F&P to sell stock as debt rises

Monday 16th February 2009

Fisher & Paykel Appliances, whose shares have sunk to a record low, may sell new equity to bolster its balance sheet as debt levels rise and profit growth stalls.

In a market update today, the manufacturer said that "unprecedented and difficult trading conditions have been experienced in all markets." The company cancelled plans to sell capital notes, citing adverse market conditions.

The company's ratio of debt to debt plus equity had ballooned out to 43% from its target range of 25%-35% reflecting build up of inventories and a weaker New Zealand dollar, it said in a statement. To restore balance sheet strength, the company is considering the sale of new shares, possibly to a cornerstone investor, and will sell an East Tamaki property.

Profit margins at the manufacturer have contracted amid a global downturn, including a housing slump in the US that's sapped demand for high-end appliances. At the same time, competition for sales has increased, spurring price cuts. The shares sank to just $1 on Friday, having traded as high as $2.69 in May 2008.

F&P Appliances said it would begin a broader rollout of a lower-priced line of appliances, following the success of its Elba range. Salaried staff will take one rostered day off a month as part of cost-cutting efforts.

The downturn was being partly offset by the benefits of a weaker New Zealand dollar, which swelled the value of overseas sales, and a drop in prices of raw materials, it said.

The Auckland-based company expects to break even this year and post a 'normalised' group profit of $25 million to $30 million.

While the weak kiwi dollar stoked sales, it has also driven up the value of foreign currency-denominated debt by about $122 million since March 31 last year. Total bank debt was $512 million as at January 31 this year and is projected to reach $570 million by the end of March before reducing by about $230 million over nine months as sales reduce the build-up of relocation stock.

By Jonathan Underhill

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