The Great Nailgun Debate has long posed questions that have severely tried the minds (and even souls) of carpenters, framers and builders everywhere.

On one side, there is the ongoing development of cordless nailguns, which have increasingly become more powerful, longer-lasting (per charge) and lighter. On the other side, there are the much lighter pneumatic nailguns (even when you take into account the weight of the hose hanging off the nailgun). Their internal mechanism is relatively simple, easy to maintain, and can last a decade or more.

However, pneumatic nailguns do require considerable infrastructure to operate. There is the external air compressor, plus hoses running to each nailgun, and the fittings on those hoses, all of which need to be carefully maintained. In a workshop that is not a problem, but it requires some strategic planning on a remote worksite.

In recent years we've seen a number of tool manufactures attempt to bridge the gap between the two by bringing out smaller compressors (often with a flat round compressed air reservoir, earning them the nickname of "pancake" compressors). These have had some success, as they enable the compressor to be very close to the work, making hoses shorter and more manageable. They are also small and light enough to be moved around with ease.

It has been a natural step up from that development to add cordless capability, which frees them from either needing to be near a mains electricity source, or run by a small petrol motor, with the additional problems of both noise and carbon monoxide fumes.

Yet this solution has also brought compromises of its own to the field: weight, power/capability, noise and cost. It's not a surprise that what could be called the second generation of these compressors is now entering the market, bringing the two tool company arch-rivals, Stanley Black & Decker's DeWalt and Techtronic Industries' Milwaukee into a cordless compressor face-off in 2021.

The DeWalt unit has been in the market for some years, while the Milwaukee was launched in 2020, and will be available in Australia by June 2021. It's fascinating to see how the different strategies of the companies are illustrated by their approach to the design of these tools.

Dewalt

The latest DeWalt unit carries the designation DCC1054N-XJ 54V FlexVolt XR Li-ion Cordless Brushless 10L Air Compressor. It is part of the company's FlexVolt line, which means it requires the 54V battery. The compressed air tank size is 10 litres, and the unit weighs 11kg, can achieve 9 bar pressure, but operates at closer to 7 bar with air delivery of up to 31l/min. It is rated at 78dB in LpA (the position of the operator). It is 42cm tall, 30cm wide and 36cm long, and comes with one-year free service and three-year warranty periods. The street price is around $400.

Milwaukee

The Milwaukee unit is designated as the M18 FUEL Compact Quiet Compressor M18FAC-0. Unlike the DeWalt tool, this uses Milwaukee's standard 18V batteries, though the company recommends using its High Output batteries (which use the newer 21700 Lithium-ion cells). The unit has a smaller tank than the DeWalt, at 7.6l and weighs 14.2kg. It is 26.2cm tall, 47cm wide and 41.3cm long, making it vertically smaller than the DeWalt, but horizontally larger. It has the same 9 bar maximum pressure, with 7 bar continuous with air delivery of 31l/min. One of its major benefits, as stated by Milwaukee, is how quiet it is, with a 68dB rating at LpA. It has Milwaukee's standard three-year warranty. The street price is just over $600.

Comparison

On the face of it, it would seem that the DeWalt unit offers some real advantages. It has a larger tank capacity, is 10% smaller by volumetric measures, and weighs 3kg less. But the comparison is much more complex than that, in large part because the Milwaukee unit is designed to be much quieter than the DeWalt one. Numerically, the 10dB difference between the DeWalt's 78dB and the Milwaukee's 68dB doesn't seem all that much, but these numbers are on a logarithmic scale. In comparative terms, the DeWalt unit would produce sound at the level of a power vacuum cleaner, while the Milwaukee unit would be as loud as a normal conversation.

There are a number of reasons why that reduction in noise could be important. Working in an occupied dwelling, or a public space such as a school or hospital, a low noise level would be welcome - but it could also be just as important on a construction site, where being able to easily communicate with fellow workers could be important.

The second factor, of course, is the batteries. For a work crew that already has FlexVolt batteries, it's not going to matter that much - but FlexVolt is more a narrow niche product for high performance gear, rather than a general tradie choice. On the other side, the Milwaukee unit might work best with the 12Ah High Output battery (which is P3), but it will function just as well with the smaller and more common 8Ah High Output battery (which is P2).

The third factor is that the Milwaukee unit has been designed to integrate into Milwaukee's PackOut range of tool chests and trolleys. It might be heavier, but it comes with an easy way to connect to readily available wheeled transport.

That's not to say that, really, either cordless tool really "wins" over the other. What this does illustrate is the different vision for the construction market both tools mark out. The choice of the higher voltage motor on the DeWalt unit is difficult to understand in technical terms, as compressors are typically limited to lower revolutions of their pumps by thermal issues. Compressing air produces heat, and dissipating that from the compressor unit itself is quite a problem in such a compact unit.

That means the move to make use of FlexVolt 54V in the compressor is possibly more of a marketing choice than a technical one. One would suspect that DeWalt is segmenting the market into carpenters and others doing medium-heavy work, who would be nudged in the direction of the well-regarded range of DeWalt cordless nailguns, and builders on larger jobs, who probably have an air compressor onsite, but could use the cordless compressor in some areas.

That is backed up Stanley Black & Decker launching a second cordless compressor in its mid-range consumer brand, the Craftsman V20 Cordless Air Compressor. This seems, on the face of it, to be pretty much the same unit, but using the Craftsman 20V battery.

The split in the Milwaukee market is made at a different point. The company's 18V range, in particular its high-performance 18V FUEL range, is meant to be a comprehensive, versatile solution to just about any problem a house builder, construction company, or general tradie might face. Its MX FUEL - which is 72V nominal, 80V peak - is aimed at the heaviest handheld machinery, some of which relied on small petrol engines in the past.

The power tool market

It is interesting to note the approach the other tool companies are taking to the battery voltage situation. In general, most of them are adopting a version of the DeWalt approach to the market, though they are making a different split. Hikoki, for example, has its range of Multi Volt tools, which share a battery that can operate at either 18V or 36V. Makita has its 40V range, which cannot be interchanged back to its 18V range, but is doubled on some tools, providing 80V.

Bosch, meanwhile, is going much more down the Milwaukee path in its tool development, working to push its 18V tools just as far as they can go. At the high power end of those tools is the Bosch GBH 18V-45 C Professional rotary hammer drill, which produces a whopping 12.5 Joules of power, enough to drill a 45mm hole in concrete (though the optimal maximum width is 40mm). Bosch has dabbled in 36V tools and batteries as well (non-interchangeable), but it certainly seems to have shifted much of its development to 18V from 2020 onwards.

One suspects that the Bosch BiTurbo rotary hammer drill line is aimed at heavy construction industry favourite Hilti. Hilti's top cordless offering in this area seems to be the TE 60-A36 Cordless Rotary Hammer, which manages only 8.2 Joules. Hilti, which has long specialised mainly in simply being Hilti, has two battery sizes, 22V and 36V, which are not interchangeable in any way. Given the company's dedication to very reliable rugged tools, it seems likely that Hilti's solution to the need for more powerful rotary hammers is going to remain its highly regarded corded models.

Why more power?

While the answer might seem - superficially - to be evident, asking why the market has moved to expansion through offering more powerful tools is a good question to consider. Reframing that question, what really needs to be asked is: why are people in the construction industry willing to pay sometimes quite steep prices for more powerful tools?

One figure to point to is that the construction industry as a whole in Australia has trended to becoming less productive in recent years. According to the Productivity Commission in a 2020 study, during FY2018/19, the industry in Australia went backwards by 2.6% in terms of labour productivity, and 4.0% in terms of multi-factor productivity.

In fact, there is a steadily growing sense in Australia that the construction industry is getting increasingly out of control. For example, an academic paper from 2019 entitled "An examination of building defects in residential multi-owned properties", authored by Dr Nicole Johnson and Sacha Reid, interviewed a wide range of people involved in the construction and ownership of apartment blocks. The paper states:

Many of the interviewees suggested human error plays a significant part in building defects. Misuse of building products (due to lack of knowledge), poor workmanship, time pressures (cutting corners), poor supervision, lack of training, lack of licensing and trade accountability were common factors identified as contributing to defective building work.

A range of other causes were cited that also contributed to poor building work, including a private certification process that has to lead directly to either non-rigorous or even corrupt processes (builders will not re-hire certifiers who raise problems with their certifications), as well as a mal-distribution of responsibility between architects, engineers and builders. On top of that are regulatory processes that simply do not make any sense - such as Australian building standards being kept essentially "secret", in that they are not open source but require expensive fees to access.

In short, it is something of a mess. Trying to improve productivity through systemic changes is regarded as being an almost impossible task, so most workers directly involved in the Australian construction industry simply find ways to muddle through instead. The one part of the "muddle through" which they can influence is to invest more in power tools which will enable them to accomplish some tasks more swiftly.

Frustratingly, the end solution to this situation has been around since the 1970s, and was fully developed by 2007. That is, of course, Building Information Modelling (BIM). In 2019 its final stage of development was completed, with BIM receiving its own ISO number of 19650. Under BIM, information about a building's design, engineering, construction and maintenance is collected in a single database. Currently, however, there is a lack of determination on the part of the industry and regulators to make BIM mandatory rather than optional.

Conclusion

When Lithium-ion power tools first gained traction in the market, they brought with them a relatively new idea, which was that it was best to adopt a single brand of tools, as this enabled a more efficient use of shared resources such as batteries and chargers. What is emerging now, however, as a development of this, is a push to adopt not only a brand, but also an integrated set of sub-brands within that brand. DeWalt's cordless compressor requires the adoption of the FlexVolt system, while Milwaukee's cordless compressor works best when it is part of a more fully integrated system, including the PackOut storage and mobility system.

For retailers, this could mean that increasingly they will trend towards more product line specialisation. Keeping stock levels and the knowledge base up-to-date with the entire line of either DeWalt or Milwaukee products has become a full-time task. The market just might be at that inflection point where choosing to carry only one brand in-depth will result in stronger sales than carrying the most popular products from three or four brands.

There has been a combination of confusion and speculation about how the development of Lithium-ion (Li-ion) power tool batteries would be affected by the change in cell size.

Just to go over the basics, virtually all power tool batteries use a standard size of cylindrical cell in their batteries. Each of these cells produces a nominal voltage of 3.7V. These cells are combined in "layers" of five batteries connected serially in their layer to produce an output of around 18V.

To increase the storage capacity (represented as amp-hours - Ah), more than one layer can be added to a battery, and connected in parallel. A single layer battery is referred to as a P1 (for Parallel 1), a two-layer battery is P2, and so on.

Up until about 2017, there was only one common type of battery cylinder that was available, and this has the designation 18650. That relates to the dimensions of the battery, which is 18mm in diameter, and 65mm long. That size and shape was developed in the early 1990s, and essentially copied the overall look of the AA battery (which is about 14mm in diameter and 50mm long).

The electric car maker Tesla was one of the driving forces behind the development of the new alternative to the 18650 cell, which is the 21700 cell. This designation relates, as you would expect, to its dimensions, which are a 21mm diameter and a 70mm length. Those dimensions were the result of scientific analysis, which showed this was a more optimised configuration when it came to producing power.

The result of its increased size and optimised shape is that the 21700 battery cells can each produce between 3.0Ah and 4.0Ah of charge. This is an increase over the 18650 cell rating of between 2.3Ah to 3.6Ah. In general, in fact, the 18650 cells when used in batteries for power tools are usually limited to between 2.5Ah and 3.0Ah.

We can see how this has played out in the development of the sizes of power tool batteries. Most of us probably have at least one small 2.5Ah battery - that is a P1 battery with five 18650 cells rated at 2.5Ah each. The most popular size of battery today is the 5.0Ah unit, which is a P2 battery, two five-cell layers in parallel, also rated at 2.5Ah per cell.

With the 21700 battery the P1 configuration can provide between 3.0Ah and 4.0Ah. These newer style power tool batteries are a little bigger than the standard 2.5Ah battery, of course, at least 5mm wider, 3mm taller and 15mm longer - but they are lighter and less bulky than a two-row battery of the 18650 cells.

As an example, the latest Bosch ProCore 4.0Ah battery (21700) weighs 510g, and is 77mm wide by 47mm tall and 117mm long. The older DeWalt DCB182 18V XR 4.0Ah battery (18650) weighs 620g, is 72mm wide by 62mm tall and 110mm long. Photo 1 shows what the DeWalt battery looks like when it is opened up, and Photo 2 shows the new Bosch battery disassembled.

One thing that is evident is that the Bosch battery uses higher quality interior components. Much of this design is actually through necessity. The 21700 can generate more heat than the 18650, and most of these components are designed to help better dissipate that heat. Without this change, excess heat would tend to make these batteries wear out faster.

Company strategies

Looking across the five major global power tool manufacturers - Milwaukee Tool, Bosch Power Tools, Stanley Black & Decker/DeWalt, Makita and Hikoki - we can clearly see three different strategies for introducing and marketing the 21700 battery.

The two companies with the most similar strategies are Milwaukee and Bosch. Both have decided to market the new and improved batteries as a "premium" range. Bosch is the most direct about this, branding these batteries as "ProCore", and promoting their advanced features. Milwaukee has essentially added the batteries more subtly to its existing range, designating them as "high output", but also marketing them on a feature basis.

There are some similarities between the strategies of Makita and Hikoki. Makita at the moment does not produce any 18V batteries using the 21700 configuration, but it does make 21700 batteries for its 40V range.

Hikoki makes 21700 batteries for its Multi Volt range. This is a very interesting range of tools. The technology is similar to that used by DeWalt on its FlexVolt range. Where DeWalt switches between a parallel and serial configuration to produce either 18V or 54V, Hikoki does the same to switch between 18V and 36V. The company relies on the power density of the 21700 to make batteries that are still compact and lightweight, but can support the 36V output.

As for DeWalt, its strategy is difficult to follow. As far as HNN can tell, there really isn't a specific designation for 21700 cell based batteries. It appears, for example, that it is not using the newer cells in its FlexVolt range, but some 18V batteries, such as its 6.0Ah XR, do use the 21700.

Product development

How will the 21700 batteries affect the overall tool market? Up until 2020 there has a great deal of emphasis placed on "maximising" battery size and capacity. Since about 2014, tool manufacturers have proudly announced the growing capacity of their most recent batteries, from 8.0Ah up to (today) 15.0Ah. There has also been a steady increase in available battery voltages, which now run up to 80V.

However, there is a growing understanding in the trades that finding the biggest battery and whacking it on the end of your impact driver tends not to be that good an idea. Coupled with tools that are becoming more lightweight and more efficient in the use of current, tradies now understand that smaller batteries have both ergonomic and health advantages.

Because of that HNN thinks that we will start to see the P1 configuration 3.0Ah to 4.0Ah batteries begin the dominate at least half of the market by 2024. Coupling these with slightly smaller, compact 18V tools will produce a better user experience for many trades, including tilers, electricians and plumbers.

It will also be interesting to see what effect the newer cells have on the 12V tool market as well. As you need just three cells to make a P1 battery, that means you can have ultra-compact 4.0Ah batteries, which could help to lift the smaller tools into a more competitive position.

Japan-based Makita Corporation has released its global results for its 2020/21 financial year, ending 31 March 2021. In line with results from most other power tool manufacturers, the company showed a strong surge in growth.

Overall revenue was up by 23.5%. Domestic (Japan-based) revenue grew by 12.3%, but overseas revenue grew by 26.4%. Total revenue for the year was JPY608.3 billion ($7.2 billion). Overall sales volume increased by over 42%.

The Oceania region, dominated by the Australian market, showed strong growth. Revenue for the region increased from JPY28.4 billion to JPY42.3 billion ($337 million to $490 million), up by over 45% (42% on a local currency basis). This follows on two years of low single-digit declines in revenues for the region.

In local currency terms, Makita's revenues in Japan grew by 12.3%, and by over 30% in both Eastern Europe (Russia) and Western Europe. In North America, the company went up by 28.9%, while growth in Asia was lacklustre at 2.4%. Central and South America grew by 38.9%, and the Middle East/Africa increased by over 18%.

Contrasting the proportion of non-domestic revenues for Makita for 2020 and 2021, Oceania grew by 1%, Europe by 2%, and North America remained the same. The other regions lost some share proportionately.

Makita produced close to 40 million units for the financial year. It expanded its manufacturing capacity mostly in Asia (from 17.8 million to 24.9 million - nearly 40%), and in Europe (from 5.8 million to 9.1 million - around 57%).

Analysis

Five years ago Makita would have been seen by most analysts as pursuing a relatively conservative, middle-of-the-market approach to its business. It really is a testament to how the power tool market is developing that today, out of the big five manufacturers - including Stanley Black & Decker, Techtronic Industries (TTI), Bosch Power Tools and Hikoki - its strategies are no longer in alignment with the other companies - though they are not that far from those of its fellow Japanese company, Hikoki.

Specifically, the other manufacturers are pursuing both better integration of their tools with the internet of things (IoT) and seeking to diversify their product offerings. Techtronic Industries is steadily growing its consumer and commercial vacuum cleaner business, Bosch Power Tools is going to what we might call "sub-DIY" household market, and Stanley Black & Decker has long had a very wide net of products into both the consumer and commercial markets.

Makita has comparatively recently emulated the other main manufacturers and brought out a 40-volt line of power tools - though these do not compare to the heavier tools from both TTI and Stanley/DeWalt. Makita's major push at the moment is into 40-volt tools in the outdoor power equipment category. It has also attempted to introduce a vacuum cleaner, which does not, at the moment, impress - however Japanese companies have a long history of taking to market what other companies would consider prototypes, then coming out with second and third generation products that are competent.

There is little doubt that Makita tools are very successful in today's market, but if IoT - for example - becomes steadily more powerful into the future, to the stage where it is required for larger contracts, especially for government entities, the company would face a severely steep development curve to attain market parity.

It's tempting to wonder if we are about to see a repeat of the "Walkman syndrome" with Makita. This is a recognisable phenomenon where Japanese companies master a difficult hardware task, but then fail when portions of what were once hardware become digital. Introduced in the late 1970s, the Sony Walkman was a portable audio cassette player that dominated personal electronics in the 1980s, then adapted to CDs in the 1990s. However, the launch of Apple's iPod digital music players in the 2000s - which were as much about software as hardware - saw Sony lose control of that market, and exit it in early 2010.

The difficulty with all technological developments like this is that they do not encroach on markets in a gradual manner. Over the space of a year, or perhaps two years at most, an established way of doing things that might have been around for 50 or more years can rapidly become obsolete. One can only hope that there are some of those great engineers working at Makita to plot out a future for the company that differs from its recent past.

Seven Group Holdings has made a bid for Boral - valued at almost $8billion - as it aims to expand its foothold the company. The takeover bid is seen as an attempt to gain greater exposure to its building materials business across Australia and the US as the world emerges from COVID-19.

Boral has rejected the Seven offer, saying it was opportunistic and undervalued the company. Morgan Stanley analysts believe the bid would not be well supported by investors, according to a report in The Australian.

Seven Group's $6.50 per share takeover bid equates to 22 times forecasted 2022 net profit and eight times earnings before interest, tax, depreciation and amortisation, the analysts said. They said in a research note:

As it stands today, with the bid in line with the current share price, we expect limited take-up.

Seven conceded it would be content owning about 30% of Boral if existing investors do not want to sell their shares in the company. It said in a statement:

In making the offer, Seven is seeking to increase its interest in Boral and would be satisfied for the offer to result in it holding a total interest of around 30% of Boral. The offer provides Boral shareholders with the opportunity to sell their shares at a premium to recent trading performance.

A company cannot own more than 20% of a target without launching a takeover under Australian laws. However, under "creep" laws it can continue to boost its ownership by up to 3% every six months without embarking on a bid.

With more than 19.9% of Boral and having recently exhausted provisions allowing it to "creep" up the share register, the Seven Group is unable to buy more of Boral without launching a takeover offer.

Seven Group is controlled by billionaire Kerry Stokes and his conglomerate also owns Cat equipment provider, WesTrac, Coates Hire and petroleum company, Beach Energy.

CSR results

Building products supplier, CSR has been benefiting from the increased momentum in the Australian housing construction and renovation market as ultra-low interest rates and the Federal Government's HomeBuilder stimulus program fuel demand.

CSR chief executive Julie Coates said she expected the housing market to remain solid with the extension of HomeBuilder to 2022. Detached housing accounts for 54% of CSR's revenue. Most CSR products are used in the last half of a new home construction. She told the Australian Financial Review:

We've got a six-month lag in the build cycle.

Sales of building products in retail hardware outlets are also up 20%, according to a report in The Australian. She said the company had been able to push through a price rise of 4% for Gyprock products in April, which she described as largely a "catch-up" after steady pricing last year.

The group's building products business, which makes up around 70% of revenues, generated an 8% increase in earnings before interest and tax to $184.3 million for the 12 months ended March 31.

Revenue was down 4% to $2.1 billion after a softer beginning of the group's financial year, as a result of uncertainty in the early stages of the pandemic. It owns brands including Hebel, Monier roofing, Gyprock and Cemintel.

Shortages of tradespeople has emerged as an issue for the industry, while inflation is also on Ms Coates' watch list, according to The Australian. She said:

Shortages of bricklayers and roof tilers is a challenge for the industry, so we need to make sure we have enough of those trades coming through. We've not seen cost inflation yet in our business but we're anticipating as we go forward that's a potential impact that we're going to have to manage.

The CSR boss is also looking ahead to migration trends as a guide for the next few years. She said:

The extension of the HomeBuilder starts should provide demand through 2021 and 2022. The question is whether it's enough of a build to positive net overseas migration, which the government is expecting to come back in 2023. So how we build that bridge is important - I think we look to continue to work with government on that given the importance of the building industry.

I'd also say we're not through COVID-19 yet so the other assumption is we can have a vaccine rollout that's successful. So there are a whole range of factors required in terms of underpinning the economic growth we'd all like to see.

Private equity group Ares is selling upmarket British paint company, Farrow & Ball to Danish coatings manufacturer Hempel in a GBP500 million deal. Ares bought it in 2014 for GBP275 million.

The deal comes after a year in which protracted lockdowns and a shift to working from home have made some consumers more willing to spend on high-end interior design. Anthony Davey, chief executive of Farrow & Ball, said revenues had risen more than 30% in the year to March 2021. He told the Financial Times:

The home turned into a new frontier. It was a school, it was an office, it was a place where old hobbies were revisited and new hobbies began. As a consequence, people invested more time and more money [in their homes].

The company repaid more than GBP1 million in furlough money to the UK government when it realised "we were actually going to have a very, very strong year", Mr Davey said.

The deal values Farrow & Ball at almost GBP500 million, according to people familiar with the matter, although the companies declined to comment on the valuation.

Hempel, based in Lyngby, outside Copenhagen, produces paints and coatings for large container vessels, bridges and wind turbines. Decorative paints for homes, offices, schools, hospitals and public buildings made up a third of its revenue in 2020. The deal is part of its plan to double its revenue to EUR3 billion by 2025. Hempel's chief executive, Lars Petersson, said:

We believe there's an international scaling possibility here. We keep investing in the UK? ... but, of course, there are some limitations [on sales growth]. Outside of the UK, there are no limitations.

The company will continue to manufacture all of its paint in the UK because this was "a key part of the brand", Mr Petersson said.

The company has sought to attract younger consumers by hiring social media staff from fast-fashion companies "where online social inspiration is the lifeblood of that industry", said Mr Davey.

Not all Farrow & Ball consumers are sort of uber-affluent consumers - very far from it. Of course, affluence and price sensitivity play a role, but it is not the defining factor. It's their engagement and passion for interior design.

The company had gone through a "really painful process" to make sure it could continue to export its paints, which are manufactured at its factory in Wimborne, Dorset, to the EU after Brexit, he added.

Farrow & Ball is known for its eccentrically-named colours including "Dead Salmon" and "Broccoli Brown".

Related: Hempel also owns the Wattyl paint brand.

Next and Homebase tie-up

DIY chain Homebase will place mini garden centres in a number of Next fashion stores, according to The Guardian. The trial partnership between the two retailers will see Homebase garden centres open within the Next stores in Shoreham, Ipswich, Warrington, Camberley, Bristol and Sheffield.

Homebase said it aims to offer customers access to expert gardening advice, plants, pots and tools - alongside Next's range of clothing and homewares.

The new venture, which will be called Garden by Homebase at Next, raises the prospect of compost being walked through gleaming retail spaces containing expensive lingerie and dresses. Damian McGloughlin, chief executive of Homebase, said:

We're delighted to be joining forces with Next and bringing our garden products and expertise to its stores. It's all part of our wider commitment to make shopping with us easier and provide even more inspiration and expert advice.

We're a great nation of gardeners, with more and more people enjoying the benefits of gardening and being outside. The launch of these new garden centres means we're able to offer more gardeners, both experienced and those just starting out, Homebase products in more locations across the country.

In November 2020, after a period of strong sales, Hilco hired investment bankers at Lazard to sell Homebase. There have been reports that Hugh Osmond, the former owner of PizzaExpress and the founder of Punch Taverns, is preparing a GBP300 million bid for the DIY chain.

The ASX-listed, technology-driven company has optimised its shift from a one-time job payment business model to a subscription-based model that generates recurring (monthly) revenues, according to Hipages co-founder and chief executive Roby Sharon-Zipser.

The Australian Financial Review (AFR) reports that Hipages changed its business model in November 2019 from taking a cut of one-time jobs connected and completed through its online marketplace to encouraging nearly 30,000 tradies to get access to the leads generated through Hipages for a monthly fee.

It also announced it is launching accounting and job-tracking software for its tradie customers to help fuel the next phase of growth.

After researching the needs of the tradies who use Hipages, Mr Sharon-Zipser and his team found only 20% use some form of technology or software to manage and track their business. For the majority, old-school pen and paper still dominated. He told the AFR:

We were surprised. There is a lot of tech adoption that can still happen in this space - part of the reason they've been left behind is a lot of them operate as sole traders, whereas a lot of the focus in terms of this kind of software adoption has been on enterprise.

Offering this field-service software is all part of a trend we're seeing of the ongoing 'professionalisation' of tradies.

In a quarterly earnings update, Hipages said its total revenue was up 18% on the previous corresponding period, and its recurring revenue from subscriptions was up 26%.

Total revenue for the period was $13.9 million, with the quarter also marking a year since Hipages moved to a subscription-only model. Recurring revenue now accounts for 94% of total revenue, with Hipages forecasting total revenue growth of 15% for FY21 as a whole (with recurring revenue growth predicted to be 20%). Mr Sharon-Zipser said:

The business has performed ahead of expectations with 26% growth in recurring revenue in the December quarter due to a significant increase in ARPU (average revenue per user) and tradie subscriptions. A 31% lift in ARPU was driven by new subscribers joining the platform at a higher price point and existing subscribers upgrading to higher price tiers in order to claim more jobs.

Mr Sharon-Zipser also said Hipages wants eventually to offer tradies financial products, educational tools and even access to virtual assistants all within the Hipages ecosystem.

But rather than roll out products sporadically, he said incremental success and growth in software-as-a-service (SaaS) comes from understanding what the customer wants, needs and values.

Hipages successfully listed on the ASX in November 2020 after an IPO raised $100.4 million.

Related: In late 2020, Hipages was planning to raise about $100 million for its Initial Public Offering.

What would it take to convince many DIYers to re-purchase some of the familiar tools they use - such as levels, clamps and spanners - in the hope of gaining a key advantage? What's the biggest complaint about tools they make regularly, one which, so far, no one has really been able to solve?

The answer can be found if you look through the toolboxes of just about any DIYer. One thing you will notice quickly is the number of duplicate tools many of them own.

In most cases this isn't dedication to redundancy, or the need to equip multiple workers. No, the simple reason for duplicates is that DIYers tend to lose tools, and then find them again (typically the day after they've bought a replacement tool). It's an endless, really annoying problem, not just because it often results in the purchase of another tool, but because that follows typically an hour or more of searching, and feeling like something of an idiot.

It's not just that DIYers are careless, either. While professionals will sing the praises of their well-organised workbenches, and the multiple layers of storage they have engineered, most DIYers have storage limited to a corner of a garage, or even just a third of a hall closet somewhere.

These are subject to the ravages of life partners (who just needed to tighten the screw on the saucepan), children (amazing how many tools can double for spaceships), and pets (the soft chewy handles of modern tools are yummy, many puppies would agree). Not to mention the annual disaster of the "spring clean", which typically involves a seemingly random re-distribution of anything not deemed "important".

And, of course, let's also not forget, the DIYer him/herself. While being considered "careless" with tools carries a certain sting from many a childhood, there's nothing like having to duck inside for a Zoom meeting with your boss in the middle of fixing the backyard fence for ensuring you never will find that level again - or at least not until after you've purchased its replacement.

The Pro scene

When it comes to locating expensive power tools, some considerable progress has been made for professional and trade users. Milwaukee has led this development, with its breakthrough introduction of One-Key in mid-2015. One-Key helped to connect power tools, via the smartphone, to a smart backend which could monitor performance, adjust settings, and track location. (It also likely delivered Milwaukee a wealth of data to help it deliver future tools.) This led the way for both Bosch and Stanley Black & Decker's DeWalt brand to develop similar systems, offering both tracking and some degree of performance monitoring.

These systems have included increasingly sophisticated theft prevention technology, so that tools can be automatically disabled if they lose their connection to their owner's mobile phone, if they leave a specific geo-fenced location, or if the owner chooses to disable them manually.

These tracking systems have also become more general over time. Milwaukee now offers its "Tick" product, which is (basically) a Bluetooth beacon that can be attached to any tool or item that needs to be tracked, and integrates into One-Key. DeWalt has its Tool Connect Tag, and Bosch has its TrackTag, which operate in the same way.

These work by establishing networks of users. Each mobile phone that is running the tracking software from Milwaukee, DeWalt or Bosch can report location data for the tools/tags that belong to the specific network. That makes it likely they will be reported if they show up on any larger construction site.

However, as HNN pointed out at the time these systems were first developed, this location tracking has had some severe limitations. An important limitation is that the tracking is based on proximity and not location. For example, while Bosch promoted its tags as being a great way to ensure all a professional's tools were stored in his or her van, in fact the best its software could do was locate them as being within 30 metres of the smartphone.

That is because all of this technology is driven by long-standing Bluetooth beacon technology, which Apple popularised as iBeacon. Under the iBeacon protocol specification (and most other beacon protocols as well) these devices transmit two types of information: an identification number, and a general indication of how powerful the beacon is.

For a mobile phone that detects a beacon, it can absolutely identify the beacon, and it can, very roughly, work out how far away it may be. But the user will still usually end up with a search area of over 200 square metres, at best.

Some trackers, such as the Tile, which began as a Kickstarter project, offer similar networked location finding, but also feature a small speaker, which can be made to emit sounds when triggered by the matching app. That's helpful, but it depends on a quiet environment, and being within 10 metres or so of the lost object.

Air Tags

With the release on 20 April 2021 of Apple's latest new product, the Air Tag, many of the previous limitations have been removed. Where beacons make use only of Bluetooth, the Air Tag also makes use of ultra-wideband (UWB). This is done through one of Apple's own computer chips, the U1.

The two systems work together. Bluetooth typically has a transmission range of around 80 metres, and up to 100 metres in ideal conditions, while UWB works over ranges of around 30 metres (without obstacles). The system is designed to provide broad tracking using Bluetooth, and final location tracking through the U1 chip and UWB.

There is a U1 chip in every Air Tag, and Apple has been putting U1 chips in every iPhone since the iPhone XI (released in 2019). These UWB devices send out a pulse of data about once every two nanoseconds, which make them ideal for very close monitoring.

The UWB system is able to determine distance via the exchange of three signals. To do this, it uses time of flight (ToF) calculations, literally measuring the time taken to send and receive these radio signals, which are, of course, travelling at the speed of light. Light takes 10 nanoseconds, which is a hundred-millionth of a second, to travel over three metres.

As the Air Tag and the iPhone will not have clocks synchronised within a nanosecond, the devices record how long it takes to send and receive a response, minus the delay between receiving the signal and sending the response. This is done twice, once from the perspective of the iPhone, and once from the perspective of the Air Tag. These are added together, and the result divided by four. Accuracy in these mobile UWB systems (where the iPhone will be wobbling around) is typically 100mm to 200mm.

Exactly how the direction portion of the calculation is achieved is not clear, but it's likely that Apple uses two antennae at some separation from each other on the iPhone case. The difference in distance measurement between the two points would enable it to triangulate the location of the Air Tag, and provide a direction indication. A limitation on the use of the iPhone is that it must be held in portrait orientation, and the detection field is a cone projected from the back of the phone (where the main camera lenses are), roughly equivalent to the range of view of the phone's wide-angle camera lens.

In practice, when the iPhone user is within the range where the U1 chip can do its work, an arrow will appear on the iPhone screen indicating the general direction to the Air Tag. When the iPhone is within a metre or so of the Air Tag, the iPhone will vibrate with increasing intensity as it gets closer.

The Apple advantage

In terms of the general tracking tag marketplace, Apple has two key advantages. The first is its ability to fully integrate the necessary hardware and software to develop a highly customised solution. Competitors such as the original Tile have access to little more than the standard Bluetooth connectivity protocols, and those have a number of severe limitations.

While the competing smartphone system, Android (from Alphabet aka Google) has incorporated UWB into its core operating system, it doesn't seem this has been used for location tracking just yet. For example, the major Android competitor to Apple, Samsung, has added a tracking tag to its range, the SmartTag, but this seems to use only Bluetooth, and provides proximity but not relative direction capability.

Apple's second advantage has to do with the size of its potential tracking network. This is actually a little more complex than it seems at first. Firstly, competitors such as Tile might suggest they have a network of over a million - while Apple can count its network in the hundreds of millions.

More than that, however, the Tile network is only active when the Tile app is loaded (in both Apple and Android smartphones), though it will still work - usually - when it is running in the background. The Apple network has the capability to be always on, for every iPhone (unless the user specifically opts out).

Why is Apple doing this?

Apple at the moment is undergoing a subtle shift in its business model. Where much of its profits in the past have been driven by a rapid turnover in Apple iPhone sales, the company has begun to bump up against problems of market saturation. Not only are there fewer and fewer people who don't have an iPhone that want to buy one, but also the company is beginning to struggle when it comes to introducing significant advances to existing products at least once every two years.

This means the company is slowly turning from hardware sales to the sale of services to shore up its income and profits. This has multiple effects, as the need for services among its users can also drive hardware sales. To get the full benefit of Air Tags, for example, you need to own an iPhone XI, an iPhone XII or an iWatch Series 6.

That is also, partly, what is behind the company's moves to better enable users of its iOS 14 software to restrict access to personal data. If companies such as Facebook and Alphabet cannot access than information, Apple's own advertising business, which relies on direct contact with customers, will be strengthened.

What this means for tools

Apple has specifically stated that it will open up the UWB U1 chip and its code to use by third-party suppliers. Obviously, they will probably not give the go-ahead to a direct competitor to the Air Tag, but they would be open to the same technology being implanted directly in other objects.

There is a real potential here for tool makers - both hand tools and power tools - to introduce the first really useful location tracker for misplaced tools around the home - and for the occasionally forgetful tradie as well. HNN is quite certain that this kind of feature could help to drive tool repurchases at a relatively high rate. It's really a capability that DIYers have been waiting decades for.

What about retailers?

There is also the potential for the use of UWB combined with iBeacons to finally deliver on some of the location-aware applications that were first mooted back in 2013 - then fell to the wayside when the limitations of iBeacons became evident. Consider, for example, the Bunnings in-store app, which can help its customers find their way to products by telling them precisely in which aisle in their particular store they are located. With the addition of UWB, that app could guide them directly, with an arrow, to what they are looking for.

Tool and power equipment maker and distributor Techtronic Industries (TTI) - owner of the Milwaukee, Ryobi, AEG and Hoover brands - will lease a 73,920sqm distribution centre in The Yards industrial estate located in Western Sydney. The Australian Financial Review exclusively revealed the tool supplier is the first major tenant in the new $1 billion industrial estate.

TTI is consolidating two existing facilities in NSW with the new warehouse that will have an end value of $188 million.

Jack Moroney, a director at industrial property and supply chain specialist TMX, negotiated the transaction for TTI after his team designed a flexible supply chain solution that supported the company's future growth.

TTI has signed a 10-year lease. The distribution centre, which will include a goods-to-person automated mini shuttle system, is expected to become operational in July 2022. Grant Edhouse, chief financial officer and chief operating officer at TTI Australia & New Zealand, told the AFR:

We are continuing to expand rapidly and need a new facility to support our future growth. By consolidating our existing sites into this new state-of-the-art distribution centre, we will be able to meet our future needs, while optimising our supply chain to the benefit of our retail partners and end users of our products.

The deal marks the first pre-commitment at The Yards, and TTI is also the first major tenant to choose the location as its NSW distribution hub.

The rezoned precinct is set to become an 850-hectare warehousing hub as part of the Western Sydney Employment Area. The site offers 77 hectares of developable area and is due to house about 400,000sqm of industrial warehouse and corporate office space once completed. It is being jointly developed by Singapore's Frasers Property Industrial, Aware Super and Altis.

The developers are targeting a Green Building Council of Australia six-star Green Star rating.

Boral's fly ash business

Building materials supplier Boral said it is looking at a potential sale, or a joint venture, as part of a review of its North American fly ash business. The move comes as the company is looking to exit the United States, in a retreat from its global expansion strategy that led to a hefty writedown in 2020.

A sale for a high price could enable Boral to reinvest its proceeds back in Australia, where it could embark on acquisitions. According to the Data Room column in The Australian, some are suggesting that Queensland-based cement producer Wagners as a logical target, or the privately held West Australian building materials company BGC, subject to clearance from the Australian Competition & Consumer Commission.

Boral's acquisition of rival Headwaters in 2016 made the combined entity the largest supplier of fly ash in US markets. However, since then, it has led to an impairment charge and earnings downgrades amid a soft housing market and a push towards cleaner forms of energy generation. Zlatko Todorcevski, chief executive officer, said in a statement:

We... remain confident in the long term demand dynamics for the industry, including significant incremental demand growth potential from the US government's proposed new infrastructure program.

New opportunities for supply exist from harvesting landfills and imports, he added, which is expected to more than offset the decline in fresh fly ash supply as the US transitions away from coal fired power generation.

Boral said it has appointed advisors for the assessment and will provide an update at its full year results announcement in August, or earlier.

Boral also recently closed the sale of its half-share in its US plasterboard business to Gebr Knauf for AUD1.33 billion, announcing it would use the proceeds to pay debt and buy back up to 10% of its shares.

Related: In December, Boral offloaded its share of the North American Meridian Brick business for USD125 million to Austria-based giant Wienerberger. The sale of Meridian Brick ended Boral's involvement in the brick industry.

As is often the case after an acquisition, working out how well Australia's DuluxGroup has been doing since August 2019 is somewhat difficult - and has been made yet more difficult by the COVID-19 pandemic.

That is particularly the case because the company was acquired by Nippon Paint Holdings (for $3.8 billion in August 2019), which is both a sprawling worldwide company and based in Japan, where reporting and management structures differ substantially from Australia, the US and the European Union.

Western companies tend to set sales and cost projections, then adopt a range of strategies to meet those targets. Japanese companies tend to develop strategies which will result in their meeting some more widely specified targets. Western companies that fail to meet their targets are assumed to have adopted the wrong strategies. Japanese companies that do not do well are more often criticised for not applying their existing strategies in an effective manner.

Results

In overall terms, NPH performed well during FY2020, bringing in JPY781 billion ($9.2 billion) in sales, above its projection made in 2017 that it would reach JPY750 billion in sales. However, its profit was below the forecast JPY105 billion at JPY87 billion ($1 billion). The company put its underperforming operating margin down to problems from the COVID-19 pandemic. NPH's current medium-term goal is to achieve sales of JPY1100 billion by FY2023, along with JPY140 billion in profit.

Dulux

As the slide from NPH's results presentation indicates, the Dulux sales contribution is set at JPY148.3 billion ($1.76 billion), with an operating margin of 11.6%. (Dun & Bradstreet suggests the number is closer to $2.0 billion.) NPH estimates that in decorative paints, Dulux grew its market share from 48% in 2019 to 50% in 2020.

It's difficult to tell exactly what NPH is counting as "DuluxGroup" in its operations, but that result is broadly in line with the sales results for the company prior to its acquisition, allowing for currency fluctuations. In its Integrated Report for FY2019 (similar to an annual report, only substantially more complex), NPH lists the revenue for that year as being $1.8 billion, which included eight months prior to acquisition.

A more revealing look at how the NPH sees Dulux is revealed in the 2020 "Integrated Report" (IR2020), which covers results for 2019. This shows the following diagram for its worldwide operations:

This illustrates what NPH refers to as its "spiderweb" approach to international management, where subsidiaries are free to interact with each other (across the web), rather than having to direct all activity through a central hub (the "radial" plan) than then connects to all the subsidiaries. It's interesting that NPH sees Dulux as having a direct connection with NPH's other recent acquisition, the Turkish paint company Betek Boya (aka Betek Boya ve Kimya Sanayi).

The IR2020 also offers some insights from former managing director, Patrick Houlihan, who has continued in his management role, now as CEO and chairman. According to Mr Houlihan:

Becoming part of Nippon Paint Holdings is a new chapter in DuluxGroup's rich history, but its focus remains on maximising shareholder value by leveraging new opportunities as part of the Asia Pacific's number one paint and coatings company.

Specifically, this includes: 1. Building on the company's market-leading positions in Australia, New Zealand and Papua New Guinea; 2. Contributing to Nippon Paint's position in Asia through DuluxGroup's own capabilities and portfolio-for example, Selleys adhesives and sealants; and 3. Continuing to explore pathways for material growth in the UK, Europe, and beyond-for example, Craig & Rose in the UK and Maison Deco in France.

DuluxGroup's businesses are already benefiting from collaboration with other parts of Nippon Paint, and everyone at the company is excited by this new opportunity.

The IR2020 also supplies some familiar graphs of the makeup of the Dulux business:

Perhaps the most interesting direct reference to Dulux is in the space provided to Wee Siew Kim, deputy president and executive corporate officer, Nippon Paint Holdings Co, and group chief executive officer, NIPSEA Group:

Last year, NPHD acquired the DuluxGroup (DGL) in Australia and New Zealand, as well as Betek Boya in Turkey. Besides learning from these two great management teams, NIPSEA sees growth by tapping into DGL's Selleys range of sealants, adhesives and fillers as well as its geographical expansion in the region peripheral to Turkey.

Judging by the press releases this seems to be a process well underway:

Chen Lee Siong, General Manager of Group Trade User Business at Nippon Paint Malaysia said, "The expansion of our product offerings through Selleys will further enhance Nippon Paint's end-to-end home solutions, designed to meet the needs and demands of Malaysian consumers. This strategic integration paves way for both Nippon Paint and Selleys to further grow within the Malaysian market - creating an accessible and convenient shopping experience for consumers."

Analysis

What is of most interest to the Australian hardware retail industry is how the acquisition of DuluxGroup will shape its development over the next three years or so. While it's good to see Australian technology spreading through Asia, the question has to be asked why it takes an acquisition by a Japanese company for that to happen? Not that DuluxGroup is necessarily to blame, for the government policies that once promoted Australia as being more a part of Asia, rather than some awkward outpost of the Anglo-sphere, seemed to have vanished post-Paul Keating. Given the growth opportunities, that might be worth a revision.

But for the Australian industry, the question will be how much technology will flow into this market from overseas. There are some new developments announced by NPH that could be of real interest. For example, alongside the development of anti-bacterial and even anti-viral paints, the company is developing DIY paint that resists splattering when used with a roller. If the DIY paint market continues to grow, that could be more attractive even than paint longevity and wear resistance.

One area that it will be interesting to see possibly change at Dulux under its new Japan-based ownership, is its gender imbalance. According to the company's 2019/20 Workplace Gender Equality Report, overall there were 300 male managers to 140 female managers. Within that management group, at the senior level, it's the same story: 95 senior male managers to just 49 female managers. Of those, 10 female managers were part-time, and three male managers were part-time. Those imbalances were carried through to the ratio of promotions to manager as well.

It's an easy guess that by the start of 2022, issues such as these will receive considerably more attention across Australian industry.

On-demand delivery start-up Rendr that describes itself as the "Uber for plants, home and hardware" has received investment from a consortium led by former Cache Group managing director Sonney Roth. Mr Roth managed the Antler luggage business in Australia for 30 years before selling it to Strandbags owner Michael Lewis recently.

According to The Australian Financial Review (AFR), the consortium includes Latitude Financial Group chief executive Ahmed Fahour and Steven Lew, chief executive of homewares retailer Global Retail Brands, his chief operating officer Darron Kupshik and Hairhouse co-owner Emad Nayef.

Rendr was launched in 2019 by young entrepreneurs James Fisher and Greg Leibowitz. Through the app, users can order plants, power tools, paint, basins and everything in between and get it delivered to their home or job sites. It included features such as a paint estimator tool and bundle packages for convenience and ease. Not surprisingly, it has direct appeal for tradies and DIYers.

At the time, Rendr had a network of about 80 crowdsourced drivers who bought goods in stores and delivered them to homes and work sites. It thrived during the DIY boom triggered by the pandemic.

When Mr Roth, a family friend, was asked to help scale the start-up, he overhauled the business model, ditching crowd-sourced deliveries in favour of partnerships with professional transport and logistics businesses. He told the AFR:

...[T]he app was fine, but they were using crowdsourced drivers ... and I didn't think it was scalable.

