about by currency fluctuations and raw material price increases - headwinds which most of the rest of the industry seemed to have little trouble predicting.

    We all know how these chase scenes typically end: the three-metre high wire fence you can't climb over. In AkzoNobel's case, that is likely to be its 2018 results. We'll have to wait and see.

    Finally, of course, no movie is ever complete without that final twist, which in this case is a scandal that has broken out at PPG. It seems that financial reporting guidelines have been breached by its financial controller, Mark Kelly (allegedly), who has subsequently been dismissed by the company. Initially the error were thought to be limited to its first quarter report for 2018, where its net income before taxes had been overstated by USD7.8 million. Further investigation indicates that there were further errors amount to USD2.1 million for the second quarter of 2017, and USD4.7 million in the fourth quarter of 2017. As they say (truthfully) in the movies, it's the sort of thing that could happen to anybody.

    As for Sherwin Williams, the company has now succeeded in pushing some PPG paints out from Lowe's, though the home improvement retailer will continue to stock many of the other great products PPG makes, such as the very popular Liquid Nails. And in "turnabout is fair play", PPG has likewise displaced some Lowe's wood stain products from the archrival of Lowe's, The Home Depot.

    Sherwin Williams also enjoyed strong improvements in its overall numbers due to the consolidation of results from Valspar operations. Even without that extra, however, the company recorded good results both for 2017 and the first quarter of 2018. In the words of John G. Morikis, chairman, president and chief executive officer:

    2017 was a year of record sales, net income, earnings per share, cash and EBITDA, but it will best be remembered as the year in which we joined forces with Valspar. The enormous amount of effort and energy invested over the past seven months in bringing these two great companies together, strengthening our customer relationships, defining the right organisational structure and building momentum in every line of business is transforming Sherwin-Williams into a faster growing, financially stronger and more profitable enterprise. These efforts will continue throughout 2018 with similar effect.


    This is the first in a series of four articles on the paint category. To read the other three, please download our HI News PDF magazine by clicking/tapping on the following link:

    HI News Vol.4 No.4: Paint 2017-18: The movie

    Supplier update

    Reece Group's $1.9bn US purchase

    Gainsborough brand to be owned Allegion and CSR's products benefit from residential projects

    The US housing sector has been targeted for growth by Reece; Gainsborough Hardware and API Locksmiths sold off to Allegion; CSR believes there is a shift toward residential knock down and builds; Ardex takes a majority stake in DTA; Boral sells off "non-core" business; Portwest completes Huski workwear acquisition; Genuine tradies star on Bostik campaign; and Sika and Saint Gobain come to an agreement.

    Reece expands into US, after 10 year study

    ASX-listed plumbing products company, Reece Group has maintained a cautionary approach as it acquires Texas-based distributor Morsco for AUD1.9 billion including debt.

    Morsco generates annual sales of USD1.72 billion and is being sold by its private equity owner Advent International. It operates 172 branches along 16 states in southern United States, between the east and west coasts. The deal will double the size of the normally conservative Melbourne-based company.

    This acquisition will give Reece access to what it has identified as the fast growing Sun Belt region which includes Florida, Louisiana, South Carolina and Texas. Reece chief executive Peter Wilson said in a statement:

    It's a market that's forecast to grow at twice the rate of the Australian market and it is currently about eight times the size.

    Reece said the deal will be funded through a combination of cash and debt, adding that it will also raise AUD560 million through a stock offering. The billionaire Wilson family, which owns a majority stake in Reece and is backing the deal, will subscribe to AUD300 million worth of shares in the offering. A bulk of the funding, however, will come from an underwritten USD1.14 billion secured credit facility.

    Reece said it will operate Morsco separately from its Australian and New Zealand businesses and there would be no attempt to try and rebadge the Morsco stores. It will also retain the US management led by CEO Chip Hornsby who has been at the helm since 2011.

    It will also deploy several of its own team members to the US to help with collaboration and sharing of industry knowledge and expertise.

    Overseas markets

    As Australia's biggest plumbing and bathroom products company, Reece had run out of local acquisition opportunities where it already has a large portion of the bathroom and plumbing supplies market.

    Mr Wilson said the company has been carefully studying the US market for 10 years. It had been talking with Morsco and Advent for two years. Serious due diligence had begun in January this year. He told Fairfax Media:

    We've certainly done our homework...We're really comfortable we've got a handle on it.

    Mr Wilson said Reece had gained extra confidence about the US through its relationships in Australia with ASX-listed Reliance Worldwide, which has a big presence in the US plumbing market with its Sharkbite push-to-connect fittings.

    He said the acquisition of Morsco is a "transformational opportunity" that will drive returns for the next generation of shareholders.

    It has a strong platform across the sunbelt states. It's in the growth states.


    Reece also gave guidance for the fiscal year ending June 2018. It expects an after-tax profit of AUD223-AUD230 million, 5% higher than last year. It forecast sales of AUD2.65 billion-AUD2.70 billion.

    It said the results are driven by new branch openings, leveraging of its supply chain, investment in improving and delivering great customer service and an enhanced online offering for both trade and retail customers.

    Reece, which has a sharemarket value of AUD5.4 billion, runs 600 plumbing and bathroom products showrooms across Australia and New Zealand. It has annual revenues of AUD2.4 billion.


    Reece fortunes connected to housing - HNN

    Allegion to acquire Gainsborough, API Locksmiths

    Global security products company, Allegion has agreed to acquire GWA Group's door and access systems business through one of its subsidiaries. It includes Australian brands Gainsborough Hardware and API Locksmiths. The transaction is expected to close in the third quarter of 2018. GWA managing director, Tim Salt, said:

    The door and access systems business is strong, and we believe Allegion can maximize its potential. Allegion's global scale, innovative technologies and supply chain capabilities will enable both Gainsborough and API to further enhance their offerings to customers.

    The GWA door and access systems business generated sales of approximately AUD95 million for calendar year 2017. The business will operate in Allegion's Asia-Pacific region. Allegion president, chairman and CEO, David D. Petratis, said:

    This strategic acquisition bolsters Allegion's presence in Australia and significantly increases our scale in the Asia-Pacific region ... We're enhancing our residential presence with market-leading positions and longstanding customer relationships, all while accelerating our development of electronic security solutions. This is consistent with Allegion's growth strategy in the region - and highly complementary to our core business.

    The transaction is valued at AUD107million. Allegion plans to fund the acquisition through existing cash on hand and borrowings under its revolving credit facility. Excluding merger and acquisitions costs, Allegion expects the transaction to be slightly accretive to adjusted EPS for 2018.

    Knock down home builds help drive CSR profit

    CSR managing director Rob Sindel said an acceleration in commercial construction of hotels and aged care homes and people wanting to shift into a detached house from an apartment will drive demand in the next 12 months.

    Mr Sindel also said there was a renewed upturn recently for detached houses, particularly on the eastern seaboard.

    As a supplier of Gyprock plasterboard, PGH bricks, Hebel precast concrete blocks and panels, and Bradford insulation and storage battery products to the building market, Mr Sindel believes the company is in a solid position to make the most of this opportunity.


    Mr Sindel said housing markets had benefited from large migrant intakes over the past few years, which had fuelled strong population growth, and while many families had started off living in apartments, they were increasingly looking to upgrade to a detached house. He told Fairfax Media:

    A lot of people start off in an apartment. They want to live in a house in the suburbs.

    The demand for a detached house has been reinforced constantly by the long line-ups of people prepared to camp out to secure a block of land when they were released to the market by developers, according to the company.

    Mr Sindel said CSR had also noticed a marginal slowing in the renovations market, with more people instead opting to demolish an existing property and then build a new home on the same block of land.

    They want a new house, but they like the street.

    He believes heavy stamp duty costs were a big deterrent to moving. Once council approvals had been granted, it usually took far less time for a new build, rather than a more complex renovation. A new house might take six months, compared with a complex renovation that may run for 12 to 18 months.

    The desire for a speeded up process was also playing out in rising demand for Hebel aerated concrete blocks as a building material. Mr Sindel said the use of Hebel was growing strongly off a low base, with builders becoming more enthusiastic about it. CSR is investing $75 million to expand capacity at a Hebel plant at Somersby on the NSW central coast.

    A lot of it is being driven by the builders. It's faster and it's easier to construct.

    While many experts are predicting a softening of property prices, Mr Sindel said first home buyers would welcome it even though existing home owners liked the wealth effect from ever-rising prices.

    The only building products unit that turned in a softer annual performance was Monier roofing tiles, which experienced lower demand in Queensland.


    CSR generates about 12% of its revenues from high-rise apartment construction and while that market has softened substantially, commercial construction was gaining momentum.

    CSR had benefited from the construction of the new Optus sports stadium in Perth and from Commonwealth Games construction on the Gold Coast. But there were also improving activity levels in construction of hotels, hospitals and aged care homes.

    Energy costs are slowing down further growth on the company, jumping 12% over the past year and costing an extra $9 million.

    Former managing director of Bunnings, John Gillam, has also just become the chairman of CSR, taking over from Jeremy Sutcliffe.

    DTA majority owned by Ardex

    The Ardex Group announced it has attained a strategic stake in DTA, a quality tools, trims and machinery supplier for the wall and floor market in Australia, New Zealand and USA. DTA was established in Australia in 1976, and considered a market leader in the industry.

    Dedicated to delivering innovative, dependable products, DTA focuses on servicing the professional contractor. It will continue to operate independently from the Ardex companies in the US, Australia and New Zealand. Phillip Cozens, owner of DTA, said:

    DTA is proud to be welcomed into the fold of the Ardex Group. We anticipate building on opportunities for DTA in markets around the world.

    There are no planned changes to personnel in either company.

    For nearly 70 years, Ardex has been a significant supplier of specialist building materials and remains an independent, family-owned business with over 2,700 employees in 50 countries. Mark Eslamlooy, CEO, Ardex Group said:

    This joint venture is an exciting addition to the Ardex strategy of system solutions. The burgeoning synergies we develop with DTA will present additional value to our customers.

    Boral offloads US business, NSW property

    Boral is selling its US concrete and quarrying business for USD127 million (AUD169 million) to Brannan Sand and Gravel Company as it narrows its focus on building products in North America.

    The company said the Colorado-based business had performed well, but it was non-core to Boral's operations. Boral's CEO and managing director Mike Kane said in a statement:

    Boral's strategy in the USA is focused on growing our building products and fly ash businesses. As we continue to strengthen our core business and deliver synergies from the Headwaters acquisition, the time is right for Boral to realise value by divesting the construction materials business in Colorado.

    Boral acquired American building materials supplier Headwaters in late 2016 for USD3.5 billion (AUD4.6 billion).

    Boral expects to make a pre-tax profit on the sale of USD45 million (AUD60 million), which will be included in its financial results for the current financial year. It said the proceeds will be used to reduce debt. Boral has owned its US construction materials and quarrying operations since 2004.

    The company also expects the sale of its Prospect Masonry property at Greystanes in NSW to contribute AUD56 million to earnings for the 2018 financial year. It said the sale of the progressed earlier than expected and will provide a more detailed update at the company's investor day.

    Portwest finalises purchase of Huski

    Irish speciality clothing company Portwest has completed the acquisition of a second Australian brand as it expands its presence in the local market. It has acquired Huski for EUR10 million.

    Although Huski was acquired in October 2017, Portwest could not state the name of the Melbourne-based company due to a non-disclosure agreement.

    This acquisition is expected to more than double the Irish company's turnover in Australia and New Zealand to EUR25 million by 2019, which will represent about 10% of its business. Huski's turnover in 2017 was close to AUD10 million.

    Last year Portwest acquired Australian workwear business, Prime Mover Workwear, for EUR7.5 million.

    Financial director, Owen Hughes, said the company is looking to expand further in the Australia and New Zealand markets. He told The Irish Times:

    This [acquisition] marks an exciting new phase of development for Portwest and we look forward to expanding our reach in this area.

    Founded in 1904 by Charles Hughes as a small shop, Portwest's products are sold in more than 100 countries and it employs over 2,000 people globally.

    Portwest is run by three Hughes brothers and they have grown revenues at the firm from about EUR200,000 in 1979 to EUR126.9 million for the 12 months ending February 2017.


    Irish workwear firm expands in Australia - HI News, page 22 Workwear category dominated by UK player - HNN

    Bostik's tradie campaign

    Adhesives company, Bostik has hired two genuine Australian tradies as brand ambassadors. Mark Menagatti (aka Spaghetti) and Adrian Franchina have been given the moniker, "Bostik Boys" to represent the brand.

    According to Bostik, Menagatti and Franchina's relationship with the brand will span the next few years. The pair was introduced in a teaser video on Bostik's Facebook and YouTube pages recently.

    The campaign has launched with a television commercial, "Tradie Life'", featuring the Bostik Boys discussing what it's really like to be a tradie. "Due to TV shows, a tradie's life looks easy, but actually isn't as easy as what you think," said Mr Menagatti. The end of the commercial delivers the tagline, "Real Tradies. Not Real Actors". Anthony Voyage, marketing manager at Bostik, said:

    We wanted authentic tradies who are on the tools 24/7. Tradies who wake up before light and come home after dark. We have Bostik products in thousands of tool boxes around the country at any one time and we want our consumers to be proud of our connection.
    We hope the Australian public find this approach refreshing, informative and engaging.

    Bostik plans to build on the Bostik Boys miniseries by exploring the life of a tradie further, giving trade tips and DIY how-to guides featuring the Bostik product line.

    Saint-Gobain, Sika reach deal after takeover battle

    French building materials company, Saint-Gobain has given up its fight for control of Swiss rival Sika in return for a pay-off. This ends one of Europe's most contentious takeover battles.

    The fight for Sika had seen Saint-Gobain tied up in Swiss courts for years as Sika's shareholders and its board fought back against the takeover attempt, which was launched in 2014.

    The complex deal, first reported by the Financial Times, will see Saint-Gobain take a 10% share of Sika. The Swiss chemicals maker can secure its immediate independence while allowing the Burkard family, the heirs of Sika's founder, to exit the company.

    Under the terms, the heirs behind Sika sold their entire 17% stake for 3.22 billion francs (USD3.21 billion) - and 52% of its voting rights - to Saint Gobain, which will give up the special voting rights that were at the heart of the conflict with other Sika shareholders and management. Sika in turn bought an almost 7% holding from Saint Gobain.

    The settlement could herald fresh consolidation in the sector, with the deal freeing Sika to make acquisitions. Chief executive Paul Schuler told the Financial Times:

    With the new structure we can really explore possibilities for Sika.

    The agreement will allow Saint-Gobain to make a profit while retaining its 10% share of Sika. The companies agreed to a two-year lock-up and a six-year period during which Saint-Gobain cannot increase its ownership beyond 12.9%. Sika will also have the right of first refusal if Saint-Gobain wants to sell. Guillaume Texier, Saint-Gobain's chief financial officer, said:

    This deal...creates value for Saint-Gobain. Second, it puts an end to all of this uncertainty. That's what this does as all litigation is finished. And last, it's strategically important as we have 10% of a great company.

    Having failed to take over a market leader in adhesives and sealants, Mr Texier said no decision has been made on how long the French company will hold its stake in Sika beyond the lock-up period.

    He also indicated Saint-Gobain is ready to move on. Construction chemicals remains a strategic area of growth, and small- to medium-sized targets in markets like the US are a focus area, he told Bloomberg.


    Saint-Gobain bids for control of Sika - HNN

    Supplier update

    Is Wesfarmers buying up Fletcher's stock?

    Brickworks warns of a shift to imports and Knauf's battle to buy USG continues

    Wesfarmers managing director Rob Scott has signalled he would look for new business to drive growth and this could include Fletcher Building; Brickworks flags off-shore buying; Jeld-Wen has acquired Australian window and door maker A&L; USG said a USD5.9billion takeover offer from rival building products manufacturer Knauf is inadequate; DuluxGroup ups the ante on digital with an AI-powered digital analyst; Philips Lighting intends to change its name to Signify; QEP has purchased a Queensland-based flooring company; and Briggs & Stratton' Resilient products will be on show at the upcoming Hire & Rental event in Brisbane (QLD).

    Fletcher Building takeover target for Wesfarmers?

    There is growing speculation that New Zealand's Fletcher Building has become a potential acquisition target for Wesfarmers. Sources close to the company have told Fairfax Media that Wesfarmers has bought a stake of about 3 to 4% in the construction and industrial materials company.

    Wesfarmers is expected to chase acquisitions in its industrials division after completing the demerger of Coles. The Coles business accounts for 60% of the capital employed across the Wesfarmers portfolio so the spin-off should free up funds to invest in existing and new businesses.

    The revelation of Wesfarmers' stake in Fletcher comes as the market anticipates where it will look to expand under managing director Rob Scott. When Mr Scott announced that he would spin off Coles into a separate company sitting in the ASX top-30, he said the supermarket chain was not growing fast enough to generate the kind of returns shareholders expected.

    He said carving it out would allow the company to drive growth at its remaining businesses and look for new acquisitions that promised the kind of growth Coles delivered during its decade-long turnaround under Wesfarmer's ownership.

    The potential attractions of Fletcher as a turnaround investment would potentially fit well with Wesfarmers' stated strategy. The Auckland-based company has been in crisis in recent months after cost blowouts at a string of construction projects led to heavy losses and it breaching debt covenants with its lenders.

    Fletcher's troubled projects include the building of Auckland's International Convention Centre for listed casino company SkyCity, which Fletcher estimates will lose it $410 million on instead of an intended $400 million to $500 million profit. The project is due to be completed about six months behind schedule in mid-2019, and SkyCity has indicated it will take legal action to recoup losses from Fletcher because of the delays.

    Fletcher's building and construction division lost $619 million in the first half of 2018, and the company ran at a loss of $332 million, down from a $310 million underlying profit in the same half a year earlier.

    Fletcher's business includes making building products, including under the brands Winstone Wallboards, Altus aluminium, and the road barrier supplier Australian Construction Products. It also has a number of retail brands selling trade and plumbing supplies inducing Tradelink, PlaceMakers and Calder Stewart Roofing, which could complement Wesfarmers' Bunnings chain.

    Fletcher is dual-listed on the Australian and New Zealand stock exchanges and is one of the largest listed companies in New Zealand. It has assets on both sides of the Tasman and a market value of NZD4.1 billion (AUD3.9 billion). However Fletcher's share price has fallen 45% since January 2017 and it is considering selling assets as part of a business-wide review.

    It is likely Wesfarmers would buy stock on an anonymous basis through a nominee entity and would only have to declare its holding once its stake reached 5%.

    Sydney-based fund manager Ellerston Capital recently took on a 5% stake on behalf of a secret investor in Fletcher Building. Ellerston said its stake of Fletcher shares, worth about $214 million at their current price, were "owned by third party account under the discretionary investment management of Ellerston Capital".

    Brickworks' offshore option

    Building products group Brickworks has begun looking into shifting some production offshore as it prepares to face higher energy prices. The company has warned that the surge in gas prices will add $20 million to its costs over the next few years that it will not be able to absorb.

    Brickworks has posted a net profit of $97 million on revenue of $396.2 million for the half-year period ending March 31 2018. The profit and revenue were down 6.7% and up 7% on the prior corresponding period (pcp).

    The company has warned that activity in the building industry was being hampered by "trade shortages and a lack of titled land". Managing director, Lindsay Partridge, told Fairfax Media:

    We're looking at alternative markets such as New Zealand and Malaysia. Malaysia already has a well-developed brick sector.

    Brickworks already sources some of its bricks from Spain, where the deep economic downturn has helped to make some of this product competitive. Mr Partridge said:

    Brick prices from Spain are very cheap, and back-freight prices are also cheap.

    The company was also facing the prospect of a lack of gas supply from 2025, on present indications, he said. Brickworks has contracted gas supplies until the beginning of 2020 but with supplies for 2019 priced at "76% above where we are today", Mr Partridge said. Similarly, the company was facing steep rises in the price of electricity.

    "On the forward price curve we are facing up to an 80% increase", he said of the outlook for the price of electricity.

    Mr Partridge's warnings came as the company said it was enjoying a "full order book" across the east coast of Australia, where builders have a long pipeline of work, with little change expected through to the middle of the year at least.

    Given the size of these projects, they will take some years to complete, with the prospect of continued buoyant activity for a few years yet, he said.

    Jeld-Wen grows footprint in Australia

    Window and door maker, Jeld-Wen has completed the acquisition of A&L, an Australian manufacturer of residential aluminium windows and patio doors. Founded in 1980, A&L has a strong reputation of supporting homebuilders and contractors. It has a network of manufacturing facilities and showrooms across the eastern seaboard.

    Jeld-Wen has acquired five other Australian-based companies since 2015. John Linker, senior vice president, corporate development and investor relations, said:

    A&L's excellent position in the first-time home buyer market expands the reach of our current product range and customer base. The addition of A&L's brand name expands our portfolio of leading Australian brands and supports our strategy to build leadership positions in attractive markets. We expect to deliver synergies through operational savings from the implementation of JEM [Jeld-Wen Excellence Model] and by leveraging the benefits of our combined supply chain...

    A&L was privately held by its founders. Terms of the deal were not disclosed. Jeld-Wen expects the acquisition to add approximately AUD130 million in annual revenue.

    In another recent development, Jeld-Wen president and CEO Mark Beck unexpectedly departed the company. According to a statement, Mr Beck and the board of directors decided to part ways "by mutual agreement". Kirk S. Hachigian, who chairs the company's board and preceded Mr Beck as president and CEO, will take over as CEO while a search for a new leader continues.

    News of Mr Beck's departure comes soon after Jeld-Wen reported that revenues for the fourth quarter of 2017 grew just 0.3% to USD976 million.

    Mr Beck, who joined Jeld-Wen in November 2015, oversaw the company's decision to go public. The company launched its initial public offering (IPO) in January 2017 on the New York Stock Exchange.

    According to filings with the Securities and Exchange Commission, Jeld-Wen is No. 1 in net revenue for residential doors in the United States, Australia, Germany, Switzerland and Scandinavia. In Australia, it owns the Corinthian, Stegbar and Trend brands.

    Knauf's offer to buy USG is rejected

    German building materials supplier, Knauf is seeking to take over the Chicago-based gypsum manufacturer USG Corp. It recently called on USG shareholders to pressure it to engage in deal talks by withholding their support for its board nominees.

    USG have rejected a USD5.9 billion bid by Knauf, arguing it undervalued the company. That was despite Warren Buffett's Berkshire Hathaway, which is USG's largest shareholder, offering to sell its 31% stake at that price, if Knauf clinches a deal for the entirety of USG.

    Knauf said in a statement that voting against USG's four board nominees would send a message that the company must engage in deal negotiations. USG has a staggered board, meaning only four of its 10 directors face a shareholder vote this year. It also has a "poison pill" defence available, preventing Knauf from launching a hostile bid.

    USG said its financial and legal advisors met with Knauf's advisors in one of several meetings between company representatives. It added that Knauf's campaign against its board was a tactic to push through what it called a "wholly inadequate, opportunistic" USD42 per share cash bid.

    In the meeting, Knauf's advisors suggested that USG consider providing at least limited additional information under a non-disclosure agreement, Knauf said in a regulatory filing. USG's advisors responded that the company would not do so, according to Knauf. USG chief executive Jennifer Scanlon said in a statement:

    Knauf knows this industry well and understands that USG, with our Sheetrock brand, is the crown jewel within North American building products, and to date has not indicated any willingness to pay full value to all of our shareholders.

    Knauf has so far resisted raising its bid further. It has argued that USG's share price has "dramatically and consistently" underperformed the market, and that the company would require significant capital investment to remain competitive. It has called its bid, which infers a 30% premium to USG's 12-month average closing share price, attractive.

    Knauf also said it had not decided whether to take up Berkshire on its offer. Berkshire's proposal is unusual, structured as a six-month option contingent on Knauf buying the rest of USG. Knauf would pay a USD2 per share upfront fee, or USD86.8 million, which Berkshire would keep if the six months expired without an acquisition. The option's exercise price would equal Knauf's eventual bid for USG, less USD2 per share.

    DuluxGroup makes more use of digital

    Paints, garden care and home improvement manufacturer, DuluxGroup, is increasing its investment into machine learning and algorithmic-based virtual assistance technology by signing an expanded partnership with Complexica.

    Nine months after announcing its initial investment into the Complexica Customer Opportunity Profiler (COP) system for its trade paints, texture coatings and protective coatings business, the company will now extend usage to its group digital capability team.

    Specifically, the plan is to integrate COP, which is based on Complexica's AI-powered digital analyst and sales assistance tool, Larry, with the Adobe Campaign Platform to drive more personalised campaigns for its brands, Dulux, Yates, Selleys and Cabot's. DuluxGroup group head of CRM, James Jones, said:

    Complexica's software will enable DuluxGroup to reduce the amount of time required to generate usable insights, increase our campaign automation capability, personalise our communications based on core metrics, and close the loop on sales results to optimise ongoing digital marketing capability.

    DuluxGroup started rolling out the Adobe Marketing Cloud more than two years ago as the centrepiece of its marketing technology stack to support its digital offering to customers across both B2B and B2C brands.

    Complexica director of customer engagement, Mike Costa, said DuluxGroup is a significant customer and said his team was looking forward to expanding the relationship across the digital space.

    Our next-generation Customer Opportunity profiler will provide DuluxGroup with the seamless ability to generate personalised campaigns using the advanced machine learning and knowledge discovery algorithms within Larry, the Digital Analyst.

    Initially, the original project (COP) was designed to help automate questions for DuluxGroup's sales team around which customers to visit and prioritise and what to discuss with each customer.

    Complexica managing director, Matt Michalewicz, said the new deployment is for Dulux's digital team, which has a goal of driving personalisation into their digital communications by better understanding was is the next-best conversation to have with each individual customer.

    From there, it's then about deciding whether that personalised conversation/message should be delivered via a sales rep or via a digital channel.

    Complexica pitches Larry as a form of Siri for business, using a combination of algorithms on big data sets to help with data-driven decision making.

    Corporate name change for Philips Lighting

    Philips Lighting is changing its name to Signify, shareholder approval pending.

    The Dutch company said the new moniker originates from the fact "that light becomes an intelligent language, which connects and conveys meaning". The company, however, will continue to use the Philips brand on its products.

    The Philips Lighting stock exchange ticker will remain LIGHT.

    The name change could also reflect the move by lighting vendors such as Philips to outfit LED lights, luminaires, and the lighting infrastructure with chips and sensors connected to the Internet. Vendors hope to turn lights into valuable information nodes, and to turn the lighting infrastructure into vital information networks linked into cloud computing systems.

    This Internet of Things (IoT) strategy would then position lighting vendors as gatherers and providers of data that will help run all typed of operations.

    LEDs magazine also speculates there may be another reason for the rebranding. The company's ownership split from former parent Royal Philips contractually required an eventual change. Royal Philips spun off Philips Lighting in an IPO in May 2016, at first retaining a large share which it has been steadily reducing. Royal Philips, which today focuses on healthcare, owned 18% of Philips Lighting as of late February 2018.

    QEP expands Australian operations

    Manufacturer and marketer, QEP has acquired the assets of PR Floors, a wholesale flooring distribution company established in Queensland in 1961. It provides a wide range of branded flooring products, tools, underlays, marine sealants and accessories. Chairman, Lewis Gould, said:

    We are extremely pleased to welcome customers and associates of PR Floors to the QEP family. The addition of six locations throughout Queensland to our fifteen existing Australian Flooring Supplies (AFS) stores throughout Victoria and New South Wales creates the largest distributor of its kind with an unmatched ability to meet the needs of the professional flooring installer throughout Australia. The acquisition will add efficiency, purchasing power, operational strength and geographic reach to our AFS operation.

    QEP Australia managing director, Bruce Maclaren, said:

    We have enjoyed a relationship with PR Floors and its founders as long-time QEP customers. Through this addition, we are excited to have the opportunity to expand the range of products and services available to PR Floors and AFS customers.

    Terms of the transaction are confidential.

    Briggs & Stratton to showcase Resilient range

    Briggs & Stratton will highlight its Resilient products at the Hire and Rental Industry Association's 50th anniversary convention, HIRE18.

    The Vanguard 200 is a single cylinder, horizontal shaft commercial engine. It includes an advanced version of TransportGuard, Vanguard's exclusive single ignition and fuel shutoff designed to prevent oil dilution during transport.

    Briggs & Stratton's Elite Petrol Generator is designed to provide users with a safe and reliable solution to get power in remote outdoor locations. The heavy-duty frame protects the generator and stands up to transport while the fuel-efficient overhead valve engine starts easily and runs smoothly to maintain power requirements.

    The Ferris IS2100Z with Oil Guard is a first-of-its-kind solution for the commercial turf market. Ferris mowers with the Oil Guard System offer an increased oil capacity of 4.7 litres, allowing cooler running, longer engine life and extended service intervals.

    Billy Goat's AE1300H Hydro Aerator improves hole quantity and quality due to patent pending variable aeration density (VAD[tm]), which creates 2-10 times more holes than drum models in one pass. The intuitive hydro-drive controls allow users to feather the speed and aerate in both forward and reverse with fingertip control.

    The Briggs & Stratton portfolio also includes the Victa brand. HIRE18 will take place at The Brisbane Convention & Exhibition Centre on May 30-31 2018.


    Supplier update

    Infrastructure pushes Boral profits higher

    Adelaide Brighton upbeat about residential housing and Kubota Australia's expansion strategy

    Boral CEO said all three of the company's main divisions of Australia, the United States and Asia were "primed to take advantage of a synchronised step-up in growth"; Adelaide Brighton said there are no signs of any fall-off in demand for construction materials; Kubota Australia looks to expansion; James Hardie said it is on track to increase manufacturing capacity; Assa Abloy acquires UK-based architectural hardware firms; and Hilti to drive productivity on construction sites through digital technology.

    Boral poised to benefit from infrastructure

    Profit for building materials supplier, Boral rose 13% in the first half to $173 million, but growth was capped by significant items, including $41 million in costs of integrating the Headwaters business it bought in the US. Excluding significant items, profit was up 44% to $213.9 million.

    Revenue from Boral Australia, the company's biggest geographic division, increased by 12% to $1.8 billion for the six months ended December 31. Boral Australia generated a 12% rise in earnings before interest, tax, depreciation and amortisation to $294 million and is expected to deliver full-year growth in the high single-digits.

    Boral chief executive Mike Kane said the company would largely be in an "infrastructure play" for the next five to eight years as it fed the investment boom. Spending on roads, freeways, subdivisions and bridges in Australia is speeding up, and forecast to jump by 17% over the full year.

    "We are stretched," Mr Kane said of the infrastructure supply challenge in Australia as construction firms used rising volumes of concrete and asphalt.

    Mr Kane also said housing markets in Australia would slowly and steadily unwind from their historical highs, but this would leave Boral untroubled this time around because of its heavy exposure to infrastructure spending and an expanded geographic reach in the United States.

    Mr Kane believes new housing starts remain at strong levels even though they were six per cent lower in the first half of 2017-18 at 224,000 across the country. He said:

    I don't see a lot of speculative over-build.

    A decline in housing starts in NSW, Queensland and Western Australia in 2017-18 was being partially offset by an increase in Victoria and South Australia, largely driven in those states by increased multi-residential construction.


    Supplier update: Boral's US acquisition - HNN

    Adelaide Brighton posts full-year results

    Cement and masonry supplier, Adelaide Brighton has delivered its 2017 full year results, noting "strong demand" contributed to increased revenue.

    The company said revenue for the 12 months to December 31 jumped 11.7% to a record $1.56 billion while its earnings before interest and tax (EBIT) marginally increased 0.2% to $266.5 million. In addition, Adelaide Brighton's net profit after tax rose 2.2% to $182.1 million while its profit before tax slightly increased - by 0.1% - to $254.4 million.

    Adelaide Brighton said robust residential activity, along with increased non-residential building and infrastructure activity, had boosted its full-year performance in VIC, NSW and QLD - particularly on the latter state's Gold Coast and Sunshine Coast. It said demand picked up in SA due to major infrastructure projects and had stabilised in WA.

    The company forecast higher sales volumes for cement and clinker as well as pre-mixed concrete and aggregates during 2018. It is pushing through another round of price increases for concrete, cement and aggregate on April 1 as demand rises.

    Despite this upbeat forecast, shares in the company dropped 6.2% on 21 February, 2018 to $6.58.

    Currently market speculation is that residential activity and construction will continue at a low to moderate growth rate.

    But a strong opposing view is that actual residential commencements will continue a slow decline. This more pessimistic forecast accounts for the 6.2% decline in Adelaide Brighton shares. It is also an indication that the market does not see infrastructure construction filling the gap created by the decline in residential construction.

    However the Melbourne-based Barro family believes in a strong future for the company. As reported by Fairfax Media, it used the share price dip to try to purchase an extra 19 million shares in the company in a sharemarket raid handled by Deutsche Bank. The Australian Financial Review's Street Talk column revealed the $128 million buy-up plan, based on $6.75 per share.

    Raymond Barro is on the board of Adelaide Brighton and the Barro family is already the company's largest shareholder. If successful, the move would lift its stake to 41%.

    There is speculation that this share buy back could eventually lead to Adelaide Brighton being taken private, in a further buy-out.

    Growth plans for Kubota Australia

    Dropping "tractor" from the name has signalled change for the Australian subsidiary of Kubota Corporation. It aligns with Kubota's plans to expand and innovate its product mix.

    Kubota Australia managing director Shigeo (George) Koto told Farm Weekly the timing for the name change was fitting, with the company recently launching a new range of professional farming equipment, including the M7-1 tractor. He said:

    Over the past four decades...we have built a reputation for high performance, quality and reliability. We are so much more than tractors, and we are fully committed to the expansion of our brand. We want our name to represent the scale of our goals, the variety of our product mix, our dealer network, and customer base. We want our brand to transparently represent our intent in continuing to grow with our customers.

    Mr Koto said Kubota Australia intends to grow the company's footprint in the region. This year will see the first major deliveries of stock from Kubota's American subsidiary Great Plains Manufacturing, a sowing and tillage implement specialist. The range includes precision planters designed for broadacre machinery as well as smaller equipment suited to the European and small landholder market.

    In 2017, Kubota launched a new range of mid-sized farm tractors, including the largest tractor the company has ever made, the M7-1. At 125 kilowatt (170 horsepower), the M7-1 indicates that Kubota recognises the trend towards rationalisation of Australian farmland which means it will need to appeal more broadly than the smallholding market.

    James Hardie improves profit guidance

    Building products group, James Hardie boosted its profit guidance and lifted earnings in its key US market. The company's earnings before interest and tax (EBIT) also rose by 32% to USD143.9 million (AUD182.4 million), compared to USD108.7 million (AUD137.8 million) a year ago.

    James Hardie said net operating profit for the three months to December 31 was USD79.9 million (AUD111.9 million), down from USD87.9 million (AUD112.8 million) a year ago.

    It also booked a 9% drop in third-quarter profit after it paid down debt and recorded an increase in income tax expense.

    However its share price increased 6.8% to an all-time high of $23.65 on February 2, 2018 as investors embraced James Hardie's revised full-year operating profit forecast of AUD260 million to AUD275 million - a narrowing of the AUD245 million to AUD275 million range given in September.

    Net sales for the three months to December 31 grew nine per cent to USD495.1 million (AUD627.8 million) driven by a higher average net sale price in its North America fibre cement segment and higher sales volumes in the international fibre cement division.

    Chief executive Louis Gries said the international fibre cement division grew 15% in the quarter on the back of strong volume growth in its Asia Pacific business.

    James Hardie expects steady growth in the US housing market over the full year and said the single family new home construction market and repair and remodel market will grow similarly to the year-on-year growth experienced in the past financial year. It forecast new construction starts between about 1.2 and 1.3 million.

    Assa Abloy makes UK acquisition

    Dale Hardware and Excel Architectural Hardware (Dale & Excel), a supplier of architectural hardware to UK-based builders' merchants, is now part of Assa Abloy following its acquisition of the Progress Ventures Group.

    The are commercial synergies between Dale & Excel and the Assa Abloy Security Solutions business unit. The acquisition is expected to create opportunities for both businesses by offering a wider innovative product range to its customers.

    Both Dale & Excel will continue to operate as autonomous businesses as part of Assa Abloy Security Solutions. Neil Vann, market region manager and managing director of Assa Abloy UK, said:

    I am very pleased to welcome Dale & Excel into the Assa Abloy Group. Dale & Excel [have] an extensive product portfolio, a strong track record of growth and new innovative product development. Dale's products will extend the Union [brand] offering into the commercial market in the UK.

    In the UK, Assa Abloy is best known for the Yale and Union brands.

    Dale Hardware was established in 1974 and has its headquarters near Leeds. The business employs approximately 70 employees and 2018 sales are expected to reach around GBP19 million.

    Excel Architectural Hardware began in 2012 as a distributor of architectural hardware. It offers 2,000 specially selected products from companies such as Scrigno, Frascio and Masterlock, and has its own branded Excel range.

    Hilti driving jobsite productivity with digital

    Hilti Group has entered into a strategic partnership with mobile field management platform Fieldwire, making an undisclosed investment in the company and joining its board.

    San Francisco-based Fieldwire connects workers in the field with their counterparts in the office, promising efficient task management and real-time collaboration.

    According to the company, the typical construction worker spends only 30% of their time on actual construction work, with the remainder spent on coordination and communication. Fieldwire's software aims to give back time to those in the field by enabling them to capture, organise and access information such as up-to-date drawings and files using a mobile device, both online and off.

    The partnership with Hilti will combine Fieldwire's digital offering with the tools used on the construction site, such as Hilti's line of range meters, making them more easily accessible. By integrating digital technology with the analogue tradition, the two companies seek to empower construction workers by creating an end-to-end experience on the field. Joerg Kampmeyer, chief financial officer at Hilti said:

    Fieldwire's approach to jobsite productivity stands out in the construction tech scene and aligns very well with Hilti's mission.

    In recent years, Hilti has made major efforts to digitise the construction industry with software solutions for planning and designing fastening solutions, bringing BIM (Building Information Modelling) to the field or for asset management. Hilti is also connecting construction professionals with its experts through platforms like "".

    While digital has already revolutionised construction planning and design, the focus is now shifting toward disrupting the way people work on jobsites.


    Dulux results FY2016-17

    Profit surges 7.21%

    Dulux remains optimistic about its future, as it sees itself in a "can't lose" situation

    Australia's DuluxGroup (Dulux) has released results for its FY2016/17, which ended on 30 September 2017. Overall sales revenue came in at $1784.5 million, up by 3.97% on the previous corresponding period (pcp), which was the 12 months to 30 September 2016. Earnings before interest and taxation (EBIT) was $214.2 million, up by 6.51% on the pcp. Net profit after tax (NPAT) was $142.9 million, up by 9.59% on the pcp.

    Excluding non-recurring items, which in this case was a tax write-back of $3.1 million, NPAT was $139.8 million, a still very good boost of 7.21% on the pcp.

    In the press release that accompanied the results announcement, the company's managing director, Patrick Houlihan, noted that he expects the coming financial year to be very positive for the company. He is quoted as stating:

    Lead indicators for our key markets in Australia and New Zealand remain largely positive. Our core market, which accounts for approximately two thirds of DuluxGroup revenue, is the renovation of existing homes. We expect this market to continue to provide resilient, profitable growth.
    Subject to economic conditions, and excluding non-recurring items, we expect that 2018 net profit after tax will be higher than the 2017 equivalent of $142.9 million.

    In his opening comments at the presentation of the results to investment analysts, Mr Houlihan further commented:

    We believe that DuluxGroup is very well-placed for the future with multiple streams of opportunity. Our well established Dulux, Selleys and Yates businesses have plenty of growth in terms of their runway. Five years on from the acquisition, the Alesco businesses, being B&D Group, Lincoln Sentry and Parchem, are collectively generating a 16% return on net assets or RONA [return on net assets], and we believe they still have further upside.

    In further remarks commenting on the company's efforts to expand its business in the UK market, Mr Houlihan said:

    We are also pleased with the progress we are making in the UK with both Selleys sealants and adhesives and Craig & Rose Paint. Our Selleys Cracks Gone and Gaps Gone ranges are now in both the Bunnings stores and existing Homebase stores and we are focused on growing sales largely thorough a targeted instore ambassador program.
    During the second half we rolled out the new Craig & Rose 1829 premium range and Artisan specialty paints range into the Bunnings stores and selected Homebase stores. We built a strong team in the UK drawing on knowledge and expertise from Australia. The UK business is expected to be lossmaking in 2018 given the ahead of the curve investment in sales and marketing.

    Dulux ANZ

    In the results presentation an unusual amount of time was spent on this segment of the business, in terms of more precisely defining its market and the features of that market. While many of these numbers have been available previously, it is perhaps worth going over some of them.

    This segment accounts for 52% of sales revenue, and 68% of EBIT.

    Revenue grew at 5.2%, with Australia (90% of the segment) growing by 5%, and New Zealand by 6%.

    For revenue, the market consists of:

  • 65% maintenance/home improvement
  • 15% new housing
  • 15% commercial and engineering
  • 5% industrial
  • For the year, the decorative paint market as a whole grew by 1.5%.

    In terms of volume:

  • renovation and repaint market is 75%, and had flat growth.
  • new housing is 20% and grew at 6%.
  • commercial is 5%, and grew at 3.5%
  • Retailers:

    Bunnings: Dulux believes it has around 60% share.

    Independent Hardware Group (IHG): For the Mitre 10 stores, Dulux estimates about 66% share.

    Inspirations paint stores: around 90% share.

    Trade painters: estimated 25,000 in Australia.

    In his prepared remarks, Mr Houlihan described the causes for growth:

    The positive share result reflected our ongoing focus on consumer marketing and innovation, good outcomes with our key aligned retail customers, and the ongoing investment in our own trade network. The positive price outcomes reflected price increases to mitigate raw material increases and a skew towards more premium Dulux branded products. Raw material costs increased in the second half driven by titanium dioxide.

    Responding to an analyst's request for more detail, Mr Houlihan explained that the decorative paint market had "normalised" during the year, as the effect of the exit of Masters Home Improved was washed:

    The decorative market grew 1.5% for the year. So that returned to a long-term trend. In the first half, that was actually closer to 0.5%. In the second half it was much stronger and the reason for that was the core renovation and repair portion of that flipped from being minus 1.5% in H1 to being itself positive 1.5% in H2. And really the key driver behind that was, as we entered H2, we didn't have all that retail channel noise going on that we've had for couple of years recently in terms of sales in/sales out. H2 basically normalized to the long-term trend of 1.5%.

    Mr Houlihan also used his opening remarks to reiterate a point he has made in the past, which is that new housing plays a minor role in Dulux revenues.

    In the past we have mentioned that when we model the overall paint market, the strongest correlations are GDP. For the 75% of the market that relates to existing homes and new housing completions is typically related to 20% of the market, though it's a little more than that at present, related to the new housing activity. We have also mentioned that our market share of the new housing sector is deliberately low at about half our overall market share. We have also shared our view that housing turnover is not strongly correlated to our overall paint market volumes.

    Another familiar theme was Mr Houlihan's response to a question about whether the US paint company Sherwin-Williams, which recently merged with Valspar, might pose a threat in the future.

    I suppose I sort of touched on this a few times before in terms of it's sort of the next inning for us so to speak in that we've been competing against global competitors really since 2007 when PPG acquired Tolman's and then the coming and departure of Nippon and Valspar acquiring Wattyl in 2010 before now Sherwin-Williams have acquired them. I suppose if I think about the retail part of the market, in recent years, go back to sort of 2010 when Valspar did acquire Wattyl, during all that time we've continued to disproportionately carry on investing in the Dulux brand, our marketing initiatives, supporting our retail channels.
    On the trade side of that business, again, we've got that disproportionate scale and sort of continuous investment we've built up incrementally bit by bit over 20 years. We haven't seen any sort of changes of note from the Wattyl organization to date.

    Other segments

    Selleys and Parchem ANZ had revenue of $260.7 million, up by 2.7% on the pcp. Selleys' sales grew by 5.5%, while sales at Parchem declined slightly. EBIT was up by 14.2% on the pcp, coming in at $33.7 million. The company says that Selleys is well-positioned for future growth, and the Parchem's position will improve.

    B&D Group saw revenue up by 2.6%, reaching $182.5 million. EBIT also increased, up 13.0% on the pcp to come in at $18.2 million. The company says it grew share by 3%, with the overall market going up 2%. EBIT improved as the company exited some low margin contracts, improving selling price and product mix. The company sees the segment growing in coming years through better marketing, innovation and improved distribution.

    Lincoln Sentry had sales revenue lift by 4.0% on the pcp, coming in at $195.2 million, while EBIT also increased by 16.0%, to $14.5 million. Sales growth came from cabinet hardware, which was driven by sales to home renovators.

    In Dulux's other operations, sales lifted by 2.4% to $222.2 million, but EBIT fell steeply by 22.1% to $11.3 million, driven down by poor performance at the company's DGL Camel operations in China.

    The company has also entered into a joint venture in Indonesia. According to its financial report:

    In August 2017, DuluxGroup and PT Avia Avian Indonesia agreed to form an Indonesian joint venture company, PT Avian Selleys Indonesia. The joint venture is 50.01% owned by DuluxGroup and will manufacture and market Selleys products in Indonesia. With minimal capital investment, DuluxGroup will leverage Selleys technology, brand and market capabilities in a large and growing market, by partnering with Avian, a leading Indonesian paint manufacturer with an extensive local distribution network selling into approximately 40,000 retail hardware outlets. The joint venture is expected to commence trading in the second half of the 2018 financial year.


    As HNN has remarked in the past, Dulux is doing very well, and will no doubt continue to prosper for the next two or three years. However, what remains unclear is what the company is doing to counter difficulties which could become pressing after 2020.

    In this full-year report, as in reports from the past, the attitude of Dulux tends to be that as things have worked out very well in the past, they will continue to do well in the future. This is an understandable attitude. The paint business is essentially all about chemicals manufacturing, which requires very large investments in plant, equipment, research and personnel. Added to that is the need for significant marketing investment, and, as Mr Houlihan has noted in the past, a very large advantage granted to any long-term market incumbent with over 30% of market share.

    However, this tends to ignore the fact that the global paint industry is undergoing a massive disruption, brought about by the need for already large paint companies to merge. Sherwin-Williams has perhaps another year of work to fully consolidate its Valspar acquisition. While Akzo Nobel will continue to resist acquisition by PPG, this seems clearly a case of "sooner or later". Dulux may be simply living in the lull before the storm, which will come when, eventually, these mammoth companies turn their attention to Australia.

    As HNN has commented in the past, what seems to be driving these convergences is at least partly the need for a high level of investment in research, particularly the development of paints based on nano-particles and possibly other nanotechnologies.

    Dulux is rightly proud of its own research prowess, the R&D centre at Clayton in Victoria, and what Mr Houlihan describes as "80-odd technologists and chemists across the broader Dulux business". Sherwin-Williams combined with Valspar has over 1000 researchers. To put this in perspective, that is 25% of the entire Dulux workforce.


    Supplier update

    Trade focus at Big River

    Brighton Best takes on Koala Nails and James Hardie buys European gypsum company

    Acquisitions help Big River improve supply to Australia's building industry; Koala Nails becomes a subsidiary of Brighton Best; James Hardie plans for Europe push; Hillman Group buys a Texas fastener manufacturer; four tool brands come together under the Crescent name; and Stanley Black & Decker will open an Advanced Manufacturing Center of Excellence.

    Big River positioned for trade

    Building materials company, Big River Group is experiencing a period of growth in its share price following the acquisition of four timber businesses. The acquisitions reflect Big River's plan to better supply the trade segment of the building and construction industry in Australia.

    In March 2017 Big River acquired Adelaide Timber & Building Supplies (ATBS), a supplier to the SA market. In April, Sabdia Mitre 10 in Brisbane was acquired, followed by Midcoast Timbers on the Gold Coast in September, and Ern Smith Timber and Hardware in Hume (ACT) due to complete in December.

    These latest acquisitions have increased the company's sales and distribution outlets to 13 locations in the major population centres. Big River managing director Jim Bindon told the Daily Examiner:

    These new businesses increase the group's exposure to detached housing and the alteration and additions market, to better balance activities in other sectors. They were key purchases within our continued diversification strategy across states and construction segments.

    The acquisition of ATBS allowed Big River to launch MaxiWall, a new, cost-competitive autoclaved aerated concrete product, nationally. Previously the MaxiWall brand was only available in South Australia. Mr Bindon said:

    Solid outlooks in the detached housing and commercial construction markets and a sizeable increase in the civil and infrastructure pipeline, together with Big River's geographic diversity, means we are poised to continue this success in 2018.

    The acquisitions come on top of the company's listing on the ASX under the company's parent name, Big River Industries (BRI) earlier this year.


    Supplier update: Big River listing in a fragmented industry - HNN

    Koala Nails now part of Brighton Best

    Brighton Best International (BBI) has closed its acquisition of NSW-based fastener supplier, Koala Nails.

    In a correspondence to its distributors, BBI president Jun Xu said that "combining the strength of BBI's worldwide distribution network and sourcing abilities, with the ... knowledge of the Koala Nails team, will bring tremendous value and benefit to customers ... and strengthen the distribution channel by providing opportunities for both companies."

    Patricia Palladino, director at Koala Nails concurred in the same correspondence, and said that "adding the Koala range of products to BBI's offering makes sense and will provide long term strength and growth opportunities for Koala's current companies and potential for much larger reach for future customers".

    Koala Nails began operations in 1981 and its product line includes collated screws, loose screws, framing nails, coil nails, collated brads, collated staples, pneumatic air nailers and staplers, nylon nail-it plugs and mickey pins, split drive anchors, tie wire anchors and hammer drive alloy anchors.

    Ironclad Performance Wear, a US-based supplier of hand safety solutions has also been acquired by BBI for an undisclosed amount. It specialises in manufacturing task-specific PPE (personal protective equipment) gloves.

    Founded in Cincinnati, Ohio (USA) and headquartered in Taiwan, Brighton Best is a global supplier of industrial and construction fasteners. It has more than 31 locations and 2.4 million square feet of warehouse space.

    European growth plan for James Hardie

    James Hardie Industries has entered into an agreement to acquire German-based XI (DL) Holdings GmbH and its subsidiaries which includes Fermacell, one of Europe's largest fibre gypsum board manufacturers.

    James Hardie CEO Louis Gries said the Fermacell acquisition is about accelerating in Europe where demand is rising. He also said the group isn't likely to pursue any other big acquisitions for the next five years after spending $720 million to purchase Fermacell. Mr Gries told The Australian Financial Review.

    This is an unusual step for us. We're an organic growth company.

    James Hardie had been exporting into western Europe from the United States but wasn't able to develop enough momentum. Mr Gries said:

    We just haven't gotten the traction that we wanted. We were just not a big enough influencer in the market,

    So it opted to buy Fermacell when it came on to the market in a competitive sales process. The acquisition is expected to close in the fourth quarter of James Hardie's 2018 fiscal year.

    Mr Gries said Fermacell had more than 70% market share in the fibre gypsum board category in Germany and was the best springboard to capitalise on economies in western Europe, which were starting to show more signs of life.

    He said the company would now focus on generating organic growth. The US still represented the biggest opportunities for the company, but the Fermacell acquisition gave it a much better platform to build a bigger European business. Before this deal, the North American operations represented about 80% of the company's business.

    We think what Fermacell does is give us that regional capability and regional influence that will be important to launch a much higher-growth fibre cement strategy in Europe.

    Mr Gries said Fermacell has good growth opportunities in Europe, not as big as those that James Hardie has in the US market, but similar to those in the Australian market. He said:

    Fermacell will diversify our geographic, product and end-market portfolio, complementing our strong positions in North America and Australasia...

    Mr Gries also said the company was "pretty happy" with the continued momentum of its Australian business in building products at a time when property markets in Sydney and Melbourne were slowing.

    Hillman buys specialty fastener maker

    US-based Hillman Group has purchased Texas fastener manufacturer, Hargis Industries which does business as ST Fastening Systems (STFS). It has become part of the company in a deal in which financial details were not disclosed.

    STFS's headquarters will remain in Texas and industry veteran Bruce Crouch will continue to lead it as a part of Hillman. It will also maintain a distribution centre in Cincinnati, Ohio, where Hillman is based. Hillman CEO Greg Gluchowski said in a statement:

    We are excited to have STFS join the Hillman family. Bruce is a great addition to the Hillman leadership team and we look forward to the contributions that he and his team will bring to Hillman. STFS's product lines and operational capabilities will expand our presence in strategically important commercial and industrial markets.

    Hillman expects STFS's portfolio to fit well with its own fastener offerings. STFS products are sold to metal building fabricators, hardware wholesalers and building products distributors in the US.

    Founded in 1964, Hillman sees itself as a provider of complete hardware solutions. It is Greater Cincinnati's 12th-largest private company with 2016 revenue of USD814.83 million.

    Hand tool brands consolidate

    Lufkin, Wiss, Nicholson, and H.K. Porter tools will come together under the Crescent brand, according to the Apex Tool Group.

    The company has a new brand identity program for its Crescent brand which involves a different logo, colour palette, and tagline - "Trusted by the Trades" - along with an expanded product offering of over 2,600 products across the five brand names.

    The Crescent lineup will now include all Lufkin measuring tapes, rules and wheels; Wiss snips, scissors, shears, knives and trade tools; Nicholson files and saws; and H.K. Porter cutters. The main Crescent brand will continue to cover adjustable wrenches and other hand tools.

    Supporting brand logos, product design, colours, packaging, websites, and other forms of identification will migrate to the new brand identity in early 2018. Curt Weber, senior director of brand management at Apex, said:

    The Crescent brand has been trusted by professional tradespeople for well over 100 years. We are building on this trust by expanding the Crescent offering to include products not only from Crescent, but from several other respected hand tool brands in the Apex Tool Group portfolio. This expansion will give our customers a wider selection of quality products from which to choose, all under the Crescent name.

    Stanley to build "Smart Factory"

    Stanley Black & Decker will open an Advanced Manufacturing Center of Excellence as part of its Global Industry 4.0 "Smart Factory" initiative.

    Called "Manufactory 4.0," named after the original Stanley Bolt Manufactory founded in 1843, the 23,000sqft centre will develop its work in automation and data exchange.

    Manufactory 4.0 will serve as the epicentre for the latest technologies and processes with respect to Industry 4.0, according to Don Allan, CFO for Stanley Black & Decker. Industry 4.0 is refers to manufacturing technologies, including cyber technology, the Internet of Things, cloud computing, robotics, artificial intelligence and 3-D printing.

    The company has also made a three-year commitment to partnering with Techstars, and is announcing the launch of the STANLEY+Techstars Additive Manufacturing Accelerator. The mentorship-driven, entrepreneurial accelerator program will identify 10 startups in the additive manufacturing space to participate in the program in the program's first year. Companies will co-locate with Manufactory 4.0 and have access to mentoring and resources to grow their ideas into viable businesses, and bring new technologies to market.

    Additive manufacturing refers to 3-D printing and the collection of technologies that are used throughout the process, including those involved in rapid prototyping, rapid manufacturing and free form fabrication, among others.


    Amazon is coming to townh

    Australian retailers react

    While the home improvement category will not suffer the most from market loss, it is likely it will affect earnings at Bunnings

    A joke, popular in the 1960s, tells of an alien spacecraft that arrives above Earth. After several months of the giant craft hovering over New York City, Earth scientists work out a way to communicate with the aliens. But what question should the aliens first be asked? After a month of polling, referendums, newspaper editorials and debate, a single question suitable for this "First Contact" is established. In a small room beneath the huge dish antenna aimed at the alien craft, a white-coated scientist finally pecked at a keyboard, typing in the query "Coke, or Pepsi?"

    The point is, of course, that whenever a culture encounters anything essentially a little alien to it, the first instinct is to interpret whatever it is in terms of how it will affect that culture. This is only natural, but it does leave to one side an equally important question: how will this new thing itself regard the culture with which it is set to interact?

    That has certainly been the case as regards the US online (mostly) retailer Amazon, which is set to establish a physical, warehouse-based presence in the Australian market, possibly near the end of November 2017 (though this may be limited at first). While there have been numerous commentaries published on how Amazon might affect Australian retailers and consumers, there has been much less written about how Amazon sees itself and views its coming interaction with the Australian consumer market.

    Also, much of what has been written has often varied between raw speculation and conclusions based on apparently either non-existent or very poor research. In particular, we've seen this lack of rigour in what has been reported of discussion at some forums specifically related to retail.

    Amazon was, apparently, much discussed The Australian Financial Review Retail Summit held in Sydney in early November 2017. Relying on reports on this event from the Australian Financial Review (AFR), we can roll through some of the objections raised as to why Amazon will somehow falter when it enters Australia.

    Australia is like Canada, Amazon did not do well in Canada (initially), so Amazon will not do well in Australia

    An interesting thesis that seems a bit thin when you look at the actual facts.

    Looking back to calendar 2015 (when the comparison was still a little relevant, as Amazon has increased Canadian sales over the past two years), Canada had an estimated USD24 billion in online sales, while Australia (using Roy Morgan figures) had USD29.5 billion in online sales.

    That said, population density is similar, with Canada's overall average four people per square kilometre, and Australia's three people per square kilometre. The population of the three largest cities is also similar: Toronto has 5.9 million, Sydney 5.0 million; Montreal has 4.1 million, Melbourne 4.7 million; and Vancouver has 2.5 million, matching closely to Brisbane at 2.4 million.

    However, when you consider that Canada's population is 50% higher than Australia's, it's evident Australia has a far higher degree of urban concentration. You can add to this that the distance between Vancouver and Montreal is around 4500km, and the distance from Brisbane to Melbourne is around 1600km. The spread of that arc is obviously going to affect logistics.

    Additionally, Australia has a higher GDP per capita than Canada, and a lower unemployment rate as well.

    So, Australia has much higher per-capita online sales, higher earnings per capita, more relative employment, and higher relative urban concentration, with its three major cities in an arc about 40% the size of the comparable arc in Canada. Roy Morgan figures indicate online sales for Australia in 2017 are 10% higher than they were in 2015. It is difficult to see how one could compare the environment Amazon encountered in Canada three or four years ago, to the environment in Australia today.

    This is a conclusion that is not limited to HNN's analysis. Respected investment analyst Craig Woolford of Citibank has reached a similar conclusion:

    Despite differences in economic development, we see five common elements across Amazon's international markets: high internet penetration and share of retail sales in e-commerce channels; modern IT and telecommunications infrastructure; strong logistics infrastructure; high income per capita; and experience selling products in the targeted market.

    Whatever retailers may be saying to each other publicly, it's apparent that those supporting the "Australia is Canada" argument do not seem to have provided much in the way of supporting facts.

    Finally, while Amazon did start slowly in Canada, its impact is now being felt. To quote from one Canadian news source commenting on the influence of the US online retailer:

    Old-guard retailers are furiously transforming their business models in an attempt to compete against the Seattle-based online giant, while analysts and investors are scouring quarterly sales figures, wondering if any retailers will be immune to Amazon's corrosive impact on sales and profits.
    Canadian transformations

    Amazon doesn't know what it faces when it comes to dealing with unions in Australia

    The AFR reported that it was suggested Amazon might not be aware that it would be dealing with Australia's Transport Workers Union, and that, as one participant put it, "this could be fairly exciting for them."

    It is worth noting that Amazon throughout much of its 20-year history has had dealings with the US International Brotherhood of Teamsters union. This is one of the largest unions in the world, and the 11th largest US political campaign contributor.

    Recently, Amazon has had a dispute with the Teamsters over the working conditions of the contracted pilots flying Amazon-owned Boeing 767s. A typical engagement would be the 2016 dispute in Los Angeles California:

    Amazon's dispute with the Teamsters union

    Further, the person whom Amazon has appointed country manager for Amazon Australia, Rocco Braeuniger, was formerly with the company's German operations, and has dealt extensively with unions there. German unions are certainly regarded as some of the more communicative and collaborative in the world, but they are also, politically and in the workplace, some of the most powerful.

    It's also worth noting that the person backing him up, Fabio Bertola, who is head of Amazon Marketplace for Amazon Australia, worked at Amazon in Italy for a year, and has three years of in-country Australia experience working for the Winning Group, which runs Appliances Online, as well as other websites.

