Whiteware's draining profits drag down F&P

By Nicholas Bryant

Friday 10th November 2000

FISHER & PAYKEL STAFF: Only healthcare is performing

A Deutsche Securities report on the future of Fisher & Paykel is believed to recommend the separation of the company's whiteware division.

The healthcare division, which produces mainly humidification products, contributes 75% of Fisher & Paykel's earnings before interest and tax from only 12% of F&P's asset base.

Another suggestion believed to be in the report, now with the board, is the contracting out of whiteware production leaving the division as a stripped down research, development and design team.

Listed lingerie company Bendon made a similar move a year ago, also in a bid to counter low margins.

With whiteware making only a $9.7 million profit for the six months to September 30 off $325 million revenue, the institutional investing community said whiteware was consistently dragging down profits.

Six-monthly profits for the whiteware division have slipped over the past 18 months from $23 million to $15 million, to $9.7 million for the six months to September 30.

"The result for whiteware was a shocker," Cavill White Securities' John Cairns said.

"It brings back into focus the whole viability of that business with those revenues and an operating profit of just under $10 million it's pathetic," he added.

Analysts were concerned how ineffective an expensive year's restructuring appears to have been.

And the announcement 200 more whiteware staff would be laid off showed it was not over yet.

The company is blaming currency values, the price of imported materials and market dumping of cheap Korean products but that has not impressed analysts.

"When you take into account the level of restructuring and the costs out programme, I'd have thought the business would be far more robust ... Fisher & Paykel targeted a 10% operating margin and slippage due to factors beyond its control is acceptable but not to this extent," an analyst said.

Fisher & Paykel's bold move to turn around the whiteware division by taking high-priced DishDrawers and other premium products to the US isn't often mentioned now. But they are still plugging away.

After spending 10 years and $40 million developing DishDrawer and mucking up its first US foray with poor marketing and distribution arrangements, the company went back for more early last year.

A target of selling through 1200 retailers has been met and sales are up.

Smart Drive washing machine sales have risen from 4600 a year ago to 7500, while DishDrawer sales are up from 7500 to 11000.

"America won't happen overnight. It will take quite some time and I don't think analysts or the company are relying on it alone to pull around Whiteware's situation," ABN Amro's Gary Baker said.

But while whiteware plugs quietly away in the US, healthcare is forging ahead back home.

It has opened a $35 million state-of-the-art design and production facility to house healthcare in East Tamaki, Auckland.

Healthcare's ebit of $28.5 million, a 20.5% increase on the comparative six-month result, was a continuation of its earnings achievements over the past four years.

After-tax profits for the group, including the finance company, were $23.1 million with a 12c a share dividend announced. Fisher & Paykel shares closed on Wednesday down 4c to $7.16 on light trading.

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