Since its initial launch, Rendr released a new app, website and online marketplace which integrates with retailers' websites and e-commerce platforms. It is recruiting retailers and brands including Mr Lew's House chain, Mr Nayef's Hairhouse and Antler.

Rendr's technology matches merchants and consumers with the best possible delivery solution, using a network of delivery partners from bike couriers who can deliver small packages in two hours to line haul carriers who can deliver goods weighing up to 1000 kilograms from interstate. Mr Roth said:

We have 20,000 drivers from bikes to semis so we can do any delivery, which Uber Eats and DoorDash [which have crowdsourced delivery networks] can't do.

Rendr is also in talks to provide third-party logistics for small brands and retailers, business-to-business deliveries to help retailers distribute stock from warehouses to stores, and is considering a buy now, pay later product and overseas expansion.

Mr Roth wants to make Rendr a household name and is already planning a Series B or pre-initial public offering round.

Background

Greg Leibowitz and James Fisher started their career together by establishing a digital marketing agency straight out of school in 2017. They noticed a boom in the "on-demand delivery service" industry. The duo also discussions with their tradie mates about the struggle of delayed deliveries and inconvenience of having to leave job sites to collect supplies.

By dissecting the retail landscape, they found that there wasn't an all-in-one platform available for DIYers and trades that provided on-demand delivery of the supplies. They recognised the gap in the market and decided to create Rendr.

Related: Getter app for tradies raises money in capital raising.

Metcash's acquisition - and financing - of Australian trade tool franchise Total Tools Holdings (TTH) received significant attention at the company's Investor Day briefing for analysts, which has held on 16 March 2021. Despite this time and attention, however, Metcash did not really succeed, in HNN's opinion, in being very clear about what is going on.

That's not too surprising, as in recent years much of Metcash's presentation style has moved more towards what could be termed the "ornate" rather than the strictly factual. Some of that move has been driven by Mark Laidlaw, the former CEO of Metcash's hardware operations (including IHG, the Independent Hardware Group). Mr Laidlaw, has agreed to interrupt his retirement to return to Metcash in the role of the chairman of Total Tools - though for how long is not known.

Beyond the method of delivery, there are really two sources of a lack of clarity in the presentation of the Total Tools acquisition. One relates to the actual numbers that are being presented, and the other to the way in which this acquisition meshes with the overall strategy undertaken at Metcash.

Industry view

Before we get to that, however, we might focus on one slightly surprising statement that Mr Laidlaw made, which could have real consequences for independent hardware retailers. In answer to a question from analyst Simon Mawhinney of Allan Gray Australia about the planned expansion of TTH, and where the marketshare to support expansion would come from, Mr Laidlaw had this to say:

Phase two of this is the network opportunities sharing with Annette's [Welsh, CEO of IHG] business. So there'll be some regional towns, for example, that couldn't justify a Sydney Tools going there. Okay, population is too small, but there could be a Mitre 10 or a Home Timber and Hardware store. They could have a Total Tool store built next to it in some of those regional towns.

OK. Wait a minute. So in "phase 2", which comes after the TTH network had been built out to 200 stores or so, a Mitre 10 or HTH retailer in a small town could wake up one day to find that a TTH store was going to be built next door? With discounted prices on power tools, power tool accessories and hand tools?

Really?

If it's a corporate/joint venture store, it wouldn't matter, because it is all Metcash revenue. But if it's not? What happens then? This could end up being even a little worse than it seems at first. One response might be, for example, for the owner to sell that store - but it would have probably already lost some of its value. And, of course, IHG would have the right to buy the store with a matching offer, giving it a winning matched set in a small town.

HNN is very sure that this is in the category of "unintended consequences" - IHG really is not so devious. But you have to admit, that's a heck of an unintended consequence. And it goes to something deeper in all of this, which is that HNN just cannot help sensing that, for a $57 million investment, plus a further $95 million in CapEx to fuel growth from FY2022 to FY2044, there seem to be a lot of details that haven't really been thought out.

The numbers

To look at the numbers to begin with, the presentation slides from the Investor Day identify what Metcash terms "Network revenue June 2020" for TTH as being $658 million. According to the Australian Stock Exchange (ASX) announcement for 27 July 2020:

The retail store network generated sales of ~$555m for the 12 months ended 31 December 2019.

So, the assumption would be that the $658 million number refers for sales from 1 July 2019 to 30 June 2020. That would indicate that the first calendar half of 2020 outperformed the first calendar half of 2019 by $103 million.

Those numbers are not without meaning, as they reflect the overall market impact of TTH. But that revenue is not something that TTH - and now Metcash - fully participate in. As HNN mentioned in its initial coverage of the acquisition, Dun & Bradstreet estimated revenues for FY2019/20 as being around $98 million. Further:

Metcash has announced that in its two months of ownership prior to its first-half results, TTH declared $18.6 million in total revenue, and $4.8 million in total EBIT. Those numbers annualise out to $111.6 million and $28.8 million.

Metcash mentions in its ASX announcement of 1 September 2020, commenting on the completion of the acquisition:

The terms of the agreement, including the purchase price of ~$57m for the 70% stake, are consistent with those disclosed in Metcash's prior ASX announcements. The purchase price was determined based on a normalised annual EBITDA of $12.6m. Total Tools has however benefited from a change in consumer behaviour related to COVID-19 and is expected to report a significantly higher EBITDA for the year ended 30 June 2020.

If we presume that TTH can retain something close to its current numbers, and bearing in mind that Metcash only has a 70% ownership stake, that means the company will benefit to an amount around $20 million in earnings a year. This is far from being insignificant, but it is something of a step down from what the figure of $658 million in apparent revenues indicates.

Metcash hasn't made any misstatements, but providing more targeted revenue numbers and estimated EBIT would have better contextualised the acquisition.

Inside the acquisition

While better numbers might be helpful, the real problem in understanding this acquisition is that it requires an in-depth view of what is going on inside Metcash, how that interlocks with the external, macro environment in retail, and, finally, how all that plays out when it comes to the current state of the hardware retail industry itself.

HNN would suggest that what we're really seeing in the TTH acquisition is the final playing out of some less-than-successful strategies that have been at work over the past six to seven years in Metcash.

On a very high macro level, Metcash has tended to invest in short to medium term projects, and possibly has neglected a number of more long-term objectives. This is particularly the case as regards digital technologies. The CEO of Metcash, Jeff Adams, did call this out during the Investor Day. He indicated that the company would be making major investments through to FY2024 in replacing its internal systems, getting rid of what Mr Adams referred to as instances of "triple-handling" in some processes.

It is, however, a little bit less clear how Metcash's digital investment will play out when it comes to actual retail processes. Again, it is just very difficult to know when Metcash refers to some of its current digital assets as being "industry leading" whether that is simply a promotional attitude, or if the company actually believes this. As compared to, say, Amazon.com all of the Metcash digital assets seem evidently primitive. In hardware, they certainly don't have the functionality of the Bunnings website - though it, too, lags somewhat in international terms.

One clear indication that digital retail may not be everything it is made out to be is that the only performance indicators given are percentage increases over the previous corresponding period. And in the digital world, seeing numbers like a "150% increase" don't tend to indicate very high growth, but rather a very low starting base.

What still remains lacking at Metcash is the ability to conceive of digital as not just a secondary, cost cutting, market expanding business objective, but rather a primary objective, and one that is aimed at producing actual growth. We've seen, for example the parent company of big-box hardware retailer Bunnings, Wesfarmers, make a very large investment into data analytics. In a recent speech to a technology conference, the governor of the Reserve Bank of Australia (RBA), Philip Lowe, had this to say about the importance of data analytics to future growth in Australian businesses:

Looking across the economy, there are investment needs and opportunities in many areas. The one I would like to focus on today is investment in IT, digitisation and data science. Investment in these areas is critical to lifting our nation's productive capacity.

In many ways data is the new oil of the 21st century. Investing in data and our digital capability are critical to our future prosperity. These investments allow better decision making and a faster response to the changes in our economy and society. These investments are also crucial to organisations delivering the more personalised goods and services that many people are seeking.

There are opportunities for digital innovation in every sector of our economy. Almost every organisation needs a strong digital capability to perform well, to innovate and lift their productivity. Technology and data analysis also hold the keys to solving many of the great challenges of our times, including controlling the pandemic, dealing with climate change and responding to increasing cyber threats.

If a company has all but excluded itself from the primary driver of growth in the 21st Century, technology, it then has to look elsewhere for growth. The difficulty with this is that even those other growth opportunities are going to find themselves still altered by technology.

In 2018, HNN took a look at data analytics in the hardware/home improvement retail industry:

Food

For example, the difficulties that have beset Metcash's food business have been well-documented. It has lost some major wholesale partners such as 7-Eleven and Drakes, which pulled their contracts. Then there are the independent supermarket owners who built a smaller, competing supply cooperative. As described by Inside Retail:

Led by former Coca-Cola Amatil managing director Warwick White, through his independent grocery firm Stone Advisory, and with Ritchies Supa IGA boss Fred Harrison on the board, Co-Operative Supermarkets Australia [CSA] is expected to use its industry experience and contacts to collectively bargain with suppliers.

On its website, CSA states what was the inspiration for the move:

Following a trip by some leading retailers to Europe to see REWE and Leclerc, there was a new belief that grocery independent co-ops can beat the chains. The trip cemented the view that independents needed to control their own destiny.

Such a move would have been much less likely just ten years ago, but digital technology has made it possible for smaller cooperatives to manage order processing, fulfillment and delivery efficiently without the need for larger scale.

Hardware

The same forces that have been at work on the food business have appeared, more indirectly, in Metcash's hardware business. While Metcash has been broadly successful in agglomerating Mitre 10 with the retail assets of Danks, Home Timber & Hardware [HTH] as well as Thrifty-Link, it's an open secret that IHG has not succeeded to the degree it expected it would. While the company lost very few stores through the acquisition (far fewer than buying groups expected), IHG also did not gain as many additional independent stores as it had expected it would.

In large part that was because buying groups such as Hardware & Building Traders (HBT), led by Greg Benstead as CEO, innovated and made better use of digital technology along with other techniques to deliver solid results to its members. For example, IHG's Mitre 10 had long seen its printed mail catalogue as being a major part of successful marketing. HBT in 2020 introduced a system where individual members could digitally compose their own catalogue for their own areas, taking advantage of any HBT/supplier deals they chose. The catalogues could then be distributed in printed form, or accessed online.

In 2019 IHG made some belated efforts to approach buying groups with the suggestion that they could do better if they all joined forces. It was, however, a case for far too little far too late, and as far as HNN is aware no buying groups expressed interest in any kind of further integration with IHG.

What has been seen this year, as IHG has moved to close down its two minor brands, True Value and Thrifty-Link, and to increase the emphasis on its Mitre 10 brand over the HTH brand, is that Metcash no longer sees IHG as a real source of future growth through expansion. HNN would suggest the company will continue to be interested in getting larger stores from groups such as National Building Supplies (Natbuild) to join, but less avidly pursue smaller stores.

Finding growth

Given these contractions to growth, Metcash has been forced to explore new ways to achieve future growth. Like many companies that find themselves in such a position, one of the key changes it has made is to alter the risk profile of its investments.

Not that long ago, hardware at Metcash consisted almost entirely of its wholesale business, with only a small amount of full retail ownership - and much of that was purely defensive, preventing Bunnings from expanding by buying out Mitre 10 hardware stores. That began to change four to five years ago, and that change has accelerated to the extent that, according to data released at the Investor Day, where in 2018 some 40% of revenue came from joint stores, that has grown to 45% in 2021. While IHG was at pains to play down its future acquisition strategy, it's HNN's belief that JVs will come to make up over 50% of revenue for IHG by 2024.

Of course, this looks pretty smart. Selling only wholesale goods means that IHG misses out on the biggest slice of profit, which comes in the store to customer transaction. Why not buy into that, especially when it means taking over a store that not only has a good track record, but about which, as the main supplier, your company knows a great deal?

Unfortunately, as everyone knows, there is no such thing as free money. When a company moves from a wholesale to a retail operation, the risk profile undergoes a radical change. One advantage of the wholesale sales model is that, if the economy, or a sector of the economy undergoes a period of extended negative growth, the wholesaler is unlikely to be severely affected. Wholesale assets, and their attendant fixed costs, can usually be reallocated to different sectors, and the relatively less-skilled workforce can be laid off and later rehired without too much difficulty.

That's not the case with retail. In a down cycle, retail fixed operating costs can be deadly, and staff cannot simply be let go and rehired later. So when companies move from wholesale to retail they assume a great deal more operating risk. This is not always fully acknowledged.

The acquisition

There is one more factor to take into consideration about the TTH acquisition, and that is the effect of the COVID-19 pandemic. While there was a real effort made by Metcash to suggest that the pandemic will somehow result in fundamental structural change to its markets, that does not seem to really be the majority view. While current conditions might just stretch to November 2021, there is little doubt that once COVID-19 vaccinations are in place, Australians will return to their habits of eating out as much as they did in 2019, and grocery sales will slump. In terms of hardware, there may be a marginal increase in sales, but that will depend in large part on what the housing market does, which is far from certain.

This means that come the second half of FY2022, companies like Metcash will be running direct comparisons back to FY2019, and perhaps even then contemplating sliding results.

It is the culmination of all these factors - poor technology adoption in the past, sliding growth in the food business, a failure to fully capitalise on investments in the hardware sector, and the hangover from COVID-19 - that has made the investment in TTH "make sense" for Metcash. It makes sense, because the company is likely faced with just two choices: don't take the chance, and then pay the price for low growth, or take the chance and just possibly do better.

If Metcash is lucky, it might benefit from a new source of growth. Even if it isn't lucky, and TTH proves to provide more neutral than high growth, Metcash might buy itself "cover" for as much as the next two years, by which time, hopefully, some of its digital transformation benefits will kick in.

The core reality of that investment is perhaps best revealed by this question asked at the Investor Day by investment analyst Andrew McLennan of Goldman Sachs.

It looks though that this is going to be very much a space race. You've flagged how many stores you're looking to roll out, but you've got a competitor starting from way back, but having a huge amount of capital, obviously you've got different skillsets in terms of trade versus DIY, etc. Just wondering how confident you can be that allocating this capital and accelerating the growth profile can continue to enable you guys to run ahead of the Bunnings funded competitor.

This is, of course, the background to this acquisition: TTH is widely regarded as having backed out of a potential ASX listing and put the company on the market out of concern when Wesfarmers/Bunnings entered the trade tool specialist market with the purchase of Adelaide Tools.

Mr Laidlaw's response to the question partially affirms this supposition.

So you're absolutely right. I mean, what the franchisees of Total Tools were saying [was], "We've got a great business here. We've got great franchisees. We've got a good plan, but do we have the capital to compete with Bunnings?" That's a fact. So we bring that, but I'm very confident with the expertise that Paul [Dumbrell, CEO of TTH] has in his team that we will stay ahead of that competition. Adelaide Tools, just five stores. I'm not sure if the owner's staying around. So Bunnings have to acquire that expertise from somewhere. We've got it out there in 88 stores.

This does identify the extent of risk that Metcash is facing. Bunnings has plans to build out its network of tool retailers to around 30 stores over the next two to three years. However, perhaps characterising it as a general "space race" - the retailer with the most stores wins - is not quite accurate. It is a space race, maybe, for Metcash, but it really isn't for Bunnings.

One of the factors that was not mentioned at the Investor Day, and that perhaps has not been quite figured into the TTH acquisition, is the extent of the relationship Bunnings has with Techtronic Industries (TTI), the company behind the Milwaukee, AEG and Ryobi power tool brands. The volume of goods made by TTI sold through Bunnings would be substantial (Bunnings has exclusive rights in Australia for both Ryobi and AEG), and one would imagine that this, along with a very long and good relationship between the two major companies, could guarantee good supply agreements.

Every indication that is currently coming from Bunnings is that the company plans to take things slow, and make sure the retail offer is an appealing one. The real question for TTH, in this circumstance, isn't the competitive moves Bunnings may make, but how long it will take the bigger company to develop a performant, verifiable model. At that point, and only at that point, is Bunnings likely to increase its investment and start building out the store network.

Understanding Bunnings

What Mr Laidlaw's answer really does show is something of an ongoing problem that has persisted at Metcash, which is really not understanding Bunnings. That was evident in his opening remarks to the Investor Day presentation:

Annette [Welsh] and I have been fortunate enough to travel the world, looking at home improvement businesses, hardware businesses, looking for best practice and gone to many good places. And it's amazing when you come back to it, if you categorised the Big Box DIY best performers in the world, you look at B&Q, you look at Home Depot. Bunnings is the best in the world, in our opinion, at Big Box DIY. Very, very good. They've absolutely captured that weekend warrior. You only have to drive past car parks on the weekend to see how successful that is at capturing the heart and soul of the DIY customer. They're not so good at trade, but we'll talk about that as well.

We also looked at a lot of good individual businesses around the world. There were some great businesses in the US, entrepreneurial. There's a business called Orchard. Unfortunately, the big guys always then go and buy them out and you lose the entrepreneurialism. But the best at actually trade and DIY, not so humble, is absolutely Mitre 10 New Zealand, who are outstanding at it, and Mitre 10 Australia is becoming very, very good at it, and leading the way in many areas. Having those trade drive-throughs for the trader to get in and out, get on with it, is outstanding.

With all due respect to both Mr Laidlaw and Ms Welsh, Metcash is an Australian company with a market capitalisation of around $3.5 billion. At its peak, revenues from its hardware segment have been around $2.4 billion, and the majority of those revenues come from its wholesale operations, not retail.

Home Depot has a market cap of USD329 billion, and revenues of USD132 billion in FY2020. B&Q is owned by Kingfisher in the UK. Kingfisher has a market cap of GBP6.7 billion, and had FY2020/21 revenues of GBP12.34 billion.

Bunnings is owned by Wesfarmers, which has a market cap of $60 billion. It had sales of $31 billion for FY2019/20, of which $15 billion came from Bunnings. If we accept that 17% of that revenue was due to trade sales, that means Bunnings earned $2.6 billion in trade - about double the trade portion of the wholesale/retail revenue of IHG.

Of course, everyone in hardware has an opinion about every other retailer in hardware - and is entitled to that. It's difficult to see, however, what role such opinions really should play in evaluating CapEx investments of over $100 million in a franchise operation. Far better to plan based on a clear vision of a competitor, rather than working off of potentially erroneous assumptions.

Analysis

What effect will Metcash's investment in TTH have on the overall tool market in hardware retail? Most hardware retailers are going to be less concerned about how many Milwaukee drills TTH sells, and more concerned about the market in power tool accessories, such as bits, cutting disks and replacement batteries. As the franchise expands, will it see tradies go to TTH for their actual tools, but return to hardware stores for those accessories? What happens when both TTH and Bunnings are expanding their operations?

There is really no way to tell, and it's likely to be a store-by-store, customer-by-customer situation. Perhaps the real impact of the TTH investment is not so much directly about TTH itself as it is the signal that Metcash plans to deal with its hardware business in a different way. The industry will likely only understand the consequences of that once 2021 is over.

In general terms, however, what we are seeing play out at Metcash is similar to what we see at many other listed and unlisted Australian companies. Many of these companies have reported reasonable performance over the past five years, but this has been due, at least in part, to not realising how much they should have been investing in technology. As the 2020s roll by, we'll see more of these getting into trouble as their sources of growth dry up. Like Metcash, they will invest in riskier projects, in the hope of shoring up their share price and future outlook.

Some will eventually make the transition to technology, but more will likely fail, or find themselves in receivership, being scavenged for whatever assets they have left that will be of value. HNN would suggest that will happen more quickly than most would suspect, as soon as 2025. Let's hope Metcash - and IHG - evades that fate, but to do so it will need more significant action than has been envisioned so far.

Building materials supplier, Brickworks believes the outlook for housing is so strong and stretching well into next year that it has decided to restart a mothballed brick kiln in New South Wales.

Its flagship Australian building products business recorded a 60% gain in earnings to $16 million. The federal government's HomeBuilder program has been a major driver, but Mr Partridge said he was worried about what might occur from mid-2022 without immigration and international students because of border closures. Brickworks chief executive Lindsay Partridge told The Australian:

Demand was relatively subdued early in the period. However, as government stimulus packages were progressively introduced, consumer confidence improved and this translated into increased building activity and greater demand for our building products.

Our orders are running exceptionally strong ... Every builder in the country has a full order book, and it is going to run strong for the next 12 months, until I think what happens in the middle of next year which is the question. Does the economy continue to grow, how does housing stay strong with a lack of immigration?

People to regional towns would keep demand high for at least another year, according to Mr Partridge. In the pandemic, people were steering away from apartment living, in favour of detached houses, he said. The trends were delivering robust sales in the company's main brands, Austral Bricks, Austral Masonry and Bristile Roofing.

Mr Partridge said the short-term outlook was positive but warned lack of tradies could slow the pace of projects.

As demand grows, we anticipate sales volume will be limited by the availability of tradespeople such as brick layers and roof tilers, and this is likely to extend the existing pipeline of work, resulting in an elevated period of activity for at least a year.

Mr Partridge said a fall in bricklayer wages on the west coast had seen many professionals leave the industry, creating a shortage. Meanwhile roof tilers flocking to Queensland following hailstorms before Christmas had seen other states scrambling for available roof workers.

On the west coast we had a long downturn and wages dropped, tradies went off to do other things and that won't come back until wages go up. On the east coast we had the big hail storms in Brisbane before Christmas so all the roof tiling trades have been busy doing that.

Mr Partridge also said further brakes on sector growth could come from qualified tradies soon being engaged on repairs and rebuilding projects across flood-affected areas of NSW overseen by insurance companies willing to pay high prices.

We don't know what the demand for trades is going to be after the floods ... in Sydney, but of course there are going to be tradies demanded and insurance companies who want to get their clients back into houses are always going to pay top dollar to get the work done quickly.\

And while the slowdown in high-rise towers could free up workers for residential projects, there remains a danger strong order books will see residential construction projects potentially slowed and the pipeline stretched out to next year. Mr Partridge said:

On the east coast we need the tradies that are involved in high-rise construction to move across to residential housing.

The warning came as the company posted a 22% lift in first-half profit to $71 million. Its revenue fell 4% to $449 million and underlying profit was $90 million, down 10% from the prior period.

US business

Brickworks is one of the largest brickmakers in the US and is benefiting from the trillions of dollars in stimulus being pumped into the economy. It won the contract for the Walmart global headquarters in Arkansas, which will have 11 towers and require tens of millions of bricks.

However, its North American businesses' earnings were significantly impacted by the COVID-19 pandemic, exacerbated by uncertainty in the lead-up to the US presidential election in November and severe winter weather from December. Some US state authorities paused infrastructure and building projects because of battered finances. Lockdowns in some states also crimped demand in the north-east and Midwest. This resulted in a 33% decrease in earnings to $4 million. Mr Partridge said:

We have been hit harder by the pandemic in North America, with around 90 COVID-19 cases amongst employees, and more than half of all staff unable to work at varying times during the period. This has created significant workplace challenges, just to keep some of our plants operating.

Investments

In addition to its core building materials businesses, Brickworks' investments include a 39% stake in the ASX-listed Soul Pattinson which rose $720 million in value over the period to be currently valued at $2.9 billion. Its half-share of a property trust with warehousing specialist Goodman Group which is heavily exposed to industrial properties increased by a further $50 million to $777 million in the half.

HeidelbergCement

Dominik von Achten, chairman of Heidelberg­Cement, recently told investors and analysts during a fourth quarter update that he was more optimistic about Australia than many of the company's competitors, as COVID looked to have been beaten and the economy was benefiting from rising commodity prices.

The Australian reports that Dr von Achten said he was looking forward to an improved second half of 2021.

COVID is basically over ... OK, they cannot internationally travel, but the life is fully back to normal in Australia. So that's why we are pretty optimistic for, at least, the second half in Australia.

I know that our competitors in Australia, based on their communicated guidance, may have a little bit of a different view on this.

Australia was a little bit tough for the last one or two years. Started quite well into this year and from our perspective [with] solid expectations for the second half.

Dr von Achten highlighted the infrastructure projects that were banking up and would help drive sales and activity. He said:

From what we see ... on the back of good infrastructure pipelines ... there are significant infrastructure programs locally by state and nationally in place. We are optimistic for Australia.

Dr von Achten said Australia, for a long time, had been riding the commodity boom and that despite some impact from last year's worsening of the trade dispute with China, the recent rise in commodity prices should flow through to the economy and sentiment.

They were, for a long time, very much dependent on the commodity boom that has then come to a clear end in 2020.

They are a little bit of an insight in some of the commodities with China and also the Chinese not being able to travel to Australia and the slight decrease in the Chinese effect of the Australian economy may have had an impact on that. But in general, I have to say commodity prices are now up again, which then should also help in a commodity-driven nation like Australia and also sentiment in Australia.

HeidelbergCement bought British rival Hanson for GBP8 billion in 2007, giving it a foothold in Australia with Hanson's local operations. It also owns a 50% share in Cement Australia through Hanson, with its partner in the subsidiary LafargeHolcim.

Dr von Achten said Australia remains an important market to HeidelbergCement, with no changes to the Cement Australia partnership required at this point.

I think Australia is an important market for us, that we have a very strong business down there, highly vertically integrated and that includes Cement Australia.

From our perspective, that partnership works well and I think that, for us, there's no need to touch this at this point. If there is some change necessary from our partners' perspective, then we'll reconvene. But from our perspective right now, we are happy with the set-up.

All Gyprock products are now certified to display the Australian Made and Owned logo. Gyprock executive general manager, Paul Dalton, said the company takes great pride in its local manufacturing operations and is committed to protecting Australian jobs.

We are proud of our history as an Australian manufacturer. Not only do we take pride in supporting the continuation of local jobs, but there is also a satisfaction that comes with producing a nationally recognised Australian Made product.

The Australian Made logo is globally recognised and aligns perfectly with our mission statement - when you purchase Gyprock products, you are buying quality. It also demonstrates our commitment to local manufacturing and provides our customers with the peace of mind that comes from purchasing locally made products. We believe our commitment to local manufacturing has contributed to Gyprock's outstanding reputation for quality.

Gyprock is proud to have its products certified with the Australian Made logo. The logo also adds a lot of weight to our country-of-origin claims. Carrying the Australian Made logo and directing decision-makers to our products on the Australian Made website provides transparency. It clearly communicates our manufacturing processes beyond what we could independently.

Ben Lazzaro, Chief Executive of the Australian Made Campaign, said:

The Australian Made logo is the true mark of Aussie authenticity. It's exciting to see Gyprock's range of Australian Made product proudly carrying the iconic green and gold kangaroo.

Aussie products are made to some of the highest standards in the world. They are trusted, known for their safety and quality and increasingly preferred by builders and home renovators. When you buy Australian, you are also helping to pump money back into our economy, which helps to keep Aussie jobs, strengthen local industries and supports local communities.

A 2020 study from Roy Morgan Research found that Aussies favour Australian Made products, with 68% of Australians preferring to buy Australian-made building and renovation materials, and 58% preferring to buy Australian-made tools and hardware. The research also found that high quality, use of ethical labour, and supporting local jobs and employment are all attributes associated with the Australian Made logo.

Gyprock has developed a portfolio of leading design support resources for designers, engineers and architects, reducing uncertainty and risk, and allowing professionals to remain on top of the ever-changing codes and products. DesignLINK partners with clients to workshop complex design issues, provide value engineering, rationalise system specifications and deliver better building performance while maintaining buildability for both builders and contractors. The Red Book is the industry's respected fire and acoustic design guide and offers best-in-class performance detail and technical guidance for selecting fire, acoustic and thermal wall, ceiling, column and beam systems. Mr Dalton said:

Our Australian Made products have been designed with the expectations and needs of Australians in mind, providing appropriate market solutions that consider Australia's standards and regulations with no compromises...

It's more important than ever to support and grow the local manufacturing capability. A thriving manufacturing sector is critical to Australia's economic future and prosperity, and will help create jobs, strengthen local industries and support local communities...

Gyprock is part of CSR Limited.

US-based power tool, storage, industrial tool and security company Stanley Black & Decker (SBD) released its results for its 2020 financial year on 28 January 2021. While the results showed a strong uptick in sales revenues for the third and fourth quarters, the first quarter was lacklustre and the second quarter indicated quite a poor performance. Exactly how or why the early quarters of the year produced such poor results is not evident, with the first half 2020 sales down by over -11% on the first half 2019 sales.

As a result, the company reported earnings of USD14,535 million for FY2020, an increase of just 0.64% over the previous corresponding period (pcp), which was FY2019. The earnings numbers held better news. Earnings before income taxes and equity interest were USD1267 million, up by over 12% on the pcp. Net earnings increased to USD1245 million, up 30% on the pcp.

Looking specifically at the power tools segment, it recorded sales of USD10,330 million for 2020, up 2.64% on the pcp. Profit was USD1842, up by over 20% on the pcp. That was a considerable recovery from the second quarter of FY2020, which saw sales in power tools fell by over 16% to USD2197 million. Profit also fell for that quarter, down to USD345 million, a reduction of -12.5%.

Those results are in stark contrast to the efforts of other power tool companies, such as Techtronic Industries (TTI) and Bosch Power Tools, which posted gains through 2020. Bosch posted gains of 9% in sales for its FY2020/21, while TTI grew sales by 12.8% during the first half of 2020, and posted gains of 28% for the entire year. Makita posted an increase of 18.2% on sales for the nine months to 31 December 2020, which includes a lift in revenue for the equivalent of SBD's second quarter of 3.7%.

That said, certainly in the US press, the company has been portrayed as performing well in response to markets affected by the COVID-19 pandemic. A January 2021 Wall Street Journal article entitled, "Consumers open wallets, and factories can't keep up", portrayed SBD as a company that had initially cut production by April 2020, but then committed to increase production the next month. The article describes the situation:

Retailers slashed orders for Stanley Black & Decker Inc's power tools, wrenches, tape measures and utility knives by 40% a week last April from a year earlier. By May though, CEO James Loree said those retailers were selling about 30% more of the company's products than a year earlier, as homebound consumers tackled renovations and yard work.

Retailers weren't placing new orders with Stanley, though. They were drawing down inventory instead. Executives weighed their options: wait for retailers to place panic-size orders that Stanley might not be able to deliver on time, or raise production on the belief retailers would soon start restocking. If they didn't, Stanley would be stuck with six months of inventory.

SBD did everything it could to keep production ramped, including, according to the WSJ:

At a Stanley-operated power-tool plant in Reynosa, Mexico, the company challenged seven attempts by government officials to idle production as a way to control the pandemic. Mr. Loree said the company appealed to the U.S. ambassador to Mexico to intervene on its behalf.

The inside story

For the most part, the questions and answers from analysts at the SBD results announcement tend to be more about details than strategy. For strategy insights, it's best to turn to the investment analyst conferences where SBD makes regular and well-regarded appearances.

One of these is the Barclays Industrial Select Conference held in mid-February, where Donald Allan, SBD president and CFO answered some questions posed by Julian Mitchell, a research analyst with Barclays Bank.

Mr Mitchell's first question was about how analysts should view the immediate future of SBD, given the apparent volatility of the home improvement markets. Mr Allan responded:

So the profiling is really interesting. And I think when people focus on Tools & Storage and think about the back half, we put out [a forecast] externally that we think is balanced and reasonable, and it represents about 4% to 10% growth versus 2019 back half. But we also said two and a half weeks ago that there could be an opportunity that these markets stay strong. And so we have prepared our supply chain and our operation manufacturing footprint to meet a stronger market if it's there.

[W]e don't know exactly how this is going to play out. The virus may be around longer than we want it to be. We may be home much longer than we want to be. And so if that's the case, a lot of these trends could be really robust for a longer period of time. And we want to make sure we, as a company, are prepared for that.

Mr Mitchell then asked for some more detail around the way SBD sees the markets shaping up, especially as regards DIY and profession (trade) markets. Mr Allan provided this response:

I would say that in the back half, we're expecting the DIY tend to be good but not be as strong as it has been. But the pro performance continues to get better and better and stronger. We saw that really turn a bit in the third quarter but then it really turned to the positive in the fourth quarter of last year. We're seeing positive trends again here in the first quarter [of 2021]. And we think that, that pro trend is going to continue as - the activity around construction and new home purchases is really significant across not only in the United States but a lot of countries. And so that's really creating a lot of activity for the pro and the tradesmen, for that matter, depending on whether it's a renovation or remodel.

I think that trend is going to continue. I really think we're going to see - as these economies recover, you're going to see a strong professional recovery continue. And then right now, we're saying that DIY might kind of moderate a little bit in the back half. But like I said earlier, we don't really know for sure if that's how it's going to play out.

One of the more interesting responses - and one that can be seen across most of the power tool companies - was in answer to the question of how SBD sees ecommerce developing in the years ahead. The question was answered by Lee McChesney, chief finance officer of global tools & storage at SBD:

We're delighted with the e-commerce results from 2020. And I think they have their foundation in really a 10-year run-up to where we started the year. So we saw in excess of 40% growth in e-commerce in 2020, just coming shy of USD1.9 billion. Depending on the month of the quarter, it was almost 20% of our sales.

That's still the same mindset we have as we go into 2021 or 2022. And that number actually could creep up as we make additional investments in e-commerce. As you said earlier, I mean, it's working with the partners we have today. It's a top topic for them as well so we can bring something to table to help them accelerate. It resonates well. And then to your point, there's parts of the world where maybe Stanley Black & Decker doesn't have as strong a share. There's opportunities to partner with some new channels, and in some cases, even go direct. That's all part of this journey.

What's nice is no matter what part you step in, they really help complement each other here. So if we make an investment into content to even do more in multiple languages, it works with all channels, whether direct or whether through a partner or things like that. So one thing we did do last year as the POS recovered versus the early days of COVID is we've made an additional investment in e-commerce.

Ecommerce was something that was also picked up at another analyst conference, the Raymond James Institutional Investors Conference, where SBD put in an appearance, in March 2021. This was attended by James Loree, the CEO and director of SBD, as well as Mr McChesney. In his opening remarks, Mr Loree spoke about the growth prospects for ecommerce:

So we have this array of growth catalysts, like nothing I have ever seen in my 20-plus years here. The e-commerce business is a great example. Right now, it's about a $1.8 billion channel. It's growing at about a 40% rate. We have about a 3:1 relative share advantage over any other tool player that's in the tool business.

Mr Loree continued to outline the possibilities in the other SBD tool brands and products:

We have these great brands, the Craftsman brand, which we purchased a few years ago, and we've oriented that towards a very versatile kind of Tradesman level brand that attacks the DIY market as well as light trades and light industrial as well.

And then the incredibly strong DeWalt professional power tool and other tool brand, Stanley, Stanley FatMax and then some of the innovations that are coming out of the system now. Flexvolt, a couple of years ago, a really fantastic innovation, followed by the DeWalt Extreme and DeWalt Atomic. And now in more recent times, we have Power Detect.

And just the continued array of innovative – innovations coming out of our Tool business, which have continued to drive the growth.

He then went on to explain some of the rationale for the possible full acquisition of the Ohio-based outdoor power equipment brand MTD.

And then we have this company called MTD, which we have an option to acquire the remaining 80%. We own 20% today. We got into this a couple of years ago when we bought Craftsman. We looked at MTD and said, when we looked at the outdoor part of Craftsman and we said, we really need to be prime in outdoor. We found this company MTD that supplied Home Depot and Lowe's and so on, with their own brands like Cub Cadet [and Troy-Bilt].

But they didn't really have great brands like the Dewalt and Craftsman... So what we did was, we decided to partner up with them, work with them to get their profitability up to levels that would be exciting and interesting to us and then have this option to buy the remaining 80%, which becomes available in July of this year. And it's our intention at this point or at least our expectation that we will implement that option in the latter half of 2021 and expect to have revenue generating in that business as a prime manufacturer in our portfolio, selling the Dewalt brand to the professional market of Craftsman and then Troy-Bilt and Cub Cadet into the markets as well.

Make where you sell

One of the shifts in policy by SBD over the past three years is something it broadly labels as "make where we sell". Announced about a year into the Trump Administration, SBD describes this seemingly US-centric approach on its website:

With 30 manufacturing plants across the USA, employing approximately 16,000 employees, we are committed to investing in people, processes and performance in the U.S., to deliver ultimate value and quality in everything we make here, using materials from around the globe. That commitment is evident year over year. Since 2015, we increased our number of manufacturing jobs in the US by 40%.

As what some have seen as a side consequence of this approach SBD moved to close one of its China-based factories in 2020, with an announcement appearing in the South China Morning Post in early November. Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, Barcelona, and Beijing, made some interesting commentary on this development on its website blog, in an article entitled "What Stanley Black & Decker's Shenzhen Departure Tells Us". This was written by Fred Rocafort, a former diplomat who had a decade of international legal experience, primarily in China, Vietnam, and Thailand, before joining the firm.

Mr Rocafort points out that where at one time such a move might have outraged elements of the Chinese government, in this case it has been presented as an "old school" industrial firm moving out of Shenzhen, an area which is developing into what Mr Rocafort suggests is China's attempt to make a "Silicon Valley with Chinese characteristics".

However, Mr Rocafort believes the move more accurately reflects longstanding tensions in the Chinese economy as it is inflected by ideology. He quotes from his own interview with one of the workers leaving the former SBD plant:

According to a worker, "the Shenzhen factory focused on supplies to the US market, but in the past couple of years, we had been producing semi-finished products and shipping them to Vietnam's plant for assembly." There may be a variety of reasons for this shift, but it's hard to imagine the tariffs imposed on a broad range of Chinese products by the United States didn't play a role. Though a new Biden administration might provide some tariff relief, it's worth remembering there are also numerous antidumping and countervailing (AD/CVD) orders against certain Chinese products, some far predating Trump's trade war.

One other reason for the departure, Mr Rocafort suggests, may be that the lease on the factory land is set to expire, which would see its fate rendered into the hands of the local political cadre, which could, for example, choose to repurpose it for the construction of apartments.

Mr Rocafort concludes his article by noting:

A lot is surely changing in Shenzhen and China - but a lot isn't. Just as beyond the glitzy skyscrapers of Shenzhen's central business district there are large swathes of unlovely industrial areas, the fundamental China issues for foreign business remain beneath the hype.

Analysis

HNN has long held that SBD looks at innovation as having two main aspects: the development of new and innovative tools, and the development of the marketing that goes with them. While both are usually present in any strategic move the company makes, one is usually dominant over the other. For example, with FlexVolt and Power Detect (which enables tools to take advantage of the new, higher-output Lithium-ion batteries, while still using older models), actual product innovation dominates, though there is a good dose of marketing as well.

In other ventures, such as the acquisition of the Craftsman brand, marketing really takes the lead. The goal with Craftsman seems to HNN to be about introducing a mid-range brand which is pitched to be one notch above TTI's Ryobi brand, with the advantage of seeming to be more "American" to its particular market demographic.

That is quite a different approach to that of Bosch Power Tools, TTI and Makita. While those three do have their own particular skills at marketing, they also innovate in areas where they rely on individual discovery by users of product features. While its current model has worked very well for SBD in the past, as TTI constantly accelerates and could potentially equal SBD's power tool revenue by 2023, there is a question whether it remains the best path forward.

As with any company that has had a strong culture than contributed to its past growth, it seems likely that SBD would really struggle should it need to change its current culture to one more adapted to rapidly changing markets. HNN is reminded a little of the US car manufacturers in the 1980s and 1990s, which, despite constant calls for them to innovate, persisted in their "tried and true" ways - until it was simply too late to change, something to which the empty factories of Detroit still bear witness.

The question that remains is whether the apparent "glitch" in the first half of 2020 was just that, or is more significant, and a signal of further vulnerabilities to come.

German-based Bosch Power Tools, a division of Bosch Group, saw its sales for 2020 grow by 9% (adjusted for currency fluctuations) to reach EUR5.1 billion. While demand fell sharply during the northern hemisphere spring, demand returned during the summer and autumn.

Henk Becker, president of Bosch Power Tools puts the company's good performance down to having developed a more agile structure over time. Mr Becker stated:

We dealt with the subject of agility in a consistent manner at a very early stage. The principles upon which this is based, such as short-cycle iterative work in sprints, are experienced and improved by us daily.

A good example of that agility is Bosch's ongoing efforts to open up its battery ecosystem to other brands. Currently these brands include: Brennenstuhl, Sulzer, Klauke, Ledlenser, Lena Lighting, Sonlux and Wagner. The shared battery platform is used to power specialised products such as floodlights, caulking guns, cordless hydraulic cutting tools and paint spraying systems. According to Lennart de Vet, managing director of Robert Bosch Power Tools, and the person responsible for Bosch Professional Tools:

Opening up the Professional 18V System is the prelude of a worldwide partnership with strong expert brands. The common goal is to offer professional users the best 18 V system across many brands and countries ? thus giving them a further boost in efficiency.

Global reach

While the overall results were good, there was considerable variation across world markets. Growth was as follows:

The company states that overall market share was up, with addressable markets increasing in size by 5%.

One of the major growth drivers was ecommerce and online sales. These grew swiftly, and ended up representing around 25% of all sales. According to Mr Becker:

Since there has been a rapid change in the information and buying behaviour of our users, we expanded our digital information and interaction services as well as our cooperation with multi-channel and online retailers.

Product focused

While the company's management has made strides in improving processes, Bosch's success is largely down to its product development, with over 100 products launched during 2020, which included over 30 tools for professionals (tradies).

A good example of its product development is the release of Bosch's UniversalBrush. In a familiar, IXO-like shape, the brush has a rechargeable Lithium-ion battery built in and, like the IXO, is recharged via a common Micro-USB cable. The product is shipped with a range of accessories, including a standard brush, a detail brush, and a pad holder. The pad holder can accept a heavy-duty pad and a microfibre pad, both of which are included.

Bosch says the device can be used to clean a wide range of surfaces, from removing the scale from tiles, to taking the rust off of car wheel rims, not to mention barbecues, ovens and car seats. The UniversalBrush is priced at EUR50, and accessories cost EUR10 each.

Analysis

Bosch Group as a whole generated EUR71.6 billion during 2020, down from EUR77.7 billion in 2019. Its product range includes everything from IoT devices, to the complex systems that will eventually develop into fully autonomous cars.

The difficulty that Bosch has long faced in the consumer space is working out how to "gear down" some of its advanced scientific and technical expertise, so that it is able to disseminate what it develops to a wide range of consumers. Over the next five years, as these problems become progressively easier to solve, HNN expects Bosch, and Bosch Power Tools, to become progressively more important and essential to the ways in which personal technology is developed.

To some extent, then, the real task over the next two years for Bosch Power Tools is how to develop transitional technologies. At the moment it is doing this in part by pioneering a whole new class of tools, based on the improved and modernised IXO platform. What will be interesting to see, however, is whether it can also develop its professional "Bosch Blue" tools in a similar manner. While it is easy to see the mismatch between consumer needs and consumer tools (the market that really needs a 18-volt, brushless power drill with a five amp-hour battery is far smaller than most power tool makers realise), there is a similar mismatch in professional tools as well. The range of professionals (tradies) is far wider than commonly acknowledged, with widely varying skillsets - yet they are all forced to use broadly similar tools. There is an opportunity there, and it will not be surprising to see Bosch Power Tools as the first company to see that.

Hyne Timber is about to begin the $14.5m expansion of its Tuan Mill. CEO Jon Kleinschimdt told The Courier-Mail that its plans had been accelerated following the first stage of the project, the commissioning of the company's Glue Laminated Timber plant, which relied on the Tuan Mill for its feedstock.

The next stage of the expansion will involve the installation of a new continuous drying kiln at the mill which will address a timber supply bottleneck. Mr Kleinschimdt said:

It'll increase our capacity by 20%; that'll enable us to respond to the market by providing high-quality, sustainable, recyclable building products.

It's great confidence in the region we can make these investments. We look forward to working with all our suppliers and customers to grow their business, creating more jobs for the region and the increased, sustainable supply of softwood timber.

The project was funded through the Queensland Government's Jobs and Regional Growth Fund and Maryborough MP Bruce Saunders welcomed the next stage of the project. He said:

...Maryborough was the timber city of the state and we want to be known for our timber. We know between now and 2035 we are going to need another 800,000 dwellings in this country, and it'll be great if they're built out of timber from Hyne.

Hyne Timber also said recruitment is set to commence for 50 more jobs created as a result of the expansion project. Mr Kleinschimdt said:

...The supply of softwood pine plantation is sustained and expected to increase over coming years from supplier, HQ Plantations. We have also notified our other local suppliers of the increased production and flow on growth for their businesses including Richers Transport, Log Management Solutions, Altus Renewables, Bassett Barks and Laminex.

The Tuan Mill currently employs around 210 people and is one of Australia's largest suppliers of softwood framing, mainly supplying the housing construction sector. Production is expected to increase by 20% as a result of this investment by Hyne Timber.

Oreco Group

Bundaberg Today reports that Oreco managing director Paul Woosley was recently joined by the QLD state Treasurer and Minister for Investment, Cameron Dick and Bundaberg MP Tom Smith to inspect the completion of the company's manufacturing hub which has increased the size of its facility at Childers (QLD).

Oreco Group is Australia's largest producer of retail-ready garden products including sugar cane mulch for retailers such as Bunnings.

Mr Woosley said the manufacturing hub includes big baling machine, the first in Australia and third in the world.