    In line with the above comment, HNN has also seen some comparisons of warehouse labour costs in the US being substantially lower than in Australia. Some of these report wages of USD9.00 an hour. Glassdoor, a service which helps rank US employers for jobseekers, estimates Amazon pays an average USD12.00 an hour. According to the US Bureau of Labor Statistics, the mean hourly wage is for this type of work (classification code 43-5071) is USD15.94, while the median is USD14.99 ( It is likely, however, that Amazon pays in the lower 25% percentile, where the wage averages out to USD12.11.

    According to salary comparison site, the Australian average for work of this type is $25.02 an hour, which equates to USD19.20 or so. However, it is notable that employers such as Harvey Norman are listed by as paying around $20.44 an hour ( It would not be surprising to see Amazon secure a similar rate in its employment contracts, which would bring its hourly wage cost down to USD15.64 per hour, an increase of 30% on its US wages.

    Offsetting that is the fact that the warehouse facilities that Amazon builds in Australia will be, in its second round of expansion, as fully automated as any that Amazon owns, which will radically reduce the number of workers being utilised, and likely result in a wage for productivity result around 8% to 12% higher than that of the US. If you add in a further decline in the AUD to USD exchange rate, likely by a further 5% during 2018, it is difficult to see how fullfilment costs will be such an overwhelming issue.

    Amazon will abuse its global market power to run at a loss for several years, and the Australian Government will step in to prevent "dumping".

    According to a report in the AFR, the head of the Australian Competition and Consumer Commission (ACCC), Rod Sims, said:

    In terms of misuse of market power, if you open a store in a new town and you set a common price point, you are going to lose money initially if you don't have scale. Eventually if you get your business plan right you will make money at that price point, that is in no way illegal.... It is not illegal if Wesfarmers do it with a Coles supermarket in a new town and it is not illegal if Amazon comes in and sets a price point that only makes money at a certain scale.

    That would seem to scotch rumours of intervention by the ACCC, for the first three years or so, at least. But what about elsewhere in the Government? While everyone from small business ombudsman Kate Carnell to small business minister Michael McCormack have made the expected statements about looking over Amazon's shoulder, it seems unlikely that anything other than minor discussions would be held.

    It is worth thinking about the reasons why Amazon will likely be running at something of a loss initially. It's not just price and margin, it's also considerable investment in infrastructure, estimated at $700 million. That will no doubt include the construction of custom warehouse facilities, most likely in regional or exurban areas, where there is substantial low employment.

    It's a little bit difficult to imagine the Federal Government making moves to inhibit the development of a company that is spending big on construction, technology, and adding jobs in regions where they are needed the most.

    More than that, though, pricing at Amazon is not driven so much by super-discounting products, but more by placing immense pressure on suppliers, and picking up unexpected deals on a global basis.

    The Amazon effect: how much, and where?

    In the US, online shopping is being credited with a considerable decline in key areas of physical retail. In terms of overall marketshare, Amazon seems big, but not huge. It is estimated that online retail accounts for around 10% of overall US retail, and that Amazon is expected to show it holds 43% of that online revenue for calendar 2017. Some estimates suggest that over half of all product searches begin on Amazon in the US. Contrast that with, for example, Wal-Mart stores' share of the USD800 billion US grocery market, which is estimated to be 21.5% in 2017.

    The scary part for US online retailers is that the 2017 numbers for Amazon represent an overall increase of over 5% in net market share, or growth for Amazon of 14%. Meanwhile, its closest competitor in revenue terms, eBay, is expected to slip from 7.8% marketshare in 2016 to 6.8% in 2017, while Apple will pick up 0.4% to hit 3.6% marketshare, and Walmart will add 0.8% to also reach 3.6%.

    In the US Amazon holds a 41% marketshare of online men's apparel sales, according to One Click Retail (, and a 36% share of women's apparel sales. The growth aspect comes through in other areas, however, such as baby apparel, where Amazon's 2017 Q3 sales hit USD50 million, up from USD30 million in the previous corresponding period (pcp), an increase of 67%.

    Amazon is not so much a marketshare story, as a growth story, with a potential for continued growth that cannot be matched by competitors, even in a market where those competitors have spent big on developing online services. Estimates currently predict Amazon will hold 50% of all online sales in the US market by 2021. And that seems, to some, a pessimistic forecast.

    European market

    What about outside of the US? It is estimated that online sales in the UK reached GBP60.43 billion during calendar 2016, and that Amazon accounted for GBP7.3bn of those sales, which equates to a 12% market share.

    In Germany, overall online retail sales are estimated at EUR52.7 billion for calendar 2016, and Amazon's share of that is estimated at EUR12.8 billion, which delivers a 24% marketshare.

    Amazon in Australia

    There has been a great deal of dispute over exactly how much impact Amazon will have on the Australian market, especially over its first two to three years of operation. One number that has gained some credence was suggested by Mr Woolford. He estimates the company could attract around $4 billion in online sales by 2022, which would equate, according to projections, to around 12% of the online retail market, and 1.1% of the overall retail market.

    Mr Woolford has highlighted, in particular, the effect of Amazon on retailers in the electronics industry, such as JB HiFi. Results from a May 2017 survey conducted by Nielsen seeking to explore Australian consumer attitudes to Amazon back up his assessments. The three top categories where consumers expressed interest were: Electrical/electronic items (60%); books (54%); and clothes (46%).

    Nielsen results from May 2017 survey

    As some commentators have pointed out, the real risk to established Australian businesses is unlikely to peak in those first five years, but to rapidly increase in the subsequent five. That is what is indicated by Amazon's experience in the UK and other worldwide markets, including Germany.

    Hardware category effects

    Of course, what is of prime interest is what effect Amazon may have on the home improvement category. Some commentators have suggested that this may be minimal, due to the nature of home improvement, which features relatively high delivery costs, and often a "hands on" aspect that other categories - such as electronics - do not.

    A good source to check on this subject is One-Click Retail, which has published some statistics on Amazon's presence in the US, UK and German markets. This can be accessed at:

    One-Click Retail statistics on Amazon

    Certainly, the largest home improvement retailer in the US, The Home Depot, would disagree with that assessment. Home Depot has shifted its business model quite radically over the past three to four years, moving most of its expansion spending from physical stores to building the infrastructure needed to boost its online business. Ecommerce sales for Home Depot reached USD5.6 billion in 2016, up from USD4.7 billion in 2015, an increase of 19.5%, and representing 6% of overall company revenue.

    In terms of the US, the overall home improvement market for 2016 was estimated at USD313 billion, up by 6% over 2015. Amazon's share of that market is estimated at USD5 billion. The real figure of interest here, however, is in terms of growth: that market grew by 35% for Amazon from 2015 to 2016.

    The four top growth categories were handtools, up 40%, power tool accessories, up 25%, safety equipment, up 20%, and woodworking tools, up 30%. In terms of individual products, door knobs and lock sets grew by 45%, fasteners and hooks by 45%, lighting controls (such as dimmer switches) by 85%, and kitchen/bath tapware by 30%.

    In case this seems like a "US-only" situation, it's not. In the UK, Amazon achieved an estimated GBP300m in sales in the GBP36 billion overall home improvement market, which is over 8%. Again, though, the real story is growth, as Amazon grew its revenue by 20% over 2015.

    In Germany 2016 online home improvement sales reached EUR600 million, in a market worth around EUR40 billion, or a roughly 1.5% marketshare. Growth, however, was a highly positive 45% over 2015 figures.


    It is not possible to generate a single number that would indicate how much marketshare in home improvement Amazon will eventually win in Australia. Some estimates put this at around 2%, which would accord with Mr Woolford's estimate of $4 billion in what could by 2021 be a $80billion market. However, HNN would point to the fact that there are few if any real competitors online to Amazon in home improvement, and that those which exist are unlikely to develop an effective response until after they have suffered significant losses. We therefore think a better estimate would be between 2.5% and 3.0% of the market in the 2021/22 financial year.

    Leading up to that, based on past experience, what we can likely expect is considerable noise and excitement over Christmas in 2018, followed by slightly disappointment in 2019, with the real effect of Amazon first taking hold in 2020. This means that Australian retailers who will be affected would be advised to develop plans over the next two years, or face having to catch up to Amazon for several years thereafter.


    While many independent hardware stores will feel some effects some two to three years after Amazon's entry, there is little doubt about the retailer that will experience the most effect of its business: the Wesfarmers' owned Bunnings.

    There are a number of reasons for this. The two main ones are that Bunnings is far more reliant on the consumer/DIY trade than most independent retailers, and that it has made its low prices part of its major attraction to consumers. To take one category, power tools, Amazon already has good international relations with major companies such as Bosch, Makita and Stanley Black & Decker. While these are sold directly by Amazon, it appears that tools from Techtronic Industries (TTI), such as Milwaukee and Ryobi, are sold through Amazon by third-party sellers.

    Doing a price comparison indicates that with suppliers such as Bosch, Amazon does, on some specific tools, enjoy a considerable price advantage. From example, the Bosch DDB181-02 drill driver kit (charger, case, two 2.0 amp batteries) retails on Amazon for USD99, while it sells at Home Depot (online-only, not in-store) for USD159.

    Effectively, what is likely to happen is that, just as today many DIYers will check the price of a tool on the Bunnings website before buying it elsewhere, they will start to check with both Bunnings and Amazon Australia in the future.

    It is worth mentioning that there is another area of potential competition as well. Amazon has been building out its offering in terms of helping to sell the services of Amazon approved installers for products sold through Amazon. These approved quotes appear as part of the sales process for products such as large wallscreen TVs. Amazon goes through an extensive approval process in certifying these installers for its website, and monitors customer feedback closely. This could have an impact on budding services services such as Home Improvement Pages (HI Pages) and Oneflare, which attempt to offer services to match homeowners with tradies.


    HNN has spent considerable time over the past three years trying to work through the puzzle of Bunnings and online ecommerce. Our end conclusion has been that, as an organisation, Bunnings is simply not built for online. What it does well is to build good physical stores, encourage people to visit those stores, and to sell those people a basket of items from which it derives a workable margin.

    In particular, it is a retailer that tries to avoid making things complex as much as it possibly can. Even if complexity offers additional margin, it will prefer to stick with systems and strategies where execution can be easily controlled.

    Online, from Bunnings' perspective, has two main disincentives: it would likely lower overall margins, and it would introduce the complexity of delivery and other logistical systems. Additionally, there is the possibility that by entering online commerce at this point, Bunnings would be acting as a "pathfinder" for Amazon, establishing a market which the US-based retailer could then leverage to market its own products.

    However, there is another possibility. If we look at the experience of Kingfisher in the UK market, that home improvement retailer really did not "get" online retail until it experienced the runaway success of its Screwfix brand. Screwfix continues to be the real growth story in a slightly declining UK market, though much of its recent growth has come from leveraging its well-developed online reputation to build a successful physical presence.

    What if Bunnings also went down the sub-brand route when it comes to online commerce? As an example, suppose Bunnings chose to take its Ozito captive brand, and to develop a website that sold that brand of power tools exclusively?

    This has a number of advantages. It terms of the stocking/picking/dispatch logistics, having a single supplier reduces complexity considerably. Given its control over margins for this brand, Bunnings could offer online goods at a discount to in-store purchases. That's particularly useful for the Ozito range, as it virtually defines "price sensitive" for power tools. A reduction of $5 off a $95 drill is enough to act as a "buy" trigger for many consumers in this market. With an exclusive brand, price competition with other websites is much less of an issue. When it comes to expensive matters, such as returns, Bunnings could also effectively leverage its physical store presence.

    It's a tactic which utilises established strengths, and some of in-place investments, in a way that at least minimises complexity. It would enable Bunnings to develop a better understanding of online commerce, in an environment that reduces capital expenditure and risk as compared to a more general rollout. With at least six major captive brands in different areas, it also offers the potential for future expansion.

    Amazon Marketplace

    HNN has so far skipped over a large section of what Amazon has to offer, namely the third-party Amazon Marketplace (AM), where retailers have the option of selling goods through the Amazon site, with Amazon optionally looking after the logistics of picking and sending.

    One of the real benefits of this service is for small suppliers and product developers who have a great idea they cannot get larger retailers to stock. It offers a near-instant means of achieving market presence. Some retailers in the US and elsewhere also use AM as a means of off-selling overstocks, or testing new products to gauge demand.

    One of the more interesting aspects, however, is a burgeoning market for specialised sellers who concentrate on doing nothing else except AM, and don't care particularly which products they are selling. Instead they concentrate on finding a product where they can beat the Amazon price (if it exists) and the prices offered by other AM sellers. If they achieve the best product plus shipping price, they will "cream off" all the orders for that product.

    In the US, this has opened up sources of secondary supply. That includes companies that have over-ordered some lines and need to clear warehouse space, and also, of course, grey market goods. It will be surprising, for example, if the Australian AM doesn't see some goods come in from South-East Asian markets that bear a familiar brand name, but are sold for much less.

    This could also influence the online home improvement market. What happens, for example, if a trader buys a lot of reconditioned cordless Milwaukee or Ryobi tools, then offers those for sale on the Australian AM?


    Amazon certainly will face unique conditions on entering the Australian market. It seems somewhat unlikely, however, that these conditions will be any more exotic than those the company faced in entering the French, German, Italian or UK markets. HNN would also guess that they are nowhere near as exotic as those the company faced in entering the Japanese market (a country where Amazon still struggles, despite having first entered it in 2000). Some of these conditions will no doubt cause small setbacks, but it's highly unlikely they will, in the end, have much influence over Amazon.

    In general, much of the response of major Australian retail business to Amazon has attempted to portray its entry into the Australian market along the lines of a physical store retailer making the same move. Nowhere is that more apparent than in the repetition of the fact that Mr Braeuniger apparently revealed in a conversation in early 2017 that he was unaware of Australia's holiday penalty rates for retail workers. It seems somewhat germane to this point that Amazon, for at least its first two years of operations, is unlikely to employ any retail workers.

    Equally ill-founded was a comment the AFR reported being made by a former senior Wesfarmers retail executive that Amazon's frequent change of prices would somehow not work in Australia as it annoys consumers. This approach has been central to the strategy that helped Amazon power its way to annual revenues of USD136 billion, and a market capitalisation of USD536 billion. The reality is, of course, that online what Amazon is doing is tracking the same prices consumers will see doing a Google search. It's simply making sure it stays in the running.

    The Australian retail industry really has to come to terms with the fact that Amazon has arrived, and that it will, over the next decade, wreak considerable changes on the retail market. While it's possible to make some predictions about the next four or five years, predicting what Amazon will do out to ten years is much harder.

    While home improvement will likely suffer less than many other categories in terms of competition with Amazon, it's worth noting that the two largest home improvement retail brands in Australia are owned by companies heavily reliant on revenues and profit from grocery retailing. In the end, the greatest effect on home improvement may come from Amazon disrupting that market, which is already under considerable stress.

    It is also worth seriously considering what second-order effects of Amazon's entry will have on the home improvement market. If Bunnings or other major retailers respond to Amazon - such as by opening HNN's hypothetical Ozito online store - that may have greater consequences than Amazon itself. In stretching to ensure that it does not lose marketshare to Amazon, Bunnings could, in other words, take yet more marketshare from other retailers.


    Oldfields FY2016-17 results

    New product development

    The company is in the early stages of marketing its paint brushes for a changing market

    Over the past five years a familiar pattern has emerged for smaller Australian manufacturing companies in the hardware sector. Typically, these are companies that have tried to maintain a majority Australian-manufactured product, and have found that this has not worked out. Inevitably their competitors sort out the quality and communication problems with overseas (mostly China-based) manufacturing, and are able to offer better value products, which then impacts on marketshare.

    After witnessing a dip in their revenues, these companies make the move to overseas manufacturing, either completely, or on a hybrid basis, with some Australian operations maintained.

    One of the more successful companies to go down this route is GWA Group, the South Australian-based manufacturer of sanitaryware and tapware. Nearly three years ago the company changed direction, divesting itself of divisions such as hot water heaters, moving most of its manufacturing overseas, and reducing its Australian manufacturing operations. It then revitalised innovation at well-known brands such as its Caroma sanitaryware, and began taking these products to market in a more effective manner.

    Oldfields moves up

    Oldfields is one of the latest Australian companies to travel down this same path - though in its case, as we say these days, "it's complicated". That complication comes from two areas, which both have to do with how what it terms its "consumer products" are distributed.

    The company had a major contract with the now defunct Masters Home Improvement. As the company states in its annual report for FY 2016/17, that contract only provided sales for July and August of 2016, as Masters ceased resupply in September as it began a lengthy process of stock liquidation. Needless to say, this left something of a gap in Oldfields' sales forecast.

    The second factor, which doesn't really apply to the reporting period, but is important for the company's future, is that it decided in late 2017 not to pursue a contract with the Independent Hardware Group (IHG) for distribution. According to the Oldfields 2017 Annual Report:

    In the latter half of the year Oldfields completed negotiations with Mitre 10. These negotiations resulted in the termination of the prohibitive trading terms for sales through the Mitre 10 warehouse system. Commencing in the new financial year, Oldfields will distribute direct to Mitre 10 store owners that establish individual accounts. Whilst sales to the Mitre 10 network will initially be lower, all sales will now be profitable and should reduce the loss currently being incurred by the consumer division.
    The Group is further developing its strategy to operate in multiple channels to market in order to reduce or eliminate excess costs within the value chain.

    This is a fairly big step for the company to take, as it now faces the task of developing new channels to market. It is ramping up distribution to retailers in buying groups such as Hardware & Building Traders (HBT), as well as trade-oriented retailers who sell directly to professional painters. Fortunately, however, it has laid a solid groundwork for this new distribution through both better operational efficiencies and new product lines which seem a good match for the current market conditions.


    The results for Oldfields follow a pattern that is familiar in companies undergoing this kind of restructuring. For the current reporting period, FY2016/17, the company is showing a net profit of $0.312 million. Results for the pcp were marked by some writedowns, in particular $0.341 million for "impairment of property, plant and equipment", with the year producing a net loss of $0.722 million.

    Overall sales were $26.721 million, down by 6.0% on the sales for the previous corresponding period (pcp), which was FY2015/16.

    The real story, however, can be seen in numbers such as the company's administrative costs, which went from $2.735 million in the pcp, to $2.171 million in the current period, a savings of $0.564 million, or 20.6%. Marketing expenses were also reduced, coming in at $0.307 million, down by 22.1% on the pcp. These are very respectable operational efficiency gains for any company, but especially for a smaller listed company such as Oldfields.


    In terms of what has been shaping the company, Chart 1 shows some of the underlying numbers. While pure sales of products, including painting equipment and sheds, have continued to decline, revenue from the installation and rental of scaffolding has continued to grow.

    Comparing the company's two segments directly, consumer products sales came in at $7.722 million, a fall of 24.5% over the pcp. Earnings before interest, taxation, depreciations and amortisation (EBITDA) for this segment recorded a loss of $0.966 million, an increase in loss of over 40% on the pcp.

    In contrast, scaffolding revenue was $19.13 million, up by 4.3% on the pcp. Scaffolding EBITDA also rose, by 13.5% over the pcp, coming in at $2.85 million.

    Chart 1 (in the PDF magazine version of this story) shows the steady increase in revenue from scaffolding rentals, and the decline of sales. The scaffolding market in Australia is - to say the least - peculiar, with unexpected constraints in certain regional markets. Nonetheless, it is an area where Oldfields has operated for some time, and the underlying increase in construction in Australia - especially multi-storey - has boosted the overall market.

    In the consumer products markets, Oldfields faces considerable competition from a range of painting tools and accessories manufacturers. As far as its Treco range of sheds, aside from the extra costs associated with having its production base in Australia, new competitors have emerged over the past two years. In particular, Globel Industries sells sheds that are produced in China and have what some regard as a marked similarity to those produced by Oldfields. The company has moved to counter these competitive forces in 2017 by starting to offer the sheds for sale directly online.


    There are three stages companies transitioning to overseas production typically go through: consolidation of operations, either through divestment of non-core activities, and/or reorganisation and reduction of administrative and other costs, as they cut staffing; development of new and innovative products to better suit a changing market, which are then manufactured overseas; and the marketing of those products, as they seek to both emphasise the long-established advantages of their brand, while also building on its new capabilities.

    Oldfields is about to embark on the third part of its transformation process. With costs clearly in hand, the company has developed new ranges of products, including brushes. It is currently developing new channels to market, and further enhancing its brand image.

    The key to these developments is its ongoing work in product innovation. Oldfields is, in particular, making a strong push into the painting brush market. Its approach has two parts to it.

    The broader part of this approach is to present an overall simplified range of brushes. These break down into three areas: The "Classic" brush aimed at DIYers; the "Tradesman" brush aimed at tradies for whom painting is a part of their work; and the "Pro" brush for professional painters.

    All three of these brushes have been improved over previous Oldfields brushes. The Classic comes in a total of 12 varieties, with six sizes of wall brush running from 25mm to 88mm, and two sized each of sash cutter, angle sash, and oval cutter. These brushes are made from 100% PET filament (polyester). Oldfields states that the pulling force on the brush has increased from 325g to 715g, paint load increased from 26g to 31g, and paint release increased from 15% to 32%.

    The Tradesman brush range comes in a total of 12 varieties, including five wall brushes ranging in size from 38mm to 88mm, three sash cutters from 50mm to 75mm, two angle sash brushes, and two oval cutter brushes. The brushes are made from 70% PBT and 30% PET, providing a different brush feel from the Classic. Oldfields claims the pulling force has been increased from 518g to 546g, the paint load increased from 20g to 30g, and paint release from 30% to 37%.

    The Pro brush

    It is the third brush type, the Pro Series, that really reveals the second direction in which Oldfields is heading. While the other two ranges continue many of the company's past efforts, with improvements, the Pro indicates a more defined and genuinely new direction. Oldfields has spent a good deal of time and expertise coming up with what it considers to be an "ultimate" brush. It has developed its own filament material, which it calls E4 Mark II, which it claims has a number of significant advantages, including "maximum paint hold and release" and "continuous solid coverage". There are four sizes of wall brush that are square cut, but the rest of the range - three sizes of wall brush, three sizes of sash cutter and two angle cutters - are all oval shaped.

    Very clearly what Oldfields is doing (in part) with this market move is supplying a range of independent stores - both hardware and paint specialists - with brushes that will at least equal if not exceed the quality of brushes supplied by Austbrush's Monarch brand (among others). This is a very clever move, as it provides a strong, non-Bunnings brand, and a point of clear difference for small suppliers.


    As part of this push into new product lines, it has become more important than ever before that Oldfields engages with marketing on two levels, both direct to the actual users of the product, and to the retailers who will be selling to those users.

    Certainly the initial efforts the company has made show true promise. HNN attended an event held in Melbourne to help launch the new ranges of paint brushes (another event was held in Sydney). It was a smaller mid-sized event, which gave a select group of retailers and some end-users the chance to get to grips with the new range. There were sample packs of the brushes, and also an opportunity to try them out by using the painting station (complete with smocks) that Oldfields supplied.

    It's an intelligent way to begin the marketing push, and it brings Oldfields staff into direct contact with elements of the market, and gives them a chance to get direct feedback on the brushes themselves, but also on how the audience responds to the marketing effort.

    In terms of the marketing, Oldfields is faced with a familiar dilemma. On one hand with an over 100 year history in Australia, the company wants to stress the strength of its heritage. On the other side, the new paint brushes are the result of considerable modern technology being brought to bear.

    Combining those two messages is difficult, and Oldfields is still experimenting with this. However, there are good signs in terms of marketing collateral such as brochures and advertisements, that the company is well on its way to developing a brand identity suited to the current market.


    In the somewhat hard cold world of stockmarkets it's to be expected that companies will be judged purely on the basis of numerical performance. However, it does seem to HNN that there should be room in the hardware industry itself to consider other elements of a company. Companies like Oldfields (and GWA Group) really did spend time, money and effort trying to retain their Australian workforces, and only gave up when it became evident this would not succeed. That they have managed to reorganise, and to build on their major strengths - product design, servicing of clients, and marketing - is something that really does deserve to be acknowledged.


    Supplier update

    Assa Abloy acquires August Home

    Melbourne workwear company sold to Portwest and a new look for GearWrench

    Old-guard lock company Assa Abloy bought smart lock startup August for an undisclosed amount; Portwest has reached an agreement to acquire a second workwear company in Australia; Brickworks has purchased the Urbanstone business; Husqvarna said its latest products are designed to make lawn and garden care more productive and intuitive for operators; Bunnings Group's venture into the UK is providing opportunities for Selleys; Milwaukee Tool has been awarded USD27.8 million in case against Snap-on; and TTI introduces portable generators with EFI technology.

    Assa Abloy buys smart lock maker

    Swedish lock conglomerate, Assa Abloy said it has signed an agreement to acquire August Home, a business that makes smart locks and smart home access products and services. Based in San Francisco, August Home primarily focuses on developing solutions for the DIY market.

    According to Thanasis Molokotos, executive vice president of Assa Abloy and head of the Americas division, the acquisition of August Home will strengthen the company's residential product portfolio through the addition of smart locks, video doorbells and solutions for home delivery. He told Security Info Watch:

    August is an entrepreneurial company that is innovating in the traditional lock space by enhancing access control through software and service experiences. It is a strong complement to our current focus.

    In addition, Mr Molokotos said August Home is very synergistic with Assa Abloy's Yale brand.

    August's focus is primarily the DIY channel with retrofit locks that offer an exceptional user and software experience. Through the Yale brand, Assa Abloy's focus is on full replacement locks that are connected and served by the professionally installed channel.

    Founded by Jason Johnson and Yves Behar, August Home has developed three generations of smart door locks and two generations of video doorbells, placing them among the leaders in the smart home industry when it comes to technology, partnerships and retail sales. For example, the company has entered into recent partnerships with Amazon, Apple, Google, Nest and Airbnb.

    This has helped to make August Home, which has seen lock sales increase by 300% year-over-year with more than 260 million lock operations and 500,000 users.

    August raised USD25 million in July to help fund its recent launch of new, cheaper August Smart Lock Pro locks intended to make the high-tech gadgets more appealing to mainstream consumers.

    When asked how August Home will be integrated into Assa Abloy, Mr Molokotos said that they will "jointly evaluate" their opportunities once the acquisition closes, which is expected to occur during Q4.

    We believe keeping the August culture and leadership intact after acquisition is vital for success for all involved so we are excited Jason Johnson will remain and focus on implementing the vision.

    Now in the arms of a bigger company, August will get more direct help to sell its products to the masses, the tradeoff being that it loses its independence as a more nimble startup. The acquisition also highlights the challenges consumer hardware startups face creating big-hit products that result in big enough sales to help them compete with much larger businesses.

    The acquisition is subject to regulatory approval and customary closing conditions. Financial terms of the agreement were not disclosed.


    Making house keys obsolete - HNN

    Irish workwear firm expands in Australia

    Wesport, Ireland-based safety clothing and protective equipment maker Portwest has spent EUR10 million buying another Australian company to expand its presence in this market.

    Portwest said that due to a non-disclosure agreement, the name of the Melbourne business cannot be disclosed for the moment. Six months ago the firm acquired Australian company Prime Mover Workwear in a deal worth EUR7.5 million.

    The second acquisition will more than double the Irish company's turnover in Australia and New Zealand to between EUR20 million and EUR25 million, which will represent about a tenth of its overall business. Brett Birkill, chief executive of Prime Mover, told the Irish Times:

    This acquisition now follows on from the original acquisition six months ago. It catapults it to the next stage of growth.

    Australia's buoyant construction industry made Portwest's additional investment sensible, while pushing further into this market would "help spread the load" of mitigating risk from Brexit, according Mr Birkill.

    Trading since 1904, the company is being run by the third generation of the Hughes family, led by brothers Cathal, Harry and Owen Hughes. It has 2,100 employees and sells its products in 110 countries. CEO Harry Hughes said:

    The company is working to a 5-year plan with a growth rate of 30% per year. Although all growth to date has been organic, acquisitions will play a more important part of future expansion. Our sights are firmly fixed on our new markets of US and Australia and we have an outstanding pipeline of new designs and innovations to drive this growth.


    Workwear category dominated by UK player - HNN

    Brickworks grows its masonry business

    West Australian paving and masonry company, Urbanstone has been sold to Brickworks for $13.5 million. Family-owned Schaffer Corporation has divested the last of its building products assets with the sale of Urbanstone to Brickworks.

    The deal does not include Urbanstone's land and buildings in WA, which will be occupied by Brickworks under a long-term lease with Schaffer Corp.

    Schaffer executive chairman John Schaffer said the sale would allow the group to focus on its automotive leather business, its Delta precast division and its property investments.

    Brickworks said Urbanstone was a logical bolt-on acquisition for its masonry business, providing additional scale and diversifying its product range and geographic exposure.

    The sale is expected to generate an after-tax profit of $3.9 million for Schaffer, one of WA's oldest listed companies, having joined the stock market as Calsil in 1963.

    Schaffer Corp made a net profit of $5.9 million last financial year on revenue of $215 million, including a break-even result from its building materials division on sales of $38 million.

    The bulk of its revenue is derived from its automotive leather business, which supplies manufacturers including Nissan, Mercedes and Audi from plants in Australia, Slovakia and China.

    Brickworks' portfolio includes Australia's largest bricks producer Austral Bricks, Austral Masonry, Bristile Roofing, Austral Precast and Auswest Timbers.

    GearWrench unveils new brand identity

    Apex Tools-owned GearWrench has a rebranding campaign. The company sees its new identity embodying the brand's commitment to excellence in manufacturing and innovation. The rollout involves every aspect of the GearWrench brand, including its logo, tagline, colour palette, typography, and product design.

    The new Gearwrench logo, "Forge Ahead" communicates the brand's approach toward forward-thinking, according to the company. Ray Smith, vice-president - marketing, North American Hand Tools, said:

    The GearWrench brand has grown remarkably over the past 20 years. We've undertaken this comprehensive new brand identity program to reflect that progress. This new visual identity will help communicate the high quality of our products, our customer-focused culture, and our commitment to innovation.

    The logo it replaces has represented the brand since it appeared in 1996 when GearWrench introduced the first professional grade ratcheting combination wrench.

    Looking forward, the company plans to continue expanding its redesigned product line. By the end of 2017, GearWrench said it plans to have 4,100 different products available for purchase.

    Husqvarna demonstrates latest products

    The annual Green Industry and Equipment Expo (GIE+EXPO) in Louisville, Kentucky positions itself as the largest trade show for the outdoor power equipment, lawn and garden equipment, light construction and landscape industries. Husqvarna introduced several new products at the recent 2017 event.

    A new model for its Automower robotic mower series was presented, as well as additional products for the company's lineup of battery-powered range and new chainsaws and chainsaw accessories for professional landowners and farmers.

    In 2018, the Automower 310 can serve 0.25 acres and slopes up to 22 degrees. This model also features "Connect from Home", its new connected Bluetooth functionality.

    The Automower X-line will be introduced next year, which Husqvarna says makes the Automower Connect app standard for those models. This app allows owners to control the mower from their smartphone no matter where they are.

    The app works for Android and iOS devices and lets owners receive their Automower's current status and change settings remotely. It also transmits the Automower's precise GPS-tracked location in the event of a theft.

    Husqvarna said it will give its 400 e-series saws a full upgrade in 2018. The 435e, 440e, 445e, 450e and 450e Rancher chainsaws will all have improved start-ability through Smart Start for low rpm ignition, a slimmer saw body and flip-up tank cups, snap-lock cylinder covers and quick release air-filters.

    Additionally, Husqvarna also introduced new saw accessories. The X-Cut SP33G is the company's first-ever chain designed, developed and manufactured from the materials to final product in its production facility in Sweden. The carefully engineered thickness of the chrome layer ensures a lasting sharpness and a high capacity, and the chain requires less power from the saw than the standard cutting systems.

    Available with a 48- or 54-inch commercial ClearCut deck, Husqvarna says the V548 and V554 stand-on mowers provide excellent grass cutting and management. Its latest zero-turn mower series consists of 11 products, four Z500 models and seven Z500X models, ranging from the Z548 to the Z572X.

    The company also announced a line of commercial zero-turn mower blades featuring Fisher Barton's laser edge cutting technology. Husqvarna says these blades feature long-lasting sharpness, reducing downtime for lawn care professionals and increasing cut quality and fuel efficiency.

    With its new BLi100, BLi200, BLi300 batteries, Husqvarna introduced a new line of lithium-ion technology that will replace the current models. The company says these offer faster charge times (50-80 minutes), higher capacities and 100Wh, 200Wh and 300Wh respectively.

    Selleys sees UK opportunities

    The Selleys brand is working with Anthem Worldwide (Australia) to help break into DIY market in the UK with the latest revamp of its brand and packaging, tailoring it towards the British consumer.

    While Selleys is relatively unknown in UK and competing in a category with many established brands, the extreme Australian weather conditions provides strong credentials for Australian brands claiming superior strength and performance. However, with up to 40% of consumers walking away from shelves empty-handed, understanding how customers navigate this category was the focus of Selleys' launch. Ami Heath, account director, Anthem Worldwide (Australia) told

    Entering such a category as an unknown brand provides both great challenges and opportunities. While brand awareness and trust will always take time to gain traction, opportunities such as this are rare - to be able to reassess norms and provide customers with a fresh approach to old category problems. Targeting both unconfident and confident DIY-ers, we really needed to use design carefully to both appeal to the new British consumer, as well as respect 75 years of Selleys' proud heritage.

    Creative director, Marcel Wijnen added:

    Addressing an age-old category problem of intolerable clutter, we took a bold new iconography-led approach to differentiate from competitors who mostly led with technology cues.

    Paired with a strategic use of colour, the new range significantly simplifies the packaging hierarchy, greatly improving range navigation. This straightforward approach still pays homage to Selleys' no-fuss Aussie persona, but allowed the brand to also unify the range and complement it with a newly refreshed Selleys brandmark.

    Snap-on to appeal patent suit

    Tool maker Snap-on said it will appeal a US federal court's verdict that awarded Milwaukee Electric Tool (not to be confused with the Techtronic Industries-owned Milwaukee brand) nearly USD28 million in a patent-infringement lawsuit.

    The federal lawsuit, filed three years ago in the Eastern District of Wisconsin, involves three Milwaukee Tool patents for battery packs used with cordless power tools.

    The Journal Sentinel reports that Rick Secor, director of corporate communications at Snap-on said the company strongly disagrees with the jury's verdict and will "vigorously appeal."

    In the lawsuit, Milwaukee Tool said the lithium-ion battery packs it invented greatly changed the industry after being introduced in 2005. The technology replaced packs that used nickel-cadmium batteries. A spokesman for Milwaukee Tool said:

    The introduction of Lithium-Ion technology to the professional power-tool industry was groundbreaking and resulted in multiple patents for our company that we continue to aggressively defend. [The] jury verdict by the federal court affirms Milwaukee Tool's leadership in new-to-world technology in cordless tools for the trades.

    Milwaukee Tool asserted in its lawsuit that "no other technology could offer the combination of high power, light weight and compact size made possible by Milwaukee Tool's inventions."

    The lawsuit contends Snap-on infringed on Milwaukee Tool's patents when the company made lithium-ion battery packs for Snap-on tools. But Snap-on argued in court filings leading up to the trial that Milwaukee Tool's claims were invalid because Canadian battery maker E-One Moli Energy had actually developed the technology and brought it to Milwaukee Tool. Moli eventually gave up its patent ownership rights in 2006 and established a license agreement with Milwaukee Tool.

    "Snap-on does not believe, that there was anything inventive about using a Li-ion cell in a high-powered cordless tool battery pack. But assuming...there is an invention here, Moli conceived of it, and not (Milwaukee Tool)," Snap-on attorneys wrote in seeking a summary judgment.

    The jury hearing the case concluded that it was more likely than not that Snap-on's lithium-ion battery packs infringe on Milwaukee Tool's patents. It determined the award was a "reasonable royalty" after determining Snap-on had likely willfully violated elements of three different Milwaukee Tool patents.

    Milwaukee Tool's victory in its lawsuit alleging patent infringement was not surprising, said Scott Hansen, one of the lawyers who represented the company.

    The amount was fairly based on the amount of Snap-on's infringing sales.

    He noted that the jury deemed the infringement willful. That finding, Mr Hansen said, allows the court to increase the damages Snap-on could have to pay by up to three times the amount of the jury's award.

    TTI portable generators with EFI technology

    Techtronic Industries Power Equipment (TTI) said it is bringing closed-loop electronic fuel injection (EFI) technology to its Ryobi branded line of portable generators.

    EFI technology has been used extensively in the automotive and houseboat industries as an environmentally responsible advancement in engine technology. TTI is introducing the performance enhancing advantages of EFI technology to its product lineup.

    The new EFI engine option is featured on the RY907000FI model generator and provides up to 20% greater fuel savings, compared to a standard carburetted engine while also improving starting and performance at all elevations. Most significantly, the on-board electronic engine management system greatly reduces Carbon Monoxide (CO) exhaust emissions emitted from the engine. Lee Sowell, president of TTI Power Equipment Outdoor Products division, said:

    The most effective way to mitigate the potential for CO related injury is to first address the hazard at the source by lowering the amount of CO produced. This new engine technology being applied to portable generators has the potential to save lives and prevent countless injuries...

    TTI began production of the Ryobi model RY907000FI generator in September 2017.


    Profile: Lawrie Peck, Romak

    Romak Hardware expands into new lines

    One of the senior statesmen of the hardware industry, Lawrie Peck has watched the industry change over more than 40 years - and he's convinced it has a bright future

    In a business environment where the relationship between home improvement suppliers, buying groups and retailers can seem a little fraught at times, Lawrie Peck and hardware company Romak could serve as an example of a better world.

    Romak, of course, is one of the best known names in hardware in Australia. The list of what it can supply is so extensive it's hard to grasp. This includes: Bed fittings, brackets, cabinet fittings, door fittings, door handles, door locks, flyscreens, gate and garage fittings, cabinet and door hinges, wheels and castors, curtain fittings, grommets, nuts, washers, sheds, house numbers, mailboxes, signs, bathroom and plumbing accessories, child safety accessories, padlocks, mirror fittings, cleaning products, garage system storage, and, of course, a wide range of shelving storage.

    Over the past 25 years and more it has filled a slot as a supplier of choice to many hardware stores, big and small, corporate and independent.

    Lawrie has been part of Romak almost from the beginning. Recently, the company has restructured, with the result that Lawrie has found himself once again more heavily involved with the side of the business that he most relishes: dealing directly with independent retailers.

    Lawrie's background

    Lawrie's own life in hardware began at a very early age.

    My father was a roof tiler and, during school holidays, I would go with him on work sites and help him with roof tiling. I used to talk to the builders working on the houses and knock off all their nails. I used to pinch some of their tools and stuff! So I was always in that environment.

    After leaving school at 15, Lawrie ended up working at what seems to have been virtually the university for many hardware stalwarts, the hardware retailer McEwans.

    Like a lot of people in the industry today, I started at McEwans. I was with them for 13 years. That was back when the Luxton family owned the business. So back then, in a sense it was a family-owned business, an independent business. And it was one of the major hardware stores.

    A little less than a third of McEwans was sold to Repco in 1979, which resulted in a partial exodus of staff, who went to work elsewhere in the industry. Lawrie ended up leaving the hardware industry for a short term, going to work for an electrical company.

    However, he wasn't gone for long, soon returning to work for HM Cowdroy. He parted ways with that company in the depths of "the recession we had to have", which began in mid-1990. After working elsewhere for a brief period, Lawrie accepted a position with Romak around 1993, and has stayed with the company ever since.


    Lawrie's career at Romak started shortly after its original owner had sold the company to Mark Wu. Mark had been joined by Oscar Lin, who is a director, and one of the hands-on executives involved in the business.

    Lawrie sees Romak as being in a very fortunate position. It has a manufacturing base in China, with Chinese owners, but a strong presence in Australia.

    We are lucky at Romak, we have China-based owners, we have manufacturing plants in China, we have a big distribution centre in China. We are lucky in the sense that we have a lot of openings that we can go to. For arguments sake, if there were products made in China for storage or flat pack stuff, we would be able to source it. We can respond quite quickly to different product demands.
    We do our own manufacturing which is fantastic. We have a lot of people contact us to see if we can make products for them. So they can send samples and we'd just get it done and give them a price, and it would have to be in the thousands for it to work, but we are open to that.

    Romak has a wide-ranging business, including sales to North America.

    Out of China they also export to America. We also manufacture for ED Oates, some of their buckets and things. They sell those scissor brooms so we do those for them. We manufacture for McIntyre Steel and we used to manufacture a bit for Geelong Sales, their tool boxes.

    Romak at the moment is going through something of a growth spurt, according to Lawrie, as it moves into new areas.

    We are currently in the process of improving some of our product ranges, and increasing our ranges especially in the gate hardware side of the business. We are almost doubling the size of that business.

    One piece of news that is really going to excite a lot of Romak customers is that the company has finally gotten around to redesigning its packaging. While Romak products have long been held in high regard, it has become almost traditional for long-standing customers to rag Lawrie about the slightly "daggy" design of Romak's packaging.

    We are also looking at our packaging - which will probably make a lot of people happy out there. We are redesigning our packaging! We are currently employing a designer to do this.
    We've designed some new boxes and we are doing them in yellow to go with HBT colours. We are producing labels with a photo on the front et cetera. And we'll be using them for a lot of our bulk products. We are doing all this in-house which is exciting.

    Romak is also pursuing deals with fellow suppliers, with a view to presenting a comprehensive solution for retailers.

    I can see a lot of growth for Romak hardware in the next 2 to 3 years. That's got a lot to do with the changes we've discussed with some complementary suppliers.

    Nowadays, much of Lawrie's attention is on the independent Australian retailers.

    I mainly concentrate on the HBT group. We do a bit with the Natbuild group which is backed up by Bowens and Dahlsens, always have been. Then there is Hardware & General up in Sydney.

    It's a nice change from some of the tasks he's had to do in past years.

    I was tied up in the office for about three years. I was still very involved with the independents, but at the time we needed someone with knowledge of the industry to service inquiries that originated with Bunnings customers. A lot of end-consumers bought products, who had DIY issues with them. That took up a lot of my time before we employed a few people to look after that side of the business.
    We used to receive about 90 to 100 calls per day, nationally. They would ask, how do I install a door lock? Well they probably shouldn't have bought one in the first place! They would mistakenly buy a privacy lock and ask advice on how to install it, as a front door lock.

    Not that Lawrie was idle during that time. Aside from managing customer service calls (he was the only person who was completely across all the Romak products), and dealing with his favourite independents, he also helped get stuck into the website tech.

    We relaunched our new website a few years ago. The website connects with the nav system. And the orders go straight out to the warehouse. We never had that before, we just had order pads and it was all manual.
    The new program has been fantastic. If we do any changes to our price files or anything, this a 24-hour change around and the website is updated. So a member can login, there is a history of their sales that they can look at, they can automatically see what we got in stock or what's out of stock when they are placing orders. Once they placed an order, they automatically get confirmation back about their order. And we've never had that before so that's been a great improvement.
    It has speeded up the picking in the warehouse, and our order turnarounds have speeded up. Now a lot of the orders can go out the same day whereas before it took 3 to 4 days. Very rarely are we sitting on orders that are two days old.

    HBT origins

    While Lawrie has contributed to Romak's success in a wide variety of ways, it's evident that it is in dealing with independents, and especially HBT, that his talents come into sharp focus. It actually wasn't that long after Lawrie started working for Romak that the first stirrings of what would come to be the Hardware & Building Traders (HBT) began.

    When HBT was first formed, wholesalers like Romak used to close over the Christmas period for three weeks or so. Prior to this one Christmas, I heard a rumour in New South Wales that there was going to be a split. There were some unhappy people that will with the Danks group at the time. Back then we didn't have a great deal of business in New South Wales, we only had a handful of customers. So I was desperate to find out about this group.
    It came up to the Christmas holidays when we traditionally shut down so when we came back I started to put out the feelers again to try and find out what was going on. And then I received a call from Margaret Manwaring saying, look, we've got this group of people that want to break away and form another group. I thought, wow.
    So we set up a meeting just outside of Sydney. That's where we met Mitch Cameron Mike Coates and Jeff Cornford. I took Oscar Lin with us. Anyway, we sat around this table and they told us the story, and I said yes let's go with them, because I love the independent side of the business and I want to see these guys flourish. I said, let's go ahead with it.
    So Oscar and I came away, and I put a proposal together. We submitted it to the group and they accepted it. So that's where it all sort of started.

    Looking at how successful and well-organised HBT is today, it's hard to believe, but the group really was started on the spur of the moment, when a number of store owners reached a breaking point with the buying group they belonged to.

    In terms of history, there was so much negativity regarding that particular buying group, this provided the motivation to start another group. Mitch Cameron was the main driver, because he was over it. It was a big gamble for them at the time, it really was, it was a huge gamble for them to do it. And good on him. I mean he just stood up to the pressures and saw the opportunities.
    So I think it was a gutsy decision. I don't think there was a lot of actual thought, prior thought put into it. He just had enough and came up with this crazy idea, let's form our own buying group.
    I think he walked out and he was followed by three or four others at that particular meeting, and they went and had a coffee somewhere and that's where it all sort of started. So it was really over a coffee where they decided, let's do this, and that's how it happened. It wasn't preplanned or anything. It was like a spur of the moment thing -- and they were probably absolutely panicking at the time!

    HNN will definitely get the inside story of what happened from Mitch one day, but all that Lawrie could tell us is that there were questions Mitch wanted answered by Danks, and he didn't get the responses he needed. There were also, Lawrie tells us, some problems with catalogues.

    At the time, there were the catalogues which forced members to take on product that they don't really need. They couldn't return that stuff if they couldn't sell it, so they were stuck with it. And that's what HBT don't do.

    HBT Stage 2: Tim Starkey

    In the late 1990s HBT began employing the services of one Tim Starkey to help manage the group. By 1999 HBT had grown large enough that Mr Starkey could work full-time, as the group's hardware manager.

    If you look at the history of HBT, I said to a few people at the last conference, if anyone wanted to kick off that same sort of scenario they would really struggle in this day and age. The story of HBT will never happen again, I don't think, to be honest. HBT will just continue on.
    Tim Starkey used to say the only thing is that there will be an exit of members because they are family businesses and the kids don't want to take over. That's the only negative side of it, I guess.
    HBT members are so entrenched in what they are doing, I don't see another group coming out of that. If another buying group was formed, he would have to be very special circumstances for them to change.
    Tim has locked everyone in, bless his soul, he is the forebearer virtually of what HBT is today. So many members had so much respect for Tim. So I can't see anyone forming another buying group and taking away members from HBT. And a new group would have to sign up suppliers. !If suppliers already have a deal with HBT then why would they bother? The only way they bother is if the deal wasn't as tough as what HBT might have negotiated - but then they wouldn't be in the marketplace, would they?

    HBT Stage 3

    It's hard to believe, but it is a year since Tim Starkey passed away. In that period HBT has continued to build on the foundations he helped to establish, and really thrived. One particular bright spot has been the ongoing development of the H Hardware stores.

    It's exciting to see where HBT are now, especially with the H Hardware stores coming along and expanding. Let's hope they do keep expanding and I hope they don't go down the corporate path - but I doubt it because that's not their culture.

    In some ways, Lawrie was out ahead of the H Hardware plan by a considerable margin.

    I presented some H branding for hinges to the group about eight years ago. It was when they were first talking about the H business. And I said at the time we were set up to do that but we would need a commitment from the stores, because we would be just duplicating a product for a brand. So I had our design team put together some product cards etc. to set up the branding. Took it to the conference and presented it. However, it was knocked on the head, at the time.

    Lawrie has some ideas about how H branded products are likely to develop in the future.

    I think further down the track -- and they are probably already doing it -- they will have an indent type of order. One-off special order branded stuff. Like they do with the wheelbarrows and things like that.
    Branding product can get complicated because there are so many categories in a hardware store. Specifically for our area, I've got about 23 different categories crossing over a whole hardware store. I selected hinges for the H-branded product, and that's already a huge range. So I'm not sure where it's going but we are open to it. We can do it.

    Ongoing relationship

    While many people know about the role people like Mitch Cameron and Mike Coates played in getting HBT going, fewer realise what a key role Lawrie has played in the lives of many HBT store owners. Lawrie has found good retailers who were in HBT but starting from a low base, and helped them bring there stores along.

    You talk to Wayne at Wynyard (Tassie store). I was just down there a week ago and he still says to this day, that when he first decided to join with HBT, his business was in a real mess. And he did say that there were suppliers that wouldn't take him on. We were one of the ones that said, okay let's go with you.
    So he was like Chris Moorfoot, just buying ones or twos, and we supported him. I just said, let's get on with this guy, and his margins went from really small to really big. To see his business today, it's just incredible.

    So that's the relationship that Romak has had with HBT, you hear those stories quite a lot. We asked Chris Moorfoot to comment on his relationship with Lawrie:

    I would call Lawrie a "seasoned campaigner". Someone who has always been in hardware; it's in his blood; his DNA.
    He is so experienced. It's great talking to people like him because they have a lot of history in the business and so much knowledge to willingly share. He seems to know all facets of hardware and it is obvious that he cares about his customers and the success of each of their businesses.
    And he is such a likeable bloke; we are always happy to welcome him into the store, in fact we don't even ask.

    Chris is particularly impressed with the way Lawrie handles the supplier relationship:

    He/Romak was the first supplier to spend the time with us to identify the right core hardware lines we needed in the store. He went through aisle by aisle; category by category; and page by page of the catalogue.
    Lawrie really helped us out when we started because the business was a mess when we took it over. I could only buy one or two of each product just to represent the range and re-establish the categories.
    The relationship flows through to today. We are working closely with Lawrie to develop a bulk offering in some categories instead of carded (like the corporate stores). He is researching and developing the requirements for us to merchandise a number of different products to better serve our customers and increase our margin.
    Lawrie just seems to always find a way to make things happen!

    Of course, it is not all one-way traffic, and, in the best HBT tradition, while Lawrie has benefitted HBT, HBT has also been of benefit to Romak.

    It's been a good area for Romak to grow. When I first started, we had about 1500 product lines, and now we have over 5000. We went up to about 7000, but we have reduced it now. A lot of that has to do with our connection with HBT.

    One of the recent highlights of Romak's product expansion has been its letterboxes and signs, which were requested by HBT. As Chris says, Lawrie just has a talent when it comes to making things happen.

    With the letterboxes, I was very lucky because we are very close to Sandleford. We actually manufactured some of their products. So that was our connection. When I was approached by HBT about letterboxes, I did initially go offshore to find some, but it was too difficult. So I approached a Sandelford. And now it is working quite well.
    When an order comes through from a customer, we just place an order with Sandelford and it is here the next day. It was initially slow but picking up now. Since the conference with had pretty good success with it.

    The future

    Lawrie's long experience in the industry has left him a little philosophical when it comes to its future.

    I've seen lots of changes in the industry, some good and some not so good. But that's life and that's the industry. I think it's in a good place at the moment.
    I had a close look at the Masters thing, we all know what happened there. I just couldn't believe that they went ahead to be honest. And we never really had a connection with them. We made an executive decision not to go down that path.
    I can't see many other major changes. Bunnings will continue to keep growing obviously. With Mitre 10/IHG, I'm not really sure where that's going to go. There's a lot of uncertainty there.

    Lawrie does think that independent retailers do need to pursue a strategy of specialisation.

    Tim Starkey hit the nail right on the head, when Woollies announced they were going down the track of hardware in relation to Masters, and there was that scare campaign and HBT members were worried, and that sort of thing. One of Tim's discussions he had at a conference was, he says we've got all this happening as well is Bunnings, you've got to get your little niche and be different. He was onto that and kept pushing it. That's one thing I remember.
    A lot of the little hardware stores that we see today do have their little niche in the market. They cater for their local area. For example at Chris [Moorfoot]'s store, how many hardware stores do you see have toboggans? He was the first one to do it. Which is great.

    Lawrie is particularly a fan of longer term strategic planning for investment.

    A lot of forward thinking is required. Dave from Cooma is a good example, he says.

    Dave is expanding, he is building a huge business up there. He's got a new shed, H Hardware branded. A few years ago, he bought a roof truss plant to go with his business. So that's all forward thinking.
    And he's got the main hardware store with all this timber and his hardware, then he's got the truss plant on top of that, he's actually built it himself. He poured all the concrete slabs for it. He showed me photographs at the conference. It's a huge place.
    He is offering a huge service. His main market is farms, rural. He would also be supplying a lot of stuff to the snow areas too, Jindabyne and places like that.

    Things are also looking good for Lawrie himself.

    For Lawrie personally, the future is looking especially bright, because he gets to do the things that he is most keen on.

    I'm on the road a lot, I try to get out a fair bit. I love doing that, making good connections. Need to do the face-to-face but I don't get out as much as I'd like to.

    For Lawrie, the business always comes back to relationships, and to establishing real trust.

    I think back about the early days of HBT, and I have so many friends there. So it's been a wonderful experience for me. Taking myself out of Romak Hardware, just meeting these people like Mitch Cameron, and Ian and Graham Stafford, Margaret Manwaring, Jeff Cornford. Up in Byron Bay you've got Mike Ahern, and his son Matty, they are just lovely people. And I have found that throughout the whole group. There's Dave Kent, he's a character.

    Then there is Lawrie Peck, in with that group. A bit of a character too, and just about the very definition of a solid bloke you can rely on.


    Supplier update

    Ryobi power tools to be owned by Kyocera

    Reliance Worldwide could find itself in the middle of the retail battle between Lowe's and Home Depot

    Kyocera seeks to diversify through purchasing Ryobi power tools; Reliance Worldwide remains upbeat despite facing a potentially bigger backlash from Home Depot; Bisley Workwear could change hands; speculation surrounds the sale of Gerard Lighting; new industrial premises for GWA Group; and Rhino Tanks transitions into Kingspan.

    Kyocera takes on Ryobi's power tool operations

    Japanese electronics maker Kyocera is seeking to acquire the power tool business of Ryobi for about 15 billion yen.

    Ryobi's power tool sales are believed to reach almost 20 billion yen annually, making it the third-largest player in Japan after Makita and Hitachi Koki. Kyocera aims to expand its product lineup and sales network with the acquisition, which would include a Ryobi plant in Dalian, China.

    The world's power tool market is growing at a 3.9% on an annual basis, and is expected to be worth USD30 billion by 2021, according to research by US-based Freedonia Group. Emerging economies in Asia are key drivers of the trend.

    Kyocera's main business in ceramic products has enjoyed strong demand for smartphone-related parts, among others, but is still vulnerable to macroeconomic factors. The Kyoto-based company has also closed and streamlined factories under its flagging solar battery and mobile phone businesses. The company is now looking to diversify, particularly into the power tool sector.

    It aims to expand group sales by about 500 billion yen to 2 trillion yen in fiscal 2020.


    Supplier update: Kyocera is the new owner of Senco - HNN

    Plumbing specialist remains confident on growth

    Plumbing products designer and manufacturer Reliance Worldwide reported a 26% rise in net profit of $65.6 million in its first full-year financial results, exceeding its prospectus forecasts.

    Revenue of $601.7 million for the 12 months to June 30 was up 12.6% on its pro forma results the previous year, while earnings (EBITDA) of $120.7 million was 21.8% better than the pro forma $99.1 million.

    Net sales grew 2.4% on the prospectus forecast while net profit after tax rose 4.8%.

    Reliance, which raised $919 million in Australia's largest initial public offering of 2016, is forecasting robust earnings growth of between 20 and 24% in 2017-18, but a potentially dark shadow is hovering above it in the US.

    The company has its Sharkbite push-to-connect plumbing fittings now being sold through most of the 1700 Lowe's hardware stores in the US, after making the decision to try to have both Lowe's and Home Depot as major retail distribution channels.

    But Home Depot, which still stocks Sharkbite in most of its 1900 US outlets, has cut the product in just under 100 of its outlets in the Pacific Northwest region. It has dropped Sharkbite in those stores and replaced it with a rival push-to-connect product called Tectite.

    More than six months ago, Home Depot had already ditched some other Reliance products in PEX pipe and crimp fittings in most of its 1900 stores. There is a risk, therefore, that further losses of Home Depot contracts can occur.

    But Reliance Worldwide chief executive Heath Sharp said he was confident that Home Depot wouldn't go much further and remove Sharkbite from more of its stores, or even worse, from all of its stores. He told The Australian Financial Review:

    They would have preferred we didn't go to Lowe's.

    He said the two big retail chains in the US hardware market often aspired to having "exclusive" products. He said:

    They both watch what the other does very closely. When they can, they want to have brands that are exclusive.

    Mr Sharp said Reliance was taking the view that Sharkbite, as the leader in a new category of push-to-connect plumbing fittings which save time and costs, would become the prized brand across the entire market and therefore a "must stock" item for all hardware retailers. He said:

    It's a young category and it's still early on its growth curve.

    It would take time to convert more plumbers, who had grown up using traditional methods to attach fittings.

    "We believe in the fullness of time we can get it back," he said, referring to the lost business from Home Depot. He used the analogy of a big tissue brand like Kleenex in consumer goods, with customers across the board expecting to be able to purchase it from all retailers. Reliance produces 72% of its total sales from the Americas region.

    Mr Sharp said the forecast lift in earnings in 2017-18 would come from a combination of expansion of the push-to-connect business in the Americas, a full-year contribution from the Holdrite plumbing products business in North America acquired for USD92.5 million, opportunities in the Asia Pacific, new plumbing fittings products and efforts in commercialising the latest "Internet of Things" applications for water flow monitoring.

    Supplier update: Reliance inks deal with Lowe's - HNN Supplier update: Plumbing company IPO - HNN

    Bisley Workwear could see change in ownership

    Independent expert Deloitte Corporate Finance is deciding if the proposed $35 million sale of the Bisley Workwear business by ASX-listed Gazal Corporation to one of its major shareholders is fair and reasonable.

    Bisley, which competes against the Wesfarmers-owned workwear brands King Gee and Hard Yakka, generated a 4.2% rise in annual sales to $62.1 million and produced earnings before interest and tax of $5.7 million for the 12 months ended June 30, 2017.

    The Bisley brand has a sponsorship arrangement with the Sydney Roosters in the National Rugby League competition, emphasising its high-vis workwear in promotions with Scott Cam, the host of the Nine Network's renovation show The Block.

    The booming Sydney housing construction and renovations market had given the workwear category impetus, while increasing regulations around health and safety were also a driver for purchases.

    IBISWorld said improvements in the mining industry were also lifting demand in the workwear segment. Demand has been strong in the housing construction market over the past five years even though housing starts are now tapering off from record levels, while a renewed pipeline of infrastructure spending by governments around Australia is also a driver of demand. This is offset by the decline in manufacturing as the automotive industry shuts down by late 2017.

    But loyalty to a particular brand was diminishing. "People are often willing to give other brands a go," said Maurice Mulfari, owner of At The Coalface, a workwear and safety boots retailer in Sydney's North Willoughby. Fashion was behind the big rise in popularity of "wheat" coloured work boots, which he said now represented about 70% of total work boot sales.

    Nathan Cloutman, a senior industry analyst with IBISWorld, said the growth of young brands like FXD had been symptomatic of the shifts in the industry away from a highly generic uniform look. He said:

    Over recent years, the industry has begun to shift towards incorporating design into the functionality of workwear.

    Companies had also been expanding their workwear ranges for females, in line with higher participation rates.

    Ownership change

    Gazal has owned the Bisley trademark since 1991. It owns 50% of an Australian joint venture vehicle with United States brand owner PVH Corp, and distributes the Calvin Klein and Tommy Hilfiger brands in Australia.

    The proposed Bisley sale to David Gazal, one of the veteran retailing brothers who control Gazal Corp, will leave the firm with its stake in the PVH Corp joint venture as its major asset.

    Gerard Lighting could be target of sale

    Sources have told the Dataroom column in The Australian that private equity firm Anchorage Capital could be circling Gerard Lighting with a view to buying the recapitalised business.

    However Gerard chief executive Les Patterson said no talks were in progress with any parties surrounding an acquisition and it had no plans for a sale.

    Earlier this year, Gerard Lighting was in discussions with its lenders and has been up for sale in the past two years through investment bank UBS. But the business was offered a lifeline by Investec and Bain Capital in the past few months when the lenders bought the operation from Champ Private Equity.

    Still, Bain and Investec are seen as unlikely long-term owners of the operation and a divestment may prove another lucrative turnaround opportunity for Anchorage.

    Phil Cave's Anchorage Capital Partners was the group that amassed massive profits from the acquisition of Dick Smith Electronics from Woolworths for less than $100 million in 2012. In 2013, Anchorage floated the operation for $520m.

