Fisher & Paykel Appliances meets full-year guidance after pickup in second half

Friday 28th May 2010

Fisher & Paykel Appliances Holdings posted a 47% drop in full-year earnings, reflecting weaker sales and unfavourable currency movements, meeting its guidance after a pickup in trading in the second half. One-time impairment charges pushed the net result to a loss.

Normalised profit, excluding impairments, fell to $18 million in the year ended March 31, from $33.9 million a year earlier, the Auckland-based company said in a statement. Sales fell 15% to $1.16 billion. The annual net loss narrowed to $83.3 million from $95.3 million.

One-off restructuring costs associated with relocation of Australasian plants to Thailand and Mexico, write-downs on obsolete inventory and intangible assets, along with losses on property sales and debt restructuring, took total impairment costs for the year to $102.3 million a year before tax.

Amongst the writedowns was $14.7 million against the Elba brand, a relatively recent addition to the FPA brand suite and a casualty of the decision to shift to a two-tier brand strategy in which F&P targets mid to high-end markets while Haier products target the budget end of the market.

Impacting significantly on its comprehensive income performance was a turnaround of more than $100 million caused by exchange rate changes. Exchange differences delivered a $37.8 million benefit in 2008/9, and a negative hit of $63.5 million in the year just ended.

However, management commentary made much of the fact that the major costs of restructuring and plant relocation were now behind the company, it had new distribution and manufacturing deals in place with the giant Chinese appliance maker Haier, and its two new plants were producing on schedule.

In addition, FPA has crunched its ballooning debt problem into shape, with group net debt falling to $173.9 million, compared to $459 million a year earlier and a peak in May 2009 of $502 million.

With the early repayment of a $235 million amortising facility on April 1, the group's banking covenant conditions had been eased so that a revenue-based budget performance ratio previously in place had been dropped and a total leverage ratio test reinstated.

Shares of FPA climbed 3.6% to 57 cents and have declined 11% so far this year.

The balance sheet shows no current borrowings, compared with $517.7 million a year earlier, with a substantial shift to longer dated borrowing for both the appliance business ($212.9 million) and the company's New Zealand finance business ($191.5 million).

The finance company's total assets at $794.1 million represent 48% of total FPA group assets, with operating earnings from the finance company improving 37% to $28.9 million through improved margins, cost containment and focus on credit quality. The finance business also acquired a $22 million household equipment loan book in February.

Appliances revenue across New Zealand, Australia, North America, Europe and the rest of the world, expressed in New Zealand dollars, were down 17% over the year to $1.0 billion in the year to March 31.

"Sales in Australia in the second half were up 17% in local currentcy terms on the first half, following the completion ofthe Global Manufacturing Strategy and resumption of continuity of supply and increased marketing," the company said in a statement to the NZX. Australian market supplies were disrupted in the first half because of inventory shortages created by the shift to Mexican and Thai production sites.

New Zealand sales through the second half were slightly ahead of the first half, with full year sales of $181.8 million down 14.4% on the previous year, reflecting ongoing tight trading conditions.

Trading in North America, FPA's second largest market after Australia, plunged 25.6% because of difficult trading conditions, reduced volumes from a major customer, reduced sales of the DCS by F&P brand goods, and stiff local competition.

FPA remains optimistic about sales growth following recent distribution deals to put its DishDrawer product into the Sears retail chain, and clothes washers and driers into the Lowe's home store chain in the US.

Despite the moderately improved outlook and the fact that major restructuring is now behind the company, FPA is declining at this stage to give earnings guidance for the current financial year, saying "demand conditions are expected to remain fragile."

"The benefits of a lower manufacturing cost base are likely to be partially offset by competitor activity, rising commodity prices, increasing sea freight charges and lease costs," the company said.

Shifting its production base to lower cost countries had already lowered manufacturing costs, with product conversion costs reducing by around 31% from the year before on lower volumes, and further efforts under way to source more product inputs in Mexico and Thailand.

Staff levels fell by 14% across the business during the year, but the company is warning the 5% across-the-board pay cut, implemented to weather its crisis last year, was rescinded in April.

Businesswire.co.nz

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