The big baling is a new concept and we are making some serious in-roads into the export market and local market with that size bale for bedding or animal feed. From here, we supply Australia wide and we are just starting to send container load samples to Japan and the Philippines.

If you look at the potting mix and fertiliser products in there, about 15 million bags a year come out of that building.

We're looking into new, innovative product offerings, including a diverse range of garden care products, animal feeds and bedding, with a focus on premium mixes and blends.

Now that the manufacturing hub is complete, we've accelerated the development of our next phase by two years and are now nearing completion on an all-weather, multi-user regional freight centre.

The freight centre will act as a mass storage and transportation facility for Oreco to deliver and store product from around Australia, in a cheaper and more efficient way. Mr Woosley said:

The area is fantastic, we are back-loading a lot of trucks heading south on the highway that have been delivering into other industries and can't find loads going into the southern states. We do get a lot of percentage of trucks that come out of Brisbane empty.

When customers that want to send product to the area that may be a seasonal product, they are paying huge storage prices in Brisbane to store it and sending it up twice a year.

We are trying to get involved in that market where we can transport product on our trucks, store it and supply it to the markets when they need it...

Oreco started as a nursery supply business and takes the residual cane trash and turns it into mulch or an animal bedding for agricultural producers or garden lovers around the country. Mr Woosley said:

The rural industry and the cane farmers have come to rely on that income now and it's a a real value add for them. What they used to burn, we add value to, sell and make it a great return for those growers.

There is a massive need for this manufacturing hub upgrade. One of the drivers was Covid-19 and the amount of people staying at home, who have been looking for something different to do for their mental health like planning veggie gardens, flowers and different products around the home.

The increase of volume during that period, some products were up 500%. The market did accelerate quickly and we were lucky to take advantage of that with the new facilities through partnering with the Queensland Government.

Related:

Hong Kong based power tool, hand tool and floor care company Techtronic Industries (TTI) has released the results for its 2020 financial year. Revenue for the year came in at USD9812 million, up by 28% on the previous corresponding period (pcp), which was 2019. Earnings before interest and taxation (EBIT) grew strongly at 29%, reaching USD868 million. Gross profit margin improved by over 0.5%, to reach 38.3% - the 12th year in a row it has improved.

In his remarks at the product announcement, the company's well-known CEO, Joe Galli, suggested 2020 was a breakthrough year for the company when its strategies enabled it to greatly outperform competitors (which would include chiefly, HNN notes, Stanley Black & Decker). Mr Galli said:

2020 was a year where we seized control of the global tool market, in fact, our second half results demonstrate without question our leadership position our momentum and our potential in the massive global tool market that we pursue, we were able to grow last year in the second half 42%, which gave a cool 28% growth rate for the year.

He went on to expand on these remarks:

The momentum level in this company reflected by these growth levels is astounding, and we are incredibly excited about 2021 and beyond. Last year, as a result of our bold aggressive investments in market share gains and new product development, we were able to now break through and reach a level that I feel is reflective of our commanding leadership position in the global tool market.

So last year, for the first time, the Milwaukee brand became the number one professional tool brand in the world, and it's also the fastest growing professional tool brand. And the Ryobi brand, which has been for a decade, the largest DIY brand of tools in the world, solidified its leadership position and became even a more dominant number one in the global DIY tool market.

So think about TTI. We now have the largest and fastest growing professional tool brand in the world, and the largest and fastest growing DIY tool brand in the world, and we're just getting started because the new product we have on the way is going need to clearly amplify our leadership position in the two segments of tools.

Much of that growth, and the future growth of the company, comes down to TTI making a strategic investment in additional manufacturing capacity around the world, effectively inoculating the company from some political influences during a time of global industrial transition.

We, throughout 2020, we were implementing a very different approach to the global tool market than our competitors. We decided rather than shutting down investment through the virus and the challenges of 2020, we got very bold and very aggressive, and we built out a vast amount of additional manufacturing capacity, which really helped our amazing results in 2020, but more importantly, it sets TTI up for a long-term run to continue to control and be leaders in a global tool industry.

So in addition to our world class manufacturing complex in China, which is doing an amazing job today, and where we have averted the challenges of the virus and kept that factory humming beautifully throughout the year on into 2021, we have built out a fabulous manufacturing campus in Vietnam where we have achieved already outstanding quality levels and class levels, and this Vietnam facility really helps us feed the growth levels that we achieved last year and that we are going to achieve into the future.

And then importantly, we have built out a North American manufacturing system that will enable us to produce products for the large US market and for the Canadian market, that will allow us to produce products close to where the products are consumed, so we have a campus that we built and we're building out in Mexico, which is going great, and we have a whole series of existing and new facilities, manufacturing facilities in the US that we are investing in like crazy so that we can have more and more product for the US market built in the USA.

The second element that Mr Galli emphasised for the company was its strong participating in ecommerce.

There's a lot of misinformation in the investment community about the e-commerce situation in the power tool market, in the overall power tool market. Let me just clear this up. We are clearly a global leader in e-commerce in this tool industry, we are very strategic, very thoughtful and very focused in developing the right kind of e-commerce that will not cannibalise existing important customer and distribution channels, but rather enhance.

For example, last year, the largest e-commerce tool seller in the world is called Home Depot, and last year we were awarded the Home Depot omni-channel interconnected partner of the year award because of our partnership with Home Depot in overall e-commerce, which includes BOPIS, which is buy on line to pick up in the store, it includes straight e-commerce, and includes the activities at the store level that we engage in with Home Depot, where we help drive sales to the e-commerce platform where it makes sense.

We have hundreds of e-commerce partners around the world. We are very careful to select and cultivate e-commerce partners that enhance our strategy and support our long-term direction, and you need to be clear as an investment community that we are... Yes, leaders in e-commerce when it comes to selling tools around the planet.

Analysis

The construction industry in general, as well as many tool companies, have tended to be reluctant to innovate or take business risks. TTI has been the exception to that for the past decade, and it's evident that in 2020 - and likely on into 2021 - it is set to reap the rewards.

The business model the company has evolved, which involves global markets matched by global production facilities, with a strong emphasis on building an innovative culture, has become increasingly significant, but still does not receive the attention it deserves.

Sherwin-Williams' sale of Wattyl to Hempel is expected to close during the first quarter of calendar 2021, subject to customary closing conditions. Going forward, Hempel said Wattyl will still be managed by current managing director Matt Crossingham. In a statement, Matt Crossingham, said:

The entire team and I are pleased to join the Hempel family, and we are looking forward to contributing to Hempel's growth and development - not only in Australia and New Zealand - but throughout the South East Asia region. We will gain access to increased know-how, experience and innovation as well as a broader product portfolio, which will benefit our customers. With Hempel's ownership, I am certain that Wattyl will raise to the next level.

According to a report in South Australian independent newspaper, In Daily, the 50 workers at Wattyl's Kilburn paint manufacturing site will be able to keep their jobs after the company's sale to the Danish multinational.

Hempel Group said it has no immediate plans to close the site or reduce employment numbers at the Kilburn location in Adelaide's inner-north, which also includes a distribution centre and retail store.

In addition to Kilburn, Wattyl has another manufacturing site in the Melbourne suburb of Footscray. It has five distribution centres and almost 100 company-owned stores across both Australia and New Zealand.

Mr Crossingham said it was business as usual following the acquisition. He told In Daily:

We are still the same Wattyl, proudly made right here in Australia for Australian and New Zealand conditions. Our heritage of over 100 years of locally manufactured protection and innovation continues.

The Wattyl business became part of Sherwin-Williams through its 2017 acquisition of The Valspar Corporation. Valspar bought the previously ASX-listed Wattyl in 2010.

The move to acquire Wattyl is part of Hempel's bid to double revenue to EUR3 billion within five years and take on "leadership positions in selected segments and geographies". Hempel president and CEO, Lars Petersson, said:

Wattyl is a leading brand with a strong distribution set-up with its own store network, key Independent Trade Centres and strategic distribution partnerships servicing the DIY and trade consumers.

Hempel was founded in the same year as Wattyl, in 1915. It has over 6,000 employees and generates revenues of around EUR1.5 billion. Mr Petersson said:

Hempel and Wattyl working together, not only within decorative paints but also within protective coatings solutions, will put us in a great position to deliver our strategic ambition, particularly in our decorative, infrastructure and energy segments, through combined expertise, industry knowledge and quality products. Consequently, our expectations for Wattyl as part of our family are high, and together, Wattyl and Hempel will create a strong platform for continuous growth for our entire South and East Asia region.

Together with Matt Crossingham and his great team, we will focus on being the trusted partner to all our current and future customers throughout Australia and New Zealand. All of our strategic priorities are about ensuring a better end-to-end solution for our customers. Our customers will experience a continuing focus on sustainability, digitalisation and innovation.

From a branding perspective, Hempel said it recognises the strengths and attributes of the Wattyl brand. The company intends to invest in and further develop these attributes and use as part of its tagline, "A part of Hempel" in its future branding and communication.

Cleveland-based Sherwin-Williams is the world's largest paint and coatings company. John G. Morikis, Sherwin-Williams chairman and chief executive officer said in a statement:

[The] announcement of our intent to divest Wattyl aligns with our ongoing process to evaluate all aspects of our portfolio, including brands, product lines, customer programs and businesses, for their ability to meet our performance criteria and for their long-term strategic fit.

While we've driven significant improvement in the Wattyl business, we believe company resources can be better deployed to other opportunities offering greater growth, more meaningful scale, and higher returns and cash flow. We thank the employees of Wattyl for their contributions to Sherwin-Williams.

Related: In mid-2020, there were reports that Sherwin-Williams was reviewing its portfolio that included Wattyl.

PPG Industries

Hempel lost out to PPG Industries in its pursuit of Finnish paint company, Tikkurila Oyj. Mr Petersson told Bloomberg:

It's the name of the game that you win some, you lose some. We are happy to land this deal with Sherwin and we're looking at other opportunities too.

In December, PPG announced that it entered into a definitive agreement to acquire Tikkurila in an all-cash transaction that it is expected to close in the second quarter of 2021, subject to customary closing conditions. Michael McGarry, PPG chairman and chief executive officer, said in a statement:

The combination of PPG and Tikkurila is extremely complementary, both geographically and from a decorative brand perspective. We have long admired Tikkurila's rich history of establishing very strong decorative brands and product offerings in several northern and eastern European countries where PPG has minimal decorative presence.

We will be able to provide customers with even more paint and coatings options by bringing together Tikkurila's high-quality and environmentally friendly decorative products and distribution capabilities in these countries with PPG's well-respected industrial and protective coatings. In addition, the combination will provide new cross-selling opportunities, growth opportunities for employees, and product solutions for new segments and customers...

Tikkurila was established in 1862, and is headquartered in Vantaa, Finland. The company has operations in 11 countries and more than 80% of its revenue comes from Finland, Sweden, Russia, Poland, and the Baltic states. Its premium brands include Tikkurila, ALCRO, and Beckers. Tikkurila's industrial paint business participates in the wood and protective coatings segments, among others. The company employs approximately 2,700 people globally and reported sales of approximately EUR564 million in 2019.

In addition to Tikkurila, PPG said it has completed the latest in a series of acquisitions to boost its coatings portfolio.

It recently closed on VersaFlex, a Kansas-based maker of coatings used in flooring, transportation, water infrastructure and industrial applications.

PPG bought the business from DalFort Capital Partners, a Dallas investment firm, for an undisclosed amount. VersaFlex, with 130 employees and annual revenues of about USD70 million, has manufacturing plants in Kansas, Oklahoma and Washington state.

PPG has purchased Ennis-Flint, a North Carolina company that makes coatings for the traffic and transportation markets, for USD1 billion purchase. It also has an agreement to buy Worwag, a German business that makes liquid and powder coatings for industrial and automotive applications.

Makita has opened a second Queensland factory service centre; bathroom and kitchenware supplier GWA Group has its profit impacted as costs continue in the face of lower business; and a number of investments have been made in sawmills and timber production in different states.

Makita Australia

Makita's new warehouse and showroom in Mount Louisa, a suburb in Townsville (QLD), is responsible for the service and repair of the company's products in the region and is a training facility for staff, resellers and users. It also provides a base for its North Queensland sales and business development teams.

Makita Australia national operations manager Nicholas Poulos said the service centre was open to all customers who had bought tools, spare parts or accessories through Makita Australia's authorised dealer network. He told the Townsville Bulletin:

With our existing Queensland site in Brisbane, the distance and time taken to facilitate service and repairs to our customers in northern Queensland was unacceptable. It is expected the new Townsville site will service the North Queensland, Far North Queensland and Central Queensland areas.

Makita Australia has always had a strong presence in North Queensland with our sales team but we felt the time was right to open a factory service centre to support our growing sales in the region.

In addition to two centres in Queensland, Makita Australia has factory service centres in NSW, Victoria, Western Australia and Tasmania.

GWA Group

Half-year net profit at GWA declined 17% from its pre-pandemic heights to $20 million. This was a far deeper fall than overall revenue at the group which only declined 4% to $197.2 million.

Revenue growth continued in the UK and New Zealand but was offset by a weaker Australian market.

The Australian market declined 6.2% through the first half of the financial year and accounts for 77% of overall business for GWA. This compares to New Zealand which takes in 14% of group's business and grew 3.1% for the first half of the financial year.

Despite the resilience of the home improvement and renovations retail sector, the decline in multi-residential and commercial projects had a negative impact. Multi-residential business declined by 20% across the group, while commercial new build also fell 17%.

However, managing director Tim Salt said HomeBuilder and other government housing incentives projects would buoy GWA's business in the market throughout the remainder of the calendar year.

Despite the recent trade tensions between Australia and China, GWA recently launched new Methven showerware ranges in that country as part of its growth strategy.

GWA acquired Methven in April 2019, with Mr Salt reporting it was "performing to expectations". It is pushing cost synergies from the acquisition with the aim to save $6 million in the financial year.

Timber sawmills

Victoria

Wangaratta-based Alpine MDF, Benalla firms D&R Henderson and Ryan & McNulty and XLam in Wodonga have shared more than a quarter of the $40 million national Forestry Recovery Development Fund - bushfire recovery funding - to build competitiveness, invest in new technologies and lower energy costs following the bushfires in early 2020.

The fund provides D&R Henderson with $3.294 million for a new heat plant that will use waste products as a fuel source to power kilns, saving energy costs and reducing the amount of waste to landfill.

Ryan & McNulty was awarded $1.188 million for new technology to process smaller, lower-grade sawlogs and produce a quality, value-added product suitable for structural beams and furniture manufacturing.

Alpine MDF Industries will use $4.379 million for remanufacturing, using new plant and equipment to innovate and increase capability for the production of primed mouldings and painted flat panels.

XLam has received $1.529 million to update equipment, reduce production costs and improve competitiveness.

Recipients are required to match 50% of the project costs, according to the article in Australasian Timber.

New South Wales

A Bathurst-based sawmill has received a $5.3 million investment from the Federal Government's Forestry Recovery Development Fund program. The government's $5.3 million investment will be matched by AAM Investment Group (AAM), which has its Allied Timber Products (ATP) sawmill at Bathurst.

Member for Calare Andrew Gee said the grant for AAM will be put towards a new production line at the sawmill, allow new technology to be introduced, and see logs processed much faster and more efficiently.

–-

Following a devastating firestorm in October 2019, O'Connor Sawmilling Rappville has lodged a development application for the construction of a large shed for air drying timber, with an enclosed section for moulding machines, and a prefabricated solar drying kiln.

Moulded timber is deemed a "high value commodity". The application states:

Moulding uses machines to cut a profile into sawn timber. This 'moulded' timber is used for tongue and groove flooring, architraves, skirting boards and other applications in the building industry.

It is expected to have the moulding capabilities operational by late this year or early next year.

South Australia

Timberlink announced it is building a $59 million Cross Laminated Timber (CLT) and Glue Laminated Timber (GLT) manufacturing facility at Tarpeena. It will begin construction of the plant alongside its recently upgraded softwood sawmill next year with completion due in 2023.

The company said the state-of-the-art facility will be Australia's second major softwood CLT plant and the first combined CLT and GLT manufacturing facility.

The location of the project is supported by the commitment of the South Australian State Government's $2 million grant from the Regional Growth Fund.

Tasmania

Neville Smith Forest Products recently announced its Huonville Southwood mill would significantly expand production by July. The company is set to establish a full second shift at the mill to enable the doubling of production to 80,000 cubic metres annually.

It comes after the mill was damaged during the Huon Valley bushfires in 2019, from which the company took about six months to recover.

Resources Minister Guy Barnett said the expansion was "a show of confidence in the state's renewable forest industry".

Sales for Boral dropped in Australia and North America for the six months to December 2020.

Revenue in Australia declined 8% to $1.61 billion because of lower volumes and pricing, especially in NSW and Queensland where major project work and multi-residential activity declined. Income at Boral's North America division also fell 3%, with strength in building products offset by a weaker September quarter and a lower contribution from its fly ash division.

Australian sales make up 53% of Boral revenue, while the US comprises 38%. Chief executive Zlatko Todorcevski said a decline in the building of units and commercial property in Australia affected results.

The company also said the outlook for its Australian business in the second fiscal half was uncertain, citing ongoing weakness in multi-residential and non-residential construction and a transition period for major projects. It also said existing projects have relatively low intensity of concrete and asphalt, and that new projects have been slow to progress.

While all forms of building approvals rose 10.9% in December, Boral said it was unclear whether this trend would continue or was a response to government stimulus. Mr Todorcevski said:

What we can't tell at the moment is, was that outcome driven by stimulus measures like JobKeeper and HomeBuilder or is there something fundamentally happening in the market.

Government schemes such as HomeBuilder have given financial incentives for building new homes during the pandemic.

The number of new high-rise apartments approved fell 14% nationally in the first half of 2021, with the biggest market in NSW hit by a 26% decline - even at a time of extremely low interest rates - amid a looming end to government stimulus and low immigration levels. Mr Todorcevski said:

From my perspective I don't see it rebounding in the near term ... Clearly there's a stock of multi-residential apartments that need to be worked through and we really need to see a rebound in immigration.

People moving out of cities into rural areas - sparked by COVID-19 - were also a factor, with September quarter statistics showing the largest migration levels on record. Mr Todorcevski said:

We're watching pretty closely the amount of migration in Australia out of capital cities.

While the outlook for demand in Australia was uncertain, Mr Todorcevski said strong demand in North America was expected to continue. The company's main assets in the US include roofing, stone and windows businesses.

Boral has confirmed the appointment of Bank of America to advise on a potential US deal. Mr Todorcevski said there had been robust interest from potential buyers in the company's United States operations after a formal sales process was started late last year. He said:

We haven't got to the point yet where we're assessing those in detail.

Mr Todorcevski remains open to a sale or keeping the unit in-house. He said:

The market is good at the moment but we want to make sure we position these businesses in as good a shape as we can...

Mr Todorcevski said the North American operations showed solid potential and there would be no fire sale. The company wanted to test potential price tags against the benefits of keeping ownership.

Boral plans to boost earnings by $300 million within an unspecified timeframe through running plants more efficiently, finding new sources of revenues and potential asset sales.

The group's net profit after tax rose 18.2% to $161.4 million, yet the company downplayed this figure as $46 million profit came from businesses which Boral has sold.

Related: Late last year, the company completed the sale of the Midland Brick business in Western Australia to BGC. Boral also announced it was selling its 50% stakes in USG Boral, and Meridian Brick joint ventures in Canada and the US.

James Hardie

A greater home improvement focus among consumers during the global pandemic has boosted demand for James Hardie's building products.

Chief executive Jack Truong said the company had again delivered "strong organic growth" in its major regions around the world, including the United States, Europe and Australia, in the three months ended December 31.

The US housing market in particular has been strong, while James Hardie has continued to win market share in Australia and New Zealand with its range of wall and board products, decking and floorboards.

Global net sales rose 20% in the quarter to USD738.6 million, delivering a 59% boost to its net operating profit after tax (NOPAT) at USD123.3 million. It was the seventh consecutive growth quarter for the company.

The Asia-Pacific region, which comprises Australia, New Zealand and the Philippines, lifted profit margins to 28.1% in the December quarter, from 22.9% a year earlier, with EBIT up 43% to USD33.5 million.

The North American market delivered the strongest sales gain, up 20%. Mr Truong said the business would launch a "direct to customer" campaign for homeowners in the US, targeting a significant market opportunity with more than 44 million homes more than 40 years old.

Mr Truong said the business had a clear strategy to drive profitable fiscal and organic growth with a focus on customer-centric marketing and product innovation.

The company lifted its net profit guidance for the full year to between USD440 million and USD450 million, from a previous range of USD380 million to USD420 million given in mid-October.

Master Lock will commemorate its 100th anniversary with year-long celebrations; plumbing supplies group Reliance Worldwide has rebounded after the business took a hit in the early stages of the COVID-19 pandemic; and BlueScope Steel is flagging its best Australia steel sales in a decade as a result of increased construction projects.

Master Lock

Global safety and security supplier Master Lock is celebrating 100 years in 2021 and is launching a 360-degree marketing campaign, and previewing new user-led innovation.

To pay tribute to 100 years, it debuted a commemorative logo that incorporates the brand's original "Master Lock Lion" symbol, which harkens back to the company's vintage trademark identity.

Featuring its commemorative 100-year logo and a black weather-resistant cover, Master Lock has introduced the 1921D Padlock - a limited-edition product that includes a vintage stamped key and keychain.

Founded in 1921 by travelling locksmith and Russian immigrant, Harry Soref, Master Lock's legacy is born in strength. What started as Mr Soref's mission to safeguard military equipment with the world's first laminated steel padlock has since evolved into Master Lock becoming a leading global manufacturer of padlocks and related security and safety products.

In 2021, Master Lock will reveal its most durable Bluetooth padlock yet, the ProSeries Bluetooth Padlock. This high-security padlock will allow commercial end users to leverage Bluetooth technology in the toughest work environments.

Master Lock will also release the Key Tether Lock Box which was developed in response to users needing to keep the key and lock box together at all times. By linking the key and lock box together with a tether, they can have peace of mind knowing the key will always be in the lock box when it is accessed.

Reliance Worldwide

Demand has improved for the plumbing products that Reliance Worldwide makes as enthusiasm for home improvement increased in markets across the world. Chief executive Heath Sharp said that all of the main geographic regions produced strong sales and profits in the six months ended December 31, with the US a standout because of rising demand in the repairs and renovations market.

The US accounts for about 50% of the plumbing supplier's overall business, with the group's flagship product there being the Sharkbite range of brass push-to-connect fittings.

A preliminary report showed that earnings before interest, tax, depreciation and amortisation (EBITDA) is forecast to be between $164 and $167 million, up at least 30% on the first half of FY2020.

Mr Sharp said Reliance Worldwide delivered interim sales growth of 13% and 17% on a constant currency basis. Overall, sales totalled $642 million. EBITDA margins increased because of operational leverage driven by higher volumes, and each region is expected to report bigger margins for the half, he added.

The first half of financial 2021 had "undoubtedly been a strong period" for Reliance Worldwide amid difficult conditions, the chief executive said, cautioning investors against extrapolating the first-half sales performance for the entire fiscal year. Copper cost increases would be a handbrake in the second half while currency fluctuations would also have an influence, Mr Sharp said.

Almost $1 billion was wiped from its market capitalisation last February after a profit downgrade triggered by the coronavirus.

Official first-half results will be released on February 22, 2021.

BlueScope Steel

BlueScope expects to book a half year profit, before interest and tax of $530 million - $55 million ahead of updated forecasts provided in November, and almost $200 million ahead of the $340 million it tipped in October.

The company's total underlying EBIT in the 2019-20 financial year was $564 million, as earnings crashed amid the coronavirus crisis.

BlueScope managing director and chief executive officer Mark Vassella said all of the company's operating segments performed well across the half, with strong volumes and better margins in its Australian steel making business, as well as in the US and Asia. He said:

Domestic construction and distribution segment demand has been strong, particularly for coated and painted products - leading to the strongest domestic mill sales volumes in a decade, at about 1,175,000 tonnes.

A number of Australian start-ups have developed apps or websites - Delivertrade, Rendr and Getter - to address the issue of tradies making unplanned trips to the hardware store or wholesalers in different ways. Industry research indicates these unplanned trips occur in one in every three jobs. The extra labour and vehicle costs add about $2 billion a year, according to a report in The Courier-Mail.

The Getter app recently attracted $1.4 million in a capital raising from about 15 investors. Its biggest investor is Darren Wallis, the Sunshine Coast-based chairman of GJ Gardner Homes. He told The Courier-Mail:

There's a gap in the market and this is an amazing opportunity. It could revolutionise how tradies get supplies delivered.

The potential efficiencies for Australia's $360 billion a year construction industry are substantial, with likely flow-on benefits for consumers in the form of lower prices, he said.

Getter launched in Sydney in March 2020 after boss Tom Burton and his fellow co-founders in the building sector repeatedly saw jobs run over time and over budget because of hold-ups accessing materials. He told The Courier-Mail:

At a macro level, the Australian construction industry has a longstanding problem with not being able to procure its trade materials efficiently, meaning tradies either visit wholesalers themselves, or worse, wait hours and sometimes days for their supplies to be delivered.

As tradies themselves, the Getter founders have seen first-hand the lost productivity that ensues when products or tools need replacing, whether that be on large-scale commercial tower building sites, project home sites or landscaping projects.

The business generates income through an Uber-style pick-up and delivery of goods. It also offers to source products, charging an additional fee based on the value of the material.

Mr Burton said Getter has already grown its registered users from 800 to about 3500. He is aiming to dramatically expand that to about 30,000 across Brisbane, Sydney and Melbourne in the next 12 months, with a revenue target of around $14 million.

Mr Wallis started at GJ Gardner as an accountant in 1994 and rose to spend just over 20 years as CEO. The group's franchising network operates across Australia, New Zealand and the US. He will be spreading the word to its franchisees nationwide. He said:

So far the feedback is fantastic. They love it.

Related: Drone delivery company Wing Aviation is considering expanding its services to take tools to tradies on jobs around Canberra.

For the financial analysts participating in the half-year 2020/21 results announcement for Australian wholesale/retail conglomerate Metcash, the company's pre-COVID-19 acquisition of the Total Tools Holdings (TTH) franchise must have seemed a rare glint of bright sunlight in an otherwise mostly gloomy retail sector.

Where Metcash's hardware operations, under the umbrella of its Independent Hardware Group (IHG) division, is commonly shunted somewhat towards the back of the queue of concerns, behind Metcash's food retail operations, and even its liquor retail operations, TTH and IHG came close to being the "star" of the results - even though, in terms of actual financial contribution hardware remains a minor player.

That is understandable, and even - to some extent - deserved. Metcash and IHG did pull off something of a minor coup. Not only did they pick up TTH for something substantially under its original asking price, they also bought the business right before sales surged as a result of the somewhat paradoxical boost that the building and construction industry has received during the 2020 pandemic months, from March onwards. It's the kind of "luck" that companies skilled in acquisitions, especially in retail, will sometimes encounter, that "X" factor that enables senior management to pick up on possibilities that other bidders for a business might not quite have understood. And timing, while it is certainly not "everything", can play a significant part as well.

Looking beyond the immediate - and somewhat circumstantial - positives of the acquisition, how does the TTH acquisition shape up in the longer term? How will it interact with the pre-existing IHG business, and what kind of future does Metcash envision for this business?

TTH as acquired

TTH was started in 1989 as a co-operative based group of 20 independent tool stores. That changed in November 2007, when TTH's Board of Directors put in place a Network Development Plan based on a franchising model. In line with this, TTH established its National Support Office to boost the franchise businesses.

While the co-operative model is somewhat in the past, there are evident signs of this lingering into its operations in 2018 and beyond. All of the original 20 stores have remained as shareholders in TTH. Two or three of these owners served on the company's board through to 2020.

According to a report in Inside Franchise Business from June 2018:

The retail chain is an unusual set-up, developed from a co-operative structure that has given it a strong sense of community, and put franchisees front and centre... [F]ranchisees are, literally, at the heart of the business. This is evident in the tenure of the franchisees as well. Agreement terms run up to 10 years with renewal options, and as yet no franchisee has sold on their business.

Quite the reverse, actually. The strength of the business model has seen franchisees embrace multi-unit ownership while maintaining a fair level of influence.

As acquired, TTH consisted of 84 independently-owned stores, and two company-owned stores. In its presentation for its FY2020/21 half-year, Metcash noted that:

Post the half year TTH acquired 4 independent stores with ownership interest of 60%. A further 8 independent stores expected to be acquired by end of CY20.

So during the second quarter of Metcash's FY2020/21, the company should end up with a majority interest in at least 14 TTH stores, along with 72 fully independent stores.

In addition to a circa $57 million acquisition price for 70% ownership (plus put/call options to guarantee full acquisition up until mid-2023), Metcash also provided a $40 million debt facility which, Metcash stated, "will be utilised to acquire an ownership interest in select stores", which means buying between 50% and 51% interest in those stores. These purchases include the option to obtain 100% ownership by 2024.

In terms of revenues and earnings, the figure of $555 million is frequently presented as a revenue figure for TTH in FY2019/20, but this is essentially the total sales of all the TTH stores. Dun & Bradstreet lists revenues for FY2019/20 as being around $98 million, and the figure of $25 million is often mentioned as being TTH's number for earnings before interest and taxation (EBIT).

Metcash has announced that in its two months of ownership prior to its first-half results, TTH declared $18.6 million in total revenue, and $4.8 million in total EBIT. Those numbers annualise out to $111.6 million and $28.8 million. That reflects a projected uplift of 13.9% for earnings, and 13.2% for EBIT. While the background hardware retail increase over that period is above 15%, this is nonetheless a good showing, given that TTH is focused on trade/construction business, and DIY/consumer showed stronger gains.

Dun & Bradstreet also lists TTH as employing around 122 people. The cited article from Inside Franchise Business identifies there being between 80 and 90 people in the TTH head office, and 26 people in its marketing team.

Metcash strategies for TTH

Speaking at the FY2020/21 half-year results presentation, Metcash chief financial officer Brad Soller had this to say about the overall strategy for TTH:

We expect operation and merchandise synergies to be delivered from the acquisition and for these to commence in the second half of the year. As Total Tools will not be fully integrated with Mitre 10 but rather operate separately and as the overlap of products range is not as significant as it was between Mitre 10 and HTH, the quantum and synergies to be delivered is not expected to be anywhere near the synergies delivered on the HTH acquisition.

HNN would not be surprised to see the team size at TTH reduced to between 49 and 59 people by the end of 2022 (though many of those employees may find new positions inside Metcash), which would reduce overheads, of course.

One reason for the relatively high head count for TTH is that its strategy has been primarily focused on growing the number of franchises it operates, with a goal of some 131 set some years ago. As Nicole Bemelmans, who is the general manager of TTH's merchandising team, mentioned in an interview, one of the company's major ongoing tasks has been "onboarding" new franchisees.

If we ask the critical question about this acquisition, which is "why did TTH decided to sell?", the answer (in HNN's opinion) is likely to be that this model of growing the number of franchisees did not show signs of becoming as profitable as hoped. This is a common problem for business networks that evolve from being on a co-operative basis to a franchise basis. Scale should bring additional cost efficiencies, but this type of organisation struggles with the choice between member services that are the most helpful, and those that are the most efficient.

It is also likely that concerns similar to this also held up the potential listing of TTH on the Australian Stock Exchange (ASX), which had been suggested as one path in 2017. Instead, TTH began to seek a buyout via an equity partner in late 2019. While Metcash was approached, the end buyer turned out to be Quadrant Private Equity, which, according to the Australian Financial Review's "Street Talk" column, "will look to shift Total Tools to a blended company owned model and buy back franchise sites". The same column suggested that Quadrant's approach would be to "target 200 Total Tools sites in Australia using the company-owned model".

Of course, the Quadrant deal fell through in early 2020, with the private equity firm citing the agreement's contingency clause, referencing the COVID-19 pandemic. This led Metcash to pick up the company at what some would regard as something of a "bargain" price. The outgoing former CEO of IHG, Mark Laidlaw, remains involved in its management, and TTH's CEO, Paul Dumbrell, will remain in place - the two of them having worked together in the past, with Mr Dumbrell managing Metcash's automotive division which fell within Mr Laidlaw's responsibilities.

At the moment, it seems fairly clear that the core strategy for Metcash will be to continue its acquisition of TTH stores for at least the next three years. At the same time, Metcash also sees room for growth in the number of stores as well. This was outlined in a response by Mr Soller to a question asked by Grant Saligari of Credit Suisse AG:

The key driver for growth in the future will be those - as we actually corporatise those stores, and we actually get the actual ownership interest in those independent stores. And the other thing we should actually - is they still got a fairly good runway on their ability to open new stores. So if you look at the new stores that they actually had, at the time of the acquisition, it was 82 stores they had in the portfolio. The number of stores have now gone up to 86. So they've actually opened four stores in a relatively short space of time. And Paul and the team over there believe that there's still a pretty good runway for them to actually open additional stores going forward.

There are some synergies that will actually come through, just actually lets you know that those synergies shouldn't - as I called out in my presentation, won't be anywhere near the quantum synergies we've got through - with the HTH acquisition.

At the same time the CEO of Metcash, Jeff Adams, made it clear in response to a question from Bryan Raymond of Citigroup that expansions in store numbers would likely be from new franchisees, not additional corporate-owned stores:

The plan would be most, the absolute majority of them would be franchisees. We've got a very strong network plan looking forward, and again, I think in March, we can share more of that.

Effects on IHG

The most serious question for members of the independent hardware retail community is what effect this will have on them - and that is a question of particular interest for current members of IHG, in Mitre 10, Home Timber & Hardware (HTH), Thrifty Link and True Value bannered stores.

In the initial release to the ASX outlining its bid for TTH, Metcash stated that the acquisition would:

Enhance Metcash's position in the Australian hardware market which will benefit independent retailers in both Total Tools and the Independent Hardware Group.

In its summary of the benefits of the acquisition in its half-year results, Metcash stated that there would be "Operational and merchandise synergies expected in 2H21".

The concern, of course, is that with the acquisition of TTH, Metcash has brought onboard a true competitor to the existing networks of independent stores in IHG. If corporate-owned stores in IHG suffer a loss of revenue as a result, that's going to be less important to Metcash, as those earnings are essentially fungible. But for independent stores, a cashed-up, expansionary TTH, with the additional corporate might of Metcash behind it, could be something of a real threat to their revenues and earnings.

It's interesting to note that, prior to the acquisition by Metcash, TTH did portray itself as a strong competitor to independent hardware retail stores. In a September 2018 article with Business Buy Invest, the website outlined this position:

While demand is high, smaller hardware retailers can find it harder to compete with the scope and diversity of an operation like a Total Tools Franchise. According to Fred [Pose, then franchise and leasing manager for TTH], "The average competitor to a Total Tools stocks about 40% of the total range of hardware products we have on offer". Popular items include building related products, including products required for bricklaying and concreting, as well as nails and nail guns. Power tools and power tool kits are also consistently popular.

Analysis

The reality is that while the market for power tools has itself not been a broad one for most smaller hardware retailers (largely due to strong category competition from Bunnings), the market for both power tool accessories and hand tools has remained a broad and relatively high margin one for most retailers. With all due respect to Metcash, it somewhat defies common sense to suggest that TTH will not have an ongoing impact on sales in these categories throughout Australia.

As HNN has suggested for some time, there is something of an inner-conflict in the business model that Metcash has brought to the hardware retail market in IHG. At one time there is an increasing drive to bring in more corporate-owned stores, which give IHG access to a larger share of the profits derived directly from sales revenues. At the same time, IHG is supporting independent hardware retailers, some of whom are in direct competition to those corporate-owned stores.

There are cases where a balance is achieved, and HNN would cite in particular the operations of Sunshine Mitre 10 in Queensland. While Sunshine has an interesting network of stores, they also try to provide support to other Mitre 10 operations in their area. Outside of that kind of regional area, in more competitive urban regions, where stores are geographically closer to each other, it's difficult to see the same relationships at work.

This sense of balance seems bound to come under stress with the addition of TTH stores to Metcash, stress that is likely set to grow as Metcash obtains control over more TTH stores, and welcomes additional franchisees to the TTH network.

It is possible that what we are seeing are the first stages of the hardware retail industry reaching an inflexion point where Metcash exerts more control over retail operations than it has in the past.

One reason why that seems somewhat likely is that the past business models Metcash have used in hardware retail have not worked out as well as expected. Far from "taking it to Bunnings" through the HTH acquisition, IHG has found itself under increasing pressure from the efforts by Bunnings to grow its trade sales. While the Wesfarmers-owned Bunnings has continued to grow its revenue and EBIT at above-market rates, IHG has, absent its HTH synergies, languished somewhat in the market.

And again, HNN must repeat our overall concern about the hardware market: history indicates that housing markets with high purchase rates and high prices ultimately begin to fall, and over the past 10 years have been repeatedly shored up through the Reserve Bank of Australia (RBA) lowering interest rates.

At the moment, the RBA has worked itself into a place where the interest rates are too low to be reduced further, and it has guaranteed that rate through to 2023. While direct fiscal stimulus as the housing market is possible, with about one-third of Australians no longer owning houses, it has the potential to be very divisive. HNN would suggest that it is really those numbers that in the end saw Quadrant pull out of the TTH deal, and Metcash has taken them on at its own peril.

Hardware supplier Hillman Group has struck a USD2.64 billion deal to merge with Landcadia Holdings III, a publicly traded special purpose acquisition company (SPAC). It operates as a blank cheque company and works to "effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganisation or similar business combination with one or more businesses". The company was founded on March 2018 and is headquartered in Houston, Texas (USA).

The joint statement from Hillman Group and Landcadia Holdings III that they have entered into a definitive merger agreement will result in Hillman becoming a publicly listed company. Hillman chairman, chief executive officer and president, Doug Cahill said in an interview:

We looked at our options and obviously, private equity was an option, and we felt that this SPAC route was also an option. That could get us to market quicker.

He also said the company was set to benefit from a shift in how people think of their residences, now that so many are working from home.

It's gone from a place where people would eat, sleep and watch TV - now it's school, it's an office, it's entertainment, it's recreation..

We've always been focused on repair and remodel. We think the trends are very positive as we think forward.

...

[The] announcement marks the beginning of the next chapter of Hillman's partnership with our winning retail customers in the large, non-cyclical and growing retail hardware market...

With our new capital structure, we expect to accelerate our growth across both existing products and channels, as well as pursue attractive opportunities in adjacent categories, both organically and through M&A.

Cincinnati-based Hillman makes fasteners and other home improvement products. It has relationships with more than 38,000 companies, including Lowe's and Home Depot. Private equity firm CCMP Captial bought the company in 2014 for USD1.5 billion and will remain its largest shareholder.

Upon the closing of the transaction, the combined company will be named Hillman Solutions Corp. and remain listed on Nasdaq under the new ticker symbol "HLMN".

Mr Cahill will continue to lead the combined company in his current roles and will be a significant equity participant in the new company.

Landcadia III's management team is led by Tilman J. Fertitta, chief executive officer and co-chairman of its board of directors, and Rich Handler, president and co-chairman. They said in a statement:

Doug and his team have established Hillman as an essential product and services provider in the hardware and home improvement industry, and given changes benefitting the residential housing markets, they have the wind at their back.

What makes this business combination unique is that Hillman operates in a market that is large, predictable, growing and non-cyclical. Consumers love their homes, but now they are living and working, entertaining, vacationing, educating and retiring in them, and home improvement spending is expected to remain strong...

Founded in 1964, Hillman distributes over 110,000 SKUs in categories including fasteners and hardware; work gear, gloves and other PPE; and robotics and digital solutions such as key and fob duplication. Hillman said its sales have grown in 55 of its 56-year history and are estimated to reach USD1.4 billion for the fiscal year ended on December 26, 2020.

Related: Hillman Group acquired Big Time Products, a provider of personal protection and work gear products in 2018.

The digital "Work smarter, not harder" campaign from tradie online platform Hipages highlights the new leads and steady stream of opportunities that can help tradies grow their businesses.

Created by media agency VCCP, the campaign is running across YouTube, Facebook, Instagram and Google with 15 and 6 second versions. A digital out-of-home display will also be running in Brisbane for three weeks.

Hipages head of brand communications, Guillaume Papillon, said the campaign is taking advantage in the surge in home improvement projects. He told the Mumbrella website:

Currently in Australia there are 1.1 million tradies working within 257,000 trade businesses which service the home improvement industry - worth $83 billion in 2020. On Hipages, a new job is posted on average every 23 seconds, with over 100,000 jobs posted each month offering a high volume of job lead opportunities which trade businesses of all sizes and locations can take advantage of to efficiently grow their business.

In trade businesses, the biggest inefficiencies lie in everything that needs to happen off the job and Hipages offers a way to reduce the pain-points that come with building and maintaining a business, helping tradies work smarter, not harder.

The campaign comes two months after the finale of The Block. As a sponsor of the Nine reality program, The Block is the basis for Hipages' major marketing activation throughout the year.

Related: Hipages was preparing for an IPO in 2020.

Boral, together with its joint-venture partner, an affiliate of private equity firm Lone Star Funds, have agreed to sell the North American-based Meridian Brick business to Austrian brick maker, Wienerberger for USD250 million.

This equates to USD125 million for Boral's 50% share and is expected to result in a small pre-tax accounting profit on a sale of approximately AUD10 million at closing. The transaction is subject to various closing conditions and regulatory approvals, with both parties targeting completion in the first half of 2021.

The divestment of Meridian Brick represents the final step in Boral's exit from brick operations globally. It is also part of the plan by Boral's chief executive officer and managing director, Zlatko Todorcevski to overhaul the building materials supplier. He said in a statement:

In recent years Boral have divested their interest in bricks in Australia, and since forming the bricks joint venture in the US with Lone Star in 2016, the plan was to ultimately prepare the business for sale.

As part of this process, Meridian's leadership was refreshed with the appointment of a new chief executive officer in December 2018, and a stronger focus on improving performance.

The divestment of Meridian is a further step in Boral's portfolio review works. It helps to streamline our US business and allows us to further focus on the improvement initiatives under way in the remaining businesses in Boral North America.

Based in the southern state of Georgia, Meridian Brick is the largest manufacturer of clay facade solutions by capacity in the US and has a leading position in Canada. With more than 1,000 employees operating in 20 manufacturing plants across the US and Canada, the company generated revenues in excess of USD400 million in the financial year to 30 June 2020.

Through the acquisition of Meridian Brick, Wienerberger will immediately double the revenue of their North America business to more than USD800 million.

To read the latest edition, please download HI News:

Download hinews-6-04

Industrial workwear company Co Gear has collaborated with BHP and Blackwoods to launch a redesign of its women's workwear to give mums to-be a comfortable option that will take them through their whole pregnancy.

Founder Kym O'Leary said for quite a while industries had been talking a good game about addressing inclusion and diversity initiatives in their workplaces but were slow to change. She told The Daily Mercury:

There is a growing number of women looking to pivot away from roles in metro areas and take on industrial and trade roles with some of the biggest mining and construction companies in Australia.

But they are holding themselves back because things like workwear are not always suited for women ... businesses need to go beyond creating committees and implementing policies, assuming the job is done.

They need to make broader strides and take immediate action where they can, even if it is bucking the one size fits all mentality around workwear.

The Co Gear designs were tested across the Bowen Basin (QLD) and Pilbara (WA) mining regions to ensure they withstood the practical challenges women face every day on site. Ms O'Leary said:

We also had an exciting opportunity to collaborate with a number of women from varying industrial and trade backgrounds over a 12-month period on our maternity wear range, which went through endless rounds of design changes to ensure it provides comfort, functionality and a flattering fit at all stages of pregnancy.

Ms O'Leary said the real-world application of the Co Gear range had been important.

When we started working on the redesigns for our range of women's workwear, we knew that collaboration was going to be a major contributor to our success, and fortunately we had plenty of support from industry leaders such as BHP and Blackwoods.

To read the latest edition, please download HI News:

Download hinews-6-04

Recent data shows that 33% of users on Facebook, Instagram and Twitter have increased the amount of time they spend on social media during COVID-19, making it more relevant than ever as a marketing tool for businesses. Neil Hipwell, founder of NSW building firm Futureflip and James Hardie ambassador, said:

If you don't have a social media presence, it's time you did. A lot of our client leads have come in from someone seeing our work on Instagram, which is a great platform to showcase your work. With users saying that they increased the amount of time they spend on social media last year, the opportunity to secure more work is only growing.

Neil shares some of the social media practices he's used to drive the success of his growing business, even throughout COVID-19. He has also created a video with business advice for builders. The video features on James Hardie's Design Ideas site, which is also home to information on the looks that consumers are looking to their builders for help with.

Know your audience

Always remember that social media is a part of a marketing strategy. It's there to help you make sales, so while it can be enticing to create content that gets the most likes or attracts the most followers, you need to make sure you focus on engaging potential clients.

Think about what your audience wants to see. This could be inspirational homes that you can help them achieve, through to advice on how to pick the right building materials for their needs. It's all about adding value to their lives so that your brand becomes a trusted go-to for advice.

Choose the best platform

So, you know the who (your audience) and the what (your great content) the next step is the where (platform). My go-to is Instagram which is used by 52%3 of people in metro areas and accessed by users 28 times a week on average.

Instagram is image based, creating an ideal opportunity to visually share high quality photos and videos of your projects in posts, while the Stories function lets you take a more informal approach with short form content that's only live for a day.