    However, Dick Smith later collapsed after it was listed with cashflow pressures and excessive debt costs blamed for its failure.

    Anchorage is seen as an opportunistic buyout firm that targets turnaround scenarios and is likely to be fielding plenty of approaches to acquire out-of-favour companies in the media and retail space.

    Gerard Lighting is a supplier of lighting for the commercial, trade and residential markets, along with major construction and infrastructure projects. Bain and Investec have been long-term lenders of the operation and part of the terms of its acquisition was to invest capital into the business to reduce its debt.


    Supplier update: Restructure deal for Gerard Lighting - HNN

    GWA moving into new industrial site

    GWA Group is consolidating its manufacturing and warehouse operations into a new facility at Charter Hall's M5/M7 Industrial Estate on a 10-year lease. Located at 290 Kurrajong Road, Prestons (NSW) the project is estimated to cost $45 million.

    The bathroom and hardware supplier is redesigning its distribution network to include a purpose-built distribution centre, in order to reduce their operational costs and environmental footprint. This facility is also expanding GWA Group's R&D resources. GWA group general manager Sean Mitchell told the Urban Developer:

    The transformation of our warehouse management system will future-proof our business. The outcome will provide us with flexibility to grow with improved supply and operational efficiencies.

    Construction of the 31,029 square metre facility is currently underway by Charter Hall. It is anticipated to be operational in 2018.

    Rhino Tanks undergoes brand refresh

    The owner of Rhino Tanks, Kingspan Environmental, has invested in new signage at its Deniliquin (NSW) distribution centre, signalling a new era for Australian made Rhino Tanks.

    Eastern states operations manager for Kingspan Environmental, Chris Butcher, said it has removed the "Rhino" from the recognisable logo, but it's "business as usual". He said:

    Kingspan's logo features a lion, so we have updated the Rhino logo to support our parent brand...So visibly there are some changes, but our water tanks are the same - they are still made in Perth from BlueScope Steel and lined with the most stable and safest food grade materials available.

    The company plans to capture new markets and grow its network of distributors and installers. As part of its commitment to the region, Kingspan Environmental has renewed its lease in Deniliquin for another three years. Mr Butcher said:

    Along with our Kingspan Rhino Rural range, we also offer residential made-to-measure water tanks with capacities ranging from 500 litres to 29,000 litres across the eastern states, and our new BioDisc sewage treatment range Australia wide. Our commercial range goes up to a capacity of approximately two million litres.
    Kingspan produce other waste water treatment solutions and solar and wind power products, so there is a huge potential to grow in the future and expand into other markets.

    TTI 2017 first half results presentation

    More growth for power tool segment

    However its floorcare division experiences another downturn as it undergoes a transition

    CEO of global power tool and floorcare manufacturer Techtronic Industries Group, Joe Galli, presented the company's results for the first half of FY2017 recently.

    Following is a transcript of his presentation, edited for the sake of clarity.

    It is a pleasure to share with you record breaking results once again. Sales in local currency were actually up over 8% for the first six months. That reflects our ongoing guidance of growing strongly at a single digit. The Milwaukee growth engine was up again, over 20%.

    Our power tool equipment segment demonstrated outstanding growth and momentum. In the first half it was up 12.5%. I will share more detail with you in a moment about that. There are some fantastic highlights that made up that extraordinary level of growth.

    Floor care down 12%. That number obfuscates a bit the momentum and the progress we are making in floor care. First of all we exited our shredder business which we were in last year. That was a significant business that we dropped completely.

    Secondly, the floor care cordless stick-vac market, stick-vac business for TTI in a number of different brands was actually up over 50% in the first half. So our cordless floorcare focus area is growing like crazy. Of course the corded, the traditional legacy business, which was a big part of our floor care business in the past, is down sharply, and will continue to decline.

    The good news is that our cordless growth will overwhelm that. We have a bright future in our floor care business as you will see in the coming years.

    We were very excited about our first-half performance in gross margin. We were up another 50 basis points this year, which continues an extraordinary trend. Really it is a record-breaking trend. Our EBIT is up 15% on sales growth of 7.3%. That is after currency. This shows outstanding leverage.

    We actually maintained SG&A at a flat level, although we are investing like crazy in research and development on new products, which you will see in a moment, we still were able to generate excellent leverage. EBIT growth up over 15% is something we were excited about.

    Gross margin as we pointed out was up 50 basis points over last year first-half. This is encouraging. But when you look back for a moment on what we have been sharing with you for the past nine years, we have actually increased our gross margin as a percentage of sales over nine consecutive years from the 31.5% starting point in 2008, to this year's 36.6%.

    This is a track record that we are proud of. I can assure you that this trend will continue over the next five years. We have so much high-margin, accretive new product on the way that we believe we can continue to drive gross margin to higher and higher levels, which will generate increased EBIT percentages as we go forward.

    One of the basic productivity measurements we always use, is sales growth versus headcount, once again we grew sales 8% in change, while headcount grew by 2.7%. So, with all the investments we are making in geographic expansion, around the globe, with all the money, and all the heads we are pouring into research and development, and product management, to generate this kind of productivity and leverage in headcount is encouraging. I am very pleased with our team's disciplined performance in controlling these expenses.

    We were able to grow our power equipment business in all regions. Actually, when North America has the slowest level of growth, you know that our geographic expansion efforts are gaining great traction. I was really excited about how our

    European team performed in the first half. And, of course, rest of world means Australia, New Zealand and South Korea, and those numbers are exciting as well.

    And then, when you shift gears and look at only Milwaukee, Milwaukee was once again up over 20% in the first half of 2017. That 20% is an exciting number on a small base, but when you have a significant base, which we now do in Milwaukee, 20% is not so easy to generate. And yet we are committed to a 20% growth level on Milwaukee this year, the next five years.

    I don't think we have even scratched the surface yet in terms of the long-term potential of this vast cordless, industrial market that we are developing with our technology and our new products.

    You know, the geographic performance of Milwaukee is also a highlight. Again, North America up almost 20%. I was really proud of our European team. The European theatre is a tough environment. And yet throughout Western Europe, actually Eastern Europe, including Poland and Hungary, Czech Republic, Slovenia, Bulgaria, Romania, etc., these Eastern European countries are really selling Milwaukee like crazy.

    And of course once again, rest of world means Australia New Zealand and South Korea, where we are growing at rates that are unprecedented. It is very exciting where this is all going to lead.

    Now in the first half, our largest competitor actually reported impressive results, in fact our largest competitor announced that their organic growth for the last six months of 2017 for their tool and storage business, which is comparable to our power equipment business, they were up 7.1% in the first half. And we were impressed with that. That shows good performance.

    Certainly our competitor trumpeted that as an outstanding performance. Except that, we were up 12.5%. Of course, Milwaukee is up 21.5%, but if you take Milwaukee out, our DIY brand was up 10.4%. That is organic growth.

    Even the tactical AEG brand was up almost 10%. So, while our competitor is doing well, you can see that there is nobody taking any market share from TTI. And I can tell you that there will be nothing but a continuation of this kind of trend, over the next five years with the new product flow that we have on the way.

    There is one other interesting thing. You know, a lot of investors have asked me about a new, flexible voltage launched by our largest competitor. I have been answering these questions for nine months. And it is interesting, that since our competitor launched this flexible voltage cordless system, our growth rate in Milwaukee cordless and Ryobi cordless have increased.

    So, while our competitor are doing great with their program, I'm sure, we are doing even better than we were before they launched. So, I think it is obvious that there is going to be no slowdown in Milwaukee, or Ryobi cordless growth, based on competitive actions.

    This is an example of our strategy at TTI. We don't worry about what our competition is doing. We don't worry about macro economic issues beyond our control. Or political issues that are brewing in various parts the world. What we worry about, is things that we can control.

    New product development, hiring outstanding people, motivating our team, having a disciplined strategy that we focus on relentlessly. We have a geographic expansion program, that is not based on headlines, on geographic regions, but very specific countries, specific attacks in markets, where, like in South Korea, or like in Australia, we have focused and attacked with our strategy and we have achieved great results.

    So, our competitors are doing a fine job, and we respect them. But we don't react to them, and I can assure you that we intend at TTI to, of course outperform our competitors for many, many years to come.


    Let me show you why I feel so confident. First of all the Ryobi brand, the Ryobi brand has become the most common brand in the world for DIY tools. This is an amazing statement. You know there was a brand called Black & Decker, it is a company I worked at for 19 years. It was number one in the world, for 80 years. For Ryobi to overtake the former leader, and to become the number one DIY brand in the world, is pretty special. The interesting thing is that not only are we number one, but we are outgrowing any other DIY brand in the world, and it is because of this amazing flow of cordless products.

    It is really the same strategy at Milwaukee and Ryobi. Ryobi One+ is now the number one brand of cordless tools in the world, and although we have over 100 One+ tools already, we are about to launch more in the next six months than at any former period in our company's history. So we have a new mitre saw, for Ryobi One+, that is the first ever cordless DIY mitre saw that performs like a corded tool.

    We have a new brushless motor cordless angle grinder, same technology as we use with Milwaukee. We were able to adapt it at the right price point for our Ryobi family, and with brushless of course you get more power, less weight. This thing will actually outperform a corded version of the same tool. Same with the brushless motor cordless Ryobi circular saw, this is a cordless circular saw that is lighter than corded, and will actually cut faster and more accurately than the corded DIY saws with which we compete.

    Then we have the metal shears, brand-new category, and then we have the pin nailer, brand-new category, then we have our second drain cleaning product. This drain cleaning is a technology that we have pioneered, in Milwaukee. The Ryobi team not wanting to be outdone, also wanted to have a DIY version of drain cleaning. The first one that we launched last year sold so well, that now we have a step-up drain cleaner in our DIY line.

    This is a Ryobi cordless bolt cutter. Yes, a bolt cutter instead of using a manual bolt cutter you can now buy one of these devices. You can cut chains, you can cut rebar, and for the burglar, of course, it is a perfect choice. Now we don't have a lot of control of these things! We just make the products.

    This is a fascinating product. This is a cooling cooler. So in warm climates we have a Ryobi cooler. You pack it with ice, your favourite beverage. And when you fire this up, it actually is an air-conditioner for the jobsite. So believe me, the contractor loves to stand in front of the cooler, not to only to enjoy the beverage now, but also to enjoy the cool breeze that comes from this unique cordless device.

    On to outdoor. So one of the things that people tend to miss about the Ryobi program, is that we have the only overarching platform of cordless, to serve the global DIY market. Not only do we have all of these fabulous power tools you see on the wall [of the conference room], we also have outdoor power equipment that works off the same 18-volt battery as our power tools, and this gives us a unique way to bring people into our system.

    When you walk into a Home Depot, no matter if you buy a drill, or a string trimmer or a chainsaw, doesn't matter, we serve that DIYer with the same Ryobi One+ battery. This is one of the reasons why we have been so wildly successful with this program.

    In the outdoor business alone, we are rolling out the six new products in the second half of this year, and for 2018. This will give us 30 different outdoor products in the One+ system. So, 30 outdoor products in the One+ system, which now gives us over 130, total Ryobi products that all work off that same battery. The same battery that we had 15 years ago when we launched One+, which gives us a backward-compatible system that is unique around the world and is gaining traction like crazy.

    In addition we have pioneered high performance cordless outdoor products. So in some applications, if you have a large yard, let's say in Australia, or Canada, or the US, you might require more runtime and therefore more power. That is why we developed the 40 volt platform of Ryobi outdoor.

    This platform has actually taken off so well, that we are going to launch all these new products next year to feed that 40 volt platform, which will give us something like 30 products in just the 40 volt system, just for outdoor. One of the most exciting developments at Ryobi and TTI over the past six months has been the category of cordless mowing.

    Not only have we pioneered the first ever DIY level, value-priced cordless riding mower - it costs USD2499 - we sold completely out of these last year. We intend to grow, we will probably triple our sales on this device next year, and we are just getting started adapting our unique technology to applications like this riding mower. So this is exciting, this is the flagship of the Ryobi brand.

    However what may be the most exciting development over the past six months is the unbelievable stampede that is going on from petrol mowers, which have been around for a long time, to the Ryobi cordless mowers system. If you think about it, as exciting as cordless is in power tools, when you switch someone from a cord to cordless, it is, there is an even more obvious benefit to switching from petrol outdoor products, to a cordless product.

    So, for example, a petrol mower has a pull cord that you have to pull, which is a challenging and frustrating process just to start the product. Then you have the issue of the fumes, because this is a petrol-burning engine. The fumes, of course, are not great for the environment, or that great for the user either. Of course with cordless, there are no fumes. Then you have heat, the petrol engine gets very hot, there is no heat in cordless. Then you have the noise.

    Our cordless mowers are one third the decibel level that you have with petrol mowers. Then you have the annual trip to the lawnmower shop to have these tuned up, replace the spark plugs, clean the carburettor. You have none of that with cordless. And don't forget, the petrol supplied by people such as Exxon, we don't get any of that revenue. But on the cordless mower, we sell the batteries. So the aftermarket we have for the power source, is a revenue stream that most investors have not yet even thought about.

    We were able to sell four times more mowers than our original forecast last year. I should say rather for the first half of this year. Four times more. Now you say, well, wait a minute, maybe the base was small. The base was not too small. But wait until you see what the base is next year.

    This may well be the fastest growing new business area in all of TTI over the next five years. That is because the market for global petrol mowers is vast, and our competitors have not focused on this category in the way that we have. So I think you will see exciting things in the future here.

    We were also able to develop a very exciting floorcare product in our Ryobi line. Floorcare at TTI is not just Hoover and Vax, we also in Milwaukee and Ryobi will sell floorcare products. This is a good example, this is a cordless pole-vac in the Ryobi system, that is going to be sold globally, and that will be a very significant contributor to the power tool business, although it really is floorcare.

    That is one reason why we are so excited about floorcare, because the technology works in a lot of places. Here is another example, this is a cordless wet dry vac, using the 18-volt One+ battery system. This is more powerful, it has better suction than a corded wet dry vac. And it is cordless, there is no cord so there is no electrocution risk, and there is unbelievable convenience and benefit here with cordless.


    Okay, so let's shift gears and talk about Milwaukee. You see from the three-dimensional display in our triumphant arch over here that we are very excited about the momentum that Milwaukee has. Yeah, we grew 22% in the first half, however I think that investors continue to underestimate the long-term potential of Milwaukee. We have just begun here, we are just getting started, in converting the global industrial market to cordless. We are leading the charge, our competitors are also doing a good job, a rising tide will lift all boats, but I can assure you we are committed to being the global leader in industrial cordless, Milwaukee will be number one, as we implement our strategy.

    We have so much new product on the way, that I cannot begin to get through it today, though I will try to give you some highlights of what we are launching over the next six months.

    First of all we have two platforms in Milwaukee. We have 18-volt, and we have subcompact 12-volt. I have been in the power tool business since 1980, and the most important launch in the history of our industry, is Milwaukee Fuel. The reason is, this is a revolutionary platform, with a unique battery, a unique motor, and unique onboard electronics. The electronics are the key to everything in cordless. We are so far ahead here that we believe we are still three years ahead of our competitor in terms of Milwaukee Fuel.

    So the Milwaukee Fuel range is set to expand a lot. This year and over the next six months we will roll out a whole new family of impact wrenches. These are heavy duty, heavy torque wrenches for driving lag bolts for infrastructure, bridge construction, tunnels etc.

    There is also a version for the automotive market. Every auto dealership in the world, every auto repair shop in the world will shift from pneumatic to cordless - in our opinion - in some degree, and we will lead that charge. This is our family of impact wrenches, that's only impact wrenches. No one anywhere in the world has this kind of range of cordless impact drivers, and that is one of many, many categories.

    We have in addition a brand-new 7 1/4 inch dual bevel mitre saw. Last March we shared with you our new 10-inch mitre saw, full-size. But to be honest cordless means lighter, more compact, easier to carry, easier to use. This 7 1/4 inch saw does something like 75% of the cuts you would do with the full-size mitre yet it weighs a lot less, the blade costs one third as much to replace, and it just works great. In addition we have a new hacksaw, a new full-size hacksaw utilising Fuel technology.

    This is another breakthrough product it is called a mud mixer. What is a mud mixer? That is American slang for a device that mixes concrete, paint, epoxy, and various other compounds that you use on a jobsite. You use it in new construction, and what is the common theme of new construction?

    There is no power, so having to operate one of these things corded is a real nuisance, because you need a generator and a long extension cord. That is over now, with the Milwaukee cordless mud mixer. And we have the same torque, the same power and torque with our cordless tool as traditional mud mixers had with the cord.

    Again we have a heatgun, this is a first ever cordless heat gun. This is a heat gun, it uses no butane, no dangerous gas cartridges. It is strictly lithium technology that we have created. It works like a normal AC heat gun. There are tons of applications for heat guns on jobsites. And in automotive. The full-size 18-volt line of Milwaukee cordless is the broadest in the world, it is growing like crazy.

    Okay, subcompact, 12-volt. We have pioneered finally full power 12-volt ratchets. These are for use in the automotive industry, and for other mechanical hand tool applications. So we are converting people here from traditional mechanics handtools, such as sockets and wrenches, to a cordless ratchet.

    Today, in automotive, people either use handtools, or they used pneumatic, which is loud, noisy, needs maintenance and so forth. Ours is quiet, and actually has more torque than pneumatic tools. So this is a stapler, a brand-new cordless stapler. It is used for installation of carpet, or insulation, or other fabrics that you attach to wood. Here is a new soldiering iron, a soldiering iron that heats up enough with our 12-volt technology that it can replace a corded soldiering iron. Brand-new technology.

    So it is interesting, our competitors talk about changing the market, in cordless, and leadership in cordless, and yet the fastest growing market for cordless is subcompact, the whole idea of cordless, just like your iPhone is smaller than payphone or a landline, the whole idea of cordless is smaller and lighter and more compact, more convenient, less unwieldy.

    That is what subcompact gives us. We have the broadest line, we have over 80 subcompact tools. No one in our industry is even close to being this committed to the fastest growing segment of cordless which is subcompact.

    But this keeps going. Let us talk about some new businesses that TTI is going to enter with our Milwaukee industrial brand. This is the drain cleaning market. Now I mentioned in Ryobi that we have DIY drain cleaners, but for the plumber, for the commercial plumber, or for the residential plumber, clogged drains are nasty business, right?

    We are going to give the plumber a safe, as in you don't get electrocuted, safe and fast way to deal with these unpleasant challenges that come up at various times in restrooms around the world. This is an air snake, so that instead of firing a cable through the drain to unclog it, this actually builds up enough pressure to blow air, blast air through the drains and unclog them, without the unpleasantness of having to feed a cable through the system. Now however there are times when you do need a cable, we will have the first ever cordless cable drive drain cleaners, this is a drain snake that is cordless, and it will outperform a corded version of that drain cleaner.

    Here is something that is called a switchpack, this is really cool. If you need 50 feet of cable to clean the drain, you can attach one drum to the switchpack and you can perform the application. If you need 150 feet, you can plug three of those drums together and you end up with a 150 foot cable.

    Fired from a cordless delivery vehicle, first-ever, so you can now deal with drains that are longer than you can imagine. This is the full family of drain cleaning products in Milwaukee, so this is a category we have never been in, we are famous with plumbers, this is one of the key applications of any plumber, and we have gone from never being in this, to global leader in the cordless versions of drain cleaning.

    So, the new businesses keep going. Another new business that we have shared with you is lighting. Lighting has become an immense opportunity for Milwaukee cordless. Why? Think about any construction site ever, a construction site needs light, whether you're working in the evening, or whether you are in a building that doesn't have light and power.

    Cordless lighting is a vast opportunity. So we are going to bring some more products to market here. Here is a good example. This is a we call this a Radius light, so you fired it up, and it gets very bright on the jobsite, that is working off of our batteries, but this particular light can also be activated from your iPhone. So this is our One-Key system, so from 200 feet away you can turn on 10 of those, with the iPhone. So if you are the foreman at a job site, you can control when the lights go on and off.

    In addition, that particular light also charges your battery. So if you can utilise the light and you can also put two batteries in and charge them so that you can use them later in your power tools. We think many users will also enjoy that application. Here's another cool light, this is an under-hood light for the automotive market. If you are repairing your car, let's face it, if you are in a garage even if the garage is well lit, under the hood, it is not very well lit. Now we provide the user with a cordless way, to work under the hood of the vehicle, and repair the car.

    Here is a shot of the current lighting line, this will be our lighting program by the fourth quarter 2017. Once again, that slide is going to change a lot over the next three years, we have so many lighting ideas that it will blow your mind. Remember, selling lights, this is like selling a power tool without a motor, which means the gross margin here is highly accretive, and it means that the same battery operates in these lights, but we see it as a very very exciting new business area.

    Okay another new area is personal lighting. We have had so many requests from end-users for lighting, that, say, a coalminer would use, or a contractor would use, or even DIYers, farm use, etc. There are thousands of applications for what we call personal lighting. We intend to have the Milwaukee brand become a leader in the space. This is what we're launching, in just our opening salvo. This is just our first step here. However it is quite exciting.

    Okay. Now let's shift gears. Of course power tool accessories matter a lot to us, we have engineered a line of what we call carbide-tipped Torch blades. Torch is a sub-brand. So the Torch blade with its unique carbide tooth technology will out-cut existing reciprocating saw blades.

    Torch cuts metal, with we also have a version of these blades that we call Ax, that is for cutting wood. In both cases we outperform anything in the market. The sales of high-priced, high-end blades are running right now about double what we had forecast. The margins are excellent. So we're very excited about our power tool accessory businesses, and this is a good example of that.

    Okay, brand-new business for TTI. This is something that we have never been in. It is called storage. We have competitors that classify storage as something so important that they actually name the entire business segment "storage". So, we intend to participate aggressively in the storage arena.

    This system is called "Packout", we rolled this out last month. This Packout is a revolutionary interlocking system, that is indestructible, it is convenient because you can interlock hundreds of different of storage devices eventually into the system, and you will be able to attach radios and lights and fans also to things.

    We think we are going to sell so many tools to our users, that they are going to want to store our tools in our storage solutions. And this is a good example that. Do not underestimate the long-term impact of storage.

    Every single user we sell to, has to store their tools. They either store them permanently, in a garage or workshop, or remotely in jobsites, or in vans, and they need wheeled storage solutions, much like your wheeled luggage through the airport. The reaction to this program has been just incredible.

    Okay, another new area. We promised you, what, four years ago we said we would build a billion-dollar global handtools business. We had never been in handtools. Our largest competitor feasts on this category, because the margins are inherently higher, there are lower distribution and transportation costs, people don't return handtools so there is zero returns at the retail level, and we need to be there.

    But we never said we are going to handle business with "me too", commodity boring traditional products. Every single handtool that we launch is designed to be innovative, a leading postion, priced at a premium, but it is designed to outperform our competition.

    This is a great example. We just rolled out 29 new screwdrivers. These have ergonomic grips, and better business-end tips. You might not have thought that we could reinvent the screwdriver, but we did. I'm very proud of our team, and this program and we believe this is going to sell like crazy.

    Another example, tape measures. We've been in this category now for three years. We are going to roll out 16 new tape measures over the next six months. 16 new tape measures. We have features here, and durability, that are unsurpassed in the handtool industry. This is a picture here of our hand tool range as of October. Four years ago that picture would've had nothing on it. Take a good look at it, because while there is a lot of stuff on it, believe me, a year from now it will be a very crowded slide and we will need two slides again.

    Let me make another comment now about the floorcare space. So floorcare is obviously an area that is going through transition. Are we pleased with the revenue results, with the profit results from floorcare? Of course not, in the first half. But there is no alarm here, we are participating in, and we intend actually to drive the stampede, the revolution from corded to cordless. You have to remember when you look at our results, that floorcare is not just Hoover, Vax, Oreck and Dirt Devil, it is also Milwaukee and Ryobi.

    In fact, these floor care products used to clean the surfaces of job sites and DIY areas and even around the home, these floorcare products in every single case are smash successes in our cordless family.

    Because we have so many people in our cordless systems, in both Ryobi and Milwaukee, that we have a presold line of floor care. So anytime that we roll anything out in these two battery platforms there are legions of loyal customers that will buy our floorcare, because they have the battery.

    And that means yes, they won't buy Dyson, won't buy Shark or any of the other competitors. In many cases they will go right to the power tool brand, which are really no longer power tool brands, these are broad power equipment brands, including cleaning devices for floors.

    To read the rest of this article, please download edition 3-10 of Hi News:

    HI News Vol.3 No.10: TTI results presentation by Joe Galli

    Supplier update

    Kyocera is the new owner of Senco

    Higher cement prices from Adelaide Brighton and Mr Fothergill's buys garden tool brand

    Kyocera's acquisition of Senco has strengthened its position in the fastenings category; Adelaide Brighton is expecting to raise prices again; Mr Fothergill's Seeds has bought garden tools and equipment supplier Darlac; and Tenaru is actively supporting the Master Painters association.

    Multinational takes Senco from private hands

    Japan-based Kyocera Corporation has acquired Senco Brands, a fastening tools and fasteners maker since 1948, for an undisclosed sum. This will expand Kyocera's fastening tools business in the residential, commercial, manufacturing and construction sectors.

    As a result of the acquisition, Senco will now operate as a part of the Kyocera Global Tool Cutting Division. Renamed Kyocera Senco Industrial Tools, the company will continue to be headquartered in Cincinnati, Ohio (USA).

    Kyocera takes on Senco in a move that takes the business out of private ownership. Ben Johansen, CEO of Senco Brands, told Pro Tools Review:

    We expect this acquisition to strengthen our new product development capabilities, bolster our ability to provide innovative fastening solutions to a wider range of customers and enhance our global distribution network.

    Senco is known for its product quality and diverse line, which includes pneumatic and electric nailers, staplers, screw systems and compressors, as well as nails, staples, screws and specialty fasteners.

    Kyocera first entered the industrial tools market in the 1970s with a line of high-speed metal processing tools, and has steadily expanded into precision tools for electronics, aerospace, automotive, medical and woodworking applications. Kyocera's 2011 purchase of the Unimerco Group in Europe added a fastening tool product line that should have synergies with Senco's expertise in the fastening tools and fasteners market.

    With the acquisition of Senco, Kyocera plans to increase its sales of fastening tools and fasteners to JPY40 billion by the fiscal year ending March 31, 2021.

    Price increases from Adelaide Brighton

    As Australia's largest cement maker, Adelaide Brighton is set to lift prices for pre-mixed concrete a second time later in 2017.

    It announced recently a 10.9% drop in net profit after tax to $68.7 million for the six months ended June 30, 2017. Revenue increased by 4.7% to $718.4 million.

    The housing and infrastructure boom on the eastern seaboard is triggering price rises for pre-mixed concrete and aggregates used in construction.

    Adelaide Brighton chief executive Martin Brydon said that demand was continuing to rise, particularly in Melbourne and Sydney and a second round of prices increases for a range of products was anticipated later this year.

    The company had already instituted a round price rises for various products on April 1.

    Mr Brydon said rival companies had already signalled to the industry that they would implement "meaningful increases" on October 1. He said no final decision had been made but Adelaide Brighton was also expecting to raise prices again later in calendar 2017.

    I think it's likely we will follow the market.

    Mr Brydon declined to comment on the likely amount of the price rise. He said 2018 was looking very strong for the property construction industry, while the growing number of big infrastructure projects on the drawing board augured well for future demand.

    Mr Fothergill's expands through Darlac acquisition

    According to a report in Horticulture Week, Mr Fothergill's Seeds has bought UK garden tools brand Darlac. The company hopes that by adding the 50-year-old brand it will make its business less seasonal. It is also aiming to double turnover through this acquisition, and intends to keep its main focus on seeds.

    Mr Fothergill's joint managing directors, John Fothergill and David Carey took over the company shares held by their fathers in March 2017. Regarding the purchase, Mr Carey said:

    This is a significant step for our business. We remain committed to being one of Europe's largest seed houses...However, Darlac offers us wonderful opportunities to expand our portfolio in the UK and abroad.

    Turnover for Darlac is currently under GBP1 million. Horticulture Week believes the take over of Darlac is part of a growing trend for large garden centre and general retail garden suppliers to expand ranges. Larger suppliers have been buying several niche companies recently.

    These acquisitions make the most of existing head offices, websites, catalogues, warehouses, merchandising, transport and trading relationships.

    Tenaru partners with Master Painters association

    Tenaru Timber & Finishes has become a silver sponsor of Master Painters Australia (NSW), the peak industry body for the surface coating sector in NSW. Tenaru is the exclusive Australian distributor of brands that are the preferred choice for professionals, including Sikkens, Hammerite, Mirka and Dynamic Paintware.

    The sponsorship provides Tenaru with opportunities to engage with the association's members through awards programs, events and training sessions.

    Tenaru will be sponsoring a category and be a guest presenter at the Master Painters Awards for Excellence in October, and via product demonstrations at member networking events.

    According to Brian Hamilton, Tenaru managing director, as the Tenaru portfolio evolves there is a growing need to have a direct communication channel to the professional painter. He said:

    Tenaru's portfolio includes the globally established, premium products Sikkens, Hammerite, Dynamic Paintware and Mirka. Each brand complements the others and provides a full suite of surface coating solutions for our customers and trade professionals.
    Tenaru has a very experienced team, passionate about problem solving and providing the best advice for projects. We are keen to share our expertise by working more closely with MPA (NSW) members.

    Master Painters Australia (NSW) CEO, Therese Lauriola, said, "We are excited to have Tenaru partnering with us and look forward to some great times ahead."


    Supplier update

    Hitachi Koki plans buying spree

    Legrand launches IoT products in Australia and Brickworks forecasts profit upgrade

    Hitachi Koki is aiming to be in the top three global power tool companies through acquisitions; Legrand launches Eliot, its IoT product range, in Australia; Brickworks expects annual profit to double; GUD posts $7.3m loss; Loscam opens pallet repair facility in Brisbane; Victa rates highly in lawn mower reviews; and Swann celebrated its 30th anniversary.

    Acquisitions on the agenda for Hitachi Koki

    Japanese power tool maker Hitachi Koki will spend up to about 50 billion yen (AUD573.5 million) on acquisitions with the help of US buyout firm and new majority owner, Kohlberg Kravis Roberts (KKR). The company is aiming to become one of the top three players in the industry worldwide.

    The Tokyo-based company's sales totalled 178.7 billion yen (AUD2 billion) in the fiscal year ended in March 2017. This places it among manufacturers roughly tied for fourth in the global power tools market. It is looking to add to its lineup of high-end professional-grade tools by offering mass-market versions via acquisitions. Company president Osami Maehara told Nikkei Asian Review:

    We will grow sales 70% to around 300 billion yen in fiscal 2021.

    Hitachi Koki plans to expand its network of sales outlets in Japan from 39 to between 50 and 60 within three years. This will ease its dependence on dealerships under the umbrella of former parent Hitachi, which account for half of its domestic sales. Industrial conglomerate Hitachi sold its power tools business to KKR in March as part of a wider restructure.

    Hitachi Koki is also looking to change its name but Mr Maehara did not provide a time frame for the move. He said:

    Apart from [Japan] and other markets where the Hitachi brand is strong, we will quickly build up a new brand.


    Hitachi to sell power tool unit - HNN

    Legrand targets Australian building market with IoT

    The growing demand for connected devices is creating new opportunities for the building sector. France-based electrical equipment manufacturer, Legrand believes the expansion of the "Internet of Things" (IoT) will lead to an increase in "smart" solutions for end-users. Legrand has created the Eliot range of IoT products for this market.

    Legrand's Eliot program was unveiled at Sydney's Museum of Contemporary Art recently.

    Connected products with the Eliot brand can simplify usage, facilitate maintenance and customise products based on users' needs. The range includes the Classe 300, Arteor with Netatmo, Smarther and Nuvo.

    The Classe 300 is Legrand's connected video door entry system, and allows the user to interact with the caller by voice and image, locally or remotely, on their mobile device. Made easy to install thanks to the Door Entry app, Classe 300 also enables controls for lighting or automated sprinklers.

    Arteor with Netatmo provides controls for lighting or shutters in the home. Legrand developed this range with Netatmo, a French company specialising in connected objects.

    The Smarther connected thermostat can be controlled remotely via a smartphone app. A Wi-Fi connection lets users program, control and adjust the temperature, anytime, anywhere.

    The Nuvo music distribution system enables music from a single digital source to be played in multiple rooms.

    At the Australian launch the company highlighted a number of other IoT products including:

  • Legrand eco-meter that can be used to measure and display electricity consumption directly and on web pages.
  • My Home system for controlling and monitoring electrical functions, and setting predefined scenarios for of heating, blinds and lighting.
  • In the future, all Legrand products with connectivity capabilities sold in Australia will carry the Eliot label.

    Legrand in Australia

    Legrand acquired electrical supplier HPM in 2007 and today sells some 15,000 products in Australia and New Zealand through a network of more than 5,000 electrical wholesalers, hardware retailers and mass merchants under the HPM, Legrand, BTicino, Cablofil and CP Electronics brands.

    Brickworks upgrades net profit guidance

    Brickworks has forecast its net profit this financial year will be about double that of the prior year, as a result of continued strength in its land and development portfolio. Underlying earnings are expected to be up about 25% on the prior year, it said.

    But the company also said earnings before interest and tax (EBIT) for its building products arm was likely to be lower due to difficult market conditions and restructuring in Western Australia, plus the impact of wet weather on its east-coast operations that reduced product deliveries in the wake of Cyclone Debbie in late March.

    All Queensland operations were closed for a period after Cyclone Debbie, and brick plants in NSW were affected when they were taken off line for long overdue maintenance.

    Still, earnings from its building products business on Australia's east coast would be higher than in the previous fiscal year, because of strong performance from the Austral Bricks unit. Brickworks said the order book across businesses in the region remains buoyant. Any delays caused by wet weather have simply resulted in extensions to the pipeline of work.

    Brickworks said it had sold its former brick making site at Malaga in Western Australia for $19.2 million, part of an ongoing restructuring of the company's brick, roof tile and timber operations in the state. Production from the Malaga plant has been transferred to the upgraded Cardup plant.

    Brickworks is scheduled to release results for the year through to July on September 21.

    Restructuring leads to $7.3 loss for GUD

    GUD Holdings, owner of the Oates cleaning brand, made a loss of $7.3 million in FY2016-17. It follows a net loss after tax of $43 million in fiscal year 2016. The consumer and industrial products supplier said the results were largely due to the sale of its Sunbeam, Lock Focus and Dexion businesses.

    Company revenue for FY2016-17 was $426.3 million, which is an increase of 4% from the previous year. GUD's EBITDA for the period was $87.7 million, which is a 3% rise from last year.

    GUD said underlying profit from the three key businesses it continues to operate was $51.5 million in the year to June 30, up 45% from the prior year.

    The company's automotive parts business includes the Ryco and Wesfil filter brands and Narva accessories. It also owns the Davey pumps and pool products business in addition to Oates.

    The sale of storage and logistics business Dexion and lock manufacturer Lock Focus contributed the majority of a $58.9 million loss.

    GUD said its automotive interests remain the key source of revenue and earnings. Earnings in automotive climbed 11% to $74 million, contributing almost 90% of GUD's total earnings.

    However work remains to be done with Davey and Oates. Earnings declined 15% in the Oates business due lower sales caused by the collapse of Masters Home Improvement stores and the withdrawal of Oates products from Woolworths supermarkets.

    A new chief executive at Oates is refocusing the business on opportunities in commercial markets and performance improvements, according to GUD.

    Davey's earnings dropped 24% as demand was impacted by poor weather conditions. GUD said the dependence of Davey on seasonality is being addressed through new products, including pumps and connections linked to real-time weather data.


    GUD Group FY 2016/17 first half results - HI News 3.1, page 26

    Loscam opens repair facility

    Pallet equipment pooling company Loscam has opened its new Brisbane pallet repair facility, located in the new Richlands industrial park in Queensland.

    Over 120 dignitaries, customers, suppliers, executive team members and staff from Australia and New Zealand gathered for the ribbon-cutting ceremony. The launch of the facility coincided with the company's 75th anniversary. Daniel Bunnett, executive vice president for Australia and New Zealand, said:

    There is an enormous amount of work which goes into driving a Greenfield site development. The effort from the local team in driving the market share gain and then leading this development has been first rate. I would also like to acknowledge our parent company in China Merchants Group who continues to invest in the long-term, strategic future for the region.

    The Richlands facility is expected to deliver significant expansion of repair and storage capacity for the state and is complemented with brand new machinery.

    Linda Tsui, executive vice president - finance, Loscam, delivered a speech on behalf of Zhao Huxiang, Loscam chairman and vice chairman, CMG. She said that its should help the company to better serve its customers and "offer a new experience".

    Guests were given a tour of the repair line as well as its automation and safety initiatives.

    Victa satisfies customers: Canstar Blue

    Canstar Blue has awarded Victa five out of five stars for overall customer satisfaction in its latest 2017 lawn mower reviews.

    With the core purpose of helping consumers make better purchase decisions with its unbiased assessments, Canstar Blue's reviews are an effective way for consumers to find out more about a product, brand and service. Canstar Blue editor, Simon Downes, said:

    Our aim is to help Aussie consumers make more informed purchase decisions every day. Whether it's lawn mowers, home appliances, internet providers or new vehicles - our reviews and ratings are based on real world experiences across more than 100 consumer categories.

    For Victa, the review rating showcases its history and quality of the company's range of lawn mowers. Victa marketing manager, Laura Clarke said:

    We focus on customer insights and design and produce lawn mowers that appeal to the Australian market. Our team continually aims to innovate and deliver products that satisfy customer needs, and that is why we are Australia's number one choice in lawn mowers.

    Assessing reliability and performance; ease of use; value for money; grass cut quality; maintenance; and servicing, the Canstar Blue review describes Victa's range of lawn mowers as authentic as any other Australian staple. According to the review:

    Victa has expanded to offer a large range of lawn mowers that are known the world over for the enduring quality and top-notch craftsmanship, designed and assembled in Australia.

    Swann reaches 30-year milestone

    DIY security monitoring company, Swann recently celebrated its 30th anniversary.

    From starting out in the basement of David Swann's family home in Melbourne in 1987, the business started out with making modems. It moved into security in 1999 with a "spy cam" that pioneered the DIY security category at retail stores.

    Now it has offices in Australia, USA, Canada, UK, Italy, Hong Kong and China with approximately 120 staff. Swann has also expanded its presence to over 40 countries and sells its products through retailers including Bunnings, JB Hi-Fi, Harvey Norman, Costco, and Officeworks. Jeremy Stewart, vice president - global marketing at Swann, said:

    Swann ... has seen at least 10% growth year on year, for the last 10 years. This growth is a testament to our unique selling proposition and reflects the demand we're experiencing from home and business owners, who want control of their safety and security.

    The Swann range includes DIY wired and wireless security systems with new developments that include state-of-the-art professional-quality super HD (such as 3, 4 and 5 Megapixels) and ultra HD 4K recording systems and cameras.

    The Swann family retired from the business in late 2014 and it is now part of the Infinova Group.


    Supplier update

    Gerard Lighting gets additional investment

    Sussex still makes products in Melbourne and JELD-WEN takes on another European door maker

    A major boost for Gerard Lighting from two investment companies; tap manufacturer Sussex produces its inventory from its Melbourne sites; and Finland-based Mattiovi Oy is now owned by JELD-WEN.

    Restructure deal for Gerard Lighting

    Private equity-owned Gerard Lighting is set to see a recovery after key lenders agreed to a deal that will alleviate its debt burden.

    According to a report in the Financial Review, the company has entered into a restructuring agreement with Bain Capital Credit and Investec. This deal will see the two firms assume control of Gerard, which is the largest lighting distribution and partnership network in Australasia.

    The deal means Bain Capital Credit and Investec will invest $15 million in new equity, with representatives from both firms expected to assume board seats in the company.

    The Street Talk column in the Financial Review first reported that Bain Capital Credit increased its exposure to Gerard's debt stack, taking a $30 million loan from the leveraged finance arm of industrials giant Siemens.

    Bain Capital Credit's initial exposure to Gerard came when it bought GE Capital's Australian and New Zealand commercial finance business in 2015.

    Brief history

    Gerard Lighting is best known for brands such as Crompton, Sylvania, Pierlite and Moonlighting. The company operates in a competitive industry subject to intense pricing and margin pressures as imported products jostle for extra sales.

    It was founded by Alfred Gerard in 1920s when it was then known as electrical accessories business Clipsal. It listed on the Australian Securities Exchange in 2010 before private equity firm CHAMP successfully embarked on a $186 million takeover in 2012.

    Melbourne tap maker defies manufacturing trend

    Vanessa Katsanevakis heads up her family owned firm, custom tapware manufacturer Sussex, and first met Alan Wilson, founder and chairman of Reece, a decade ago. She told The Australian in an interview:

    My dad was still alive. Alan came out and visited us at our Somerton facility and got a factory tour. He wanted to see how we were still manufacturing in Australia.

    That was ten years ago. Sussex is best known for its classic Scala collection, and is quietly delivering double-digit revenue growth from three sites in Melbourne's north.

    In an era when Australian manufacturing is seen to be in crisis, Sussex continues to make all its products in Melbourne and is the only Australian tapware manufacturer operating its own foundry. Every step of the manufacturing process is performed by local workers.

    Celebrating 20 years in business this year, Sussex is now looking at exporting to Britain, Canada, Asia and the United Arab Emirates after recently launching sales into New Zealand. The move would see it double staff numbers to over 120.

    Ms Katsanevakis runs the company with her husband George. She said:

    Our growth has been in excess of 17% per annum now since the GFC. It will increase over the next few years. We currently have the capacity to double, if not triple, production.

    Ms Katsanevakis' father, Dutchman Nicolaas Johannes van Putten, a watchmaker by trade, moved to Australia from The Netherlands in 1960. He originally founded Sussex as a jewellery company but the business expanded to tapware in the 1990s. His mantra was to have a fully integrated business from foundry to end product, allowing Sussex to compete with Reece and a bunch of importers.

    For 10 years before the global financial crisis, the group had between 20% and 25% year-on-year revenue growth. But sales fell 30% during the GFC, just as Ms Katsanevakis was being encouraged by her father to take the reins of the business.

    Her brother (and only sibling) was not interested in taking on the role, so she was groomed to take over the company by her ailing father.

    My dad got prostate cancer, he took a step back and the business did plateau for a few years.

    Her father lost his battle with cancer in 2010 when his daughter was 28.

    It was such a tough time. My firstborn was seven weeks old when my father passed away. My husband had been in management at a steel fabrication plant. My dad gave him his blessing; he wanted us to take the business to a new level.
    My dad ran it like a hobby, he was brilliant at engineering and vision but he wasn't strategic in his approach.
    It was no option for us to take it over, we knew we had a special product and there was room to improve in the business. We cut our overheads and manufacturing costs by 15%.
    With time we saw the niche for customisation and we were able to offer that even further, with the 30 different finishes we now offer.

    Some of Sussex's main customers are women aged 35 to 50, a demographic Ms Katsanevakis can empathise with. She said:

    Customisation is our focus, and focusing on our niche. With the finishes we offer, imports can't offer that. We are local, we take each order as it comes and customise it. Gone are the days of plastic chrome tap products. Now it is brush gold, rose gold, black spouts, etc.
    Quality first is what has carried us through. Our focus is mid- to high-end because we can't compete at that lower end.

    Ms Katsanevakis said the focus of tap buyers has also changed in recent years. !Australian-made is back in fashion. It has done a full cycle. People care about that crafted and bespoke item that is handmade.

    While she worries about the next downturn, following the experience of the GFC, she sees no slowdown on the horizon.

    We are experiencing so much growth, and all the builders that we know say it is booming.

    And as she moves to take the company into new offshore markets, her father's legacy remains paramount.

    I will not let all the work my dad has done go to waste. My husband and I are passionate about taking this business to the next level.

    JELD-WEN makes another European buy

    Window and door maker JELD-WEN Holding has acquired a Finnish manufacturer of interior doors and door frames. The company did not disclose what it paid for Mattiovi Oy, which is privately held. JELD-WEN president and CEO, Mark Beck, said in a statement:

    The acquisition of Mattiovi strengthens our market position in the Nordic region and enhances our unique pan-European strategy.

    The company has actively expanded its global footprint in the last two years. Mattiovi is JELD-WEN's seventh acquisition and the second in Europe during the period. Europe is one of the company's largest markets, generating revenue of USD242.3 million in the first quarter, more than a quarter of its total revenue, according to the company's financial statement released on May 9, 2017.

    Based in Charlotte, North Carolina, JELD-WEN is one of the world's largest door and window manufacturers. It operates 115 manufacturing facilities in 19 countries.

    In January, JELD-WEN went public and priced its initial public offering at USD23 per share for a total of USD575 million.

    The company expects the acquisition will be accretive to its earnings this year. Previously, it estimated 2017 EBITDA would range from USD440 million to USD460 million.


    DuluxGroup results FY2016-17 H1

    Tempered sales growth, strong EBIT

    Dulux continues to invest in contra-cyclical businesses, but does it have a good mix?

    Australia's DuluxGroup Limited (Dulux) has announced its results for its FY2016/17 first half, which ended 31 March 2017. (DuluxGroup is not associated with AkzoNobel which markets the Dulux brand in Europe, nor with PPG, which markets the brand in the US.)

    Overall sales revenue was $881.2 million, up by 3.54% on the previous corresponding period (pcp) which was the first half of FY2016/17. Earnings before interest and taxation (EBIT) also grew, climbing by 7.83% on the pcp, to reach $106.0 million.

    (In fact, as Dulux chose to list its payment of $540,000 to the Australian Competition and Consumer Commission in November 2016 under expenses, it's arguable that the company's true performance EBIT should be $106.5 million.)

    Nominal net profit after taxation (NPAT) was $72.7 million, up 14.13% on the pcp. However, this number includes the writeback of an outstanding tax provision worth $3.1 million. Setting aside the writeback, NPAT would be $69.6 million, a 9.26% increase on the pcp.

    Dulux's paints and coatings segment reported sales revenue of $473.7 million (including inter-segment sales). This was an increase of 4.69% on the pcp. EBIT for this segment was $88.5 million, up 7.14% on the pcp.

    In the media release that accompanied the results announcement, Dulux's CEO, Patrick Houlihan, was reported as saying:

    This is a high quality result, driven by strong profit growth across all of our Australian and New Zealand businesses. The strong Dulux ANZ result reflects strategic decisions we made a few years ago to align with key retail channel partners, consumer-driven preference for our premium branded products and our longer term strategy to broaden our coatings portfolio.
    We have an excellent portfolio of businesses that have a track record of providing our shareholders with resilient growth. Looking forward, we see multiple streams of growth both domestically and offshore.

    Results overview

    The Dulux results were fairly positive for a paint and coatings company at this particular stage of its development cycle. Sales revenue growth was positive but low, reflecting environmental factors and internal strategies, while EBIT growth was much stronger.

    The external factors included the discounted sell-off of competing products during the company's first quarter, as Masters Home Improvement exited the market, and wetter than normal weather during the prime exterior painting season during spring 2016.

    The internal strategic factor was the decision to raise prices as the company released a range of new products in the second half of calendar 2016. This contributed to better profitability, reflected in both EBIT and NPAT, but may have inhibited sales growth.

    Despite the positive results, the investor presentation saw investment analysts somewhat more assertive in tone during the Q&A session. One reason for this is possibly that, with a slow-down in residential construction likely for the second half of calendar 2017 and all of calendar 2018, analysts were exploring if Dulux will be, as the company suggests, largely immune to this change in the market, due to its low dependence on new construction.

    While it is often the case that renovation activity increases when new house construction and sales decrease, it is also possible that the housing market reset Australia seems headed for may alter homeowners' relation to their dwellings. This could see reduced overall spending on housing, with some of this going instead to other discretionary categories, such as travel and entertainment. This is not delayed spending, it is revenue exiting the sector.

    Additionally, with the a strong move to consolidation in the global paint industry, as Sherwin-Williams completes its acquisition of Valspar, and PPG continues to pursue AkzoNobel, Dulux itself could become a takeover target within the next two years.

    HNN will return to these matters at the conclusion of this report. We begin with an overview of the company's four main segments, before looking at some macro aspects of the overall business, and Dulux's predictions for the next half and beyond.

    Paints and Coatings ANZ (Dulux)


    This segment includes: Dulux decorative paints, woodcare, texture, protective, powder and industrial coatings in Australia and New Zealand for both consumer and professional trade markets.

    For this segment, retail paint sales make up 36.8% of revenue (21% all revenue), trade paint sales make up 38.5% of revenue (22% all revenue), and specialty coatings make up 24.7% (14% all revenue).

    In market terms, 65% is paint for maintenance and home improvement; 15% is related to new housing; 15% is for commercial and infrastructure construction; and 5% is for industrial use.

    Dulux states that is has approximately 46% to 47% of the "measured" paint market overall in Australia. The company states that decorative paint makes up 60% of what it sells, and the other 40% consists of speciality coatings, such as Dulux Metalshield, Dulux PRECISION, and Dulux Protective Coatings. (HNN assumes these are volume figures.)

    Dulux stated that the renovation and repaint market declined by 1.5% during the reporting period. (This decline was in the "sell in" market, from supplier to retailer.) This was due to wet weather and the effects of Masters' stock liquidation. New housing, which represents 20% of the paint market volume, grew by 5%, while commercial construction, which represents 5% of market volume, grew by 4%.


    Setting aside inter-segment (same company) transactions, revenue for this segment for the reported period was $472.3 million, an increase of 4.8% on the pcp. Including inter-segment transactions, the revenue was $473.7 million, up by 4.7% on the pcp. The segment revenue amounts to just over 53% of the overall Dulux sales revenue.

    EBIT for the segment in the period was $88.5 million, up by 7.14% on the pcp. The EBIT margin was 18.68%, up by 0.43% on the pcp. Dulux stated that net input costs were flat. An increase in the cost of titanium dioxide (TiO2) was offset by reductions in other costs, it said.

    Dulux breaks down its 4.7% increase in revenue for this segment as coming from four different sources. Overall market share grew by 2.0%, with all of that growth coming from the retail channels. The price increase delivered another 2%, with the increase around 5.7% on premium products.

    Additionally, New Zealand provided 0.2% of the increase, as its revenue grew by 10%. Finally, around 0.5% came from the growth of the overall market. Mr Houlihan commented that he estimated another 0.5% of market growth was wiped out by the liquidation sales at Masters Home Improvement.

    While Dulux's trade sales were only stable in overall market share terms, the company pointed out that paint supplied for the new housing market continued to grow sharply during the reported period. Dulux has only a 25% exposure to that market. So to maintain a stable trade share, this has to mean the company's net share of the trade-based renovation market would have increased.


    Introducing the results for this segment, Mr Houlihan stated:

    The modest market growth outcome reflected the last of the Masters liquidation activities, which adversely impacted sales-in activity into the retail channels in the half. Excluding this, we saw solid growth in other markets such as the do-it-for-me or trade part of the renovation market, new housing and commercial. We note also that sales-out demand through retail channels has remained solid. ["Sales out" refers to store to customer, rather than "sales in" stock purchases.]

    In terms of the ongoing effect of Masters on market size, Mr Houlihan pointed out that, as there was no longer a sell-in market into Masters, the apparent growth of the paint market might seem artificially reduced during Dulux's second half FY2016/17, as there would be less stock being held overall.

    A theme Mr Houlihan repeated several times in the presentation was that Dulux owed much of its growth to a good choice of retail channel partners.

    The positive share outcomes in Australia resulted from the decisions we made to align ourselves with the eventual winners in these segments, specifically Bunnings, Mitre 10 and Inspirations Paint Specialists.

    He added later, in response to an analyst's question:

    In terms of though the half just gone, all of the share growth came through the retail sector. So that decision to align with Bunnings, that decision to align with Mitre 10 and we've been for many years now aligned with Inspirations in the paint specialist channel, by backing those three market leaders who back us in those channels because our share in those is higher than our weighted-average share ... that's the fundamental thing driving the weighted average up. And at the same time, we've got the bias towards Dulux premium-branded products helping ultimately drive that consumption but adding to the price componentry as it goes, as well.

    Mr Houlihan also noted that the company's New Zealand operations were completing a realignment after being de-ranged from that country's Mitre 10 stores (which operate independently of the Metcash brand of the same name).

    We've... seen that business realign itself in the Paints business with Bunnings versus Mitre 10 in New Zealand, which is a separate identity to the Metcash-owned Mitre 10 here, it's now trending its way back towards similar EBIT margins to the overall Dulux ANZ segment. So certainly, it's providing profitable revenue growth, if I could describe it that way, and the fundamentals are very good there. But that's all we can comment on.

    Mr Houlihan later expanded further on the New Zealand operations:

    In terms of the exit out of Mitre 10 New Zealand, we're now in the half where we're clean in terms of comping half-on-half. So really, what you're seeing in this sort of new environment for us with what we've done there.
    On the retail side of the business, we are aligned with two key partners. We're aligned with Bunnings in big-box hardware, and we're aligned with Guthrie Bowron who are our key paint specialist partner, in the same way Inspirations is here in Australia. And as they are both growing, we've been able to drive growth through that customer alignment. Obviously, we have launched our products into New Zealand so we're getting that marketing innovation-led growth as well.
    But the trade market in New Zealand is an area where we have really, over the last 24 months, stepped up the investment. We have increased the number of trade centres we've got in New Zealand, we've refurbished some other ones and we relocated some. So I think we've taken our number of trade centres from in the order of low 20s now to high 20s. So that revitalisation of our trade network has also been one of the other levers we've been pulling, as well.

    Consumer and Construction Products ANZ (Selleys and Parchem ANZ)


    This segment includes: Selleys adhesives, sealants and other household repair and maintenance products for the consumer and professional trade markets; and Parchem construction chemicals, decorative concrete solutions and related equipment in Australia and New Zealand.

    The market for this segment is 60% maintenance and home improvement, 30% commercial and infrastructure, and 10% new housing. Selleys delivers 60% of revenues for the segment (9% for all Dulux), and Parchem the remaining 40% (6% for all Dulux).

    While the demand fundamentals for Selleys remain strong, Parchem's engineering construction markets continue to decline, though Dulux suggests they have have reached bottom during the company's second quarter.


    Setting aside inter-segment (same company) transactions, this segment delivered $121.0 million in revenue, a decline of around 0.6% on the pcp. Including inter-segment transactions, the revenue was $125.8 million, up by $0.1 million on the pcp. Selleys alone achieved revenue growth of 4.4%, according to Dulux.

    EBIT for the segment in the period was $13.7 million, up by 10.2% on the pcp. The EBIT margin was 10.89%, up by 1.1% on the pcp. While Parchem suffered a loss in revenue, Mr Houlihan stated that it did grow in EBIT, due to a combination of cost reductions, and improved margins.


    Selleys continues to grow as a product line, according to Mr Houlihan.

    Selleys achieved good revenue growth of 4.4%, with particular strength in our key retail partners. We were particularly pleased with the performance of a number of our recent premium new products, including Selleys Storm, which has become a strong SKU for us.

    (Storm is a waterproofing sealant product that can be applied even under wet conditions.)

    Mr Houlihan pointed to several reasons why Parchem has continued to perform poorly:

    The top line for Parchem was adversely impacted by two factors: firstly, we have continued to fine-tune this business by exiting low-margin commodity products, such as concrete reinforcing mesh. This contributed about half of the revenue decline. Secondly, whilst engineering construction markets have continued to decline at double-digit rates, our core Fosroc construction chemicals business mitigated much of the decline through share gains.

    He clarified this statement later:

    Parchem has been progressively exiting low-margin businesses and increasing its focus on the core, profitable Fosroc construction chemicals business. Parchem is increasingly becoming a logical product extension to Dulux and Selleys in a similar vein, the Dulux Acratex or Dulux Protective Coatings businesses. We have recently migrated Parchem onto the Dulux ERP [enterprise resource planning] system to enable it to more effectively leverage our broader Dulux trade capabilities.

    This is an introduction to this article. To read the full article, please click on the link below to download the PDF edition of our magazine, HI News:

    HI News Vol. 3 No. 7: Bunnings Strategy Day

    Supplier update

    Expansion for Klein Tools

    Caterpillar moves into construction rentals through acquisition of startup Yard Club

    Klein Tools gets bigger through its purchase of General Machine Products and Caterpillar diversifies by acquiring online start up Yard Club.

    Klein Tools buys General Machine Products

    General Machine Products (GMP) has been acquired by Klein Tools, a maker of tools for the construction, electronics and mining industries.

    The deal also includes General Machine's subsidiary, CBS Products, in the United Kingdom.

    GMP is a supplier of specialty cable tools and equipment, and will continue to operate in Pennsylvania, with the same management team, said Thomas R. Klein, Sr, chairman of Klein Tools.

    The brands GMP and CBS represent a long history of high-quality, innovative tools to a professional user base, consistent with the Klein Tools brand. Following the acquisition, we anticipate continued investment and development to grow the brands with new product introductions.

    Founded by engineer George M. Pfundt in 1936, GMP is a third-generation business and recognised as a major supplier of specialty cable placement tools and equipment. The company is primarily known for its premium quality cable lashing machines, cable blowing equipment and other specially designed tools for the utility, data and telecommunications markets. Mr Klein adds:

    GMP is very appealing to Klein Tools as we continue to expand our US manufacturing presence. GMP and Klein Tools have much in common, including loyal customers, go-to-market strategies and reputations for high-quality products. We believe our combined resources will present additional growth opportunities...

    General Machine has about 130 employees. With those additional employees, Klein now has a total workforce of about 1,200.

    Caterpillar gets into construction rental

    Yard Club, a startup that makes more efficient use of construction and other heavy equipment, has been acquired by Caterpillar.

    The deal came about almost exactly two years after Caterpillar announced a strategic investment in Yard Club. As part of that investment, Yard Club began working with the dealers (retailers) in the Caterpillar network and helping them to rent as well as sell equipment to contractors and construction crews.

    Since then, Yard Club has continued to grow its rental business, while also adding features for users. According to the company's website, Yard Club processed USD120 million in transactions across 2,500 contractors and rental companies in 2016.

    The company also moved from a transactional business based on taking a cut of rentals made on its platform to one that provides a SaaS platform to help customers manage all the pieces of equipment they own or rent. That includes tools for dispatch, scheduling and fleet visibility, as well as inspection and maintenance management.

    Competitors in the space include startups such as EquipmentShare and Getable. But compared to those companies, Yard Club has received a relatively modest amount of venture investment. Altogether, the company had raised USD5.1 million from investors that include Caterpillar, Andreessen Horowitz and Harrison Metal, to name a few.

    Now that it is a Caterpillar company, the hope is that Yard Club will be able to bring more technology to an industry that has sorely been lacking in technology.

    As part of the deal, Yard Club's 13 employees have joined Caterpillar and will act as the equipment maker's digital presence in San Francisco.


    Supplier update

    CSR sees peak in house building

    Adelaide Brighton confident about infrastructure and MTD invests in robotic mowers

    CSR managing director Rob Sindel believes residential construction markets have peaked; Adelaide Brighton says the infrastructure spending pipeline remains strong; MTD Products is making a bigger push into the robotic lawnmower business; and James Hardie posts a rise in net profit.

    Housing has "peaked", says CSR boss

    In an interview with the Financial Review, the managing director of CSR says residential construction markets appear to have peaked. This led to an almost 12% fall in the company's shares, as investors concluded the record profits generated by its core building products division won't be repeated.

    But Rob Sindel, who has been running the company since early 2011, said there would still be solid demand for Gyprock plasterboard, tiles, bricks, insulation and walling systems on the eastern seaboard over the next year. He said the company is protected from a downturn in the high-rise apartment market because that only represents 12% of its customer base.

    Mr Sindel predicted a smooth landing as the Australian housing market adjusts from boom times. He said that while the high-rise apartment market would continue to slow down faster than the detached housing and low-rise townhouse type segment, only a sharp rise in interest rates for borrowers would trigger more serious issues for the broader market. He told the Financial Review:

    I just can't see that happening. Multi-residential is the one that will come off a bit quicker.

    It was important for housing markets observers to look more closely at the health of different types of segments in Australia. He said:

    It's actually a whole series of sub-markets.

    Mr Sindel said all of the individual businesses in CSR's building products division increased their profits over the past 12 months as they capitalised on the strength of the housing sector on Australia's east coast to deliver a record result.

