Report Card: F&P Appliances sees growth on horizon

By David McEwen

Friday 9th August 2002

Where once there was a single company, Fisher & Paykel Industries, there are now two, F&P Healthcare Corporation and F&P Appliances Holdings.

One outcome of the split last November is that two annual reports now have to be produced. Healthcare's was reviewed in this column a few weeks ago. Now it's Appliances' turn.

The two look very different from one another, with Appliances preferring colour photographs and light screens behind text to Healthcare's dark colours and monochrome pictures.

In tone and format, however, there are a lot of similarities.

After a highlights section, executive chairman Gary Paykel, who is also chairman of Healthcare, opens with a review of the four or so months since Appliances was formed. Helpfully, as with its sister company, the report also has pro forma numbers for the 12 months to March and for the previous year. This allows some sort of meaningful comparison to be made, although abnormal costs associated with the split complicate things.

Mr Paykel also points out that no dividends were received during the period from Healthcare, of which Appliances owns 20%, which further minimised net profit (but will make next year's look even better).

The end result was sales for the 12 months of $803 million, well up on 2001's sales of $731 million, and a net profit of $15 million against a loss the previous year of $2 million.

In his review, managing director John Bongard makes a feature of the company's divisional results, normally hidden away in the notes to most reports. These show the company increased sales in its key New Zealand and Australian markets, quite an achievement considering so much management time must have been taken up with separation issues.

Sales in New Zealand rose 4% to $208 million, in Australia 3% to $369 million and in the US an impressive 62% to $135 million. "As we look forward, we must continue this growth strategy in the US, as well as extending into the UK and Europe," he says.

Conquering the world, a rare achievement for a New Zealand company, brings new challenges at every turn, he reveals. One example is the different water quality from market to market that requires the company to modify some of its products.

"For the UK and European markets, our engineering people have also put enormous effort into the design and development of a sophisticated built-in water softener for DishDrawer. In the UK and Europe 'hard' water is common. Softening the water is necessary to achieve optimum wash performance," he says.

With the separation behind it, F&P Appliances is obviously looking forward to building its core business. The annual report reflects this enthusiasm in the number of "outlook" sections it contains.

Normally this is restricted to a couple of paragraphs at the end of the managing director's review but Appliances also offers comments by the finance company general manager and even the board. Mr Bongard stresses "offshore growth is the key to improving returns for shareholders together with long-term investor security. Growth is only possible with continued investment in product development, new manufacturing systems and innovation."

The board says the same but firmly adds: "The directors expect a continued improvement in the operating profit, after taxation, for the current year."

Once the report moves into the financial section, a major difference between the Appliances and Healthcare reports emerges - a lack of comparatives.

In its statement of accounting policies is a paragraph that states, "Fisher & Paykel Appliances Holdings Limited (previously Fisher & Paykel Security Systems Ltd) existed as at 31 March 2001 but did not trade for the year then ended. On the basis of ease of presentation, these financial statements do not show comparative information in the various statements and accompanying notes."

If Healthcare could produce comparatives throughout its report, Appliances could have made an effort to do the same.

David McEwen is an investment adviser and author of weekly sharemarket newsletter McEwen's Investment Report. Web: www.mcewen.co.nz, Email: davidm@mcewen.co.nz

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