Pick the right tone

Creating the right tone for your social media channel can be difficult as you need to balance professionalism with personality. Swearing or crude language are clear no-gos, as is technical jargon.

Take inspiration from brands in the industry you admire. Look at how they talk about homes, the length of posts, words and language they use. This can also be a good way to generate a list of hashtags that will help your content get seen.

Tone also includes images. I keep my in-feed posts professional and aspirational with a consistent look and feel. It's important to think about why you're posting the picture. For example, if you're showcasing the shadow lines created by Linea Weatherboard, don't turn the brightness up so high that the façade looks flat. I also use my stories to give a "behind the scenes" look to add a bit more personality.

Planning is everything

Social media is a bit like a project, you need a solid plan in place. Start by considering what is important for your audience to know, as well as what they will find valuable. See if there are any consistent themes, such as inspiration, trends advice and examples of your work.

Each month create content that hits each of these topics to keep your channel fresh and varied. I will have our projects shot by professionals but using a smartphone with a bit of editing on the social media platform you're using is a great option when you're starting out. Getting the images and videos right will not only help you grow your channel but can turn it into a great catalogue of your work for prospective and current clients.

Tag partners and collaborate

A quick way to increase the number of people who see your content is to get it reposted by an account that's got a large following. Big brands are often looking for content that shows off their product or service. When you tag them in your posts, they get an automated alert directing then to your content, which creates a quick way for them to share it with your channel's details.

The Design Ideas section of www.jameshardie.com.au provides inspiration and information on residential and commercial builds, compliance issues and trends from Hamptons to modern looks.

To read the latest edition, please download HI News:

Download hinews-6-04

The Knauf Group has agreed to sell its Australian plasterboard facilities to Etex, according to a report in the DataRoom column in The Australian.

Etex is a family-owned, global manufacturer of lightweight building products that operates in 42 countries.

In 2019, Knauf bought out USG in the plasterboard joint venture across Asia, Australia and New Zealand that USG owned with Boral. The deal was worth USD7billion. However, Knauf recently announced it would also buy Boral's half-share of its USG plasterboard venture for AUD1.43 billion.

The plasterboard factories being sold are those Knauf had before it bought the USG assets in Australia and Asia, owned in partnership with Boral. They are located at Altona (VIC), Matraville (NSW) and Bundaberg (QLD). It also has a metal profile production facility in Beenleigh (QLD).

Knauf Australia managing director Gavin Burton said the deal with Etex would offer synergies. He told The Australian:

Etex is known for its excellent customer service, innovative solutions and a strong focus on workplace health and safety.

The transaction is subject to regulatory approvals and the deal is set to be completed in the first quarter of 2021. DataRoom revealed the interest by Etex in October and that time, the portfolio was thought to be worth about AUD400 million.

Knauf said Etex was purchasing Knauf Australia as a going concern, and the existing employees in Australia, including the management team, would continue to operate the business in Australia. The company employs over 300 people.

Etex said in a statement that the transaction expanded its footprint on the Australian construction market with strong growth opportunities.

The company said in addition to strong business advantages, the acquisition was consistent with Etex's recent strategic refocus plan to reinforce the Belgian multinational's strengths in lightweight and modular construction technologies globally.

Etex said it expanded its plasterboard business into a market where the group is already present in the fire protection and fibre cement segments. It currently has its Promat, Cedral and Equitone brands available in Australia. Promat is for fire protection, high temperature applications and intumescent seals; Cedral offers pre-coated fibre cement sidings and slates; and Equitone supplies fibre cement cladding panels for large to mid-size buildings.

Related: Knauf exploring sale of Australian plasterboard assets

Drone delivery company Wing Aviation said it is considering expanding its services to take tools to tradies on jobs around Canberra.

The idea would be to team up with a hardware supplier so that tradies who suddenly needed a particular item for a job like a particular size of screw, a drill bit or paint brush would be able to order it online and get it delivered within minutes.

Wing is currently talking to tradespeople to see how the service might work and what the demand for it might be. It would need a change in the way the drone service operates. At the moment, users order and pay through an app - but delivery is to the home address. The tradies' service would need delivery to the location of the jobsite.

Wing's head of public policy in Australia, Jesse Surkin, said hardware deliveries would stop jobs or projects being delayed for days when tradies found they were missing an essential part. A company spokesperson told The Canberra Times:

A carpenter without the right drill bit might have to knock-off to go to the hardware store, which has a ripple-on delay effect for the other tradespersons working on site. The project that was scheduled to finish up in a week, will now take three.

Wing has commissioned an economics consultancy to study the idea. The report's conclusion notes:

In Australia, tradespeople such as builders make a total of 60 million unplanned trips to the store each year to collect hardware items, tools, or spare parts they need on the job.

At an average of one hour each, these interruptions amount to $2 billion annually in labour and vehicle costs.

They can also result in larger workflow disruptions, leading to lost time for clients, and in some cases, expensive contract penalties for delayed projects.

The company already has a service for tradespeople in Queensland and can't see why it shouldn't operate in the ACT in a similar way. In three suburbs of Brisbane, Wing drones have been used by landscape gardeners who found they had run out of line for a whipper-snipper.

Pilot cities

In 2019, US-based Wing Aviation - owned by Google's parent company, Alphabet - launched pilot programs in the Canberra suburb of Gungahlin and Logan City in south-east Queensland delivering food and domestic items. Orders (maximum weight 1.5 kilograms) are filled by "local merchant partners" at a centralised service-and-fly site.

Wing delivery drones typically fly at a height of 60 metres and can reach speeds up to 113km/h. Once a Wing drone arrives, it hovers around seven metres above the ground, lowers the package using a winch and after releasing it in the nominated front or back yard, returns to Wing's base. Average delivery time is less than 10 minutes.

Australia was hand-picked as a testing ground for drone services worldwide. Wing communications executive, Maria Catanzariti told the Sydney Morning Herald that Australia was chosen to be part of pilot scheme because "Australians are natural early adopters, and they give useful feedback".

But the feedback hasn't always been favourable. There have been noise complaints, and safety and privacy fears, which Ms Catanzariti described as "great learning opportunities". Wing drones now have quieter propellers; they comply with all safety requirements, and although they can take photos for geolocation, images are so greyscale and low-resolution that "you can't tell if you're looking at a person or a tree".

There are also limits to drones. If the weather is rainy, windy or dark then the Wing fleet is grounded.

Households in Wing's Early Flyer program have been able to order a range of goods from a coffee shop, grocery store and hardware outlet, with drone delivery initially offered free of charge.

Wing chief executive James Ryan Burgess said the company was committed to taking to the skies in other parts of Australia.

The RID brand has undergone a rebrand, manufacturing upgrade and product expansion since co-owners Natalene Carter, David Griffin and a third party bought the company from Thorley Laboratories in 2013. All the work is being done from Townsville and Brisbane in Queensland.

Both Ms Carter and Mr Griffin have extensive business backgrounds - in accounting - and this has helped to transform the company.

They had the vision, passion and work ethic needed to take on a national brand but when it came to insect repellent it was an unknown world to them. Unlike other businesses, the insecticide industry doesn't have the luxury of a quick turnaround. Ms Carter said products they were currently working on wouldn't see retail shelves for two years. This is why innovation and forward thinking was an integral part of their business plan.

The duo quickly decided to go down the path of product innovation after they took over the Australian brand. Ms Carter told the Townsville Bulletin:

We went on a real journey to expand our product as much as possible. We've grown our market share by accessing other markets.

The RID product range now includes its medicated insect repellent, an outdoor mosquito coil range, sunscreen insect-repellent combination product, a low-irritant range, and a line of flying and crawling insect sprays. The products are distributed to Asia, the UK and the Pacific region. Ms Carter explains:

In the years after we took over the company, we dissected the market into three areas - industrial, sports/leisure and then retail and groceries. We found the market gap was in the industrial area.

A lot of the larger mining companies now have to supply protection for their employees, so we have developed a new strategy to that market.

The company is now working actively in the industrial field and achieving significant results.

In a previous interview with Townsville publication BDmag, Ms Carter explains how it successfully doubled the RID range in four years. She said:

We constantly read the market. So we saw what trends were happening, what customers were doing and what we could develop to match future demand.

When researching their competitors, Ms Carter and Mr Griffin immediately noticed the lack of diversity in their range. This encouraged them to work faster and harder.

...We made a strategic decision, to increase our offering of quality Australian owned brands, across this sector. It's an endorsement to our strengths in the category of insecticides that now extends to bug killers for the home. It also gives our customers confidence with Australian owned brands that work in our Aussie environment.

Ms Carter she's proud that RID Australia is a business that's competing around the world, from its Townsville and Brisbane base.

COVID has taught us that you can be based anywhere in the world and do business effectively and efficiently. I can work from Townsville and know what is happening in the RID manufacturing plant in Brisbane.

There are cameras in every warehouse around the country, so from my phone I can see what is happening...I can see all the orders coming in and track their progress.

The company competes effectively against larger corporations. She said:

The main brands competing for the same market share as RID Australia are multinationals and multi-international companies. For us to get market share from them and grow products that RID wasn't in is something we're extremely proud of.

We were able to secure the only insect repellent in Bunnings across all stores nationally, which was five years of hard work and we are really pleased with the growth in this retail sector.

Ms Carter also said one of the keys to business success was staff.

I have really good staff. If they come to me with a problem, mostly they'll already have the solution to the problem.

The company remains 100% Australian-owned and maintains its manufacturing in Queensland.

European home improvement group, Kingfisher is buying an online platform that helps customers with DIY projects.

The company has bought an 80% stake in NeedHelp for GBP8.9 million that connects consumers with home improvement service providers, similar to the way hipages works in Australia.

The number of jobs completed through its platform is set to reach 58,000 in 2020, and Kingfisher is hoping to cash in on the surge in DIY projects as the COVID-19 pandemic saw more people turning to home improvements.

Executives are keen to stress NeedHelp is different to other online DIY marketplaces because it focuses on specialist skills - from vetted professional tradespeople and other skilled experts - needed for home improvement. Kitchen installations, painting, flooring and bathroom renovations are the most common jobs used on the platform. Other jobs include gardening, furniture assembly and house or furniture moving.

NeedHelp's services are available from a range of channels including retail partners' stores and e-commerce sites, and from its own site. It operates a data-driven end-to-end platform that manages all bookings, online payments, and rating of tradespeople. It also provides added value to tradespeople including insurance, professional business set-up support and assistance with tax returns.

Through its open architecture, NeedHelp already provides its services to customers in more than 500 stores.

Kingfisher had an existing relationship with NeedHelp in France through its Castorama and Brico Depot stores, but it is the first time such a service has been offered to British customers.

In the UK, NeedHelp will offer support to B&Q's customers who need help with their DIY while Screwfix's customer base of trade professionals will be able to source work from consumers needing help.

NeedHelp currently operates in Switzerland and has recently expanded into Germany, Belgium, Austria and the Netherlands. It plans to roll out the platform in Poland.

The company said the acquisition of NeedHelp forms part of its recently announced "Powered by Kingfisher" strategy, which focuses on building a mobile-first customer experience. Kingfisher chief executive Thierry Garnier said:

To serve customers effectively today, we need to be more digital and service orientated, while leveraging our strong store assets. Online services marketplaces are key to the future of home improvement retail and NeedHelp is an established and fast-growing player in this arena.

[The] acquisition accelerates our digital capabilities and extends the services that we can provide our customers - two central components of our future growth strategy.

This represents an exciting opportunity to create a more complete services offer and to help make better homes accessible for everyone.

As part of the deal, NeedHelp founder Guillaume de Kergariou will retain a 20% stake and remain as chief executive. Mr de Kergariou started the business in France in 2014 and has tripled its revenue every year since its launch. He said:

The additional investment and expertise that Kingfisher will bring, as well as the ability to help support its huge customer base, opens an exciting new chapter for us. We will continue investing in our technology, product and operational processes to drive even greater customer satisfaction.

JJ Van Oosten, Kingfisher's chief customer and digital officer, who has been appointed chairman of NeedHelp, added:

NeedHelp's success has been built by delivering ease and assurance to customers who want to improve their homes, and the tradespeople with the skills to support them. We know the business well, it is a natural fit with our retail banners, and it accelerates our service proposition.

Kingfisher is committed to supporting NeedHelp in unlocking its significant growth potential, by promoting and growing NeedHelp's open architecture with its existing retail partners, as well as with new retail partners across Europe.

Results

Kingfisher recently revealed that total group sales rose by 17.6% to GBP3.5 billion for the quarter to October 31, with a 17.4% increase in like-for-like sales. But the company said it saw like-for-like sales growth slow to 12.6% in the first weeks of the current quarter as it was impacted by a tightening of restrictions across Europe. All of its stores remain open to customers despite lockdown measures, due to their essential status.

E-commerce sales rose by 152.6% and accounted for 17% of total group sales in the third quarter. Click & collect sales increased 216% and accounted for 77% of e-commerce sales.

Related: Kingfisher is placing stores at the centre of its online strategy.

Australia has seen a consistent slump in construction workforce productivity over the past decade. According to the Productivity Commission, comparing the financial years from 1974/75 to 2004/05 with those from 2004/05 to 2018/19, the overall decline is around 21%. While those numbers are nothing new, what is new is an increased focus on what they are, and what they indicate about the future of the industry.

For those who work close to the industry, it's no secret how those numbers came about. Not only is there a great deal of union activity which has led to only limited evolution in how work is done, but both state and federal governments have funded and supported the construction industry as a means to provide more employment for less-skilled and unqualified workers.

The result has been an industry whose utilisation of technology - as one example - might be generously described as "uneven". The adoption of Building Information Modelling (BIM) is a clear illustration of this. While Australia lags behind the global leaders, with the UK in first place followed by the US, France, Singapore and the Scandinavian nations, it has kept pace with China (so far) and Germany. There are some Australian construction companies that are heavily invested in BIM, while others see it as more of a compliance issue.

What happens in these situations where there is both a small active and large passive resistance to technology, is that technological change becomes dammed-up, until it reaches a critical point where the advantages are so great that they can no longer be ignored.

If construction technology is not quite at that point, it will likely cross over it in the next two to three years - pushed in part by a likely global slowdown following a brief, government-financed recovery from the Sars-CoV-2 pandemic.

The two prominent technologies on the horizon that will help to reshape construction are robotics and the 5G mobile data networks currently being built-out around the world.

Robots are coming

In fact, the robots have already arrived. Lichtenstein-based power tool company Hilti has recently released its JaiBOT, a single-function semi-autonomous robot for large-scale construction sites. The best description of the JaiBOT is provided by Hilti's Aidan Maguire, business unit manager for measuring systems in North America:

Powered by the data in this BIM model, JaiBOT is a complete self-contained software and hardware system for semi-autonomously drilling, marking and locating anchor locations overhead. This makes it the perfect solution for faster, safer and more accurate execution of digitally coordinated MEP systems on the job site.

Physically, JaiBot is about the size of a narrow double refrigerator, mounted on rubber tread tracks. It's electric powered, and its batteries can keep it working for eight hours before it needs to be recharged. Its operating mechanism consists of two parts. There is an enclosed lift mechanism, which gives it an operating height range from 2.5m to 4.9m. Mounted on this is the robotic arm, which carries three units: the drill unit itself, a dust shroud connected to an onboard vacuum (enabling it to meet US specifications for dust contamination), and, interestingly enough, a paint dot sprayer.

The JaiBOT is moved via a remote control to its work area - in transport mode the JaiBot is less than 90cm wide - and from one position is able to drill the required holes within a radius of around 90cm. Drilling widths are between 8mm and 16mm.

After each hole is drilled, JaiBOT then uses the paint dot sprayer to mark the hole with the required colour to indicate its future trade and function. If rebar is encountered during a drill, the operator can either skip that position, or adjust it to miss the rebar.

According to Hilti, the holes can be set with an accuracy of 3.5mm. The JaiBOT achieves this by using a Hilti PLT 300 as a reference point. The PLT 300 is the core unit to Hilti's fully automated positioning system which replaces the traditional optics-based total station. The PLT 300 uses the PLC 400 Android-based tablet as its controller, enabling it to integrate with cloud-based BIM two- and three-dimensional drawings.

To get started with the JaiBOT, the operator first sets up the PLT 300, which is then linked to a prism on the JaiBOT's robotic arm. The operator uses the tablet to approve and activate the drilling function, with a simple "stoplight" interface.

Users report that the JaiBOT succeeds in three areas. It is highly accurate. It's also time efficient, even though it does require a full-time operator, as the time spent on setting up ladders, going up and down, then moving the ladder to a new position is eliminated. As importantly, it's a big advance in health and safety, as drilling through concrete overhead is one of the most wearying and highest repetitive-stress injury potentials on large construction sites.

In addition to those advantages, the JaiBot fits seamlessly into the construction site's information flow. As Mr Maguire describes it:

This system can work on a wide range of projects in the commercial construction sector. JaiBOT synchs with a dedicated project cloud to access the most up-to-date design data, enabling infield access to the planned anchor locations for the entire project.

What's more, as the JaiBOT drills, it updates the BIM links, in real time, according to Mr Maguire:

Of course, the hole locations and drill progress synch back to the cloud and can be accessed live in the office.

Rafael Garcia, senior vice president of marketing for Hilti North America, sums up the information advantage:

Contractors will be able to more seamlessly get information from design directly to execution, with the JaiBOT, and then record exactly where and what has been drilled on site for progress monitoring and documentation of work completed.

Hilti, with its usual attention to detail, has of course developed solutions for the delivery, movement, storage and charging of the JaiBOT. Mr Maguire details these solutions:

The system arrives on site in a container that can be lifted by a forklift or crane allowing easy access to the working area. When not in-use, this container also works as a charging station and secure storage. When it's time to work, the operator simply drives JaiBOT out of this container directly to the working area.

One thing that is also clear is that Hilti is making a broad commitment to this area of development. Jan Doongaji, a member of the Hilti's executive board, responsible for electric tools and group research, commented that:

We all agree that our industry is facing significant challenges in the future, such as a shortage of skilled labour, health and safety issues, and also stagnant productivity. Now as opposed to other industries, construction by and large is today less productive than a couple of decades ago.

This is thus a game-changing opportunity, which we as innovation leader, want to drive. We always strive to offer holistic solutions to our customers with the JaiBOT we can finally digitalise the missing gap in the entire value chain from planning to implementation on the job site.

The 5G revolution

There's little doubt that the 5G cellular communications standard has been more than a little hyped during 2020. Nonetheless, as the network develops, it is likely that 5G will have a considerable impact on both mobile computing, as well as more traditional desktop computing. It could also help to bring changes to construction sites.

There really are three different types of 5G. At the low-end, one version of 5G boasts only a moderate gain in download speeds over the 4G network, 30 to 250 megabits per second (Mbit/s). Many 5G networks are likely to not even support that range.

Mid-band 5G uses microwaves of 2.5-3.7 GHz, allowing speeds of 100-900 Mbit/s, with cell towers delivering a signal beyond 5km. This level of service will be the most common in urban areas. High-band 5G uses frequencies of 25-39 GHz, though higher frequencies may be used in the future. This type of service can achieve download speeds in the gigabit per second (Gbit/s) range.

However, millimetre waves have a limited range, meaning that more cell towers, closer apart, are needed. These waves also have trouble getting through materials such as walls and glass windows. This type of service will likely be limited to areas where that host crowds of people, such as sports stadiums and convention centres.

While much of the focus has been on telecom providers of 5G, some private companies have gone so far as to license a slice of the 5G spectrum and replaced their wired networks with 5G connections. It is possible that in the future we could see some construction sites follow that trend as well.

What would be the benefits of 5G to construction? China has been finding out, with the launch of its first 5G enabled construction site. China Construction's Eighth Engineering Division has created a "smart site" using the latest 5G telecom network. This hooked into sensors which could provide updates on workers' health and interactions, enabling remote management of site personnel. This included using 5G AI glasses to provide users' location information, enabling engineers to perform remote site inspection.

The technology could also be used directly onsite, such as cases where a crane driver could see the real-time transmitted picture outside of the crane, including the load pickup and drop areas, which can help to reduce accidents.

The endpoint could see video become a functional, expected part of most construction sites, embedded into construction helmets, lighting systems, as well as heavy and light machinery.

Analysis

Why is there so much resistance still, today, to BIM? Academic papers commonly suggest it comes down to these five main factors:

What these really add up to, in the end, are the current culture of construction. It isn't that there are not enough construction workers who are smart enough to understand the requirements of BIM, and to work with the digital and intellectual tools, such as 3D visualisations, tablet computers and robots. There are, but their skills are going to waste.

What is required, however, is a move towards understanding and respecting a different skillset on the job site. That reaches back, really, into the kinds of training that construction workers receive, whether that is during apprenticeships or in a more formal environment. BIM needs to move from being some kind of option for training, to being the main way in which construction workers are trained to do their jobs.

So many heavy industries are finding themselves in this precise position. Often it arises because they feel themselves to some extent protected from direct competition. But the lesson of the digital age is that the real competition is not direct at all. When industries fail to keep pace with technology, technology finds ways to get around them.

Online home design and renovation resource guide Houzz has released its study of renovations, a survey taken in February and March 2020 regarding activity during 2019.

While reading the results does seem a little like a look backwards into a lost time, there are still some valid and interesting data points that do relate to 2020/21.

Expenditure

The median spend on home renovation projects came in at $20,000, about the same as 2018, but down from $25,000 in 2017. Most renovators relied on cash to fund the work (80%), while credit cards were the second most popular source (the two are not mutually exclusive in the survey).

Some 57% reported that they had managed to bring their project in on budget, while 25% were over-budget by less than 25%, and 14% overspent even more than that. Only 3% reported coming in under-budget. The most common reason cited for being over-budget was that products or services were more expensive than expected.

The biggest change in spending from 2018 to 2019 was that in the recent year an average of only $15,000 was spent on renovating the kitchen, down from $20,000 the previous year.

Bathrooms, however received a bit of boost, with spending on master bedrooms up $1000 to $13,000, and spending on other bathrooms up $2000 to $10,000.

What was renovated

While 53% of the those surveyed reported decorating or furnishing in 2019, renovations were down to 48%, a drop of 2%. Repairs held steady at 41%, however. The two leading reasons for renovating were "wanted to do it, finally had the time" and "wanted to do it, finally have the money". The first was 39% of the survey, and the second was 33%.

While they dropped by 3% for the year, kitchens were still the most popular renovation at 23%, followed closely by living/family rooms at 20%, also a 3% drop from 2018. Bathrooms, laundry and non-master bedrooms were all equal on 17%.

Plumbing and electrical led the trades upgrades, at 31% and 30% respectively. Survey respondents reports upgrading an average of 2.8 interior rooms, 2.6 home systems (such as plumbing), and 2.7 exterior features. All three were down slightly on the previous year.

Planning

In terms of planning a project, the survey reports the average planning time for a kitchen was 11.1 months, followed by - surprisingly - the laundry room at 10.4 months, and the master bedroom at 10.0 months. The shortest planning times were for the wardrobe (understandably) at 6.2 months, the home office at 6.4 months, and the basement at 6.5 months.

The laundry room also had the longest completion time (work started to finish) of 5.7 months, followed by the basement at 5.6 months, and then the non-master bathroom at 5.0 months.

Electricians were the most frequently hired trades at 60%, followed by plumbers at 45% and carpenters at 35%. Home builders were hired by only 17% of respondents.

Chief executive of building products group CSR, Julie Coates said she is keeping a tight rein on costs in an uncertain market where revenue in the core business - Bradford insulation, PGH bricks, Hebel lightweight construction blocks, Monier roofing and Gyprock plasterboard - fell 6% to $58.7 million in the six months to September 30.

Bottom-line profit at CSR was down 15% to $58.7 million in the period. However, earnings in the building products division edged up slightly to $96.3 million, with the earnings before interest and tax margin rose to 12.1%, up from 11.4%.

Ms Coates said greater diversification in the range of products CSR supplies to the construction industry, along with robust cost-cutting of $20 million, helped the company deliver the slight lift in profit and margins in building materials. But profits in its smaller aluminium business were impacted by the COVID-19 economic fallout.

CSR, has a 25% stake in the Tomago aluminium smelter in NSW, which accounts for about 12% of electricity consumption in the state. According to The Australian Financial Review (AFR) Ms Coates hinted CSR may eventually exit the aluminium business but emphasised that the first task was to ensure commercially viable energy prices for that operation. Ms Coates said:

We're predominantly a building products business.

It remains hopeful the Tomago aluminium smelter can strike a cheaper power deal with AGL Energy to ensure the facility remains profitable.

The company will also be closely watching the fallout on the building materials market as the JobKeeper and JobSeeker payments wind down. However renovations market had improved as people who were stuck at home for lengthy periods found flaws in their dwellings they wanted to fix. Ms Coates said:

We plan to monitor pretty closely what that might mean for our business and manage it ­accordingly.

Related: Ms Coates took the helm of CSR in September 2019 after heading up the Big W discount department store chain as its managing director and running the Australasian operations of $2 billion food group Goodman Fielder.

At its virtual annual general meeting, plumbing and bathroom company Reece announced that group sales revenue rose 4.4% in the first quarter but remains wary of the outlook for the year ahead.

Australia and New Zealand sales revenue was up 6.9%, while sales from its US-based business was up 8.6% on a constant currency basis. According to a report in The Australian, chief executive Peter Wilson said:

We have continued to see growth in both regions which has exceeded our initial expectations.

It's important to note that we do not see the first quarter's performance as illustrative of the remainder of the financial year due to significant uncertainty and negative economic indicators across our regions.

Trading conditions in the US are softening as we speak as the COVID-19 cases escalate and as we are being forced to close more stores.

While the company's business has seen increased demand from people spending more time at home in light of COVID-19 restrictions in some areas, it's faced major challenges by having to close stores in other areas.

As such, despite the record $6 billion in sales revenue over the 2020 financial year, Reece is being cautious in terms of expectations.

The company said "significant uncertainty and negative economic indicators across Australia and New Zealand" meant it couldn't confidently provide any guidance.

Mr Wilson also said activity in Australia was increasing as COVID-19 restrictions eased, largely stimulated by government incentives and low interest rates. He told the AGM:

With borders closed, population growth - a key driver for new housing - has fallen sharply since March. And we don't expect overseas migration to return to pre-COVID-19 levels until 2024. Dwelling approvals are expected to fall by 5% in the 2021 financial year. This represents a 30% decline since 2018.

With more people spending time at home, we will continue to see an increase in demand for alterations and additions, helping to balance the short-term impact of the housing downturn. With less people in the office, coupled with a decline of inner-city investment, non-residential commencements are expected to decline in the 2021 financial year.

Reece, which runs 630 outlets in Australia has navigated two global pandemics. The company launched a major campaign in 1920 in the US after the Spanish flu pandemic highlighting the importance of sanitation and plumbing. Mr Wilson said this idea still underpins the business today.

We often say that doctors and scientists help cure disease, but plumbers prevent it.

With this in mind, the company said it has a clear long-term vision and a resilient business model to withstand the difficulties of 2020.

Bluetooth connectivity for tools is now five years old. It was announced by the Techtronic Industries (TTI) company Milwaukee Tool in 2015, branded as "One-Key", and hit the market in January 2016. That followed on from the release of "connected batteries" by the Stanley Black & Decker brand DeWalt earlier in 2015. Both DeWalt and Bosch Power Tools announced matching systems in the wake of the One-Key announcement, and these became available about 18 months after One-Key.

Makita and Hitachi (now Hikoki), which round out the five major global power tool companies, have added some Bluetooth functionality to a few tools, but nothing at the scale of the other three.

At launch, the DeWalt and Bosch systems copied features from One-Key, but they also each had their own twist on what connectivity was, and how it would be used. Five years later, there have been further advances in the development of all three systems, but they have, for the most part, stayed true to their original differences.

The reason why now is a good time to review what has happened in the market so far, is that in its most recent release of One-Key, Milwaukee has moved to include integration with Autodesk's Building Information Modelling (BIM) system. That's significant, because it points to the possible future of these systems.

What Bluetooth connectivity is

The Bluetooth connectivity provided in power tools really consists of two different types. The most basic connection makes use of "beacon" technology, which likely follows either Apple's iBeacon standard or Android's Eddystone standard (or both).

Beacons basically do just one thing: continuously broadcast a universally unique ID (UUID). Bluetooth receivers - such as smartphones - can pick up that signal and retrieve the UUID. They also can assess the signal strength. If the type of beacon is known (as it always will be with these power tool systems) the receiver can use the signal strength to estimate how far away the beacon is. (It's an estimate, because signal strength can be reduced by obstacles, such as people.) The end result is that a single receiver can know it is close to a beacon, but it cannot determine the direction to the beacon.

This kind of access is quite general. Any receiver can pick up this type of Bluetooth signal. There is no encryption, as all that would do is change the UUID.

Milwaukee and other companies with similar technologies have leveraged this capability. Anyone running the One-Key app will pick up every Milwaukee tool beacon running in their proximity, and that information will be transmitted back to the central network database. This means that tools that "wander off" will likely be detected eventually, and their location will be transmitted back to the owner.

The second kind of Bluetooth connectivity is more like the connection you might have to smarthome devices or even Bluetooth linked radios. In these cases, the power tool is also a receiver as well as a sender. A smartphone can send signals to the power tool over Bluetooth which cause it to change internal settings, such as the speed of a drill, or the kickback protection on an angle grinder.

This connection does need to be protected and encrypted. This is done during the initial linking process, when the smartphone app and the tool are "synched", usually by pressing a button on the tool. Typically, a random token is generated, and that token is used to certify future connections between tool and smartphone. Transmission of that token is itself likely protected through the use of private and public keys.

These two systems can be combined to provide a powerful disincentive to steal tools. For example, a tool can be "geo-fenced", so that when it moves outside the connection range of its controlling smartphone, it is automatically disabled. Tools can be loaned to others, with a time limit attached, so that they shut down at a particular date and time.

Design parameters

The main problem that all three companies initially faced in adding a form of Bluetooth connectivity was how to handle incorporating that connectivity into the tools themselves.

Milwaukee saw this, initially, as being all about the tool. One-Key connectivity was built into a limited range of its M18 FUEL line of tools. This has had the advantage of making these tools increasingly theft-proof, as the location technology associated with One-Key has developed, and the network of tool owners has grown. However, it has also created an element of range complexity, as Milwaukee offers these tools in two models, with and without One-Key. Additionally, in its original form, One-Key made little allowance for tools that did not have One-Key built in.

Bosch took a very different approach when it launched its version in 2016. From the beginning, it offered a "TrackTag" that could be added to any tool - either glued in place or secured by a clamp to the power cord (in the case of corded tools).

Behind this system was Bosch's own TrackMyTools app, which offered (obviously) tool tracking. The Bosch system did eliminate the need for separate connected and non-connected tools, as well as being as inclusive as possible. However, it did so at the loss of virtually all theft-prevention safeguards. You could track tools, but not when the person in possession of them didn't want to be tracked.

Bosch also offered in-tool integration, but this was done by purchasing an additional module, that could be plugged into the original (not-yet-connected) tool. That meant Bosch did not need to manufacture separate connected and non-connected tools. However, a little confusingly, while TrackMyTools looked after tool tracking, users had to download the Bosch Toolbox app to customise tools via the Bluetooth connection.

A further complexity was added in early 2018, when Bosch launched a service named BlueHound. BlueHound is an inventory management system that greatly expanded on what was offered by TrackMyTools, enabling just about any construction-related asset (such as vehicles) to be tracked. The system also provides documentation, service alerts and user manuals. Another addition was the ability to integrate with software such as Triax's Spot-r system, which includes personnel and safety management as well. That system works by more or less tagging people as well as tools, so that they get tracked on the jobsite as well.

DeWalt steered a path that took it somewhat between the Milwaukee and the Bosch approaches. Following on from the "smart" batteries it launched in 2015, in May 2017 DeWalt expanded Tool Connect. This expansion included DeWalt tools which fully integrated into connectivity, as well as the Tag, a simple Bluetooth beacon that provides location information and little else, like the Bosch TrackTag.

There is also a special "connector", which the company labelled as the "20V MAX Tool Connect Connector". This can be fitted to the battery shoe on an 18-volt DeWalt tool, and provides basic Tool Connect functionality. According to DeWalt, once attached the connector cannot be removed. The Connector also does have the capability to shut down the tool, adding to theft deterrence.

At the same time it launched Tool Connect, DeWalt also announced a fully-connected mesh network system which, it promised, would power next generation Internet of Things (IoT) products for construction sites. While DeWalt has introduced a rugged WiFi access point for construction sites, HNN has not been able to find any reference to the IoT project post 2018.

To circle back, after the release of the Bosch and DeWalt products, in February 2017, Milwaukee released its own version of the Bluetooth tag, which was named the Tick. This allows a wide range of assets to be tracked by One-Key

Ongoing development

In general, TTI while TTI has continued its commitment to One-Key and connectivity in general, both Bosch and DeWalt seemed to have reduced their engagement. One indication of this is that, for example, DeWalt has not integrated Bluetooth into its line of Flexvolt batteries (for its 54-volt range), while Milwaukee has integrated One-Key into its MX FUEL line of 72-volt batteries.

Beyond that, however, Milwaukee has a truly impressive range of One-Key tools, while both Bosch and DeWalt have significantly smaller ranges. The Milwaukee website, in fact, lists no fewer than 1214 SKUs associated with One-Key - though this includes, of course kits and other repeats of tools. Just to give a sense of the range, these are the first 30 SKUs listed:

One of the recent additions to the One-Key system has been its Asset ID Tags. These are not Bluetooth connected. Instead they are simple QR code stickers that come in two sizes, and two different types, one for sticking to plastic, and one for sticking to metal.

Milwaukee's thinking behind these tags is that they integrate more easily into the One-Key system than do the standard barcodes. Also, though, Milwaukee had found out in its field-based research that many standard barcodes would tend to peel off, or to become unreadable. The Asset ID Tags are designed to be durable, and extra-adhesive.

The disruption

As recent as these innovations seem, they are about to be overtaken by even newer technologies. Ultra Wide Band (UWB) devices offer a different approach to location tracking, one which is both far more accurate in terms of distance, and can also provide directionality as well.

Two events have sparked the development of UWB. In the US, the UWB spectrum was opened for commercial use in 2005 by the Federal Communications Commission for pulse-based transmission in the 3.1 to 10.6 GHz frequency range. Following on from that, around about 2015, a company named Decawave began selling inexpensive UWB chips that can be embedded into pretty much anything. The chip is able to schedule transmission of UWB packets and measure the time a signal is received in picoseconds.

The location data returned is very accurate, down to 200mm to 300mm in accuracy. It's the difference between knowing a tool is somewhere in a building, and having it pinpointed as being hidden behind one particular cupboard. The advantage when it comes to helping people located tools is evident.

Apple began including its U1 UWB chip in the iPhone 11, and it is, of course, continued in the iPhone 12 as well. This chip enables the hyper-accurate location tracking. Over the past year there has been speculation about the company launching its own version of the Bluetooth-based location tags that several other companies make. Rumours have included an Apple product named AirTag, as well as Apple simply making access to the UWB widely available to developers.

The difficulty Apple has is that it already faces concerns over activities which could activate federal anti-trust regulations in the US, where the company is headquartered (in particular some of its dealings with Alphabet, the parent company of Google and Android).

There is little doubt that an Apple location tag would severely damage the businesses of other location tags. These systems rely on there being a widespread network of people using their apps (to detect the tags when they are out of range of their owner's smartphone). Integrated into the iPhone, that detection could run constantly - something the apps cannot achieve - on every recent Apple smartphone.

While we can expect Alphabet to launch a similar service via Android, it's unlikely to work as well as Apple's version. That's because the UWB tags depend both on software and on the hardware in the smartphone itself - and Alphabet has next to no control over the latter, outside the smartphones it makes itself.

This places the connected tools of Bosch, Dewalt and Milwaukee in something of a corner. Do they simply persist with their existing Bluetooth systems, or do they integrate some form of UWB tags as well? Much of that will also depend on how Apple handles third-party software integrating with the UWB systems it has developed.

What HNN can fairly reliably predict, however, is that UWB may make tagging consumer grade tools a real possibility. That could include integrating a UWB chip directly into a tool, or just providing a place where such a tag can be glued of clipped. We would reliably expect to see this appear on Bosch Green, Black & Decker and Ryobi tools by 2023.

The UWB tags might also offer both Hikoki and Bosch the chance to get involved in asset tracking, if they can directly integrate the tags into their tools. This might depend on how well the Apple system is duplicated in Android.

In the market

While there has been some adoption of connected tools by major construction and infrastructure maintenance companies worldwide, the take up by contractors and trades would seem to be less enthusiastic. As an indicator of that, searches for the word "Bluetooth" on the websites of Total Tools, Sydney Tools and Bunnings show few, if any, connected tools. The results that come back include Bluetooth sound equipment, some measuring devices that use Bluetooth connectivity to communicate results, a few Li-ion batteries, notably DeWalt and FesTool - but no frontline powertools, such as drills, impact drivers and grinders. (Though, to be fair, searching for Milwaukee's proprietary connectivity brand, One-Key, does return a range of Milwaukee tools for the first two retailers. But then, One-Key is included in the name of the products featured.)

It would seem the tradies who buy from hardware retailers typically are not all that interested in Bluetooth connectivity as a main feature. The factors that do interest them are those that relate to durability, improvements in speed of task execution, and the range of tasks a tool can perform. Bluetooth connectivity, for the most part, does not seem to tick any of those boxes.

One response to this is to suggest we might see some more interesting advances in power tools over the next three to four years. For example, a cordless drill equipped with a LIDAR sensor (now available on iPhones and iPads, and a core technology behind near-autonomous vehicles such as the Tesla range) could provide information about drilling depth. The user would pre-set a depth in millimetres, click a button just before starting, and have the drill automatically turn off when the correct depth was reached.

There is also the possibility of using a wide range of augmented reality tools to help on construction sites. Imagine, for example, a carpenter putting up a house frame, and able see the entire structure from the plans projected onto her safety glasses. A plumber or electrician could have the ability to "see through" walls to the pipes and conduits beneath.

It's not technically difficult to provide that kind of functionality - the real problems come with both cost and durability. The cost relates not only to the LIDAR sensors (which will probably drop 30% in price over the next two years), but to the processing power required to make use of them in real time applications. It would not make sense to embed that power in every single tool. What could develop would be a kind of personal connective device housing the same kind of capabilities as a smartphone, but dedicated to providing the processing backend to a range of power tools.

What this comes down to is that the next wave of innovations in power tools is going to be about connected tools, and not just because of what can be achieved through IoT devices intercommunicating. What we are heading towards are truly intelligent tools. However, we can't afford (for the moment - we will be able to in the 2030s) to make each tool intelligent. So the most likely model is to develop central hubs that provide the necessary "smarts" to semi-intelligent tools through connectivity. It's really a form of distributive computing.

Connectivity, then, is likely to be a major path to innovation. That means today's tool system that enables inventory and some systems integration (both really good things) could in five years be the conduit used to make power tools smarter, safer, more capable and, as a result, far more productive.

The next step

It's true that those kinds of almost futuristic tools are probably five to ten years away being available. That's not because they are difficult to develop - there are probably a couple of dozen companies in the world that could code those up in less than a year. The barrier to their development is not about the technology, but about the systems with which they interact.

The construction industry has already made a considerable step towards developing systems for the future of the industry - it's just that the take-up of those systems has, until recently, been very slow. While it is not the only piece of this integration puzzle, perhaps the most evident piece is BIM. BIM is a good start at providing the kind of data/information "glue" that could make future developments such as augmented reality for construction possible.

In this area, closer to the cutting edge, while Bosch and DeWalt have made some notable contributions, it is really TTI through Milwaukee Tool that continues to make the truly outstanding advances - most recently through integration between AutoDesk BIM 360 and One-Key.

BIM 360 is a construction collaboration system, which enables project managers to consolidate most of the relevant design and build information. While it most closely integrates with other AutoDesk products, such as Revit, BIM 360 also provides for a wide range of additional integrations. Its modules include:

Users of One-Key can link their account into their BIM 360 account, and then import records such as Projects and Contacts, enabling synchronisation between the two systems. That can create considerable workflow efficiencies. Milwaukee quotes the head of integrations at Autodesk Construction Solutions, James Cook, as saying:

Integrating with One-Key enables us to provide customers access to their asset data in BIM 360 so they have the context they need for project management, simplifying decision making ultimately helping reduce project risks.

However, the really exciting news, from a power tools perspective, is that even more direct integration is being offered. Milwaukee also informs us:

Furthermore, users of Milwaukee's new M12 FUEL Digital Torque Wrenches will be able to upload torque reports directly from One-Key into BIM 360 Docs, digitally syncing torque quality data from the field to the back office. Milwaukee plans to roll out similar reporting functionalities with other tools over time.

That capability is really the end goal of connected tools: direct reporting of the technical details of tasks completed to a centralised project management hub.

Eventually, we could see this kind of reporting, as it grows more comprehensive, being tracked by blockchain processes, which would result in a building certification process which indicated not only what work has been done, but also who is directly responsible, right down to one tool, one operator, on one particular day.

Analysis

Why does this matter? What is the point behind connected tools, LIDAR, UWB, augmented reality?

The fact is that construction companies and individual trades remain some of the least technologically advanced areas of the Australian economy. While they've benefitted from being the endpoint users of some technological advances, such as those in adhesives, paints/coatings and the development of Lithium-ion (Li-ion) batteries for cordless power tools, their own practices have changed little over the past 15 years.

This is reflected in productivity as measured by the Australian Bureau of Statistics (ABS). ABS statistics show that construction industry multi-factor productivity (MFA - this includes both labour and capital productivity), in the ten years from FY2009/10 to FY2018/19, fell seven times. That includes every year for the most recent five years of that range.

The main reasons for that fall are twofold. In the first place, for the construction industry productivity is seen to have little effect on profitability outside of a certain basic range. Profitability in construction is instead largely driven by market forces. During periods of undersupply of construction services, the price for these climbs substantially, and over the past six years in particular, there have been frequent, lengthy periods of undersupply.

Secondly - and these two factors interact strongly - the construction/housing market is one of the most highly subsidised industries in Australia. Looking back over the histories of construction activity and dwelling prices, the pattern that emerges over the past ten years is that this industry has repeatedly fallen to lows and has been boosted back up again by cuts to interest rates.

That combination - an industry reliant on short supply to boost profits, tied to indirect government subsidies - is a known recipe to economists for failed productivity rates. If anything, as with the broad, general tariffs of the 1970s, productivity is disincentivized, as the government support has been largely based on employment provision, and better productivity would likely see a reduction in the construction workforce.

What has happened during the Sars-CoV-2 pandemic of 2020 is that the "buffer" of interest rates the construction industry had been counting on for the next two years or so has run out. The cash rate set by the Reserve Bank of Australia (RBA) is now just 25 basis points (0.25%). There is no room for further cuts - unless the economy re-enters recession.

Without this kind of monetary stimulus, the only other option is fiscal stimulus, which is what happened with the government's HomeBuilder $25,000 boost to renovations and new home builds, which cost around $680 million. That expires at the end of 2020. There might, possibly, be an equivalent package during 2021, but it is highly unlikely this kind of regressive (it favours better-off Australians) stimulus spending will exceed a total of $1.4 billion.

That means that by the start of 2022 the construction industry is going to have to seriously consider how it rebases itself as an industry like any other Australian industry, with its profit gains linked more closely to gains in productivity.

The good news is that Australian construction, especially in home building, is so inefficient that making those gains will not be difficult to manage. And you can be sure that the areas that will receive a lot of attention will be inventory management and BIM - an ideal use case for connected tools.

After completing a strategic review, Boral chief executive Zlatko Todorcevski announced the company will sell its 50% stake in the USG Boral plasterboard business for $1.43 billion to its joint venture partner, Germany-based Knauf.

Mr Todorcevski said limits on the joint venture arrangement with US Gypsum and the big offer price were the key reasons for the asset sale.

The deal gives Boral profit before tax of $540 million and was higher than the market expected. It would enable Boral to cut debt.

USG Boral is a strong performer and has solid growth prospects in emerging Asian markets but Mr Todorcevski said the sale would help simplify the Boral portfolio of businesses.

Boral experienced six profit downgrades over two years after former chief executive Mike Kane spent $3.5 billion buying the Headwaters business in the US in late 2016.

Mr Todorcevski has conceded previous management had paid too much for Headwaters, but no further write-downs of goodwill would be needed after it took a $1.22 billion impairment on the US business in August. He said:

We've failed to maximise the opportunities. Integration and execution have been found wanting.

He said fly ash volume for the September quarter was down 11%. Fly ash was a core part of the Headwaters acquisition.

In a recent trading update, Boral said that in the three months to the end of September, revenue from the Australian operations fell by 9%, and earnings before interest and tax dropped 5% on the same period a year earlier.

The first quarter of the 2021 financial year has seen fewer disruptions in most businesses relative to the previous six months, which is encouraging, but it is still not business as usual. We're not seeing consistency in activity levels from month to month, which reflects ongoing uncertainty and challenges.

US business

Mr Todorcevski said overall revenue at the North American operations fell in the first quarter in a patchy market, although new home construction was improving. He said:

In terms of North America we're not committed to selling. It's a really good business and we see a lot of upside and we've had inbound inquiries both directly and indirectly. But we have a value expectation there and if potential buyers don't meet that expectation, I think it's in the best interests of shareholders to hold those assets and deliver the opportunities we see.