    The building products arm lifted earnings before interest and tax by 21% to $202.8 million for the 12 months ended March 31, 2017. Profit margins in building products reached 12.9%, compared with 7.9% five years ago.

    However investors were concerned the outlook had now dimmed. Mr Sindel said the market had now likely peaked from the record levels of activity that had been happening, although there was still solid demand for construction products particularly in Sydney and Melbourne, with Western Australia still weak.

    He pointed to the strong run-up in CSR shares in the few weeks before the results as perhaps one of the reasons for the sell-off. He said:

    The market will decide what the price is.

    CSR's overall net profit was up 25% to $177.9 million for the year ending March 31, 2017. Total revenues were up 7% to $2.47 billion.

    Infrastructure spending strong: Adelaide Brighton

    As Australia's biggest cement supplier, Adelaide Brighton, believes there are at least three years of strong demand ahead for its products on the east coast, even if house prices start softening.

    Chief executive Martin Brydon said that, although housing approval figures were slowing from high levels, there was still a strong pipeline of orders in residential construction for up to two years, and then any slack would be picked up by rising levels of infrastructure spending on roads and other big projects. He told the Financial Review:

    Certainly the residential pipeline has got a year or two to run. We expect to be pretty busy in all of our products.

    Approximately one third of Adelaide Brighton's revenues from supplying the residential construction market. Chairman, Les Hosking, said even if residential housing prices did begin to decrease, it would have little impact on the construction market in the short term.

    It's not immediate. There are plenty of housing sites being developed now where construction hasn't even started.

    He pointed to the Badgerys Creek region in outer Sydney as a particular hot spot, where demand would be very robust in new housing construction. The federal government will oversee the building of a second airport for Sydney there.

    Demand for cement and other products is also very strong in Victoria, and Mr Brydon said while some parts of the Australian economy were going through difficult times, such as retail, the economy overall was able to navigate through the shifts fairly well.

    Adelaide Brighton expects profits in the first half of calendar 2017 to be below the same time last year, because of one-off restructuring costs and the relocation of a North Melbourne plant, even though sales volumes will be higher.

    But it expects profits in the second half of 2017 will be stronger than the same time last year, despite electricity costs likely being $8 million higher than last year.

    MTD Products gets into robotic mowers

    US outdoor power equipment manufacturer, MTD Products has entered into a merger agreement with F. Robotics Acquisitions, which makes a product called Robomow, a line of environmentally friendly, robotic residential lawn mowers sold mainly in Europe.

    Terms of the deal were not disclosed. It is expected to close by July 2, pending governmental and other approvals.

    The transaction will "combine Robomow's industry-leading technology and award-winning robotic lawn mowers with MTD's broader outdoor power equipment portfolio and extensive global network of dealers," MTD said in a statement. CEO Rob Moll said:

    Both MTD and Robomow see tremendous opportunities to grow our brands through this merger of our products and talents.

    He said MTD plans to market Robomow technology under the company's Cub Cadet and WOLF-Garten brands.

    Mr Moll noted that technology "has already taken hold in Europe, and the market is growing globally at a rate of 15% or more annually."

    If the merger is completed, F. Robotics' operations would remain headquartered in Pardesiya, Israel. Its existing management team would continue to lead the company with support from MTD's European, North American and Asia-Pacific divisions. Udi Peless, CEO of F. Robotics, said:

    For the last 22 years we have been focused on developing innovative technologies and leading robotic mowing products. We are excited to see this investment reach its full potential in the market via MTD's leading brands and distribution.

    MTD already markets the Cub Cadet RG3, a robotic mower for golf greens. In 2015, it bought two companies that strengthened its technological capabilities: CORE Outdoor Power, which MTD says offers motor technology that "provides greater torque and efficiency than traditional electric motors in cordless battery applications", and Precise Path Robotics, which added the RG3 to MTD's offerings.


    MTD Products makes acquisitions - HNN

    James Hardie posts a rise in net profit

    Building materials supplier James Hardie has posted a 13% rise in full- year profit largely due to strong housing construction in its core US market.

    The company's bottom-line profits were $371.8 million in the year to March 31, as sales rose 11% to $2.57 billion.

    Sales of fibre cement - the group's flagship product - were up 12% in the US. Housing market activity in Australia and New Zealand underpinned a 22% rise in earnings from its fibre cement business outside of the US, including Asia and the Middle East. In reference to a drop in sales in the Philippines due to imports from competitors, chief executive Louis Gries said:

    Asia Pacific had a good year - the only bump in the road was the Philippines.

    Its Australian operations were strong, with improvements in volume, price, costs and the efficiency of its new cement plant in Queensland, he said. The performance of the Australian business is expected to be steady in the 2017-18 financial year, Mr Gries added.

    Modest growth in the US housing market is also expected to continue into the current financial year.

    A $51.74 million decrease in the value of James Hardie's estimated asbestos liabilities also boosted the company's bottom line. Claims for mesothelioma, a cancer caused by asbestos exposure, were down 6% to 373 in 2016/17. There were two large mesothelioma settlements worth more than $1.34 million in the year.

    Total claims for all asbestos-related compensation fell 3% from the prior year to 557, and the average settlement dropped 10% in value. Large claim settlements amounted to $4.4 million. This is down from $13.3 million in the prior year and significantly lower than the company's forecast of $24 million in claims.


    Europe update

    Kingfisher's Q1 like-for-like sales slowdown

    Toolstation ranks highly for customer satisfaction and new Homebase executive appointed

    Corporate restructure continues at Kingfisher impacting sales in the first quarter; Toolstation has beaten larger rivals in terms of customer satisfaction among British shoppers; and Officeworks' second-in-charge moving to Homebase for Bunnings UK & Ireland.

    Slower sales at Kingfisher in Q1

    Home improvement big box retailer Kingfisher reported solid UK growth for the first quarter of its financial year, but total like-for-like sales were dragged down by continued weaker sales in France and disruption from its own restructuring plans.

    Total group sales in the three months to 30 April of GBP2.86 billion were up 5% on the previous corresponding period (pcp) but down 0.6% on a LFL (like-for-like) basis at constant currency rates.

    This compared to a fourth quarter that saw 0.7% group LFL growth and a first quarter last year where LFL sales increased 2.3%.

    UK and Irish sales were up 1.5% to GBP1.27 billion and up 3.5% on a LFL basis, with B&Q up 0.5% and Screwfix up 12.6%.

    French sales from the Castorama and Brico Depot chains rose 3.8% on a reported basis to GBP1.09 billion, but LFL constant currency sales were down 5.5%.

    Other European operations saw sales leap 18.4% to GBP0.51 billion, up 0.7% LFL at constant currencies, entirely from growth in Poland, with Russia and Spain still negative.

    Chief executive Veronique Laury, architect of the One Kingfisher transformation plan, said the business remained on track amid her sizeable piece of corporate DIY.

    We are experiencing some business disruption given the volume of change, as we clear old ranges, remerchandise new ranges and continue the roll out of our unified IT platform. However, we are on track to deliver our Year 2 strategic milestones. Early customer reaction to our new ranges is encouraging, especially in France where our new unique bathroom ranges are launching first.

    Ms Laury is planning to unify 20% of product ranges compared to the 4% last year, before gearing up for unifying 55% next year. Around a quarter of space in-store is expected to be disrupted this year, up from 3% in FY 2017 from range changes.

    Online sales should benefit from adoption of a new IT platform, which is now live in nearly a third of Castorama France stores, which Ms Laury said will enable the building of a much stronger digital offer.

    New B&Q boss

    Kingsfisher has also confirmed the appointment of Christian Mazauric as its new CEO of B&Q.

    Mr Mazauric, who has been with Kingfisher for over 16 years, was previously the financial director at B&Q and currently runs its sister company Brico Depot in Romania.

    In taking over the role, Mr Mazauric replaces former B&Q boss Michael Loeve who left earlier this year to become the head of Danish discount supermarket Netto.

    Toolstation tops customer satisfaction poll

    UK DIY store Toolstation has beaten department store Harvey Nichols and hi-tech retailer Apple, and 98 others, in a survey of customer satisfaction and how likely consumers were to recommend the retailer.

    Toolstation finished joint-top with Richer Sounds, a British home entertainment retailer, in the annual Which? magazine consumer survey. It finished joint-top for the second year in a row after sharing the crown with department store chain John Lewis in 2016.

    The joint-winners both achieved a customer score - based on satisfaction and likelihood of recommendation - of 80% in the poll of 10,214 consumers asked about their shopping experiences at 100 retailers over the past six months.

    The DIY firm's parent company, Travis Perkins, reported an increase in its retail sales of 4.4% in its first quarter for 2017. Which? editor Richard Headland told the Daily Mail:

    The best retailers, Richer Sounds and Toolstation, continue to strike the right balance by selling quality products at reasonable prices. It's a simple formula, but that's why they consistently score well with shoppers in the Which? survey.

    Toolstation marketing director John Meaden said:

    We are delighted that our customers have spoken highly of their experience when buying from us and are pleased to be named joint top of the survey ahead of some great names.

    Management move at BUKI

    Officeworks executive David Haydon has been named trading and commercial manager of Homebase, in Wesfarmers' Bunnings UK and Ireland division (BUKI). Stationery News reports that he was widely tipped to succeed Mark Ward as managing director of Officeworks,

    Mr Haydon joined Officeworks in 2013 as its director of merchandise, marketing, supply chain, store development and e-commerce. He is credited with rejuvenating the Officeworks product range, driving its "every channel" strategy, and turning it into one of Wesfarmers' fast-growth businesses.

    Mr Haydon will bring to his new role a solid background in hardware, having held senior roles for leading British hardware chains B&Q and Wickes, both of which are now competitors with Bunnings as it ramps up its store network through Britain and Ireland.

    Mr Haydon will join the Bunnings UK leadership team in late June, reporting to BUKI managing director Peter Davis. He will also sit on the company's steering committee.

    Before joining Officeworks, Mr Haydon was commercial and marketing director for Kingfisher's international businesses, overseeing commercial and marketing strategies for China, Poland, Russia and Turkey.

    At B&Q he was director of trading and commercial strategy, and has worked at other large retailers including Wickes and Superdrug.

    Mr Haydon's move to Bunnings UK follows the recent announcement by Wesfarmers that it has shelved plans for an initial public offering for Officeworks It is believed Mr Haydon's decision to leave was a personal one and not linked to the decision to pull the plug on a float for Officeworks.


    USA update

    Home Depot is expanding its store network

    Ace Hardware reports Q1 results and small tool company wins case against Sears

    Home Depot is opening new bricks-and-mortar stores; Lowe's is buying two companies that serve owners and managers of rental properties; Ace said Q1 same store sales fell; Reliance Worldwide is buying Holdrite to build a strong foundation in the North American new construction market; LoggerHead Tools has a legal win against Sears; and the National Hardware Show in Las Vegas has just ended for another year.

    Home Depot building stores again - slowly

    Big box retailer Home Depot is adding six stores this year, resuming modest expansion as it continues to outpace the troubled US retail sector. "We haven't opened a US store since 2013," chief financial officer Carol Tome told the Atlanta Journal Constitution (AJC).

    Three of the new stores are in the US - locations in Florida and Texas are already open, while another is planned in Louisiana.

    Ms Tome spoke with the AJC after Home Depot reported that sales rose 4.5% to USD23.9% in the company's first quarter.

    The company virtually froze expansion during the housing crash and recession, trimming costs and avoiding the kind of over-reach and painful retreat suffered by many retailers.

    Now, Home Depot still won't build and open a new store unless number-crunching warrants the investment, Ms Tome said.

    In assessing sites, the company looks at data including the number of households in the area, the average spending of those households and the presence - or absence - of competitors like Lowe's, Ms Tome said.

    There's a lot of math [involved].

    But the math says there are still areas where Home Depot sees a "void", a spot where an extension of the big box brand would do well. Ms Tome said:

    There aren't many of those voids, but there are a few.

    Despite adding only a handful of stores, Home Depot has steadily grown revenue for the past several years.

    Home Depot recently reported that its sales per square foot of store space had climbed 4.6% from a year ago. Yet by that measure Home Depot is still well below its most efficient year of 1999, Ms Tome said.

    I want to get back to that peak. We have to just continue to do what we do.

    Company officials said they expect to end 2017 with sales about 4.6% higher than last year.

    Lowe's buys maintenance company

    Lowe's Home Improvement said it has agreed to buy two companies that sell products to apartment building managers and owners, in moves aimed at diversifying its business beyond DIY homeowners.

    The retailer said it would pay USD512 million for Maintenance Supply Headquarters, which sells appliances, flooring, lighting and other supplies primarily to apartment complexes.

    Lowe's said that in November it bought Central Wholesalers, an apartment supplier.

    The two firms primarily serve owners and managers of rental properties and other multifamily buildings.

    Lowe's has been working to make itself a go-to source for professional customers, such as contractors, who regularly place bigger orders than the average customer. Pros make up a relatively small portion of Lowe's shopper base, but the company has said the pro business is growing faster than the DIY home improvement market.

    The surge of apartment building development all over the US presents a particularly large opportunity for the company's pro customer business. Richard Maltsbarger, Lowe's chief development officer and president of international, told the Charlotte Observer:

    With the growth of multifamily (construction) that has occurred over the last decade, as well as what will occur going forward, it gives us a great chance to access the more than 30% of Americans who rent their place of residence.

    First quarter results

    Lowe's recently reported that net sales increased 10.7% to USD16.9 billion in the first quarter compared with the previous corresponding period (pcp). However, that figure fell short of analyst expectations of USD19.5 billion, according to Thomson Reuters data.

    Comparable sales increased company-wide by 1.9% and by 2% in the US. It had Q1 earnings of USD602 million, compared to net earnings of USD884 million in the pcp. Robert Niblock, Lowe's chairman, president and CEO, said in a statement:

    A solid macroeconomic backdrop, combined with our project expertise, drove above average performance in indoor projects. We also continued to advance our sales to pro customers, delivering another quarter of comparable sales growth well above the company average.

    Ace same store sales dip in Q1

    Ace Hardware reported an increase in net income and a dip in comparable store sales during the first quarter. In this quarter, the retail co-operative posted net income of USD28.3 million versus USD26.1 million in the period a year prior. This represents an increase of USD2.2 million or 8.4%.

    The company noted that comparable store sales reported by the approximately 3,000 Ace retailers who share daily retail sales data decreased by 0.2% versus the same period a year before. The company stated the slight decline resulted from lower customer traffic.

    Retail revenues from Ace Retail Holdings (ie. corporate-owned stores) were USD52million in the first quarter of 2017. This was an increase of USD1.4 million, or 2.8%, from the first quarter of 2016. The increase was the result of new retail stores that have been added from the previous corresponding period (pcp).

    Within these stores, same store sales decreased 3% compared to the first quarter of 2016.

    Overall revenues were USD1.24 billion, an increase of $1.4 million or up 0.1% from the pcp.

    Wholesale revenue was flat with the year earlier at USD1.19 billion while retail revenue increased to USD52 million from USD50.6 million. Operating income was USD31.2 million versus USD28.8 million in the period a year previous.

    Ace added 16 new domestic stores in first quarter of 2017 and cancelled 21 stores. This brought the company's total domestic store count to 4,358 at the end of the first quarter of 2017, an increase of 56 stores from the first quarter of 2016.

    On an international level, Ace added 30 stores in the first quarter of 2017 and cancelled 21, bringing the worldwide store count to 5,003 at the end of the first quarter of 2017.

    John Venhuizen, Ace president and CEO, said:

    I'm delighted to report an 8.4% increase in net income, a double digit jump in accrued patronage dividends for our owners and surpassing a global store count of 5,000 stores in the quarter. While revenue improved, our increase fell short of our expectations. And despite the obvious temptation, I'll resist pinning the blame on the less than favourable weather.

    Reliance is acquiring Holdrite

    Reliance Worldwide Corp (RWC) has diversified its business with an acquisition that exposes it to the North American new construction market. The company will purchase Securus, trading as Holdrite, for USD92.5 million. The deal will be funded by debt and completion is expected by end of June.

    Holdrite has generated over 20% revenue growth in the past three years and remains a market leader in many of its product categories. The acquisition also offers additional R&D and innovation capability.

    The transaction provides the existing Reliance business with a strong foundation in the North American new construction market and the means to grow sales of EvoPex and SharkBite 2XL. Conversely, the company's experience in retail distribution should support future growth for Holdrite products through this channel.

    Holdrite provides engineered products and services such as water heater accessories, fittings restraints, fire stop systems, secondary pipe support and acoustic isolation to plumbers and contractors.

    Over 98% of the product sales are in the US and Canada, largely through wholesale distributors. Holdrite has a manufacturing facility in Tennessee and distribution centres in Tennessee and Nevada.

    Holdrite currently generates a small portion of sales through The Home Depot and Lowe's and there may be scope for Reliance to expand its presence with both retailers.


    Supplier update: Lowe's stocking Reliance products - HNN Supplier update: Billion dollar market cap - HNN

    Jury rules for small tool maker

    Almost five years after suing Sears Holdings for knocking off its wrench invention, a company based in the Chicago suburbs has prevailed. A jury in a US District Court in Chicago has ruled that Sears and tool supplier Apex Tools willfully infringed on the patents of LoggerHead Tools, awarding it USD6 million in damages.

    Dan Brown Sr. and his son, Dan Jr., run LoggerHead together. The company's main product is the Bionic Wrench, which the elder Mr Brown invented after watching his then-teenager struggle to loosen nuts on a lawnmower with pliers.

    The creation, which adjusts like pliers but grips like a wrench, was an immediate hit when it debuted in 2005. The Bionic Wrench sold almost 10,000 units during the opening minutes of its debut on QVC, the home shopping network, and flew off shelves at Sears and Ace Hardware. The product was also honoured by the Chicago Innovation Awards in 2006. Its success did not go unnoticed.

    In 2012, a LoggerHead customer approached Dan Sr. and mentioned that he'd seen a Bionic Wrench at Sears - but instead of the tool's trademark green packaging and accents, this one had a red-and-black motif affiliated with Sears' Craftsman brand. Was LoggerHead now making private-label wrenches for Craftsman, the customer asked? It was not.

    The real Bionic Wrench, which is manufactured in the US, costs USD24.99. The knockoff, called the MaxAxess was made in China by Apex, and cost USD11.99 at Sears.

    In addition to violating Dan Sr.'s patent, the MaxAxess also threatened LoggerHead's business model. Dan Brown Jr told Chicago Business:

    We only sell patented products. Because they're patented, we think we can get a value-added price, which allows us to pay more to manufacture in the US.

    There was no way LoggerHead could stay in business by halving its price.

    Of course, suing not one but two corporate behemoths is a daunting task for a small business. Sears booked USD22.1 billion in sales in 2016. Apex was purchased by Bain Capital in 2013 for an estimated USD1.6 billion.

    LoggerHead, which has sold about two million wrenches since 2005, isn't quite in the same league. Dan Jr. said:

    We knew we had strong intellectual property, but we also knew this was going to be a David vs. Goliath battle and that getting to a jury trial would be difficult.

    The Browns spent a lot on five years of legal costs, according to Dan Jr. In the end, though, he said both he and his father are thrilled with the result.

    Sears noted that the court previously dismissed Loggerhead's fraud claims and that the retailer was defended and indemnified by Apex on the patent claim. Nonetheless, the company said in a statement that it was "disappointed in the jury's finding".

    Suing and being sued

    Sears is also suing a major tool vendor that it says refused to honour its contract with the retailer. The lawsuit follows on from the threats that Sears CEO Eddie Lampert made in a blog post recently.

    Mr Lampert said One World Technologies was trying to "embarrass" Sears and "take unfair advantage" of the retailer by changing the terms of its supplier agreement or threatening to cancel its contract with Sears altogether.

    One World Technologies is a subsidiary of China-based Techtronic Industries that manufactures power tools and other products under the Craftsman brand.

    The lawsuit claims that the tool vendor threatened to cancel its contract with Sears because of concerns about the retailer's financial stability unless Sears agreed to cut back its orders, the Chicago Tribune reported.

    Sears says it has always paid its suppliers on time and claims One World Technologies is trying to take advantage of negative rumours and media reports about Sears' viability to change the terms of its contract.

    Mr Lampert said One World planned to file a lawsuit against Sears "as they seek to embarrass us in the media to force us to let them out of their contract. But Sears has nothing to be embarrassed about - we have lived up to our word under our contract, and we will take the appropriate legal action to protect our rights and ensure that One World honours their contract."

    Mr Lampert said Sears had helped One World "build a formidable presence in the tool industry" over their nine-year relationship. He said Sears had paid the company more than USD868 million since 2007.

    2017 National Hardware Show

    Organisers of the National Hardware Show in Las Vegas, Nevada (USA) said that over 30,000 industry professionals, including more than 2,600 exhibitors, attended this year's event.

    New Product Launch and Inventors Spotlight were once again popular areas to find up-and-coming products. One product that attracted attention was the Snapatite, a plastic multi-use utensil that includes a spoon, fork, knife and bottle opener.

    First-time exhibitor, Monkey Rung is a ladder accessory tool that can connect on just about any type of ladder.

    The NRHA Village Stage stayed busy with a number of speakers that discussed a variety of topics. The keynote speaker on the first day was Dr Kit Yarrow, with "Decoding the New Consumer Mind". Her presentation is based on a book of the same name, which discusses how consumers have changed their shopping habits over the years. Dr Yarrow said:

    The No. 1 thing customers say they want is omnichannel retailing. Customers say they prefer to go to a store, but it's just so complicated to get there. Bring technology into the store to help customers understand what they are about to buy.

    The second day's keynote speaker was retail expert Mary Walter with "Your Remarkable Service Advantage". She spoke about how independent retailers can set themselves apart through personalised customer service. Ms Walter said:

    Protect yourself by exploiting your local knowledge. Make things easy for customers. Provide easy checkouts and fast returns, and make it easy for customers to find things in your store. Make sure to provide that human connection-you win in this area, and you have an advantage no one can touch.

    Caribou Jack's Trading Co. in Soda Springs, Idaho, was announced as the winner of the Reimagine Retail program, which is sponsored by the National Hardware Show. It will give owner Robert Lau and his staff USD100,000 to build an in-store cafe, where they can host in-store BBQs and cooking events, and provide a space for locals to use at no charge.

    The North American Retail Hardware Association (NRHA) recognised its Young Retailer of the Year honourees the night before the show opened. These innovative retailers are 35 years old and younger and are helping grow their businesses, continuing their hardware education and contributing to their local communities.


    Supplier update

    Big River listing in a fragmented industry

    Husqvarna trials rental service to consumers and Ford Power Equipment distribution in Australia

    More acquisitions planned for Big River as it heads to the ASX feeling bullish about Australia's housing construction markets; Husqvarna sees future in garden equipment rental for consumers; Klika is bringing the Ford Power Equipment range to the Australian market exclusively; and PPG makes a third acquisition bid for Akzo Nobel.

    Big River confident on detached housing

    Jim Bindon, managing director of timber and steel building products supplier Big River, believes detached housing, commercial construction, civil engineering and infrastructure projects are all poised for solid growth in the next few years, with the only the apartment market likely to slow down.

    Mr Bindon said the detached housing construction market was just running at long-term average levels, while the infrastructure projects planned by governments meant there was substantial activity.

    Commercial building activity still hasn't recovered to levels seen before the GFC.

    The renovations market was also set to strengthen as home owners, reluctant to shift, planned upgrades to their current residences. Dwelling approvals in Australia in 2016, however, were at their highest point in the past 15 years.

    Big River timber and steel products are used by about 2700 professional builders and construction companies.

    The NSW-based firm wants to wants to expand through the acquisition of privately owned timber yards and other operators in a sector where there are more than 2000 small players, as it headed towards an ASX listing.

    Many of those businesses are family owned without clear succession plans. Mr Bindon told the Financial Review:

    It's a very fragmented industry.

    Stockbroker Taylor Collison has closed off a fully subscribed $17 million raising by Big River. The company has an indicative market capitalisation of $77 million at the issue price of $1.46 per share.

    Sydney private equity firm Anacacia Capital, which acquired a controlling stake last year, isn't selling down any shares in the initial public offering, with major shareholders escrowed until late 2018.

    Sales revenue is forecast to be $201 million on a pro-forma basis in 2016-17, rising to $207.3 million in 2017-18.

    Net profit after tax is projected to increase from $5.99 million in 2016-17 to $6.9 million in the following financial year.

    The company has manufacturing facilities at Grafton and Wagga Wagga in regional NSW and runs 12 sales and distribution centres, which cover the major capital cities in Australia.

    Big River derives 31% of its revenue from customers building multi-residential housing, 29% from residential housing and 25% from commercial building projects. The remainder comes from civil infrastructure and industrial customers.

    In early March it spent about $7.5 million buying the Adelaide Timber and Building Supplies business from home builder Rivergum Homes.

    Rivergum Homes is a major customer of Big River, with the supply of building products to that firm representing about 7% of Big River's total annual sales.

    Big River is chaired by Greg Laurie, who is also a director of furniture group Nick Scali. Other directors include Malcolm Jackman, a former managing director of agribusiness and pastoral company Elders.

    A small part of Big River's timber and building products business competes against the trade part of Bunnings as well as Mitre 10, [and presumably independent retailers in the Hardware & Building Traders group and Natbuild.]

    Consumers renting tools, says Husqvarna

    Outdoor power equipment maker, Husqvarna has begun a pilot project in Stockholm (Sweden) for homeowners to access pay-per-use power tools for the garden. This eliminates the need to maintain and store hedge trimmers, chainsaws and other tools that are used less frequently.

    The project is part of Husqvarna's plans for "sustainable solutions for taking care of gardens and green spaces".

    Husqvarna Battery Box, is a "smart", 8m x 3m, unattended container with 30 electronic lockers that store battery powered garden care products. Through an iPhone app, homeowners can reserve tools, get instructions, pay, and open the locker to pick up their pre-booked power tool.

    The Box will be placed at Bromma Blocks, a shopping centre 15 minutes west of Stockholm city. Renting a garden care product will cost SEK350 (AUD54) a day. Husqvarna division president, Pavel Hajman, said:

    People are already sharing homes and cars. To share products that are only used occasionally, like a hedge-trimmer, makes a lot of sense for some users. Husqvarna Battery Box is proof of our commitment to explore new solutions that merge innovation and sustainability, benefitting the homeowner, the community and our distribution network.

    Husqvarna wants to move from petrol powered products to silent battery products with no direct emissions in urban areas. The company hopes to collect insights on market maturity, customer behaviour, and potential future revenue streams. The test period runs from May 1 to October 31, 2017.

    After completing registration in the iPhone app Husqvarna Battery Box, the customer can reserve one of the 30 available battery powered products (chainsaw, hedge trimmer, trimmer or blower). The app guides the user on how to open and close the door to the particular locker where the product they want to rent is kept.

    The app also includes how-to videos to explain how the product works. The Box, powered by solar cells, will be serviced by Husqvarna staff daily, ensuring that products are in good condition and that the batteries are fully charged.

    The connection between Husqvarna Battery Box and the customer is enabled via Bluetooth. For identification purposes, the customer uses the Swedish ID app BankID. Payments are charged to the registered credit card at the end of the month. During the pilot period, the app is only available on iOS.

    The battery series in the Box is powered by a 36V Li-ion battery, and one battery fits all the available products (chainsaw, hedge trimmer, blower, trimmer).

    UK retailers such as Homebase and Wickes offer garden tool hire services but the Husqvarna pilot takes renting tools into a new phase.

    Klika brings Ford Power Equipment to Australia

    Online retailer, Klika has been appointed Australia's exclusive distributor of Ford Power Equipment. The product range of pressure washers, portable generators, inverter generators and water pumps for both domestic and commercial applications.

    The company explains that the partnership agreement will see it "expand beyond its traditional pure-play online presence and enter the Australian wholesale distribution chain". Leo Zaitsev, director of commercial operations, said:

    Klika's partnership with one of the world's most iconic brands is true testament to the strength of our business and represents the next step in its evolution. We are now witnessing the merging of our local omnichannel offering between online retail and bricks and mortar, but rather than imitate our competitors by establishing physical pop-up stores, we will distribute directly via the national retail chains.
    We are already in discussions with a number of them which are eager to gain access to the Ford brand, which Australians have loved for over 91 years.
    The Ford power equipment range will meet the upcoming strict Australian National Clean Air Agreement standards. We were very particular during our negotiations, as stringent quality, reliability and durability requirements is paramount...

    Klika operates out of its 15,000sqm central facility in South Oakleigh (VIC) with satellite offices in two other countries. It has its own range of private labels and offers other brands such as Sony, Breville, Apple, Huawei, Disney licensed toys and bedding, Uniden and Belkin, to name a few.

    The company was founded in 2005, is Australian-owned and operated, and has been acknowledged in the list of "Top 20 Online Retailers in Australia" and Power Retail's Top 100 Retailers list.

    Akzo Nobel considers latest PPG offer

    Dutch paint maker Akzo Nobel's (Akzo) supervisory board is considering its options after deeming PPG Industries' latest USD29 billion (AUD39 billion) offer to be insufficient, according to a report in Reuters.

    Akzo believes that PPG's third acquisition bid, which was unveiled on April 24, still does not value the company highly enough, especially in light of Akzo's plans to unlock value by exploring a spin-off or sale of its specialty chemicals business, and the risks it sees in the potential deal, sources told Reuters.

    However, Akzo is studying several scenarios about how to move forward, mindful that several of its shareholders want it to engage with PPG in negotiations.

    Among the options being considered by Akzo is talking to PPG only about some of the issues that would affect the deal, such as antitrust approval risk, or rejecting it outright without any engagement, the sources said.

    This is because Akzo is concerned that engaging with PPG in comprehensive deal negotiations would weigh on its prospects of getting PPG to improve on its offer much more, according to the sources.

    No timeline has been set for Akzo's response to PPG, the sources said.

    PPG said its latest acquisition proposal was worth EUR96.75 (AUD143.46) per Akzo share, comprised of EUR61.50 (AUD91.19) in cash, 0.357 shares of PPG common stock and dividends worth EUR7.78 (AUD11.54).

    That's a 50% premium to Akzo's closing price of EUR64.42 (AUD95.52) on March 8, the day before PPG confirmed it had made a proposal to buy Akzo at EUR80 (AUD118.62) per share. Akzo has been arguing this premium does not factor in the value of its announced intention to shed its specialty chemicals business.

    PPG has said it has no plans to break up Akzo following an acquisition. It has also said it will submit a formal offer for Akzo to the Dutch financial markets regulator by June 1, regardless of whether Akzo chooses to engage.


    TTI results presentation 2016 transcript

    Joe Galli's commentary on the power tool industry

    The respected CEO of Techtronic Industries, Joe Galli, addresses investment analysts as the company releases its 2016 results

    The following is an extract from the transcript of an address the CEO of Techtronic Industries (TTI), Joe Galli, gave to investment analysts on the release of TTI's results for 2016.

    To read the complete transcript, please click on the link below, which will download the edition of HI News which includes this article:

    TTI 2016 results presentation - HI News Vol. 3 No. 4


    We are delighted to share with you yet another record-breaking year. Sales are up 9.8% in a marketplace that is not going anywhere near that. We are totally outpacing our competitors in every geographic region. Sales of our power equipment business were up an amazing 13.3% [in local currency]. This is not just Milwaukee, this is our entire power equipment business. Our DIY business, our OEM business, our outdoor business. These results reflect just amazing performance in our local operations around the world.

    Floorcare down 3.3%, but that is misleading when you consider that the future of our floorcare business [sales of cordless] was actually up 53% [in local currency]. So our overall floorcare business needs to be improved, we recognize that we are dedicated to that. But let us not lose sight of the progress our team has made launching a very exciting stream of cordless floorcare products.

    You will see in a moment that we have an outstanding pipeline of new products in floorcare that will fuel the turnaround of the business and help it to catch up to the power tool progress that we've made. As Frank has pointed out, our sales are up double digits, gross margin up 50 basis points.

    This is the eighth consecutive year of improvement in gross margin. The eighth consecutive year. Up 36.2%, and we were able to able to leverage our sales growth EBIT performance at 12.6% growth. Net profit is up 15%, which in the environment in which we are in, with the level of investment we're making we think is quite acceptable.

    This is a chart we love to talk about. So for eight consecutive years we have driven gross margin up from a modest starting point of 30 .8% to a level now at 36.2%. As Horst pointed out at the start, we've basically doubled our output in China with the same headcount.

    So think about that: we've doubled our output with the same head count. We are uniquely positioned to transition to any geographic region such as the USA, if the legal environment and the political environment creates an opportunity or a requirement to produce there, we can move at a very quick rate. And I'll show you that in a moment.

    As Frank pointed out, working capital was better than last year at 16.4%, that's world-class, that still continues to be the best in the industry. And yet we do think there is room for improvement, in inventory as we go forward. But what we won't do is to compromise our service level to our customers.

    If you were to look at Home Depot or Bunnings or any of our other major customers, what you would see is that we are routinely awarded vendor of the year recognition for outstanding service levels. We retain and exceed the levels of our competition and we are doing it with an acceptable level of inventory. While that may come down a bit as we go forward, but never at the expense of customer service. That is a hallmark of TTI.


    So, you know, look, the Milwaukee business is one of the growth engines of the company along with Ryobi. We were able to grow Milwaukee last year at 21%. Now think about that: 21% growth in the power tool industry. We are not in Silicon Valley here, we're talking about power tools, a GNP business for years and this significant part of the company is growing at 21%. As we have shared before, our plan is to grow at a 20% clip really for the next five years at Milwaukee as we continue to take market share and stimulate market growth with our cordless strategy. I'm going to share that with you here as we go.

    The Milwaukee growth is extraordinary not only because it is at 21%, but because we are able to do it in every region that we are tracking around the world. So North America was really strong at 20.6%, but Europe was the star of the company last year with a 21% growth rate in Milwaukee.

    As you know, the European theatre is in a state of contraction, there is all sorts of concern about the economic health of the region, and yet TTI was able to build Milwaukee at 21.3% growth. That is maybe the most exciting result we had last year. Of course, rest of world is paced by Australia and New Zealand, where we have become the number one pro supplier of power tools. But also we are beginning to focus on other countries in Asia, like Korea, like Taiwan, where we've had amazing success with their Milwaukee program. Not at a discounted level, we are going in with significant premium pricing, and we are finding users willing to pay up for the quality and the safety that we provide with Milwaukee.

    Manufacturing in USA

    Horst mentioned upfront and I think that it is important to point out now, that we have never put all your eggs in one basket when it comes to manufacturing. We have an outstanding manufacturing foundation in the US, this is not something that we reacted to, this has been in place for a long time. For a lot of reasons, we always felt we should have geographic diversity when it comes to manufacturing. We also have manufacturing in Europe by the way. These decisions are made based on a strategic plan that would allow TTI to flourish no matter what local laws are passed.

    So if something happens in the US, and there's some sort of border tax, it is going to affect everyone equally, everybody manufacturers in Asia, it is not like we are the only company producing power tools in China. The great news is that we are positioned to ramp up fast in our manufacturing operations. We have two Milwaukee factories, we have a Ryobi operation, a floorcare operation, and a handtool operation. We have a lot of friendly [US state] governors that seem to be anxious to fund our decision to increase manufacturing.

    So if you say what is going to happen to TTI if we do this? Well first of course the US has higher labour rates, but you save on freight. We have learned to automate our manufacturing and we have proven that over the last five years, and we have an amazing world-class manufacturing operation in China, that is a perfect operation to supply the rest of the world. The US is, everyone is speaking about today about the US, but we are growing like crazy in Canada and Europe and Australia and Korea, and Latin America, so we have China, China is ready to go to supply the rest of the world if the US focuses on production locally.

    Again I think that you have to understand that the laws that may come across in the US will not discriminate, every manufacturer will be dealing with the same situation. It is just the winner will be the company that can move the most quickly, and I think that our execution track record speaks for itself.

    Future leaders

    Okay, so here's another interesting highlight of the company's success. We are continuing to be dedicated to hiring college graduates to provide manpower for our growth. So this year we will actually hire over 500 college graduates over 50 campuses in the US, and in another 12 countries around the world. This is a program that provides the future leadership for TTI.

    It is an interesting group that we hire. These Millennials that we hire, they are 52% female they are 18% bi- or trilingual, we look at 100 resumes and we pick one, we do that 500 times and then the top 10% of those people are promoted into the company's opportunities or product management jobs etc. around the world.

    There is no one in our industry that is remotely close to this kind of commitment to developing future leadership. It is one of the things about having so many Millennials around, the Millennials all want to save the world, but they also live on social media, and they think their iPhone should control everything. So you're going to see TTI blazing a trail when it comes to iPhone and Bluetooth capabilities on our products, whether it's in floorcare or power tools.

    This is an enormous advantage that I think is underestimated. I think to have a group of 50-year-old executives sitting in a room trying to figure out how to turn the iPhone into a device on the jobsite might not be the best strategy. And I think that our campus recruiting program is going to bear fruit as we move forward.

    Thinking about the market

    I would like to introduce today, a way for you to think about our market over the next five years. Many people have said, what are you going to do next? Horst and I talk about this all the time. Milwaukee is growing like crazy, Ryobi is an amazing success story, what is going to happen next?

    We wanted to share with you our vision about the marketplace over the next five years and to give you some confidence that we can continue to grow our company the way you have in the past and deliver outstanding financial results, in the businesses we serve today.

     And this growth we have will be fuelled by what one of the most prominent analysts of our company has coined the phrase "the growth drivers" to describe. We have Milwaukee, Ryobi are powerful growth drivers, soon to be joined by floorcare.

    Let me show you how that growth will manifest itself in the market.

    So first of all we we think in five years, we are talking about serving a market that could be USD35-USD36 billion plus. These are internal estimates, this relates to marketplace that we are in fact helping to create, and develop. So our vision is to stimulate and create a market, much in the way that Apple did with the iPhone and the iPad, and we want to be in a position to harvest the benefits of that creation.

    We recognise that we are never going to control the whole market, and I think what people miss, none of our competitors have to lose for us to win. We have some very good competitors - Bosch, Mikita, Stanley, DeWalt - these are well-managed companies ,and they are very strong in many geographic regions. We intend to be real leaders in the market, particularly in cordless, where we already are exhibiting that leadership. What we create here will benefit everyone, and the key is that we want to be the Apple, we want to be in the vanguard, and to be the company that is creating the opportunity.

    Network effects

    The power tool market has changed dramatically. The reason this is so exciting, is because of what we call the network effect in cordless. In the old days power tools was called a "best of of breed" business. So you'd walk into a Home Depot and you would buy a Milwaukee Sawzall, a Bosch router, a Makita circular saw. And you were considered to be a smart user if you knew what brands to buy for what category. And there was no interconnectivity, so your truck looked like a rainbow of colours, and it did not have and it did not matter if one tool could talk to another, because there was no synergy, no connectivity.

    That is all over now. The power tool market is going to go to cordless. In fact the whole power equipment market is going to go to cordless, including floorcare. And the opportunity for us is because we have the broadest network work the broadest range of products that work off the same battery platforms, we think that we can convince the user to buy our kits to start and lock them into our network over the long haul. And this is a way where you can build a much higher level of marketshare at a much higher level of growth than the old best-of-breed days.

    Let's take a look at this cordless market potential. So the total power equipment market potential we think is USD36 billion.

    To continue reading this transcript, please click on the link below, which will download the edition of HI News which includes this:

    TTI 2016 results presentation - HI News Vol. 3 No. 4

    Europe update

    A second St. Albans location for Bunnings UK

    Global name change for Wolseley except for the UK and online marketplace for French renos

    Bunnings UK & Ireland launches another store in St. Albans, Hertfordshire; Wolseley will maintain its name in the UK but will be known as Ferguson in the rest of the world; and French startup company, Travauxlib matches companies and customers planning renovations.

    Bunnings opens its second UK store

    Customers have been welcomed to Bunnings' second store in the UK which has opened on Hatfield Road, St. Albans, Hertfordshire. It replaced a former Homebase store.

    This 40,000 square feet (3,700sqm) outlet stocks more than 24,000 different home improvement and garden products. The store also features timber cutting, a garden centre, a tool shop, a "colour wall" with over 3,000 tiles - as well as paint from Johnstone's Trade, Crown and Dulux.

    England rugby union legend, Kyran Bracken joined team members to celebrate the opening. Bunnings Warehouse Hatfield Road complex manager, Emma Wimble, said:

    Our team members have worked really hard to prepare the store for opening and we are looking forward to helping customers and the community with their home and garden projects. We have already helped Sandridge School by tidying up an unused area of land by repainting flower beds and creating vegetable patches so the children can set up a gardening club. And we look forward to doing more with groups in the local area in the future.

    Stores located in Hemel Hempstead and Milton Keynes are due to be converted by 30 June.

    Wolseley will rebrand as Ferguson

    FTSE listed plumbing and heating supplier, Wolseley, is to change its name to Ferguson, subject to shareholder approval, and exit the Nordic region.

    The group will continue to use the Wolseley name in the UK market but its name will be changed to reflect the success of its US subsidiary, Ferguson. Group chief executive John Martin said:

    Ferguson now accounts for 84% of group trading profit and we have decided to align the group's name with our most significant brand in our largest market.

    It will henceforth report in US dollars.

    The British company's announcement came as it reported trading profit rose 5% for the six months ending in January, and a change of leadership at its key US business.

    Ferguson's current CEO, Frank Roach, is to be replaced by Kevin Murphy, the company's chief operating officer. Mr Roach is retiring after 40 years with Ferguson.

    Overall, the group has struggled in tough market conditions in Europe, particularly in Scandinavia. Its US business continued to grow, with revenue up 5.5% compared to 4.5% for the rest of the group.

    It faced price deflation and tough competition in the UK last year. In September, Wolseley announced it would spend GBP100 million (AUD165 million) closing 80 UK branches and one distribution centre, cutting around 800 jobs.

    Wolseley revealed that profits for the six months ended January 31 this year fell to GBP328 million (AUD542 million), compared to GBP367 million (AUD607 million) in the previous year.

    However, revenues were up nearly 7% on a constant currency basis. Changes in foreign exchange rates saw overall revenues increase by nearly 25%, rising from GBP6.8 billion (AUD11.2 billion) to GBP8.5 billion (AUD14 billion).

    Despite a rise in sales and profits, the group continued with plans to restructure its UK and European business following a decline in like-for-like revenues in both regions.

    It has now begun the process of leaving the Nordic region, having identified "few synergies with the rest of the group's plumbing and heating business", Mr Martin said.

    But share prices have risen on expectations of continued momentum in Wolseley's US business.

    Start up targets French home renos

    Travauxlib is a French startup that matches users with construction companies so they can fix up their homes. The company has raised EUR1.8 million (AUD2.5 million) so far.

    Travauxlib said it adds both transparency and a technology layer to speed up everything before and after the home renovation process.

    The company usually works on complete home renovations, kitchen remodelling, bathroom work and home extensions. On average, Travauxlib's clients have been spending between EUR15,000 (AUD21,000) and EUR20,000 (AUD28,000) on their home renovations.

    But the startup doesn't handle the construction work itself. It's a marketplace with construction partners paying to work with Travauxlib.

    For construction companies, Travauxlib helps find new clients by showcasing their work on its website. They can generate a quote using Travauxlib and bill their clients directly on the platform. It can be a big time saver as the companies don't have to take care of all the paperwork. Travauxlib also works with photographers to take photos of the construction projects.

    There are more than a thousand companies currently on Travauxlib's platform. The selection process is quite rigorous, according to the startup, as it only works with a selected and "most competent" construction businesses.

    At the moment, Travauxlib is only available in and around Paris, but the company is thinking about opening new markets.


    Supplier update

    Briggs & Stratton Australasia represents Billy Goat

    Echo Power Tools takes a different approach to advertising and Newell Brands' growth plan

    The Billy Goat range of turf equipment products can be found at Briggs & Stratton dealers in Australia; a new campaign from Echo Power Tools; Newell Brands' tool business divestment contributes to growth strategy; Locksmiths' Supply Company is using Epicor software to manage its supply chain; and AkzoNobel makes carbon neutrality a priority.

    Billy Goat distribution in Australia

    Briggs & Stratton has begun its exclusive Australian distributorship of products from Billy Goat Industries.

    Billy Goat is a manufacturer of specialty turf equipment, used mainly by professional landscapers and gardeners. The range includes aerators, turf cutters, overseeders, power rakes, brush cutters, walk behind blowers, lawn vacuums and debris loaders.

    The Billy Goat brand will now benefit from the support that Briggs & Stratton provides its dealer network and consumers, as well as the hire and rental industry. Dean Harriott, managing director - Australasia, said:

    We are delighted to be taking on Billy Goat and the opportunity to accelerate the growth of the brand in Australia with the backing of Briggs & Stratton's resources, innovations in engines and extensive network.

    Will Coates, president and CEO of Billy Goat Industries, adds:

    It was clear to me and my brother, Drew, that partnering with Briggs & Stratton will give us the best opportunity to continue with the Billy Goat brand.

    The Australian Hire and Rental Industry Association values the hire and rental market in Australia at $6 billion annually, with the equipment hire and rental market worth two thirds of that market. It is expected to enjoy annualised growth of 2.7% over the next five years, according to IBISWorld.

    The gardening services industry in Australia is worth in excess of $3 billion annually and expected to experience growth of 2.2% over the next five years.

    Echo Power Tools ad campaign

    A new campaign from Cramer-Krasselt (C-K) pits the performance of Echo's range of power tools against forces in nature and machine, including hurricanes, muscle cars and combat choppers, instead of the typical comparisons to competitive brands. C-K creative director Nick Marrazza, explains:

    Echo is all about power, always has been. But now they wanted to own the 'power' in outdoor power equipment. So, we needed to demonstrate the power of the tools, but we didn't want to get into a comparison war with other tool brands. Because that's just boring. Instead, we showed how Echo tools out-power some of the most powerful elements on earth.

    Three TV spots for the North American market drive home the power. In one, an Echo backpack blower is shown as more powerful than the winds of a category five hurricane.

    In a spot for the Echo chainsaw, it is compared to a muscle car. "A super-charged muscle car goes from zero to 60 in 3.1 seconds. The chain of an Echo chainsaw: zero to 60 in just 1.2 seconds."

    Finally, an Echo trimmer is compared to the power of a helicopter. "The blades of a combat chopper spin at the rate of 380 RPM. Not even close to an Echo trimmer."

    While the brand previously targeted the weekend warrior, Echo is now looking to improve its market share among professional landscapers, said Wayne Thomsen, vice-president - marketing at Echo.

    While cordless battery powered equipment is growing, the professional landscaper still heavily relies on gas-powered equipment for its power and durability. Echo only makes gas-powered equipment. Mr Thomsen told Marketing Daily:

    We want this audience to take us seriously. So, we made a departure from airport TSA and trolls to change how the brand is viewed in the category. Previous campaigns targeted that weekend warrior landscape, fixing up their backyards. We still want to target homeowners but we want to elevate the brand for professionals to take notice.

    Echo will also promote this campaign through Facebook, Instagram and YouTube.

    Link to YouTube video

    Tool sell off part of growth plan

    Newell Brands' recent sale of its tools operations to Stanley Black & Decker realised nearly USD1.95 billion for the company, including the retention of accounts receivable.

    As part of the deal - first announced in Oct 2016 - Newell sold the Irwin, Lenox and Hilmor brands of its tools business. However, the company decided to keep its Dymo Industrial labelling business.

    The proceeds from this transaction will mainly be utilised in reducing the company's debt. This, in turn, will take Newell closer to its leverage ratio target of 3-3.5 times EBITDA (earnings before interest, tax, depreciation and amortisation) in two to three years from the merger with Jarden Corp. which concluded in April 2016.

    The divestiture forms part of Newell's "Growth Game Plan" of transforming into an operating company from a holding company, along with fresh investment plans and ideas for its combined portfolio with Jarden. Accordingly, Newell announced plans to make its operating structure simpler, by reducing its 32 business units to 16 operating divisions. Additionally, this will include the establishment of an all-new e-commerce unit that operates internationally.

    Newell has also unveiled plans to sell off its winter sports businesses; the heaters, humidifiers, and fans operations within the consumer solutions segment and the home solutions unit's consumer storage container business.

    The company recently agreed to sell the Rubbermaid consumer storage totes business and also put up the Pine Mountain and part of Diamond brands, for sale. Notably, the company is on track with its plan of exiting product lines with annual sales in the range of USD200-300 million across its combined business with Jarden, over the next two to three years.

    These changes reflect the company's focus on simplifying its operating structure, and highlights its commitment toward making prudent investments in areas with higher growth potential.


    Supplier update: Stanley buying Irwin Tools - HNN

    LSC chooses Epicor software for ERP

    Locksmiths' Supply Company (LSC) is deploying Epicor Software's cloud resource planning solution to manage all supply chain and distribution tasks.

    LSC selected Epicor ERP as part of its strategy to keep pace with the locksmithing industry as it moves from a mechanical environment to a digital one, with the company distributing over 30,000 hardware, software and service products. Paul Newton, LSC's project team leader, said:

    Security is a growth industry and technological advancements are being made all the time. Our staff are used to seeing smart technology built into the products we sell, from the humble car key right up to home automation, commercial and automotive security.
    In order to remain competitive and retain staff, the onus was on us as managers to provide modern software which is flexible, intuitive and instinctive rather than proprietary, complex and unwieldy.

    Mr Newton said LSC wanted an ERP (enterprise resource planning) solution that in addition to supply and distribution functionality would also reduce the manual sharing of information between staff and could centralise access to this information for greater transparency. He said:

    We knew we needed streamlined processes in terms of supply and distribution in order to continue to grow...We churn out huge volumes of orders and have to make sure we supply customers as efficiently as possible without introducing time delays into the supply chain. With Epicor ERP, staff will be able to complete more sophisticated demand forecasting, and also maintain the integrity of our stock and manage our national supply chain even more effectively.

    Vince Randall, vice-president for Australia and New Zealand, Epicor, said:

    The implementation of Epicor ERP will streamline functions such as sales and order management, warehouse management, inventory optimisation and forecasting. This will permit them to focus on bringing new technologies to market and training and servicing their customer base, growing even further.

    AkzoNobel commits to carbon neutrality

    AkzoNobel said it has become the first paint and coatings manufacturer to pledge to become carbon neutral and use 100% renewable energy by 2050.

    The company aims to build on a sustainability agenda which has seen its share of renewable energy rise to 40%, with almost half of the firm's global sites having improved their energy footprint last year. Chief executive Ton Buchner said:

    We continue to identify areas of opportunity which will drive us forward and help reduce our industry's dependence on fossil fuels. This new vision for 2050 will propel us further along that path, while enabling us to make a measurable contribution to the United Nations Sustainable Development Goals.

    The commitment will be applied throughout the Netherlands-based firm's entire supply chain, helping AkzoNobel to continue to reduce its overall carbon emissions, which fell from 27 million tonnes in 2013 to 24 million tonnes in 2016.

    In addition to its carbon reduction commitment, Akzonobel also pledges to sit at the forefront of the paint industry's transition to a circular economy. Late last year, the firm unveiled a not-for-profit paint remanufacturing facility in North West England, as part of a plan to produce 100,000 litres of remanufactured paint by the end of 2017.


    Supplier update

    Dulux paints a rosy picture

    IkeGPS continues its relationship with Stanley and Taubmans' holiday campaign

    Dulux chief executive Patrick Houlihan remains positive about the company's future; Stanley Black & Decker has extended its deal with IkeGPS Group for its Smart Measure Pro product; and Taubmans Endure Exterior paint features snow globes in its latest print advertisements.

    The future is profitable: Dulux chief

    At Dulux's annual general meeting recently, chief executive Patrick Houlihan told shareholders he expects the company's core home renovation and maintenance markets, which account for two thirds of revenue, to drive sustainable profitable growth this year as the sector returns to long-term average growth rates in 2017.

    Mr Houlihan confirmed that subject to economic conditions and excluding non-recurring items, Dulux expected overall net profit after tax in fiscal 2017 to be higher than the 2016 equivalent of $130.4 million.

    He also noted that the company should not be affected by the closure of the Masters hardware chain. Mr Houlihan said lead indicators in the company's key markets remained largely positive. He said:

    Our core existing home renovation and maintenance markets...are expected to continue to provide resilient, profitable growth. The new housing market segment accounts for approximately 15% of group revenue and we tend to focus on the higher-margin, premium end of this market. Although new housing approvals have peaked, we expect this market to remain strong in 2017, given the solid pipeline of work yet to be commenced and completed.

    He said commercial construction markets were expected to remain solid, but resources infrastructure markets would continue to struggle while markets in China and PNG were tipped to stay weak in the immediate term.

    However, we are confident our core, renovation and repair markets in Australia and New Zealand are on track to revert to normal, resilient growth rates.


    DuluxGroup FY2016 results - HI News, page 22

    IkeGPS expands Stanley deal

    New Zealand-based IkeGPS Group has struck a new deal with Stanley Black & Decker.

    The tool company has extended its supply, branding and distribution agreement for Ike's Stanley Smart Measure Pro product that targets the construction industry and professional contractors. The agreement term runs to the last quarter of 2018.

    Ike executives said sales channels contemplated under the agreement are Stanley Black & Decker's big-box retail and specialty distribution partners spanning Europe, North America, Asia, Australia and New Zealand where partners include Bunnings.

    To facilitate sales into these different markets, the product has now been translated into 15 different languages and customised for 25 different geographic territories.

    The Stanley Smart Measure Pro product was launched in December 2015. About 25,000 units were sold into the US market in FY16 through Lowe's stores. The FY17 unit volume forecasts have been upgraded twice in the first half of the financial year, from 26,000 units to 39,500 units, as a result of three new European markets. Ike chief executive Glenn Milnes said:

    Given the extremely positive customer and market response to the product since its launch into North America and now into the UK, France and Germany, the extension of our agreement with Stanley Black & Decker is an exciting long term development for this product.
    We have already seen the power of big-box retail distribution and anticipate follow-on orders from each of the aforementioned markets as well as launch orders for numerous new territories and channels through FY17, FY18 and beyond.

    This renewed agreement has been concluded on improved commercial terms and the sale of units will generate material gross margins for Ike.


    Kiwi tech in US home improvement market - HNN

    Snow globes star in paint ads

    Taubmans and its creative agency Naked Communications have launched a print campaign to inspire consumers to make the most of their festive free time by painting the exterior of their home.

    The campaign focuses on Taubmans Endure Exterior, a premium paint designed for maximum protection against all weather conditions. It dramatises the effectiveness of Taubmans paint by showing a range of different regional-style Australian homes, each encased in a snow globe. Fiona King, senior brand manager at Taubmans, said:

    Our customers can sometimes struggle to find the time to paint, but with the great weather and time off, the holidays are an excellent time to finally get around to it. Taubmans Endure is the perfect choice because it has Nanoguard Technology, which provides maximum all weather protection. We felt this idea brought this to life in a fantastically simple way.

    Jon Burden, Naked's executive creative director explains:

    Leading up to the holidays many brands are shouting for people's attention, especially in print format. We wanted to stand out from the Christmas crowd by creating something simple and pure. I believe the mark of a good product ad is being able to explain the product benefit without explanation or a list of claims, and this concept does just that.

    The campaign is running across national magazines and press.


    DuluxGroup full-year results 2015-16

    Some divisions disappoint, but result within forecasts

    It also faces a future where consumer choice could start to move beyond brands

    Australian household paint and building products company DuluxGroup (Dulux) has reported its results for FY2015/16. The results were overall modestly positive, with the company itself describing them as "solid". Sales revenue for the year was $1716.3 million, up by 1.69% on the previous corresponding period (pcp), which was FY2014/15. Earnings before interest and taxation (EBIT), excluding non-recurring items, rose by 4.52% on the pcp to reach $201.1 million.

    Net profit after taxation (NPAT), excluding non-recurring items, increased by a similar percentage to reach $130.4 million. In Dulux's paint and coatings division, sales increased by 2.27% over the pcp, to reach $890.6 million, while the division's EBIT, excluding non-recurring items, rose by 6.61% to reach $156.5 million.

    In a Dulux press release, the company's CEO, Patrick Houlihan, is reported as stating:

    Our Dulux, Selleys and Yates businesses, which make up more than two thirds of DuluxGroup's revenue, collectively grew earnings by 6.2%, and individually delivered record profits. These businesses have done well despite short-term retail market challenges, including the impact of the Masters closure and stock liquidation. The Dulux trade and specialty coatings businesses were particularly strong, which demonstrates the value in our broad end-market approach.

    In his remarks at the results presentation to investment analysts, Mr Houlihan sought to portray Dulux as having fared well, despite significant negative factors in its markets.

    >}Dulux results FY2015/16}

    Paints and coatings

    Sales for this division came in at $890.6 million for the year, up by 2.3% on the pcp, while EBIT excluding non-recurring items was $172.3 million, up by 4.7% on the pcp.

    >}Paints and Coatings numbers for Dulux}

    Mr Houlihan said that the weaker than usual growth was a result of a number of factors. A major one was that the renovation and repaint market (stated as 75% of Dulux's market volume for paint, 65% for the company overall, according to the current annual report) fell by 4.5% during FY2015/16. While the trade sector of this market grew, the retail sector declined. Contributing factors to this decline included:

  • A change in product mix, specifically higher sales in low-end paint through retail channels
  • Promotional discounts used to launch Dulux's new variant on its Wash & Wear paint
  • Discount paint sales which resulted from the liquidation of Masters' paint stock
  • In response to an analyst's question later in the presentation, Mr Houlihan expanded further on the impact of the Masters' sales:

    We did see some impact late in F16, but not a material impact. I suppose the paint and coatings result speaks for itself in terms of sort of overall performance. If I think about paint specifically, remember what has been in Masters. The Valspar Company to my knowledge have taken the premium Solagard product back, so we're not seeing a discounting of a well known premium brand.
    We're seeing liquidation of effectively unknown brands: Sherwin-Williams, Pascol, and Valspar, which while as a brand it's been around for a while, in consumer research it's still effectively unknown. So we believe that that liquidation is flowing more into the mid to bottom end of the market, where we are less biased, and that is why we are seeing less of an impact, and even into the mid to lower end of elements of the trade market, where you might think of a handyman or the youth brigade or whatever is the best way to describe that.

    In his general comments on the paints division, Mr Houlihan also highlighted three positive developments that are under way. He nominated what he called the company's "iconic jellybeans promotion" (where customers receive a can of jellybeans along with the purchase of a set amount of paint), which he said had worked well with the launch of the new Wash & Wear paint. In addition, there is Dulux's growing range of speciality coatings products. Dulux is also seeing good results, apparently, from its Dulux Snapshot colour-matching device, for which the company has exclusive rights in Australia and New Zealand.

    In the company's annual report, it notes that input costs such as those of titanium oxide (known in the industry as TiO2) and latex resin were expected to increase in line with inflation during 2017.

    Acquisition of Craig & Rose

    Dulux announced it had acquired a small UK-based paint manufacturer on 10 August 2016. Craig & Rose is described by Dulux as manufacturing a niche range of premium paint products. The company does not seem to have actually disclosed the acquisition price. Instead it has listed three acquisitions as a group -- Craig & Rose, Munns lawn care business and the business Gliderol had in Western Australia -- and stated the total acquisition cost was $13.2 million, with goodwill accounting for $5.5 million of that cost.

    Mr Houlihan explained at some length the logic behind this acquisition during the analysts' presentation:

    As we have already mentioned, in the second half we acquired Craig & Rose, a small premium decorative paint company in the United Kingdom. Craig & Rose is based in Edinburgh, and up until we acquired it, it was the oldest independent decorative paint brand in the United Kingdom, founded in 1829. The business is small and operates at break-even level, however we believe that the acquisition will provide an excellent entry point for the UK, and has excellent growth prospects for DuluxGroup.
    The Craig & Rose brand itself has been under invested in, and has the potential to grow with better marketing and wider distribution. An in-country presence and manufacturing base will assist us in potentially launching other brands and ranges into the UK market, such as Selleys and Porter's.

