FAP gets tough with Whiteware as half-year profit drops

In the six months to the end of September FAP made a group tax-paid profit of $23.1 million, down $1 million on the same period last year.

Healthcare's earnings rose more than 20% to $28.5 million compared with last year, with revenue up 17% to $80 million. Revenue from international markets increased 22.5%.

Clinical humidification devices, which account for 50% of healthcare's business, returned to 15% revenue growth while CPAP (Continuous Positive Airway Pressure) humidification devices, which account for 31% of healthcare sales, grew by 60%.

The CPAP humidification devices are used to treat obstructive sleep apnea.

In the company's whiteware division revenue was up almost 10% to $324.7 million, but the division's Ebit margin fell from 5.2% to 3%, resulting in earnings of $9.7 million for the six months.

FAP says currency fluctuations are partly to blame. A continued fall in the Kiwi and Aussie dollars has increased the cost of materials from overseas, but this has not been offset by higher export prices due to currency cover which was locked in more than a year ago.

The company says it covered its whiteware sales to the United States at around US50 cents, and Australian sales at A80 cents. These are both considerably higher than the current exchange rate.

Poorer margins on whiteware are also being blamed on what the company calls unrealistic price competition in New Zealand and Australia from imported fridges and washing machines from Korea. It has asked the New Zealand government to consider a formal dumping action against the Korean imports, and may ask the Australian government to do the same.

Meantime the company has a number of strategies to improve its whiteware division performance, including accelerating the reorganisation of the division to a centralised structure, which will reduce staff numbers by around 200 and save $9 million a year.

Annual capital expenditure also be dropped by 30% to $25 million a year for the next three years.

Fisher and Paykel's directors say while it is difficult to forecast a future outlook in today's environment they nevertheless anticipate some improvement in the operating profit in the second half of the financial year.

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