The preference was for a sale of the entire building products portfolio rather than a piecemeal approach. Mr Todorcevski said:

What we don't want to do is have people pick the eyes out of that portfolio and we're left with some of the less attractive building product segments. That is something we're very conscious about.

Mr Todorcevski said Boral had fielded a number of approaches from potential buyers but wanted to see what impact an improving US housing market would have on the value of its US divisions, which are tied to the building and construction sectors. The US residential construction market has renewed momentum in the COVID-19 pandemic fallout, as people look to regional areas to live.

Kerry Stokes' Seven Group has been pushing for an exit of the US business. It holds 19.9% of Boral after a steady buy-up of the stock that began early in 2020 as it eyed the big infrastructure spend in the pipeline in Australia if an aggressive Boral turnaround was pursued.

Strategic review

The company has completed months of work on whether it should unwind the ambitious US growth plans championed under Mr Kane, and narrow its focus to the Australian construction materials market as part of a push to lift investment returns after a disappointing past two years. Property asset sell-offs are also under serious consideration.

Its review found that its Australian operations have a strong market position but need to be better managed, leaner and more customer-focused to lift returns. Mr Todorcevski said Boral in Australia was also eyeing a move into recycled concrete and asphalt. The focus will be on getting costs down and improving speed to market.

Boral, with its strong quarries and aggregates position, was in a strong position to do well out of big infrastructure spending by governments in Australia if the business was tightly managed.

Knauf

Merchant banker Goldman Sachs has noted that Knauf faces risk with the USG Boral deal. Goldman analyst David Schwartz told The Australian:

One key impediment to the transaction remains the possible divestment of Knauf's existing Australian assets, given competition concerns in the Australian plasterboard market - Knauf's call option on USG Boral Australia was previously rejected by the Australian Competition & Consumer Commission (ACCC), and the market remains largely concentrated between Knauf, CSR and USG Boral.

The Data Room column in The Australian also reports that Belgium-based building materials provider Etex could be looking to acquire Knauf's Australian assets.

Etex is a family-owned building materials company that operates in 42 countries but generates most of its revenue from the European market. It sells cement, fibres, gypsum, sand, clay and other materials such as vermiculite, paper, mica and coatings.

Boral's sale of its half share of its USG plasterboard venture to Knauf places pressure on the German building materials group to sell its other plasterboard plants in Australia to appease the ACCC.

Knauf was already planning sell the plasterboard factories it owned before it purchased the USG assets in Australia and Asia through the Boral partnership.

Before acquiring USG, Knauf's Australian operations consisted of plasterboard, metal framing systems and acoustic linings and ceiling tiles. It has four manufacturing plants in Victoria, NSW and Queensland. The plasterboard manufacturing sites that it owned before the USG deal are located at Altona in Melbourne, Matraville in Sydney and Bundaberg, Queensland. There is also a factory in Beenleigh (QLD) where it makes metal profile lines.

The plasterboard sites that were part of the USG joint venture and are not for sale are at Port Melbourne, Camellia in Sydney and Pinkenba in Brisbane.

Data Room has reported that European building materials company, Saint-Gobain could be looking at Knauf's portfolio for acquisition. The company has a presence in 67 countries including Australia. It has an annual revenue of about EUR10.9 billion.

China National Building Material (CNBM) is also understood to have shown interest. The publicly traded company is involved in cement, lightweight building materials, glass fibre, fibre-reinforced plastic products and engineering services

Related: Boral had a plasterboard joint venture across Asia, Australia and New Zealand with USG, but Knauf bought out USG in a deal last year worth USD7 billion.

This week's Tools of the Week looks at two innovative products. Ryobi's electrostatic sprayers could be a big help in coping with COVID-19, and Bosch's cordless sander could be aimed at the 3D maker market, as well as DIY woodworking.

Ryobi electrostatic sprayers

Industrial tools have made use of electrostatics for some time, most notably by applying a positive charge to paint and other coatings. That positive charge makes the fine droplets of the coating attractive to the negatively charged surfaces they interact with.

The result is a better coating that can, to some extent "wrap around" the edges of the target object, as well as providing more coverage on the sides of nooks and crannies. The coating gets applied more evenly, and in most cases, this means that less of the coating material is wasted so less of it is needed to treat surfaces.

The newest use for electrostatics is in applying cleaners and disinfectants to surfaces. With the Sars-CoV-2 pandemic, one approach to limiting contagion has been to disinfect public spaces such as trains and buses. This has increased attention regarding getting disinfectant to reach into holes and crevices - something that electrostatics are good at boosting.

Victory Innovations, based in Minnesota, USA, was one of the first companies to make electrostatic sprayers suitable for maintenance and facility use. Their units typically cost over USD850, and demand has been high enough for there to typically be a waiting list of a month or more.

The Hong Kong and US-based Techtronic Industries (TTI) has now entered the field, with its mid-range Ryobi brand. Ryobi has recently released a range of three electrostatic sprayers, with capacities of 1.0 litre, 1.9 litres and 3.8 litres. The smallest unit has a range of up to 1.5m, and features nozzles that can provide 50, 70 and 100 micron droplet sizes. It can spray 60 litres for one charge of a 2.0 amp-hour Ryobi ONE+ Lithium-ion battery.

The 1.9 litre and 3.8 litre models appear to use the same base unit, with the smaller one using an attached container, and the second a backpack container. These can spray at 65 microns to a distance of 0.6m, 85 microns at 1.5m, and 160 microns at up to 3.1m. They can spray over 100 litres from a single charge of the same 2.0 amp-hour battery used by the handheld units.

These sprayers are currently being sold through Home Depot Pro in the US. The 1.0 litre sprayer is priced at USD399 and the backpack spray is priced at USD429. The mid-range sprayer has yet to be fully released. Prices are for a full kit of battery and charger.

As these are very new products, and likely to find high market demand in the US, there are no details as to whether they will be distributed by Bunnings in Australia.

Bosch EasyCurvSander 12

At first glance, it might be just a little bit difficult to understand the EasyCurvSander (ECS). Looking somewhat like a Philips electric shaver, it features three rotating pads mounted on flexible joints which enables them to independently adjust to a wide range of angles. To use it, a mesh-type sanding material is attached to each of the pads, or, alternatively, a polishing pad can be fitted.

The end result is a sander that can easily cope with bowl-shaped surfaces and a wide range of variable curves. It's powered by Bosch's well-known 12-volt (really 10.8-volt) in-handle Lithium-ion battery. It retails for under EUR70, and is available in many countries of the EU, as well as the UK. At the moment it is not distributed in Australia.

For the average DIYer this might seem a handy gizmo for sanding the fiddly bits of, say, garden furniture, but its prospects of being a truly popular and profitable tool might seem a bit dim.

However, HNN would suggest that this tool is really not aimed only at the average DIYer. Its target market is likely to include the "Maker" area as well, as it is an ideal tool for finishing products produced through 3D printing. Objects made with 3D printers that have large curved surfaces typically have some degree of striations (or they do if you don't want to spend three days printing them in ultrafine mode).

Sanding these smooth is a fairly unpleasant task, especially if they've been printed in one of the harder filaments (in particular ABS).

One reason why this seems like a valid suggestion is that Bosch is already highly regarded in the Maker community through its Dremel brand of rotary tools. These are used for fine work on 3D printed pieces to remove the thin frameworks the printers add to keep the object stable, as well as to smooth out notches and holes.

Outdoor power equipment (OPE) supplier and small engine manufacturer, Briggs & Stratton will now operate as an independent company after it was sold to private equity firm, KPS Capital Partners. According to a company press release:

KPS Capital Partners, through a newly formed affiliate, has acquired all of the assets of Briggs & Stratton Corporation.

In July, Briggs & Stratton filed for protection from creditors in US Bankruptcy Court and a judge recently approved the sale. Under Chapter 11 bankruptcy protection, a company and its creditors work out a reorganisation plan that enables the business to continue operating.

As part of the bankruptcy, KPS Capital Partners agreed to purchase all of Briggs' assets for approximately USD550 million. Known as a stalking horse bid, the agreement set a minimum price for the sale. The offer was subject to court approval and also depended on whether any higher bids were received for the company. There were no other bids, according to court documents, so the court approval provided for a relatively quick closing of the sale.

Performance

Briggs & Stratton was losing money and burdened by large debts when the economic downturn caused by coronavirus hit. Its sales fell by USD107 million, or 18%, to USD474 million in its third quarter ended March 29, compared with the same period a year earlier.

The company lost USD54.1 million in its 2019 fiscal year and USD11.3 million in its 2018 fiscal year.

The company warned that its losses, the pandemic and pending debt payments raised substantial doubt about its ability to continue as a going concern. Yet in June, while it skipped a USD6.7 million interest payment, the company's board voted to give executives and other key employees more than USD5 million in cash retention awards.

The awards were in lieu of annual bonus and long-term incentive compensation for the 2020 fiscal year, the company said in a filing with the US Securities and Exchange Commission. Such awards are often given before a company files for bankruptcy.

In March, Briggs & Stratton announced plans to sell its commercial turf products business, sold under brand names such as Ferris, Billy Goat, Simplicity and Snapper, and its pressure washer and portable generator product lines.

The company has more than half of the engine market for residential outdoor power equipment and established brands. It has large distribution network and profitable business in selling parts.

But the company has faced a flat market for residential outdoor power equipment, excess manufacturing capacity, pressure from large retailers to limit price increases and a growing preference for battery-powered outdoor equipment.

New team

Briggs & Stratton also announced that Steve Andrews has been named president and chief executive officer of Briggs & Stratton. KPS and Mr. Andrews have a history of successfully working together and they partnered in 2011 to form International Equipment Solutions, LLC (IES). It became a leading independent manufacturer of attachment tools, operator cabs and other complex fabrications for off-highway applications.

Michael Psaros, co-founder and co-managing partner of KPS, said:

This is the beginning of a new era for Briggs & Stratton...The company has a new owner, a new CEO, a new Board of Directors and a renewed focus. Briggs & Stratton launches with a portfolio of industry-leading products sold under iconic brand names, a rock solid capital structure and access to KPS' financial resources and expertise.

We look forward to accelerating the company's growth by increasing its already substantial investment in R &D, technology and new product development. KPS will also provide the capital for Briggs & Stratton to pursue strategic acquisitions.

Manufacturer

Briggs & Stratton products are sold in more than 100 countries under such brands as Briggs & Stratton, Victa, Simplicity, Vanguard, Branco and Allmand. It also sells engines to other manufacturers, including John Deere, Toro and Viking.

Briggs has plants in Wisconsin, Alabama, Georgia, Missouri and New York as well as Australia and China.

The company was founded in 1908 by Stephen Briggs, an inventor, and Harold Stratton, an investor, and incorporated in 1910. It initially grew by making parts for the booming automobile industry - starter switches were an early core product - small engines for washing machines as well as garden tractors, cultivators and generators.

In 1953, it introduced the first lightweight aluminium engine that found a ready market in lawn mowers just as Americans were flocking to the suburbs. The company produced more than 2 million engines a year on average throughout the 1950s.

Web-based tradie platform, hipages plans to raise about $100 million for its Initial Public Offering (IPO) scheduled for November, according to the Data Room column in The Australian. Expectations are that hipages will have a market value of about $400 million.

Co-founder and chief executive Roby Sharon-Zipser has said hipages is "all about home improvements and home services". He created hipages with David Vitek in a garage in 2004 after the former and his wife bought an apartment, which needed renovating, and they struggled with the enormous job.

Today, the business has 36,000 paying trade services around the country on its platform. More than 100,000 jobs are posted by customers each month, with over 1.5 million monthly visitors to the website. It will focus on gaining additional scale in the domestic market for about two years before expanding offshore. In an exclusive interview, Mr Sharon-Zipser told The Australian:

The domestic market in Australia is really significant, it's about 6 to 8% of the GDP in Australia. About $83 billion a year is spent on trade services and that includes anything from home renovations, home improvements to getting your garden done.

The opportunity in Australia is still so large. There's still an enormous way to go in terms of bringing on more tradies onto the platform and increasing the number of customers using hipages to post jobs.

Mr Sharon-Zipser said business is booming after "some initial wobbles and shocks" at the start of the coronavirus crisis.

Within three or four weeks we actually saw it turnaround and recover. What we're seeing now is an acceleration to above the already high growth that we were enjoying this time last year.

Mr Sharon-Zipser attributed a few factors behind the growth including brand investment on Channel Nine's renovation competition reality television show "The Block" as well as improving its digital traffic and marketing.

With people spending more time at home during the coronavirus crisis, they are investing more into their home whether it's an extension or painting and decorating, he said.

Hipages helps tradespeople generate business leads through an online marketplace but wants to expand into tradie invoicing and payments solutions next year. Management are looking to supercharge the platform with more technology that will help tradies better run their businesses. Mr Sharon-Zipser said:

We're looking at giving them more technology to help manage and run their business, not just leads from consumers but tools to help them quote, schedule and invoice to improve their overall professionalism and highlight and amplify their reputations as craftsmen.

Mr Sharon-Zipser said it had been a "milestone year" for the company. It is understood hipages booked revenue of about $50 million and underlying earnings of close to $4 million in the 2020 financial year.

He likens hipages to digital platforms such as Carsales, REA Group and Seek. He explains:

If you think about the traditional advertising products that were available to the classifieds and things like that, the trades were a major category. That product is now transitioning and at the tipping point where trades are now ready to adopt the technology.

Following a successful IPO, investors are likely to compare hipages to US-based and Nasdaq-listed ANGI Homeservices, regarded as the world's largest digital marketplace for home services, connecting millions of homeowners with home service professionals.

Hipages recently signed a deal with the NSW Department of Education to allow tradies to bid for maintenance jobs at the more than 2200 public schools around the state. It secured a three-year contract with an option to extend a further two years. He said:

If that is successful, there are opportunities to work with other government departments, which is being monitored.

International expansion is something the group would "explore" further down the track, he said.

Valuation

Institutional fund managers are said to be showing a keen interest to invest in hipages mainly because 90% of its revenue is recurring.

Hipages bases its revenue on ongoing subscriptions from its tradie customers rather than lead-generation charges. Tradies now mostly pay a subscription fee to get leads via the site rather than paying per lead, after a change of strategy overseen by Mr Sharon-Zipser in the past two years.

The company said its hipages app has now become the largest source of incoming jobs, followed by search engine optimisation. Search engine marketing is a distant third.

Analysts from investment bank Goldman Sachs believe key growth drivers for hipages include $83 billion of annual spending on home improvements forecast for this year, as indicated by Mr Sharon-Zipser.

Goldman Sachs' investor education report to fund managers said there are 1.1 million individual tradies and 257,000 trade businesses in Australia, while household formation is expected to grow at an annual average rate of 1.5%. Of the $976 million tradies are expected to spend on advertising this year, 12% goes to lead sourcing.

Online trade advertising growth is forecast to be 11.2% per annum to 2024, which implies the lead sourcing market will grow to $179 million over the period. Other growth factors include the general shift to online commerce by consumers, brand investment through strategic advertising and a deepening and broadening addressable market.

Goldman Sachs has valued hipages between $280 million to $370 million.

Funds raised would help Hipages pay off $12 million in venture debt and help the company invest in its brand and products, based on a report in The Australian Financial Review. The IPO funds will be used for expansion amid rising demand for home improvements and related services.

Investors

Hipages is 30% owned by News Corp, publisher of The Australian. It bought a 25% stake at the end of 2015, and less than two years later bought an additional 5%.

Mr Sharon-Zipser and Mr Vitek, who was co-CEO until last year, each hold a more than 10% in the business. Other backers include Ellerston Capital and Cadence Capital. Another major investor is venture capital firm Right Click Capital, which is expected to sell down its interest.

News Corp holds a majority stake in Australia's largest digital property classifieds business, REA Group, and is expected to retain its stake in hipages following the mooted listing.

The West Australian-based Buckeridge Group of Companies (BGC) has purchased Midland Brick, around 13 months after it was sold by Boral to a property consortium. The deal includes the 75-year-old Midland Brick brand and its manufacturing operations, putting it together with BGC's Brikmakers brand. The company will trade under the existing name.

The group is betting on a recovery in the local home construction market through its acquisition of Midland Brick. BGC is also buying the business at a time when COVID-19 stimulus is driving demand in WA.

BGC chief executive Danny Cooper said the group believes the combination of Midland Brick and Brikmakers would generate operational savings as they rode an expected recovery in demand, helped by state and federal government incentives for homebuyers. He told The West Australian:

There's a lot of synergies for us, and we see the continuation of the two brands as being incredibly important. With the stimulus lift in housing starts over the next 6-12 months, we are certainly very confident that there's a very good pipeline of work, at least in the short term, for both businesses.

Midland Brick, along with its rivals, has suffered from a protracted downturn in WA's home construction market since the last mining boom. It was founded by Ric New shortly after World War II, and sold to Boral after his death in 1989 for $200 million. Ironically, Brikmakers was set up only 15 years ago to meet a shortfall in local supply.

BGC is considered among Australia's top 10 largest privately-owned companies, with 3500 employees, an annual turnover of up to $3 billion and is one of WA's largest home builders.

It was put on the market more than two years ago by the heirs of founder Len Buckeridge, who died in 2014. Since the sell-off decision, BGC has offloaded more than $400m of property, including the Westin Perth and Aloft hotels.

However, the sale of its building products and home and commercial construction businesses was deferred last year to await better market conditions.

Background

BGC purchased Midland Brick from WA property consortium that includes Hesperia - which was formed when Linc Property and Fini Group merged - and CFC group. Midland's manufacturing operations that were sold off include the northern section of the 800ha site at the Perth suburb of Middle Swan where the business has been located for many years.

However, the southern part of the landholding will be retained by the property consortium and redeveloped into a residential subdivision.

The consortium paid Boral $86 million for Midland Brick in August last year, saying at the time that while it was focused on a redevelopment of the Middle Swan site, it was interested in running the brick business for the long term. However it said "substantial changes in future economic conditions" had made it "too commercially difficult to operate a brick and masonry business over the longer term".

It hopes to gain Australian Competition & Consumer Commission approval to sell the operating business to BGC by the end of the year.

The Hesperia-CFC subdivision proposal area of the site was recently approved by the WA Planning Commission.

Related:

In a recent sales update, Reliance Worldwide Corporation (RWC), said it had an average 22% increase in US sales over the three months to September due to more repairs and renovations as North Americans stay home during the pandemic.

Plumbers headed to hardware stores to stock up on items they were having trouble sourcing from wholesalers, while DIY enthusiasts spent up as they had a go at plumbing jobs themselves.

RWC is a manufacturer of plumbing and water control systems marketed and sold under the SharkBite Plumbing Solutions, JG Speedfit, HoldRite and Reliance Valve brands. It started out as a small Brisbane tool shop in 1949, and now has regional headquarters in Europe, North America as well as Australia.

The US makes up about 50% of the plumbing supplier's overall business. In the 2020 financial year, sales in North America were worth $1.16 billion. Reliance said the growth was driven by a strong increase in retail and hardware sales. It is aware that the professional user has relied on retail more often during the lockdowns, where its products are more highly represented. CEO Heath Sharp said:

The first quarter of the 2021 financial year has been particularly strong from a sales perspective. Looking ahead, we remain cautious. The US has been boosted by the surge in DIY activity and the return of construction activity to pre-COVID levels, but without further government stimulus measures this growth is likely to slow...

Given the continuing uncertainties in all our markets as a result of COVID-19, we would caution against extrapolating the first quarter's sales performance for the full year.

The company recently announced it would expand its North American operations and build a 300,000-square-foot distribution hub in Cullman, Alabama.

As sales were being driven by DIY in the US, RWC said there has also been a recovering demand in the UK and Europe despite slower dwelling approvals in Australia.

Australian sales

Sales in the Asia-Pacific region were comparatively flat, growing by only 2.3% over the three months to September.

Mr Sharp said he expected further softening in the Australian market because of a drop in new housing construction approvals, with half of all business in Australia related to new builds.

We expect some softening in the Australian market as the reduction in new housing construction approvals leads to lower building activity.

It has forecast a 10% sales drop in 2021 for the Asia-Pacific division depending on the extent of the COVID-19 bounce back.

In the long term, RWC said the fundamentals of the Australian market are strong and believes there could be rebound in Asian manufacturing in fiscal 2021.

Europe

Sales in Europe saw a complete reversal of fortunes, growing by 5% in August and 24% in September after contracting 4% in July. Europe comprises about 35% of the company's revenues.

Mr Sharp said the jump in sales over September was attributable to "pent-up" demand and channel partners being able to restock inventory that was depleted earlier in the pandemic. However, he said it would remain to be seen how long the sales growth lasted given the possibility of a second wave of coronavirus in Britain.

In the UK we are uncertain as to where underlying demand levels will settle once the pent-up demand for products and plumbing services has been satisfied. We are also watchful as to the impact the recent rise in COVID-19 case numbers may have on demand and plumbing activities there.

RWC made a big bet on the UK market in May 2018 when it paid $1.2 billion to buy the John Guest business. It makes plastic push-to-connect plumbing fittings, similar to the Sharkbite brass fittings range as a younger generation of plumbers emphasise time savings and steer away from welding and soldering of traditional fittings.

The sales update from RWC comes just over a month after it reported full-year profit of $89.4 million, down 32.7% on the prior year.

Related:

Ireland's biggest company, building materials giant CRH has reportedly been examining opportunities in the local building materials industry, according to the Street Talk column in The Australian Financial Review (AFR). It is understood CRH staff have spent the past 12 months or more making sense of Australia's building materials sector, at a time when companies such as Boral, Fletcher Building, ADBRI and BGC Group are potentially being considered for sale.

CRH already has a presence in the market with Ancon Building Products, Cubis Systems Australia and CR Laurence.

Ancon designs and manufactures a wide range of high integrity steel fixings for masonry and concrete construction, for large residential developments and infrastructure projects including major bridges, tunnels and highways. Cubis Systems is a manufacturer and supplier of a range of precast concrete and modular cable pits, manholes, plinths and access covers. CR Laurence is a supplier to the glass and glazing industry.

The report in Street Talk speculates that CRH could be targeting Boral's Australian assets. CRH has been linked to a buyout of the building products company after it was reported in the Data Room column in The Australian earlier this year. David O'Brien, analyst at Goodbody, told the Irish Independent:

Management indicated that a move into Australia would make strategic sense given it's a developed market and it would not provide any competition issues.

Analysis by investment bank and financial services company Morgan Stanley in June found that Boral is an industry leader or top three player in Australia's construction materials, roofing, timber and plasterboard markets.

It is likely Boral would be at the centre of any action, particularly if the government pushes ahead with infrastructure spending packages later this year as tipped by some analysts and investors. If CRH did make a move in the local market, it could create a bidding war and/or round of industry consolidation, according to the AFR report.

CRH became the third-largest building materials supplier by market value internationally when it acquired the USD6.5 billion of assets from Lafarge in 2015 following the merger between Lafarge and Holcim.

In August, CRH said it would be more cautious with mergers and acquisitions going forward, as it suspended its share buyback program. Albert Manifold, chief executive of CRH, said while the company is always looking at mergers and acquisitions (M&A), the issue at the moment is the lack of visibility about the future. He told the Irish Independent:

In times like [these] you tend to be more cautious. A lack of certainty about the future performance of a business makes you want to pause your actual process. We have not hit the pause button yet, but we will be cautious.

The company spent EUR727 million last year, on just over 60 acquisitions and investments.

While CRH is focused on building capacity to go and do future M&A, it "feels like 2011-2013", Mr Manifold said.

We could see there would be growth again, and when that happens we would like to be able to go out and execute deals with more certainty than we would have at this moment in time.

New brand, DeWalt(r) Engineered by Powers[tm] is prepared to meet the growing demands of the estimated $240 billion construction of work in 2021, based on data from the Australian Bureau of Statistics, Australian Construction Industry Forum and Construction Forecasting Council. It said it will offer complete solutions that improve efficiencies, are code compliant and provide safer practice solutions with a focus on performance.

Both DeWalt and Powers products have been used in the design and construction of many iconic structures around the world. DeWalt said it now brings anchors, power tools and accessories to the forefront of structural engineers, specifiers, builders, contractors and on-site trades, with an understanding of tools and fastening systems that can deliver cost effective and exceptional results for construction projects. Adrian Davis, managing director, Stanley Black&Decker, said:

DeWalt is the trusted brand of choice for professional tradespeople, and Powers is a leader in the concrete and masonry fastening industry, so it makes a lot of sense to combine the expertise of these organisations to drive future innovation.

The merger of the two brands positions us at the forefront of the construction and engineering industries in Australia and New Zealand. It also means that we can continue to support our products with expert solution and technical advice for all anchoring requirements, through our dedicated Enterprise Solutions Team. The team has been selected for their proven ability to respond to the demands of ever-changing industry requirements. The team is committed to adding value to our customers and projects, throughout the construction process.

Professor Emad Gad, chairman of AEFAC (Australian Engineered Fasteners and Anchor Council) said:

From an industry body perspective, AEFAC is pleased that DeWalt Engineered by Powers, which is one of the founding members of AEFAC, will continue to enhance safety and efficiency associated with the use of structural anchors and fasteners through its products, and further elevate the technical knowledge and data for design engineers and specifiers. Implementing international best practice and offering products and systems with ETAs [European Technical Assessment] provide confidence to all stakeholders by meeting deemed to satisfy provisions of the National Construction Code.

The first product to be launched by DeWalt Engineered by Powers is the Blue-Tip 2 Screw-Bolt[tm].

The mechanical anchoring range has state-of-the-art, one-piece design, heavy-duty screw bolt anchors. These anchors hold a number of technical approvals which allows it to comply with various building codes and regulations. It can be used in numerous applications across a number of trades including mechanical, electrical, HVAC, scaffolding, plumbing, interior finishing, civil construction and formwork. Mr Davis said:

As part of our ongoing research and development, we continue to design products that meet today's requirements. The Blue-Tip 2 anchor is currently being used in a variety of applications by end users where a seismic rated anchor is required from a compliance stand point. Some of these projects include multi-residential units such as Quay Towers at Darling Harbour and St Lucia's Student Accommodation in Queensland, government projects including the Gold Coast Airport, Star Casino, Logan Motorway M1 Upgrade as well as tunnelling projects, M5 Tunnels and Metro Tunnel in Sydney.

Along with compliance and ETA approved products, DeWalt Engineered by Powers said it will always push the boundaries to create innovative tools for the construction professional with an emphasis on cordless tools for installation of anchoring systems. The one-piece design of Blue-Tip 2 makes it is easy to install with a powered impact wrench and is the preferred choice for fast but reliable anchoring which is also fully removable. The Blue-Tip 2 anchors are also designed with a tough cutting thread that allows for low installation torque, ease of installation and increased productivity.

Power tools and gardening equipment supplier Ozito is the first tenant in the 41.3-hectare Rubix Connect estate in Dandenong South (VIC). It will lease an 18,000sqm warehouse and 1815sqm two-level office at the site developed by Frasers Property Industrial (FPI).

Situated at 875 Taylors Road, it is one of the last undeveloped tracts in the suburb, considered Melbourne's most valuable for industrial property outside of the inner city.

FPI general manager - southern region, Anthony Maugeri, said the company is witnessing a strong flow of enquiry from e-commerce related businesses requiring more warehouse space. He told Real Estate Source:

The DIY home market is also very active which is reflected in Ozito expanding and consolidating its warehouse footprint in Melbourne to meet customer demand. The south east region is Melbourne's most established core industrial market.

It is close to a very large population base and has a limited supply of prime rezoned industrial land. This diminished land supply combined with strong tenant demand is leading to increasing land values and rents and decreasing vacancy rates.

The Ozito factory will be developed at Rubix Connect's entrance, specifically a site at the north west corner of Taylors Road and Fox Drive. It will have two crossovers from each street.

To read the latest edition, please download HI News:

Download hinews-6-03

Taubmans paint brand - owned by PPG Industries - worked with national online charity GIVIT to help raise $150,000 from DIYers in isolation and professional painters to support regional communities in need after recent bushfires, prolonged drought, floods and now COVID-19.

GIVIT CEO, Sarah Tennant, said the funds will allow GIVIT to purchase many more essential items to best support people in need, from parched outback farms to bushfire-affected East Gippsland. She told The Tenterfield Star:

Whether it's hardware items and water tanks for a drought-stricken farming community, or supermarket and clothing vouchers for rural families in need, we will put the donated funds to work to make an immediate and positive difference.

We also buy locally, wherever possible, to help stimulate the recovery of regional economies, ensuring the impact from every single generous donor is widespread.

Anne Neeson, Taubmans general manager, PPG architectural coatings - AUS and NZ, thanked all the DIYers and professional painters who supported the donation by choosing to paint with Taubmans.

And thank you to Bunnings, Bristol and our independent retail partners who came on board, despite the challenging economic climate. Your support for the program will make a difference to the lives of many in our regional and rural communities.

GIVIT works with more than 3400 charity partners on the ground throughout Australia to match the donation of goods with the individual and specific needs of recipients.

The "In It Together" campaign follows PPG's $98,437 donation in February to the Australian Red Cross Disaster Relief and Recovery fund, which included employee donations matched dollar for dollar by the company.

Related: The campaign ended on 20 June.

Paint charity benefits regions - HNN

Sourced from The Tenterfield Star

The next spoga+gafa (garden) trade fair in Cologne, Germany will be held from 30 May to 1 June 2021. Organiser, Koelnmesse responded to requests from the industry, and moved the event to next year.

Registrations for the September 2020 event increasingly came to reflect the ongoing concerns regarding COVID-19 especially the uncertainty of international travel. Despite the precautions being implemented, a majority of exhibitors and visitors decided not to attend spoga+gafa.

For these main reasons, Koelnmesse rescheduled the 2020 spoga+gafa. Chief operating officer, Oliver Frese said:

The aim of our conversations with the industry is to work together to give a strong trade fair a chance to gain even more strength and market relevance. The focus here is on the ordering [purchasing] behaviour seen in many parts of the industry, which has evolved over the years.

NHS moves to 2021

Over the last few months, the US-based National Hardware Show (NHS) has been closely monitoring the COVID-19 pandemic and its impact on members of the hardware and home improvement community. Originally slated to open its doors in May, the event was postponed to September. However, as it continues to make the safety of people its top concern, it has made the difficult decision to cancel the 2020 event.

Instead of an in-person experience, NHS plans to host a virtual trade show dedicated to providing education and support that recognises and addresses the needs of the hardware industry. Randy Field, group vice president, Reed Exhibitions, said:

The hardware industry has been greatly impacted by the global pandemic and hundreds of our international exhibitors have been forced to cancel their plans to participate in NHS due to market conditions and continued travel restrictions.

At the NHS we pride ourselves on being the leading industry gathering place and while we recognise and appreciate how important the show is to the community, we believe it is the right decision to transition it to a virtual experience for 2020.

Following the May postponement, we prioritised making NHS Connects the place for the hardware and home improvement community to come together to source information. It will soon be where connections, direct appointment setting, and virtual product showcases will debut.

We will also be adding a virtual tradeshow component to this digital platform that enables networking and we look forward to utilising that platform to allow business to continue. We seek to encourage attendees, exhibitors and all of the NHS community to explore the platform and utilise it until we meet again in person in 2021.

Rich Russo, industry vice president, NHS said:

We are re-imagining the entire physical trade show, so look forward to new initiatives, new pavilions ... and a complete transformation of NHS for 2021.

Parkland Nursery, based in Tinonee, near Taree on the mid-north coast of New South Wales, is a state-wide supplier for Bunnings.

Owners Leah and Bernard Hunt have experienced firsthand the brutal impacts of Mother Nature in the past year through drought and a devastating bushfire in November 2019 that destroyed infrastructure and some plants.

Now more than six months later, the business is well on the road to recovery. To get them back on their feet, the Hunts purchased a new potting machine with a $75,000 state government grant.

Bernard Hunt told The Manning River Times the installation of the machine "was the turning point". He said:

We still have a lot to outlay but that gives you the starting block to go. It's amazing having the backing of the state and federal representatives.

They've been ringing up and backing us right through saying, 'You've got to keep going'. It was a springboard to go 'Okay they're backing us so we're going'.

Leah Hunt said the grant ensured they could stay in business. She adds:

When we were looking at it, we thought do we take out loans to replace the machinery? At our age we thought we wouldn't do it. With that grant, it was enough to say, yes we can still do this.

Member for Myall Lakes Stephen Bromhead said he was happy to help arrange the grant despite some initial issues.

Parkland Nursery wasn't entitled to it initially, some people said nurseries aren't primary producers but we were able to convince them they are. It means 10 full time jobs, they're able to stay open, compete with other nurseries and provide fantastic products.

I take my hat off to these guys, the nursery was devastated by bushfires, they lost their stock sheds and machinery, but through that grant they've been able to keep going.

About 20,000 pot plants are currently produced weekly through the machine. Mr Hunt said:

Production had been stopped for months because of the drought. We were limping along for a year before the fire. We were smashed, all our infrastructure was burnt out but we only lost about 30% of our plants.

We lost most of our machinery except for three machines and a sun sail. We just had to start again.

The business managed to stay afloat and keep the team together by selling the unaffected stock. Working their way through drought, the Hunts thought they were prepared for any fire threat. Leah Hunt said:

We were in the midst of one of the worst droughts we've ever had. There was no water in the dam and we had to close down some areas (of the nursery) because there was no water.

We knew it was going to be a really severe fire season, you could see there was so much fuel around and so dry with a lack of water. We did a lot of work to get the property up to what we thought was fire proof but no it wasn't."

With decent rainfall this year, the dam is back to capacity.

Leah and Bernard have grown the nursery for more than 25 years.

Sourced from The Manning River Times

Clipex founder Ashley Olsson started the company in 2007 after he came up with an idea for a steel fence post with clips to quickly attach wire and netting while managing the family farm at Goulburn on the NSW Southern Tablelands.

He has lived in China for over a decade where he owns a factory which produces the Clipex range. Its head office is based in Brisbane (QLD). A spokesperson recently told The Land newspaper:

We are employing our own staff and distributing on a global level to Clipex Australia, Clipex South America, Clipex Ireland and others. Some other companies may have a joint venture manufacturing facility overseas, which means they do not wholly own the manufacturing facility but essentially share it. Others simply source their product from a dedicated overseas supplier.

Clipex Australia is passionate about supporting Australians and Aussie jobs and is proud to be one of the few Australian owned family companies that is completely vertically integrated, employing over 65 staff across the country in more than eight store locations.

Clipex said it also sponsors more than 50 local initiatives throughout regional communities every year and bring work to transport, printing, communication, marketing, IT, development and engineering businesses in these areas. The company uses its own store network and in-house installation teams. The spokesperson said:

We believe there has been a serious lack of innovation in the fencing industry, in part because companies have been afraid to implement technology and therefore do not expand and grow in innovation.

We innovated, developed and grew with the technology, giving us products like the Clipex fence posts, what are now being copied with an inferior 'paperclip post' which have now plagued the Australian market. We believe businesses should remain in Australia and be Australian owned.

Sourced from The Land

Tint is an online-only paint retail business selling direct-to-consumers and offers contactless paint delivery to customers' doors. A Melbourne-based start-up, it has been experiencing a major boost in sales as a result of social distancing measures that have been implemented as a result of the coronavirus. Co-founder Djordje (DJ) Dikic told Internet Retailing:

We looked at how customers buy paint today...Somehow painting and decorating has become a chore for most people, and that's because so many aspects of buying paint today are not user-friendly. There are too many colours, too many products with confusing names, too many trips back and forth from the shop, largely without any guidance...

That's what Tint is - we're making painting fun by creating a seamless and super simple way to shop for premium paint and accessories online.

The main idea behind Tint is to take the "pain" out of paint selection. Mr Dikic explains:

Colour confusion is the number one reason people don't paint, so we've spent a lot of time developing solutions to make it easier for Tint customers to feel confident when shopping for paint.

Firstly, we've developed super-size colour stickers you can stick up and peel off all around your house (they're reusable and don't damage surfaces either). We offer sample stickers across our entire collection ... and they make it really easy to see how a colour will look in your space without any of the mess of sample pots.

It officially launched in December 2019 with a range of 70 colours including its first collaboration with Pantone, best known for its colour matching system used by many industries. Mr Dikic said Tint's paints are vegan and 99% VOC free.

Tint allows customers to capture any colour in any environment, view it live on their walls using AR (augmented reality) in the app, and then order online. They can also order Tint's colour capture tool, Pico, to customise paint to their desired shade.

Mr Dikic believes its supply chain is helping them to support its customers. He said:

It's a critical piece of the puzzle for online retailers. For now, we're able to dispatch our goods via courier and offer contactless delivery. For businesses looking to transition online, it's key to really think through the logistics of fulfilment, as they can actually be quite intricate, and distribution is often challenging.

The logistics of supply will also include packaging, order management, tracking parcels and how you share delivery communications with your customer. It can be hard to turn these aspects of a business on overnight, so it's worth making preparations in advance.

The business is also moving forward with plans to provide same-day paint delivery across Australia and expand on its product offering.

About Palette

The concept for Tint came about from a colour recognition business started by Mr Dikic and his co-founders back in 2013 called Palette that sells colour measurement devices to major paint brands. Mr Dikic explains:

We have approximately 100,000 colours scanned around the world each month by our users around the world. The data behind each colour scan gives us amazing insights into the colours people are actually interested in and what the trends are.

Looking at the data it was obvious that users wanted to scan a colour and then tap a 'shop' button to order paint for home delivery. No one was offering a compelling way to shop for paint online, and no one had made picking a colour easy, so we launched Tint to be the one-stop shop for paint and accessories.

It has sold more than 50,000 colour sampling devices in 66 countries. This allows the company to analyse over 1 million colours captured by Palette users and see colour trends in real time as they emerge, and to identify colour preferences based on locations as well as seasonal changes. Mr Dikic also told The Sydney Morning Herald (SMH):

Everything we develop with Palette leads straight into Tint and vice versa.

Palette's aim was to digitise colour and enable users to measure, match and visualise colour everywhere. Its hardware device, Cube was designed to scan and sample colours.

However the co-founders had been disappointed by the lack of uptake from paint companies in using Cube, and found their reluctance to use technology frustrating. So they took the idea for Tint to Palette's board and decided to start the business from there. Mr Dikic said:

After years of collecting colour data with Palette, we realised there was a huge opportunity to transform the paint industry, because only 1% of global paint sales are online.

After we released a world-first piece of tech that lets you walk up to a colour and record it instantly, we had made choosing colour a hell of a lot easier. But we noticed a big barrier in the way of what should be a smooth process. Customers still had to go to a store to buy their paint ... As a tech-first company, we wanted to make the process even simpler and move it all online.

We initially took our technology to incumbents in the paint industry, but were frustrated when they were reluctant to move their paint sales online for fear of disrupting their existing businesses.

So we took our idea to our board and decided to create our own direct to consumer paint brand - which became Tint.

We see a clear path forward to create a better experience for home renovations, professional painters, architects, interior designers and specifiers. By focusing on the customer, we've been able to redesign virtually every step in how people shop for paint.

Tint investment

Palette was born out of a university project and its co-founders came through the Melbourne Accelerator Program.

Mr Dikic said it has raised a total of $3 million to launch Tint from investors including Palette chairman Adam Lewis and Aconex co-founders Rob Phillpott and Leigh Jasper. The capital will primarily be used for expansion and marketing. Mr Lewis told the SMH:

What I have tried to do is back technology and people that try to disrupt existing industries...With Palette, all these industries that rely on colour could have their productivity fundamentally changed through this technology.

Mr Lewis believes the challenge is to get paint companies to adopt a new way of working, as there was a lot of money invested in colour cards and proprietary colour libraries. He said:

We look at Tint really as a proof of concept that people do want to buy paint online and they will find the interaction with digital colour fundamentally better. Tint is proving to every paint company around the world that customers want to interact with paint in this way."

Sourced from Internet Retailing, Dynamic Business and the Sydney Morning Herald

DuluxGroup (Dulux) managing director, Patrick Houlihan told a columnist from The Australian that COVID-19 has been a wake-up call about the benefits of local manufacturing, highlighting the advantages of reliable supply to customers.

Dulux is owned by Japanese giant Nippon Paints, which bought the Australian company for $3.8 billion in mid-2019 as part of a regional expansion. Nippon Paints alluded to the robust sales of the Dulux operations in a market update in mid-May, according to The Australian Financial Review (AFR): The company said:

In Australia, DIY paints demand increased due to outing restrictions.

It now earns 75% of its profits and 60% of sales from paint. The remainder comes from its other brands including Selleys, Yates and other products that are growing in Asia.

Around 35% of its goods (not including nursery) are made in Australia and the rest is imported, which has been maintained through the lockdown.

Mr Houlihan believes the value of local production was shown through the lockdown and he wants the government to ensure value-added production is boosted. This means proposed changes to the R&D rules should be scrapped because they are based on the percentage of operating costs, which favours companies with overseas production. Columnist John Durie writes:

If your costs are $100 and you compete with someone with just $50 in costs and you both spend $10 on R&D, then the competitor will be more R&D intensive and hence get better tax benefits.

The present system is more volume-based at 8.5 per cent of investment or a bit over half the 15 per cent on offer in New Zealand.

With 100 chemists and 140 scientists, Mr Houlihan believes he is doing his bit for the R&D effort and local manufacturers should be supported.

In-store sales

Bunnings accounts for around 25% of Dulux paint sales, according to The Australian, and is the largest brand stocked by big box retailer.

Bunnings managing director Mike Schneider said there had been robust demand among paint buyers as more people spent extended time at home in the coronavirus pandemic. He told the AFR:

During this period we've seen strong demand for DIY paints, especially transformation paints, for kitchen benchtops and cupboards.

There had also been a rush for "design and effect paints that can be used for upcycling furniture or on an interior feature like a concrete wall", he said.

Spray paints, for DIY touch up jobs and craft projects, plus interior and exterior paints have also been popular.

Strong sales for brands such as Porter's Paint, acquired by Dulux in 2015, has been noted at the more premium end of the market.

As people slowly move out of lockdown, they will find other things and experiences to spend their money on, so companies such as Dulux and Bunnings will face more competition. This will lead to a slowdown in sales unless consumers have fundamentally changed their shopping habits.

Sourced from The Australian and Australian Financial Review

Related: HNN has provided extensive coverage of Nippon Paint in Australia. To read more, please visit the following links.

ASX-listed agribusiness giant Elders said it has lured about 260 new farmer customers and 18 staff from competitor Nutrien Ag Solutions.

Managing director Mark Allison estimated at least another 200 customers had indicated they were likely to jump ship to Elders this year, while eight wholesale businesses have also broken away from the Nutrien-Combined Rural Traders (CRT) business model to join the Elders-Australian Independent Rural Retailers (AIRR) network.

Elders took official ownership of AIRR in November which it acquired for $187 million in July 2019.

Mr Allison was speaking after Elders released strong first-half results. Statutory net profit jumped 90% on the first half of last year to $52 million for the six months ended March 31, up from $27.4 million a year ago. The company's underlying profit after tax was $47.6 million.

Recent drought-breaking rains in eastern Australia have lifted farmer confidence, generating extra demand for fertilisers, chemicals and other Elders products and services.

The AIRR acquisition helped lift revenues to $925 million, from $733 million a year earlier, an increase of 26.2%. AIRR also contributed $8.6 million to EBIT.

AIRR is the wholesale supplier of about 6000 products to 240 independent rural merchandise retailers and about 100 Tuckers Pet and Produce stores. With eight warehouses and five of its own retail locations, AIRR should benefit from increased margins from consolidated buying across the Elders group.

Elders expects full-year net profit to be between the broad range of analysts' forecasts of $85.8 million to $102.9 million.

"Distressed assets"

Mr Allison has also flagged Elders' interest in potential acquisition opportunities of distressed businesses as the economic fallout from COVID-19 causes some industry players to stumble, especially after restrictions are lifted. He told the Australian Financial Review:

We're actively assessing distressed assets and we're actively assessing the economic fallout and the opportunities that will bring.

He said Elders was in a strong position even though there was uncertainty in some parts of the business, with rural property sales expected to be softer because of the impact of COVID-19, and wool prices weakening further as demand from fashion houses in Europe and North America drops.

The company would remain highly disciplined and only pursue acquisitions that added value and were earnings per share accretive, but there would be more to choose from as some industry players hit hard times because they had too much debt.

Acquisitions in the past few years have been strictly focused on the core agricultural sector including the TitanAg agricultural chemicals business, and Livestock in Transit insurance.

Elders recently announced the purchase of Dalby (QLD) independent stock and property agency, Eastern Rural. It is smaller, compatible business to the Elders group.

The acquisition will see the residential real estate side of the business integrate into Elders, retaining all staff and offering residential and commercial sales in addition to property management through the Elders Real Estate brand.

The livestock agency, rural real estate and clearing sales will continue to be operated through the Eastern Rural brand.

Sourced from the Sydney Morning Herald, The Australian Financial Review, Stock Journal, Beef Central and Queensland Country Life

Related: Taking on Australian Independent Rural Retailers allows Elders to have a presence in the wholesale market. Read HNN's previous article here.

The Queensland Supreme Court has ruled that building materials and services supplier, Wagners must meet lower prices offered by a competitor in the market when selling cement to Boral.