    In response to a question from Mark Wilson, an analyst with Deutsche Bank, he elaborated further on this acquisition:

    What we've done with Craig & Rose is buy this business that's relatively small. You might think well why buy it, but what it does is it gives us manufacturing capability on the ground that can be easily expanded for some incremental capital. I don't envisage we'd be going to build new manufacturing capacity or new manufacturing sites there ourselves.
    It gives us a brand that has latent value, but it just hasn't been invested in. It gives us chemists on the ground. It gives us formulas on the ground. It might seem a bit unusual, but in Europe to sell any formulas that utilize raw materials, those raw materials need to be registered under the European REACH legislation.
    So suddenly we've got chemists, and raw materials, and formulas that all European REACH compliant. So we can do things that we otherwise couldn't do by shipping paints or formulas from Australia.
    It basically gives us a beachhead to explore how we can improve that business, let alone use the infrastructure it gives us to look at what we can do with Selleys, what we can do with Porter's. Let alone, as I say making Craig & Rose a better brand.
    Those comments are very UK specific, but it also gives us a platform to explore what else we might do in other parts of Europe.

    Consumer and construction products

    Sales in this division for Dulux's FY2015/16 came in at $253.9 million, down by 4.5% on the pcp. EBIT exclusive of non-recurring items was $29.5 million up by 1% on the pcp. This division consists of Dulux's Selleys and Parchem businesses.

    Mr Houlihan stated in his remarks to analysts that there were two main drags on growth for Selleys. The first was the "destocking" activities at Woolworths' hardware division. While he explicitly named the Masters' liquidation sale, by implication it may be that the Home Timber and Hardware Group (HTH) was also destocking, prior to its acquisition by Metcash. The second drag came from a reduction in internal sales of Selleys' products, as Dulux's Asian operations switched to sourcing comparable products locally.

    Mr Houlihan stated in his remarks that, exclusive of those factors, the revenue for Selleys had grown by 4% during the year as compared to the pcp. He said that as these were passing factors, growth should return to Selleys in 2016/17.

    The other business in the division, Parchem, is reliant on engineering-based infrastructure projects, and it was hard hit by a decrease in that kind of construction due to contraction in resources industries linked markets.

    Other divisions

    Cabinet and architectural hardware grew EBIT by 38.9% to reach $12.5 million, with the Lincoln cabinetry business making the biggest contribution. The "Other Businesses" category saw EBIT decline by 8.8% over the pcp to $14.5 million. Papua New Guinea declined sharply, Yates managed some growth in what Dulux describes as a "soft market", and a good performance by operations in Vietnam saw improvement in South-East Asia operations.

    Perhaps the biggest disappointment of the results came from the garage doors and openers division. Overall sales grew by 5% over the pcp to reach $177.9 million. According to Dulux, excluding the acquisition of the Gliderol Western Australia business, sales growth was just 2.2%. Overall EBIT declined by 5.8%, or one million dollars, to reach $16.1 million.

    Dulux reported that the division's market was flat. Mr Houlihan reported in his remarks that the company was satisfied with sales directly to builders, sales through B&D dealers was disappointing. However, he does see some upsides:

    The reality is that the business remains work in progress. There are positives on the market in innovation side of the business, particularly in relation to access control, but the manufacturing and distribution strategy requires further fine-tuning.

    Mr Houlihan made some further comments in response to a question from Andrew Johnson, an analyst with CLSA:

    There's been evidence, and we've seen the impact, of market softening particularly in parts of New South Wales and Queensland. That is more in the dealer channeled focused on home renovation which tends to be one of the more higher margin areas, versus say for example, new housing where we've got reasonably positive growth but it's an inherently lower margin business.
    Just recently in October, we launched our Home Safe Home campaign. If you go and have a look at the B& website, you can look at this stuff firsthand. We've launched the world first Auto-Locks, that when you shut a garage door, unless it's key locked, it's actually not locked. It's just held down by gravity and a chain. You can rip it open.
    We've launched in effect a deadbolt system that comes out from the door into walls that can be automatically locked through your smartphone synced in with your electronic opener. Because the key thing in this category is to give people peace of mind around safety and security when they're not at home. The biggest source of burglary break-ins to homes are through the garage. When they are at home sleeping at night you don't want people breaking into your home.
    I'm feeling pretty positive on the marketing work we've done, and we're back on television with those ads. Again, they're on that website if you want to have a look. The innovation we're doing, but I still feel we've got to do more work in the distribution channel to get basically the conversion of the leads we're getting through to the home owner via dealer quality, dealer footprint, the discipline in our sales force, let alone in our dealers around what the mutual obligations are. That's the work in progress.


    One way of looking at these slightly lacklustre results from Dulux is that the company has spent a year "trading sideways" -- making some gains which were offset by some losses. The narrative that Dulux is providing is of a company that has been affected by a series of unforeseeable events that have prevented it from performing as well as it might.

    An alternative narrative is to consider whether Dulux may be facing a more profound shift in some of its markets. These shifts might have a more long-lasting effect on its revenues and earnings. In that view, there are two prime, somewhat linked vulnerabilities that Dulux currently has in the marketplace.

    The first is that Dulux is heavily reliant on consumers continuing to select high-cost, premium paints. While this has been a steady and strong market in the past, there is no guarantee that consumers might not switch to slightly less premium paints in the future. To some observers the consumer paint market seems ripe for a kind of true disruption -- where products with fewer features and lower cost displace the top quality products. Just how good does paint have to get before consumers start considering paint products in the next category or two down?

    The second vulnerability is that, when it comes to premium paints, there are generally two main strategies for promoting these to consumers. The first involves emphasising the durability and ease-of-care for surfaces coated with the paint -- which is the strategy Dulux has taken with its latest Wash & Wear paint. The second strategy is to emphasise the ease of application of the paint. There are few reasons, really, that a paint cannot meet both requirements, but in general paints need to be sold with a single, strong message.

    The question is whether Dulux has found the right message for the current market. Is what stops people from painting a fear the paint will not last long enough, or concerns they will not be able to do a good job?

    It's a point that brings up a possible third vulnerability for Dulux: a major competitor. US-based Sherwin-Williams, which now owns Valspar and therefore Wattyl, has long marketed its paints as much for their ease of application as their general quality. It's likely that Sherwin-Williams will have Valspar better integrated, and will become a better competitor in the second half of calendar 2017.

    Mr Houlihan has, of course, repeatedly dismissed the effect of any foreign competitor on the Australian markets where Dulux currently dominates. For the past two or three years, he has insisted that architectural paint is largely something that is reputational, and that local companies will always do better than multinationals.

    These repeated statements cast a rather curious light, then, on Dulux's own acquisition of a very small paint company based in Edinburgh, Scotland. It's not just that Dulux is executing a strategy abroad that it has dismissed domestically, but it is doing so in one of the most hard-fought paint markets in the world.

    Finally there is Dulux's garage door and opener business. It is of course possible that, as Mr Houlihan has suggested, this is a business that just needs to be settled in, with a clearer line to its markets established, before it begins to perform well.

    However, it seems equally likely that this is a category that will continue to develop in ways that are not familiar to the somewhat untechnical (in a computer/internet sense) Dulux. We're probably a year out from garage door openers that are voice-controlled through services provided by either Amazon or Alphabet (Google). While B&D's recent mechanical innovation, a deadbolt on the garage door (a version of which seems to have been available in aftermarket kit form in the US since 2009) is an advance, it brings the product no closer to true Internet of Things (IoT) integration.

    To put IoT integration in simple terms: will consumers prefer to have a separate app on their smartphone for each element of the home they control -- an app for the garage door, the doorbell/front door lock, the air-conditioning, house lights, dog door and alarm system -- or one app that controls everything? It's very likely the latter will win. It's hard to see a clear path Dulux can follow to that kind of integration. All it can do is to wait for its Chinese suppliers to go down this path, which could take another two or three years.

    It is also interesting that Dulux chose to make no mention of the $400,000 court judgement against the company over paint products it sold prior to 2012, resulting from a case brought by the Australian Competition and Consumer Commission (ACCC). (This subject is covered in this issue of HI News, in the article entitled "Paints ain't paints". ) It seems to be missing not only from the results announcement, but from the company's annual report as well.

    To be fair, this does relate to mistakes Dulux made dating back to 2008/9 in product development and testing, as well as changes to the way the ACCC enforces consumer protection regulations. There is little or no ongoing risk of this re-occurring.

    What should also be taken into consideration for the first half of FY2016/17 is that the full effect of the Masters paint discounts on Dulux is likely to come to bear during October and November, the first two months of Dulux's next financial year. How much of an effect they will have will be interesting to see.

    On a more positive note, Dulux now has distribution in the two largest home improvement operations in Australia, Bunnings and the Metcash-owned Mitre 10 and HTH. While Sherwin-Williams/Valspar/Wattyl may eventually mount effective competition, it's likely Dulux will have much of the premium market almost to itself for the next eight months or so. It is likely that will balance out any negative effects of the Masters' liquidation for all of FY2016/17.

    The challenge

    At the core of these challenges is the possibility that, in retail, consumer choice is beginning to move beyond brands. While Dulux is to be congratulated for the high status both its paint brand and its Selleys brand enjoy, is it possible that brands themselves are entering a period of decline?

    As HNN has suggested elsewhere, brands have relied heavily on television to build their presence, with campaigns in other media feeding into the TV ads. However, the influence of TV itself is steadily fading, to be replaced by online video viewing. The difficult for advertisers with this is that advertising simply does not work as effectively online.

    Quite recently the Dulux brand has based itself on "traditional" Australian values. Take for example a TV ad from late 2015, where an authoritarian father mildly disciplines a little girl in a pink fairy dress and a boy trying to play sports indoors in order to preserve the immaculate newly painted walls of a house. In the end, the clever wife shows that all this fuss isn't necessary, as the new Dulux Wash and Wear paint can be easily cleaned.

    >}Dulux Wash and Wear: traditional family}

    It's an ad that would not be out of place in 1975, but might have raised a few eyebrows in 1995. It's difficult to see it having a broad appeal in 2015.

    There is, of course, also the Dulux "jellybean" ad, where the main selling device is that customers get a free can of jellybeans with the purchase of eight litres of Dulux paint.

    Is it possible that Dulux is relying on its brand in a way that will become rapidly outdated? If brands do become diminished, how will the Australian architectural paint market reformulate itself? These are questions that will need to be considered over the coming two years.


    Trio wakes up lock market

    Innovation for safety

    Trio Australia's new lock, the Patriot, makes double-locking doors safer and easier

    Trio Australia has developed a double-cylinder lock, named the "Patriot", with some interesting features, targeting home renovators who want to upgrade their front door locks. It's a product that has potential, going into an accessible, highly desirable market. However, it's also going to be a real challenge for the company to master.

    That's not because there is anything wrong with the product itself. In fact, HNN would go so far as to say the Patriot itself is actually inspiring -- which is not something we ever thought we would find ourselves saying about a lock.

    Trio has really defined some specific problems and needs, and found a way to at least reduce the effect of those problems. It has then moved on to a core problem with locks such as this, which are sold predominantly as a replacement for existing locks: how to make it easier for the low-skill home handyperson to install it?

    All that sounds great, but marketers reading this are probably already nodding their heads as they see what's next. The problem? Instead of concentrating on one, single feature/solution, and making that the primary, marketable benefit about this lock, Trio has developed a device that has three -- arguably four -- features that would be of interest to a consumer.

    To make matters more difficult, these features all point in slightly different directions, so that tying this story into a single, understandable narrative becomes very difficult. How do you define and present the benefits?

    There is even another, additional marketing problem that Trio faces with the Patriot. This is that, in explaining how the lock works to a consumer, the consumer is likely to nod along, get to the end of the explanation, and glance at the sales associate with a look that says "So?"

    Because, in fact, the way the Patriot works is close to the way that people think most premium locks should work. Which means the sales assistant will have to get a lock that doesn't work that well, and demonstrate the difference.

    Well, nice problems to have, certainly, but they still are real, actual problems.

    Quiet pioneers

    All this points to the sense that the Patriot lock belongs to a class of products that we could label as being "quite pioneers". These are products that actually do revolutionise a category, but do it in such a subtle way that it is sometimes difficult for consumers to grasp what is going on.

    This is definitely both an advantage and a slight disadvantage. The disadvantage comes from the difficulty of getting the product started in the market, understood by consumers, and edging out that first 1% of adoption.

    The advantage, which is long-term and significant, is that for many consumers, once they buy one Patriot, they will buy others as well. With a little bit of encouragement, those early purchasers will also become influencers, and get friends and family to consider buying this type of lock as well.


    These difficulties extend not only to consumers, but to reviewing the locks as well. Reviewing the Patriot on its own would not really reveal all aspects of its design, so we've chose to review it alongside two other locks. We should say that each of these locks has its own unique application, but comparing them reveals the contrasts more clearly.

    One lock that is a close competitor to the Patriot is the Assa Abloy Lockwood Paradigm lock. The other lock we chose to add to the mix is the Kwikset Smartkey lock, which enables the owner to "rekey" the lock, so as to grant temporary access to, for example, tradies, or even AirBnb guests.

    Deadbolt dilemma

    At the core of the developments in the Trio Patriot lock is the problem just about everyone with a deadbolt lock has faced at some time. The deadbolt lock enables it to become "double-locked", meaning that a key is required to open it from both the outside and the inside.

    The sole purpose of this double-locking is to prevent someone who has broken into your premises through a window or via elevated balcony, from being able to easily carry the occupants belongings, such as televisions and computers, out through the front door. Double-locking can be particularly useful in apartment buildings, for example, as even the very best second-storey man is going to have trouble climbing back down with your 60-inch flat-screen TV under one arm.

    One problem with double-locking is that a large number of consumers simply don't understand that this is the purpose of the feature. There's an understandable, but very misinformed, idea that double-locking a door somehow makes the occupant safer.

    Nothing could be further from the truth. Once a modern lock is locked, it's just locked. Double-locking doesn't really make it any more locked. All it does it prevent the lock from being unlocked from inside without a key.

    However, when occupants are inside the building and the door has been double-locked, if there is a fire they may have trouble getting out of the building. It is a mistake that results in preventable deaths every year. In the US between 2007 and 2009, over 18% of preventable fire deaths were caused by egress difficulties, including locked doors.

    Yet most people have at least one relative or acquaintance who not only doesn't know this, but also can't be convinced. You go to visit your Nana in her little flat, ring the doorbell, and she calls out "Just a minute!" There follows about five or six minutes while she looks around for the key to unlock the door. And you think, "if there is ever a fire..."

    Or, in some ways even worse, you go to leave for work for the day and find that the front door has somehow, inexplicably, been deadlocked through the night. In winter. With electric radiators going. And the children sleeping upstairs.

    Comparing to standard locks

    As was mentioned above, before getting into what makes the Patriot lock special, it's best to go over the way a "normal" lock works.

    First of all, there are the standard single cylinder locks, such as the Kwikset Smartkey lock we are illustrating here. This lock cannot be double-locked, because the interior portion of the lock can always be opened by rotating the lateral knob.

    The Assa Abloy Lockwood Paradigm is a double-cylinder lock, with keyed access available on both the exterior and interior of the lock. This is a quite advanced deadbolt design, and actually has some features that are a little like the Patriot. When the Paradigm is not double-locked, it behaves just like the Kwikset, with keyed access from the exterior, and simple lateral knob access from the interior. When it is in this mode, a small green indicator appears in a slot at the top of the interior knob.

    To double-lock this device from the interior, with the lock in the locked position, the key is inserted into the lock, and it is rotated about 20 degrees counter-clockwise. There is a slight "snap" sensation, and the indicator in the slot shows red.

    To double-lock from the exterior, the key is first rotated through 90 degrees to lock the door, and is then rotated a further 20 degrees.

    The Patriot difference

    The double-locking mechanism on the Patriot lock is quite different. The first noticeable difference is that on the interior portion of the lock, the bezel has a black plastic push tab sticking out to the left.

    As with the other two locks, operating it in single-locked mode is simply a matter of rotating the lateral knob. In the case of the Patriot, this mechanism is more highly geared than the other two, so locking/unlocking requires only a 60-degree rotation, rather than the full quarter-turn 90-degree rotation.

    Now, to double-lock the door, the first thing you need to do is, with the lock in the unlocked position, push the black plastic tab into the bezel. This has a nicely weighted action, so that it is quite a soft push, but quite definite. Once the black tab has been pushed in, to double-lock the door, you simply use the same action you would use when you single lock it: rotating the external key by 90 degrees, or rotating the internal knob by 60 degrees.

    As the lock moves into double-locked mode, the black tab is pushed back out of the bezel on the left, and on the right of the bezel, a slightly longer (about 5mm) red tab emerges. The lock is now in its double-locked mode, and this is clearly indicted by that red tab. It will require a key both externally and internally to open the lock.

    Advantages of the Patriot system

    While this seems to be a very simple mechanism, it carries with it multiple advantages.

    The single biggest advantage is that it de-skills the use of the double-locking mechanism for every user. One of the biggest problems with locks such as the Paradigm is that, especially if you are unused to using the lock, it is hard to know how far to turn the key from the outside. The temptation (and sometimes the accident) is to turn the key just as far as it can go, thus double-locking the door. It's quite common to see people when they first use one of these locks standing there with the door open, twisting the key on the outside portion of the lock, learning just how far they need to turn the key.

    While accidentally double-locking the door is one risk, the other risk is, of course, intending to double-lock the door, and not quite getting there. There is simply no way of having absolute surety about what state the lock in the door is in from the exterior. Again, it's not uncommon to see people locking this kind of lock play with the lock for 20 seconds or so, making sure they have locked it the way they want it to be.

    With the Patriot, none of these problems apply. Users of the lock must select the double-locking mode by pushing in the black tab, and once that tab has been pushed in, they can be absolutely sure the lock has been double-locked.

    Using the large red tab to indicate the double-locked status is also a very good design feature. While the paradigm goes part-way to providing the same feature, the slot that shows the red or the green dot is very small, about 4mm tall by 3mm wide. It would be hard to spot from more than a couple of metres away, and just about invisible for older people with failing eyesight.

    In fact, the Patriot's tab mechanism means that the status of the lock can also be determined by touch, making it easier to sense in the dark, and for people who are vision impaired.

    An additional feature of the Patriot mechanism is that a key is not required in order to double-lock the door from the inside. All the user needs to do is to push in the black tab, and manually rotate the lock closed using the lateral knob. This can be very handy when locking up a house, where there are multiple doors to get double-locked quickly.

    Of course, there is also a slight drawback to this. Users could, inadvertently, double-lock themselves into the house, if they do not have access to a key. While that is unlikely to be a problem for adults, a curious child could potentially get in a bit of trouble. For most households that will not be a major concern.

    >}Comparison of locking for Paradigm and Patriot}

    Lock installation

    The other area that Trio has chosen to address with the Patriot lock is ease of installation. There is a very good reason for this. The Patriot falls into the classification of a premium replacement product (PRP).

    This means that most purchasers of this lock will not be being an installation for a new door, but rather upgrading an existing lock. The big difficulty with this is that many, if not most customers will likely have next to no experience at installing or replacing door locks. So Trio is actively taking the next step, finding some way to lessen potential objections to a lock upgrade purchase.

    The area Trio has chosen to concentrate on is the problem of how a lock can adjust to different widths of doors. It's an interesting choice because, if you do know something about installing locks, the width of the door really isn't so much of a problem.

    For example, the other two locks to which we are comparing the Patriot have common solutions to this problem that actually do work quite well. In the case of the Paradigm, this comes supplied with three different sized metal links between the exterior and interior mechanisms, and the installer simply picks the link that suits the width of the door.

    In the even simpler Kwikset mechanism, the rod that connects the interior and exterior mechanism is quite long, and it fits into a very deep socket in the interior knob. There is enough "play" in that setup to accommodate a range of door thicknesses.

    The Patriot uses a spring-loaded mechanism that is tensioned to provide easy use with a range of door widths. Of the three, it is certainly the most designed, and the easiest to explain. It also does offer some real advantages. Certainly the linkages on the Paradigm lock are annoying to get right on installation, and typically take a few minutes and several attempts to get just right.

    What is clever about this move by Trio is that is shows the company understands a slightly unfortunate truth about DIY: sometimes you have to spend as much time resolving imagined problems as you do actual ones.

    The person who purchases a Patriot lock wants to go home, spend ten or fifteen minutes reading instructions, fiddling with tools, and end up with a new lock they can be happy with. (Trio says four minutes, but let's be honest, there is a lot more to installing a lock than Trio takes into account. Making the coffee, finding the electric screwdriver, finding the bits for it, finding the bit that actually works for it, drinking the coffee, trying to install the lock upside down the first time, and so forth.)

    By paying attention to this one detail of lock installation, Trio is providing comfort and assurance. It's suggesting this is not a "pro" operation that requires experience and serious tools. (In the installation videos Trio has made to support the product, the installer uses the absolutely wimpiest electric screwdriver that could be found on the planet.) We've got you, Trio is saying, we know what you're worried about, and we've thought this through.

    For the sales associate in the store, this feature can also be used to answer customer concerns. In response to the question "Is it easy to install?" instead of offering bland reassurances, they can say: "It sure is. For example, unlike on other locks, this lock automatically adjusts to the size of your door, so you can be sure it will work for you."

    After installing and uninstalling each of these locks three or four times, HNN can say that the Patriot lock does seem to have a slight advantage in terms of overall ease of installation. For example, the links on the Paradigm lock that help it adjust to different width doors are a little fiddly to keep in place while fitting the lock. The Paradigm is also quite sensitive to the lock setback, due to the way the bolt itself connects to the lock. Being out by a millimetre or two requires some extra finessing to get everything to work.

    The Kwikset, which is a cheaper lock than the other, consisted of three components instead of two, and this created some problems as well.

    The machined fit and finish on the Patriot lock was slightly better than that of the other two locks as well. However, Trio Australia were kind enough to supply this lock, which came in a point-of-sale (PoS) presentation, while HNN purchased the other two locks. It's likely the PoS display locks are the pick of the current production run.

    In fact, the PoS solution by Trio looks as though it would work well. According to the Trio website:

    The Patriot range comes available in a highly vibrant and informative PoS stand. The top shelf is tiered to maximise packaging exposure for each finish. The shelving in the stand body is designed to hold additional stock of up to 4 units of each finish. Therefore a total range of seven SKUs of each colour.
    Use this POS stand as an off-site location for maximum exposure in-store and return on investment. The stand has its own working display included for customers to test out the Patriot.

    Analysis: The marketing problem

    As was mentioned at the beginning of this article, the Patriot is a very good product, but it does have a marketing problem. How do you go about describing how good it is, and how helpful its features can be?

    One direct way is to make sure that potential customers get a chance to try it out in the store, and it would seem that Trio has gone some way to taking care of that, by providing comprehensive point-of-sale material that includes a working lock.

    Looking at the rest of Trio's marketing materials and web presence supporting the Patriot, it is evident there is a problem developing. It's the same problem that just about everyone who has developed a product encounters, and it is a really difficult one to overcome. It's also the number one problem that gets mentioned in every marketing textbook, that every marketer knows all about -- and that every marketer struggles with throughout their career.

    Yep, it's our good old friend: inadvertently highlighting features instead of benefits.

    Trio does make a running at promoting benefits, but, aside from ease of installation (which is actually arguably a feature), the only core benefit that gets promoted is the safety aspect of not getting locked-in during a house fire. Having a better chance of staying alive is definitely a big benefit, but it's a little problematical when it comes to marketing. It's the kind of benefit you can appreciate, but you sincerely hope you are never going to need.

    So, what is the real benefit of the Patriot lock? One way of looking at this is to consider The Moment.

    What is The Moment? It's something most of us experience everyday. It's that instant that happens soon after you leave the house for the day, either at the moment when you have turned the key in the lock, or perhaps those four or five seconds when you've entered the car before you've started the motor. You think: Have I got everything? Have I done everything I need to do? Cat fed, iron turned off, thermostat turned up/down, curtains closed.

    And door locked. Not just locked, but locked properly.

    The Patriot absolutely, positively removes the door lock question from that list of concerns. It's about piece of mind, one less thing to worry about every day of the customer's life. That is the real benefit.


    Boral results FY2015-16

    Slight falls in revenue, lift in EBIT

    Boral's reorganisation continues to pay off in thriving markets

    In its results for its full FY2015/16 Australian-based construction products company Boral has managed to continue the redevelopment success story it began in the previous corresponding period (pcp), which was FY2014/15. Once again, overall revenue has nudged down slightly, but earnings before interest and taxation (EBIT) has lifted.

    The company has moved clearly into the end stages of the "Fix, Execute, and Transform" program initiated by Boral's respected CEO, Mike Kane, several years ago. It stands in a good position now to take advantage of the increase in infrastructure expenditure over the coming two years, as civil construction comes out from under the lingering shadow of budget cuts and delays made in response to Australia's economic difficulties in past years.

    Total revenue came in at $4311.2 million, down by 2.34% on the pcp. Revenue from continuing operations, however, climbed by a modest 0.32% over the pcp, to reach $4311.2 million. EBIT was $397.9 million, up by 11.55% on the pcp. Net profit after taxes was $256 million, down by $1 million, or 0.39% on the pcp.

    >}Boral results}

    The headline financial ratio is Boral's return for funds employed (ROFE) based on EBIT, which came in at 9.0% for the current year, up from 8.2% in the pcp. The importance of this is that Boral has begun to subtly shift its future strategy. While retaining a strong direction in improving efficiencies, the company is also moving towards better portfolio management, allocating its investments to the product lines and geographic regions where better returns can be planned for.

    >}Boral's focus on return on funds employed (ROFE)}

    Company changes

    As Boral moves into its FY2016/17, the company continues to undergo changes. As announced earlier in 2016, its building products division in Australia will be combined with its construction materials & cement division to form a new Boral Australia division. As Boral's CEO, Mike Kane, said at the time:

    This is a sensible and logical next step for Boral as portfolio realignment has seen the building products division substantially reduce in size over recent years.

    At the time of its results release, Boral also announced the formation of a new joint venture in North America with US company Forterra, which owns Forterra Brick. The joint venture will grant both participants an even share. According to the media release:

    The joint venture will bring together Boral's US clay brick operations and distribution network and Forterra's clay brick and concrete brick businesses in the USA and Canada. The combined business will have a capacity to produce over 2.6 billion standard bricks per year, and will include 27 clay brick manufacturing plants, 2 concrete brick plants and 41 building products distribution centres.

    In answering a question from financial analyst Emily Smith of Deutsche Bank during the results presentation to analysts, Mr Kane expanded further on the reasoning behind the joint venture:

    Putting together these two leading companies who have the capability to reach the key segments for the brick markets in the US, and to get -- to drive up the efficiency from bringing these companies together, is going to be an important step. We've got to get velocity through the plants and through distribution. At 54% or 55% capacity utilisation, it's very difficult to get drive, but we were able to prove that when we took out almost 50% of our capacity in the past, that we can shrink back. Some consolidation has to happen between our asset bases, and the plans are in place. People know what we're going to do. We've identified -- we've tried to be conservative in our projections, but I'm an optimistic fellow and I'm telling you I'm looking for more than what we're saying here.

    Divisional performance

    The headline performance figures for the four divisions Boral had operating during 2015/16 was very positive. The largest division by far, construction materials and cement (CMC) saw its EBIT outside of property earnings lift by 4.0% over the pcp. However, including property, the total EBIT was $293 million, representing a drop of 2.7% on the pcp.

    Building products returned EBIT of $33 million, up by 11% over the pcp. USG Boral saw its EBIT lift by 27% over the pcp, to reach $179 million. Boral USA returned USD32 million (AUD44 million), up considerable over its EBIT of USD5 million (AUD6 million) during the pcp.

    Construction materials and cement

    Revenue for this division fell by 6% to $2900 million. The company states that this was largely due to a decline in liquid natural gas (LNG) construction projects. Other impacts included the sale of its landfill business, and a lower profit realisation from its property business, which has been anniverseried against a particularly strong year in FY2014/15. Additional costs included some restructuring to the logistics fleet in Western Australia and Victoria.

    Positive influences, which enabled the ex-property EBIT to actually lift despite revenue falls, included the receipt of $4 million in damages from the company's long-running (and highly commendable) action with the Construction, Forestry, Mining and Energy Union (CFMEU), and lower fuel costs. Boral reported a reduction of around $16 million in diesel costs for the company overall during FY2015/16. As a result, ROFE came in at 14%.

    In its concrete business, overall volumes are reported to have fallen by 2%, while prices increased, also by 2%, though the company reported that as the mix of products sold shifted, the average price increase for Boral was closer to 1%.

    Boral's asphalt business had a similar outcome, with declining volumes but improved pricing, delivering a steady result. The company notes that this remains a very competitive market.

    Quarries continued to provide good earnings, driven by ongoing growth in metropolitan Victoria and South-East Queensland. Results for New South Wales were mixed, with regional areas providing good sales, but the area around Sydney less so, due to materials produced by tunnel excavation activity.

    >}Boral Construction Materials and Cement overview 2016}


    The underlying story to this division is the movement, predicted by Mr Kane in 2015, of its business from resource-based projects, to infrastructure and residential construction. As he said during his response to a question from Ms Smith:

    Underlying, when you look at Australia, there is this transition. Last year I was talking about this transition. I think there was a lot of cynicism about what would happen with the housing market in Australia. There wasn't anyone in the room suggesting it would go up, even including me. But it did go up to 226,000 starts.
    The strength in the housing market in the eastern states in Australia is a phenomena. It's a phenomena that has sort of defied expectations of everyone in the market. We look at our forward order book, we look at the activity we have going on in New South Wales, which is extraordinarily strong, we see a strong base of business in Queensland, a strong base of business in Victoria, and we have to say there's nothing on the horizon that suggests any significant negative activity in housing in Australia, clearly dominated by multi-family, which we benefit from in our construction materials and cement division. So we're positive and we're confident that that will continue.
    I said last year we were moving from a resource base, strength in the LNG projects, into this new housing arena. We expected it to continue to be strong, and it was. It was even stronger than we expected. The roads, highway and infrastructure work, which was all sort of pending and talked about, and in the exploratory stage in the last financial year, came forward in financial year 2016 with projects being let, pouring having started, and the early stages of the road, highway and infrastructure work starting to pick up.

    Later, in response to a question from Andrew Johnson of CLSA, Mr Kane expanded further on his thoughts about the housing market:

    It's all about the eastern states. It's all about the footprint we have that covers those eastern states. I'm very encouraged and enthusiastic -- 226,000 housing starts. I had a question this morning from the media that said isn't the high price of housing in Australia, isn't that going to curtail the housing market? If that was true, we shouldn't have increased housing starts in Australia in the last year. I said high housing prices in Australia have been a phenomena for over 10 years, over a decade. So that's not having that impact. There are other things we can attribute to what's happening to the primary demand. This is a very robust housing market.

    Meanwhile, the pipeline of possible road projects for Boral continues to increase over the next three to four years.

    >}Boral major road projects pipeline for Australia}

    In response to a question from Kathryn Alexander, an analyst with Citi, Mr Kane described some details of the project bidding process for roads:

    Unlike the LNG projects that as I've said in the past, where we took the majority of the LNG projects across Australia, we could do that. We cannot take all the infrastructure projects. We don't have the capacity or the capability of doing that.
    So you have to have a bidding strategy that says you're going to lose a significant percentage of these projects, you're not going to get them all. Which ones do you want to win? Which ones do you want to lose? And that hierarchy of decision making, you'll find that we'll bid on just about everything that's out there. But we'll have different expectations depending on the project.
    It has a lot to do with the simplistic notions of proximity to the project, proximity of our quarries, proximity of our fixed plant operations, whether or not a portable plant and we have the availability to report on plant as required. How long -- where -- can we get cement to this? Can we not get cement to this?

    Boral building products

    Allowing for a shift in accounting practices regarding the Boral/CSR Bricks joint venture, underlying revenue for this division grew by 1%, while EBIT grew by 11% over the pcp to reach $33 million. Bricks and roofing saw price rises of between 1% and 4%. Timber revenue grew, with hardwood seeing a 4% increase in price.

    Boral gypsum

    Revenue for this division grew by 10% over the pcp, while EBIT rose by 27% to come in at $179 million. The company sees much of this gain coming from efficiencies. Sheetrock brand plasterboard experienced high demand, and an increase in prices of 4% delivering a price premium of around 5%. Volume was particularly high in Australia, increasing by 13%.

    Boral put much of the 27% increase in revenue down to operational improvements, including better cost management strategies.

    In commenting on the growth strategies for this division, Mr Kane stated:

    Asia and North America are our growth platforms, and in USG Boral we are targeting organic growth through innovation, growth in Asian economies, and accelerating market penetration for interior linings and associated products.

    Boral USA

    Revenue grew by 8% to reach USD751 million, while EBIT recorded a substantial increase from USD5 million in the pcp to USD32 million. This came about through a combination of better margins along with volume and price increases. The company sees this as a result of the improvement in the US housing industry. Overall US housing starts increased by 13% during the year. Boral saw a 16% rise in starts in the US states where it sells tiles, and a 6% increase in the states where it sells bricks. That said, the increase in sales in the brick states was only 4%, due to starts occurring predominately in lower-cost housing.

    Roofing revenue increased by 11% of USD176 million, while revenue from fly ash grew by 5% over the pcp to reach USD170 million.


    One of the most important statements that Mr Kane made during the presentation was this:

    Boral's geographic diversification positions the company well to leverage growth opportunities. The priority for Boral Australia is to protect and strengthen our leading, integrated construction materials position, which will benefit from a significant pipeline of major roads and infrastructure work over the next several years, and to optimise returns across all building products and construction materials businesses. However, our ability to grow through cycles is limited by the scale and scope of the Australian market, which is why Boral has identified Asia and North America as our growth platforms.

    >}Boral geographic performance}

    One aspect of this is something that is being consistently heard from the CEOs of big companies. It's not that they don't believe in the economic future of Australia, but they do see its as, in the medium term, being quite uncertain. The current wave of infrastructure building, for example, is largely servicing latent demand. Once that is done, the continuing level remains difficult to predict.

    Likewise, as Mr Kane hints, while the housing markets, especially in Sydney and Melbourne, do not seem to be all that price-constrained, the actual drivers behind the ongoing growth in the value of real estate do not seem all that well-defined. This leads to an uncertainty about predicting future demand beyond two or three years.


    Supplier update

    Hills and Woolworths deal is done

    Stanley Black & Decker's latest acquisition and SawStop takes Bosch to US court

    The deal between Hills and Woolworths has been terminated; Stanley Black & Decker is buying Irwin Tools from Newell Rubbermaid; and SawStop has sued Robert Bosch in the USA.

    Hills' Masters deal ends early

    The demise of Masters has prompted Woolworths and Hills Ltd to scrap a deal where Woolworths took control of the manufacturing and selling of the Hills hoist clothesline and 240 other Hills products for up to 19 years, reports The Australian Financial Review.

    The unwinding of the deal will result in Woolworths paying Hills at least $6 million as part of the confidential settlement that covers the royalties and licence fee income that was due to be paid to Hills for the next three years.

    The initial term of the contract signed on December 3, 2014 was for seven years and there were three four-year options to renew, which would have taken it to 2033. A base royalty payment of $2 million annually was agreed upon in the original deal.

    Woolworths pursued the Hills brand as one of the "hero" offerings in the $75 million clothesline category in hardware as it sought to beef up its range inside Masters to compete against the Wesfarmers-owned Bunnings.

    Woolworths generated most of the Hills sales through the Masters chain, which is being shut down. The December 2014 deal gave Woolworths control of manufacturing, distribution and sales of 240 Hills products across a range of clotheslines, clothes airers and garden sprayers.

    Hills told the ASX recently that it was "considering potential permanent replacement brand licensing arrangements" for all Hills products and was commencing discussions with interested third parties.

    But the trouble for Hills is that by siding with Masters and Woolworths in the first place, it cut off important channels to the market. Bunnings sells a large range of clothesline brands such as Sunfresh, Whites, Morgan and Daytek.

    The Woolworths deal was struck during a time when former Telstra executive Ted Pretty was running Hills as he attempted to transform the staid Adelaide-based firm from an old world manufacturer into a company with strong growth prospects in security systems, health technology, and audiovisual.

    Hills appointed David Lenz as its new chief executive in September, taking over from Grant Logan. Mr Lenz has moved quickly to resolve the Hills clothesline situation.

    Stanley buying Irwin Tools

    Stanley Black & Decker has agreed to purchase Newell's tool business that includes the Irwin, Lenox and Hilmor brands for USD1.95 billion in cash, according to Bloomberg.

    Newell's tool division had sales of USD760 million in the last 12 months and Stanley Black & Decker expects to net cost synergies savings of USD80 million to USD90 million by the third year after close. Stanley Black & Decker president and CEO James Loree said:

    Newell Tools is an important step in our quest to further strengthen our presence in the global tools industry. The addition of the iconic Lenox brand and very strong Irwin brand, as well as their associated power tool accessory and hand tool products, opens up exciting new sources of global growth in similar ways, albeit on a smaller scale, to what Black + Decker did in recent years.
    Thus, the acquisition of Newell Tools, our first major acquisition since 2013, will provide both a source of inorganic growth in year one and an organic boost thereafter.
    SFS 2.0, our operating system, with its growth enhancing elements of digital excellence, commercial excellence and breakthrough innovation will also be deployed to rev up organic growth. This transaction, with our multi-faceted approach to revenue expansion, is entirely consistent with our strategy of driving above-market growth in a low growth world.

    For Newell, the sale helps streamline its sprawling product portfolio after its merger with Jarden Corp. in April 2016. The combination with Jarden created a company with USD16 billion in sales and pushed Newell into new categories such as home fragrances and outdoor products.

    The deal is expected to close in the first half of 2017.

    More tools M&A

    Sources also told Bloomberg that Sears Holdings has been shopping around its Craftsman tool division, which may fetch about USD2 billion. It has attracted bidders including Stanley Black & Decker and Hong Kong's Techtronic Industries. Other companies such as Apex Tool Group and Sweden's Husqvarna AB have explored possible offers for Craftsman too, according to the sources.

    Stopping Bosch saws in the USA

    Saw maker, SawStop has sued Robert Bosch and its subsidiary Robert Bosch Tool Corporation for patent infringement. The lawsuit is before the US International Trade Commission (ITC). Recently, administrative law judge Thomas B. Pender confirmed that the Bosch Reaxx saw infringes patents related to SawStop's implementation of active injury mitigation technology and components thereof. Here is an excerpt:

    Based on the foregoing, it is my Initial Determination that there is a violation of Section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. SS 1337, in the importation into the United States, the sale for importation, or the sale within the United States after importation of certain table saws incorporating active injury mitigation technology and components thereof, in connection with the asserted claims of U.S. Patent Nos. 7,895,927 and 8,011,279. (U.S. I.T.C., Inv. No. 337-TA-965.)

    SawStop is asking the ITC to order US Customs to exclude Bosch's Reaxx saws from entering the United States, and to order Bosch to stop advertising and selling the saws and associated parts, which might include replacement cartridges essential to the saw's operation.

    Dr Stephen Gass, SawStop's president, notes that "the technology in SawStop saws wouldn't have made it to market except for the protection offered by the United States patent system". He said:

    We have invested millions of dollars in research and development to protect woodworkers from serious injury, and our inventions have been awarded numerous patents. Bosch chose to introduce the Reaxx saw in disregard of our patents, and we were left with no alternative but to defend our patent rights in court. We are very pleased Judge Pender confirmed that Bosch infringes our patents.

    AzkoNobel results for first half FY 2016

    Currency woes

    While operating margins increased, market expansion is subdued

    AzkoNobel has released results for the first half of FY 2016. Overall revenue for the company came in at EUR7,141 million, down by 5.29% on the previous corresponding period (pcp), which was the first half of FY 2015. The company states that this was mainly due to adverse fluctuations in the rate of exchange on non-Euro currencies.

    Earnings before interest and taxation (EBIT) rose by over 7% to EUR848 million, delivering a return on sales ratio of 11.9%, up by 1.27% over the pcp's 10.5%. Net income was even more positive, coming in at EUR552 million, up 12.42% on the pcp.

    >}AzkoNobel results 2016 H1}

    Decorative paints

    The positive earnings performance was driven by a 1% increase in volume, particularly in decorative paints and performance coatings, according to the company. Sales revenue for decorative paints declined by 5.34% over the pcp, while the division's EBIT increased by 2.81%. AzkoNobel reports that decorative paint volumes increased in Asia, fell in Latin America, and were slightly down across its European operations.

    While decorative paints was hit with a 7% reduction in revenue due to the effect of negative currency fluctuations, it made a 1% gain in volume, but lost that 1% on its price/product mix equation.

    Decorative paints for AzkoNobel is split between 75% paint for maintenance, renovation and repair, and 25% for new build projects. It provides 27% of the company's overall revenues, and 20% of its operating income.

    The division employs 14,900 people worldwide, and the company states it provides a return on investment (RoI) of 11.7%. Some 55% of its market is in Europe, Middle East and Africa (EMEA), and 30% is in Asia. The division is the number one supplier in the UK and Ireland market, most of the European continent, South America and Africa.

    UK post-Brexit market

    With heavy exposure both to the UK market and the European Union as a whole, the question of what effect the UK's vote to leave the EU ("Brexit") will have on AzkoNobel has received some attention. AzkoNobel's CEO, Ton Buchner, made some statements regarding this in the prepared comments at the start of the analysts' conference call for the release of the company's FY 2016 second quarter results:

    Overall it's too early to determine the full impact as a result of the outcome of the UK referendum. Although in the run up to the UK referendum and immediately afterwards we did see a slowdown in activity in our markets in the UK. We've also seen housing rotations reacting to the outcome of the vote but it is unclear whether this is short term or medium term trend. We have a strong presence in the UK, in 2015 our total revenue was around 1 billion, around 7% of our revenue and our invested capital was [EUR] 833 million and we had around 3500 colleagues based in the UK, a very relevant country for us.
    One part of course is our decorative paints business. Market leading paint brands like Dulux and Cuprinol are part of this business and this business is mostly local and fairly naturally hedged, which means we make and sell around the same value of products inside the UK. Where we're not naturally hedged is in the area of raw materials where we sometimes have to import [US] dollar denominated raw materials into the country resulting in some transactional foreign exchange exposure especially with the recent currency developments that have taken place.

    This was an item that was revisited in the course of the analysts' questions. In response to one such question Mr Buchner, stated:

    Have there been any perceptions of market share loss in Q2 in Europe? The answer would be no, we take this very carefully and we've not observed market share loss in any of the relevant European countries that we operate in.

    Mr Buchner expanded on this further in response to a subsequent question.

    Regarding deco as I indicated when I highlighted around the slide that was dealing with the UK referendum, in the run up to the actual referendum date we have seen a slowdown and the business has not recovered since as such because the insecurity is still there and as I indicated we don't know whether that is a trend or whether that is a short term effect. We are keeping close track of the housing rotation statistics in the UK and we will continue to do so. That is our exposure of course the housing market regarding the decorative paints business both on the trade side and on some of the dealings with the big boxes.

    Asked if, given this, there was any difference emerging in trade and retail sales, Mr Buchner said:

    Yes at this point in time I guess we just see clearly different general environment on both sides, I think both consumers and the trades are basically still trying to figure out what it means for them personally and so at the moment I can't really make comments on a different shaded response between those two.


    Operationally AzkoNobel is showing gains across its businesses, including decorative paints. However, it is also noticeable that in terms of market expansion its decorative paint operation is not performing. This includes the well regarded non-Australian Dulux operations (which are sold by Wesfarmers' Homebase stores in the UK).

    In part this is due to the uncertainty in the markets where it operates, which has only been increased by concerns over the UK's Brexit "strategy". There is certainly pent-up housing demand across Western Europe, and particularly in the UK, but it is not clear AzkoNobel is positioned to really take advantage of this.

    More than any other major paint company, AzkoNobel has exposed itself to developing economies. This is a positive long-medium term strategy (five to six years), but carries significant risk over the coming two years.

    This could turn out to have been a canny choice, with AzkoNobel developing close relations that will pay off handsomely in better times. It remains to be seen if seizing this sort of first-mover advantage ends up being a better strategy than the second-mover advantage which would make use of the relations AzkoNobel has worked so hard to establish.


    Sherwin-Williams results FY 2016 H1

    Good result under expectations

    Repaint market continues to grow, with shift from DIY to Pro

    US-based paint and coatings manufacturer and retailer Sherwin-Williams has reported its results for its second quarter ending 30 June 2016. The results were positive, reflecting both the ongoing recovery in the US housing market and the underlying economy, and the exposure to those markets of Sherwin-Williams.

    In half-year terms, the company's sales revenue came in at USD5,794 million, up by 3.78% on the previous corresponding period (pcp) which was the first half of 2015. Gross profit for the half increased by 8.83% over the pcp to reach USD2,898 million. Net income lifted even further, up 12.8% to USD542.9 million.

    The company reports that it experienced a reduction in income tax provision as compared to previous years, as it moved to a new accounting standard (ASU 2016-09).

    >}Results for Sherwin-Williams first half 2016}

    Paint Stores Group

    Sherwin-Williams operates its own paint outlets in North America, and it reported that like-for-like sales through this channel increased by 8% over the pcp, to reach USD3.72 billion for the half. The increase was driven by a higher volume of architectural paint.

    The company reports opening 31 net new locations in this Paint Stores Group (PSG) during this half, bringing the total store count to 4117 in the US, Canada and the Caribbean, up by 92 on the pcp. The 31 increase consisted of opening 45 new stores and closing 14, with most of the closures relating to Sherwin-Williams' earlier acquisition of Comex. The company plans to open between 90 and 100 stores by the end of the current year.

    Robert J. Wells, Sherwin-Williams' senior vice-president of communications and public affairs, indicated that it was the Paint Stores Group that helped improve the company's gross margin for second quarter 2016 by 2% to 50.8%. He said:

    More than half of the gross margin improvement in the quarter resulted from the positive mix effect of Paint Stores Group, our highest gross margin segment, outpacing the growth of the other segments, coupled with increased operating leverage from higher production and distribution volume.

    The company sees the PSG as continuing to grow through to the end of the current year.

    DIY/Contractor (tradie) markets

    In a presentation Sherwin-Williams gave to financial analysts in May 2016, the company emphasised a major shift it sees in the US market. This is, for the company, a proportional increase in its contractor (tradie) market over the DIY market. For FY 2015, the company saw 59% of its business (by revenue) go to contractors.

    In the analysis of the US paint market provided at that presentation, the company indicated that the DIY residential repaint market was about 31% of the total market at 313 million gallons (1185 million litres), while the Pro (tradie) residential repaint market was about 21% of the total market at 213 million gallons (806 million litres). Non-residential repaint was estimated at 15% of the market with 125 million gallons (473 million litres).

    >}Sherwin-Williams market outlook}

    The numbers for the first half of FY 2016 backed up this growth in contractor painting. According to remarks at the investors' conference call by the CEO of Sherwin-Williams, John Morikis:

    I'd say it's been great deal of my time with our customers and with our people in this segment, and there's a strong sense of bullishness in this area. There's continued growth in the residential repaint area. This is yet another quarter for us with double-digit gains in residential repaint. Our commercial customers are really speaking of a very solid book that currently exists, as well as a number of bids in the pipeline. So, on the architectural side, we're really excited about this market.

    Mr Morikis expanded on these comments later, saying that he believed this growth stretched into the future:

    The discussions I've had with many customers around the country would say that they've got a good book of business that they're dealing with right now. They've got a good book of business that they have in the pipeline either secured or believe that they're going to secure. But what gives us, perhaps, most excitement is the pipeline of bids that they're looking at down the road. They also feel - that's why I mentioned earlier that they are bullish about those as well.

    This was further backed up by a remark from the company's chief financial officer, Sean Hennessy:

    I think, when you look at the results, I think, it's showing up, Jeff, that the painting contractor is the faster growing - that the painting contractor is growing faster than DIY. I think that's our perception, and I think the facts bear that out.

    The reason for the company's ongoing optimism regarding growth of the overall paint market is simply that the housing stock has continued to grow, and this is lagging into demand for paint used for repaint purposes. As Mr Wells expressed it:

    if you look at the overall U.S. architectural paint market, more than 80% of average annual volume goes toward repaint and it's applied to structures that already exist.
    If you look at that 740 million to 760 million [gallons of paint] normalised range that dates all the way back to the late 1990s. And we've had three building cycles since the late 1990s that have put a lot more square footage in place. Our population has grown significantly since then. So, we think it's reasonable to adjust the normalised expectation up based on primarily repaint volume.

    Raw materials

    Sherwin-Williams has a relatively complex outlook on the pricing of raw materials, in particular Titanium oxide (TiO2). On raw materials overall, Mr Wells said that the company expects deflation of around 3% to 5% for FY 2016. He pointed to stable prices for latex and acrylic monomer, as well as chemical grade propylene.

    He said that the major suppliers of TiO2 would gain "some traction" in terms of a price increase, but that even with that, it would just bring the price up to the level it was at the end of 2015. The expected increase would be only USD0.02 to USD0.03 per kilogram, which is not significant on a percentage basis. However, a further third quarter increase in TiO2 prices was likely, and Mr Wells believes that will actually drive the price higher by a more noticeable amount.


    Modelling the paint industry and the place of a major paint company within that industry is always difficult. In general, it's possible to identify medium-term total demand moderately reliably, but how exactly that demand gets expressed in the market, and how that expression then plays out for individual companies is very hard to predict well.

    In particular, when there is an interruption to supply and demand, such as occurred during the low periods of the global financial crisis, a "rubber-band" effect comes into play. At some point the housing market receives enough positive economic signals that it begins building again. This is at first tentative, but if the economic signals continue to strengthen, there is a sudden rush into the construction market, as various builders attempt to seize more market share.

    At some point a minor market glut comes about, and the builders sharply drop supply, until market forces signal once again that there is adequate demand. With luck, the response to that second wave of demand signals is more moderate, though a short-lived glut is still likely. This will then be followed by a smoothing out of supply and demand.

    The US market is, with some luck, a couple of years away from that smoothing out. For the paint market, the question is how the volatility in past years for residential construction is going to work its way out as demand for repaint product. Sherwin-Williams suffered a slight jolt during this second quarter of FY 2016, reflected in the fact that it missed earlier earnings estimates. It seems likely it will perform well over the next three or even four quarters, and then suffer another slight jolt, as the early housing demand fluctuations hit it.

    This is further complicated by the changes to the company itself, which include its wide-scale entry into new consumer channels as its paint is distributed through US-based big box home improvement chain Lowe's, and it begins to absorb and transform (and be transformed by) its acquisition of Valspar.

    One statement that can be made with some confidence is that Sherwin-Williams is seeking to optimise its operations so that they are most profitable when operating at scale. This indicates a great faith in not just the US economy, but also the worldwide economy.

    It seems likely to HNN that this kind of business modelling will become more common over the next three years in industries associated with building and construction. The fact is that most modern, first-world economies are underbuilt in terms of both housing and infrastructure. How that demand gets resolved is still a question unanswered, but the fact of the demand is enough to sustain the kind of optimism that Sherwin-Williams represents.


    PPG results FY 2016 H1

    Slight revenue decline, earnings growth

    Innovation continues to drive profits at PPG, but channel difficulties impede revenue growth

    US-based paint and coating manufacturer PPG has reported a slight decline in revenue for the first half of FY 2016. The revenue for the half came in at USD7,736 million, down by 0.33% on revenue for the previous corresponding period (pcp), which was the first half of FY 2015.

    Earnings before interest and taxation, however, show a sharp increase, up over 27% on the pcp, to USD1,206 million. Additional provisions for income tax, however, have reduced the gain in reported net income for the half, which is reported as USD717 million, a more modest gain of 8.8% on the pcp.

    >}PPG results 2016 H1}

    Analysts' presentation

    In prepared remarks at the start of the presentation of the company results to analysts, the PPG president and CEO, Michael McGarry, offered this description of how the company's architectural paint division had performed during the second quarter of FY 2016:

    After improving for three consecutive quarters, volumes declined very modestly in the architectural EMEA [Europe, Middle East and Africa], primarily due to unfavourable weather patterns and flooding across portions of Western Europe during the second quarter. Architectural coatings declined by more than 20% in both Brazil and China reflecting slowing end-use market conditions in those countries. Countering these declines was above market architectural coatings growth in Mexico and Australia.
    Sales volumes also declined in architectural US and Canada in aggregate with varied results by channel. Company-owned stores increased volumes by low single digit percentage as we begin to see initial benefits from prior investments to improve our store networks and expanded penetration into certain end-use submarkets. Volumes selling on the independent dealer network consistent with prior quarters due to overall modest but continued structural decline within the channel. Despite the volume decline, this channel continues to create shareholder value for PPG as we are able to effectively manage our cost and maintain good returns.
    Volumes were lower in the national retail accounts or DIY channel, this was due in part to comparison to solid volume growth in last year's second quarter coupled with current year customer initiatives to structurally lower their inventory levels. However, our product sales to the DIY end-customers also known as point-of-sale or out the door sales were higher year-over-year benefiting from sales of some of our new and recently launched products.
    Local currency architectural coating sales increased in Mexico at more than the expected rate of double Mexican GDP as we have further market penetration and the addition of over 100 new store locations year-to-date in 2016. Architectural volumes continue to expand rapidly in Central America, particularly in Panama and Costa Rica due to the Company's efforts to establish the presence in the region leveraging our prior year acquisitions of Comex and Consorcio Latinoamericano.

    Overseas markets

    Asked about the performance of architectural paint in overseas markets, Mr McGarry was positive about sales in Europe. He noted a slowdown in sales for Britain during June 2016, but said this had recovered in July 2016, which was above July 2015. He sees similar sales trends throughout much of Europe.

    In regards to a steep, 20% fall in sales in China, Mr McGarry puts this down both to the decline in the construction market there, and the consequent necessity for PPG to tighten its terms of credit. He noted that sales of premium paint actually rose in China, though it remains a smaller segment in that market.

    In terms of PPG's acquisition of the Latin American part of the Comex company, Mr McGarry continues to see positive growth trends for that business:

    We're bringing the PPG products into Comex. That has continued the acceleration that Comex sales, that's why we're more than two times GDP. The Comex team continues to perform at a very high level. We've been pleased, we've added over 100 stores in the first half of the year, so we're adding this store every other day, basically, we anticipate having over 170 stores by the end of the year.

    In Australia, PPG reports that its sales of architectural coatings are growing at above the market rate.

    DIY paint market

    In response to an analyst's question about the company's initiatives in its DIY paint category, Mr McGarry responded:

    When you look at the DIY space, if you've been in a Home Depot store they have recently launched two new Glidden products, Glidden Diamond and Glidden Essentials, both of those products are performing quite well. In Walmart they also have a Glidden Complete that's going. And then if you look at Menards, we have a super-premium price point, Paramount and that has been performing as well. So I think as these new products get deeper footholds in the minds of our DIY customers, we expect that to continue to be a positive for the business.

    PPG has also commented that there has been a slight decline in paint sales into one of its big-box customers, as that business introduces new systems which reduce the amount of inventory it needs to carry.

    Independent dealer channel

    Mr McGarry, in response to another analyst question, clarified some of the difficulty PPG is facing in the market, in particular with the independent paint dealer channel:

    What I would tell you first of all is that you have, you know, our share of the dealer market, so we are probably a little overweighted in that area and that continue to be a decline. Then don't forget we bought a broken Akzo business and we are radically fixing that at a good clip. That's been a good acquisition. It's returned a lot of value. We've outperformed in the synergies and now our goal is to get that growth rate up to match the industry average or better. And then finally with the DIY segment and as I mentioned earlier on the call, we have worked with our channel partners to bring out some additional products in that regard.

    PPG's vice-president of finance, Vince Morales, indicated that while the independent dealer channel was not outperforming, it still represented reasonable value from PPG's perspective:

    We know the pace of decline in the independent dealer channel. We're able to match that or actually exceed that with cost outs. So this remains a good return channel for us, the shareholder value creation channel, it's going to be a long time before that channel evaporate. So we are pleased with the cash flow, it's a low investment channel and again a channel we're not displeased to part of.

    Mr McGarry added further clarification about PPG's attitude to this channel in response to another analyst's question:

    We've been consistent in saying that it's in a slow decline, low single digits as the big boxes as well as the company-owned store network takes share in that regard. I do not envision that that trend line is going to change, and so the other issue you have is that for some of these independent dealers, they have no succession plans. And so sometimes as they get older, they decide to either sell out or they decide to close their doors. So it's something that we are managing very closely, like Vince mentioned that we are able to adjust our cost structure to match this decline rate. It's a very profitable segment for us, so we're very happy to have these customers, but it is a drag if you will on the overall growth rate of the business

    Building up the independent dealer channel was one of the initiatives that PPG entered into after its acquisition of the US architectural paints division of Azko-Nobel. In March of 2014, PPG described its expansion in this area:

    The 2013 acquisition of AkzoNobel's North American decorative coatings business significantly enhanced PPG's stable of brands available to serve the pro through the independent dealer network, and it made possible the creation of a new, dealer-exclusive brand that will combine the heritage of the PPG Pittsburgh Paints and DEVOE(r) brands. The completely new PPG Pittsburgh Paints brand, which will launch in late 2014, will incorporate some of the best-known Devoe paint sub-brands under the PPG Pittsburgh Paints parent brand and be available to professional customers only through independent dealers.

    "The uniting of the strong equities of the PPG Pittsburgh Paints and Devoe Paints brands into this completely redesigned brand offers a powerful option to dealers who want to support a brand that will not be in company stores and home centres," [PPG director of pro marketing, architectural coatings, Tom Dougherty] said. "We're really excited to be able to offer this option to our dealers as one of many in our portfolio."

    In addition to the soon to be relaunched PPG Paints and PPG Pittsburgh Paints brands, the other strong brand options from PPG for independent dealers include the PPG Porter Paints and GLIDDEN(r) brands.

    Finally, a recent PPG acquisition of a minority equity stake in The Coatings Alliance enables the company to add the super-premium C2(r) Paint brand to its industry-leading dealer portfolio.

    Simply put, the independent dealer is a critical component of our strategy to reach the professional customer, and we are really proud to be able to work with our dealers to offer many options.

    Raw materials

    In response to an analyst's question about raw material costs, Mr McGarry indicated that he thought deflation in the cost of Titanium oxide (TiO2) would continue through 2016. He said that global paint production had not increased by that much, and that the costs for raw material producers continued to be contained. He concluded that:

    So I would tell you overall, we are pretty, we are going to have to continue to fight hard for what we have, but raw material deflation is slowing but not over.


    In a presentation to investment analysts in June 2016, PPG stressed the importance the company places on innovation. This includes innovations that it develops through its own research and development, as well as innovations it gets access to through acquisitions. One graph prepared by the company presents what it sees as its spending on R&D as compared to other major paint companies in the US market:

    >}PPG presentation: innovation investment}

    Innovation really is one of the core values for PPG. The current state of the architectural paint market in the US and worldwide is not one that particularly rewards that innovation to the level that it deserves. Instead there is, for most paint companies, a great deal more importance attached to the sales channels for paint. While PPG has not made bad decisions in this area, it has also not made the best possible choices.

    As demand moves more towards its peak over the coming five years, however, the effects of channel distribution will likely become less important. Less certain is how PPG's overseas investments, particular in more risky regions such as Latin America and China, will develop.


    Bosch builds more tools than ever

    Reports sales of EUR294m, up 4%

    As it concludes a relatively successful year, Bosch looks to the future with the development of new tools

    German-based power-tool manufacturer Bosch has released results for its 2015 year. The company claims that it has produced more power-tools during the year than in any prior year. It produced 50 million in total, which was almost twice the number produced in 2005.

    Sales for 2015 increased by 4% to reach EUR294 million. Over 90% of Bosch sales take place in Europe. The company places a premium on innovation, claiming that 40% of sales are derived from products that have come to market over the past two years.

    In its annual report for 2015, Bosch outlined differences it sees in making tools for developed and emerging markets. As regards developed markets, the report states:

    In developed markets, the focus is on improving productivity, and increasingly on health and safety aspects such as dust, noise, and vibration. Innovations such as the world's most powerful small angle grinder offer improved ergonomics and a high level of user protection, for example. Inventory management is also an important issue for professional users.

    In emerging markets, Bosch sees different forces at work:

    These tradespeople first have to be convinced of the benefits of changing from traditional hand tools to power tools. They need affordable power tools that are robust and easy to maintain. Power Tools is making great efforts to cultivate emerging markets such as China, India, Russia, Brazil, and Africa. Following successful pilot projects in China and Russia, a complete range of products will now be launched gradually in these emerging markets.

    The company sees two main trends dominating both the profession and the DIY market:

    First, there is growing demand for powerful rechargeable tools. Second, the rapid development of the internet and increasing use of smart-phones and tablets open up additional possibilities for intelligent solutions and services.

