Fisher & Paykel focuses on Auckland plant
Capital put into Auckland plant as F&P backs out of big US retail stores.
Monday, November 28 2011 || News || BY William Mace, Businessday.co.nz
Profits at the NZX-listed company, which includes both an Appliance and a Finance business, dived 91 per cent to $976,000 for the first half of 2011 from $11.3m in the same period last year.
The share price has also tumbled from 64 cent high in June this year to close yesterday's down 7.6 per cent at 36 cents.
The group said its bottom line was hit by a $20.3m currency hedging loss, a $2.5m ''onerous lease'' charge and a $5.9m provision for potential damages arising from its defence of a High Court legal case brought by American credit software company, Karum.
FPA chief executive Stuart Broadhurst said the claim, which centred on allegations of stolen intellectual property by the Finance business, was ''novel and lacked commercial merit'' but was also complex and the outcome was uncertain. The result should be known by Christmas, he said.
Despite the bottom line hit, FPA clung to a half-year profit through its Finance arm's half-year normalised earnings of $18.4m, which remained relatively stable compared to the last half-year result of $18.9m.
However the Appliance business reported an earnings loss before interest and tax of $2.4m for the half compared to a positive earnings before interest and tax figure of $6.8m last year.
First NZ Capital analyst Greg Main said results from the appliances sector showed the consumer market would probably stay weak for another year or more.
''Obviously competition in the Australasian market is being intensified by the high level of the respective currencies making imported competition quite attractive,'' said Main.
''The question is how soft could the Australian market get? We'll probly get a bit more of an indication in the second half which is an important trading period for FPA because that's when they sell a lot of refrigeration products, and they'll be hoping it's a hot, dry summer.''
Group operating revenue was down $35m to $514m, $15m of which was lost on currency hedging and the rest written-down on a change of approach to sales in the United States market, Broadhurst said.
"We have deliberately refocused on profitable sales opportunities there and dropped some of the big box retailers that have been very expensive to do business with.
"Despite the drop in revenue in the US the business has now returned to profit - it lost money over the last two and a half years at least."
United States sales revenues dropped to $73m for the half, meaning New Zealand now ranks as FPA's second biggest sales market after Australia.
However the US operation made a $929,000 profit for the half as opposed to a $3.9m loss for the same period last year.
Capital expenditure in the Appliance business more than doubled to $22m in the half, with more to be spent in the second half on commissioning of production plants here in New Zealand, Broadhurst said.
"We've got opportunities to monetise intellectual property in the component and technology business where we have already signed a number of major customers and we're spending money now building plant and equipment in New Zealand and that will deliver a revenue and profit stream ramping up about the middle of next year."
He said FPA's Production Machinery Limited factory in Auckland would be manufacturing plant equipment for Chinese and American clients, and had been making direct-drive washing machine motors for "most of the appliance manufacturers around the world".
FPA's board estimated that normalised operating earnings before interest and tax would be around $42m, with Appliances comprising around $10m and Finance around $32m for the full year, and adjusted earnings of around $33.5m.