Justice John Bond found that a notice sent by Boral to Wagners in October 2019, showing that the company had been able to buy cement from a rival supplier, Cement Australia, at a lower price per tonne than what it was being charged by Wagners, was "a valid and effective notice".

While Justice Bond found that the prices quoted by Boral in October 2019 to buy cement were valid, he found the earlier March quote was not valid. The March quote was deemed not to be a "current" market price because it did not start until May when market conditions could be different.

Under the terms of its take or pay agreement, Boral was allowed to stop buying cement from Wagners for six months if it found cement at a cheaper "market price" elsewhere. It could also ask Wagners to match the lower price.

Boral resumed buying cement from Wagners on October 22, 2019, but at lower prices than previously, which will hurt Wagners' future earnings.

Wagners chairman Denis Wagner said the company would continue to hold Boral to the terms of its supply agreement until its end date in 2031, reflecting lower rates from competition in the market. He told The Australian Financial Review (AFR):

Whilst the outcome is not totally in our favour, there were a number of points determined that support our position and therefore provide clarity on the strength of the supply contract.

In a statement, Wagners also said:

The court's findings provide some certainty for the parties moving forward around Boral's ability to issue and rely on a pricing notice. This is important given the long-term nature of the cement supply agreement which remains binding on the parties until December 2031 and requires Boral to purchase a predetermined volume of cement from Wagners on an annual basis.

Boral referred to an earlier statement welcoming the judgment. Boral Australia chief executive Wayne Manners said:

Boral welcomes the judgment by the Queensland Supreme Court and we are pleased with the long-term impacts of this result under our cement supply agreement with Wagners.

The result fulfils our objective to exercise our contractual rights to ensure that we can source cement at competitive rates. Boral has pursued this objective in the best commercial interests of our business and our shareholders.

Boral extended a separate contract with Cement Australia in October 2019, reducing the amount of cement it needs to buy from its own cement joint venture with Adelaide Brighton, Sunstate Cement.

Before court action

Boral competes with Wagners in making cement. But after Boral bought the Queensland group's construction materials business in 2011, it signed a "take or pay" requiring it to keep buying minimum amounts of cement from Wagners' Pinkenba plant in Brisbane.

The prices paid by Boral for the cement (which were redacted from the court judgment) are adjusted in line with inflation, with a review by an independent expert every three years. In March 2019, Boral sent Wagners a quote showing it could buy cement at lower prices from Cement Australia.

After Boral issued a pricing notice, Wagners accused the company of trying to force down contract prices and disputed whether the lower price was "bona fide", arguing it was for a future period between May and December 2019 and not a current quote.

Wagners, which previously supplied 26 truckloads of cement daily to Boral, suspended its cement supplies to the company for six months at a cost of $20 million while the matter was before the courts.

Boral is Wagners' biggest cement customer and takes about 40% of its cement.

Sourced from The Australian Financial Review and The Australian

Related: In 2019, Wagners filed a statement of claim in the Supreme Court of Queensland against Boral after the two parties failed to settle their cement supply pricing dispute. HNN featured the story in a previous edition here:

The company founded by the late billionaire Len Buckeridge, BGC (Buckeridge Group of Companies) has appointed commercial real estate agent, CBRE to sell 47 industrial, office and residential property assets around the country, according to the Australian Financial Review.

The office and residential components of the portfolio are located around Perth (WA) including affordable housing apartment blocks that Mr Buckeridge built in the 1960s and 1970s. The portfolio also includes industrial properties in Brisbane, Adelaide and Altona in Melbourne, which service the construction side of the business. There are 18 industrial sites in total.

The industrial and office properties would likely be sold with leaseback arrangements in place. The sale of the property assets is expected to reap hundreds of millions of dollars for the company.

The intention to sell its assets was revealed by the AFR last year and coincided with the group's planned divestment of its large mining contracting and civil construction business, BGC Contracting.

Sell down?

Sources have told The Australian that BGC is now believed to be looking to sell down only part of the building materials group. However, this is likely to occur in the months ahead once COVID-19 restrictions are lifted.

The sources speculate that a private equity fund could initially own a stake in the business, then buy out the remainder once the performance of the operation improves.

Last year it was thought BGC had an annual turnover of at least $3 billion, but this included its contracting arm.

The business is now involved with producing construction and building materials and offering residential and commercial construction services, industrial maintenance and fabrication services, and property ownership and management.

It owns quarries and a cement grinding plant. Family members have been involved with running the business, but some believe they could be taking more of a backward step in future. It is thought that the group's divisions are all interrelated and are largely reliant on each other for profitability.

The opportunity for a buyer to acquire the numerous operations as one group would provide the new owner with an instant construction materials platform in Australia, according to The Australian.

Sourced from the Australian Financial Review and The Australian

Related: In previous editions, HNN reported that the building materials assets of BGC were expected to attract the buying interest of companies such as CSR and Wagners as well as private equity firms. To read more, visit the following links:

German, family-owned global manufacturer Knauf is understood to be making its Australian plasterboard assets available for sale, based on report in the Data Room column in The Australian.

On offer are believed to be the assets that Knauf owned before it gained an interest in plasterboard assets that Amercian group USG jointly owned with building materials supplier Boral.

Knauf is seen the No 3 player in the Australian plasterboard market, which is led by CSR. Its Australian operations includes four manufacturing plants in Victoria, NSW and Queensland. It also has plasterboard manufacturing sites at Altona (VIC), Matraville (NSW) and Bundaberg (QLD), and it makes metal profile lines in Beenleigh (QLD).

These assets are thought to be worth somewhere between $100 million and $200 million. Annual revenue generated from the assets for sale is understood to be about $200 million.

In 2019. Knauf closed a deal to buy Chicago-based USG for USD7 billion. This gave it ownership of USG's plasterboard joint venture with Boral across Asia and Australia and New Zealand. These assets are not offered for sale.

The Australian Financial Review (AFR) described the situation as Knauf considering options including a merger or sale. According to the AFR, it is understood that Knauf requested a number of Australian investment bankers to assess options for its assets which includes insulation, plasterboard and ceilings. It is understood Knauf is asking for ideas on where its own assets could fit into the wider industry and what they may be worth.

Sources have told the AFR they believe Knauf could be a seller at the right price or be involved in consolidation in another capacity, although the review of options is said to be at its early stages.

Knauf's review is expected to consider the company's relationship with Boral and whether it's time, effort and capital may be better spent in other parts of the world.

There are also some concerns about a decline in plasterboard sales in the months ahead with predictions that fewer apartments will be built. This is due to recession fears linked to the global COVID-19 pandemic.

Background

Knauf and USG-Boral were competitors in the local plasterboard and suspended ceilings markets, and Knauf's USG takeover paved the way for Boral to buy back the Australian joint venture.

After months of talks, Boral agreed a deal to take full ownership of USG Boral Australia and New Zealand, and tip some of its assets into an expanded 50/50 joint venture with Knauf in Asia.

However, Boral reneged recently after deciding the Australian Competition & Consumer Commission was unlikely to approve the Australia/New Zealand component. Boral and Knauf are back in talks, according to the AFR.

Competition concerns exist with Knauf jointly owning other plasterboard assets in Australia with Boral. While Knauf also owns the joint venture assets with Boral here, it has to have an arms-length involvement to appease the competition regulator.

By selling its existing assets, it can then have an operational involvement in the other assets it jointly owns with Boral.

Sourced from The Australian and The Australian Financial Review

Related: HNN included the story of Knauf's acquisition of USG in a previous edition. Click on the link here.

US paint giant, Sherwin-Williams is understood to be reviewing its wide-ranging portfolio which includes Wattyl through its ownership of paint and coatings manufacturer Valspar.

According to The Australian, Valspar is believed to have appointed accounting firm Deloitte to explore a sale of Wattyl. This report speculates the business could sell for about $100 million based on its understanding that Wattyl could be targeting annual earnings before interest, tax, depreciation and amortisation of about $10 million this year. It believes the most likely buyers to be private equity firms.

However, sources have speculated to the Australian Financial Review (AFR) that Metcash and New Zealand-headquartered Fletcher Building could be "logical" acquirers. (There is no suggestion either company has made an approach).

Wattyl is understood to be making about $35 million in earnings before tax, depreciation and amortisation, according to the AFR. Bankers have told the AFR that it could trade for as much as 15 times given its "established market share, trusted brand and defensive qualities".

It is considered a turnaround opportunity for a buyer as the third player in the local market after DuluxGroup (30.4%) and PPG Industries (17.4%) using data from IBISWorld, and reported by the AFR.

Wattyl was listed until 2010, when it was purchased by Valspar in a deal worth about $142 million. It became part of Sherwin-Williams when the US paint giant acquired Valspar Corporation for USD11 billion in 2017.

Sourced from The Australian and The Australian Financial Review

Australia's biggest cement group will now be called Adbri Limited after Adelaide Brighton gained shareholder approval for a new name at its online annual general meeting (AGM). Chairman Raymond Barro told shareholders the group has "evolved" into a national business. He said:

The change of name is appropriate at this point in our growth to recognise the expanded nature of the enterprise.

Chief executive Nick Miller believes getting more infrastructure projects off the ground as quickly as possible is the best hope for federal and state governments to get more people back to work. He told The Sydney Morning Herald:

The first thing we want is bipartisan support for the projects, so we get clarity of what the pipeline is looking like [and] a fast-tracking of those projects.

He added that projects of varying sizes, including social housing and defence works, were needed because the larger projects typically had longer gestation periods as funding and land acquisitions were arranged.

That's why the small and medium projects are very important in the mix, because they will get to market quicker, and get people on jobs, on shovels, out there working.

Mr Miller said that an increased investment in infrastructure projects could provide a much-needed buffer against the subdued activity on the housing front.

Trading in March and April had been in line with expectations despite the coronavirus lockdowns with strong demand from the mining sector for its cement and lime in Western Australia, South Australia and the Northern Territory. It has also seen strong demand for the masonry products it sells at Bunnings and smaller outlets, with sales up 40% in April.

The company is also targeting savings of $30 million against "cost headwinds" of $20 million this year.

About a third of its business has exposure to residential and multi-residential markets. The company has 44 quarries, 95 cement plants and 16 cement and lime depots across Australia.

Mr Miller is trying to re-position Adelaide Brighton so it can chase more work in infrastructure through an integrated offering of cement, concrete and aggregates, and be less reliant on the ups and downs of the construction cycle. Earlier this year, the company said it is aiming to be a supplier to infrastructure projects in western Sydney, regional Victoria and south-east Queensland.

Merger

The AGM also heard the company is open to a potential merger with its largest shareholder, Melbourne-based Barro family, but says navigating the housing downturn remains its immediate priority.

Barro Group holds a 43% stake in Adelaide Brighton and Raymond Barro assumed the chairman's role a year ago. His older sister Rhonda Barro also sits on the cement company's board, along with Geoff Tarrant, who also represents the Barro Group.

Adelaide Brighton said a deal still made sense. Adelaide Brighton deputy chairman Zlatko Todorcevski told shareholders at its online AGM:

We have been clear in the past we do believe there are likely synergies through a combination of Barro assets in concrete, cement and aggregates with the Adelaide Brighton assets. However, at this time there are no active conversations...

The Barro family has been steadily lifting its control over Adelaide Brighton with its stake raising talk the Barro Group could either launch a takeover of Adelaide Brighton or Barro itself could be swallowed.

ACCC decision

In January, the Australian Competition and Consumer Commission (ACCC) found no evidence the stake held by the Barro family in Adelaide Brighton had influenced competition between the companies in Melbourne, Brisbane and Townsville. However ACCC commissioner Stephen Ridgeway said the ACCC would continue to keep a close eye on the industry and might reopen the investigation if other information came to light.

The competition regulator completed a three-month investigation into whether the financial stake and the presence of Mr Barro as chairman of the Adelaide Brighton was influencing decisions made by the two groups in the cement industry.

The Barro Group's stake in Adelaide Brighton has been built up over two decades, and it has been a regular user of creep provisions, often referred to as slow ways of edging towards control; ways in which large shareholders can gradually increase - in small increments - their holdings.

The watchdog examined the issue closely because Barro and Adelaide Brighton have overlapping operations for the supply of cement, pre-mixed concrete and aggregates in Melbourne, Brisbane and Townsville.

The investigation found Barro and Adelaide Brighton would continue to face competition from Boral, Holcim and Hanson, three large vertically integrated competitors with national operations. Several smaller independent rivals were also operating.

Barro Group's main brand in pre-mixed concrete in Victoria is Pronto. The company also supplies quarry products, cement, concrete roof tiles and concrete precast panels.

Its pre-mixed concrete business in Queensland operates under a range of brands including Pronto Concrete, Gladstone Premix, Hervey Bay Ready Mix, Townsville Concrete and Mt Cotton Concrete.

In March last year, Adelaide Brighton increased protocols on corporate governance around the interactions between board members regarding areas with potential conflicts of interest.

Sources: Sydney Morning Herald, Australian Financial Review, Adelaide Advertiser and The Australian

PPG Industries through its Taubmans paint brand is working with GIVIT on a national initiative to help regional areas that have been devastated by the recent bushfires, floods, prolonged drought and are now facing the additional pressures from the coronavirus.

Until June 30, every four-litre tin of Taubmans Endure, All Weather, Easycoat and Sunproof paint bought from Bunnings, Bristol, Taubmans and participating independent hardware and paint specialist stores will support GIVIT's efforts to provide essential items to regional communities in need.

The campaign Is expected to deliver at least $120,000 for essential goods and rebuilding projects in impacted communities.

Anne Neeson, general manager, PPG architectural coatings, Australia and New Zealand, said:

There's been a huge outpouring of support for bushfire-affected communities in recent times, which has been absolutely incredible.

Sadly, many Australians are also experiencing hardship due to the relentless drought and previous damaging floods. During this extremely challenging time - with the coronavirus only making things harder - we want to ensure regional and rural communities continue to get the help they need to recover and rebuild. Our partnership with GIVIT will funnel support in the most effective, efficient and lasting way possible.

GIVIT works with more than 3000 charity partners nationwide to match the donation of goods with the individual and specific needs of recipients. The GIVIT website acts as a virtual warehouse by removing the need for charities to physically collect, sort. Sarah Tennant, GIVIT CEO, said:

Whether it's water tanks for a drought-stricken farming community or supermarket vouchers for families in need, we will put the donation to work to make an immediate and positive difference.

We also buy locally wherever possible to help stimulate the recovery of regional economies, ensuring the impact is widespread.

In addition to immediate assistance, the ongoing partnership between Taubmans and GIVIT aims to address the long-term needs of these communities by facilitating rebuilding projects that offer lasting and widespread benefits.

Sourced from The Advocate

The move from disrupted supply chains to the restrictions of movement and group gatherings as a result of the global pandemic has significant economic consequences for property development and construction, according to Property Council of Australia chief executive, Ken Morrison.

Mr Morrison said the opening of some factories in China - after they were closed to control the spread of the COVID-19 strain of coronavirus - had eased concerns about building materials shortages.

However, the industry is facing a greater test than the supply issue as the expected shortage in workers on site fall ill or need to self-isolate. Mr Morrison told The Australian Financial Review:

Empty workplaces will have a big impact on the economy. Some roles can be performed at home, but you can't construct a building from home.

Australian Construction Industry Forum chief executive James Cameron agrees the risks for Australia's construction workforce were broader ranging than just to supply chains. He said:

If the coronavirus takes hold in Australia, construction projects may be further affected with sick staff and others staying home due to fear of infection. The construction industry labour force is highly integrated, and one missing link can mean that projects cannot continue.

Brickworks

Businesses responding to COVID-19 are prioritising staff and customer safety. At Brickworks, Australia's largest brickmaker, all workers at its plants are having daily temperature checks and there are stringent hygiene and cleaning programs in place.

The company believes the federal government must do even more to keep people in jobs because a sharp climb in the unemployment rate will trigger much deeper housing market downturn.

Managing director Lindsay Partridge said preventing a big blowout in the jobless rate well beyond 10% was crucial to housing and construction for the later part of 2020 and beyond.

He said Brickworks, which operates 26 sites in Australia with a workforce of 1300 people is ready to curtail production if demand starts to fall as the economic damage from the coronavirus pandemic accelerates in the short term. He told The Australian Financial Review (AFR):

If there was going to be a downturn, then we would no doubt adjust production.

The company made three large acquisitions in the United States in a year from November 2018 across 13 sites with 890 staff, according to the AFR report. These include Redland Brick Inc based in Maryland and Sioux City Brick in Iowa. Its first acquisition, Glen-Gery has 10 plants and is the fourth-largest brick maker in the US.

But it was recently forced to shutdown of five manufacturing sites in Pennsylvania as local authorities tried to stem the spread of the coronavirus.

Since then, Mr Partridge said the Governor of Pennsylvania loosened the restrictions slightly to allow the five factories to keep selling bricks from their yards, even though production was still halted. In late March, he said:

We've probably got three or four months of stock on hand.

Local supplies

The coronavirus pandemic has led many companies in the construction and building sector to review their reliance on single-source country supply of materials in the face of project delays and resultant contractual disputes.

The ACIF lobby group has identified that Australia's building industry imports more than 60% of its annual $6 billion of materials from China.

Until now, construction companies have opted for mostly cheaper Chinese suppliers without a back-up plan, creating the problems on both residential and commercial sites, according to Dean Haritos, managing director of SOLOS Glass.

He writes in The Sydney Morning Herald they also face a longer-term problem when the quality of imported materials fail the test of time or compliance with Australian Standards, not to mention the sometimes dubious compliance certificates provided by overseas suppliers.

Mr Haritos said the supply-chain problems were prompting a rethink by builders of how they sourced materials. He said:

People are now starting to ask, 'What's the real cost? When you look at [the per-square-metre-cost] in isolation China can be more competitive, but when you add up the cost of delays, quality issues, of not being able to talk to someone locally and not necessarily having technical expertise to support you, it starts to change. The local supply chain comes into its own.

Non-conforming building products has been a hot-button issue across Australia over the last 18 months, with quality and efficacy being the key issues, while the virus crisis has brought supply certainty also into play. These issues represent a stark reminder to the construction sector that there are key advantages in supporting the local supply chain.

Many local building materials producers and processors have some the most technologically-advanced plant in the world, while also being reliable, accessible and accountable in supply, Mr Haritos adds.

Ian Lomas, principal at global architectural and consulting practice Woods Bagot, said that while there was no panic in the construction industry yet, there was also a growing awareness that the just-in-time inventory system, where supply is readily available to meet demand aimed at increasing efficiency and reducing costs, may have failed. He said:

So much of building today is done on that just-in-time system because nobody wants to store anything and nobody will pay before they receive the goods. Now that's being exposed because building sites and projects are running out of materials very quickly because they have no buffers.

To read the latest edition, please download HI News:

Download hinews-6-02

Stanley Black & Decker Australia (SBD) has lodged a resale price maintenance (RPM) notification with the Australian Competition & Consumer Commission (ACCC) as of 17 October 2019, with specific regard to its DeWalt brand of products. RPMs allow the ACCC to relax regulations in consumer law which forbid suppliers from imposing pricing conditions on resellers, such as limiting their consumer prices to a set minimum.

SBD is not seeking to set limits on the extent of price discounts at which resellers can sell its DeWalt products. It is, however, in broad terms, seeking to establish a floor price for advertising for each and every DeWalt tool. Under that arrangement, SBD resellers could price DeWalt tools below that floor price for in-store sales, but they would be contractually prevented from advertising or otherwise communicating a price that was below the floor price.

We do want to go into some detail as regards this move by SBD. Many people would agree that the power tool market suffers from some unfortunate distortions, and this is a genuine effort by SBD to find a way to correct some of these. The difficulty, of course, is that it often seems to be the case that in making an effort to solve one problem, you create others.

However, HNN does believe we should start by mentioning that there really are grave doubts that this particular approach - limiting the communication of price discounts, but not the discounts themselves - really has much chance of working on a practical level in 2020.

The proposed restraints on true pricing information would be contractually declared between SBD and its resellers. This means that third-parties, who were not contractually bound to either SBD or the resellers, would be free to communicate the true discount prices of DeWalt products, in any way they chose.

The reason this point is so important, is that the reseller that would be most affected by restriction of advertising through floor prices would be Bunnings. The Bunnings website generates huge volumes of traffic. Should there be a restriction put in place that meant Bunnings could not communicate the true prices of DeWalt products on its website, it would be a very tempting proposition for a third party to set up a website that did provide the true pricing for DeWalt products at Bunnings – along with the true pricing at other retailers as well.

At a guess, within a couple months after such a restriction went into place, there would be fifty or so websites offering that information, and earning money from the traffic they attract (really siphoned off from the Bunnings website) via Google Ads.

It is also highly likely that it would not be possible to restrict Bunnings and other resellers providing that pricing information to these sites, as these would be journalist enquiries, and it seems unlikely that could be contractually restricted. Even if such a restriction were possible, it seems likely Bunnings and other resellers could effectively "leak" that information without fear of detection.

This is also a kind of activity that would attract a good deal of journalistic interest and publicity. It seems likely that in reporting on this situation by the business and consumer press, SBD would find itself portrayed in a negative light, which could have ongoing consequences.

These are, however, only speculations about implementation, and really do not play a part in SBD's more theoretical interactions with the ACCC.

Background

To understand what SBD is doing, it is necessary to first take a close look at the background to the changes the ACCC has made to RPM recently, and how the ACCC has acted so far.

The RPM process is one that is relatively new to the ACCC. It was first comprehensively described in November 2017, and has been successfully applied to the products distributed by one hardware company. This was Tooltechnic Systems (Aust), which is the main distributor of Festool and Fein power tool products in Australia.

Essentially, the RPM process enables companies that wish to impose price and price notification restrictions on resellers of their goods to obtain an exemption to the Competition and Consumer Act 2010, under which such activities are normally forbidden. As the ACCC describes the situation in its guidelines:

In broad terms, Resale Price Maintenance (RPM) occurs when a supplier of goods or services (e.g. a manufacturer or wholesaler) specifies a minimum price below which a reseller must not on-sell, or advertise for sale, those goods or services.

RPM is a per se breach of the Competition and Consumer Act 2010 (Act), which means it is prohibited outright, regardless of whether it has the purpose, effect or likely effect of substantially lessening competition.

Attempts by distributors to set prices for resellers is generally disallowed, because it tends to have detrimental effects. As described by the ACCC:

RPM can cause harm to the competitive process by reducing or eliminating price competition between resellers. This can result in resellers selling goods or services at prices higher than they would otherwise and consumers paying more for those goods or services without receiving any additional value. In some circumstances, RPM may also increase the risk of collusion between competitors.

However, the ACCC also admits to there being circumstances under which RPM may produce beneficial effects as well as detrimental effects. As such there may be times when the market and consumers will derive overall benefit from allowing RPM. As the ACCC describes this balance:

The ACCC recognises that, in certain circumstances, RPM can result in benefits, including by promoting competition. For example, producers of complex goods or services may seek to engage in RPM to create incentives for a reseller to invest in pre-sales services such as demonstrations and advice that are valued by consumers. Without RPM, other resellers could 'free ride' on these investments by setting lower prices.

Test case: Tooltechnic

The ACCC offers up its first ruling on the new approach to RPM as a test case. This was the case of Tooltechnic, which are the current sole distributors for the Fein and Festool products in Australia. The ACCC introduces the case:

Festool products were expensive and complex, and Tooltechnic encouraged its dealers to provide high levels of pre- and post-sale services to customers. Tooltechnic was concerned that there was a risk customers would access pre- and post-sale services from one retailer but purchase the product at a discount from another retailer who did not provide the services, thereby reducing the incentive to provide the services.

The ACCC agreed to grant the RPM request, noting that:

[A]s a result of the RPM conduct, retailers would be likely to invest in pre- and post-sale services, as the risk of free-riding would be addressed. Such an increase in service was likely to generate public benefits including that some customers would make more informed decisions in purchasing quality power tools and customers would continue to receive the choice of a premium trade quality power tool product which is accompanied by a high level of pre- and post-sales service.

An important element of that ruling was that the size of Tooltechnic meant that while there would be detrimental effects, these would be relatively minor. As the ACCC stated in its announcement:

Further, while there is clear detriment in this case, it is likely to be reduced by the fact that Festool and Fein have relatively low market shares and face numerous competitors.

That last point is quite significant. The ACCC is saying that it may be more willing to grant RPM for smaller companies as the total extent of disadvantage will be small.

This becomes something of a key point, as SBD does draw some parallels between its circumstances and those of Tooltechnic. It is worth pointing out that, globally, SBD is a company with a market cap of USD24.5 billion (approximately AUD37 billion). Techtronic Industries (TTI) has a market cap of USD16.5 billion (AUD25 billion) and Makita has a market cap of JPY1160 billion (AUD15.6 billion).

The DeWalt case

The SBD submission to the ACCC is 32 pages long, though some pages do have considerable redactions in the public version to protect commercial-in-confidence communications. The submission consists of a standard form from the ACCC, followed by an appendix, which SBD refers to as "Annexure A". There are additional documents as well, including SBD's response to submissions made by Bunnings and TTI among others.

The submission is quite discursive and, as is common in many such submissions, somewhat repetitive at times. As a consequence of that, the best way to present the information is to take the most representative extracts from different parts of the SBD notification and supporting documents.

What SBD wants

The notification document sets out what SBD is seeking in section 3.1:

Specifically, SBD proposes to amend its dealer agreements to impose a requirement that dealers do not advertise the DEWALT Products:

(i) below the "invoice price" for those products, being the standard SBD price charged by SBD to dealers for the products excluding any rebates or discounts offered by SBD off that price to individual dealers; or

(ii) where a reseller elects to participate in a special price promotion that is funded (in part or whole) by SBD, below the promotional price specified by SBD.

The proposed amendment to SBD's dealer agreements will only involve specifying a minimum advertised price (MAP) for the DEWALT Products. It will apply to all advertising, including online and in-print. It will not apply to in-store activity and will not restrict or prevent SBD dealers from selling the DEWALT Products at a price below the MAP to customers who negotiate a discount directly with the reseller.

To clarify what is going on here: a reseller might decide to sell one model of DeWalt drill at $200 in its store, but SBD might set – for all resellers – a limit of $250 for the minimum advertised price of that product. The reseller is free to sell the drill for $200, but will only be able to advertise that drill for the price of $250.

That $250 price (which SBD calls the "MAP" price) will be the standard invoice price for that model of drill across all dealers. MAP excludes rebates and any other discounts. If the final price that dealers pay is called the "net net price", the invoice price is basically the "net price".

In terms of the promotional price, SBD provides an example of the situation this is designed to remedy.

This issue is illustrated by a recent DEWALT promotion, where customers were given the opportunity to purchase a DEWALT FlexVolt drill and charger for $199, compared to the recommended resale price of $459. For SBD, this promotion, provided the opportunity to encourage customers to try the FlexVolt platform by offering them a 'kit' (i.e. product, battery and charger) at a heavily reduced price.

...

One reseller ... promoted the kit online at $189, $10 below the recommended promotional price. This resulted in two of SBD's largest resellers, who had made significant investment in the promotion, reducing their promotional prices to match this reseller and not earning an acceptable return on this promotion.

This type of incident means that dealers ... are much less likely to support promotions in the future as there is no guarantee that they will obtain an appropriate return for their investment and involvement.

Advertising, not price

It is worth noting at this point that the notification provided by SBD is unique in one point, in that it separates advertising from pricing. SBD claims that it is not inhibiting the actual act of discounting, to any amount, but seeks to prevent resellers from advertising a discounted price that goes below a level that SBD itself has set.

That splitting of concerns is not a possibility that is clearly mentioned by the ACCC. The relevant definition section in its guidelines states:

RPM may arise in several ways, including if the supplier makes it a condition of supply that the reseller must (or threatens to withdraw supply if the reseller does not):

-sell the goods or services at a certain price

-not sell below a certain price

-only discount to an extent that is 'agreed' or not discount at all

-comply with a recommended retail price (RRP) or not price a certain percentage below it.

The lack of a separate specification of advertising/publicity from actual price does not mean that it is not contemplated in the ACCC's interpretation of what is quite loosely written legislation. However, this split is likely to give rise to additional concerns.

SBD's motivation

The motivation for SBD seeking this remedy from the ACCC is most clearly laid out in sections 3.3 and 3.4 of Annexure A. Prior to this, SBD has established that it sees pre- and post-sale service as being a critical part of its product offering. Here it outlines the factors that it sees as inhibiting this in the market.

3.3 However, in a market with very aggressive pricing behaviour, dealers are often not prepared to invest in such service if they are not going to earn a sufficient return on their investment. Ever increasing price competition for trade quality power tools has meant that dealers have been continually undercutting each other on advertised prices. Margins on DEWALT products are considered by many dealers to be too low, particularly when compared to the margins that they earn on products from competitors such as Makita, Milwaulkee and Festool which margins are perceived by resellers to be protected (whether by reason of manufacturers' actual or understood policies on discounting, or ACCC notification).

3.4 The price competition and comparatively low margins on DEWALT products has been largely driven by two inter-connected factors: the significant growth in the online promotion and sale of power tools (including the growth and use of price comparison websites) and the price guarantee policies of various dealers whereby they promise to beat a competitor's lower price. These price guarantee policies mean that dealers with these policies will reduce their prices to match another reseller's online advertised price to so avoid having to offer additional discounts under their price guarantee policy.

Benefits

SBD describes the benefits it sees as flowing from introducing a floor advertising price in section 10 of the formal statement of notification. These include:

Detriments

On the other hand, listing what is detrimental, in the following section 11, SBD simply states that this will be minimal, and refers the reader to Annexure A, section 10 for further details.

Section 10 of Annexure A begins by stating in section 10.1:

SBD considers that any public detriment, particularly in relation to any impact on competition will be limited.

Sections 10.2 through to 10.6 list reasons why the MAP scheme would not have a deleterious effect, including: that as the MAP price would be below the RRP, dealers could still discount; that it does not restrict in-store competition by dealers; and that SBD would be happy to supply the ACCC with details of pricing and margins.

Section 10.7 then lists all the bad things that SBD says will happen if its request is refused by the ACCC. This includes limiting the distribution of some product, dealers de-ranging and decreasing their investment in DeWalt, and SBD ceasing to invest as much as it has in the brand. Section 10.7 ends on point (f), which states:

All of the above risks resulting in the DeWalt brand becoming weaker in the market and market concentration increasing, with the two major suppliers (Makita and Milwaukee) accounting for a greater share of professional power tool sales.

The Bunnings response

SBD has opted to not really provide a clear listing of the detrimental effects of the RPM it is seeking. However, we can turn to the submission provided by Bunnings to get some view on these.

The Bunnings submission is in the form of a letter to the ACCC from Phil Bishop, who is general manager - merchandising for Bunnings. His letter is a model of clarity. In it he clearly and simply lists what he sees as the potential detrimental effects of the ACCC granting SBD's RPM request.

As a national retailer of Dewalt Products, Bunnings does not consider that any purported public benefit associated with the Proposed Conduct outweighs the obvious public detriment that will arise as a result of the Proposed Conduct. This public detriment includes:

-the reduction of intra-brand price competition for Dewalt Products;

-the likely requirement for end-customers to pay higher retail prices for Dewalt Products than they otherwise would in the absence of the Proposed Conduct; and

-lower incentives for retailers of Dewalt Products to invest in cost-saving initiatives.

Mr Bishop goes into some detail in his letter to describe Bunnings' approach to both the supply and sale of DeWalt products. One part of this that is of general interest to the industry is section 5, where he describes some of the ways in which Bunnings works to cut supply costs of DeWalt products. These include:

The point to this, of course, is that these actions are directed towards being able to sell DeWalt products at the lowest possible price. If the ability to market these products at that low price is removed, then the incentive to pursue these efficiencies is reduced, and the Australian consumer loses out.

Mr Bishop is more explicit about these concerns in section 7 of his letter. Under the heading "No public benefit in higher prices", he clarifies what the detrimental effects of RPM would be:

Bunnings does not consider there to be any inherent public benefit in systemic prohibitions on advertising prices below a certain level. Bunnings considers that any such conduct of this nature deprives customers of price competition between retail channels. It also stands to prejudice customers who are unable to purchase Dewalt Products in-store (perhaps because they are geographically distant from a store or are time poor), as these customers will only be able to purchase Dewalt Products online or by ordering them at or above the MAP.

Further, Bunnings considers that the Proposed Conduct would deprive customers of the ability to self-select between paying a higher price in exchange for higher levels of pre-sales service or advice, or purchasing the same product online. In this regard, Bunnings notes that the public version of Dewalt's notification does not provide any evidence to suggest that so-called 'high-service' physical retailers do in fact offer Dewalt Products at higher prices than online competitors. In fact ... Bunnings considers that it has been able to offer both sustained low prices and a good degree of product expertise simultaneously.

The SBD response to these objections by Bunnings is provided in a supplementary submission. SBD begins by denying that the RPM would have the result of "chilling price competition" as Bunnings stated. It goes on to state, in part:

First, the scope of the Notification is limited. SBD's proposal will not eliminate advertised price competition for DEWALT products. Under the notification, the MAP will set an advertising floor price but this will be set at a price that is below SBD's RRP. Accordingly, the notified conduct will still allow dealers who wish to compete on advertised price by advertising below RRP to do so. As a result, DEWALT expects that there still will be competition on advertised prices for DEWALT products and that retailers like Bunnings will continue to monitor and respond to competitor's advertised price changes.

Further, the Notification also does not prevent in-store discounting.

Finding the balance

It is perhaps useful to look at two more quotes from the SBD Annexure A to gain some more insight into the reasoning that SBD is using.

This is statement 1:

4.3 While the MAP Conduct will prevent dealers from advertising DEWALT branded power tools, accessories and attachments below the MAP if they wish to receive additional discounts from SBD, as discussed further below, dealers will not be adversely impacted by this. The MAP is set at the SBD stockist price, which is below the RRP, and accordingly dealers will be able to continue to advertise discounts on the DEWALT Products below the RRP. Dealers will also be able to sell the DEWALT Products for prices below the MAP to customers who seek to negotiate a better price directly with the reseller.

The following is statement 2:

4.6 As discussed further below, end-user customers will not be adversely impacted by the MAP Conduct. SBD will continue to face strong price competition from competing brands which will prevent SBD setting the MAP at a non-competitive level. Further, as the MAP sets a floor on the advertised price that is below the RRP for the product, it will not eliminate intra-brand price competition on DEWALT branded products. In addition, end-customers will still be able to negotiate discounted prices below the MAP with dealers.

The part of statement 1 that stands out is the declaration that "dealers will not be adversely impacted by this", the "this" being the restriction on publicising prices discounted below the MAP set by SBD. Then, in statement 2, SBD declares "end-user customers will not be adversely impacted by the MAP Conduct".

It is very difficult to understand this. If dealers such as Bunnings have worked hard to make it possible to sell DeWalt products at a price discounted below the MAP, then not being to advertise those products at the true, discounted price would, common sense indicates, disadvantage them. Those dealers would miss out on sales that they would otherwise have attracted through offering such low prices.

Similarly, if consumers are unable to locate the lowest possible prices for products due to restrictions on advertising those prices, and they end up purchasing DeWalt products at a higher price, then it would seem fairly natural to see them as having been disadvantaged.

The best that we can do in trying to follow SBD's thinking here is the consider that the company does not consider the losses the dealers might suffer to be material, as balanced against the gains made by correcting a market that has, in SBD's view, focused too much on price at the expense of service delivery.

The same balance might be seen to be applied as well to the disadvantage the consumer suffers. SBD might regard the extra expense the consumer accrues as being balanced by encouraging higher levels of service by removing some of the advantages of higher levels of discounting.

Analysis

That balance, as is made clear in the ACCC guidelines, is what the ACCC must adjudicate on. Are the advantages real, and do they come at too great a cost for whatever the projected benefits are that they may produce?

This must be further balanced by the issues of practical implementation we mentioned at the beginning.

And there is an additional issue that arises from the structure of the RPM SBD seeks. Should the ACCC really be seen to promote retailers providing consumers with information about prices that is actually misleading? It is possible that in doing so something of an informal breach of trust occurs, between the retailer and the consumer, but actually also between the ACCC and the Australian public.

SBD is certainly correct in its view that the current market for tools suffers from some unfortunate distortions. In particular, the practice of high levels of discounts coupled with adequate but not outstanding service in hardware retailers has, in HNN's opinion, had a severe impact on the introduction of innovative products.

To take an example outside of SBD, Bosch's nanoblade technology in its EasyCut saw range never really stood much of a chance in Australian hardware stores. While it is a fantastic product, and a real solution for casual DIYers and craft people, it is also the kind of product that needs to be properly understood and sold. The same could be said for much of the new and innovative Bosch DIY range.

That said, however, the reality is that the market continues to tell companies – including SBD – that the services model they have been pursuing is not the one a large percentage of end-users want to invest in. In HNN's view, this is because the services offered are simply not enough. If Bunnings represents the optimal low-end of service, providing just enough to keep customers happy along with low prices, then the rest of the industry has yet to find the equivalent position when it comes to high-end service. Services have to produce value, and they have to work to eliminate ongoing concerns that trade and DIY customers may have.

The industry just isn't there yet, and the pressing concern is that there are so many forces at work to make innovation difficult for smaller businesses, that it may never get there. We all must work harder to ensure that the independent hardware store survives

It does seem to HNN, however, that the answer to the industry's problems is more likely to be found in innovation by individual businesses, rather than in exceptions granted by the ACCC to consumer legislation.

To read the latest edition, please download HI News:

Download hinews-6-01

The Screenview app developed by Cowdroy showcases its latest innovative offering in a virtual setting that helps make selection easy for end-users.

Now live in the app store for download on iOS and Android devices, Screenview illustrates Cowdroy's nine advanced mesh screen products as well as over 20 accessories. The app is designed to help customers find the most suitable product by enabling them to preview the entire range and their options.

Screenview provides the user with additional information on each specialty screen before they buy. It allows them to make informed comparisons by visualising products both in static and live formats, giving them a clearer picture of how the screen will look in reality.

The Cowdroy insect range suits a wide variety of window and door screening needs, offers simple installation, superior airflow, pet friendliness, smaller insect protection, rust proof stainless steel and temporary screening. With the broad choice of screening options that is also supported by accessories available via the app, the assembling of new screens or the refurbishing of existing screens including aluminium frame, spline, frame buttons, corners and spline rollers are made easier. Peter Doyle, business development manager for Cowdroy Retail, said:

Our extensive insect screen range is designed to offer a solution to meet any combinations of construction needs and building regulations, regardless of the type of opening, climate or usage.

The new app brings our products to life and provides detailed information to help DIY-ers and tradespeople with the information to choose the right screen for them.

One of the biggest considerations when designing the app was ensuring the right product was used in the right location to meet building requirements and help ensure consumer safety.

The Screenview app and website includes product and accessory images, descriptions for each type, pricings, stockists and nearest retailer.

To read the latest edition, please download HI News:

Download hinews-6-01

The team at Bisley Workwear led by managing director David Gazal, is launching a workwear range designed for women from the ground up, not just tweaking of men's traditional styles.

According to Ragtrader magazine, the new range comes after Bisley's Workwear Tradies Report 2020 found that almost half of the female tradies surveyed have worn casual or non-safety clothing to work because of a lack of options available to them.

The research also discovered that 40% of female tradies feel less safe at work wearing ill-fitting garments, with three in five admitting they have worn workwear designed for men.

The ill-fitting garments are impacting their ability to work hard, with 33% indicating they can't work as hard as they want to in incorrect clothing, while 45% feel more self-conscious and 20% feel like they don't belong.

In response to these findings, Bisley consulted five Australian female tradies to uncover the real needs for women's workwear to design a range specifically for them. Mr Gazal said in Ragtrader:

When our research revealed that tradeswomen were feeling unsafe and uncomfortable on the worksite, we realised the need for a new industry-wide approach to women's workwear.

For our new range, we developed a three-dimensional fit model with our consulting tradies based on how tradeswomen move and work, variations in fit and size, and the best silhouettes for functional, professional, and safe workwear.

And unlike some industries where the woman's version of the same item or service costs more than that for a man's (ie. haircuts), the Bisley female workwear range is priced the same as that for the men's range. Mr Gazal exclusively told The Weekend Australian:

When we put this range together, we put it together knowing that the garment needs a completely different silhouette, and completely different fabric.

Fabric needs stretch, it needs wearability, and functionality in the workplace. It needs to be durable and not be restrictive.

Bisley has already road-tested its first workwear range with five female tradies - a paver, landscaper, chippie, plumber and sparky - and the feedback was supportive. It said it has received large orders from companies involved in construction, mining and infrastructure.

Scott Cam, host of the Nine Network's The Block and a brand ambassador for Bisley for the past 20 years, told The Weekend Australian that feeling comfortable in work gear on a site was crucial, and for too long women tradies had been forced to wear men's gear.

If you are climbing on the roof, in roofs, under floors etc, if you haven't got a stretchy and comfortable material then it is unsafe. I was a carpenter for 40 years and I spent half my life on my knees.

The fact is female tradies are getting so many more roles, which is outstanding, and still have nothing to wear. It is imperative that someone has done something about it, which Bisley has.

To read the latest edition, please download HI News:

Download hinews-6-01

Established in Tasmania in 1870, Blundstone remains 100 per cent family-owned, and continues to be shaped by the vision and values of its founders and owners.

John Blundstone started making fit-for-purpose footwear that could withstand the cobbled city streets, rugged farmland and factory floors of Hobart, Tasmania in the late-1800s.

The company said this philosophy has allowed Blundstone to adapt to an ever-changing environment and 150 years later, its commitment to durability, quality and innovation has not wavered. CEO Steve Gunn said:

There are only a handful of brands that have been in existence for 150 years and an even smaller number that remain family-owned. The success of the Blundstone brand is that we have always remained true to our heritage.

Blundstone boots were born tough to weather the untamed terrain of Tasmania, they have marched in armies and dug deep on Everest. Today, our boots continue to work hard, exploring the world while simultaneously pounding the pavements of fashion capitals globally. We're really excited to mark our 150th milestone with new partners, campaigns and products.

Known for its popular elastic-sided Chelsea boots, Blundstone footwear is instantly recognisable for its tough, no-nonsense style that can be dressed up or dressed down. And these boots have endured the Great Depression, both World Wars, and a continuously evolving fashion landscape, from the swinging '60s to '90s grunge.

The brand's history is a constant inspiration, but its ethos and focus remain the same - to produce boots that can take people anywhere. Blundstone believes its products have stood the test of time, garnering cult status among creatives, adventurers, and tastemakers around the world.

Throughout 2020, Blundstone will reveal a yearlong series of activations and a creative campaign celebrating those who have worn the boots in the past and those who wear them today, encouraging the next generation of Blundstone wearers. A new microsite showcases the brand's history and the campaign creative and will as serve as a platform for a UGC (User Generated Content) competition taking place early in the year.

The digital cornerstone of the campaign can be seen at the following link:
Bundstone 150 website

In honour of its 150th anniversary, Blundstone will release a limited-edition #9150 safety boot and a limited-edition #150 casual boot in 2020.

To read the latest edition, please download HI News:

Download hinews-6-01

Delko Tools has extended its product range and is looking to broaden its reach into the DIY market.

The business was founded on owner Daniel Owens' worldwide patented design for a taping applicator that makes drywall plastering easier and more efficient for professional plasterers. After its initial release in 2009, the concept was further improved and packaged into a larger kit with a complementary tool.

Mr Owens told the Geelong Advertiser that Delko Tools have been sold in more than 1000 stores across 20 countries, with sales reaching 20,000 units a year for the past couple of years. The original product served a niche professional plastering market but he said the brand was starting to be stocked in larger stores, which opened up the DIY market. The extended range includes a mixer paddle and a dual-purpose knife, both protected by patent.

He said about 50% of Delko Tools products were sold in Europe, 30% in North America and the other 20% around the rest of the world, with Australia accounting for just 1% in sales.

Mr Owens said the first shipment of new products heralded an exciting time. He told the Geelong Advertiser:

It's when the tools are actually on the shelf, and people are using them, that is when we see the spike.

The early years of the business were difficult and took their toll with he and wife Kirsten deeply invested until the original product started to pay its way, creating the opportunity for Mr Owens to go full-time as the business started to turn the corner about five years ago. He said in the Geelong Advertiser:

It was dark times before it got good. All the money was going out with the R&D, tooling and prototypes, the marketing and the patent fees.

But he said the patent protection, and persistence, were the keys to putting a successful product in the market.

To read the latest edition, please download HI News:

Download hinews-6-01

Point of sale (POS) software has spent much of the past 20 years in an environment where its development has progressed, but not at the same pace as much of the rest of the software industry. In part that has been because it is a type of software that benefits somewhat, but not significantly, from internet connectedness. As HNN has described in the past, cloud-based POS can offer some real benefits, but given the parlous state of internet connectivity in Australia, those benefits come with considerable risks attached.

That said, this situation could easily change. It turns out that the real future gain in benefits for POS is likely to be very connected. POS data from independent retailers could be some of the most valuable data available to Australian businesses, but in order to be truly useful, it needs to be consolidated in bulk, where it can have data analytics applied to it.

History

While during the 1980s and 1990s much of the rest of the business world was more affected by the development and spread of systems such as spreadsheets and inexpensive database software, for smaller retailers POS came as a real boon. Combined with barcodes and scanners, it helped revolutionise the industry, to such an extent that retailers today would not cope easily with the way stores were managed prior to the introduction of these systems.