    The latter trend fits neatly with one of the overall Bosch company's longer term strategic goals: to become a key supplier of Internet of Things (IoT) technologies:

    Our goal is to become one of the world's leading IoT (Internet of Things) companies. We operate on all three levels of connectivity - intelligent and connected devices, software platforms, and applications and services - in order to provide additional benefits to customers. More than 40 percent of our product categories are already web-enabled, and this is rising rapidly. MEMS sensors are a key technology for connectivity, and we have extensive expertise in this area.

    Bosch in the garden

    This year, Bosch is emphasising in particular the role of its power-tools for the garden. These have been developed through a new process at Bosch, which makes use of a user experience oriented team, led by Marc Jost-Benz. The president of Bosch Power Tools, Henning von Boxberg, explained in a press statement how this process works:

    We have set up a new team tasked with focusing solely on user experience. The aim is to make working with Bosch garden tools as easy as possible for the user. To do this, we involve users in the development of products and services from the very beginning and adapt both functions and designs to the needs of the target group in question.

    The "UX" design process has four stages. In the first stage Bosch interacts with actual customers to discover what they really need in a particular tool. In the second stage the company organises interdisciplinary workshops to analyse those needs, and to begin developing solutions. In the third phase the analytical work is used to develop working prototypes. The fourth stage loops around to the first stage again, with customers exposed to the new prototypes, who help the company refine its solutions.

    Mr Jost-Benz emphasises the importance of that first step:

    We go out to meet the customers as much as possible. We listen and observe carefully and thoroughly in order to find out what work they carry out and how they use products on a daily basis: What challenges are associated with this usage? How have they solved problems so far? What do they want?

    He points to a number of developments this process helped to identify. In particular, the Bosch team found out that many homeowners with smaller lawns wanted to own a robotic lawnmower, but that there were none that really suited their smaller lawns. This led to the development of new Indego autonomous lawn mowers that were scaled down.

    The company has four tools it says have been developed through this process that is highlighting at the moment: The Indego robotic lawnmower; EasyCut 12 sawing system with uses Bosch's new NanoBlade; the Ixo Garden, which adds a range of garden attachments to the Ixo cordless screwdriver; and a new range of high-pressure washers.


    The new Indego 400 and Indego 400 Connect autonomous lawn mowers have been designed to work with lawns that are less than 400 square metres in area. They are smaller units that produce only 50% of the noise of previous Indego mowers. A main feature of these mowers is their ease of programming, which can be done via a smartphone. The program enables the mowers to operate according to a calendar and a timetable, ensuring that their operational times are truly convenient for homeowners. As Mr von Boxberg puts it:

    You can control the Indego 400 Connect easily and conveniently on your smartphone or tablet from anywhere - the sofa in your living room, on the way to work or even while on vacation. That is what we call "Smart gardening".

    EasyCut 12

    This small saw is designed to replace jigsaws and saber saws in the garden, as well as making craft woodworking projects easier as well. The Bosch executive responsible for the development of the product, Henk Becker, says:

    With NanoBlade, Bosch is taking sawing to the next level. With the EasyCut 12, all users can saw easily, vibration-free and effortlessly. This is ideal for applications in the garden: When cutting branches, these branches no longer sway back and forth as a result of the sawing motion.

    Mr von Boxberg describes how the saw works:

    At present, anyone who wants to trim tree branches or shrubs has to rely on jigsaws or sabre saws. In particular, people with little sawing experience find it difficult to guide the saw accurately and safely, due to the typical stroke movement with high vibrations. Our solution is a saw blade with a revolving micro chain consisting of chain links that are four millimetres in size similar to a chainsaw, but miniaturised. No more stroke movement, no more vibration.
    Our "NanoBlade" is also long-lasting and does not require maintenance: It is not necessary to oil, sharpen or re-tension the chain. The micro-chain does not become jammed either, even when used with resinous wood. The position of the 900-gram EasyCut 12's saw blade is advantageous: It allows you to saw off branches close to the edges. You can cut at any position along the 65-millimetre blade.

    The EasyCut makes use of a standard Bosch 12-volt cordless tool battery, which is interchangeable with a wide range of Bosch tools. (Bosch is changing the designation of these batteries from the previous 10.8-volt to the 12-volt designation, reflecting the maximum voltage produced by the battery, in line with common usage in the US.)

    The tool is expected to launch on the European market in early 2017, and to be priced at around EUR140.

    >}Bosch Easycut 12}

    Ixo Garden

    The Ixo cordless screwdriver is something of a market phenomenon in Germany and other parts of Europe, and has become the household tool of choice for many, with a range of attachments and adapters. Bosch is adding yet another attachment, a grass and shrub trimmer. This can take care of small edging tasks, or help to shape small ornamental shrubs.

    As Mr von Boxberg explains:

    Many people in cities live in houses without their own garden. They often only have a small balcony or patio, on which they grow plants in pots or beds. To maintain these little oases, they need a small, handy grass and shrub shear, which they can use to shape small box trees, for instance.

    Developed originally in 2003, the Ixo now has a range of nine different attachments.

    High-pressure washers

    Bosch sells its high-pressure washers in three lines: the Easy class for simple jobs, the Universal class which suit general purpose needs, and the Advanced class for tougher jobs. Bosch is replacing the old Universal class with a range of three new washers. It is also adding two new washers to its Advanced line-up.

    The three UniversalAquatak offer water pressure from 125 bar to 135 bar, and water flow rates of between 360 and 410 litres per hour. All of them feature a new spray head, which converts between a fan jet of water, a rotary jet, and an intense pencil jet with a turn of the spray nozzle. The new models provide 10% more power, Bosch claims, and are also significant quieter to operate.

    Mr von Boxberg points to other advantages as well:

    Moreover, we are also now offering a high-pressure detergent nozzle. It distributes the cleaning foam generated over the surface to be cleaned extremely quickly - the user can work rapidly and achieve thorough results. In addition, the high-pressure washers are especially practical and are easy to position wherever they are needed: The extra-long extendable handle and large wheels make light work of transportation.

    The two Advanced models join the existing two Advanced models, offering even more cleaning power at the top end. They feature a new four-cylinder pump and offer up to 160 bar of pressure and water flow rates of up to 570 litres per hour. The top of the line model offers metal spray components to assure its longevity under sustained use.

    Connected tools

    Bosch also continues to release information about its range of connected power-tools designed mainly for professional (tradie) use. The company has announced that it will be releasing a set of seven connected tools for the Northern autumn of 2016.

    These tools promise to offer a number of features not seen on power-tools before. This includes what the Bosch is calling its Human/Machine Interfaces, which are intelligent displays directly on the tools, which can also be configured by mobile phones using a Bluetooth connection and apps developed by the company.

    These consist of a combi-laser, two screwdrivers, two combi-drills, an angle grinder and a workplace light. According to Wolfgang Hirschburger, vice president engineering for professional tools in industrialised markets:

    The long-term goal is to network all of Bosch's professional power tools and thus to offer users added value.

    These developments build on Bosch's existing TrackMyTools system, which provides Bluetooth modules which are stuck onto tools, or attached to their cords, and provide some tracking capabilities through a custom Bosch smartphone app.

    >}Adding connectivity modules to tools}


    As HNN has written in the past, there seems to have been a period in the history of the Bosch power-tool division when innovation was not funded. Over the past three to four years, the company has woken up, and is beginning to at least announce tools that have real potential.

    That said, the specifications for its connected tool system have changed quite dramatically over the past six months. When first announced the tools were to feature a plug-in module that would provide monitoring and connection features. From the more current announcements, it seems more likely that the connected tools will have these features built directly into them. This might reflect the power-tools division beginning to adhere more closely to the overall corporate objectives as regards IoT capabilities.

    The real question for Bosch is whether it will be able to keep up with the innovations produced by the current leader in connected tools, Techtronic Industries (TTI) Milwaukee brand. The Milwaukee One-Key system is already offering most of what Bosch would seem to be offering for release sometime after September in 2016. It is highly likely that Milwaukee will be releasing the next iteration of its system in early 2017.

    That said, the relationship does work the other way as well. With the vast resources of Bosch behind it Bosch Power Tools might be able to find a way to skip a generation of development, and produce a real challenge for TTI. With the TTI half-year result due to be released before September 2016, it will be interesting to see what the always engaging CEO of TTI, Joe Galli, has to say.


    Supplier update

    Reconditioned Bosch tools online

    BSH appliances for The Block and Yates Gardening appoints new PR firm

    The Bosch Remastered website offers discounts on its factory reconditioned tools; appliance brands from BSH will be featured on the upcoming season of The Block; and a different PR agency for Yates Gardening.

    Bosch Remastered sells tools online

    Bosch just launched its first direct-to-consumer website where people can purchase reconditioned Bosch tools, directly from Bosch. It's called Bosch Remastered, and it offers some deep discounts on its factory-reconditioned tools.

    The company says every single Bosch reconditioned tool is stripped down, examined individually by hand, and re-engineered with painstaking attention to detail, right down to the case that holds it.

    Bosch guarantees that it has been remastering tools for over 35 years with the same level of quality as new tools.

    Walnut Ridge, Arkansas (USA) is where Bosch reconditioned tools are restored to meet the same exacting, high standards the company places on new Bosch tools.

    BSH appliances for The Block

    Freedom Kitchens has chosen BSH as the exclusive supplier of home appliances for its kitchens and laundries on The Block TV show. BSH supplies the Bosch, Siemens, Neff and Gaggenau brands.

    According to Appliance Retailer, BSH presented extensive marketing plans to its retail partners, including catalogue insertion, in-store marketing (POS), digital and social media plans, to promote its involvement with The Block. Retail partners will also be able to promote "as seen on The Block" for the products that have been selected by the contestants. BSH general manager category, Nick Ruffel said:

    Being able to offer four premium brands with award winning design, The Block is the perfect platform to showcase our portfolio of home appliances. Our brands cater for various target groups which is a great fit for the different apartment styles we can expect from the show...

    Freedom Kitchens spokesperson, Felicity Page added:

    The Block offers an opportunity to bring Freedom Kitchens into the homes of all Australians and we're proud to be a part of this series. The challenge of designing and delivering these kitchens has pushed all areas of our business to the extreme - design, CAD and manufacturing - all working together to deliver exceptional results.
    Kitchen design has come so far in the past few years, and we're looking forward to inspiring viewers with an array of exciting ideas that they can take on board for their own home renovations.

    BSH also confirmed the partnership with Freedom Kitchens is exclusive to The Block and is not a formal or ongoing arrangement.

    Yates' new PR direction

    Magnum & Co has been appointed the PR agency for gardening brand Yates, reports the Mumbrella website. Yates Gardening senior brand manager Lauren Treloar said its was pleased with the agency's creative approach to the brief ahead of a major product launch in its seeds business. She said:

    Here at Yates, we are about to embark on a really great idea, which we passionately believe is going to generate a lot of goodwill and public support and not just amongst dedicated gardeners.
    It's also something the brand has never done before, which is why it was so important we partnered with the right agency. Magnum & Co impressed us with big creative ideas, sound strategy, rigorous attention-to-detail, content ideas and general process. It was head and shoulders above the rest.

    Magnum & Co's managing director Michelle Hampton said the agency was excited about the win.

    When Yates came to us with this brief, we were immediately excited by its potential to affect real, positive change across Australia - especially amongst children. And since winning the account, everyone we've broached the idea with is similarly enthusiastic - and it's a real validation when that happens.
    While we can't discuss exactly what that 'big idea' is just yet, we're genuinely excited to be part of a great brand like Yates, making history in something which we believe is going to do a lot of good.

    Supplier update

    Bosch creates digital experiences

    Kohler's ideas website and Valspar shareholders voting to approve the Sherwin-Williams sale

    Bosch has implemented in-store digital Experience Zone areas in European DIY stores; bathroom and kitchen supplier Kohler is connecting with customers through content; and Valspar votes on Sherwin-Williams acquisition.

    Bosch digital Experience Zones

    Tool brand Bosch is rolling out digital Experience Zone areas to DIY superstores across Europe. The shop-in-shop fixtures will be installed in more than 50 stores in Germany, Belgium, France, Norway and Austria. They will also be installed in stores in Turkey.

    The digital terminals have been designed by digital media distribution company Dimedis, using Kompas digital signage software. The objective is to create a Bosch "brand island" in-store, where shoppers can try products and learn more about them in a practice-oriented environment.

    Touchscreen terminals encourage customers to complete transactions, providing added-value services and information in 23 languages. Information gathered can be printed out or transmitted to a smartphone via a QR code. Dimedis head of digital Patrick Schroder said:

    The Bosch Experience Zone is an excellent example of how one can increase the involvement of the customers at the point of sale and integrate the advantages of the online world. The comprehensive modernisation of the shop-in-shop concept goes hand in hand with the integration of digital signage to an extent previously unknown in DIY superstores.

    Kohler's digital content strategy

    Kohler is looking to do more than just sell plumbing supplies and it's using content to get there. The goal is to help prospective customers envision how a new piece of hardware will fit into their homes.

    In the pre-digital era, Kohler showcased beautiful kitchens and bathrooms through glossy print ads. But adapting that ethos to the digital space took more than developing a presence on social platforms and design sites like Pinterest and Houzz, which Kohler did. Those efforts felt like one-offs and nothing was centralised.

    This led Kohler's marketing team to present the digital team with a challenge. Kristen Wojhan, a digital director at Kohler said:

    Figure out how we could get our digital footprint into one place, not to replace our presence on places like Houzz and Pinterest, but to supplement it. It's a symbiotic relationship.

    The resulting site, Kohler Ideas, hosts branded content created by other publications and influencers, mood boards and home tours. Even if an article originates with an influencer or publisher, it ends up on Kohler Ideas, making it a resource for people trying to figure out what faucet, for example, is right for their home design.

    A large number of people who visit Kohler Ideas end up clicking over to the main merchandising site, Wojhan said, though Kohler doesn't share those numbers.

    But compared to people who just visit the main site, those who come in via Ideas are twice as likely to display purchase intent and search for where to buy Kohler product, according to Wojhan.

    Kohler measures the success of Ideas in other ways, too. Quantitatively, it monitors dwell time, engagement and when users click to view product details.

    Although Kohler Ideas and its ecommerce site are quite separate now - in part because the latter is more difficult to re-develop - Kohler is trying to weave more and more of its inspirational content into its ecommerce and product lookup site.

    But the reverse happens, too. Kohler Ideas includes relevant product links next to content.

    As influencer marketing grows, Kohler is looking to develop more direct relationships with its publishing partners. Kohler now has a more automated way to do that through Tidal Labs.

    Tidal Labs, a tech platform that's a "CMS meets aspects of CRM", according to CEO Matthew Myers, allows Kohler to monitor topline engagement and key traffic sources. The tech also integrates with Kohler's product database, so that the right products show up next to relevant articles.

    Better connections to content producers will allow Kohler to continue to execute on its strategy of providing useful content to people fixing up their homes. Wojhan said:

    We see ourselves as a lifestyle leader and a brand that can provide design solutions. Half the building I work in is dedicated to producing, shooting, editing and publishing beautiful content, because we want our customers to have the bathroom or kitchen of their dreams.

    Valspar votes on sale

    The Wall Street Journal reports that paint maker Sherwin-Williams could move a step closer to expanding access to DIY painters if shareholders from Valspar approve the sale of their company for as much as USD9.3 billion.

    The balloting by Valspar investors will culminate with a special meeting when results of the vote will be revealed. But even if shareholders approve the sale of Valspar to Sherwin-Williams, it could take months for them to find out how much they will actually receive.

    Sherwin-Williams has agreed to pay up to USD113 a share for Valspar's. The offer represents about a 35% premium to Valspar's share price before the all-cash deal was revealed in March. The final payout is contingent on regulatory review.

    US-based federal antitrust regulators are combing through the two companies' business lines in paint and industrial coatings for potentially unfair market concentrations. If the Federal Trade Commission demands that certain businesses be shed as a condition for approving the sale, Sherwin-Williams would lower its purchase price.

    If Sherwin-Williams is forced to divest businesses with more USD650 million of annual revenue, the purchase price would fall to USD105 a share. Sherwin-Williams could abandon the purchase entirely if the required business divestments amount to least USD1.5 billion a year in revenue.

    Executives from both companies have said they believe the probability of having to shed business is low. Although both companies make paint, their retailing strategies are different.

    The companies are counting on the distinctions to help keep the deal intact. Valspar mostly sells paint through a variety of consumer-focused store chains, including home improvement retailers such as Lowe's and Ace Hardware stores.

    Sherwin-Williams, meanwhile, relies on more than 4,000 company-owned stores in the US and Canada to sell paint, primarily to professional painters and contractors. These specialty paint stores have come under increasing competitive pressure in recent years from big-box retailers.

    With Valspar, Sherwin-Williams would get more exposure to the major retailers.


    Sherwin-Williams acquires Valspar - HNN

    Supplier update

    Dulux partners with Melbourne startup

    GWA registering UK trademarks and Spectrum Brands wins for its packaging

    The full version of "Supplier update" appears in HNN's HI News PDF magazine. Dulux develops the Snapshot with a local startup company; GWA Group has begun registering trademarks in the UK on the back of Bunnings' move; Brickworks provides a trading update; and the North American Retail Hardware Association has recognised Spectrum Brands and its excellence in packaging.

    Dulux Snapshot for colour matching

    Local startup Palette has worked with Dulux to develop the Snapshot after participating in the 2013 Melbourne Accelerator program.

    Dulux Snapshot allows users to match any surface to a colour from Dulux's "World of Colour" that has over 4,500 colours. It helps solve the problem of accurately identifying colours on real-world surfaces, such as walls. Palette CEO Djordje Dikic told Gizmodo:

    We're working with Dulux to take colour to a new level. Snapshot saves time, reduces errors, all while being incredibly easy to use.

    The idea of the product came about when one of the founders of Palette was renovating his parents' home. The task of matching the colour of a wall proved a little trickier than seemed necessary, and so the idea for Palette was born. A Kickstarter campaign was launched, $150,000 was raised and the rest, as they say, is history. Dulux marketing and innovation director, Helen Fitzpatrick said:

    We are thrilled to bring this innovative technology to the Australian industry. Dulux Snapshot will enable everyday colour inspiration to now be accurately translated into any project or creative pursuit. It's important to us as a company to support local talent and ideas.

    Palette pairs with iOS and Android devices, with a corresponding app that lets users save colour matches, organise colours into project groups and rename colours to something that is easier to remember. Users can also share their Dulux Snapshot colour selections via email or social media.

    GWA banking on Bunnings' UK move

    Bathrooms and kitchens fittings supplier GWA Group has begun registering trademarks in the UK for a range of its most popular products. It is preparing for a potential earnings windfall from supplying Bunnings' recently acquired British home improvement retailer with toilets, taps, baths and sinks.

    Recently appointed chief executive Tim Salt told The Australian the step to protect its branding was a precursor to preliminary talks with Bunnings as it sought to ride on its coat-tails into Britain, where Bunnings has bought Homebase, the second biggest retailer in the nation's GBP38 billion ($73 billion) hardware and home improvement sector. He said:

    Bunnings are a very important customer of ours and if we can support their push into the UK we are keen to help. There is no commitment at the moment but we figured it was a prudent thing to do.

    Documents seen by The Australian show the ASX-listed GWA has registered trademarks with Britain's Intellectual Property Office for the Dorf, Caroma, Fowler and Stylus brands. Mr Salt said:

    We have been a longstanding client of Bunnings and if that sort of creates opportunities for us, we would love to seize them. Bunnings obviously have to get their feet under the table and work out what they want to do there, but if the opportunity arises, then we keen to have a go at it. I suspect others (suppliers) will be doing the same as us.

    Bunnings' entry into the huge British hardware and home improvement market could be a bonanza for suppliers that enjoy a strong relationship with Bunnings, with the potential to also supply the 265 Homebase stores across Britain and Ireland.

    Mr Salt said some of his products already stocked in Bunnings, such as Caroma bathroom products or Dorf taps and showers, had a proven track record.

    Bunnings know the quality of our brand, they understand how we operate, they have reassurance around that, service, quality, innovation, etc. and I think those things will be relevant in the UK market for Bunnings.

    GWA sells more than 95% of its products in Australia, and a push into Britain via Homebase could prove a new and highly lucrative export channel.


    GWA Group FY 2014-15 full year results - HNN

    Property, building drives Brickworks

    Diversified building materials group Brickworks has indicated better than anticipated earnings for the current financial year, as a result of building activity and a higher contribution from its property development arm.

    The company said it is also bringing forward some planned developments that will give earnings a further lift in the next financial year.

    When releasing its half-year to January results recently, Brickworks indicated that second half earnings would be in line with the first half, when it posted an underlying net profit of $75 million.

    Brickworks managing director Lindsay Partridge pointed to strong demand for building products on the east coast of Australia. He said:

    Momentum within the building industry continues unabated. The building products group is on track to deliver a significantly improved result for the full year.

    The most recent trading update hasn't changed the outlook, although on present indications, the property arm is performing a little better than expected.

    When releasing its half-year results in late March, Brickworks said the east coast housing industry was operating at capacity, which was limiting prospects for further growth.

    The value of home loans made in April declined 1.8%, due largely to a 5% drop in lending to investors. But an overall, high ongoing number of loans have been extended, signalling that underlying activity remains robust.

    Brickworks has been restrained in expanding production capacity in its building materials arm in the present upswing, so it has maintained its focus on lifting prices where possible to boost margins. This has been an ongoing effort since at least the global financial crisis.

    In the latest trading update, the company highlighted its property development activities, particularly in western Sydney. Mr Partridge said:

    The level of activity in western Sydney continues to drive demand at our Oakdale Estates and increase earnings from the property trust.

    It also highlighted additional pre-commitments at the Oakdale Central development west of Sydney, with plans now progressing for a new warehouse development to be completed early next year.

    Later in 2017, Brickworks said it expects to generate about $90 million in income from the sale of property at Oakdale South, which is located nearby. Revenue will also come from the sale of 27.9 hectares of land via its property trust, which includes the sale of seven hectares to Sigma Pharmaceuticals and 6.4 hectares to Toyota Motor Corp Australia.

    Following these sales, work at Oakdale South will focus on developing the remaining 43 hectares of land to meet the pre-commitment market, the company said.

    Due to "strong demand", Brickworks said it would look to bring forward the development of its land holding on Bakers Lane, Kemps Creek ("Oakdale West"), which is expected to provide an additional 90 hectares of developable land and could be ready for occupation by new tenants by mid to late 2018, Mr Partridge said.


    Brickworks' H1 profit comes from housing - HNN

    Packaging prizes for Spectrum Brands

    The North American Retail Hardware Association (NRHA) has recognised Spectrum Brands and its pet, home & garden division for excellence in packaging for five of its product as part of the 2016 NRHA Packaging and Merchandising Awards.

    The AccuShot[tm] Continuous Power Sprayer expansion, Spectracide(r) concentrates and ready-to-use trigger sprayer range, Fire Ant Shield[tm] line, and Liquid Fence(r) brand relaunch were acknowledged at the annual NRHA awards expo in Las Vegas recently.

    NRHA hosts the annual competition to inform independent retailers about trends and leading packaging, and to celebrate the home improvement industry's best merchandising and packaging.

    Spectrum Brands' pet, home & garden won packaging awards for shelf appeal, innovation and design excellence.

    The Spectracide Fire Ant Shield range took the gold award in this year's competition. The newly launched products offer solutions for controlling fire ants. They have a tougher look and carefully organised messaging to better meet the demands of homeowners with fire ant problems.

    The Spectracide series of weed and insect control concentrates earned the silver award. With the addition of a side handle and easy-measure cap, the brand's updated bottle design makes it simple for consumers to see it as a concentrate that it gets the job done.

    The AccuShot Continuous Power Sprayer expansion also received a silver award. The successful launch of this sprayer in 2015 gave consumers an intuitive, easy-to-use sprayer with an extendable wand that allowed for precise bug and weed control where they needed it.

    The new, expanded lineup provides more options in the battle against pests. Each AccuShot product is designed to communicate key consumer information clearly while visually demonstrating the strength and efficacy consumers expect.

    Also honoured with a silver award were the Spectracide ready-to-use trigger sprayers, which saw a bottle and front panel upgrade with modern, sleek curves and a much larger billboard to more effectively convey product benefits to consumers.

    Finally, the Liquid Fence brand relaunch received a silver award by NRHA. The brand's assortment of repellents against deer, rabbits, dogs, cats, snakes and other animal pests was hampered by an outdated look and too much label information. The award-winning redesign elevates the line with a more appealing design, and provides a distinguished look to a brand already well regarded by consumers.

    The winning products were showcased during the National Hardware Show as part of the 2016 Packaging and Merchandising Awards Expo at the NRHA Village.


    Hitachi Koki posts 2015-16 results

    Spending on growth

    Company reveals ambitious plan to rev up European and North American sales

    The Japan-based, global power tools and life sciences equipment company Hitachi Koki has released the results for its 2015/16 financial year, which ended on 31 March 2016. (Note that this is referred to as the 2015 financial year by the company, following the Japanese custom.)

    The most important recent event for Hitachi Koki has been its acquisition of the European cordless power tool company Metabo, which was completed on 1 March 2016. This is important not only because it has been a major financial and strategic commitment, but also because Hitachi Koki is using this event as a trigger to bring in a number of comprehensive changes.

    The company's current results reflect its drive for reorganisation, and a revitalisation of its global strategy. Revenues reached YEN141,570 million, a gain of 4.2% over the previous corresponding period (pcp), which was the 2014/15 financial year. However, operating income declined sharply, down 58.6% on the pcp, coming in at YEN2645 million. Income before taxes was YEN2776 million, down 55.7% on the pcp, and net income attributable to shareholders was YEN1086, down 69.1% on the pcp.

    >}Hitachi Koki 2015/16 results}

    While most regional power tool sales revenues were down on those for the pcp, sales in North America improved by 26.4% to reach YEN39,733 million. This was likely driven by Hitachi's deal to be exclusively distributed through Lowe's Home Improvement in North America.

    >}Hitachi Koki geographic distribution of power tool revenue}

    As a consequence of this growth, North America contributed 29% of overall power tool revenue, up from 24% in the pcp. All other regions contributed 1% less in the balance.

    >}Hitachi Koki geographic power tool revenue distribution}

    Strategic plans

    Operating income gained from both a modest increase in sales of YEN500 million, and changes to the company's pension plan, which brought in a further YEN900 million.

    Operating income expenses increased for structural transformation (YEN2,100 million), and cost of the acquisition of Metabo (YEN1,100 million). There was also a currency exchange loss of YEN1,300 million, and a YEN1,100 million loss attributed to a decrease in production.

    The goal behind this expenditure is very ambitious. Hitachi Koki plans to reach revenues of YEN230 billion by FY 2018/19, with an operating income of YEN18.7 billion. Its FY 2016/17 is a stepping-stone along that path, with the company projecting revenues of over YEN140 billion.

    The core strategy has two parts to it: increasing sales in highly developed countries, including Europe and North America, and improving its business structure in Japan drastically.

    In Japan it plans to review its current selling system, and to explore new sales channels by leveraging its association with the greater Hitachi Group. The goal is to increase Japanese revenues to around YEN40 billion.

    In Europe and North America Hitachi Koki's plans involve two parts, based on expanding its current Hitachi business, and also expanding business through leveraging its acquisition of Metabo.

    In the North American market, the company plans to increase non-Metabo sales from USD326 million to USD380 million. On top of that, Hitachi Koki plans to expand Metabo sales in North America from their current USD5 million to USD65 million. This will bring the total revenue from North America to USD445 million.

    In the European market, the company plans to increase non-Metabo revenues from EUR291 million to EUR308 million. To that will be added EUR291 million in Metabo sales, bringing the total to EUR599 million.


    Hitachi Koki's strategic move to increase its size in the market is no doubt in part motivated by the realisation that the other four major players in power tools -- Techtronic Industries, Bosch, Stanley Black & Decker and Makita -- have been steadily pulling away from it over the past three years.

    The Metabo acquisition has brought it not only a broader, established channel in the European market, and some additional access to the US market, but also a much-needed technology boost. It has essentially added a first-rate battery technology to its already first-rate brushless motors.

    If Hitachi Koki does have a fault, however, it likely lies with the firm's marketing of its products. Techtronic Industries (TTI) has done a great job marketing its Milwaukee brand as the power tool equivalent of a high performance muscle car. Stanley Black & Decker have built an appreciation of its DeWalt line as reliable precision tools for the professional. Bosch has turned its Blue brand into the signature choice for the no-nonsense craftsman who gets the job done with a sense of style. Makita has found a sweet spot where well-regarded Japanese values of endurance, repairability, balance and refinement mesh with similar Western values.

    In this brand sense, Western, developed markets are a little at a loss to understand what Hitachi stands for. The same is true, to a certain extent, in North American markets for the Metabo brand.

    When you hear someone who really understands his brand and understands selling speaking, such as Joe Galli, the CEO of TTI, one of the most striking things is what they don't say about the tools and their development. Listening to him give his half-yearly and full-year results, you can hear him deliberately step around even some great new features, because he knows that mentioning them will not actually help people be enthusiastic about the product.

    At the moment, most brand contacts a buyer has with Hitachi Koki products consists of just about every technological detail about the products. If the company is going to succeed at its worthwhile and ambitious plans for the next two or three years, it needs to craft a brand image that immediately communicates its many advantages. This is especially the case in Australia, where retailers can sometimes really struggle to communicate with customers about what has, unfortunately, become one of the less known brands for many tradies.


    CSR 2015-16 results show strong growth

    EBIT up by 17.59%

    CSR's refit of its building product lines pays off as it benefits from lift in multi-unit construction

    CSR has returned strong results for its 2015/16 financial year, which ran from 1 April 2015 to 31 March 2016. Net profit after tax (NPAT) came in at AUD166 million, up by 13.16% from the results for the previous corresponding period (pcp), which was the CSR financial year running from 1 April 2014 to 31 March 2015.

    These results and CSR's well-formulated forecasts for FY 2016/17 reflect the mixed conditions that are likely to prevail over the next year to two years. While the market forces which have contributed to this performance are nearly all quite positive for CSR, for the hardware/home improvement retail industry there are some negatives as well.


    Sales revenue for CSR was AUD2,298.8 million, up by 13.61% over the pcp. Earnings before interest and taxation (EBIT) for the overall company (excluding significant items) was AUD276.8 million, up by 17.59% over the pcp.

    CSR's chief financial officer, Greg Barnes, pointed out that the results include a contribution from PGH Bricks, a joint venture formed with Australian building products company Boral, of which CSR is a 60% owner. This has been in operation for a year as of May 2016, and is responsible, according to Mr Barnes, for up to 5.0% of the growth, which means EBIT growth for CSR alone would be around 9.0%.

    The strongest contributor to this EBIT result was its building products division, returning AUD169.1 million, up 39.87% over the pcp. Mr Barnes indicated that, excluding the PGH Bricks contribution, EBIT would have risen by 28%.

    CSR was also pleased by the result from its Viridian glass products division, which increased its EBIT from AUD3.1 million in the pcp, to AUD8.1 million in the reporting year, a rise of 161.29%. CSR's aluminium operations returned an almost flat EBIT at AUD104.1 million. EBIT for its property division -- which is largely dependent on timing of sales -- fell by 22.85% over the pcp, coming in at AUD23.2 million.

    >}CSR FY2016 results}

    Growth contributors

    Speaking at an earnings conference call for investment analysts held in Sydney, Australia on 11 May 2016, the managing director of CSR, Rob Sindel, outlined three main drivers of CSR's good performance for its FY 2016.

  • The first was the strong result in building products, which has been supported by strong market demand, but also by better margins, and growth in both new products and new categories.
  • The second driver was what Mr Sindel referred to as "recent transactions", which include the positive results from PGH Bricks.
  • The third driver was what Mr Sindel sees as a good performance from both the aluminium and property divisions of CSR.
  • Building products growth

    Regarding the growth in its building products division, Mr Sindel offered the following comments:

    Our forecast growth in multi residential has actually been much stronger and has accelerated as we've seen in the last 12 months. We identified this as a key opportunity due to our lower relative share in this segment. That's, of course, compared to our traditional high market share in the detached market.
    The main drivers of growth in multi residential included the increase in cost of land, combined with a desire by young people and -- for everyone to have a higher proportion of inner city living. So combined with increasing labour costs and trade shortages, this meant that the industry needed to develop smarter, faster and easier ways to construct buildings, less reliant on the traditional construction trades.
    So we've developed our strategy to help solve these issues, particularly with the growth in Hebel, the acquisition of AFS and with new products like the Velocity offsite walling system.

    >}Growth in building products for CSR 2012 to 2016}

    The end result of the improved market, and selling both a higher margin product mix and increased volume was an EBIT margin of around 11.5% in the second half of CSR's FY 2015/16, according to Mr Sindel.

    CSR acquires AFS Products - HNN

    PGH Bricks

    This joint venture with Boral has performed well for CSR. Its overall earnings were AUD37 million, of which AUD22 million accrued to CSR. The joint venture has resulted in operational savings of AUD2.7 million so far, according to Mr Sindel, and he expects it will fully realise the projected AUD10 million in annual savings.

    Aluminium and property

    The aluminium division saw an incres of 4% in its sale tonnage. Sales increased by 4% over the pcp to reach AUD2,525 million (including hedging), down 4% on the pcp. Mr Sindel pointed to better operational efficiencies coming online at CSR's Tomago smelting operation, which is located 13km west of Newcastle, New South Wales.

    The property result was achieved through the sale of New Lynn in Auckland, New Zealand, along with the property at Chirnside Park, a residential development 35km to the east of Melbourne, Victoria. Mr Sindel said this latter project was around halfway through its expected total sales target. Some 263 lots in the 533 development have been sold, and a further 100 contracts exchanged.

    Mr Sindel also mentioned future developments at Schofields and Horsley Part in western Sydney. These are properties formerly used in the production of bricks, which have been vacated on the formation of the PGH Bricks joint venture.

    Viridian glass products

    Viridian provided AUD 301.3 million in sales, up by 8% on the pcp. The growth has been driven by a maturing business that has been targeted at commercial double-glazed windows and coated glass products. Mr Sindel mentioned in particular the Viridian LightBridge product. This is a coated and double-glazed product designed for use in residential construction.

    Mr Sindel also pointed to Viridian's ongoing growth in the New Zealand market, where CSR is working to acquire the outstanding 42% of its New Zealand glass venture.


    In looking ahead, Mr Sindel pointed out that Australian building approvals were now over 230,000 in the year to March 2016, with building starts lagging behind. When asked by an analyst whether he believed that the numbers gave support to the idea there were constraints on the construction industry, Mr Sindel said that he believed the major constraint was the availability of good quality construction tradespeople.

    He said the high level of demand in the multi-dwelling (apartment) market was creating a shortage in detached as well. He indicated that this might be particularly the case when it came to bricklayers.


    CSR has successfully transitioned to a company with the right mix of products to take advantage of the growth in multi-unit residential developments. While the company is clear that its present good results are in part an outcome of a building cycle that will likely pass through its peak in calendar 2016, it is also evidently counting on the ongoing resilience of the multi-unit market.

    This contradicts the assertions of some analysts more directly tied to the real estate market and industry who see multi-unit as some kind of a "boom" or "bubble" that will end in sharp price deflation. As HNN has suggested previously, it seems more likely that multi-unit is taking over two markets: first-time home buyers and those seeking out the inner-urban lifestyle.

    In the Sydney market, multi-unit has already been largely integrated into the overall housing market. Brisbane has a different integration, but seems to be moving towards the fully integrated model as well. Melbourne has started down this path only relatively recently.

    For the hardware/home improvement retail market, the forecast situation outlined by CSR has both some positives and negatives. With building construction skills in ongoing demand, sales of items such as tools will likely continue to do well. However, the shift from detached and attached dwellings to multi-unit apartment construction means that there could be an ongoing, systemic decline in demand for the kinds of construction materials supplied by hardware retail.

    >}CSR chart of alterations and additions}

    Furthermore, the strong demand for trades generated by multi-unit construction is likely to increase prices in the residential renovation market. This could lead to a further depressing of the large-project, tradesperson-built renovation market through to the end of FY 2016/17, with an increased shift from outsourced, trade-managed projects to more DIY projects. This will benefit some hardware/home improvement retailers, with a shift from low-margin trade supplies to higher margin DIY supplies and tools.

    For retailers who rely more on the building trades it could create a slight downwards pressure on sales.


    CSR results for first half FY 2015-16 - HNN CSR full year results for FY 2014/15 - HNN

    STIHL buys minority stake in Globe Tools

    It will offer a broader range of cordless products

    Represents a long term partnership with the Chinese maker of electric power tools

    The STIHL Group has secured a "substantial" minority share of the Globe Tools Group, a China-based manufacturer of corded and cordless outdoor power tools under its Greenworks brand. STIHL executive board chairman Dr. Bertram Kandziora said in a statement:

    Our stake in Globe Tools means we are systematically consolidating our strategy in the growing market for cordless power tools. We will utilise synergies in the development and production of cordless products.

    Owner and managing director of the Globe Tools Group, Mr. Yin Chen, said:

    We are pleased that we will have STIHL on board in the future as a strong and reliable partner. This involvement is a milestone in our growth story.

    Globe Tools is a supplier of power tools to customers mainly in North America and Europe. STIHL makes products for professionals in forestry and agriculture, landscape care and the construction industry as well as consumers.

    The two companies complement each other in the market for cordless and corded electric power tools and intend to create achieve gains in efficiency. Dr. Kandziora said:

    This move enables us to quickly expand the STIHL cordless product line for the customers of our servicing dealers in the entry-level segment and offer high class products in STIHL quality at competitive prices.

    Moreover, STIHL will make use of the "favourable" production costs of Globe Tools in China, as well as the procurement of components.

    Along with the fresh injection of capital to fuel further growth, Globe Tools said it expects to benefit significantly from STIHL's many decades of experience in the industry.

    Mr Chen runs the Globe Tools Group as a family business. It has a high level of vertical integration and produces around eight million cordless and corded electric products annually. Turnover last year amounted to USD325 million, according the company.

    The Globe Tools Group has a workforce of around 4,000 people in Hong Kong, Changzhou (China), North Carolina (USA), Newmarket (Canada), Moscow (Russia) and Cologne (Germany). Its manufacturing operations are in Changzhou while the company's US distribution headquarters are based in Mooresville, North Carolina.

    Terms of the deal ha have not disclosed nor was the size of the stake in Globe Tools that STIHL purchased. Approvals from antitrust and other authorities in several countries still have to be granted before the transaction can be completed.


    Tankworks Australia joins Kingspan

    New name for the company

    The Kingspan Group is a global business with a turnover of around EUR2.6 billion

    Rainwater harvesting systems maker, Tankworks Australia has reached an agreement to join the global building products manufacturer Kingspan Group. It will now be known as Kingspan Environmental Pty Limited.

    Kingspan is the world's largest manufacturer of high performance insulation and building fabric solutions. Kingspan's environmental portfolio has innovative solutions for wastewater, rainwater management, service and telemetry, solar hot water, energy storage and renewable energy generation.

    The acquisition will provide the Australasian markets with a better range of products and expertise. Stuart Heldon, business unit director at Kingspan Environmental, said:

    This is a very exciting time for our business. Kingspan Environmental's ambitious growth plans and its extensive sustainable product range will offer existing customers and the wider market with better choice and excellent customer service.

    Heldon added that the corporate values of both businesses also made the new venture an ideal fit.

    Tankworks has always held strong environmental and people values, as does Kingspan, and that gives me great confidence that we are heading in the same direction, the right direction for a sustainable future.

    These sentiments were echoed by Pat Freeman, managing director of Kingspan's environmental division. He said:

    We are looking forward to offering the Australasian markets with some of the best environmentally responsible products available in the global construction industry, providing cutting edge technology for both homes and businesses.

    Established in 1934, Tankworks Australia was then known as Parramatta Tank Works. Since then it has manufactured quality, long-lasting water tanks and accessories. It has become a leading name in the rainwater harvesting industry. The company's longevity can be attributed to the fact that incorporates the latest manufacturing processes and technology in its products.


    Online tradies battle for market share

    Oneflare scores $15 million investment

    The digital space for home improvement services has become a two-horse race

    Oneflare, a digital marketplace for local trade services, has secured a $15 million investment as part of a new strategic partnership with Fairfax-owned Domain Group. This investment is in exchange for 35% equity, valuing the startup at more than $40 million.

    It comes after Oneflare's biggest competitor hipages recently partnered with Fairfax rival News Corp. through a reported $40 million investment in exchange for 25% equity.

    News Corp buys into home improvement start up - HNN

    Fairfax Media CEO Greg Hywood said in a statement:

    We continue to see significant opportunities to invest in Domain Group as it expands into adjacent markets. Local trade services represent a substantial market and Oneflare is very well positioned to take advantage of the growth in this rapidly-emerging digital marketplace.

    Oneflare founder and CEO Adam Dong said he has been in discussions with Domain for more than two years. He told StartupSmart:

    It just makes logical sense -- home buyers, sellers and renters are all looking for the services we provide. Since November last year it got more serious and turned towards an investment.

    He said the partnership would extend beyond just the funding, with Oneflare becoming integrated into Domain's "ownership" section. The funding will be used to help expand different aspects of the business, according to Dong. He said:

    It's primarily to build out the products and we'll have a hiring growth spurt, as well as a bit of marketing.

    Founded in 2011, the Oneflare platform connects users with experts in categories such as concreting, renovating, painting and cleaning. Dong said the site now attracts 1.3 million monthly visitors and has 80,000 registered businesses. It doubled in size from last year.

    With two tradie marketplace companies now aligned with large media corporations, the competition seems to be heating up. Dong said:

    It has become a two-horse race. If you look at Australia there's only room for one or two big players in one vertical. We have one solid competitor and we're definitely here to beat them.

    While hipages was valued significantly higher with its investment from News Corp, Dong said Oneflare has the edge when it comes to reviews.

    It's important to have users that really trust your platform. We're leading them on reviews, and they're key to the platform and to the users. It's about making sure customers really trust the platform.


    UK expansion for OneFlare - HNN Oneflare raises another $3m - HNN Aussie app for home improvement - HNN

    Supplier update

    Plumbing company IPO

    Hills has secured new financing and GUD exits small appliances market

    The Reliance Worldwide Corporation initial public offering has been one of the biggest in Australia this year; Hills Limited has secured finance totalling $51 million over the next five years; and GUD Holdings is selling its remaining 51% stake in the Sunbeam brand to its US-based joint venture partner.

    Billion dollar market cap

    Investors have pushed Reliance Worldwide Corporation shares to $3 for a market cap of $1.5 billion.

    The company gains 60% of its revenue from the US market with its SharkBite range of "push to connect" plumbing products. The SharkBite brand accounts for 80% of the brass push to connect fittings sector and has important relationships with key retailers such as Home Depot.

    Sales are split roughly 40% retail and hardware, 40% wholesale and professional, and 20% direct to manufacturer. Almost 60% of sales are derived from its top 10 customers.

    Push-to-connect fittings are a key growth product but its suite of "behind the wall" products refers to a range of valves, pipe fittings, and other products that connect from the water meter through to the wall. Reliance also sells its fittings to companies such as Rheem, Reece and Dux and to local retailers such as Tradelink.

    The company expects revenue of $535 million in 2015-16, generating EBITDA of $98 million. Its prospectus forecasts 2016-17 sales of $588 million and EBITDA of $117 million. This forecast puts the stock on a multiple of 25 times.

    Reliance has been compared to the recent listing of another plumbing company, Reece that trades on a lower multiple of around 18 times.

    The key difference between Reece and Reliance is that the former is a plumbing retailer and distributor, while the latter is a manufacturer. Because Reliance's products are used behind the walls, the company has almost no consumer recognition.

    A common feature of both plumbing businesses is that they are more oriented to the repair and renovation market than new housing. This means they are less dependent on the housing cycle.

    After a quiet period, the renovation market is hotting up in response to the property price increases. The likely reason is that owners are more willing to invest in their more valuable homes, while being less inclined to move to an equally inflated property.

    Reliance trading high, but may tap into US housing - The Australian


    Reece fortunes connected to housing - HNN

    Reliance background

    The plumbing supplies group has grown from a single-site operation to an international operation with more than 800 employees and 11 manufacturing facilities. The company has operations in Britain, Australia, Canada, New Zealand and has just entered Spain.

    Chief executive Heath Sharp, who joined Reliance in 1990, still has the newspaper clipping for the Courier-Mail job ad he responded to as an engineering graduate all those years ago. He said:

    Back then it was a sub-$20 million business, a single-site business, and a domestic Australian-only business. I'm not sure anyone at that stage would have suggested we would get to this point.

    Sales have grown at a compound annual rate of 13.3% from 2005 to 2015, according to Mr Sharp.

    Reliance is owned by the Melbourne-based Munz family -- the sole shareholder -- who acquired the business in 1986. Its chairman is Jonathan Munz, who is also chairman of Victoria's Thoroughbred Racehorse Owners Association. Mr Sharp told Fairfax Media:

    As far as current ownership is concerned, they've allowed us to get on and make the correct long-term decisions for the business and we've had their full support. There's a pretty clear demarcation between the ownership of the business and the leadership of the business.

    Mr Munz, Mr Sharp and chief financial officer Terry Scott have been with the company for 30, 26 and 26 years, respectively.

    Mr Sharp said the IPO is about funding the next stage of growth, not an exit plan. He said:

    We've got new products coming through and some really interesting geographic expansions as well. Behind-the-wall plumbing is not the most glamorous industry in the world but we're doing some pretty cool stuff.

    The push-to-connect fitting has major benefits because it attaches and detaches easily to copper, PEX and PVC pipes and can be rotated. It is easier to use for tradesman less skilled in soldering copper pipe. He said:

    We created this [product] category in 2004. We've grown it from zero back then to what it is today and it is a high-value product.

    Mr Sharp said his push-to-connect fitting is worth around five times a standard fitting and distributors and retailers are pleased to carry a product that increases the category value.

    In addition to SharkBite, other key brands include Cash Acme, Auspex, Reliance Water Controls and RMC Water Valves.

    Mr Sharp, who is based in the US, said Reliance is working on products targeted at new housing to tap in to the home building recovery in America.

    Reliance Worldwide Corp roars down the IPO pipe - Fairfax Media

    Financing facility for Hills

    The new financing secured by Hills Limited includes $36 million from financer Assetsecure and a $15 million secured debt facility from the Commonwealth Bank of Australia. This replaces Hills' prior facility of $110 million in unsecured finance.

    The deal is good news for Hills, which has undergone a "back to basics" transformation by attempting to repair relationships with vendors, customer and employees.

    In 2015, Hills faced a number of major hurdles including one of its biggest vendors, home automation company Crestron, switching to a direct model. In its full-year results, Hills made a $94 million write-down of good will and admitted it needed to make another $66 million non-cash impairment for goodwill, intangible assets, deferred tax assets and freehold property.

    Chief executive Grant Logan said that Hills was looking for new financing that would better fit the company's size and nature as it transformed from an industrial manufacturer to a technology and health distributor.

    Hills experienced a $69 million loss for the half-year period ending 31 December 2015. Revenue fell 27.7% to $164.1 million for the six-month period.

    Hills Limited secures $51 million in new financing - CRN


    Hoist maker plunges to $69m loss - HNN

    GUD divests Sunbeam

    GUD will sell its Sunbeam stake to Sunbeam Products Inc, which trades as Jarden Consumer Solutions (JCS). Jarden owns a portfolio of appliance brands with $US2 billion a year in global sales.

    JCS already owns the Sunbeam brand globally except for the Australian and New Zealand markets, which until now have been owned by GUD. The company sold the other 49% of Sunbeam to JCS in November 2014 under a joint venture agreement. Sunbeam products were not manufactured in Australia.

    GUD also said that it is selling its 49% share of Jarden Consumer Solutions (Asia) Ltd to its joint-venture partner. It expects to get about $35 million from both transactions, which are expected to be completed in July 2016.

    The sale of the joint venture interest mark GUD's withdrawal from the small appliance market. GUD has been a supplier of small appliances for 20 years since it acquired Sunbeam Victa Corporation in 1996.

    GUD managing director Jonathan Ling said in a statement that its Sunbeam business had benefited from the connection with JCS, including JCS's product-sourcing capabilities. But since the start of the joint venture, the pace of globalisation in the small appliance industry had led GUD to conclude that shareholders' best interests were served by an exit from the joint ventures.

    Mr Ling said JCS could provide Sunbeam with the global scale that it currently lacks. The exit from small appliances would also allow GUD to focus on its other businesses, which include cleaning products, warehouse racking and industrial and office storage.

    GUD suffered a 90% drop in its first-half profit to $1.7 million, following $18.5 million in impairments related mainly to its Dexion storage and shelving business. The Sunbeam business generated an earnings loss as currency movements forced up product costs and price increases were deferred.

    GUD sells Sunbeam stake - Yahoo! Finance

    It's official: Airco buys Otter Group

    Brings together over a century of expertise

    The move unites two family-owned, 100 per cent Australian businesses

    Airco Fastener's acquisition of the Otter Group should provide distributors with a central supply of quality fasteners and tools via a national network of warehouses and representatives. Brett Jamieson, general manager at Airco Fasteners said:

    The Otter Group has a long and proud history in the Australian hardware and construction industries. Like Airco, it is an Australian business that is backed by decades of family expertise passed down through the generations, making it a natural fit for our portfolio.

    The acquisition sees Airco Fasteners expand its offering to supply all Otter Group products including Titan, Screwfix, National Nails and the Interbath brands. Airco also supplies its own range of Airco tools, accessories and fasteners, the iconic orange Colt Compressors and Senco products.

    Airco is committed to growing the Otter brand and has welcomed the majority of the Otter team to its business. Jamieson said:

    Otter's experienced and dedicated staff have deep knowledge of the business and products. We are proud to retain this expertise, working with the Otter team to expand existing product lines and develop new offerings.
    An extensive network of warehouses and service technicians will see our customers benefit from tailored solutions, streamlined order processing and more efficient distribution.

    Airco stocks products at warehouses in Sydney, Melbourne, Brisbane, Perth, Adelaide and Townsville.

    Otter will also have a larger on-the-ground presence with more than 40 infield representatives around Australia, providing distributors with a dedicated representative to help grow their businesses. This will be supported by a service that offers access to mobile and in-house technicians for faster and easier repairs.


    Can Bosch Power Tools keep up?

    IoT developments delayed

    With both Techtronic Industries and Stanley Black & Decker developing IoT tools, Bosch has some catching up to do

    Bosch Power Tools (BPT) has recently released results for its FY 2015 year. At a press conference in Germany, the president of the power tools division, Henning von Boxberg, indicated that turnover for the year had been EUR4.5 billion.

    For its 2014 year, Bosch generated revenues of EUR4.2 billion, indicating a 7% increase for the current year. However, the company reports that it experienced nominal growth of 10%, or around 5% in local currencies, as contrasted with the previous corresponding period (pcp), which was FY 2014. BPT suggests that the background growth rate for the industry is 4%. Using these numbers, this would indicate the company has gained market share.

    Regionally, BPT saw its sales grow by 17% in Germany, contributing to an overall European sales growth of 5%. North American sales grew by 12%, while 3% was the number for Latin America, and 5% in the Asia-Pacific region (which includes Australia). The company regards the total market in which it operates as being worth EUR26.9 billion, with power tools making up EUR13.6 billion of this. Mr von Boxberg was quoted in a press release as saying:

    We sold around 50 million power tools in 2015 -- more than ever before. Our success is based on consistently focusing on the user. We know what their needs are -- in particular, making work easier for do-it-yourselfers, and productivity for tradespeople -- and so we can offer the users suitable solutions.

    Changing channels of distribution

    One of Mr Hennings more unexpected strategic decisions announced with the results was that BPT is changing its approach to sales channels. He said:

    Previously, the user's buying behavior was heavily influenced by individual channels -- DIY enthusiasts bought their tools almost exclusively from hardware stores while professionals bought their tools from specialist retail outlets. We offered our products accordingly, based on separate channels. This strict division no longer applies. For a long time now, our blue and green tools have been available side-by-side from online retailers. Furthermore, away from the internet, both DIY enthusiasts and professionals are now buying their tools outside of their usual channels.

    Speaking perhaps mainly of the European market, he went on to say:

    This means, for example, that, as of autumn 2016, we will sell blue power tools not just in specialist retail outlets but also in hardware stores.

    He clarified this by adding:

    I want to emphasise that the specialist retail outlets are still the most important channel for us when it comes to selling professional power tools. What is important is that the customer is offered the right products through all of the channels -- and, of course, that they are impressed by our power tools.

    Given that Bosch Blue tools have been sold in general hardware stores for some time in Australia, it is difficult if this will have any impact here. It may signal something of a shift in the company's approach to its future growth plans.

    A changing company

    Most longer term observers of BPT would agree that the company has gone through something of an innovation lull in recent years. In particular, the years from 2011 to 2013 were marked by ongoing innovations, but not in the same areas where Bosch's main global competitors, Stanley Black & Decker (SBD), Makita, Techtronic Industries (TTI) and Hitachi were innovating.

    The BPT report on its FY 2012 year illustrates this. A change of leadership had just occurred, with Mr von Boxberg appointed president of the division from 1 January 2013, replacing, Dr Stefan Hartung.

    Dr Hartung had been appointed president of Bosch Power Tools in 2009, after a storied career in the Bosch/Siemens Dishwasher division. Mr von Boxberg had worked for some years in sales and marketing for Bosch Power Tools prior to his appointment.

    At the FY 2012 results announcement Mr von Boxberg chose to highlight Bosch's considerable advances in its measuring tools. He also celebrated the tenth birthday of the Ixo cordless screwdriver, one of BPT's most popular products in the DIY market. Mr von Boxberg mentions, for example, the variants added to the Ixo, including a corkscrew, a spice mill, and (of course) a Swarovski edition.

    >}A little bling for the serious DIYer}

    Meanwhile, over at SBD, the company chose to highlight its Gyro screwdriver, named by Time magazine as one of the best inventions of the year, the launch of the Black & Decker Matrix drills, and the newest DeWalt (brushed)18-volt cordless drill.

    At TTI, 2012 was the year the company launched what has proven to be one of the defining products in power tools, the Milwaukee FUEL range, which featured brushless motors. It also launched its Ryobi 12-volt Li-ion products, and relaunched its Ryobi One+ line with newly designed and configured tools. The CEO of TTI, Joe Galli, used the 2012 results announcement to launch the next stage of FUEL, its sub-compact, 12-volt range.

    For 2012, Makita continued to expand its range of brushless tools, building on the innovations it pioneered originally in 2009.

    Reinvigorating BPT

    While BPT has never characterised its activities in this way, the tool maker has spent its time since early 2013 working to catch up to a power tool market that was quickly speeding away from it.

    For example, surprisingly, BPT had yet to release a line of brushless cordless tools by the end of 2012. It released plans to do so in November 2012, announcing that the products would be launched under the "Core" sub-brand. It was over a year before the company did manage to launch the actual tools, including the DDS182 drill/driver, and a range of impact drivers. These did not become widely available at suppliers until early 2014.

    Wireless charging

    The first genuine innovation that was brought to market under Mr von Boxberg's leadership was Bosch's wireless charging system. Released as a Bosch Blue tool in October 2014, this employs a special battery and a charging cradle. To recharge the battery, all the user needs to do is to set the tool down in the cradle. Drills can be simply rested on the charger. For tools such as circular saws, the battery can be attached to a vertical surface, and the tool is then slotted into the cradle.

    In the current results announcement for FY 2015, Mr von Boxberg also released the news that wireless charging will be extended to BPT's 10.8-volt range of power tools. This amounts to adding a wireless charging battery to the range, as the existing wireless chargers will work with the lower voltage tools as well.

    While it might seem a relatively simple idea, developing wireless charging was a long and difficult research project. The first prototypes, made in association with the US-based company Fulton Innovations, were demonstrated at the Consumer Electronics Show in Las Vegas in January 2009.

    The original made use of a world standard for wireless charging known as "Qi". Bosch subsequently decided to develop its own, non-standardised system. One reason was that Qi was designed for charging with less than 5 watts, and the Bosch system needed to deliver over 50 watts.

    Development challenges including building a system that would not, for example, attempt to charge a bolt that had been accidentally dropped onto the charger. BPT's solution to that problem was patented in 2011.

    The standard use-case that BPT suggests for the wireless charger is the contractor who has to drive from job to job. Using a special charging cradle for vehicles, or an L-Box case configured for wireless charging connected to a vehicle's power plug, all the contractor need do is store the tool away properly, and it will be charged by the time the next site is reached.

    It is difficult to see this as a compelling use case when compared to, say, buying an extra battery and a dual-port charger, and remembering to take the two minutes to slip the batteries into the charger before driving off. This is especially the case as both the wireless charger and the special battery required are quite expensive.

    There are two more compelling cases for using this kind of charging system. The first is in a light industrial/assembly situation, where cordless has been adopted both as a safety measure and to help speed workflow. The assembler could naturally set the tool down in its charging cradle when it was not in use. This would almost eliminate the need for a spare battery at each workstation, as well as the need to manage complex cycles of battery recharging.

    This seems to be hinted at in some of the promotional images released by Bosch:

    >}Wireless charging promotional image from Bosch}

    The other use case would be for the DIY/Prosumer user in their home workshop, or in the house while performing repairs.

    Bosch Pocket Assistant

    Released in early 2016, the Pocket Assistant is something of a catch-up effort by BPT. This smartphone app enables a user to snap a picture of the box in which a tool is packed, and to then access information for that tool. Additionally, the app can also be used to register tools to obtain an extended warranty.

    Many power tool manufacturers have had a similar facility for some time. Ozito, for example, has a QR code on each tool box since at least early 2015. If you access the code with one of the free QR code readers available for all smartphones, it will load a web page with the tool details.

    Which, of course, brings up the question: why didn't BPT simply use QR codes? The system it does use is similar to that on the Australian "Viewa" app, which enables readers to "snap" a magazine page and then read additional details, something also used in the IKEA app for its printed catalogue. In the case of power tools, it would seem to add an extra layer of complexity and expense.

    While HNN can only offer a conjecture, it seems likely that in considering QR codes, Mr von Boxberg and his team would have faced a considerable delay in getting these printed on the packaging. Using the existing image of the packaging likely eliminated that delay.

    If this conjecture is true, it goes some way to describing some of the difficulties faced at Bosch, as it attempts to bring BPT up to speed with the market. It also indicates some of the resourcefulness of the BPT team itself.

    Track My Tools app

    If there is one single development during 2015 that really outlines the struggles of BPT to catch up to the market, and how it has managed to both partly succeed and partly fail, it is the development of its Track My Tools (TMT) system.

    BPT was facing a severe technology deficit when it comes to the developing field of connected tools. SBD's premium DeWalt brand released its Bluetooth-enabled battery in mid-2015, followed by the release of the similar SmartBattery by its DIY brand Black & Decker later in the year (with the clever addition of a USB charging port). Milwaukee developed its One-Key system for Bluetooth enabled tools during 2015, and released it in February 2016.

    BPT really didn't have much to offer, so it -- very cleverly -- developed its TMT system, which it launched in September 2015. This combines a degree of crudeness with some elegance -- and, unfortunately, also illustrates the company has yet to really understand how the modern market works.

    The hardware part of TMT consists of small devices like the one pictured below:

    >}Bosch's iBeacon-like tool tag}

    These are priced at EUR14.90 per unit, with a minimum purchase of 10.

    The tool owner sticks one of these onto each of the cordless tools they own. When we say "sticks", we do quite literally mean sticks. Each device comes with its own two-pack polymer glue. The user finds a suitable place on the tool and sticks the GCC 30 TrackTag Professional Bluetooth module (as it is known) to it. For corded tools there is a slightly more elegant solution which attaches the TrackTag to the cord.

    The TrackTag is similar to what Apple has designated as an "iBeacon". However, knowing how much Bosch likes to have proprietary devices, it seems unlikely it follows the iBeacon specifications. What these devices do (in general) is to send out a pulse of information at regular intervals, using the Bluetooth Low Energy specification. This information consists of a unique ID. (In the iBeacon specification, it is actually two IDs, a major and a minor one.)

    In Apple's iBeacon specification, an interval of less than a second is recommended between pulses. The BPT implementation sends out a pulse only once every eight seconds. This contributes to the device's extra-long battery life, which is estimated at three years. It might also indicate that the Bluetooth radio pulse being sent out is a little stronger than is usual in an iBeacon.