In fact, the availability of POS systems radically altered the way familiar business processes could be managed in small and medium sized retailers throughout the world. This helped to fuel a surge in smaller retailers. It seems difficult to recall now, but during the 1980s small businesses in general were seen as some of the most dynamic and innovative, while larger businesses were slower to react to a changed environment.

For retail, this was only halted and reversed in the late 1990s and early 2000s, as both advanced logistics and the global supply chain shifted the advantage back to larger retailers. Writing about this situation in the UK in their 2010 paper, "The Role of Small and Medium Enterprise Retailing in Britain", Ogenyi Ejye Omar and Peter Fraser had this to say:

The UK economy is characterised by many unique relations between retailers and their suppliers. The "balance of power" in this relationship has changed significantly in the past four decades in favour of the largest retailers, and this trend has been highlighted particularly in the grocery supermarket field.

In a realistic sense, SME retailers have not benefited much from such a shift in power relationship. The largest supermarket operators have been able to take advantage of their structural market power, the use of information technology, and generally increasingly sophisticated management to achieve considerable cost savings, not just in traditional merchandise purchases, but also in newer areas such as fresh produce and petrol, as well as in the area of retailer-dominated physical distribution management. It is, however, debatable whether the development of such retailer-supplier relations is beneficial for consumers.

More recently in Australia, smaller retailers in hardware have managed to regain ground, largely through a great deal of self-discipline which brought them together into successful buying groups, such as Hardware & Building Traders (HBT) and the Independent Hardware Group (IHG).

But today data analytics is posing a new threat, which could grow to be as significant as the one previously created by logistics and global sourcing. To date, the rising field of data analytics has favoured big companies more than small ones. Larger retailers have the scale to deliver significant amounts of data, and the capital necessary to really get into data analytics. Wesfarmers is the prime example of this, but companies such as Woolworths and Coles are also active.

However, small retailers can fight back in this area, just as they fought back against the logistics revolution and global supply, and in much the same way. By putting aside some of the competitive opportunities, and instead pursuing the advantages of the community of retailers, they can stay "in touch" with the larger leading companies, and make better use of their natural advantages in the Australian market.

That said, there are two key factors which are holding back retailers from making this kind of change when it comes to data. The first is one purely of conception: when we think "data analytics", we think in terms of those analytics which are most suited to larger retailers. The kind of analytics that will help smaller retailers are really very different.

The second factor is that if small retailers are limited in their access only to the data that they themselves produce, analytics is of very little real use. In order to succeed, small retailers in similar and adjacent sectors will need to find ways to consolidate and share data.

That is going to prove to be quite difficult. Even if smaller retailers are ready and willing to share data, there are a number of key questions that first need to be answered. Who will be responsible for consolidating the data? How will data privacy be protected, both for customers, and for the stores which provide the data? Given that the data could be on-sold to third parties, how will that be controlled sensitively, how will those data products be developed? How will the resulting profits be distributed?

The companies in the best position to answer most of those questions and the ones best suited to set up implementation are actually the POS developers. But while they are the best implementors, the basic organisation of such a movement would have to originate with retailers.

The difference between big and small

The field of data analytics has itself been dominated by companies and organisations large enough to offer very wide and deep sets of data - which is only natural. However that has meant that much less attention has been paid to the kinds of analytics that will be more useful to smaller retailers, and to the ways in which those smaller retailers might make the best use of that data.

For example, when it comes to larger retailers, one of the terms we've seen cropping up more often over the past couple of years is "unified" retail. The best way to think about this is as something like "omnichannel+". In addition to making products available across a wide range of channels, providing an ideal "path to product" for the customers, unified retail also seeks to merge the data streams created by all customer interactions. This includes physical and online stores, email and social media.

The end goal of these efforts is to create the most accurate picture of each customer, and the customer's interactions with the retailer. This will then enable the retailer to target that customer with the best possible marketing messages, as well as providing, in aggregate, a view of the markets the retailer is reaching.

In fact, when we refer to "omnichannel+", the + part is really data analytics. Omnichannel is seen as a customer-facing strategy. Data analytics is its internally-oriented complement. It is, in fact, establishing a universal "path to data".

Key to these unified commerce efforts is customer identification. That identification is easily achieved online, through the use of user logins and tracking cookies. In the physical store, however, it is more difficult to achieve, and has been a major driver behind rewards programs such as Flybuys.

For smaller retailers - especially in hardware - this particular analytics approach does not make all that much sense. Grocery stores and clothing stores, for example, may benefit from understanding individual customers, as their purchase patterns tend to be repetitive and predictable. In hardware, it would be a big mistake to note someone is purchasing bathroom fittings or a power drill, then try to sell them the same products three or six months later.

What would be of far more use would be the ability to spot aggregate trends rapidly and effectively, as they develop and spread. Detecting these trends is less about individual purchases, and more about what is being purchased in a single transaction, and in what sequences those purchases occur. While the data from individual customers would be helpful, linking that data to the identity of a specific customer is not really necessary.

To read the full article, please download HI News:

Download hinews-6-01

A proprietary deck post support system made from recycled plastic, manufactured in Brisbane (QLD), is expected to be sold through US home improvement chain, Lowe's. BuildTuff, the company behind the product, has a deal to supply the retailer.

The product was developed by Brisbane-based industrial designer Mayer Jung as an ultra-lightweight alternative to concrete. It was already being sold in Bunnings, Mitre 10 and other Australian hardware stores. But BuildTuff general manager Alan Brady said the US deal would take the company to a whole new level.

Mr Brady said the product, known as TuffBlocks, are designed to support the weight of decks and does away with the need for concrete pylons that could crack or move. The system can support decks up to 1.5 metres in height, adopting a building method called a floating foundation. He told the Courier Mail:

Floating foundations where the supports are laid directly on the ground were first developed in the US in areas where weather or ground movement would crack concrete foundations.

The original floating foundations used concrete blocks placed on a level surface whereas TuffBlocks are made of a plastic material that is stronger and longer lasting. He said:

TuffBlocks have been break-tested to five tonnes.

Mr Brady also said that using recycled material was an important part of the manufacturing process given the increasing focus on environmental protection.

Every shipping container of TuffBlocks contains the equivalent of 3.2 million plastic bottle caps. Mr Brady explains:

The clear focus in manufacturing is on recycling because companies don't want to be contributing to plastic waste. We certainly don't.

We are taking something like a bottle cap that is thrown away after one use and turning it into something that is going to last for years.

Mr Brady said he hoped 100 shipping containers worth of TuffBlocks would be exported to the new US client in the coming 12 months, requiring an upgrade of the Crestmead factory where the products are made.

TuffBlocks won a product design ward from Good Design Australia in 2015. Its main features and benefits include:

Sourced from The Courier Mail

To read more in Supplier Update, please download HI News:

Download hinews-6-01

Australian-based Metcash, the owner of the Independent Hardware Group (IHG), has released results for the first half of FY2019/20. Prior to the release of results, Metcash announced a $237.4 million writedown against its major food division just days after revealing 7-Eleven would not be renewing its $800 million supply contract. According to the ASX announcement:

This impairment follows the company's review of the carrying value of its assets undertaken as part of its process for preparation of the 1H20 financial statements. The review has taken into account the information contained in Metcash's ASX release dated 22 November 2019 concerning 7-Eleven's advice that it will not be renewing the current supply agreement with Metcash following its conclusion on 12 August 2020. This advice is expected to result in the loss of ~$15 million EBIT (annualised) in the Food pillar, after adjusting for mitigating costs savings.

Total impairments for Metcash since June 2018 have now exceeded $500 million. Unfortunately, the results from Metcash for the half did little to allay the sombre outlook conveyed by the ASX announcement. Post the results presentation, the share price for the company fell precipitously. It ended far below its mid-year high of $3.17 at $2.70, a drop of close to 15%.

Overall Metcash sales revenue was $6289.8 million, up from $6189.2 million in the previous corresponding period (pcp), which was the first half of FY2018/19, an increase of 1.6%. Earnings before interest and taxation (EBIT) was down by $8.4 million to $149.7 million, a drop of 5.3%. Underlying profit was down 4.6% on the pcp to $95.7 million, and net profit fell substantially due to the write off.

Hardware sales (including charge-throughs) fell by 4.2% over the pcp to $1040 million. EBIT fell by 1.3% to $37.3 million. Like-for-like (comp) sales were down 2.6%, while retailer sales through the IHG banner stores were down 3.2%.

IHG expansion

The media release which accompanied the financial report stated that the losses would have been worse, had the sales balance not lifted from 35% DIY/consumer sales, to 36%. The Sapphire program is seen as playing a role in this, along with growth in sales through IHG's digital platform.

In his opening remarks during the presentation to analysts, Metcash CEO Jeffery (Jeff) Adams emphasised many of the ways in which IHG has continued to expand. He began by mentioning Sapphire, the store enhancement program that originated with Mitre 10, and now includes stores operating under the Home Timber & Hardware (HTH) brand.

Total stores through the program and in progress has increased to 75. So we are still targeting 200 stores to be upgraded by 2022. And we still continue to see strong retail sales growth in those stores that we've refreshed of greater than 15%.

IHG has also moved to acquire more frame and truss businesses, he noted.

In build trade, we've acquired two frame and trust plants through the acquisition of Keith Timber in [South Australia]. Frame and truss offers are now available in all of our states.

The company has also continued to build closer ties with construction services.

We've increased the number of supply and install alliances to 15, and those alliances are now in place with key players across all of the stages of a house build.

The Hardings plumbing business also continues to be a bright spot for the company, as IHG rolls this out through the network.

Another initiative that continues to grow is the move towards better use of technology. According to Mr Adams, online sales increased by 50% over the pcp, and the number of stock-keeping units (SKUs) increased from 3000 to 11,300 listed online. Meanwhile the use of technologies such as Truck Tracker continues to grow.

IHG has also continued its move towards more direct ownership of the stores that make up its network.

[In] our retail network, our retail and joint venture company-owned stores has now increased to 102. So in the first half of last year, that was 92. And we've got 37 company-owned stores and 65 JV stores ... And our company-owned and JV stores now represent about 15% of our total stores, about 40% of our total IHG sales, so quite significant for the network.

Losses and efficiencies

Mr Adams stated that the losses in hardware were "mainly reflecting the impact of the slowdown in construction on trade sales". He also pointed out that without the loss of hardware and timber business Bretts, the decrease in sales would have been on the order of 2.5%, which he said was "a pretty good result in a tough market". He went on to praise the work of IHG CEO Mark Laidlaw in managing to limit the decline in EBIT, saying:

EBIT decreased by $0.5 million to $37.3 million, impacted by the decline in trade sales, and that's been partially offset by Mark and the team by improved DIY sales. Very good work, I would say, from the team on cost efficiencies and full - and some synergy benefits still flowing through on the HTH acquisition.

Later in the presentation, Metcash's CFO, Brad Soller, in response to an analyst's question, quantified the contribution from the HTH acquisition:

So there was some roll forward in terms of the HTH synergies that have actually come through from last year. We would have carried forward - benefit was about $2.5 million to $3 million actually coming through. So that actually has flown through into this rate - into our results this period.

Mr Soller, in the same response, went into the negative factors that affected hardware sales in more detail:

We have a big presence, as you saw, in terms of the corporate stores, so we actually got quite impacted on that. And that was the key delta in terms of our numbers. So [with] the offset from the lower sales and lower margin, I think Mark and his team have done a fantastic job in taking costs out, to actually limit the decline to where we've actually got to.

What Mr Soller is pointing to, is that as IHG increases its direct control of more stores in its network, it stands to benefit from the "complete stack" of margins, including wholesale, retail and service. However, when the market goes negative, as it has during 2019, this also increases the direct impact on the business.

Mr Laidlaw added to Mr Soller's statement by pointing out that the continuing benefits from the HTH acquisition had mostly come from new efficiencies in the supply chain. This included reducing the total of seven warehouses that HTH combined with Mitre 10 previously had, down to just four, with one further warehouse (in Western Australia) due to close during 2020.

Closing out his introductory remarks, Mr Adams painted a less than positive picture for the remainder of the financial year:

In Hardware now, trade sales over the remainder of financial year '20 are expected to continue to be impacted by the slowdown in construction activity. Our non-trade sales are expected to be less impacted than trade sales due to the level of DIY activity and acceleration of the Sapphire store upgrade program. The business continues to have a strong focus on costs to help offset the impact of the slowdown in construction activity.

Like most in the hardware industry, however, Mr Adams points to the fundamentals of the Australian market as underpinning opportunities for future growth:

The medium to long-term market fundamentals remain positive, with construction activity expected to be underpinned by population growth and an undersupply of housing.

Total Tools

The Australian Financial Review has reported strong rumours that Metcash is in takeover discussions with trade power tool franchise retailer Total Tools, though this has not been confirmed by Metcash. Bryan Raymond of Citigroup asked a question that seemed to touch on this matter:

Just in terms of the trade market within Hardware, obviously, it's a bit of a tough spot at the moment. Just wondering about your appetite for further acquisitions there. There's obviously some mention about it this week in the press with you connected to it. Just wanted to hear - see if that's something you would entertain, or if other acquisitions would be on the radar that are a bit more sizable than what you've done today within that business, excluding HTH, of course?

Mr Adams responded:

Well, look, I think, as we said, we're very positive about the long term, even the medium- and long-term aspects in that business. And it is still a relatively fragmented market, particularly on the trade side, which is where our strengths are.

We don't comment on rumours. But obviously, we're willing to talk. And if we can find a deal out there that helps us accelerate on our strategy and it's done at the right valuations to add value for our shareholders, then we'd certainly be interested in doing it.

Bunnings competition

With Bunnings continuing to ramp up its competition in trade, Johannes Faul of Morningstar asked the question as to whether that might have had an effect on IHG's results:

I understand that the trade sales account for a bit less sales than they have last year and also cyclical factors are at play there. But also the leading hardware retailer has said it's trying to pivot or pivoting to the trade side as well. Have you seen more competition on the trade side? Or put differently, are you losing share in trade? Has that impacted that as well?

Mr Laidlaw was emphatic that IHG had not lost market share in trade.

We're clearly not losing share in trade. It's a lot of market-related factors. I think we all know this. October last year, we're very concerned, and we saw new housing approvals go from 230,000 down to 190,000. So there was a 20% drop in new housing approvals. And some of our competitors have actually reported in that trade space that they are down 20%. So we are very encouraged, I must say, by the result that we've reported at the half.

I must say, we don't see - we see there will continue to be headwinds ahead for the next 12 to 18 months, so all we can do at this stage - we've got a good business here. All we can do is continue to tighten the belt and wait for the market to go on that cyclical upswing, and we'll be ready to take full advantage of that when it happens.

Analysis

Metcash has portrayed the results from IHG as being a good result in a down market. IHG has denied that market share has been lost to Bunnings, despite the major investment that company has made in acquiring more of the trade market.

Does this portrayal really stand up? How tough has the hardware retail market really been during the period May 2019 to October 2019? HNN's own calculations point to a different situation than that outlined by Mr Adams and Mr Laidlaw.

To start, Mr Laidlaw is roughly correct in pointing to a 20% drop in building permits (it's actually around 19% when comparing FY2017/18 to FY2018/19, but a 22% drop when comparing the numbers for Metcash's current half to the pcp).

However, building permit statistics register intent to build rather than actual work. We need to look at a different set of statistics to see what is really happening in the construction industry.

Chart 1 shows the numbers from the Australian Bureau of Statistics (ABS) 8755: Value of construction work done. It is evident from this that the area most hit by the slowdown has been dwellings other than houses, which is mostly multi-dwelling construction, particularly apartments.

Mr Laidlaw and others have often commented that IHG is much less affected by changes in construction on multi-dwelling than on standard single dwellings. So the most important numbers relate to houses. In terms of houses, work done has fallen for all three quarters of the current calendar year when compared to the previous year, down by 13.2%, 5.4% and 5.2% for March, June and September quarters respectively.

However, if we compare the current year to two years ago, specifically the first three quarters of 2017, the results are interesting. The percentage change for the three quarters are positive for the first two, at 3.8% and 2.8%, and only negative for the September quarter, down 1.5%.

Chart 2 illustrates this point. If you look at the pattern of the blue line representing work on houses, you can clearly see that the pattern in 2017 is nearly identical to that for 2019.

In more normal times, we might think of 2018 as something of a "bubble" year. The picture is a little more complex than that, but it does seem clear there is a degree of overstatement in many analyses of how dire current conditions are.

Chart 3 shows the value of construction work commenced. Again, there is a steep fall in multi-dwelling builds, which began in mid 2018, but a far more moderate fall in new house builds.

Chart 4 shows the percentage change in the numbers from Chart 3. This illustrates more clearly the sharp decline in multi-unit, and the slower decline in building work on house commencements.

Chart 5 illustrates what many see behind this behaviour, house prices in Australia's capital cities. This chart shows the percentage change in the price index compared to the preceding quarter (not the corresponding quarter in the prior year). Sydney entered negative territory in mid-2017, and Melbourne two quarters later, but both have had only three quarters of fairly steep falls in prices. Both have recovered in the second and third quarters of 2019.

Chart 6 shows the price index numbers themselves. In terms of homeowners expecting a reasonable return from their investment over a reasonable period of time (such as eight to ten years), the market that has existed over the past eight years has certainly treated them better than at any prior period in Australian history.

To sum up all of the above stats: 2019 is the third year of a housing market that has trended down, with subsequent major reductions in construction activity related to multi-unit dwellings, and comparatively mild reductions in construction related to new houses. 2017 saw the beginning of falls in construction activity. While 2018 reversed some of these falls, they were still present in the early part of 2019, with some signs of a late increase in activity.

What the ABS terms "alterations & additions" (A&A) is an added revenue stream for retailers outside of new constructions. In the past, retailers have indicated that when house prices declined, A&A activity has increased. What we are seeing across the three major states is a split in this behaviour. Arguably, as Chart 7 indicates, Queensland has followed this pattern to some extent, Victoria has followed it to a reduced extent, and New South Wales has seen declined in both building activity and A&A activity.

In fact, if we compare Chart 7 with Chart 6 we can see that the most recent peak in A&A activity coincided with a peak in capital city house prices. That is made more clear by Chart 8, which traces the extent of change between comparable quarters.

What this suggests is that there is a second connection between house prices and A&A: when house prices reach a point where they are excessive, renovation activity picks up. That could be a signal both of homeowners' reluctance to enter an inflated market, and of the potential for increased value being applied to renovation activity itself.

Finally we come to Chart 9, which shows the change in retail sales over the second and third quarters, backgrounded by the total retail sales for these combined quarters across Australia. The two quarters do not quite match up with the Metcash/IHG first half, but this is close enough to give a good indication.

We see here the same story repeated from the building activity numbers. 2018 was a better year than either 2017 or 2019, but, importantly, 2019 still shows growth, with Queensland being the slightly surprising exception, and Victoria providing a strong showing.

Summary

In HNN's opinion, what Mr Adams termed a "tough market" for hardware is more illusion than reality. Being as generous as possible, we can look at the background numbers across the Metcash/IHG FY2019/20 H1 as being neutral. It's also arguable, from what HNN knows, that the removal of Bretts accounted for a loss of less than 1.7% of IHG revenue (1.5% is a more likely number). But even if we accept this, we're left with IHG down by over 2% from where it should be.

There are a number of potential reasons behind that. One of the most prominent is increased competitive activity by Bunnings in the trade sector. It seems entirely possible that Bunnings took about 1% of market share away from IHG over the half. That's $10 million or so, which is certainly more than a rounding error for Bunnings and Wesfarmers, but also not a surprising gain.

A second potential to consider is that IHG's "whole of house" strategy - positioned at its March 2018 Expo as a means of coping with a slowing market - has not been as successful as expected. That doesn't mean it is a failed strategy, but it is a program that would really take three years to fully implement. And the reason it was not implemented in 2018, for example, is that IHG was busy with the acquisition of HTH.

Finally, though, we really do need to consider if some parts of IHG's core strategy should be revisited. The hardware retail pattern that we've seen over the past three years in terms of fluctuations that include gains and losses is likely to continue for the next three to five years. This is what Bunnings and Wesfarmers realised two years ago, hence a move into increasing trade sales, launching online commerce, and starting up MarketLink.

There really has not been an equivalent move by IHG. One problem that HNN has seen for some time in IHG is that there is a little too much of what we sometimes refer to as "supermarket thinking". Supermarkets are one of the very few retail industries that actually can grow through cost-cutting - because they sell "must buy" staples, and consumer price is a major purchase trigger in those categories.

About the only thing that approaches a "must buy" in hardware retail is exterior paint. For almost everything else, it's necessary to inspire the consumer to make the purchase. Upgrades such as those the Sapphire program offers are neat and convenient, but do they really inspire consumers?

In short, there is a real need for more innovation in IHG retail, if it is to continue to grow in a market that has more subdued growth. Just waiting to see if the market goes up so that your results can go up is not a strategy, it's an admission of strategic failure.

The Australian Financial Review has revealed some information about the potential acquisition of power tool franchise provider Total Tools by Metcash. Presumably, if acquired, Total Tools would be merged with Metcash's existing hardware operations in the Independent Hardware Group (IHG).

The AFR article was put together by journalists Sarah Thompson, Anthony Macdonald and Tim Boyd, and published on 2 December 2019.

The article indicates it does not have definitive information, but suggests a high probability of likelihood about the following:

The CEO connection

One element to consider in the competition for Total Tools is that the company's current CEO, Paul Dumbrell, previously headed up the automotive division of Metcash, both prior and consequent to its sale to the Burson Group in June 2015. He took over as CEO of Total Tools in August 2018 - most likely with a mandate to realise the company's capital.

That association could enhance the attractiveness of Total Tools for Metcash, as the CEO of IHG, Mark Laidlaw, has worked with Mr Dumbrell in the past.

Competition

Some commentators, including the AFR, have mentioned the acquisition by Bunnings of Adelaide Tools as being possibly related to Metcash's interest in Total Tools. That seems unlikely, as a possible strategy of Bunnings with that acquisition is to develop its own version of UK retailer Kingfisher's Screwfix. Total Tools for IHG is more in line with its current strategies, adding scale, breadth and depth.

Total Tools history

Total Tools was started in 1989 as a cooperative, and grew to 39 stores by 2014. It then expanded to its current 81 stores, including 26 stores in Victoria, 18 in both New South Wales and Queensland, nine in Western Australia, six in South Australia, two in Tasmania, and one in both the Northern Territory and the Australian Capital Territory. Today there is also an extensive range of tools sold through its online ecommerce website.

The company's expansion has been extensive, matching its goal of achieving over 75 stores by 2019. That said, its 2014 strategy was to eventually have 113 stores Australia-wide, indicating room for further growth.

In 2012, the company was basically 50% cooperative, 50% franchise. The journey to being more of a franchise company was something of a struggle for many of the earliest participants. In 2014 then-CEO Tim Cockayne described that process in CEO magazine:

I think in the early days it thrived as a cooperative because that was the way a lot of businesses were built, but the secret was really unlocked when it became a franchise and introduced standards around compliance and discipline. For those stores that were cooperative, that change was difficult and they had to give up a lot of things. They gained a lot, but they also had to give up a lot. In doing that, the discipline of making sure our stores looked the same and felt the same and were all open at the same hours has been the real point of difference.

Analysis

Metcash has something of a history of making acquisitions and divestments at critical moments in the development of its mainstay businesses. In the past it has used these as a balancing mechanism, to indicate new channels of growth, or to realise profit during a difficult phase.

On average, Metcash generally performs OK, but after its one disastrous plunge in share price, when former CEO Ian Morrice announced the cessation of dividends and a one-year turnaround program (that eventually ran for four years), the company has gone to extraordinary lengths in developing creative messaging about its performance.

Total Tools could be more of a strategic acquisition than an exercise in future messaging. A major feature of the hardware industry since around 2005 has been Bunnings' dominance in the power tool area. That dominance is built on the basis of very low prices, and this means that many hardware retailers are not able to sell power tools for a reasonable margin. From a business perspective, they essentially sell power tools so as to sell power tool accessories, which continue to have high margins.

Bunnings is almost completely dominant in the DIY/consumer power tool market, as well as in mid-range trade tools. The one major weakness it has is it does not distribute Techtronic Industries' (TTI) Milwaukee brand - despite being the sole distributor in Australia of TTI's Ryobi brand. Instead of Milwaukee, Bunnings does offer Stanley Black & Decker's DeWalt brand, the Bosch "blue" trade tools, and is the exclusive distributor in Australia of TTI's other trade brand, AEG.

TTI has, a little surprisingly, allowed IHG to sell some of its Milwaukee range in 2019, mostly through regional Mitre 10 retailers, such as Hume & Iser Mitre 10 in Bendigo, Victoria. Previously TTI has limited the Milwaukee range to smaller independent retailers. It may be that the growth of some of these once small companies, such as Sydney Tools, has forced it to reconsider how it distributed the Milwaukee brand.

If Metcash went ahead with the acquisition - which remains a big "if" - IHG could make use of the tool retailer in one of two ways. The first way would be to continue with Total Tools "as is", perhaps adding on more fully IHG-owned stores to the existing network. This would enhance its ability to obtain better deals on tools through volume purchases, and those benefits would flow through to all IHG members, potentially "rescuing" the category from break-even to profit. It is IHG's "core ranging" strategy writ large.

Alternatively, though, IHG could adopt a very different strategy with Total Tools. What if Total Tools became the IHG brand for all tool sales? That could see the power tool section of IHG's joint venture and wholly owned stores rebranded to Total Tools.

It would even be possible, at the furthest stretch, for Total Tools to operate as small franchises inside existing IHG stores, operated by the store owner, or by a third party, leasing store space from the store owner.

A number of sources have suggested to DataRoom in The Australian that building materials company CSR could be a takeover target.

It is understood that Gupta Family Group (GFG) Alliance made efforts to buy the business about a year ago when shares were trading at $2.69 - their lowest level since 2016. Some industry analysts believe CSR is still good value with a market value of $2 billion and its share price at $4.33.

GFG Alliance is an international group of businesses associated with industrialist Sanjeev Gupta and the British Gupta family, and are involved in mining, industry and trading. It purchased the failed Australian steel manufacturer Arrium in 2017 for $700 million.

The talk surrounding CSR comes as building materials is expected to be an in-demand sector when it comes to mergers and acquisitions in 2020, with two private equity groups - one understood to be Lone Star Funds - recently looking at Boral. Some also question whether Fletcher Building could be a target for a break-up or an acquisition, while Adelaide Brighton is expected to merge its operations with its largest shareholder, the family-controlled Barro Group.

BGC is also up for sale through Macquarie Capital, while speculation has been mounting that LafargeHolcim has been looking to sell its Australian assets (Holcim Australia), although this has been denied by the Swiss company

New housing approvals jumped 7.6% in seasonally adjusted terms in September so that a major increase in demand for building materials could follow. In line with this, building materials suppliers are emerging as potential takeover targets as the residential construction market begins to recover.

CSR is a diversified business with brands that include Gyprock plasterboard and Bradford insulation and Monier roof tiles. It also has a significant share in the Tomago aluminium smelter near Newcastle (NSW), about 40 manufacturing plants in Australia and New Zealand, and commercial real estate, which may make the company appealing to a private equity firm interested in carving up and selling the assets.

Asbestos liabilities may be seen as a deterrent for an acquisition, but the liability is understood to have been largely isolated and would not impact any acquirer.

Building products performance

Earnings before interest and tax (EBIT) for its building products division in the half year to September 30 fell 18% to $95.9 million, a direct impact of the slowdown in residential housing and undermined by a 19% drop in housing starts across the industry.

Revenue for the building products division was down 5% to $839 million with lower volumes reflective of slower construction activity.

CSR's chief executive Julie Coates said the company would expand into the commercial building products sector to reduce its reliance on the residential sector. A slowdown in high-rise apartment construction, particularly in NSW, has hurt the business.

However, the company believes there are signs that housing activity would increase, citing improved house prices, increased credit availability and low interest rates. But it expects that it will take at least another year before the residential construction market resumes growth. Ms Coates said:

I think we are looking at a 12-month lag ... We've seen housing activity starting to be driven by population growth, high employment and low interest rates and positivity around access to credit. But we're not seeing that come through yet.

Ms Coates said it would take some time for the positive developments in the housing market such as interest rate cuts and the easing of lending restrictions by banks, to translate into higher orders for the company. She said:

I think there's been quite a lot of positive news from the developers around deposits on housing lots and that should flow through to us, but there's a lag.

The use of our products in the building of houses comes later, so insulation, gyprock [plasterboard], bricks, they come later in the construction cycle.

CSR building products brands include Gyprock plasterboard, PGH bricks and pavers, and Bradford insulation.

Group results

Ms Coates took over as CEO in early September from Rob Sindel, who had been chief executive since 2011. She said she would be disciplined on costs in the short-term and also wanted to unlock more value from the group's extensive property portfolio. It owns 58 freehold sites.

In the half year ending 30 September, CSR reported group EBIT down 16% to $113 million reflecting a lower result from the building products division.

Net profit fell 20% to $71.6 million but net income jumped 157% to $68.8 million a year ago after the prior period was hit by impairment charges on its now sold Viridian Glass business.

Results in the second half of the financial year are expected to be lower than the first half due to seasonality in volumes. It expects net profit for the 2020 financial year between $107 million and $133 million.

Land sale

CSR also announced it has sold its 20-hectare Horsley Park brick manufacturing plant in outer Sydney for $142.5 million. The company said earnings from the sale would be split into two 10-hectare stages that would fall within the 2021 and 2023 financial years.

The sale comes after the business sold 10ha last year for $58 million.

The 30ha of land offloaded by CSR has been "surplus". The business still owns another 20ha where its brick manufacturing facility operates.

The buyer is ESR, a logistics and warehousing business of no relation, prominent across the Asia-Pacific. ESR will build four-to-six distribution houses on the property, the company's chief executive Phil Pearce said.

The land sold by CSR falls within Western Sydney Airport's industrial zone, is close to the M4 and M7 motorways, and is bolstered by large infrastructure projects, including WestConnex, Sydney Metro and Moorebank Intermodal.

CSR has netted $200 million by selling 30ha of land in Horsley Park over the last two years. It has filed paperwork to demolish the PGH Bricks manufacturing plant on its remaining 20ha property in Horsley Park. This has been subdivided into eight independent properties and can be sold off in parcels. Another nearby PGH Bricks plant, PGH Bricks & Pavers in Cecil Park, could be sold off too.

Sourced from The Australian, Sydney Morning Herald, The Australian Financial Review, Motley Fool and Fairfield Advance

The building materials assets of the late billionaire Len Buckeridge is expected to attract the buying interest of companies such as CSR and Wagners as well as private equity firms, according to DataRoom in The Australian. This follows the sale of BGC Contracting, the mining services business unit, to NRW Holdings. It has now been renamed NRW Contracting.

The Buckeridge business empire also spans transport operations, real estate, quarries and a cement grinding plant, and is highly regarded for its scale and market dominance.

BGC's cement grinding plants could be a major drawcard for CSR and Wagners. Fletcher Building is considered the most obvious owner but it has many challenges at its home base in Auckland, New Zealand.

Just prior to the sale of its mining services and contracting operations, it was believed BGC attracted the attention of a suitor based in India, which was in negotiations to acquire the bulk of the operations.

While it remains unclear what group is eager to gain a presence in the Australian market, some speculate it could be Indian conglomerate Tata Group, or Sanjeev Gupta's Liberty Steel.

The sale is previously thought to have been slow-paced for various reasons. It is thought that the group's divisions are all interrelated and are largely reliant on each other for profitability.

But the opportunity for a buyer is to pick up BGC's numerous operations all at once, in a move that would provide an industry newcomer to Australia an instant construction materials platform.

When Mr Buckeridge died in 2014, the empire was to be divided up between his family, and he had placed it in five separate trusts for his children and grandchildren. The situation has resulted in a legal battle in the Supreme Court over, among other issues, the payment of dividends.

BGC is considered among Australia's top 10 largest privately-owned companies, with 3500 employees, an annual turnover of at least $3 billion and is one of Western Australia's largest home builders.

Sourced from The Australian and Australian Mining

Not that long ago, every time HNN would visit a hardware retailer to check in on the market and how things were going, at some point the retailer's eyes would glance over to the wood storage lot, and you would see concern bordering on panic show in their face. The lots were mostly empty, and several retailers confessed that they had exhausted even their "reserve" storage, which they kept for their best customers. That shortage was especially acute for framing timber.

That's a thing of the past, today, of course. The stocks of wood are plentiful, and negotiations have turned back to issues of cost and quality, rather than logistics. The question that still remains, however - especially as some commentators have raised fears of a "glut" on the current market, causing more cyclical problems over the next couple of years - is how did the forecasting go so wrong?

Morwell shutdown

The most significant local event for the problems with supply was probably the shutdown of Morwell, Victoria softwood sawmill by Carter Holt Harvey Building Supplies Group (CHH) in mid-2017. The press release put out by the Victorian government at the time stated:

[T]he Government has been told the closure is unavoidable given poor sawlog quality and a lack of volume available from the privately-owned softwood plantations which supply Carter Holt Harvey.

The reason for the decline in volume was given as:

A number of damaging fires, including Black Saturday, across HVP's Gippsland plantations over the past two decades has severely affected the volume and quality of 28 year-old sawlog available to supply Carter Holt Harvey.

While this is understandable, what is less understandable is how much it seemed to take the industry by surprise, particularly given that CHH has been reducing its Australian holdings since 2015.

Demand fluctuations

A very evident problem has been global fluctuations in demand. The global financial crisis (GFC) of 2008 saw the high level of demand in the US and Europe shutdown rapidly over the course of two years. Demand in Australia did not decrease as much, but this was followed by an unexpectedly rapid recovery in the US and Europe. That kind of "whiplash" effect was a major contributor to supply issues, as timber initially destined for import into Australia found other, more lucrative markets.

Exports to China

A third influence promoted by some commentators is a rise in exports of timber to China. The well-regarded Australian source of all news timber-related, Timber Trader, outlined this problem in an article entitled "Softwood Shortages", published on 22 August 2018. As that article points out, China decreased the amount of sawlogs from local forests, and increased imports. This was a welcome market, Timber Trader suggests:

In the years when local sawmills were finding it uneconomical to compete with imports, some growers looked overseas to develop new markets to future-proof their plantations against Australian downturns. China welcomed Australian sawlogs, seeing them as a low-cost, high-quality product. And for Australian growers, Chinese contracts represented an additional layer of security for forward planning.

However, as Timber Trader goes on to suggest, these export markets probably contributed to shortages of softwood in South Australia and regional areas of other states.

Causes

While these are all valid matters to consider, the reality is that we are really looking at elements that are symptomatic, rather than causative. The underlying condition is that timber markets have changed sharply over the past 10 years, but the Australian timber industry itself remains locked into practices from the 20th Century.

That's not surprising. Timber, especially in Australia, is about so much more than business, economics and market forces. There is an ecological aspect, a cultural aspect and - especially important - an aspect that relates to providing employment in regional areas where the local communities continue to decline. All that adds up to heavy political involvement. That can be clearly seen in, for example, other parts of the Victorian governments press release regarding the Morwell closure:

The plantations from which Carter Holt Harvey sources its wood were privatised and sold to Hancock Victorian Plantations (HVP) by the Kennett Government in 1998.

Solutions

It's difficult to imagine a time when the catch-all word "globalisation" will really apply to the timber industry - partly because of the organic (and therefore slightly chaotic) nature of the product, and partly because local factors will always exert a strong force on the industry.

However, we can identify some industry moves which indicate a general direction towards a globalised supply market. There is hope that many of these moves will provide a means for retailers to seek better stabilisation of demand.

For example, there is a lot of good news about two, linked moves that started in the timber industry last year, and have now rolled through into the current market. In November 2018, the very large Vancouver, Canada-based company Canfor announced that it was purchasing 70% of the Swedish timber company VIDA Wood, a deal that was finalised in February 2019.

Coupled with that news, VIDA Wood has announced that it is revving up its business in Australia, and seeking out new markets and opportunities. To help them advance the company, VIDA head-hunted one of the timber industry's star executives, Jacinta Colley, to take over the position of national sales director with the company. HNN sat down with Ms Colley and VIDA's director of operations, Ian Brett, to find out what is in store for VIDA.

Ms Colley is familiar to most in the hardware industry from her ongoing senior roles with Simmonds, where she worked for over 13 years. Mr Brett joined the company in early 2017. His early career was spent with Brett's Timber & Hardware, the well-known Queensland company. As he says, he's been involved in wholesaling timber all his life.

It became evident as we spoke with Ms Colley that VIDA had, in the past, not lived up to the full potential the company has to affect the market. As she told us:

What is important to us and the market right now is that we can provide continuity of supply, followed by quality, followed by a competitive price, and that our relationships are strong.

I think that relationships play a really big part in the business. In the past, VIDA was sometimes a little light on the ground, to be fair, and has not paid dividends. But when you've got more feet on the ground, you can cover territory quicker. By having me on board now, it means that I can get on a plane if need be, same day, and get to Melbourne. Whereas in the past, Kurt [Schrammel, the CEO] was covering off Melbourne. He's based in Sweden and it's just not viable.

Ms Colley is very adamant that the company now has very strong Australian credentials, and a strong presence in the market.

Our head office is in Narangba [QLD]. We run a third-party logistics operation out of Melbourne, but that's more to service the Bunnings stores, and then we top it up with some of our merchants. We also have our wholesale distribution arm through VTW. But we haven't yet really tapped into New South Wales, and we really haven't tapped hard enough into Queensland. That's what we're starting to do now.

As part of that presence, VIDA now has six key staff members in addition to Ms Colley and Mr Brett. Mick Dixon is the account manager for Queensland, and has been with VIDA since it first came to Australia. His background includes over 20 years working at Boral. Trish Bressow looks after internal sales. Trevor Dixon is the logistics warehouse manager for Queensland and Victoria. Alicia Nagle is on accounts, handling credit. Malinda Dalzell handles importing, including everything related to overseas shipping. And Tanya McDougall is in stock management.

It's a substantial commitment. VIDA has gone through its own struggles, growing in Australia, but it is evident from what Ms Colley says that they've tackled these head-on, and are setup for growth.

I think a fair observation would be that VIDA has flown under the radar in the past. They have been quiet achievers, to a certain degree.

We did go through a bit of a troubled times with quality three years ago, which wasn't a fun time for the business. Then Ian Brett joined the business. He helped to bring in a phenomenal amount of quality control. We spent 18 months having quality assurance on site every week to get that right. And that's now paying dividends.

Now with me coming on board, it has enabled the sales team to focus on sales, for me to help with the backend, with the administration, with my connections and networking, and help grow the brand and its presence, in a really professional manner.

All that is set to accelerate as the potential of Canfor is added to the solid base VIDA has established. Mr Brett outlined for us how Canfor would expand the range of products:

I think the biggest change for us from a Canfor production sense was that we had been limited to specific lengths coming out of Sweden. Other supplies out of Europe, Canfor can be heavy, particularly in the long length market. Something that the Swedes struggled with, particularly in five to six metre lengths in continuous supply. So the Canadians were very good and had large volumes in Spruce Pine, Fir Larch and Doug Fir in the six metres. So that's been very good.

The quality of product we've seen to date, when we got our first shipments in looks really good quality.

VIDA's view of the industry's future

VIDA had a very direct experience of the problems of a scarcity of timber. As Mr Brett puts it "we could have played a cricket match in the timber warehouse, it was that empty at one time". But now he is very concerned that the cycle has shifted too far over in the other direction:

Buyers had gone overseas, and we did the same, bought wood and a lot of wood arrived. The Australian sawmills got their production scaled up, and demand dropped.

That wasn't coincidental. We put regulatory controls in banking, we had a banking royal commission. We controlled immigration. We did everything to reduce demand.

And now we find ourselves in a completely opposite situation where there is too much wood. It was such a brutally quick cycle. I have never seen all the stars align at one point to go one way, and then, in a very short period of time, they align to go the other way. Almost instantaneously.

Mr Brett sees some tough times immediately ahead for some timber suppliers, though there are also signs of real moderation.

I think it's gonna be a tough twelve months, going forward. However, housing starts are still reasonable. Interest rates are low. The banks are making it a little bit difficult to borrow money, but I think that might improve over time.

The end note of this is that, like most people in the timber industry, they do see things improving, and continuing to improve over the next five to ten years. The general tendency, just about everyone agrees, is up. It's working out how to somehow cope with the swings and roundabouts along the way that poses the real challenge.

To read more, please download HI News:

Download hinews-5-04

Retailers need to find sources of growth, especially in the face of steadily consolidating markets. While seeking out new product lines, and new sales areas in stores (such as checkout counter impulse purchases) can be attractive, another approach is to explore further possibilities from their existing suppliers.

For example, Klingspor is well-known for its range of abrasive products, but it has also been successful in creating new businesses for retailers through its belt-making service. The company's managing director, Paul Hoye believes there is a good market for belts, and that Klingspor can offer "an excellent product range, and the knowledge to suit all applications".

Steve Gilbert from Cost Less Bolts and Industrial Supplies (CLBIS) in Ringwood (VIC) is one of the retailers which have benefitted from this. He sees Klingspor as an ideal supplier for this reason. As he explains to HNN:

We started with Klingspor in 2006, but I reckon it wasn't until a few years later that we started with their belt-making.

They had a really good rep - not saying they don't have a good rep now - and he gave us a bit more confidence in selling it ... We were used to selling grinding wheels, just the basics. But he gave us the confidence to go and sell that sort of product [belt-making] ourselves. Klingspor advised us on where we should be selling it, who to, and how to get in the door of the customers.

Since then CLBIS has been regularly selling belts in various sizes, from 10mm miniature belts up to very large belts, which can run up to ten metres long. In this instance, Klingspor helped to create a brand-new business with an additional revenue stream for CLBIS.

Developing that kind of new revenue stream is almost a kind of partnership, with the sales rep working to understand the store well enough to provide advice on how to effectively expand its offer. And Klingspor would not have been able to help start something new at CLBIS without Steve's enthusiasm - along with his ability to see an opportunity when it was presented to him.

Steve refers to it as "taking the blinkers off". He said:

We pride ourselves on being a diverse business, we don't just sell nuts and bolts. When we started selling cutting and grinding wheels ... we were with another brand ... and there was no push for any sideways movement on the products. It was always 'sell more cut off wheels, sell more grinding wheels'.

However, when Klingspor became a supplier to the store, it worked with Steve to look beyond its traditional product categories. He said:

...When Klingspor came in, they said 'why don't you try the belts?' [So] we started with the linishing belt for your standard belt grinding machine. And then, of course, once you're into that then you ask the question of your customers, and you find more out about whether people use a bigger linishing belt or a wider one...

The belts suit the store's customer base, which includes handymen who do small jobs, on up to large commercial customers. According to Steve:

A couple of my biggest customers are offshore oil and gas manufacturers ...The next largest would be steel fabrication, and stainless steel manufacturers [that produce] balustrading, stainless steel fencing and hand rails ... And we've got some guys involved in timber.

Another Klingspor customer in Thomastown (VIC), Jonathan Dewar from Rotary Tools, said Klingspor's belt-making facility in Sydney suited its business for fast, short and large volume abrasive belt supplies. Established in 1947, Jonathan said his business has a strong reputation as an "abrasives house". It is mainly focused on manufacturers in the metal sector. He sees Klingspor as a "reliable and cost effective supplier of abrasive belts".

Belt-making

Klingspor has been involved in custom manufacturing abrasive belts in Australia since 2003, with some of the current staff working there from the very beginning. The company said its price book shows the comprehensive range of materials and sizes available. Its specialised staff are always on hand to help advise on a technical level.

Belts as narrow as 6mm and up to 1.6 metres wide can be manufactured, in most lengths. The longest belt Klingspor has made was over 10 metres long. All its belts are made in its factory located in Silverwater (NSW).

Klingspor has belt materials for all applications, from knife making to timber finishing, as well as for specialised tasks such as glass grinding and floor sanding. In fact, it has well over 20 different types of materials, with some of these materials available in up to 14 different grit sizes. This means there is a wide range of permutations, from which customers can choose the exact product they need.

The complex process of making belts involves several procedures. Firstly, the material comes in huge "jumbo" rolls which are up to 1,650mm wide and typically 50 metres long. This material has to be cut to length, and then "scuffed" or "skived" to ensure that it is perfectly flat when it is joined.

A two-part glue is used to make sure that the join is strong enough to cope with the toughest applications. That is important, because the belt is exposed to very high speeds and pressures when used.

Once the join is pressed at high pressure and cured overnight, it can be "slashed" to the correct width, packed, labelled and despatched to the customer.

Klingspor differentiates itself from many other belt manufacturers in one very important way: the company always tests the joins before the belts are sent out.

Klingspor's in-house engineers in Germany have developed belt join testing machinery. Every batch of belts produced around the world on its sites is tested to make sure that the join is capable of meeting or exceeding its high level standards. The testing machinery transmits the results of the tests back to the home office in Germany, where they can be effectively analysed.

The production time for the custom-made belts made at Klingspor's facility in Silverwater is usually three to four working days from the date of order.

Retailers

Retailers - especially resellers involved in industrial tools - can contact Klingspor directly about adding the abrasive belt service to their business. In addition to pricing and service, Klingspor can suggest the best ways on the best ways to reach out to their local markets.