    Once the TrackTag is attached to a tool, the tool owner then logs into the web interface to the TMT cloud-based database, and enters the details of the tools. The owner then uses a smartphone app to associate that particular TrackTag with the tool entry in the database.

    The tool owning business can then track the tool using a web interface. Tools are assigned to specific users using this interface. Whenever a TrackTag is within range of a smartphone with the TMT software activated, the Bluetooth pulse with the ID is detected, and this information is forwarded to the BPT cloud servers. That information includes the ID, the time the pulse was received, and the location of the smartphone at that time. The web interface then shows, if not the exact location of every tool, at least their location when they last "called in".

    The actual tool user can use the TMT smartphone app to access information about the tools. The primary information is quite simply location. For example, if someone has borrowed a tool on the jobsite and taken it elsewhere, the user can access location information on the app and determine its likely location.

    The app also provides a reporting function, which means if the tool faults, it can be reported immediately.

    A little more controversial is the claim that the app can make sure, for example, that a contractor has packed all the necessary tools into his vehicle. The problem with this is that iBeacon-type technology really doesn't give any kind of reliable proximity reading. Smartphones do read the signal strength of the beacon, but this is useful for determining only four situations: the iBeacon is within 50cm of the smartphone, within 1.5m, over 1.5m away, and out of signal range (usually around 30m, with a clean line of sight). It gets even more complicated and less accurate if you are checking devices attached to large lumps of metal like tools, locked in storage boxes, or inside a metal vehicle, which stores lots more metal.

    It would be very easy for the TMT app to report that all tools were present in a vehicle, when in fact several of them were still on the jobsite, within 30m. The only sure thing to do would be to drive 60m away, and then check. In fact, it seems that Bosch actually edited its YouTube video about TMT that showed a workman using the app to determine he was missing a tool. The missing tool scenario is still present as shown below:

    >}One of the tools is missing}

    However, the video now shows him finding the tool, but the scene where the app informs him that all the tools are in his van has been edited out.

    The DeWalt Bluetooth battery system is more advanced, and offers a range of features not found in TMT, but does not provide the same kind of inventory approach. However, TMT does not even come close to what Milwaukee is offering with its One-Key system. That provides not only much better inventory management, and a location-checking system that is much better at detecting theft, but also full integration with the tool system as well, so that tool usage can be determined, and tool settings can be made as well.

    That said, and while there are several problems with the functionality offered by TMT, it is quite an inventive approach to adding some kind of connected functionality to an existing fleet of tools. As a move to start catching up, it makes a lot of sense.

    Except that, in the end, it doesn't. That's because BPT has made the peculiar choice to actually charge for the online services it is providing. The smallest fee, for a fleet of up to 100 tools, comes to EUR300 per year, or a monthly rate of EUR30.

    This shows how far behind in understanding the evolving world of power tools Bosch really is. Milwaukee, as an example, does not charge for its far more extensive, and far more useful One-Key service. It is a very telling mistake, and indicates just how far Mr von Boxberg has to go in transforming the business culture of BPT.

    The Future of Bosch Power Tools

    In the results announcement, Mr von Boxberg seemed to have a focus on the Bosch Green DIY tools. This included the announcement of a revolutionary new wood cutting tools for DIYers, the NanoBlade jigsaws and sabre saws. These work somewhat like miniature, 4mm wide chainsaws, and make cutting wood a much simpler and easier task for DIYers.

    >}Bosch NanoBlade sabresaw}

    >}The NanoBlade itself}

    More importantly for trade/professional users, BPT announced that it would be releasing an integrated, Bluetooth-based tool system in the northern autumn of 2016. According to the brief description supplied, this would be a module that could be plugged into a new line of Bosch cordless drill/drivers and combi-drills.

    The module would enable Bluetooth connectivity through the standard BPT smartphone apps, similar to the TMT modules described above. However, it will also deliver some control over the tool to the user, enabling them to change settings such as kickback detection, and to detect problems, such as overheating tools.

    This is evidently an effort to better match-up to the Milwaukee One-Key system. Once again, this approach reveals some good thinking, but also the obstacles that the vast Bosch development infrastructure present. Where Milwaukee is offering a special line of tools, that includes four buttons to activate different pre-determined settings on demand, the BPT alterations will require little external redesign of the tools. Connectivity will thus be marketed as an option on some tool lines, rather than sold as an integrated part of a parallel tool line.

    It is an understandable set of compromises, but the question remains how tool buyers will respond.

    From product-centric to user-centric

    By far the most hopeful sign that BPT is committed to change, and taking such change seriously, can be found in a YouTube video the company has released of its User Conference (uConn) held in late February 2016. Creators and designers, UX (user experience) and marketing experts, and sales representatives of BPT participated in the conference, where the importance of making tools for users was emphasised.

    Link to YouTube video

    Speaking at the conference, Mr von Boxberg had this to say:

    User centricity in fact is the centre of our strategy. Only if we fully understand our user problems, requirements and needs then we can derive the best product innovations, which is the basis of profitable growth. But we have to shift, and we have a paradigm change from a more product-focused, to a more user-centric organisation. Surely we have to improve in order to make sure that we are deriving innovations which are meeting our user requirements. Zero distance to the user and no waste.

    Marc Jost-Benz, head of user experience, backed up Mr von Boxberg:

    The uConn is a very important platform for us to develop from a technology and product-driven company towards a truly user-centric company. We are very happy that this concept seems to work out, and we really hope that the people will bring home whatever they experienced here in the different break-out sessions to their home, and that they really share the spirit towards a user-centric company with zero distance to our users.


    It is not uncommon for very large companies to develop the kind of situation that Bosch and BPT find themselves in for 2016. A dramatic transformation has occurred in their markets, their competitors and the potential for their products. Many companies in this situation react by actually promoting and appointing not the people capable of aiding change, but people who -- comfortingly -- represent more of a "business as usual" approach.

    Eventually good companies -- like Bosch -- "wake up", and realise they really do need to change. The difficulty is that today the pace of change is so intense and so rapid that waking up doesn't always guarantee success. Or, at the least, it can take a company four or five years to overcome a two-year period of reduced development.

    The difficulty facing Bosch is that it has slipped behind by two product cycles. When it releases its connected tools in late 2016, the systems it offers will not be as good as though released by Milwaukee in early 2016. What is more, Milwaukee will likely launch an improved version of its One-Key solution in the first calendar quarter of 2017.

    All that BPT can really do in these circumstances is to attempt to go from what will really be a version 0.5 of its connected product this year, to version 3.0 by the first half of 2018. That means the company will take something of a hit during 2017. The alternative would be to release a version 2.0 in late 2017, only to have Milwaukee release its version 3.0 in early 2018.

    And this scenario is leaving out whatever SBD will be doing, which is likely to be effective as well.

    One thing that does seem certain is that even though Bosch Power Tools is facing a tough period, the management team that has been put in place is making the right moves in the right direction. The question is how fast they can move, and whether the larger Bosch organisation can resist enforcing its old standards on a new line of business, as likely happened with the service fees tacked onto the TMT product.


    Micro modular apartments

    Smart, portable city homes

    Tiny prefab housing startup KASITA is revolutionising urban living

    KASITA is designing and fabricating housing that is more affordable, adaptable and efficient. It makes portable, prefabricated, pint-sized homes that are stackable.

    After three years of R&D, the Texas-based housing startup revealed its prototype at South by Southwest (SXSW) Interactive, where it was awarded the 2016 SXSW Innovation Award in the Smart Cities category.

    KASITA's futuristic metal and glass housing units measure approximately 300 square feet, catering to the increasing numbers of one and two person households in today's cities. Because they are mass-produced, construction costs are kept low and quality high.

    Each will unit come connected with smart devices including a Nest thermostat, Amazon Echo, Casper queen-sized mattress, View Dynamic Glass, and Hue lighting in addition to standard amenities like a dishwasher, induction cooktop, and convection oven. The company is also working to develop interchangeable wall tiles so people can slot in tiles with shelving, bike racks, or storage instead of hammering into walls.

    >}Part of the interior in a KASITA unit}

    The units are quickly attached to a patent pending plug-and-play rack, which can be set up in days and quickly hooked up to utility lines. The racks slide into underutilised or unused urban lots that are too small for a conventional housing development.

    The homes are mobile, with a unique docking system that will let you take them wherever you want to move as long as the city you are relocating to has KASITA docks. You can slot in your house and stack them up to 10 stories high.

    KASITA founder and CEO Jeff Wilson said:

    Urban housing is perhaps the single most important factor in facing the economic, environmental and social challenges that face humanity today.

    Wilson is better known as "Professor Dumpster" because he lived in a 33 square foot dumpster for a year to determine how little space and stuff a person needs to live a happy life.

    He believes the status quo is failing, and failing badly. As the world's populations urbanise, urban areas are facing extreme housing shortages, driving up housing costs and driving out the middle class as well as artists, creatives, immigrants and young professionals; ie. people who can make cities great.

    So Wilson started working with an industrial designer from the firm Frog to come up with a different type of plan. They envisioned a form of housing that would be low-rent even in the middle of the city, mobile, allow for short-term leases, and let people avoid the annoyance of having roommates. He chose an industrial designer, rather than an architect, because he wanted to avoid expected solutions. Wilson said:

    Every aspect of KASITA -- from its high tech prefabricated construction to its ability to set up quickly on discounted land -- was designed to create both an amazing living experience and produce development and living costs that crush traditional site building in terms of affordability.

    He believes KASITA is a complete break from the current way housing is made and developed, bringing to bear the innovative spirit commonplace in tech to the housing market. He said:

    This is like the iPhone of smart homes.

    Named one of 2016's Most Innovative Companies by Fast Company magazine, a KASITA development is being built in Austin, Texas later this year.


    The big three in home automation

    Google, Apple and Amazon face off

    How do devices connect to users and to each other?

    There seems to be something about home automation that makes normally well-managed, forward-looking companies lose most of their hard-won skills, and begin to almost "slash" away at whatever problems they are trying to solve.

    Cases in point: the two behemoths of mobile, Apple and Google, have both seen their automation efforts fall on tough times. Meanwhile, unexpectedly, it's the online retailer Amazon that has come up with the most popular solution, devices that access its voice-driven artificial intelligence (AI) cloud system, Alexa, to help home-owners activate home automation with spoken commands.

    What exactly is happening here? The main problem seems to be that the customers' primary needs are not being considered. None of these participants in the home automation market has approached the problem by asking themselves what the best possible experience for the customer would be. Instead, they have each sought to use home automation as a means of furthering their central business model.

    Apple, for example, is today mainly in the business of selling smartphones, with a secondary interest in associated services, and a tertiary interest in computer hardware. Google (now Alphabet) is in the business of using personal information revealed through the use of its services to provide highly targeted advertising to users. Amazon wants to be the on-demand supplier of everything from ebooks, music and video services, to clothing, and household goods such as razorblades and paper-towels.

    Thus Apple's HomeKit is controlled by its iOS devices, smartphones and tablets. Google is relying on products like the Nest thermostat, which observes the user's behaviour patterns and programs its settings based on those. Amazon has developed a voice-activated system that will play music from its streaming service, or order-up that dishwashing liquid you've just realised you will need soon.

    Apple HomeKit

    HomeKit is one of those Apple projects that instead of getting better and more refined as it went through development, grew steadily worse. Between its announcement in 2014 and its release in 2015, it went from a system that had a degree of openness, to one that was as completely closed as Apple could make it without building all the connected devices itself.

    Today, in order for a device to be officially certified by Apple, and to be admitted to the gated community that is HomeKit, it has to select key hardware components from a narrow range certified by Apple, and also use firmware supplied by Apple on those components.

    Perhaps the most generous way to view this is to see that what Apple is doing is trying to bring some of what made its App Store (and thus its iOS devices) so successful into the home automation area. All iOS apps have to be made with Apple software tools, and they all (without exception) have to pass tests to be listed in the App Store, the only source of apps. That has worked very well for Apple, providing a safe, mostly tasteful supply of relatively inexpensive apps.

    However, the world of hardware is a very different one from the world of software. Using a particular software tool to build an app and then tweaking the result to match up with Apple's expectations is not a difficult thing to do. Using specific hardware components that may not be ideal to a certain situation, and whose supply may be difficult to guarantee is a much more difficult and riskier task.

    By and large, for companies that already have some home automation products out there, the Apple requirements leave them with two options. Apple has built into the HomeKit software a special provision for a "bridge" device. This is one unit of a system that communicates with HomeKit. Commands for elements of the system, such as dimming one particular light, are passed to the bridge in a "package", which is then "unwrapped", and the correct command sent to the correct device. Both Lutron with its home lighting kit, and Phillips with its Hue system, have followed this approach.

    The other option is, like Belkin with its WeMo line of smart plugs and switches, to opt out of doing anything with HomeKit in the foreseeable future. The reason for this is that the bridge ends up costing the customer something around $90. Trying to sell a power-point switch for $70 that needs a $90 accessory to make it work with HomeKit is hardly a winning proposition.

    The end result is that there are very few devices that actually do work with HomeKit, and many of these (especially in the Australian market) carry very high prices. Take, for example, the Schlage Smart Sense door lock, which works both with HomeKit and via a keypad on the lock. This is currently retailing for $399 at the Apple store. (You can, however, buy the US version for $250, including shipping, on eBay. Some sellers on Amazon offer the device for USD165.)

    Apple's reasons for having such a closed system have largely to do with security. With their reputation at stake in other areas, such as mobile phone security, and the security of their cloud-based services, they don't feel inclined to take any risks with home automation. You can hardly blame them. If some hacker works out how to remotely dim the lights in George Clooney's living room or adjust the thermostat in the bedroom of Angelina Jolie's maid by hacking HomeKit, it's going to be headline news for a month.

    The network

    Aside from the closed nature of HomeKit, the other big problem it presents is that it relies on Bluetooth for its inter-device communications. For some homes and apartments, this isn't a bad thing. The main advantage of Bluetooth is that it can be made to consume very little energy, so that a small battery will power a device for an entire year, or even two years.

    The bad thing about Bluetooth is that it has very limited range. With a clear line-of-sight, it might reach as far as 30 metres. Inside a house with walls and other obstacles, it's not going to reach further than (maybe) an adjacent room.

    Also, using Bluetooth, there is no direct way to connect to the internet, and thus provide remote access to home automation devices. Apple's solution to this is to enable HomeKit to connect to the Apple TV device, which connects to the local wi-fi network, and then to the internet.

    One of the problems with that, of course, is that the devices connect to the Apple TV device via Bluetooth. Which means that in a larger house you would need several Apple TVs to ensure coverage.


    The other point of failure for HomeKit, however, is that it is designed to be operated primarily via voice, by making use of Apple's AI-powered "personal assistant", Siri. The problem with this is that just about the only way to connect to Siri and HomeKit is through an iOS device such as an iPhone or an iPad. So to turn down the lights in the living room, you have to be carrying your phone with you around the house at all times -- something that is not a common habit for most people.


    If Apple is going to give its HomeKit anything like a chance in the market, it is going to have to change its current strategy. It will need to build a small device of its own that essentially works as the bridge between Bluetooth communications with home automation devices and the local wi-fi network of a house.

    For starters, this bridge could be built-in as standard to its networking devices, such as its Airport wi-fi routers. It would also need to be a small, relatively inexpensive device that could be plugged into an electrical socket in a room. The device would then not only enable control of home automation devices throughout the house, but would also be able to identify people by their phones (or Apple Watches) as they moved through the house.

    In case this seems a little far-fetched, this kind of connectivity is exactly what is being offered by Google's OnHub router, released in 2015, which includes Bluetooth as a means of connecting devices directly. Google has yet to do much with OnHub, but the capability exists.

    The chances of Apple changing its approach are, of course, very slim. What is far more likely is that we'll see another year or so of HomeKit, as Apple rolls it out with iOS 10, and then a dramatic fall in interest with iOS 11 in 2017.

    Alphabet (Google) and Nest Labs

    Meanwhile, back at Google, things are not going quite as well as had been hoped either.

    Google's progress into home automation really began with its acquisition of Nest Labs in 2014. Nest was created primarily by Tony Fadell, who is credited with the early development of Apple's first iPod, which arguably was the key element that has built that company's current success.

    Mr Fadell developed the Nest thermostat, which was launched in 2011. The Nest is a circular device that relied on some of the hardware originally developed for use in smartphones. One of its main features was the ability to "learn" from users, and thus anticipate their heating and cooling needs, helping to reduce energy consumption in the process.

    The Nest thermostat was joined by the Nest Protect in 2013, a smoke and carbon monoxide detector. After its acquisition by Google, Nest also acquired the Dropcam company, which produced a well-regarded security webcam.

    Google developments

    In addition to these devices, Nest has also been involved in developing some fundamental infrastructure that could well become the way of the future for home automation devices. News about these products was released in mid-2015.

    A networking protocol known as "Thread" solves one of the main problems for home automation providing a secure, wi-fi based system that is securely encrypted and consumes very little energy. It is also a "mesh" network, which means that if just one device in a group of devices has access to the house's wi-fi network (for example) all the other devices can reach that network through it.

    Nest has been somewhat less involved in two other technologies developed at Google. Weave is a communication layer that is all about internet of things (IoT) devices being able to talk to each other. Brillo is something like a scaled down version of the Android operating system that can work on the small devices that make up the IoT.

    So putting the three things together, a camera running Brillo can access a cloud service through Thread to run face recognition, then communicate using Weave over a Thread connection with a lock also running Brillo to unlock a door.


    While all this sounds pretty good, Nest and Google have been very slow at releasing new products. The two products that Nest has failed to deliver so far are a system that monitors door/window openings and closing and, most importantly, some kind of central hub that would provide a point of control for diverse home automation devices.

    The technology news and analysis site The Information recently published an article entitled "Inside Tony Fadell's Struggle to Build Nest" which outlines some of the problems Nest has encountered in developing products. Mr Fadell is seen as something of a divisive character, placing a high level of demand on the people who work for him, and not always responding well to both suggestions and criticisms that relate to products. He is also held to be responsible for many of the product delays due to excessive micro-management of the development teams at Nest.

    One way around this may be the products that will eventually emerge from Nest's Works With Nest and Nest Weave projects. The idea seems to be to add products to the Nest system in much the same way Apple adds products to HomeKit, but with far fewer restrictions.

    The Works with Nest website ( lists over 70 products, which puts Apple's HomeKit to shame. That said, a large number of these listings involve software that is aimed at providing different ways to access and control the Nest thermostat. However there is also a range of truly interesting products, such as the August smart lock, PetNet, which is an remote controlled pet feeder with a camera to show the pet eating, and the revolutionary Heatworks hot water heater.

    The Weave protocol along with Brillo was at least present in some devices previewed at the 2016 Consumer Electronics Show (CES) in Las Vegas. The Korean appliance manufacturer LG indicated Weave was being made use of inside an air conditioner, a washer and dryer, a refrigerator, a security camera, and some wireless speakers. However, these were released in a very quiet way, and there seemed to be little attempt by Google to help promote the product.

    In Google as a whole, there is also the OnHub router, which was launched in 2015. Somewhat like the Nexus mobile phones Google has sponsored, the OnHub is made by two external companies, but its specifications were worked out with Google.

    As the OnHub speaks Weave, it could act as a bridge between the internet world of wi-fi and the device world of Bluetooth. However, in terms of supplying a room-by-room connection for IoT devices, it's just too expensive at around USD200 each.

    The future

    Whatever the causes, the fact is that Nest Labs has not delivered much in the way of home automation products. That said, Nest recently announced it would be ending support for a product it acquired in 2014, the Revolv home automation hub. There is also a slightly cryptic note in the article from The Information on Nest which states:

    Separately, Nest asked to be included in a secret Google project to create a competitor to Amazon's Echo, a voice-controlled personal assistant device.

    Putting those two things together, it seems possible that there could be significant home automation announcements at Google's annual developer conference, Google I/O, scheduled to take place on 18 May 2016.

    And the winner is -- Amazon

    After a series of failures with devices in the mobile/connected area, Amazon has proved itself a surprising winner in home automation. Perhaps this just proves that in a contest that pits selling more mobile devices against selling ads based on personal profiling versus just selling whatever you can to your customers, the last of the three will always end up winning.

    At the centre of the Amazon home automation system is its Echo voice command/speaker system. Development of the Echo began in 2011, and it was launched in November 2014, but made available only to members of Amazon's Prime customer rewards program, and a few special invitees. The Echo became widely available in June 2015.

    Since it became widely available, the Echo has steadily gained in popularity to reach the status of a "must have" for people with an interest in technology. While Amazon does not share exact sales data, the Echo currently sits at number three in its list of bestsellers, ahead even of the Kindle Paperwhite eBook reader.

    How the Echo works

    Echo provides a voice interface that interacts with Amazon's Alexa artificial intelligence driven voice recognition technology. The Echo is always on and always listening. Interaction is triggered by users saying a "wake" word, which defaults to "Alexa", but can also be "Echo" or "Amazon". It uses an array of seven microphones to provide "far field" voice recognition, which means it can detect the wake word at a distance and despite the clutter of background noise.

    Once the user has the Echo's attention, the device can provide a wide range of services. It is also equipped with a good speaker, and so can be asked to play a specific music track (Amazon offers streaming music services), or read a spoken-word book (it interfaces directly with Amazon's Audible recorded book service).

    As you would expect, the Echo also makes it very easy to order products from Amazon. A suggested voice command, such as "Alexa, re-order paper towels" will have the Echo help you verify your purchase, then make the transaction. That said, the Echo only enables you to repeat a past purchase, not create a new one.

    Alongside entertainment, home automation and product ordering, the Echo makes available a wide range of information services. The user can ask for a "briefing" from a range of sources, and receive a concise summary of events. Weather and general knowledge questions can be answered, and it now provides an interface to Google Calendar. There are also simple conveniences available, such as setting a quick timer for cooking.

    Amazon has made it easy to interface the Echo with a very wide range of home automation products. This includes, for example, Belkin's WeMo switches -- the same ones that are not going to be connected to Apple's HomeKit. You can tell the Echo to turn on lights, switch appliances off and on -- and so forth. Domino's Pizza has an interface that makes ordering a home delivered pizza a simple instruction, and Uber will send you a car as well when requested.

    One slightly curious incapability of the Echo is that it will not interact with anything like a door lock, or open/close windows. That's because Amazon is afraid it could be used by thieves to break into houses. As the commands are not encoded in any way, a thief could just shout "Alexa, open the door", and gain entry.

    The Echo also serves some more ordinary functions. Much of the 235mm tall device consists of an array of speakers for audio playback. It can be used by other devices, such as a smartphone, as a simple Bluetooth speaker.

    Product details

    The Echo is sold by Amazon for USD180, down from the original price of USD199, largely because it no longer comes with a remote control. While that is pretty pricey, especially as a homeowner may want more than one device in a house, Amazon has worked on that as well. It now offers two additional devices that offer the same functionality as the Echo, but in a more affordable and convenient form.

    The Amazon Tap is basically a smaller version of the Echo, that operates as a cordless device, while the Echo connects to the mains current. To conserve power, it is not always on, but requires a swift "tap" to wake the device. It also doesn't feature the same long-distance microphone array as the Echo, so users typically speak into the Tap from quite close range. Like the Echo, it can function as a normal Bluetooth enable speaker, and it offers up to nine hours of playback on a single charge. The Tap sells for USD130.

    The Amazon Dot is pretty much like the Echo, but without the speaker array. Like the Echo, it needs to be plugged in to the mains, but it is much smaller, at just 160mm tall and 80mm in diameter. It possesses only a rudimentary speaker, but does make it easy to plug in higher-quality speakers. At just USD90 -- half the price of the Echo -- it also makes it a good way to affordably integrate the Amazon Alexa service throughout a home.


    The one issue HNN has not covered in detail in the above descriptions is the availability of these systems in Australia. The limiting factor is, in most cases, the different voltages between the US and Australia (and Europe). Thus, for example, you can now buy a Nest Thermostat, and you can also buy a Nest Protect -- as long as the latter is the battery-powered model. You cannot, however, buy the OnGo router, as this relies on mains power.

    With the Amazon Echo ecosystem, you are pretty much out of luck. The Echo, the Tap and the Dot are all unavailable, though this has more to do with both the supporting cloud-based system behind them, and the unavailability of convenient Amazon store access than it does different voltages.

    With Apple's HomeKit, the story is quite mixed. It's available, but the range of products that do work with HomeKit is even more limited than it is in the US. There is also the curious problem of the extra-expensive currency conversion. For example, the Schlage Sense Smart Deadbolt sells in the US Apple store for USD230, which would be around $305, yet it retails in the Australian Apple store for $400.

    Overall, however, this doesn't really indicate any kind of anti-Australian -- or, more accurately, non-US -- bias but rather just the surprisingly disordered state of the home automation market. It is possible that home automation may be one of those markets that are contested by Apple and Google not so much because they see them as representing a great opportunity, but rather because they fear that leaving an open field to their competitor could have serious consequences.

    We've seen exactly this behaviour with self-driving, autonomous vehicles, where Apple is now striving to catch up to Google's lead, and with "wearable" technology, where after Google's misfire with Glass, Apple has surged ahead with its Apple Watch -- albeit with apparently lacklustre sales.

    As for Amazon, it seems very unlikely that Australia will see much benefit from its systems over the next three to four years, at the least. Australia's best hope for a decent home automation system probably does rest with Apple's HomeKit more than the others.

    HNN doesn't expect very much to happen with HomeKit during 2016, so it will depend on whether Apple decides to reboot HomeKit in 2017, or to exit this market at that time.


    CES 2015: Wishful thing-ing - HNN Nest reveals HD security camera - HNN

    The smart home moves outside

    The garden will be able to communicate with users

    The Connected Yard from Scotts Miracle-Gro can make gardening a lot smarter

    Scotts Miracle-Gro is teaming with a number of technology providers and creating its own app and software platform to bring home automation to the outdoor space.

    The company recently introduced its Gro Connected Yard online platform and app at South by Southwest (SXSW), an annual set of film, interactive media, music festivals and conferences that take place in Austin, Texas.

    Gro will track recent weather and rainfall, local soil types, and offer plant recommendations and maintenance instructions based on that information.

    The app will allow users to set goals for their garden, regardless of whether they have a huge yard or a tiny apartment balcony to work with. It will provide step-by-step instructions over days and weeks. The tips are tailored to the user's location, weather reports and data received from an accompanying range of internet-connected sensors, that do things like check the health of plants.

    To optimise the platform, Scotts has been working with other water sensor and controller manufacturers to integrate their products with Gro and provide more data about the garden's conditions.

    The "Works with Gro" program is launching with products from Blossom, Rachio, Green IQ, Lono, PlantLink and Parrot. Their hardware feeds information into Gro software, making it even more aware of the condition of the yard, starting at first by focusing on water usage.

    These technologies enable the careful monitoring and control of watering levels, adjusting for the soil's moisture content and the weather forecast.

    Scotts also plans interactive installations in retail outlets that will sync with the Gro app and help users buy exactly the right gear. The app will guide them to the specific shelf in the store.

    The company hopes that the Connected Yard will help get more millennials into gardening by offering a 21st century approach to a pastime that can seem overly complicated to beginners. Chief digital and marketing services officer, Patti Ziegler said:

    Gro welcomes everyone into the garden...Our Gro application will suggest interesting and fun project ideas. We will give people advice on what to do, and how to do it, based on their exact location and the time of year. We will increase the ability of all gardeners, but particularly new gardeners, to succeed in having healthy lawns, gorgeous flowers and shrubs, and tasty home-grown vegetables.
    Previously complex tasks will be presented as bite-sized, highly visual, personalised instructions. We will offer the same type of advice a friendly, expert gardener would suggest, if they lived next door. We will give people the confidence to try new things.

    The Connected Yard is an open platform, and Scotts Miracle-Gro is eager to align with companies and particularly start-ups in the smart water and gardening space who want to connect their hardware solutions to Gro.


    Online strategies for home improvement

    US-based e-tailing summit

    Conference will bring key executives together to develop ways to grow online sales

    A symposium has been created specifically for the retail home improvement industry to put together strategies that can maximise revenue in an increasingly online environment.

    The eRetailer Summit is a top-level conference for retailers doing business online. The event will provide a forum for them to collaborate with progressive vendors and distributors to create new partnerships. It will be held at the Hilton Fort Lauderdale Beach Resort from October 26 to 28, 2016 in Fort Lauderdale, Florida USA.

    Over a day and a half, a select group of e-retail executives and buyers will develop their business ambitions and game plans with suppliers. The event will combine one-on-one meetings; knowledge shared directly from online retailers; leading keynote speakers; seminars that will clarifying confusing topics; and genuine networking in an intimate setting.

    The goal? To raise the bar in home improvement sales online. Michael Hargrave, divisional merchandise manager for online tools at and said:

    The eRetailer Summit will provide a great opportunity for internet retailers and hardware/home improvement manufacturers to gain beneficial knowledge of the dynamic workings of e- commerce.

    Sonya Ruff Jarvis, manager, Jarvis Consultants, is mounting the event in partnership with Canadian-based Hardlines Inc. She said:

    In this industry, e-retailers are moving together to make home improvement online a more powerful presence. By bringing together a focused group of high-calibre retailers,...we're creating an environment for these retail leaders to share their goals for growing online sales with select supplier partners.

    The Home Improvement eRetailer Summit is an invitation-only event. To find out more, go to:

    Home Improvement eRetailer Summit, October 2016

    PlantMiner disrupts construction industry

    Creating price transparency and efficiency

    The company is turning equipment hire comparisons into a multi-million dollar industry

    Brisbane-based PlantMiner is an online marketplace for sourcing hire equipment for mining and construction sites. The technology start up created a platform that connects searchers with hire companies through its online portal, similar to accommodation comparison website

    Like the emergence of hotel, flight and insurance comparison and booking services, PlantMiner has sought to disrupt the Australian industry by providing access to multiple suppliers of things like excavators, industrial drills and even portable toilets in one place.

    Suppliers sign up to an annual subscription, while the site is free for customers to search. More than 10,000 searchers are registered including from large mining and construction companies such as Leighton, Thiess and Hutchinson Builders.

    Investment funding

    The company recently closed a $3.5 million funding round as it considers a potential initial public offering early in 2017.

    It secured the investment from Madad Investments, a venture capital company, which is also based in Brisbane. PlantMiner will use the funds to expand its Australian operations, before an international push and additional investment raising.

    PlantMiner co-founder and co-chief executive Mike Davis told the Financial Review it would use the funds to consolidate and expand its market dominance in Australia and New Zealand, where it had shaken up an industry that previously relied on personal relationships. Davis said:

    When you are trying to disrupt an industry you will always find a bit of adversity to change, especially in such a traditional 'handshake' industry. But there are a lot of forward-thinking companies, which are looking to technology to solve problems of a lack of transparency or control over their spending.

    Since 2014 PlantMiner has expanded to employ 70 staff, with operations in Brisbane, Sydney, Melbourne, Perth and Auckland. Davis said the company would make its business-to-business product the focus of international expansion, having visited the US and Europe and seen a similar lack of online advances in the industries there.

    Funding for this expansion could lead to either an IPO or a larger venture capital funding round. Davis said:

    We did have some significant interest from US VCs, but given the focus for the next 12 months is about staying local, it made sense to have a local investor. Then whether we look to do an IPO in 12 months, which we have had some discussions around, or another larger raise, we would be looking to step it up a gear then.

    PlantMiner has not disclosed its revenue, but Davis said the amount had increased 424% year on year. The company also said it had delivered more than $100 million in jobs to its suppliers.

    An idea is born

    Michael Trusler is the company's other founder and co-CEO. The 26-year-old told the Courier Mail in 2015 he came up with the idea for PlantMiner while on a flight from the mines in Moranbah to Brisbane after becoming frustrated with the clunky process of finding machinery. Trusler was flicking through the Yellow Pages trying to source machinery. He said:

    It was a long an arduous task taking hours out of my day. I scribbled down the idea of a one-stop plant hire shop similar to but for plant and equipment hire and took it to my business partner Mike Davis to build a case to pitch to gain seed funding.

    A few months later they made their first call to a hire company to get them on board and two months after the site went live they were making steady revenue. Trusler said at the time:

    It is now Australia's largest plant and equipment hire marketplace with over 500,000 items for hire from over 2500 suppliers.

    According to Trusler, the plant equipment hire industry in Australia is worth $4.5 billion and in the US it is worth around $45 billion. "The potential overseas with this platform is very exciting for me," he said.


    Cologne 2016 closes on an "excellent" result

    It is now a three-day event

    There were also three recipients for this year's EISEN Innovation Award

    The International Hardware Fair 2016 in Cologne, Germany attracted around 44,000 trade visitors from 124 countries, down from 50,000 attendees from 136 countries at last year's event.

    There were approximately 2,670 exhibitors from 55 countries, down slightly from 2,783 exhibitors from 53 countries at the 2015 show.

    Nevertheless, Katharina C. Hamma, chief operating officer of event organiser Koelnmesse, is "delighted at the outstanding result". She said:

    The DIY Boulevard was an absolute highlight. The stands were well attended. As a result of [recent] changes and the integration of e-commerce, the quality of the event was further improved...

    Recipients of the EISEN Innovation Award 2016 include PFERD for its High Speed Disc ALUMASTER(r). The judging panel said:

    With the High Speed Disc ALUMASTER, the user doesn't generate any dust when milling aluminium, but produces defined shavings instead. This offers enormous advantages in terms of health and explosion protection. An extraction system is no longer required either.

    Other winners include HAZET for its VDE torque spanner. The judges concluded:

    The fact that the VDE torque spanner can be calibrated is what especially convinced us. Accurate work with accurate tools.

    Fischer also won an EISEN award for its two-component fixing DUO-POWER. The judges said:

    The fischer DUOPOWER offers an innovative solution for everyday fastening problems. The product is made up of both soft and hard components which enables things to be fastened in both cavities and to solid materials. As a result, it covers a wide spectrum of applications.

    Tradie marketplace works with real estate group

    hipages partners with Ray White

    It will help new homeowners find quality tradespeople for their home improvement projects

    Online tradie marketplace hipages is joining forces with real estate group Ray White to provide buyers and sellers access to its database of over 70,000 qualified tradespeople across 240 categories.

    It follows News Corp. purchasing a 25% stake in hipages for a reported $40 million.

    The partnership will see hipages housed in Ray White's web-based concierge service, which helps clients with the various aspects of buying and selling a property. This can include helping them to arrange insurance and home loans to tax depreciation schedule reviews. Clients looking for help with home improvement will also be provided with free quotes through hipages.

    David Vitek, co-founder and CEO of hipages, said the partnership opens his business up to a new market of customers who may not have ever looked online for tradies. He told Startup Daily:

    People love having a faster, better way to find the best tradie for any job they need done. But the real competition is that too many Australians still aren't aware that there's a better way to do this.
    hipages is a trusted voice within the home improvement industry. Integrating our helpful content with Ray White has created a home improvement hub, a go-to place for new home buyers to visit and make informed decisions about home improvement.

    Kelly Tatlow, CEO of Ray White Concierge, said the partnership will strengthen the suite of services it offers customers to help make moving house as easy as possible. She said:

    Customers are at the centre of everything we do, that is what Concierge is all about. Partnering with hipages and their database of qualified tradespeople across the country will bolster our offering to customers and ensure that we make their moving transition as easy and seamless as possible.


    News Corp buys into hipages - HNN

    Online entrant in reno market

    Furniture e-tailer Milan Direct launches website

    MD Finishings targets the home and commercial renovation markets but is not competing directly with Bunnings

    One of Australia's largest online furniture retailers, Milan Direct, is going after the DIY renovations market. It has revealed a new retail website, MD Finishings that will serve both DIYers and commercial renovations. The website will offer complete fit-outs for offices, hotels or restaurants.

    The site has close to 2,000 products for the bathroom, kitchen, laundry, walls and doors, lighting, outdoor and general DIY. MD Finishings enables Milan Direct to use its brand and manufacturer network to expand its capacity into the renovations market. Milan Direct co-founder, Dean Ramler told Power Retail:

    I saw that there was a lack of affordable, high-quality finishings available online, and reached out to some of the brands we have a great relationships with to bring them together under one banner online at the best price for our customers.

    The Housing Industry Association has valued the residential renovations market alone at around $29 billion in 2015. At the moment, many homeowners seem to be choosing to renovate rather than try their luck in Australia's highly priced housing market.

    IBISWorld industry research indicates that the online market for hardware items has also been performing well, growing by more than 12% over the past five years.

    The struggles at Masters could have presented an opportunity for Milan Direct to capitalise on a gap in the online building supplies and finishings market. However Ramler sees the situation slightly differently. He said:

    Our decision to enter the finishings and home renovation market was independent of the issues Masters had. Rather, the move into home finishings was a natural progression for Milan Direct, we've seen great success selling furniture online and the home renovation market fits so well into our business model.

    Ramler explained that it is not the company's intention to compete with big-box hardware stores like Bunnings.

    Even though Milan Direct has been competing head on with Bunnings for 10 years now with our strong outdoor furniture range, it is not our intention to compete directly with Bunnings in finishings, as our models are completely different. Bunnings and Masters are huge cost-base businesses that require massive showrooms Australia wide, with high stock holdings.
    In contrast, MD Finishings being a pure-play online retailer, has unlimited floor space, and we have the ability to list thousands of products and offer a much broader range, without taking any stock risk. We believe this low-cost market place model is the key to our success.

    MD Finishings made a "soft" launch in late 2015, explains Ramler. During this time, it experienced revenue increases of 40%, with conversion rates also up 70 to 80%. He said:

    After the strong initial response, we're already planning to expand our offering and are adding another 1,000 products to the site.

    MD Finishings is the first initiative from Milan Direct since Temple & Webster acquired the company late last year.

    Temple & Webster grows through acquisitions - HNN

    Temple & Webster results disappoint

    Shares in Temple & Webster have more than halved after the online homewares retailer slashed its full year earnings forecast. Investors dumped shares in the retailer, wiping about $45 million off its market value in the process, as it warned it would miss its revenue and earnings forecasts.

    The warning came as the retailer reported its first set of interim financial results since listing on the share market last December. While shoppers had been spending more money on its website, the company's advertising and marketing campaigns had failed to attract lots of new customers.

    The company warned its full year revenues could come in up to 10% below the $76.2 million forecast in its prospectus. Its $8.5 million underlying loss forecast could also blow out by up to $5.5 million.

    Shares in the company nosedived to 20.5 cents, down 42.5 cents from its previous close of 63 cents. The stock is now just a fraction of the $1.10 investors paid during the retailer's IPO.

    Managing director Brian Shanahan said marketing had not performed as expected, leading to fewer customers. He said:

    The initial campaign and sales outcome has taught us a lot. We will be fine tuning our marketing spend, customer acquisition channels and product mix during the second half to improve new customer and sales performance.

    Shanahan said revenue per active customer had actually risen to record levels, and Temple & Webster is now focused on building better customer retention. He said:

    We remain the largest player in a high growth segment and are well capitalised with circa $27 million in cash and no debt.

    The company is confident it will break even in the 2018 calendar year, according to Shanahan.

    Temple & Webster's first half net loss widened to $17.7 million from $3 million. Costs associated with the company's sharemarket listing and the acquisition of furniture e-tailers Milan Direct and Zizo weighed on the result.

    Pro-forma underlying losses were $7.5 million, compared to $7.8 million a year earlier.

    Temple & Webster gets hammered

  • Net loss increases to $17.7 mllion from $3 million
  • Sales revenue up 47.2% to $21.3 million
  • No interim dividend declared
  • companies

    Boral results build on past development

    Revenue down, EBIT up

    "The detached [residential housing] market is pretty punk": Boral CEO Mike Kane

    Australian-based building products company Boral has reported positive results for the first half of its FY 2015/16 year. While revenue dipped slightly, earnings climbed substantially, as years of development work in some sectors began to generate returns.

    Revenue came in a $2,200 million, a fall of by 4% over the previous corresponding period (pcp), which was the first half of FY 2014/15. Earnings before interest and taxation (EBIT) climbed by 19% to $200 million. In the wake of these good results, and Boral's share buybacks, earnings per share (EPS) climbed a substantial 28% to reach $0.182. Profit after tax and net profit after tax (NPAT) were both $137 million.

    >}Boral results first half 2015/16}

    Mike Kane, Boral's well-known and highly respected CEO, was very positive about the company's prospects. In his introductory remarks at the results presentation made to financial analysts, he said:

    Boral's profitability continues to strengthen, with cost and productivity improvements supporting significant profit growth in the first half of financial year 2016.
    . . .
    Reported sales revenue of $2.2 billion was down 2% or 4% but that reflects the fact that we no longer import revenues from our Boral East Coast Bricks Operation, following the formation of the Boral CSR Bricks JV in May 2015 and the equity accounting of that business. Excluding the East Coast Bricks business revenue impact, the revenue was broadly steady.

    The construction materials and cement division contributed $9 million to EBIT growth, while its Boral USA operations contributed $16 million to EBIT growth.

    Construction environment transition

    Mr Kane particularly went to some lengths to explain the Boral situation as being a fortunate one. He suggests that, for Boral, Australia's transition form a mining/resources-based construction environment to an infrastructure-based construction environment has been buffered by increases in residential building demand, especially in New South Wales.

    Mr Kane was also emphatic in pointing out that, for Boral, residential building support has come predominately from multi-dwelling and high-rise construction, with detached (single-family houses) residential continuing in a slump. Using an evocative phrase, Mr Kane said:

    At the highest point of housing starts in recent history in Australia, the detached market is pretty punk.

    Return on funds employed (ROFE)

    Of particular note is Boral's ongoing improvement in its return on funds employed (ROFE). In the company's analysis of its performance for FY 2012/13, its below-par performance in ROFE was called out for particular attention. At that time, in its strategic priorities, it stated:

    Boral's EBIT return on funds employed (ROFE) for FY2013 of 4.7% is unacceptably low. Efforts are focused on improving margins through price and cost management as well as imposing strict evaluation over capital expenditure returns. The business objective is to return ROFE to above 10% within around five years. [Statement from FY 2012/13 management analysis, not reported half.]

    In this half the company reported an ROFE of 8.6%, up from 6.9% in the pcp, and part of an ongoing, steady improvement. In terms of individual divisions:

  • Construction materials and cement: 14.8% ROFE
  • Building parts: 9.5% ROFE
  • Gypsum: 8.5% ROFE
  • Boral USA: 2.4% ROFE
  • International markets

    The company reports a positive outlook on growth in the US residential building market, as well as multi-dwelling building and the alterations and additions market in Australia. In Asia, it sees growth in its South Korean markets, and a flat market in Indonesia.

    >}Boral presentation: geographic markets}

    Mr Kane offered some helpful descriptions of international markets in response to a question from an analyst:

    You've got Australia and Korea, gangbusters, strong markets. You've got Thailand and Indonesia, emerging markets that have been challenged recently with currency issues and adjusting to the strengthening of the US dollar. Indonesia in particular is most challenged because all their inputs are -- and supplies come in US dollars and their currency has taken a massive hit. So, we get a favourable translation from Indonesia, Thailand into the Australian dollar, it doesn't matter if it's been beaten up in terms of profitability because it's been buying its raw materials and inputs in US dollars.
    Now I'm not worried about Indonesia and Thailand. To me that's -- this is classic examples of stops and starts in Asian developing markets. It's been happening for 20 years. I still believe that the underlying story is 7% compounded annual growth over a 20 year period in these markets.

    Divisional performance

    All divisions reported positive growth results for the half.

    Construction materials and cement

    Revenue for this division fell by 8% to $149 billion, while EBIT rose by 6% to $159 million. Contributors to the EBIT rise included $4 million in damages paid by the Construction, Forestry, Mining and Energy Union for its alleged secondary boycott activities, as well as operational efficiencies.

    >}Boral construction materials and cement results 2015/16 H1}

    Building products

    Revenue for this division fell by 27% to $192 million, while EBIT rose by 15% to $17 million. The growth was driven by the performance of the company's brick making joint venture, strong roofing sales, while earnings from timber declined slightly.

    Boral Gypsum

    Both revenue and earnings climbed for this division. Revenue grew by 13% to $718 million, while EBIT increased 30% to $91 million. One of the main drivers of this division's success was its Sheetrock product, which achieved both volume and price gains in the market.

    In his opening remarks to investment analysts, Mr Kane commented that:

    We, in collaboration and working very closely with USG's technical people across all the board lines that we've converted, have been able to achieve something that we didn't expect to achieve in this joint venture and that is cost neutrality for the institution of the new technology at these plants. We have not increased our costs as we had expected to do when we initially entered into this joint venture. It's an extraordinary achievement of the manufacturing and technical people, mostly from USG.

    Boral USA

    This division turned around a negative EBIT of $8 million in the pcp to record a positive EBIT of $8 million in the reported half. Revenue rose by 28% to reach $512 million.

    Positives and negatives

    While results were overall good, the company did report some areas of ongoing concern.


  • Concrete earnings up
  • Quarries earnings stronger
  • Cement sales stronger in NSW
  • Cement prices overall higher
  • Boral CSR Bricks joint venture
  • Price increase for bricks and roofing products
  • Shift to higher-priced roofing products
  • Sheetrock products achieve 5% price premium
  • Sheetrock volumes in Australia up 12% with 5% price increase
  • Boral USA bricks prices up 1%
  • Boral USA roofing revenue up by 11% as volume increases by 11% and price growth of 1%
  • Negatives

  • Concrete has weaker volumes (2% decline due to LNG projects)
  • Quarries have lower volumes
  • Asphalt earnings weak in Queensland
  • Asphalt has lower volumes in Victoria and Western Australia
  • Timber earnings declined slightly
  • Understanding the transition

    Boral presented an interesting slide which illustrated how much of a transition year 2015/16 is for the company:

    >}From Boral: Road funding flow, Australia}

    This chart, based on data from Macromonitor, reveals a number of interesting features. One is the extent of work in road construction that will take place in NSW, with the combined NorthConnex and WestConnext project, along with Queensland's Bruce Highway upgrade, making up about 50% of the peak expenditure in 2018 and 2019.

    WestConnext transport project NorthConnex tunnel motorway Bruce Highway project Western Distributor, Victoria

    In his introductory remarks to the analysts presentation, Mr Kane said:

    We are in the middle of a transition period, currently feeling the impacts of a slowdown in major resource-based projects, but confident that the pipeline of major roads and infrastructure work that is coming later this year and more so in financial year 2017, we're well positioned to supply at least our fair share of that work.

    In answering a question from analyst Emily Smith of Deutsceh Bank on the development of the US market for Boral products, Mr Kane said:

    I looked at the results last night coming out of [US/Canada-based aggregates and building materials supplier] Martin Marietta, which were very positive about the materials market. I look to those guys because they lead me into what I can expect to see in housing results broad building products.
    I saw a similar result over here with [Australia's] CIMIC, Leighton's, this morning, confirming our view that in both markets we're seeing very positive signs for the immediate future and the long term.

    [CIMIC reported a 20% increase in profit on a continuing operations basis for its full year 2015, and has forecast continued growth in 2016.]

    Mr Kane responded to a further question from Ms Smith by explaining more about the effects of the transition directly on Boral, especially the cushioning nature of housing:

    The second thing you have to understand is as we move from mining and resource projects, a lot of these -- the only ones that we really got benefit from were the LNG projects which as you know contributed about 10% of our revenue during the peak of the LNG projects.
    That is clearly tailing off, but at the same time we've been buoyed by this housing phenomenon in the eastern states, which I'm grateful for, because there's a delay between the mining and resource falling off and the road, highway and infrastructure coming on which is really a 2017, 2018, 2019 phenomena.
    So, the air under our wings has been this housing, which is really a misnomer. It's not housing. It's apartments and high rise buildings. So that's why you see our construction materials division and our Gypsum division taking full advantage of this.
    Whereas our building products division has to struggle because they're just a detached housing story and that detached housing story hasn't been all that dramatic through this period in time.
    At the highest point of housing starts in recent history in Australia, the detached market is pretty punk.


    The extent of the low point that has occurred for 2014 and 2015 is quite marked. HNN believes that this is in part due not so much to reduced expectations caused by the global financial crisis (GFC) of 2008/9, but rather to an actual difficulty in planning itself. The GFC did not simply crash a number of forecast models, it altered the nature of forecasting itself in Australia.

    In the past, much of Australian urban planning has dealt with balancing the benefits of centralisation from a productivity standpoint with the advantages of decentralisation from a built environment and shared infrastructure standpoint. These new projects in NSW and Queensland mark a move away from these concerns towards the creation of Economic Development Zones which, instead of being encompassed by cities, encompass cities within them. As the "Project Overview" document for WestConnex from the NSW Government states:

    With another one million people calling Sydney home over the next 10 years, the M4 and M5 corridors will perform an even more important role in linking the Global Economic Corridor in Sydney's east with the growing population and new development areas across western and south western Sydney.

    In contrast, Victoria remains committed to a 1990s view of its planning as being about centralisation. It seems unlikely that this will be sustainable. What is more likely will be the emergence of a similar Economic Development Zone strategy post-2022, with a subsequent release of more public funds for road and infrastructure development.


    Weber buys more app-enabled brands

    iDevices sells its grill product business to Weber

    A growing number of iDevices products are available at Lowe's and The Home Depot

    Connected home device manufacturer, iDevices has entered into a definitive agreement to sell iGrill and Kitchen Thermometer to Weber-Stephens Products.

    Outdoor grills and grilling accessories maker Weber will continue to grow its line of connected cooking products. The line currently includes four app-enabled Bluetooth smart thermometers, including iGrill2, iGrillmini, Kitchen Thermometer and Kitchen Thermometermini as well as several accessory probes. Tom Koos, chief executive officer for Weber-Stephen Products said:

    Weber is a lifestyle brand, and we believe that by increasing the interactive nature of our products, we enhance the already amazing experience by grilling on a Weber. This is just our newest chapter in innovation, advancing us further into the way people integrate technology into their lives.

    iDevices will partner with Weber to release the next generation of the iGrill app, which is expected to be available in March 2016. Until then, iGrill and Kitchen Thermometer users will be able to continue using their product through the iDevices Connected app.

    Lianne Kersey, iDevices' marketing director, said the company will now focus on its connected-home products, the iDevices Switch, Outdoor Switch, Thermostat and four new products announced at the Consumer Electronics Show in January 2016 including Socket, Wall Switch, Dimmer Switch and Wall Outlet.

    This acquisition will really allow for iDevices to focus 100% of its efforts on home automation and our iDevices Connected app.

    iDevices was founded six years ago with the launch of iGrill as one of the first app-enabled products to hit the market.


    The "Amazon" of home improvement

    BuildDirect launches marketplace

    The retail site now features products from other sellers for customers to buy

    BuildDirect is an online marketplace for buying home improvement products. The Canadian company recently opened its platform to third-party sellers with the launch of its Home Marketplace.

    The online platform enables suppliers and manufacturers of home improvement products such as flooring, to sell through Through the marketplace, consumers have a wider selection of products -- the site has 7,000 SKUs and that's expected to grow this year. Sellers also can use BuildDirect's analytics as well as six warehouses in the United States to store inventory.

    BuildDirect's co-founder and CEO Jeff Booth and its VP of marketing Joe Thompson said in an interview with Techcrunch that the company spent the last few years perfecting its approach to how it ships its goods around the US and Canada. Not surprisingly, selling heavyweight products like flooring and roofing materials online takes a very different approach to logistics than selling books.

    While the Vancouver-based company can't use FedEx or UPS to ship its goods, it's still taking a page out of Amazon's playbook by using data analysis to predict demand and adjust pricing to manage it. Booth said:

    We are experts in shipping heavy-weight home improvement products and now we have opened up our technology to the industry. Sellers can get better information through our data, so they can remove costs from their supply chain and provide high quality products for less.

    Real-time data is available to sellers on the Home Marketplace seller dashboard, which shows customer demand for products and locations where products perform best, according to Booth.

    On the platform, BuildDirect provides projections of sales for each product, as well as an estimate of what the retailer could be making if it made adjustments. For example, a retailer using BuildDirect's warehouses on the east coast of America could shift to west coast facilities and reduce shipping costs if demand is stronger in the west.

    Booth said the percentage BuildDirect takes from each purchase on the marketplace varies based on the product category.

    BuildDirect began in 1999 selling home building materials and has expanded to categories including furniture, landscaping and outdoor products.

    Handling demand from customers has been a challenge for BuildDirect and it struggled to keep some items in stock. To some degree, that's a good problem to have for a retailer, but if it happens too often, it can also frustrate potential buyers and send them to Home Depot. However the online marketplace should help because the addition of products from other sellers gives customers more options, explains Booth.

    Through the marketplace, customers also have access to a virtual design tool that allows them to place flooring materials and appliances in a blueprint of a room. The tool is currently available only for bathrooms, but Booth said customers will be able to design kitchens on the site in April.

    In December 2014 BuildDirect raised USD50 million in Series C funding to invest in the technology for its Home Marketplace. To date, the company has raised USD112.21 million, according to Crunchbase.


    BuildDirect battles Lowe's and Home Depot - HNN

    Godfreys makes green acquisition

    Taps into commercial and consumer trend

    Stocking environmentally friendly products throughout its store network

    Vacuum cleaner specialists Godfreys have acquired a New Zealand company that supplies eco-friendly cleaning products. It comes at a time when businesses increasingly want offices cleaned with "green" products without the use of harsh chemicals, and home users are shifting towards a more environmentally friendly approach.

    Godfreys said it purchased The Service Company (TSC) for $2.5 million, and plans to roll out its range of environmentally friendly cleaning products across its retail network of 223 stores in Australia and New Zealand.

    Auckland-based TSC is owned by interests associated with its chief executive Ian Jemmett, who will continue to work for Godfreys. TSC's focus on chemicals and consumables fills a gap for the Australian firm, which has specialised in equipment sales.

    The acquisition is set to make inroads into the commercial cleaning market, which chairman Rod Walker believes is highly fragmented. Walker, a former managing director of the Freedom Furniture chain, said Godfreys is scaling up its commercial cleaning operations in a market segment worth about $500 million.

    The shift to "clean and green" in the vacuum cleaner and commercial cleaning sector has also been gathering momentum. Walker said:

    There is a growing trend towards environmentally friendly products and this will be a significant enhancement to our offering.

    Godfrey's results

    The company recently delivered its first-half results, which showed revenue had fallen 0.1% to $90.55 million in the six months ended December 25, 2015.

    Comparable store sales, which take out new store openings, were down 5.2%. Statutory net profit after tax was $3.6 million, down from $4.3 million. Underlying net profit after tax was 17% lower at $4.5 million, compared with $5.4 million a year earlier.

    The company announced a profit downgrade on January 13 which was caused by its failure to capitalise on the move towards stick vacuum cleaners. This led to the replacement of chief executive Tom Krulis, who stepped down to make way for former Woolworths executive Kathy Cocovski.

    Godfreys reaffirmed its new full-year profit forecast and expects an underlying net profit of between $8.5 million and $9.2 million.

    It plans to open four more stores by the end of June.


    Weber buys more app-enabled brands

    iDevices sells its grill product business to Weber

    A growing number of iDevices products are available at Lowe's and The Home Depot

    Connected home device manufacturer, iDevices has entered into a definitive agreement to sell iGrill and Kitchen Thermometer to Weber-Stephens Products.

    Outdoor grills and grilling accessories maker Weber will continue to grow its line of connected cooking products. The line currently includes four app-enabled Bluetooth smart thermometers, including iGrill2, iGrillmini, Kitchen Thermometer and Kitchen Thermometermini as well as several accessory probes. Tom Koos, chief executive officer for Weber-Stephen Products said:

    Weber is a lifestyle brand, and we believe that by increasing the interactive nature of our products, we enhance the already amazing experience by grilling on a Weber. This is just our newest chapter in innovation, advancing us further into the way people integrate technology into their lives.

    iDevices will partner with Weber to release the next generation of the iGrill app, which is expected to be available in March 2016. Until then, iGrill and Kitchen Thermometer users will be able to continue using their product through the iDevices Connected app.

    Lianne Kersey, iDevices' marketing director, said the company will now focus on its connected-home products, the iDevices Switch, Outdoor Switch, Thermostat and four new products announced at the Consumer Electronics Show in January 2016 including Socket, Wall Switch, Dimmer Switch and Wall Outlet.

    This acquisition will really allow for iDevices to focus 100% of its efforts on home automation and our iDevices Connected app.

    iDevices was founded six years ago with the launch of iGrill as one of the first app-enabled products to hit the market.


    ITW 2015 results show efficiency increase

    Revenue down, key metrics up

    Foreign currency transactions weigh down US company's results

    US manufacturer Illinois Tool Works (ITW) has reported its results for fourth quarter and full-year 2015. The results were largely positive, helped along by a 7% improvement in the construction products business in Asia-Pacific, led by Australia.

    Operating revenue for the 2015 year was USD13,405 million, down by 7.5% on the 2014 year revenue of USD14,484 million. For the fourth quarter alone, total revenue was USD3.3 billion, down by 6.5% on the previous corresponding period (pcp) revenue. Organic revenue declined by 0.6% for the quarter.

    >}ITW results for full-year 2015}

    Operating income for the 2015 fourth quarter was USD679 million, down by 1% on 2014. Net income was USD450 million, the same as for the 2014 fourth quarter.

    Net income for 2015 full-year was USD1899 million, down from USD2946 in 2014 -- the latter figure including a gain of USD1056 from discontinued operations. Absent that one-off factor, net income for the year was essentially flat as compared to 2014.

    Earnings per share (EPS), however, continued to improve for the company. Fourth quarter EPS came in at USD1.24, up 4% over fourth quarter for 2014. For the full year EPS came in at USD5.13. This was up by 10% over 2014. The company stated that, excluding the impact of currency transactions, EPS would have improved by 19%.

    As a company that concentrates very much on its operating performance, ITW was very pleased to see its operating margins improve substantially. In the fourth quarter 2015 this reached 20.7%, an increase of 1.1%. For full-year 2015, the operating margin came in at 21.4%, an increase of 1.5% over 2014.

    The company also reaffirmed its previous guidance for its 2016 year. This is for EPS to grow to between USD5.35 and USD5.55, an average increase of around 6% over 2015.

    Divisional performance


    For the fourth quarter ITW's North American operations revenue contracted by 1.6%. Consumer facing operations grew by 2%, but industrial-facing operations declined by 5.6%. The company suggested this was partly due to unusually high performance in sectors such as welding during the comparative fourth quarter of 2014.

    International operations recorded an increase of 0.6% for the fourth quarter, with consumer-facing revenue up 4.6%, and industrial-facing revenue slumping 5.7%. Chinese revenue fell by 0.4% for the quarter, while overall automotive OEM revenue increased by 14%.

    Operating margin

    Test & measurement/electronics, food equipment, construction products and specialty products all contributed strongly to growth in operating margin, while welding and automotive OEM both showed declines. Enterprise initiatives were the strongest source of growth in operating margin, while contraction in volume imposed a slight drag.

    Construction products

    Total fourth quarter revenue for ITW's construction division came in at USD378 million, down from USD402 million in the pcp. Organic revenue growth was 3%, ITW reports. Operating margin improved by 15.7% in 2014 to 19.9%, a boost of 4.2%. The Asia-Pacific region returned strong revenue growth of 7%, led by the residential construction and renovation market in Australia. North America grew by 2%, while the European market was essentially flat.

    >}ITW results for 2015Q4}

    Other divisions

    Fourth quarter results for ITW's other divisions are as follows:

    Automotive OEM had its total revenue decline from USD620 million to USD615 million, a fall of 1%. Organic revenue grew by 5%. Operating margin for the quarter fell by 0.3% to 22%.

    Test & measurement/electronics saw total revenue fall from USD541 million to USD500 million, an overall fall of 8%, while organic revenue fell by 3%. Operating margin improved by 3% to 18.1%.

    Food equipment reported a fall in revenue from USD554 million to USD532 million, a decline of 4%, while organic revenue climbed by 2%. Operating margin improved by 2.2% to 23.9%.

    Polymers and fluids reported a fall in total revenue from USD452 million to USD402 million, a loss of 11%, while organic revenue fell by 3%. Organic revenue in the Asia-Pacific region improved by 9%. Operating margin improved by 0.7% to reach 18.2%.

    Welding saw total revenues fall by 14%, from USD458 million to USD395 million. Organic revenues fell by 11%. Operating margin slipped by 2.9% to 22.5%.

    Specialty products had total revenue fall from USD482 million to USD458 million, a loss of 5%, while organic revenue remained flat. Operating margin, however, improved by 4%, reaching 23%.


    Houses that cost just US$20K

    Nothing to do with pre-fab

    Located in a desirable area and helps create jobs for builders and tradies

    For over a decade, architecture students at Rural Studio, Auburn University's design-build program in a tiny town in West Alabama, have worked on a nearly impossible problem. How do you design a home that someone living below the poverty line can afford, but that anyone would want - while also providing a living wage for the local construction team that builds it?

    After years of building prototypes, the team recently finished their first pilot project in the real world. Partnering with a commercial developer outside Atlanta, in a tiny community called Serenbe, they built two one-bedroom houses, with materials that cost just US$14,000 (AUD$19,604) each.

    The goal: To figure out how to bring the ultra-low-cost homes, called the 20K Home (AUD$28K), to the broader market. Rusty Smith, associate director of Rural Studio said:

    We're in a kind of experimental stage of the program, where we're really trying to find out the best practice of getting this house out into the public's hands. Really this first field test was to find out all the things that we didn't know, and to find out all of the kind of wrong assumptions that we had made, and find out how we had screwed up, honestly.

    Years of architecture students, and their advisors, have spent more than a hundred thousand hours tweaking each detail of the house to optimise both the function and the price. But the bigger challenge is fitting a house that's completely different than normal into the existing system of zoning, and codes, how contractors (tradies) do their jobs, and even mortgages. Smith explains:

    The houses are designed to appear to be sort of normative, but they're really high-performance little machines in every way. They're built more like airplanes than houses, which allows us to have them far exceed structural requirements ... We're using material much more efficiently. But the problem is your local code official doesn't understand that. They look at the documents, and the house is immediately denied a permit simply because the code officials didn't understand it.

    The foundation of the house, for example, uses cantilevers, seesaw-like joists that help save wood and concrete and actually make the house stronger than a typical foundation would. But the design isn't in the usual guides that code officials consult, so the architects had to go back and explain how it worked. Smith said:

    There's a thousand and one things in the houses that are like that. You'd never see them, the construction techniques, but the house is filled with them. Construction techniques that make the house not just less expensive, but actually makes it perform better than they normally would.

    To bring the house to everyone else who wants to build it, the team realised they would have to create a detailed guide that explained everything from how to build each piece - with Ikea-like instructions - to how to educate local officials. He said:

    A traditional construction set basically tells a builder what to build. And what we learned that we really need is what we've come to refer to as not a construction set, but an instruction set. That not just tells what to build, but specifically how to build it and even more important, why it should be built that way.

    In Serenbe, their first problem was a zoning issue: The houses were too small. (It's a common problem for anyone trying to build a tiny home.) But they also realised there were numerous other issues, from dealing with insurance, to the bank.

    In the pilot project, the homes will be owned by the community and shared with artists as part of a residency program. But in a typical case, when someone is buying the house on a limited income and can't afford the US$20,000, banks won't finance a mortgage for such a small amount of money.

    Regions Bank, which works with Rural Studio, told Smith that a mortgage for a US$100,000 house costs the bank about US$2,300. But a mortgage for a US$20,000 house also costs US$2,300. Smith said:

    There's a lack of scalability. There are these structural things you can only scale down so far.

    Now the bank has worked on their own design problem: a new mortgage product made for the poorest people to afford.

    The team is trying to address all of the issues the house faces at once. He said:

    The most daunting problems aren't brick and mortar problems, they're these network and system problems that are threaded together and all intersect in the built environment. We're able to attack all these problems simultaneously - when we see a lever over here and wiggle it, we can very clearly see the implication it has on other systems down the road.

    The houses also had to look good, despite the tiny budget. The development near Atlanta might at first seem like an unlikely place to build the pilot homes - it's a lush planned community that includes million-dollar houses. The architects partnered with the developer for several reasons, including their ability to keep going through seemingly impossible problems. But they also liked the idea of showcasing the homes in such a desirable area. Smith said:

    When was the last time you were driving down the street by an affordable housing project and you thought, 'Boy, I really wish I lived in one of those for myself'. The goal of 20K House is really to design a house that's affordable, that anybody could have - and that anybody would want.

    Once they have the full "instruction set" ready, the team wants to share it with anyone who wants to use it. He said:

    The ultimate goal of the project is to give it away.

    Originally, the project aimed for a house that would cost US$20,000 in total, including construction, though they now believe that more money may be needed to provide a living wage for builders.

    They've rejected the idea of using factory-made prefab parts (something that a related project in the area does), because one of the main goals is to also provide jobs. Still, whatever the final cost, it will be cheap. And if someone wants to put it together themselves, it would cost less than US$20,000. Smith said:

    We provide the information to you, so that if you wanted to sort of self-service the house yourself, it is a house that with the right set of instructions, anybody who wanted to could build it.

    Hills will maintain Masters royalty deal

    Guarantees annual minimum royalty payment

    Licencing deal is unaffected by Woolworths' exit from the home improvement market

    Hills will enforce an exclusive licensing deal for its Hills Hoist brand that it struck with Woolworths in late 2014. The company is now better known for its technology services but its portfolio of legacy brands includes the Hills Hoist clothesline.

    Hills signed a deal in December 2014 for Woolworths to take over the manufacturing, marketing and sales of more than 240 Hills products, including its iconic Hills clotheslines. The bulk of those items were to be sold through Masters and Home Timber & Hardware stores.

    After the company signed the 20-year distribution agreement, the Hills Hoist products were delisted from Bunnings.

    Under the agreement, Woolworths pays Hills a guaranteed minimum annual licence fee for at least the next seven years. This gives the supermarket group exclusive rights to the Hills brand both here and overseas on about 240 products including garden products, clotheslines and garden sprayers.

    But Woolworths' announcement that it would seek to sell or liquidate Masters could ruin Hills' distribution and sales expectations. If Masters and Home Timber & Hardware are sold, Woolworths will have less need for the Hills brand.

    Hills chief executive Grant Logan told The Australian that the decision to wind up the Masters and Home Timber & Hardware businesses would not impact Woolworths' obligations under its agreement.

    Logan said the contract ensured Woolworths would still have to make minimum royalty payments of about $2 million a year under their joint venture. He said:

    Woolworths takes the revenue for the products (they sell); our revenue is effectively the guaranteed royalty.

    He conceded Hills would benefit from sales driven by Woolworths in the future but this was "some distance out".

    A spokeswoman for Woolworths said the retailer was committed to the deal with Hills.

    Woolworths has said it will ensure we do the right thing by those we have agreements in place with, as we progress towards exiting from the home improvement JV.
    We will continue to be stock these products in Masters and Home Timber & Hardware throughout this process. It should be noted that Hills products are not exclusive to Woolworths group stores and are retailed through Mitre 10 and Bing Lee, among others.

    Logan said the royalty stream earned from the deal with Woolworths was tiny in comparison with its other business activities.


    Hills hitches its future with Woolies - HNN

    Sensors that find construction tools

    New technology can make it happen

    A US start up has developed software that can spot equipment instantly on a jobsite

    Time is money. And it adds up fast when there are big construction crews and subcontractors waiting around while other workers locate equipment and supplies to stage the next phase of a building project. But radio frequency location and the Internet of Things is quickly changing the game, from tracking material shipments to finding the keys for the bulldozer.

    And that's the niche market Primal Sensors, a startup from Dallas, is focused on. It has developed jobsite equipment tracking technology.

    Primal Sensors' three-person team has been working with RFID and beacon technology for a couple of years. Co-founder Jerry King said most of the innovations in construction have been focused on the pre-planning and designing sides of the business. Now, there's more focus on operations. He said:

    The construction industry itself has been adopting new technology over the last 10 years. It's kind of late to the game when it comes to developing more efficient processes. It's people-driven. It's a human experience. But it's not one that is so gung-ho about replacing people that it's adopting a ton of technology. But it's going there.

    Primal Sensors uses small, rugged sensors that users attach to equipment -- be it a jackhammer, a bulldozer or even an employee -- and at least three beacons placed throughout the construction site track them and provide data to the software platform. It's all battery-powered and lasts days without recharging.

    On a construction site, Primal Sensors' product would most likely be used to coordinate general contractors that manage the entire project and numerous subcontractors that come on to major sites for a few months to complete their phase of the work. The general contractor can take goods that come onto the site, tag them with a sensor and see where things are on a laptop screen. King explains:

    What they're getting is the transparency to see anything that's on site. Where are the pallets, where are the tools. They'll know where things are and be able to prepare for what's happening next week and be ready to go without wasting time.

    Primal Sensors is in discussions with several major construction companies, but it hasn't yet deployed for real-world testing. The business sells its service to companies on a subscription basis. It provides the hardware and software, and construction companies can move them from one site to another.

    Primal Sensors is also exploring integration with other construction tech companies, such as PlanGrid and Procore.

    Going forward, King hopes to explore the military market, which has huge needs for tracking equipment. He said:

    Disaster relief, military use, drill weekends, Air National Guard... those are large operations that need some help when it comes to the tracking of its stuff, people and other assets.


    PlanGrid, the construction app Procore, construction project management software

    Haymes Paint makes the transition

    Struggles along the way

    The 80-year-old family business has managed the changeover to a new generation of managers

    Reflecting on the past four years when his children were coming back into the family company, former Haymes Paint managing director David Haymes says it was jealousy and lack of communication that caused problems. He did not expect the one of the "lows" during his time in the business would be when he handed the company over to his children.

    David, whose father established the Ballarat-based business, never assumed his children would take over from him. Instead, in 2008 when he wanted to retire he considered all of his options, selling the company, bringing in professional management or continuing it as a family business.

    His three children, Matthew, Tim and Belinda, all had their own careers. But they decided to come back into the family company, triggering a four year period that could have sunk one of Australia's most successful homegrown paint companies. He told BRW:

    I assumed that because they had different skill sets they'd work together and it would all just work. But it didn't and that's because I didn't know how to communicate.

    David's son Tim, who is the commercial director of Haymes, says the lack of structure, family personalities colliding and the Haymes staff still seeing their father as boss resulted in turmoil.

    Improved communication between the Haymes siblings has resulted in strong business growth and a happier family environment. He said:

    There were a lot of fights. Our board meetings at the time consisted of us having raisin toast around the breakfast table. We were all trying to do the right thing...but with any business you need formal structure.

    It took attending a few Family Business Australia conferences for the family to start making the necessary reforms to let the business run smoothly. David said:

    You have to all get together and talk. Bring your sons, the wives of your sons, your daughters and get them all together and talk about the issues. If you don't you'll end up with broken hearts, sadness and grandkids that never see their grandparents.

    Matthew Haymes, who admits to be the most volatile one in the family, says his lightbulb moment came when he realised it wasn't about them, "it was about the 100 other families that worked in the business". He explained:

    We were all fairly self-interested and wanted to be heard. We all had our careers outside of Haymes and it took us years to work out what we were all good at and to respect one another.

    The siblings are now developing their sixth edition of the family constitution, and by having well-defined roles and a formal structure, the business is performing strongly.

    The company says it has grown its share of the architecture and exterior paint market from 2.5% to 7.5% in six and a half years, and it's revenue is growing at 15% per annum. Haymes Paint has 350 distributors nationally, 11 company owned stores and one store owned by a partnership. Tim said:

    Over the last 10 years we've innovated, filled gaps in our product, service and colour offerings. Traditionally we were in retail trade, but now we've tapped into commercial work, maintenance work for government buildings and schools, protective coatings and everything in between.

    Paint brand creates Colortopia exhibit

    Part of Walt Disney World Resort

    PPG's Glidden Paint has introduced a vibrant, interactive experience for visitors

    The Colortopia exhibit by Glidden Paint is located at Innoventions at Epcot which is part of Walt Disney World Resort in Orlando, Florida (USA). Colortopia is a show that lasts almost 30 minutes and works both as a visual treat and a dynamic experience.

    It is designed to help visitors explore the different aspects of colour and its impact on the world around them.

    The exhibit takes guests through three special zones where they come across interactions related to life colour theory. The first zone is the "The Power of Color" where guests can find out about the psychology of colour. After exiting this zone, visitors reach the "The Color Lab" where they can play colour games, creating their own hues. The third and last zone is "Color Our World" where visitors can enjoy playing with their own coloured shadows.

    This exhibit is also supported by the Colortopia mobile app and website which help users in several ways. While taking a tour at Epcot, users of the app can play a colour-matching game that responds to the illuminated walls of the pavilion itself. The app also brings Glidden Paint colour palettes, inspired by different countries, that guests can use in their own homes too.

    The app can match shades from a user's mobile or photos with the closest colours, with a simple click. These can be further used to colourise personal photos.

    The Glidden brand is a product line of PPG Architectural Coatings. Architectural coatings volumes fell by high single-digits in the third quarter of 2015 in the Americas and Asia Pacific as a result of weak regional demand in Canada.

    Sales volumes in EMEA (Europe, Middle East and Africa) were flat year over year. The company witnessed a modest rise in protective and marine coatings volumes in the quarter as gains in protective coatings were offset by weaker marine-related demand.

    PPG Industries delivered profit from continued operations (as reported) of US$433 million, up roughly 14.9% from US$377 million recorded a year ago. However, sales for the quarter were US$3,872 million, down around 1.6% year over year.


    Henkel is upbeat on earnings growth

    Adhesives sales rise 2.3% in the third quarter

    But it issued a more cautious full-year outlook for sales due to weaker growth in China

    Henkel posted a larger than expected increase in third-quarter profit as sales in North America and Russia more than offset continued weakness in its Chinese adhesives business. In a note to clients, Nomura analysts wrote:

    The company's third-quarter results are providing evidence of Henkel's often underestimated resilience stemming from the group's geographical diversification, strong pricing power and the ability to quickly adapt its cost structure.

    The maker of Loctite glue increased its third-quarter adjusted operating profit 12.3% to 778 million euros (US$836 million), beating an analyst average forecast of 748 million euros in a Reuters poll.

    Chief executive Kasper Rorsted said he expected the market environment to remain challenging but said whenever Henkel saw growth slowing, it was even stricter with cost control measures.

    The adhesives business increased sales on a like-for-like basis, and stripping out currency moves, by 2.3% after a 1.7% rise in the second quarter. This result was helped by higher prices. It has suffered from fierce price competition in packaging in the United States and slowing demand in China.

    The division contributes half of Henkel's sales, providing glues, sealants and coatings for food packaging, car production and electronics assembly. The United States and China are its biggest markets.

    While adhesives sales rose in North America in the three months through September, sales in China declined, mainly due to weakness in the automotive sector.

    The company now expects sales to rise by 3% this year, at the lower end of its previous 3% to 5% range. It believes slower economic growth in China will curb gains in its adhesive technology business.

    Henkel to buy Colgate-Palmolive's Australian laundry brands - International Business Times UK

    USG Boral shifts its focus to Asia Pacific

    President and CEO was in Seoul, Korea

    The company is looking to bolster its presence in the plasterboard market

    US-based building materials maker USG has expanded its business in the Asia Pacific region following the joint venture it formed with Australian firm Boral to strengthen its foothold in the plasterboard market. James Metcalf, USG Boral president and chief executive officer, recently visited Seoul to attend USG Boral's board of directors meeting. He said in a recent interview with The Korea Herald:

    Korea is our second-largest market and is one of the big elephants along with Australia, Thailand and Indonesia.

    USG Boral, a 50-50 joint venture formed in 2014, entered the building materials business with sales and operations across Asia, Australasia and the Middle East to grow earnings from the regions. It is also aiming to transform the business over the longer term through its product and manufacturing solutions which include ceilings, cement board, fibreboard and lightweight plasterboard.

    Metcalf, who spent his entire career at North America's largest gypsum maker, said USG Boral has a five-year capital plan of investment and facility expansion, as well as the transfer of technological know-how. He declined to disclose the exact amount of investment, citing confidentiality.

    Metcalf said the marriage between USG's building supply technologies and Boral's plasterboard distribution footprint in the Asian and Australian markets is expected to create greater synergies in the next decade. He said:

    I wouldn't be surprised if this part of the business becomes larger than what we have in North America in the next 10 years.

    Founded in 1901, USG pioneered plasterboard, sold under its trademarked brand name Sheetrock, and has been pursuing innovation as the firm's core value in a bid to improve the construction environment for more than 110 years. He said:

    We ranked among the top 10 innovative companies in the industrial material space, with more than 2,400 patents issued in the last decade and two weeks ago we presented 77 individual patent awards to employees covering 35 new patents.

    With the growing trend toward green building, USG Boral seeks to develop eco-friendly spaces and try different ways to have connectivity with technology. Metcalf said:

    Our products cover large spaces in rooms and buildings such as the walls, floor and ceiling. We try to come up with ideas for how to make your room a more comfortable and desirable place.

    ITW third quarter 2015 results

    Tough environment meets strong management

    Facing a solid comparative quarter and currency fluctuations, ITW turned in a workmanlike quarter with substantial margin improvements against soft markets

    ITW has released its results for its third quarter of 2015. Overall revenue declined to US$3,400 million, a drop of 9% over the previous corresponding period (pcp), which was third quarter 2014. The company faced tough markets, and the pcp was a period of relatively high earnings.

    However, earnings per share (EPS) increased to US$1.39, up by 9% over the previous corresponding period (pcp), which was third quarter 2014. The EPS increase would have been 18%, without the negative effect of changes in currency exchange rates. The gains in the EPS were attributed to ongoing changes to company structure and operations, which have continued to provide ITW with high efficiency benefits.

    Regionally, overall revenue in the Asia-Pacific (including Australia) fell by 4%, while revenue in North America fell by 2%. Revenue for the overall international market fell by 2%.

    ITW's chief financial officer, Michael M. Larsen, stated in his introductory remarks that ITW's expectations for the fourth quarter of 2015 are subdued. EPS is forecast to be between US$1.15 and US$1.25, with organic (non-acquisition) growth down by 1% or 2% over the fourth quarter of 2014.

    In comments at the results presentation to analysts, Mr Larsen portrayed the company as facing markets that were quite divided:

    When we look at our diverse business portfolio, it's a tale of two economies: industrial and consumer. We continue to see solid organic growth in our consumer-facing businesses, such as Automotive, Food Equipment, and parts of Specialty and Construction, which represents about 60% of our total revenues. In the quarter and year-to-date, these businesses are up 5% organically, so 60% of the company is growing at 5% in a tough environment. On the other hand, our industrial-facing businesses, like Welding, Test & Measurement/Electronics, declined in the high single digits organic.

    >}Operating margin}


    Operating margin in construction overall improved by 4.2%. Mr Larsen broke down the results for the analysts as follows:

    Construction Products had another good quarter on the top line with organic revenue growth of 4%. North America, which is about 40% of this segment, was up 7%, due to continued positive momentum in the renovation/remodel hard and, to some extent, commercial. Europe was down 2% as we continue to focus on PLS and restructuring, activities that in the near term position the business for accelerated organic revenue growth with much improved margin performance. Asia Pacific increased 5%, with strong performance once again in Australia. Operating margin came in at a record 23.1%, an impressive 420 basis points of improvement.

    In response to an analyst's question, Mr Larsen went into more detail about ITW's performance in construction:

    I mean, I think the Construction team has been working for the last two and a half years on implementing BSS in Sourcing and you're seeing some terrific progress. If you had told that team two years ago margins are going to be solidly in the low to mid 20 percentages, I think everybody would have signed up for those types of margins.
    So just on Construction, specifically, what you saw in the quarter, North America, up 7%, really led by renovation/remodel, up double-digit. So again, back to the consumer-oriented, consumer-facing businesses, residential was flat to down slightly in the quarter, and commercial was up slightly; but really the big driver here was on the renovation and remodel side.
    And just quickly globally, Europe, the focus there is still very much on restructuring; so quite a bit of PLS, again, in the quarter. France was actually positive. You don't hear those two words combined too often, France and growth; but France was positive. And then, in Asia Pacific, Australia, another really solid performance, up 5% in the Construction business.

    >}ITW presentation slide 10 (extract): Construction}

    Other company segments

    Automotive OEM

    Total revenues fell from US$631 million to US$612 million, while organic revenue growth was 5%. The growth came from innovations, according to ITW, and better product penetration, as the worldwide industry continued with effectively flat results. Operating margin improved by 2%.

    Test & measurement/electronics

    Total revenue fell from $US586 million in the pcp to US$490 million, with organic revenue also declining by 11%. This was in part due to a solid performance in the comparative pcp, and weaker demand for capital equipment. Operating margin declined by 2.1%.

    Food equipment

    Total revenue declined by 4%, but organic revenue improved by 3%. The increase was driven by the introduction of new products. North America improved by 6%, with equipment up 8% and service up 4%. Operating margin improved by 3.2%.

    Polymers and fluids

    Total revenue was down 14% and organic revenue was off 3%. A soft market in Europe and a decline in demand for offshore wind projects contributed to the reduction. Operating margin declined 1.2%.


    Total revenue fell by 14%, and organic revenue fell by 10%. International was down 17% as markets softened in both Europe and China. Operating margin declined 1.4%.

    Specialty products

    Total revenue fell by 7%, while organic revenue remained flat. Operating margin improved by 2.7%.


    CSR results for first half FY 2015-16

    Strong growth, good prospects

    Housing completions promise a further solid two years

    Australian building products company CSR has reported strong results for the first half of its FY 2015/16. The company stated that these results were the best for a first half in seven years, on a like-for-like basis.

    Overall trading revenue grew by 14% to $1155.5 million. Before significant items, earnings before interest and taxation (EBIT) grew by 31% to $149.3 million, net profit after taxation (NPAT) was up 32% to $92.4 million, and earnings per share (EPS) rose by 32% to $0.183. After significant items, NPAT rose 13% to $77.6 million.

    Significant items included transaction costs for a joint venture formed with Boral to produce bricks.

    >}CSR results first half of 2015/16}

    CSR consists of four main divisions: building products; Viridian, which makes glass; aluminium; and property. Two of the company's strongest divisions were building products, which saw a 42% increase in its EBIT to $89.9 million, and aluminium, where EBIT rose by 32% to reach $54.7 million.

    The company attributed much of its success to increased activity in residential construction, and better EBIT margins in divisions such as building products, due to higher prices. Higher prices of aluminium and gains in property investment also boosted the results.

    The new brick making joint venture with Boral contributed 5% to the half's growth, the company stated. The brick making joint venture is to be branded as "PGH Bricks".

    Capital expenditure (CapEx) for the half was $32 million (excluding property and mergers/acquisition activity). Investments included the AFS Rediwall factory and the development of the Viridian commercial double glazing product.

    Outlining his forecast for CSR during the presentation of the results to analysts, the company's managing director, Rob Sindel, said:

    We expect group net profit after tax pre-significant items will be higher than the previous financial year and toward the upper end of the current analysts range of $128 million to $162 million.


    In analysing the market for CSR's products, Mr Sindel suggested that the most critical figure to focus was that for dwelling completions, as measured by building statistics from the Australian Bureau of Statistics (ABS).

    Mr Sindel began by outlining where the construction market was in terms of approvals for private dwellings:

    Detached approvals are up - continue to improve - they're up a couple of per cent in the numbers that came out on Monday. Multi-residential approvals are up over 30% on the same quarter last year. So you're still seeing multi-residentials increase. For the 12 months to September total approvals were over 230,000 housing starts. This implied an annual commencement rate of 215,000 after allowing for drop-outs.

    He then contrasted this number with the lower numbers for completions:

    What you're seeing is completions are only 185,000 dwellings over the same period. Most of that is obviously multi-residential, but you've also got a significant lag effect here in New South Wales. It's completions that are ultimately the guide of demand for our product. There is no reason why completions will fall below current levels any time soon in our view. This is a very good story for CSR.

    The completion numbers Mr Sindel is using are likely those provided by ABS 8752.0 Building Activity, Australia: TABLE 37. Number of Dwelling Unit Completions by Sector, Australia. The figure Mr Sindel seems to be referring to is in column D of that table: Dwelling units completed; Private Sector. These totalled 185,588 for the 12 months to September 2015.

    The following is a graph of those numbers, 12 months to September, for the previous five years:

    >}ABS: Building completions, private residential, 12m to Sept by year}

    The analyst Michael Ward, Commonwealth Bank of Australia, asked him if he was basically forecasting no further growth. Mr Sindel replied:

    I think the key was the completions piece. It really tops out the market at about 185,000. Not because of constraints around product, it's generally constraints about labour, land and the ability to build. So we think this 185,000 number is the key that people should be looking at. Take the approvals over the last couple of years, project forward the approvals for the next few years -- it might go up a couple of per cent, but it moves around a lot. Some product categories might go up 3% or 4%, others might be slightly off. But we think the key message is, this is going to run for longer than people expect.

    Mr Sindel further confirmed his faith that these completions numbers would be stable for at least a couple of years:

    We don't think building approvals will stay at 230,000 for the next three years. We would concur with what commentators are saying, the multi-res clearly has really run in the last 12 months and obvious reasons for that. But what we're saying is completions though of 185,000, you can see 2016, 2017 and potentially a little bit past that, those sort of numbers continuing.

    The analyst Peter Steyn of the Macquarie Group asked about the increased risk in multi-residential construction. Mr Sindel replied:

    I think your question Peter is, do we expect a whole lot of defaults in multi-res it's the value of the product - we're not seeing it. I looked at Lend Lease's comments, I looked at Mirvac's comments; they're not seeing it. If you look at - if you talk to Meriton, Meriton will build 7000 apartments this year. They don't see any risk in terms of - some of the more speculative development there may be an issue. But the population growth in New South Wales and particularly Victoria continues. It'll come off, but it'll come off - in terms of the 30% approvals increase in multi-residential, a lot of that won't be finished for two-and-a-half years. Is the risk - has the risk gone up? Potentially. Are we seeing it? No.

    :Building products

    CSR is predicting that demand will remain at its current quite high level for the medium term (two to three years). As a consequence the company is expecting year-on-year earnings growth.

    Viridian (glass)

    Viridian is expected to return better earnings in the second half of FY 2015/16. CSR intends to maintain modest investment in the company to ensure it continues to grow.


    The volume of aluminium is expected to increase by 3% for FY 2015/16 as contrasted with FY 2014/15. CSR states that 70% of its aluminium exposure is hedged for the remaining half of the current year.


    For FY 2015/16 the property division is expected to return EBIT of between $20 million and $25 million, above the previous maximum estimate of $20 million. CSR pointed to the sale of its New Lynn assets as a driver of this, along with the settlements related to the previous sale of Chirnside Part assets.

    Comments on building products

    The most interesting comment about building comments came in response to a question by the analyst Keith Chau of JP Morgan. Mr Chau asked about the development of additional plasterboard capacity in Queensland by a CSR competitor (most likely Knauf Plasterboard, which has built capacity at Bundaberg). Mr Chau asked if CSR was moving to counter this competitive threat.

    Mr Sindel replied:

    What are we doing is we actually have spent a lot of time, years, owning the customer. What that means is the significant investment in our Gyprock trade centres, in our retail channel, is an investment in our brand. Those of you who watch The Block would see it. Those things are all about owning the customer and the key to that has really played out in the last couple of years.
    It's actually a little bit more expensive because you've actually end up with a footprint of additional stores and capability. But it's really a protection against the retail channel being owned by somebody else....
    You've got to be as close to the market as you possibly can. We all know that north Queensland, a bit like WA, is a market that's driven by commodity prices, particularly coal and copper and nickel smelters in Townsville. I think that north Queensland market is one that's a little bit challenged. You can see the growth in the south-east Queensland market. I'd want to have my facilities as close to that market as I possibly can.
    Having said that, they'll make their own decisions. We'll bulletproof ourselves by owning the customer.

    Mr Sindel further elaborated on this strategy a little later:

    You can lock in volumes with big builders or whatever. But it's really about the more subtle issues around routes to market. The strategy you've got. How you invest in your brand and how you - what sort of relationship, much deeper relationship you have with the customer.

    Comments on Viridian

    The analyst David Leitch of UBS did ask why, as Viridian was reliant on housing, and housing was doing well, the results - especially in terms of volume - were not better. Mr Sindel replied:

    I think in terms of the home comfort business, we are a little disappointed about our volume growth there. The issue there is not about selling 3mm glass though. It's converting that market to double glazing. So I think the team would be a little bit disappointed.

    The company CFO, Greg Barnes, added a comment:

    Look, I wouldn't underestimate the Viridian result there, given what that business has been through in the last couple of years. I would emphasise that $3 million in the half of long term investment that sits in that P&L, what you are seeing as a business has really gone from $500,000 first half last year to underlying around $450,000 to $500,000. I hear you on volume. But I think longer term what we're doing is repositioning this business and feel we're very much on track.

    Kiwi tech in US home improvement market

    ikeGPS working with Stanley and Lowe's

    Listed New Zealand company ikeGPS will be driving a new Stanley measuring product

    Technology developed in New Zealand is set to make an impact in the US construction and DIY markets, thanks to relationships between NZX-listed ikeGPS and two US Fortune 500 companies.

    Smartphone measurement technology created by ikeGPS is powering the new Stanley Smart Measure Pro product, which is being sold through Lowe's and the Stanley Tools website.

    Smart Measure Pro users can take measurements from images using their smartphone and the Smart Measure Pro mobile app. Users can also view, edit, export and map images from their desktop.

    ikeGPS CEO Glenn Milnes said working with two of the best known brand names in the home improvement and retail business creates tremendous opportunities for future hardware and mobile app sales. It will also drive increased subscriptions to its cloud-based software services.

    Milnes said the launch order alone of the Smart Measure Pro product will generate approximately NZ$2.5 million in revenue during the current financial year, compared with forecast revenues from sales to other manufacturers of NZ$1.4 million. He said:

    Increasing sales will also generate ongoing subscription revenue, and create a platform for further potential growth in the US and in other markets, particularly Europe and the Asia-Pacific region.
    While this is only a pilot launch, we are very focused on making it a success and building on the opportunities arising from it.

    Milnes said the Smart Measure Pro is based entirely on ikeGPS intellectual property. He explains:

    ikeGPS manufactures and delivers the hardware units, builds and delivers the smartphone app into Apple App stores and Google Play stores, and hosts the cloud-based software and subscription product.
    The Smart Measure Pro is another significant step in ikeGPS' strategy to deliver high volume mobile hardware and mobile apps, and, on the back of this, to provide high value subscription software products to end users via our cloud-based measurement platform.

    The hardware unit and smartphone app is expected to retail in the US for US$149; an annual subscription to the cloud software service will cost US$119.


    Henkel to cut 1,200 jobs in adhesives

    Due to slowdown in China demand

    The company is also partnering with a moulding equipment manufacturer

    Henkel, maker of Loctite glue and other consumer products, said it plans to cut 1,200 jobs worldwide in its adhesives division, accelerating its cost savings program in response to a tough market environment.

    A genuine leader in adhesives, sealants and coatings for industrial customers and consumers missed expectations for sales growth in the second quarter, mainly due to a slowdown in its adhesives business in North America and China.

    The United States and China are Henkel's biggest markets for adhesives, which include its Loctite and Pattex brands. The division accounts for half of group sales and employs around 27,000 people, more than half of group staff.

    German weekly WirtschaftsWoche reported on the planned job cuts, saying 500 to 600 jobs would be cut in the Asia-Pacific region, especially in China, and 200 jobs in North America.

    Henkel, which has been boosting its presence in emerging markets to accelerate growth, operates one of the world's largest adhesives factories in Shanghai which opened in 2013.

    It is building another site in India that is expected to start production in 2017 with around 500 employees.

    Back in August Henkel said that the Loctite glue business, which is traditionally its most profitable, was facing mounting pricing pressure. China's industrial slowdown meant that demand for Henkel's glues grew less than 5%.


    In a move reportedly designed to offer customers greater access to low pressure moulding solutions and its TECHNOMELT materials, Henkel Adhesive Technologies has formed a partnership with moulding equipment manufacturer LPMS USA. Art Ackerman, Henkel global product manager said:

    Henkel's new relationship with LPMS USA is a very important development for our Americas-based customers. The company's global leadership, in-depth understanding of mould design, broad equipment portfolio and low pressure moulding expertise make LPMS USA a very competent partner.

    The low pressure moulding process is an alternative to traditional potting techniques. Leveraging the capabilities of Henkel's TECHNOMELT polyamide hotmelt products, LPMS USA systems process the materials in a simple operation that melts, moulds, and cools the TECHNOMELT materials around electronic devices to encapsulate them and form self-enclosed, functional assemblies.

    Because the low pressure moulding process is lower stress compared to traditional injection moulding, it has reportedly been successfully used in multiple applications including automotive, LED lighting, medical, wearables and household consumer products.


    Fastenal's small jump in profit

    Gets new CEO, an internal hire

    Third leadership change in a year as the company reports a 2.4% profit increase

    US-based industrial fasteners and equipment distributor, Fastenal's third quarter profit rose 2.4%, as it announced a new chief executive who will take charge after a management shake-up.

    Its third-quarter profit was US$136 million in line with analysts' expectations. Sales rose 1.5% to US$995 million, which was shy of analysts' forecasts of US$1.01 billion.

    The company said fastener and supply sales slowed this year as manufacturing and construction customers wrestled with setbacks in the oil and gas sector and with the high US dollar, which has hurt exports.

    During the quarter, Fastenal increased its sales force by 5% and installed 4,689 industrial vending machines in factories. It plans to open 60 to 75 new stores while closing about 20 others.

    Fastenal is closing stores in areas where it has two in proximity. The openings tend to be in places where it serves large national customers.

    Daniel Florness, Fastenal's chief financial officer since 1996, will become president and CEO effective at the start of 2016. He will succeed Willard Oberton, the former CEO who returned to lead the company after the surprise move in which Leland Hein stepped down from the top job after just a few months to become Fastenal's chief operating officer.

    Oberton had been CEO from 2002 through last year. He will continue to be chairman after Florness takes over the day-to-day running of the company.

    Fasteners acquisition

    Fastenal also announced it has agreed to acquire specific assets of Fasteners Inc., a regional and construction supply distributor in the US with locations in Washington, Idaho, Oregon, and Montana. The transaction is expected to close by the end of October.

    Founded in 1961, Fasteners Inc. sells a broad range of industrial supplies in addition to its focus on fastener products. It's presence includes 13 store locations, and the company anticipates 2015 revenue of approximately US$36 million.


    Online home services market grows in US

    Facebook enters field

    Thumbtack now valued at US$1.3 billion, and makes use of Facebook Messenger and texting to make service ordering easier

    The US market for websites that hook up homeowners with trades and services continues to grow and innovate. The Seattle, Washington-based has done some hooking up of its own, with Facebook and standard texting, to enable "Text-a-Pro".

    Meanwhile, San Francisco startup Thumbtack, which describes itself as like a "dating service" for clients with needs and service providers, has received US$125 million in funding, setting the company's value at around US$1.3 billion.

    Texting for help

    Facebook launched its "Businesses on Messenger" service in March 2015. Initially this service was envisioned as providing additional services to standard e-commerce sites. According to Facebook:

    Businesses on Messenger enables things like the following: during the checkout flow on a business's site, a person can choose to start a conversation with a business, receive updates from that business on things like order confirmations and shipping status updates, and ask the business free-form questions about the order, receiving quick responses. is taking these services one step further. Either through Facebook Messenger, or simply by texting to 776-776, clients can connect to a "home project manager" at This manager can help answer questions about a range of projects, helping customers find the right supplier for the services they need. The Facebook link adds other facilities, such as being able to set up appointments by texting through messages to

    The core feature of the service is that many home services will be offered on a flat-rate basis, so that customers will know instantly how much they will cost, without the need to go through a lengthy and bothersome quoting process. founder and CEO Matt Williams sees this as an issue of transparency.

    We're bringing transparency back to the consumer with Text-A-Pro and our greatest challenge moving forward is to continue to simplify finding a good contractor.

    Investors buy into Thumbtack

    While concentrates on home improvement task, Thumbtack helps to link customers to a broader range of services, including painting, house-cleaning and even dog-walking. It works strictly as a referral service, charges from US$3 to US$20 to provide details of potential customers to professionals who have signed up to the service.

    It is a service that has proved popular. Currently the site helps to set up over five million projects a year, with an average value of US$500 each. Its books carry listings by over 200,000 professionals across a wide range of capabilities.

    Investors such as venture capital firm Sequoia see Thumbtack as tapping into a very large potential market. Sequoia partner Bryan Schreier believes it has potential that is similar to that of Google.

    There was a ton of information online, but it took Google to actually make that information useful and make it easier to connect consumers with what they were looking for. This is a similar approach to solving a very big problem. Thumbtack is a very large business already, when the reality is that they are tapping less than 1% of the available market today.


    Neither one of these companies is, of course, immune from competition. Along with a wide range of smaller players, some very large companies, including the e-commerce leader Amazon and Google itself, have entered into this market.

    US home improvement stores are also not far behind. Home Depot's Red Beacon service, for example, offers similar connections to professional contractors to help homeowners get jobs done.

    One major advantage that these other services offer is a thorough pre-screening of the professionals who are available for contracting. Thumbtack relies instead on a rating and recommendation system, but leaves the onus for securing a good professional on the customer.

    Lowe's reveals US$28m funding of - HNN Amazon launches at-home repair/installation services - HNN Increased investment in - HNN

    Name change for Hanson

    Company renamed as Forterra

    The new name Forterra - giving form (For-) to the earth (-terra) - is effective immediately

    Brick producer Hanson Building Products has changed its company name to Forterra, following a recent divestment by former owners HeidelbergCement.

    The rebranding brings with it a new logo and a fresh identity to the established business, which has a trading history spanning back several decades. However its wide selection of products and services will be unchanged, according to the company.

    Forterra, which operates in North America and the United Kingdom, makes concrete and clay building products, including clay bricks, Thermalite blocks, aggregate blocks, Red Bank chimney, roofing and flue systems, precast concrete, Jetfloor and Formpave permeable paving.

    Structherm, the subsidiary specialising in external wall insulation, is unaffected by this rebranding.

    HeidelbergCement sold Hanson Building Products to a US affiliate of Lone Star Funds for GBP 900 million earlier this year.

    Forterra employs close to 5,000 people, including 1,600 in the UK across 18 manufacturing facilities. UK managing director Stephen Harrison said:

    The Hanson name and logo may have been replaced by Forterra but this is a change of branding only. We remain committed to the excellence and integrity recognised by our customers and the construction industry in general, and we want to use this rebranding to reinforce our values.

    These changes only apply to Hanson Building Products - Hanson Cement, Hanson Quarry Products and Hanson Contracting will all continue to be part of Hanson UK, which remains within the HeidelbergCement Group. There is no longer any connection between Hanson UK and Forterra.

    Hanson Building acquires concrete company - HNN

    Newell Rubbermaid to purchase Elmer's

    Acquisition is valued at US$600m

    The company also plans to divest its window coverings business

    Newell Rubbermaid has agreed to acquire Elmer's Products, from Berwind Corporation, a family-owned investment management company, for a purchase price of US$600 million.

    The acquired business will be part of Newell Rubbermaid's writing business with Elmer's, X-Acto and Krazy Glue joining the company's Paper Mate, Sharpie, and Mr. Sketch brands. Elmer's net sales for 2015 are projected to be about US$240 million, according to Newell.

    The company will leverage its brand building, design and innovation capabilities to accelerate Elmer's growth while delivering synergies in distribution, cross-selling and merchandising.

    The acquisition is expected to be financed through a combination of available liquidity and debt financings. The company anticipates the transaction closing by year end, subject to customary conditions and regulatory approvals.

    Newell said the deal is expected to close this year and add to adjusted earnings and operating margin in 2016.

    Decor business

    Newell also said it would divest its Levolor and Kirsch window coverings brands from its decor business. This business is expected to generate approximately US$310 million in net sales in 2015.

    Levolor and Kirsch will continue to be reported as part of Newell's home solutions unit and will be managed as a stand-alone business through this process.

    The company reiterated its full-year 2015 profit and revenue forecasts as it expects no impact related to either the Elmer's acquisition or the planned decor divestment.


    JELD-WEN buys Californian door maker

    LaCantina is an award-winning door systems manufacturer

    The purchase of LaCantina marks the fourth acquisition for JELD-WEN in 2015

    A period of extensive growth for JELD-WEN is continuing with the announcement that the company has acquired LaCantina Doors, a manufacturer of folding and multislide door systems based in Oceanside, California. Terms of the acquisition were not disclosed.

    The acquisition demonstrates JELD-WEN's commitment to aggressive growth through acquisition. Colin Shaffner, JELD-WEN senior vice president of windows, said:

    With the booming popularity of folding and multislide door systems, the acquisition gives us additional resources, capacity and a leading brand in this growing segment of the market. It's a great fit with our mission to continue to push design innovation and offer best-in-class products to our customers not only in North America, but worldwide.

    Since 2003, LaCantina has built a reputation for creating award-winning door system solutions for both residential and commercial markets. The company was named one of San Diego's fastest-growing private companies in 2015 by the San Diego Business Journal. Matt Power, LaCantina's co-founder said:

    LaCantina Doors' partnership with JELD-WEN is a fantastic opportunity for us to create greater value for all our customers and employees. I am excited to join the JELD-WEN team and to continue to lead the market with our brands.

    The latest acquisition expands JELD-WEN's position in the US as well as internationally. Most recently, it acquired Karona, a stile and rail wood door manufacturer based in Michigan. The company also took over Dooria, a provider of residential and commercial wood doors in the Swedish and Norwegian markets, and Aneeta, a manufacturer of sashless window systems in Australia.

    JELD-WEN acquires Australian window company - HNN

    GWA Group FY 2014-15 full year results

    Quick, courageous shift

    GWA Group has divested businesses and tightened its focus to two main areas

    Australian building fixtures and fittings company GWA Group has released its results for FY 2014/15.

    As with several companies in the home improvement industry, the results for GWA are something of a tale of two companies. During the 2014/15 financial year it divested three divisional operations, and re-focused its operations out of manufacturing.

    The divisions divested were Brivis Climate Systems, the Dux Hot Water business, and Gliderol Garage Doors.

    Brivis Climate Systems was sold to Japanese company Rinnai for $49 million. The sale was announced in December 2014, and finalised in early February 2015.

    Dux Hot Water was sold to Japanese company Noritz Corporation for $46 million. The sale was announced in November 2014.

    Gliderol Garage Doors was sold to Reliance Doors in July 2015 for $7 million. GWA purchased Gliderol for $42 million in 2010.

    In addition to these changes, GWA has also closed a number of manufacturing facilities, and will instead rely on the importation of product for its bathroom and kitchen operations from low-cost production regions, such as China. The closure of its manufacturing facilities at Wetherill Park, New South Wales and Norword in South Australia resulted in GWA incurring a one-off restructuring charge of $39.3 million.

    To further add complexity to this time of transition, GWA is set to lose two of its long-term executives. Les Patterson, the chief executive of GWA's bathrooms and kitchens business has left as of 30 June 2015, after 11 years with the company. GWA's well-respected CEO, Peter Crowley, will retire as GWA Group managing director on 30 June 2016.

    Mr Crowley's replacement has already been located and hired. He is Tim Salt, whose previous position since 2008 was as managing director of Diageo Australia and New Zealand, a beverage company.

    Mr Salt joined the GWA Group on 7 September 2015 as executive general manager of GWA's bathrooms and kitchens business. He will replace Mr Crowley as managing director on 1 July 2016. Mr Salt has a background with US-based Pepsico and Australia's Lion Nathan.

    In addition, the company appointed a new chief financial officer, Patrick Gibson, in April 2015.

    Thus not only has the FY 2014/15 been something of a transition year for the company, but FY 2015/16 is set to be another transitional year as well.


    To accommodate this, HNN is presenting two sets of numbers for the company. The first set of numbers relates to its statutory performance, that is, including both continuing and discontinued operations.

    >}GWA Group consolidated reported results for FY 2014/15}

    The second set of numbers reflects results for continuing operations.

    >}GWA Group continuing operations for FY 2014/15}


    While the company is overtly optimistic about its future, the reported numbers provide some cause for concern. In particular, the doors and access systems part of the business seems to have increased sales, but its EBIT has not kept pace. This is partially explained for FY 2014/15 by a one-off increase in stock provision for its Gainsborough business.

    >}GWA Group revenue and normalised EBIT}

    In answer to an analyst's question during the presentation of the results, Mr Crowley defined a rough share of the markets in which the company competes.

    In terms of the demand drivers of our business, as I've said we're of the view that commercial activity is about 12.5% of their our business. The real driver of the business is what we call the replacement and renovation market which ranges somewhere between 50% to 55% of demand for our products and the remaining number is what I would call the dwelling well in construction which can be split between detached houses and medium density and high rise. That runs at around 33% to 35% of demand for our product.

    In regards to the above, the company has commented that it has seen a lag in demand, which it partly puts down to demand for its products as being heaviest during the completion stage of dwelling construction, the "final fix". However, other commentators believe that GWA's market share has been eroded significantly, and that even if sales do pick up in the near future, they will still lag past performance.

    GWA sees the statistics around new dwelling activity to be very encouraging. In its presentation to analysts it supplied this slide, based on statistics from analyst firm BIS Shrapnel:

    >}New Dwelling Activity - 12-month moving annual}

    Mr Crowley discussed some of this expectations for the housing market in response to a question from an analyst at the results briefing:

    Certainly that market [renovation] has been positively anaemic for some time. It hasn't seemed to rebound and I think we all would have thought with rising house prices [it would have]. But I might add that I think we're all aware that the real driver of the rising national rising house prices has primarily been Sydney. And Melbourne. Queensland has been much lower and the other states are much lower so probably more a Sydney/Melbourne thing.
    But the renovation activity has not been that strong. I would expect that over the coming years we could expect to see that improve; there's a view that about every fifteen years or so houses need to be done up. The last big construction boom was in the early 2000s, so probably a lot of those houses that were built then are coming up to a freshen up time. So I have a view that 2017 to 2018 onwards, we actually might see some reasonably good activity on that front but it certainly in the last year or two has been pretty ordinary.

    The company presents itself as being very interested in innovations, with plans for a number of new products that it hopes will boost its market share. In response to an analyst's question at the results presentation, Mr Crowley provided some detail to these plans.

    I think there's some really good opportunities for us in terms of new product development and innovation around products, around digital. That's where we see a significant opportunity and that's where we are really giving our focus.
    There's quite a lot of new things coming through the line. What we've got coming on pretty much as we speak is a lot of new taps. I mentioned earlier we saw tapware as an area where we can get growth and we have a range of new product. Really more product styles, to be honest with you, than new technology coming through in the tapware area.
    If we go into the other parts of the bathrooms and kitchens business we have a range of new ceramic products and I don't really want to get into much more than that, other than that they are in regards to toilets.
    But we see some new, broader bathroom solutions that ... I probably still a little ways off but will need some investment to support.
    The other thing is we're continuing to invest around digital strategies to reach more and more of the decision makers in our target markets, and finding how we how we can engage digitally with decision makers.

    In terms of general markets, Mr Crowley also sees the commercial market as a good source of revenue:

    Just addressing your question about the non-residential market. I'm actually quite optimistic that we will see some growth in that sector. Our commercial order books are at record levels. We've got a couple of very big projects coming through particularly around Sydney as you might expect. And I'm certainly very confident given the order books we have and the work we're quoting that we will see upswing and activity in the non-residential sector.

    Bathrooms and kitchens

    GWA is responsible for the following brands:

    Owned brands

  • Caroma
  • Dorf
  • Fowler
  • Stylus
  • Clark
  • Distributed

  • Hansa
  • Schnell
  • EMCO
  • Virtu
  • Sanitron
  • Products and markets

    GWA's Caroma brand has a fine history of innovation. It introduced one of the first two-button dual flush toilet systems in 1982, and also developed lower-capacity effective flushing mechanisms, such as Smartflush. It was also the first company to gain a Water Efficiency Labelling and Standard (WELS) rating of 5 for a toilet suite, and the first to gain a WELS rating of 6 for a urinal.

    Its primary markets are renovations, new residential dwellings, replacement systems and commercial usage. During the results presentation in response to a question from an analyst, GWA's chief financial officer Patrick Gibson, offered some information about the relative market share of products in this division:

    Sanitaryware is obviously the largest segment. That's probably roughly about two-thirds of the of the business. The next largest then is tapware. Which obviously grew here. I think that our net sales are just under 8%. And then kitchen/laundry and bath/spas, which are relatively small in terms of volume and revenue.

    Mr Crowley followed up these remarks:

    We talk about baths and spas. Baths as a product category seems to be in decline. Particularly with the move towards more apartments so that seems to be a declining and pretty small market to be honest with you. Kitchen and laundry, what we're talking about there is kitchen sinks and laundry tubs. Kitchen sinks seem to be by far the biggest part of that business.
    Tapware is as big a market as sanitaryware in total dollar opportunity. Our place in the tapware market is somewhat lower than where we are with sanitaryware and that's been an area where we think we could grow and we see significant opportunity going forward.
    When I talk about tapware, I'm referring to the one-piece and three-piece tap you might find in either a kitchen or a bathroom or a laundry, but also showers and products like that. Also, the sort of accessories that go with taps and showers. That's a pretty big market actually and it's a great market opportunity. When we talk about a sanitaryware we're talking about toilets. We're talking about ceramic and plastic cisterns, we're also talking about basins and that's an area where we are very strong...

    Asked by an analyst at the results briefing about the surprisingly flat volumes in sanitaryware, Mr Crowley replied:

    The main factor that we've identified in that category probably relates more to plastic systems to be honest, where we have seen a number of homebrand-type plastics come into the market. That would be the primary impact on the volume upside that we've seen in the business. In terms of other areas in that category, we've been performing pretty well.

    Doors and access systems

    GWA is responsible for the following brands:


  • Gainsborough
  • Renovator
  • Trilock
  • Austral Lock
  • Distributed

  • Salto
  • Hillaldam
  • Eco Schulte
  • Service

  • API Locksmiths
  • As part of a response to an analyst's question at the results presentation, Mr Crowley indicated the company would pursue the development of digital security devices, as well as standard manual locks.

    When we go over to door and access there are some very clear product opportunities that we're pursuing around locks whether they be manual locks, but also electronic access opportunities. So those things will be progressively coming through from later this year through the next 18 months or so.


    The two words that seem to describe the approach GWA has taken to radically altering its business are "determined" and, actually, "courageous". The company has taken some very tough decisions, and taken them all at once, thus giving itself the best chance of improving its circumstances. No doubt, this has not been easy to achieve.

    That said, one of the difficulties that any company faces in performing a sharp change in direction is that its new strategies are formulated by the same people who formulated the previous strategies. In the case of GWA it does seem as though the pace of development post-change is more suited to a manufacturing-based company, even though that is now a minor part of GWA's business activities.

    The difficulty is that this slow pace reduces the amount of time available to a company in finding its new direction. Technology-based products in particular often need to go through several revisions before they work successfully in the market.

    That said, the bathroom, kitchen and home access are areas where technological innovation will play a big part in the future. For example, there is US bathroom and building fittings company Kohler's surprise hit "Moxie", which places a Bluetooth-enabled speaker in the showerhead.

    >}Kohler's Moxie Bluetooth speaker showerhead}


    Taubmans' Endure gets new TVC

    Commercial created by Naked Communications

    The campaign focuses on making painting fun and artistic, not a difficult chore

    Taubmans has a new TV commercial from Naked Communications that shows items bouncing off the walls.

    The TVC is for Taubmans' Endure, the company's flagship premium paint brand. The commercial, which shows potential damage to painted walls being turned into a colourful patterns of confetti and confectionery, is in in keeping with Taubman's "Let's Go Paint" brand positioning that was launched this year. Naked Sydney creative director Jon Burden said:

    Paint itself is so full of colour and energy. We wanted to capture some of that energy and actually bring the stain resistant properties of Taubmans Endure to life.
    Rather than just another 'stain goes on the wall, wipe stain off the wall' spot, there's a little of the fantastic and the playful here. With the surprising soundtrack and some nice technical effects, we'd like to think it does the product justice.

    Architectural Coatings ANZ marketing director Nadine Miller-Vachon said:

    The Taubmans brand was re-launched earlier this year through the 'Let's Go Paint' TV campaign over Easter.
    Our goal is to make people feel less daunted about painting their homes and convey the message that it doesn't have to be a chore, but instead can be an activity that anyone can do, no matter what age or experience level.
    Our focus is to communicate the paint's superiority in a fun and unique way that inspires Australians to pick up a paint brush and say 'let's go paint with Taubmans Endure'.

    You can view the new commercial here:

    Link to YouTube video

    Boral full year results for FY2015

    Good growth, cost containment

    In an uncertain market, Boral's focus on efficiencies has yielded positive results

    Boral reported strong results for its FY 2015. Underlying net profit after tax came in at $249 million before significant items, an increase of 45% over the result for the previous corresponding period (pcp), which is FY 2014. After significant items, profit came in at $257 million, an increase of 48% on the pcp.

    >}Results for Boral in FY 2015}

    In the press release accompanying the results, the CEO of Boral, Mike Kane, outlined some of the changes that had led to the good result:

    We've now firmly moved to the Execute and Transform phases of our Fix, Execute, Transform program and this is reflected in Boral's performance. We've improved Boral's cost base, strengthened the balance sheet and we are managing our portfolio of businesses more efficiently. We're delivering on our promises, which begins with our commitment to ensure a safe and healthy work environment, and we are strengthening Boral's competitiveness.

    In his opening remarks at the analyst briefing on 27 August 2015 Mr Kane highlighted some of the areas for possible growth in the future:

    On the innovation front we are demonstrating an ability to secure access to innovative technologies, as well as develop our own innovations. The launch of Sheetrock Technology and USG Boral is the first major step in this direction, and its success so far is very encouraging. Meanwhile in the USA our developing trim business continues to bring new innovative lightweight poly-ash building products to the market.
    We continue to investigate opportunities to reduce our exposure to high fixed cost businesses, and create a more geographically balanced portfolio over time. We have made significant progress over the past three years in reshaping the portfolio in order to reduce costs, respond to changing market dynamics, and strengthen Boral's long term growth potential.

    Construction materials and cement

    This division delivered good results for Boral, with revenue declining by 6% to $3.1 billion, but EBIT growing by 9% to $301 million.

    >}Boral's results for its construction materials and cement division}


  • EBIT increased by 9% to $301 million
  • Higher earnings from operational and cost improvements in asphalt, cement and concrete placing
  • Concrete revenues increased by 3%
  • Larger volumes of concrete sold, in response to increased house building activity in major cities
  • Concrete prices in New South Wales increased
  • Asphalt experienced strong margin growth
  • Average selling prices for cement up 1%
  • Cement EBIT strong due to efficiency gains and lower cost sourcing
  • Concrete placing profit increased due to efficiencies and better contracting outcomes
  • Property contributed $46m to EBIT, up from $8m in the pcp
  • Minuses

  • Revenue decreased by 6% to $3.1 billion
  • Lower earnings in concrete and quarries
  • Overall rices for concrete flat, declining in Melbourne and regional markets
  • Quarries revenue fell by 16%
  • Quarries volume fell 2%
  • Average selling price for aggregates down 2%
  • Asphalt revenue down by 9%, due to decline in road building
  • Cement revenue declined by 4%
  • Concrete placing revenue down 8%
  • Commentary

    In response to an analyst's question, Mr Kane went into some detail on how he sees cement pricing evolving in Australia:

    Pricing is an interesting thing. The evolution of pricing in construction materials and cement in Australia is going through a transition. You would have seen in our results that cement pricing was up about 1% last year on average, and you can drown in a lake whose average depth is six inches if you step in the wrong spot.
    There are some markets where cement pricing went up substantially. There are other markets where it retreated. We're going through this transition, we're removing more and more at a wholesale pricing arrangements in a market where domestic manufacturing will continue to decline.
    So, whereas in the past cement was the bellwether to determine what would happen to pricing and construction materials downstream, I think it would be less so of an indicator in the future, and so we're going to aggressively try to go after price increases throughout our markets in construction materials, and our objective is to try and deliver on those.

    Future guidance: FY 2016

    Construction materials and cement will be focused on maintaining earnings in line with FY2015.

    Positive influences on the outcome include continued growth in the Sydney construction market. Negative influences include a fall in the Queensland construction market, and decline in a range of construction projects. Pressure on pricing remains a concern.

    Boral states that it expects further contributions from property operations, but is unsure about the timing of income streams.

    Boral's other divisions

    The other divisions of Boral also produced good results. Building products saw its revenue decline a couple million dollars to $485 million, while EBIT grew to $30 million, up from $8 million in the pcp.

    Gypsum operations saw underlying revenue increase by 16% to $1.3 billion, and underlying EBIT lift to $141 million, a 38% increase over the pcp. Revenue from Boral USA came in at A$839 million, an increase of 23%, with EBIT going positive at A$6 million, from a loss of A$39 million in the pcp.

    >}Boral results for its smaller divisions}


  • Building products price gains in New South Wales, Queensland, Victoria and Western Australia
  • Building products EBIT up from $8 million in the pcp to $30 million in current period
  • Bricks and timber increased EBIT significantly
  • Bricks and timber benefited from efficiencies, better pricing, and volume leverage
  • Roofing experienced modest volume growth in Victoria and South Australia
  • Timber softwood prices increased by 9%
  • Underlying business of Boral Gypsum delivered strong and improved performance
  • Boral Gypsum revenue grew by 16% to $1.268 billion
  • Boral Gypsum EBIT grew by 38% to $141 million
  • Boral Gypsum's Australia/New Zealand revenue grew by 16% to $432 million
  • Boral Gypsum's Asia revenue grew by 16% to $836 million
  • Boral USA revenue increased by 12% to US$695 million
  • Boral USA EBIT improved by US$40 million to deliver a US$5 million gain, following a loss in the pcp
  • Boral USA saw volume gains in cultured stone, trim and roofing
  • Boral USA saw price gains in trim, roofing, fly ash and construction materials
  • Boral USA contributed US$20 million in cost savings
  • Boral USA brick revenue rose by 13% to US$246 million, with an 8% rise in volume and a 1% increase in price
  • Boral USA roofing revenue increased by 14% to US$159 million
  • Boral USA fly ash and construction materials increased revenue by 1% to US$162m, even as volumes fell
  • Minuses

  • Slight decline in building products revenue
  • Decrease in timber volumes
  • Roofing experienced volume declines in New South Wales due to competition from substitute products
  • Timber revenue fell by 3%, driven by falls in hardwood sales
  • Commentary

    In response to an analyst's question at the results presentation on 27 August 2015, Mr Kane expanded on his view of the timber part of Boral's business:

    I've recently invested in the timber business. I would have thought, if you'd asked me three years ago, was I going to make any capital investment in timber, I'd ask for a gun to shoot myself, but the reality is -- the reality is that we can see a pathway to get better earnings out of that timber business through some targeted investments, and that we're doing them this year.
    I personally traipsed through the forest of New South Wales and saw the felling of hardwood trees and the processing at our plants, and we've got a lot of ideas to reinvigorate the [lead] process at our timber operations to get better results.
    Softwood is a strong story. From time to time imports come in and complicate matters, but they come in and come out. At the end of the day, the softwood business is a strong earner. So I think timber, in its -- admittedly, this is a small piece of the total enterprise, but timber is a business that is strong enough that I felt a need to recently make some investments.

    In response to an analyst's question Mr Kane also went into details about the growing demand for Boral's Sheetrock products, in Australia and Asia:

    The uptake, the price appreciation that you're seeing in the Sheetrock products, all that is to the positive and we expect that to continue. We're very pleased with the response we're getting in the marketplace across multiple geographies, developing, undeveloped, parts of the globe that are looking at this product.
    And what we're seeing is an interesting phenomena and that is in Australia the uptake has been - exceeded our expectations. In places like Korea the novelty of new technology in this space has driven a lot of volume to our business. In - and in other places we're - as you can imagine, particularly in the developing world in Asia where they really look at premium products, they have a higher respective interest in premium product than you might think. These markets are being driven toward our premium Sheetrock products. So the adoption is faster than anything we had planned and that's what we're seeing.

    Future guidance: FY 2016

    Building products and Boral Gypsum are expectd to maintain earnings, with the gypsum operations benefitting from further efficiency gains.

    Boral USA is expected to increase earnings as housing construction continues to gain strength.


    The entire transcript for the Boral analysts presentation can be accessed at:

    Thomson Reuters transcript on Yahoo!

    Briggs uses social media to raise interest

    Reaching the next generation of customers

    Events help to gain genuine feedback and are an opportunity to listen to end-users

    Briggs & Stratton Corp. i