When asked what advice he would give retailers thinking about offering something similar, Steve said:

Not that I'd want everyone to do what we did because that would mean a smaller piece of the pie for us! (Laughs.) At the end of the day, if people are just looking with blinkers on, then they are not going to grow. There's only so much of a certain product you can sell to a person. But if you can possibly take the blinkers off, and go sideways, using lateral thinking, then definitely you have a chance to grow. And the guys at Kingspor are really good with that.

To read more in Supplier Update, please download HI News:

Download hinews-5-04

Australian workwear brand, Bisley Workwear, has announced a new multi-year agreement with the UFC (Ultimate Fighting Championship), becoming the official workwear partner in Australia and New Zealand.

The new three-year partnership will include in-octagon branding, stadium activation, social content and consumer promotions. UFC vice president of global partnerships, Nick Smith, said:

Partnering with iconic Australian brands such as Bisley demonstrates the growth and value of UFC, as we continue to develop our business locally. Bisley and UFC share the same vision and values and this collaboration will work to grow both the sport and brand throughout Australia, as we build a meaningful long-term partnership.

Bisley Workwear is the Australian market leader in specialist branded Workwear apparel with their sights set on leading the category worldwide. Managing director, David Gazal, said:

We are proud to announce Bisley Workwear as the official workwear brand of the UFC, one of the fastest-growing sports in the world. Our alignment with the UFC was built on shared attitudes toward innovation in our industries, dedication to our teams, and the rewards of hard work.

We are looking forward to participation in the octagon and at Marvel Stadium...and our ongoing commitment to the UFC and its athletes, who work hard every day to get the job done.

Bisley first partnered with UFC as a one-event deal on UFC 234: Adesanya vs. Silva earlier this year in Melbourne, and will now return to the Victorian capital for their first event under the new agreement.

From Ministry of Sport

In an inner-city suburb of Auckland, New Zealand, a business with 17 employees is making nail guns with a difference. Hammerforce is the productive result of a midlife crisis and some potentially revolutionary technology, according to its profile in Newsroom. The company has also attracted three serious Kiwi corporate high flyers, former New Zealand Exchange and Financial Markets Authority chair Simon Allen, former Air NZ chief executive Rob Fyfe, and former Meridian and Fletcher CEO Mark Binns to its board.

The story of this nail gun called the Airbow began about decade ago, when a few builders in their backyards were frustrated with the performance of their framing guns, and liked the idea of trying to devise a better nail gun. So they took the problem to some mechanical engineers, who came up with a system that uses compressed air, not electricity or butane, to power nails into wood.

This allowed them to get rid of any sort of combustion system, that came with batteries, power leads, fans, and chargers. There were no electronic parts, so no problems with water, and no spark to create a fire risk. There was no carbon dioxide or carbon monoxide released when the gun was fired, and no battery to dispose of.

It was a new way of making a nail gun. Similar to the vacuum cleaner invented by James Dyson, the product took several years, numerous prototypes, and three million nails fired using automated rigs, to get there.

Origin story

Prior to becoming CEO of Hammerforce, Andy Coster worked for global management consultancy company AT Kearney in London and Sydney, then for Chris Liddell (now a Donald Trump senior staffer) at forestry company Carter Holt Harvey (CHH).

A bright and talented executive, Mr Coster has always been seriously dyslexic. But by the time he was 29, Mr Coster was running CHH's commercialising unit Oxygen Business Systems. In his early 30s he started his own research company, Conversa Global. When he turned 40, his company had been bought "for a life-changing sum" by advertising agency group WPP.

Mr Coster basically retired, happy to be spending lots of time with his family. But in the end, he says, he needed a business challenge too. He told Newsroom:

I needed something to do and I had put money [into Hammerforce] in 2009, as one of its first investors. I could see the potential and I started getting more engaged in the physics. I realised if we could come up with a way to create a force just using air, there could be lots of applications.

By the time Mr Coster joined the company in November 2016, Hammerforce already had a patent over its compressed air technology. But it didn't have a product it could use to demonstrate the technology worked. He said:

We had to create a nail gun people were going to like and it was going to have to have branding and be mass produced. I knew no one would believe us unless we brought something to market.

Resellers

In October last year, Hammerforce sold its first Airbow nail guns to NZ hardware chain Placemakers under a three-year exclusive deal. Its second product, a gun which can shoot nails into concrete and steel, will be launched soon.

Earlier this year, the Airbow nail gun won a gold medal in the industrial product design category of the London Designweek awards. It beat designs from Philips and IBM. Then it won a silver award in the commercial and industrial products category of the Industrial Society of America's International Design Excellence Awards. Previous winners include the Apple iPhone, Tesla Model S and Oculus Rift.

New Zealand innovation

The nail gun parts are manufactured in China and assembled in the Auckland suburb of Ponsonby. And unlike many competitors, Airbow guns doesn't need proprietary nails, explains Mr Coster. That keeps costs down for builders. He said:

This is a game changer. Our framer can use any nails - we've unbundled the nails from the gun. There's no gunpowder, no earmuffs, and all our stuff is waterproof. You can put it under water.

Getting the compressed air technology to work and then commercialising the nail gun hasn't been easy - or cheap. Over the last three years Mr Coster has raised NZD15 million from private New Zealand investors in three NZD5 million capital rounds. Now he's working on another round - this time for NZD10 million.

Hammerforce is still aiming at local high net worth individuals, and Mr Coster is confident he'll get the new money.

Mr Coster also describes his board as "frustrated entrepreneurs". He said:

They love the risk taking - and they don't. There's a decision to be made and I say 'Let's do it" and they say "Oh my God, shit'. And that's a healthy tension that's going to help us succeed.

On the other side, having hard-hitting board members challenges Mr Coster's thinking ("they grill the hell out of me"), and they bring a wealth of contacts in different areas, including investment, he said. They also bring credibility. He said:

If I want to go overseas, to take the company global, I want experience around me to give confidence to investors, customers and channel partners.

These [board members] have seen a lot of shit in their day and have done due diligence themselves to put their name on the line. This is a tangible demonstration to others that the product and the company have potential and credibility.

International licensing

Power tools aren't where Mr Coster sees the future of his company. Instead it's about the air compression technology behind the nail gun, not the gun itself. And it's not in New Zealand.

In fact New Zealand is simply a test market, Mr Coster said. The aim from now on isn't to commercialise more products - an expensive business - but to license the Hammerforce compressed air mechanism technology to third parties, probably overseas, who can incorporate it into their products.

Where many companies go wrong is they build a product and then they think 'Now what?' You have to build a company with processes and systems.

Mr Coster said Hammerforce is in "advanced talks" with several companies across a range of industries.

Aviation, construction, marine - any industrial application which requires a force.

The company believes it has truly disruptive technology, and may find itself partnering with global players across various industries that can use its to create a transformative advantage.

The National Asthma Council Australia's Sensitive Choice program named Taubmans Endure interior paint a preferred choice for interior painting projects, according to an announcement from paint maker PPG.

The recognition was part of a new Healthy Homes video series launched for National Asthma Week (September 1-7, 2019).

An estimated 2.5 million Australians have asthma, many of whom are also among the one in five people with allergies. The educational videos aim to help people understand and alleviate common triggers when undertaking home improvement projects.

The video focusing on interior painting projects showcases Taubmans Endure paint by PPG as an approved choice for health-conscious consumers and includes commentary from renovation expert Cherie Barber. Adele Taylor, Sensitive Choice program manager, said:

People with asthma and allergies are more susceptible to triggers found in many common household products, including paint, but all Australians should be cognisant of the products they choose to use in their homes.

Taubmans paint has been a Sensitive Choice partner for more than 10 years. The Taubmans Endure products that display the blue butterfly logo have been rigorously reviewed by our independent product advisory panel and proven to offer a potential benefit for people with asthma or allergies. This is through reduced contact with triggers, including the smell of paint, mould and some volatile organic compounds.

Taubmans Endure has low VOC emissions of less than 16 grams per litre. It is also low in odour and provides superior protection against mould. Ms Barber said:

Taubmans Endure paint provides eight-in-one multi-benefit protection that helps to keep our homes clean and healthy year after year. It has anti-microbial properties, and once dry, the paint inhibits the future growth of mould and mildew.

Manufactured in Australia, Taubmans Endure by PPG is also engineered with NANOGUARD(r) advanced technology to provide a strong protective shield against everyday dirt and stains. The paint is wash, stain and scrub resistant, enabling surfaces to be cleaned repeatedly without compromising the quality of the paint finish.

Leatherman is best known for creating Swiss army knife-like pocket tools. Based in Oregon (USA) it decided to launch its latest product by offering to pay rent bills of up to $25,000 to one Australian Millennial.

According to its website, the company wants to help a young Aussie take a load off one of their biggest expenses. It said:

Millennials actually have it harder than most other age groups, experiencing higher living expenses than ever before.

It wants to help people prepare for real-life experiences and turn obstacles into opportunities, according to Leatherman Australia managing director David Yates. He said:

We know many young Australians would love to escape their housemates from hell, or finally move out of their family home, so we want to help free someone from their situation and put that money towards further pursuing their passion projects.

And the competition has a personal backstory. Founder Tim Leatherman spent eight years developing the tool as a recent engineering graduate, but had to rely on his wife's income during that time to do it. He said:

We want to support other young individuals to follow their dreams by ridding one Australian millennial from their biggest expense, their rent.

All this to launch its new range of six tools, the Leatherman FREE which flips the tool open at the push of your thumb.

Only one Australian Millennial will get to side-step their rent bills for a year. To compete, they will have to head to the leathermanfreerent.com.au website and in no more than 25 words, express why they deserve free rent for a year.

The competition closes on the last day of October at 11:59pm AEST, with the winner to be announced on November 4th.

Leatherman is also giving away a Leatherman FREE T2 (which includes eight tools such as a bottle opener, package opener and a Phillips head) to two people for every week of the competition period.

Chronicling expenses, and receipt and invoice tracking will be easier for tradies with the announcement of a partnership with Bunnings from accounting software company MYOB.

The company confirmed that it will allow Bunnings customers to have their invoice directly appear in their MYOB in-trays. Speaking at its Partner Connect conference recently, MYOB general manager of product David Weickhardt said:

Bunnings is now going to integrate directly into our software, and all of the data from Bunnings invoices will come directly into MYOB.

According to Mr Weickhardt, the integration will do away with manual entries, with customers not needing to take any additional action to have their bill appear directly in their MYOB in-tray.

Mr Weickhardt said Bunnings is the single biggest invoicer for MYOB clients. He said:

The number one request from all of our customers was to put Bunnings into the software. The main focus has been on the plumber segment and the trade segment.

Despite the official announcement, it is understood that the functionality has yet to go live, with MYOB saying that the feature will be available soon.

The latest integration follows on from other supplier partners including Reece and Tradelink.

Mr Mr Weickhardt said the pain points of the trade and plumbing service sectors has been a focus for the company as it continues their efforts to provide simple solutions to small business problems.

Sources: Accounts Daily and Kochie's Business Builders

Klingspor's long history of making superior abrasives goes back to its origins 126 years ago in Germany when the business was established. Since its early beginnings, customers have always been assured they can only expect exceptional products from the Klingspor brand.

In addition to supplying an extensive range of abrasive products and innovative merchandising displays, Klingspor Australia also offer high quality, locally manufactured abrasive belts.

Klingspor makes custom abrasive belts in a wide variety of materials and sizes, in its factory located in Silverwater, NSW.

The company can make belts as narrow as 6mm and up to 1.6 metres wide, and in most lengths. The longest belt it has made was over 10 metres long.

Klingspor has belt materials for all applications from knife making to timber finishing, and from glass grinding to floor sanding. In fact, it has well over 20 different types of materials and some of these materials are available in up to 14 different grit sizes. The permutations are endless if all the sizes it can manufacture are taken into account.

The complex process of making belts involves several parts. Firstly, the material comes in huge "jumbo" rolls which are up to 1,650mm wide and typically 50 metres long. It has to be cut to length and then "scuffed" or "skived" to ensure that it is perfectly flat when it is joined.

Then a two-part glue is used to make sure that the join is strong enough to cope with the toughest applications. The belt is exposed to very high speeds and pressures when used.

Once the join is pressed at high pressure and cured overnight, it can be "slashed" to the correct width, packed, labelled and despatched to the customer.

Klingspor differentiates itself from many other belt manufacturers in a very important way. The company always test the joins before the belts are sent out.

Klingspor's in-house engineers in Germany have developed belt join testing machinery, and every batch of belts produced around the world on its sites is tested to make sure that the join is capable of meeting or exceeding its high level standards.

The production time for the custom made belts made at Klingspor's facility in Silverwater is usually 3-4 working days from the date of order.

To find out more about the range of products available, go to Kingspor's Australian website here:

On the same day it announced its full year results, Boral also said it has entered into an agreement with the German-based Gebr Knauf to form a new, expanded 50:50 Asian plasterboard joint venture that includes sales in China and South East Asia.

The deal will also see Boral return to 100% ownership of the USG Boral Australia and New Zealand plasterboard unit, a business that has higher margins.

Mr Kane said moving to full ownership of the USG Boral plasterboard business in Australia and New Zealand brought increased exposure to a business generating solid cash flow. But Boral has left the door open for further changes, granting Knauf a call option to purchase a 50% share again within five years.

The company will fund the deal through debt and the proceeds of asset sales, one of which was announced recently with the exit from brick-making in Western Australia through the sale of Midland Brick.

Bricks exit

Boral sold its only brickmaking business - Midland Brick - along with 800 hectares of associated land for $86 million to a group of investors, as a way to reduce its exposure to the global bricks market.

The buyers are a consortium made up of Linc Property, Birchmead (part of the CFC Group) and Fini Group.

Mr Kane said that the sale is consistent with the Boral's strategy of focusing on construction materials in Australia which include quarry materials, asphalt, concrete, plasterboard, timber, blocks and roof tiles. The company sold its stake in CSR Boral Bricks in 2016. He said:

Our focus in Australia has been to continue to invest in our leading integrated construction materials business, where we supply materials to residential, commercial and infrastructure building and construction markets across all states and territories.

Having divested our 40% stake in the CSR Boral Bricks joint venture in 2016, the sale of Midland Brick completes our exit from bricks in Australia, for combined proceeds of around $215 million over the past three years.

The new owners will trim the size of the operation to make way for a mixed-use industrial and residential offering, reports The Australian. They hope to fully capitalise on the site by confining the operations of Midland Brick to the northern corner of the site. This will allow for a large scale redevelopment of other areas.

The deal with Boral is expected to be settled by the end of the year. Once finalised, construction is slated to begin soon after, with the first residential lots anticipated to be released in 12 to 18 months.

Weaker outlook

A key reason behind Boral's forecast of a 5-15% fall in net profit this financial year is a slowdown in residential construction activity in Australia. While the company will benefit from the boom in Australian infrastructure projects, it said this would not be enough to offset lower residential construction activity.

Boral reported a full-year statutory net profit of AUD272 million, down 38%, including significant items of AUD168 million. Net profit after tax and before amortisation and significant items was AUD486 million, down 6%. The company's Australian earnings before interest and tax slipped by 11% to $384 million in 2018-19.

Mr Kane believes Boral is well-placed to benefit from the infrastructure "mountain" over the next decade or so. He said:

We've got the best footprint, we've got $600 million worth of quarries. We made the investments well ahead of this infrastructure boom, and so we're in the lead position to take advantage of the infrastructure work throughout Australia for the next 10 years.

However Mr Kane also said everyone involved as a supplier to large infrastructure projects had learnt that it was sensible to build in extra time for delays in what were large one-off projects. That meant infrastructure demand wouldn't be able to offset a likely 15% drop-off in the housing market in Australia, and lower demand.

Related: Knauf's deal to buy USG was covered in a previous edition

Sources: Australian Financial Review, Australian Manufacturing, Inside Construction and The Australian

Investment company, LHC Capital, has taken a 7% stake in family owned building materials supplier, Wagners. It comes soon after the company reported a 48.5% slump in annual net profit - down to $12.8 million - due to a sluggish southeast Queensland construction market and the effect of an ongoing dispute with Boral.

In April, Wagners said it would take a $10 million hit to its earnings after calling in the lawyers on its biggest cement customer, Boral and launching action in the Queensland Supreme Court over a pricing dispute. It said Boral was trying to force down its contract prices because it had been offered cheaper prices by an unnamed competitor.

The company suspended deliveries to Boral, which buys about 40% of Wagners cement, while it contested the bona fides of the rival offer through dispute resolution procedures in its contract. The company said in March that the decision to suspend supply to Boral, for up to six months, would cost it $20 million in lost revenue.

Industry observers believe the Boral court case could also signal a tipping point in the relationship between Boral and Wagners, with Wagners potentially competing more aggressively with its cement-producing rival in other states such as NSW.

LHC Capital remains optimistic about Wagners' long-term prospects amid expectations that spending on infrastructure and construction work in Queensland will eventually rebound despite the company's ongoing dispute with Boral. LHC Capital director Marcus Hughes told The Australian Financial Review (AFR):

Wagners owns a suite of quality assets and we see a large margin of safety in owning the company at current prices.

Wagners' non-executive chairman, Denis Wagner, told the AFR that the company had a positive view on its future, particularly its so-called "new generation" building materials business, which makes products that reduce carbon emissions.

We expect healthy growth in our composite fibre technologies division following the establishment of our USA manufacturing facility.

In its FY2019 results announcement, the company reported its composite fibre technologies manufacturing facility at Wellcamp experienced record production in powerline crossarms and business from the company's bulk haulage section doubled.

Wagners CEO Cameron Coleman told the Toowoomba Chronicle that timing issues of large international infrastructure projects hurt the company's financial performance. He said:

There are some challenges in the construction business related to our issues with Boral...There are a couple of large international projects that haven't developed as quickly as we thought they would.

Queensland infrastructure projects such as Adani's controversial Carmichael coal mine and Brisbane's Cross River Rail have also been progressing slower than expected.

The company shut down its precast business due to a depressed market, but Mr Coleman said he expected it to pick up once construction on the Inland Rail and Cross River Rail went ahead.

Wagners reported a 32% slide in earnings from its core construction, materials and services business to $30.1 million due to a drop in cement volumes following its decision to stop supplying cement to Boral.

But the company said it remained committed to its new generation building materials business, which delivered EBIT of $1.76 million, down 10% on a year earlier.

Wagners court case against Boral is being heard in the Queensland Supreme Court this week (16 September, 2019).

Sources: Australian Financial Review, The Australian and Toowoomba Chronicle

Related: HNN covered Wagners legal dispute with Boral in an earlier edition.

Since Workwear Group (WWG), a subsidiary of Wesfarmers Industrial & Safety, acquired a significant stake in online retailer and custom workwear and apparel platform ONTHEGO (OTG), it has launched a number of whitelabel programs for Officeworks and WWG.

Following the acquisition of ZEMS Apparel, OTG plans to enhance its customised workwear, uniform and apparel offerings in record delivery times.

OTG has also rebranded the business to "OTG Labs" and ZEMS founder Mark Harris will be leading the Web2Print facility. His experience and skills is expected to help bring the technology to life in the company's customisation, made to order supply chain model.

Enabled by its Web2Print technology, OTG chief executive, Mick Spencer said this capability also completed the loop on the complex rapid supply chain required to execute some "...retail partnerships soon to be announced in later 2019". He added:

ZEMS will provide us a 'bolt on' capability that will enable us to leverage our significant investments to date in our technology for mass customisation scale.

Related:

Catch Group

The $230 million Catch Group deal, unveiled earlier this year, will enable Wesfarmers to build Kmart and Target's online sales while tapping into its expertise in e-commerce, online fulfilment and digital marketing.

The Australian Competition and Consumer Commission (ACCC) launched an informal review into the proposed acquisition and brought forward its ruling, saying it was not likely to substantially lessen competition in any relevant markets because Wesfarmers and Catch were not close competitors.

As part of the review, the ACCC examined both physical and online retail competition. In particular, it looked at whether the acquisition of Catch would remove a potentially significant competitive threat at the retail level, and how the acquisition would affect commission rates for third-party sellers using Catch's marketplace to sell products.

ACCC Commissioner Stephen Ridgeway said the growth in online marketplaces, such as Amazon, eBay and Kogan Marketplace, was fostering competition between providers and Wesfarmers' acquisition of Catch would be unlikely to change that level of competition.

The acquisition would not reduce online marketplace options for third-party sellers as Wesfarmers would be a new entrant and the combined group was likely to be constrained in its dealings, and therefore unlikely to be able to raise commission rates. Mr Ridgeway said:

Stakeholders also consistently told us that Catch and Wesfarmers are not close competitors, primarily due to the differences in their business models.

Catch offers out-of-season, clearance or overrun branded products and operates an online marketplace, while Kmart and Target are predominantly bricks and mortar stores.

Online retail expert Jonathan Reeve, from digital marketing and technology company Eagle Eye told the Australian Financial Review that Wesfarmers would be able to use Catch as an online channel for Kmart and Target to clear stock without diluting the brands.

Wesfarmers expects the deal to be completed once other conditions, including the consent of landlords, have been achieved.

Related:

Sources:

Hardware retailers rely on their point of sale (POS) systems more than any other technology. With over 5000 hardware retail companies in Australia, and around 5900 actual stores, it is both a lucrative market and a sensitive one.

The potential in that market has recently attracted two acquisitions of Australian companies by businesses based in the US. In October 2016 veteran POS software company SYM-PAC was acquired by Vela International. More recently, in July 2019, POS company Pacsoft was acquired by ECi, a company that specialises in hardware and lumber enterprise resource management (ERP) software, and has been operating in the UK for over past 20 years as well.

These were both friendly acquisitions, and really acknowledgement of just how well Australian software developers have been doing in the local market, and how the local market is set to expand. ECi remarked, for example, that the development of mobile systems by Pacsoft were excellent, and the company is looking forward to further developing that software.

A changing market

The potential of the Australian market has to do in part with the overall success of hardware retail, but it is being driven by one major technological change, and two competing market forces.

The technological change is the same one that is sweeping through many software sectors: the growing importance of software as a service (SaaS) . This is software which has migrated to remote servers in the cloud, and offers an interface that can be accessed via web browsers, and/or thin client software, with little or no longer term data stored locally.

Accounting, for example, has progressively moved to cloud-based systems, such as those from Xero, Intuit and MYOB. The world's foremost customer relationship management (CRM) software, Salesforce, was built entirely around SaaS. Even common, everyday software, including word-processors and spreadsheets, is now accessed by many through their web browsers.

The first of the major changes in the Australian market itself is a shift in the way internet connectivity is delivered, as the National Broadband Network (NBN) nears completion (after considerable delays). The second is the rise of more malicious and damaging software viruses, particularly what are known as "ransomware".

Ransomware invades local networks of PCs (primarily those running Microsoft Windows, though MacOS and Linux variants have also appeared), encrypts files on those networks, and deletes the original files. The malicious software then informs businesses, and even government agencies, that unless they pay a ransom by a specified time, all their files will be deleted. Those ransoms, even for small businesses, can be anything from $1000 to $200,000.

These two forces - the failures of the NBN and the rise of ransomware - to some extent play off against each other, and inform the attitude that retailers have towards implementing or not implementing SaaS. It is undeniable that, while it is far from invulnerable, SaaS POS is far less likely to succumb to a ransomware attack. On the other hand, internet connections provided by the NBN - which has focused more on consumer than business-level service provision - have proven unreliable for many businesses.

Australian hardware retailers, then, are faced by a difficult decision. They can risk moving to SaaS, where an hour-long disruption of NBN internet service can cripple a retailer for an entire day. Or they can continue to use standard POS running on their own servers, and risk succumbing to a ransomware attack.

To make that kind of decision, what is really needed is more information. In terms of SaaS, we need to assess just how reliable NBN service is, and also look at its prospects for future development. As far as server-based POS is concerned, we need to assess the extent of the ransomware threat, and also look at what hardware retailers can do to mitigate that threat.

One thing, though, that is fairly certain: most Australian hardware retailers reading this will find that they really do need to take some kind of action, and they need to do so very soon. The environment has changed rapidly over the past year, and many retailers really do need to adjust.

To help us through the comparison of on-premise and cloud POS services, we've drawn on the advice and commentary of two experts in the field.

Mark Schmutter, CEO of SYM-PAC, which is one of the best-known POS in the hardware industry. SYM-PAC was acquired by Vela International, a US software company, in October 2016.

John Maiuri is president, LBM & Hardlines Group, Building & Construction Division of ECi, a software company based in upstate New York. He is also a veteran of both hardware and POS, coming from a lumber background. ECi is now the owner of well-known Australian POS company PacSoft, which it acquired in July 2019.

SYM-PAC is a server-based POS system first developed in 1991. ECi specialises in cloud-based SaaS POS solutions.

To read more of this article on POS choices, please download the HI News PDF:

Download hinews-5-03

As HNN highlighted in 2018, since 2015 consolidation forces in the paint and coatings industry have increased.

One of the main drivers of consolidation is the need for further technological development. Nanotechnology, in a number of forms, is likely to transform the coatings industry as much as autonomous vehicles is transforming both the automobile and the infrastructure industries. The key risk, for most of nanotechnology, is environmental, which is a difficult challenge. However, as with autonomous vehicles, the development costs may be high, but the rewards are transformative.

Additionally, despite bad press over the past decade, globalisation continues to be a significant part of the world economy. Paint as a commodity is surprisingly consistent across cultures and nations, which makes it responsive to these market forces. There is a fantastic, high-growth market in the Asia-Pacific region waiting to be tapped, as those regions - lifted from poverty by globalisation itself - become viable as significant consumers of a range of home improvement goods.

Up until recently, the forces of consolidation have been mostly global/big market directed, with large companies seeking to become even larger. That became evident in 2016, when Sherwin Williams moved to acquire Valspar for USD9.3 billion. That acquisition was really not so much a market sector "land grab", but resulted more from the fact that Valspar had effectively hit the limits of how much it could grow in the markets where it competed. Its value as an acquisition was greater than its value as a stand-alone company.

While that was true for that one acquisition, it triggered a series of quite different acquisition moves, as other paint companies changed strategies to protect themselves from the economies of scale and eventual market power of the greatly enlarged Sherwin Williams. A good illustration of those fears is provided by Chart 1, which shows a comparison of stock prices between Sherwin Williams and PPG.

Beginning from a similar basis back in 2012, by mid-2019 Sherwin Williams shares are worth close to three times the value of PPG shares. Chart 2, from a Sherwin-Williams presentation, shows the sizes of the companies competing in the market, and indicates that this remains a highly fragmented market.

Given this, it's hardly surprising that the US-based PPG moved to acquire Dutch-based AkzoNobel in 2017. Arguably, this was largely driven by mismatches between AkzoNobel's strategies and the evolving markets where it operated. This had inhibited its performance and therefore diminished it acquisition value. After fending off PPG's generous acquisition offers, AkzoNobel has moved to change its relationship to markets. While the company's most recent results, for FY2019 Q2, show improvement, analysts remain sceptical that the company will match the projected numbers it promised investors when refusing PPG's merger offer over a sustained period.

It's an interesting situation, because it points to the underlying reality of "globalisation" for the coatings industry: it's not about making cross-border deals for their own sake, but rather is about achieving the kind of scale needed for future developments. The question that really ends up getting asked is not if AkzoNobel can reach the performance goals it has set itself, but whether, if the rest of the coatings industry consolidates and it does not, the company can survive another 10 years. Given its refusal to accept PPG's offer, it has limited its ability to attract future international investment. Absent consolidation, it could easily move from being the third largest global paint company to the tenth.

Local consolidation

The acquisition of Australia's DuluxGroup by Nippon Paint is nowhere near the scale of these other takeovers, but it is significant, both to the Australian market, and to the global paint industry. Nippon has been very clear that it places a high value on the in-place assets of DuluxGroup, including its modern, environmentally-friendly manufacturing plants, and its highly-skilled management and operations teams.

Strategically, DuluxGroup provides Nippon with the opportunity for modest growth in the Asia-Pacific, with very moderate risk.

While this is a moderately-sized investment for the large Japanese company, it could be a far more significant move for the Australian market.

To underline one example of how Nippon operates in different regions, the company offers a complete online service in Singapore. It's possible to select room colours and order paint online, and to even arrange to have Nippon company branded painters do the painting. Singapore is, of course, a very unique market, but it's possible these capabilities will eventually come to play a part in the Australian market.

DuluxGroup has been a little capital constrained through the eight years since it was demerged from Orica, and it will be interesting to see what the company can do with additional financing for its marketing efforts. But it's not only what Nippon might do directly in the Australian market, of course, it's also the effect the company's acquisition will have on other paint companies.

To read the rest of this article, please download HI News:

Download hinews-5-03

The latest sponsors for The Block include AGL, Lite N' Easy and online tradie directory Hipages. They have come onboard to join Mitre 10, McCafe, Suncorp, Domain, A2 Milk, BlueScope Steel and Canstar. The show has entered its 15th season.

Nine's director of Powered, Liana Dubois, said brands are keen to work with a franchise that's as well established as The Block. She told Mumbrella:

The Block is the epitome of the 'Great Australian Dream' and remains one of the most prized pieces of Australian television real estate by brands. The show delivers year after year for both brands and audiences because it is a brilliant combination of seamless integration of advertisers, and inspiration for audiences.

HIpages allows contestants to use its app to book tradies during the challenges, while AGL has an in-show challenge. Lite N' Easy is providing food and last year's contestant Jess features in Block-themed TV commercials. Lite N' Easy also sponsors a weekly content series that highlights the biggest Block moments of the week.

Eight partners have returned to the show, with Mitre 10, The Block's longest-serving partner, providing advice to contestants along the way, and Suncorp has retuned with a viewer competition and budget help for the contestants.

This year contestants are transforming former backpacker hostel, Oslo Hotel in the Melbourne suburb of St Kilda. The property, which was built in 1861 was purchased by the show's producers for $10,815,000.

To read more stories in Supplier Update, please download the latest issue here:

Download hinews-5-03

It remains a remarkable fact that while debate continues to rage regarding whether globalisation is a good thing or not, we actually are living in a highly globalised world. That is a fact heavily underlined by the results from PPG, AkzoNobel, and Nippon Paint.

All these companies have suffered to some extent from changes to the Chinese economy, as that nation grapples both with an internal evolution brought about by increased prosperity, and increased external trade pressures.

It's tempting to regard those external pressures as being somewhat dominant, but most experts in the Chinese economy agree that internal forces far outweigh external forces when it comes to the current slowing in China's gross domestic product (GDP) growth.

Richard Dasher, director of the US-Asia Technology Management Center at Stanford University has pointed out that currently net exports are only 1% of the total Chinese GDP, and of that 1%, only 5% is reliant on the US, and thus affected by newly imposed sanctions.

Marshall W. Meyer, emeritus professor of management at the Wharton School of Business, sees three main factors in the Chinese slowdown: an ageing workforce (partially a legacy of the one-child policy); a normal slow-down in an economy after a period of rapid expansion; and an economy that had become very reliant on government investment in infrastructure as a main driver.

As important as those issues are, however, Prof. Meyer sees the country's lagging productivity as the key issue. Combined with growth funded by high levels of debt, the result of the need to improve productivity will be an economy that seeks to move up the value chain of production.

Global competition in the future, in other words, is going to be much more about innovation than it is cheap sources of labour. To borrow a pithy sentence from The Economist, "Supply chains are as disaggregated as they are likely to get".

Nippon Paint is already progressing on this path. It has been busy upgrading its coatings production process in its new Chinese plants. This includes introducing cutting-edge Industry 4.0 processes to the new plant it has built in Xianning, Hubei province. Reports state that as few as 50 workers can run the entire production facility. It's estimated this facility can produce over 180,000 tonnes per year.

In addition to the need for greater productivity, other factors are also changing the way paint is produced in China, especially when it comes to the environment. Aside from direct manufacturing pollution, the Chinese have also become more sensitive to the issue of volatile organic compounds (VOCs) in paint, which results in "off-gassing" after paint application.

In an article that appeared in Coatings World, Doug Bohn, a consultant with Orr and Boss, outlined this aspect of the Chinese market post-2018:

Within the Chinese coatings market, the biggest factor impacting it is the increase in environmental regulations. China has been enforcing stricter environmental standards on its paint makers for both VOC content of its paint, as well as the emissions generated at the paint plants. The large cities like Beijing and Shanghai often have stricter environmental standards than the national ones.

In terms of how the Chinese economy directly affects paint companies, it's important to note that these companies interact with China both as a source of production, and a rapidly growing market. It's also worth noting that in the ranking of the top 10 paint companies in the Asian Pacific region, two Chinese companies are now listed: Oriental Yuhong, with sales of USD669 million in 2018, and Xiangjiang Coatings with sales of USD608 million.

In that same list, Nippon Paint is number one, with revenue of USD5480 million, and Australia's DuluxGroup is ranked at number five, with sales slightly less than a quarter of Nippon. Of the top 10, four are Japanese companies, two Indian, two Chinese, one Australian, and one South Korean.

Chinese importance

Of the four top global paint companies - Sherwin-Williams, PPG, AkzoNobel and Nippon Paint - all but Sherwin-William are involved heavily enough in China that the recent decline in growth for that market has affected their results for FY2018 and FY2019 H1.

PPG summarised the risks it faces in its annual report for FY2018:

Recently, global economic uncertainty has increased due to a number of factors, including slowing global growth, global stock and commodity market volatility, disruption in existing trade agreements, the imposition of tariffs and the threat of additional tariffs, the United Kingdom's exit from the European Union, weaker demand in China and increasing interest rates in the United States.

The company has faced rising raw material costs, which have forced it to increase prices - and therefore margins - in the face of a slightly declining market, which has hit topline revenues, and therefore overall earnings.

Sales in the Asia-Pacific for PPG amounted to USD2618 million out of a total of $15.4 billion, around 17%. While that is already a considerable portion of revenue, the point is that the company is relying on that market as one of its main drivers of growth.

So was AkzoNobel, but for FY2019 it has shifted its strategy from increasing volume through lower prices, to maximising margins through higher prices, even if these drive reduced volume of sales.

In describing the change of strategy at the company during FY2019 H1, the company's CEO, Thierry Vanlancker, outlined how the Chinese market had changed over the preceding 12 months:

I think the price for price increases for us were - has been - for Dulux has been relatively modest. The biggest change in seasonal average price is that we exited that low-end business and which would have been at zero margin - or negative margin even by now if we hadn't moved prices on that. So, if you were buying a pot of Dulux paint 18 months ago, the price hasn't gone up that much, but the mix in our business has been significantly different.

(AkzoNobel's Dulux brand is not the same as DuluxGroup that operates in Australia.)

For Nippon Paint, the effect of a slower Chinese market has been more drastic. The company's CEO and representative director, Tetsushi Tado, outlined some of the challenges in the company's annual "Integrated Report" for FY2018:

In fiscal 2018, we were greatly affected by changes in the external environment that exceeded the initial estimates, such as stagnant economic growth due to trade issues between major countries, as well as rising prices of raw materials.

Particularly, our trade-use paint business, which accounts for the largest portion in our business, was significantly influenced by the slowdown of the housing market in China, which is our core region, as a result of the tightening of regulations on housing investment by the government from the previous year.

Our activities to procure raw materials were also affected by their continued high prices due to environmental regulations in China as well as increases in the prices of raw materials in Japan, the United States, and other regions.

Where AkzoNobel has sought to exit the low-cost paint business in China, that forms an important part of the market for Nippon Paint, and falling demand there has caused the company some problems.

Cement maker Adelaide Brighton is heavily exposed to domestic housing construction with around 32% of its revenue derived from this market, according to JP Morgan. This high exposure to home building, which is experiencing a major downturn, has led the company to issue a profit warning.

Adelaide Brighton said it expected its underlying profit for its financial year ending December 31, 2019, excluding property, to fall to between AUD120 million and AUD130 million - as much as 37% below 2018's figure of AUD190.1 million.

About 60% of the challenges faced by the company could be attributed to the state of the housing market, the remainder were internal issues, chief executive Nick Miller told The Age.

Increased competition from cement imports, higher costs of key raw materials compared to the prior year, and continued competitive pressures in Queensland and South Australia, were other factors hurting its bottom line, the company said.

Its shipping troubles in Victoria - it had to redeploy a ship filled with cement elsewhere - would cost it between AUD4 million to AUD6 million. It was also struggling to pass on a 10-15% increase in the cost of aggregates through its ready mix cement business.

The cement manufacturer also scrapped its interim dividend, citing the need to conserve capital. Mr Miller said:

We are operating in a fairly challenging market at the moment. Whilst the guidance is very concerning, the company remains well within its banking covenants.

In a statement to the ASX, Adelaide Brighton blamed "further softening of conditions in the residential and civil construction markets" as the main reason for its earnings downgrade.

The most recent Australian Bureau of Statistics Building Approvals figures show that the total number of dwellings receiving construction approval has fallen 25.6% since the previous year. Within that figure, approvals for houses were down 14.8% over the 12-month period.

However, the result for apartment approvals was far worse, plunging 39.3% since June 2018. In addition, trend approvals are now at 174,000 over the year, the lowest level in six years.

This places substantial pressure on the economy. Confidence among Australian home buyers has been showing recent signs of a recovery with prices bottoming out and auction clearance rates rising, but the improvement has not "come through to delivery on the ground," Mr Miller said.

Optimism and caution

Macroeconomics and industry forecaster, BIS Oxford Economics remains more upbeat about the prospects of a construction rebound. BIS managing director Robert Mellor said:

Australia's dwelling stock deficiency will grow once again as rising undersupplies in Victoria, Queensland and Tasmania develop by 2020/21.

We anticipate this pressure to facilitate growth in house prices and rents, helping create a renewed upswing in residential building starts through the early to mid-2020s.

The downturn has further to run with an additional 8% decline forecast for 2019/20, with the fall in residential building outweighing the growth expected in the non-residential sector.

According to a report in The Age, an analyst report from Morgan Stanley suggests the real impact of the housing downturn is yet to be felt. The report's lead writer Andrew Scott said:

Australian residential exposed building materials stocks have enjoyed a post-election bounce that we believe has come too early and ignores the pain yet to come in the group.

The worst of the downturn will hit this financial year and activity won't trough until late the following financial year in 2021, he said.

Considerations

Adelaide Brighton's downgrade underlines how support from government-driven infrastructure building has failed to offset sliding homebuilding activity, as a slump in building approvals catches up with work underway.

Tighter lending and a sharp drop in home values this year are expected to hold activity low for a while, with Australia's AIG Construction Index showing a tenth straight month of contracting activity in June.

The business model has been caught out by not being sufficiently vertically integrated in Queensland, sustaining a price squeeze in aggregates, according to Credit Suisse. This is also the case in Victoria, where it is vital to pick up infrastructure work. Meanwhile, cement prices have been pushed too far above import parity in South Australia, where the company is undermined by a competitor entering the cement import market, attracted by high prices and profitability.

Adelaide Brighton lacks a strong infrastructure-oriented business which is a real problem in the current market, as infrastructure would help soften the impact of a slowdown in residential construction, said Macquarie in a note to its clients.

Sources: ABC News, The Age and FNArena

Abrasive technology company, Klingspor continues to be focused on storeowners and their merchandising needs, and has released a number retail packs for the Australian market that consist of the following:

Klingspor Australia has developed a strong reputation for innovating display stands for retailers, which can really help lift the profile of the product and drive sales. Many of the displays are designed by Klingspor itself in Australia, and manufactured for them in Sydney.

The history of Klingspor's famous disks goes all the way back to 1950. That is when Klingspor produced its first high speed, fabric bonded grinding discs. This innovation led to a very large increase in productivity and profitability as well as to an effective change of abrasive cutting technology in the entire industry.

In May, Hardware & Builders Traders (HBT) awarded Klingspor its prestigious ITT Supplier of the Year 2019 award, recognising the significant contribution that

Klingspor made throughout 2018 to the growth of HBT.

Paul Hoye, managing director of Klingspor Australia, is very positive about the future, especially its relationship with HBT. He told HNN at the recent HBT show that sales are continuing to grow, and that members have embraced the new products Klingspor has brought to market. In particular, Klingspor continues to sell high volume of its very popular line of 1mm cutting discs.

Other innovations include its accessories designed for cordless tools. These are made specially for use on battery-powered angle grinders. The result is a particularly high level of aggressiveness and a long service life with no compromises on mobility.

Hardware Australia recently awarded Cement Australia as its Queensland Supplier of the Year for building products. It beat other major players including CSR Gyprock, Sunstate Cement and James Hardie.

The company said it is honoured to receive the award as recognition of its "customer service, product quality and supply to the hardware industry over the past year". It added:

This is a reward for achieving the goal of delighting customers and delivering results which required the alignment of all functional teams within the organisation.

This is the second time Cement Australia has won the award, in consecutive years.

Cement Australia has been associated with Hardware Australia for over 20 years in its various guises (formerly Hardware Association of Queensland). The company believes Hardware Australia provides insights into the industry that enables it to service their hardware customers as professionally as possible, and ensure that its offer is targeted towards them.

Officially established in 2003 following a merger between Australian Cement Holdings and Queensland Cement Ltd, Cement Australia has a much longer history that dates back to 1890.

During this time, its products have been involved in the construction of some of the country's major landmarks including the Sydney Harbour Bridge, the Opera House and Melbourne's Federation Square.

There is continued interest in Australia's agricultural merchandise sector with rural services provider, Delta Agribusiness possibly looking at acquiring Ruralco's assets according to a report in The Australian. This follows its recent purchase of North West Ag Services.

The proposed $469 million takeover bid of Ruralco by Canadian fertiliser giant Nutrien has been flagged by the Australian Competition and Consumer Commission (ACCC) about their combined market dominance in some areas.

Nutrien is already the biggest player in the Australian farm services sector through its wholly owned subsidiary, Landmark. Ruralco is the third biggest. Elders is the only other big national chain.

The ACCC is concerned about areas that include Broome (WA), Alice Springs (NT), Cooma (NSW) and Hughenden (QLD), where Landmark's rural merchandise stores compete with Ruralco stores and there would be few remaining competitors. The competition watchdog is considering whether delivery from outside these regions would provide sufficient competition to the Ruralco-Landmark retail stores.

ACCC deputy commissioner Mick Keogh said a key concern was that Landmark-Ruralco could arrange deals with suppliers on substantially better terms than others in the market and use that advantage to reduce competition or increase margins. It believes reduced wholesale competition could lead to discrimination against some independent rural retail stores.

The ACCC is currently seeking more information and public submissions. However the issues it has flagged are not expected to significantly affect the deal. Mr Keogh said it would make a final decision by mid-August and it was likely that, in the meantime, Nutrien would put forward remedies to the ACCC concerns. He said:

For example, they might offer a divestment of some stores or a non-discrimination undertaking in relation to the wholesale businesses, but that is up to the companies, not us.

A company spokesperson for Nutrien said the combination of Landmark and Ruralco would enhance service, expertise and product delivery to farmers.

Ruralco assets

According to the Data Room column in The Australian, Nutrien might be forced to divest some assets as one of the conditions for it to gain approval for its takeover of the Ruralco business.

The Landmark-Ruralco entity would supply about 650 rural merchandise stores, 45% of the national market. Not all of Ruralco's stores are wholly owned, with some controlled as joint-venture investments, which could create opportunities for Delta Ag. Now that Delta Ag has taken over North West Ag Services, it will operate at 44 locations across regional NSW, Victoria and Southern Queensland and is believed to be eager to gain additional products and market share in rural Australia.

Delta Ag, chaired by former Nufarm boss Doug Rathbone, will hire 300 people. It has a network of more than 9000 clients and already offers rural merchandise, agricultural chemicals, cotton and summer crop services, seed and fertiliser. It also offers services in grain marketing, livestock marketing, real estate, insurance, finance, horticulture, viticulture and packaging.

Australia-based Odyssey Private Equity has a 20% stake in the business which should help in any financial bid for Ruralco.

Nutrien-Ruralco support

Nutrien has received support from some of its biggest rivals in its takeover bid for Ruralco. Farm chemicals maker Nufarm said it saw nothing to fear in the takeover. Greg Hunt, managing director of Nufarm, said he didn't think the takeover would lessen competition overall. He told The Financial Review:

At the retail level, the industry will continue to have two corporate brands in Nutrien and Elders as well as a strong independent structure that will continue to service the market.

On a supplier level, Mr Hunt said he wasn't concerned about the impact on Nufarm.

Australia needs a strong and sustainable domestic manufacturing base to adequately support our farmers. Nufarm plays a very important role to ensure the market is supplied with quality products in an efficient manner. It would be difficult for our farmers to be supplied with products produced offshore, particularly in times of peak demand.

Elders managing director Mark Allison said it was up to Elders and independent retailers to rise to the challenge and continue to focus on service to clients. He also told The Financial Review:

I think it would be an extraordinary situation for Nutrien to use its power to the detriment of producers around Australia. And I can't imagine any circumstance where that would be the case.

Landmark and Ruralco both supply rural merchandise such as fertiliser, fencing and animal health products and other services through their branded retail store networks. Both companies also have wholesale businesses supplying rural merchandise to independent stores.

The origins of Ruralco date back 150 years but the listed­vehicle was formed in 2006 when CRT and Tasmanian agribusiness Roberts merged. The company, which employs about 2000 people, has four key operating divisions including water services, live exports, financial services and rural services.

The ACCC said it did not consider the proposed acquisition was likely to substantially lessen competition in the supply of wool broking, livestock agency, live export services, real estate agency, agricultural insurance broking or water broking services.

Sources: The Australian, The Financial Review and The Townsville Bulletin