New Zealand based, appliance company, Fisher & Paykel Appliances Holdings (FPA) stunned the market yesterday with a warning that it doesn’t expect a profit this financial year as sales suffer in the global economic slump and restructuring costs rise.
It also warned that it might have to raise capital from the market and is looking for a cornerstone investor to take a placement in any raising.
The news saw the shares in the company plunge 33% to 51c yesterday, after touching an all time low of 47.5c during trading as investors digested the extent of a drastic surgery the company has planned for its global business and finances.
The Auckland-based company said it may break even in the year ending March 31 after reporting a profit of NZ$54.2 million in the previous year.
It told the ASX that the forecast is subject to the sale of surplus property in Brisbane, Australia. Profit before one-time costs may fall to NZ$25 million to NZ$30 million.
"Normalised Group net profit after tax is projected at $25 million – $30 million for the current 2008/09 financial year.
"Subject to the completion of the Cleveland land sale, Group net profit after tax and costs associated with the Global Manufacturing Strategy, is projected to be approximately break-even."
Fisher & Paykel gets about 80% sales outside New Zealand in countries like Australia and the US.
It licences some of its ideas to the giant Whirlpool Corp in the US, which has also reported losses recently, as has the world’s second largest appliances group, Electrolux, which dominates the Australian market.
FPA reported a NZ$7.3 million first-half loss as sales slowed and it spent NZ$41.2 million moving plants to Italy, Mexico and Asia to lower labor and transport charges.
It now plans to shut a plant in Ohio in the US and start selling its budget Elba brand in there as the industry contracts.
"Slowing consumer demand as a direct result of the Global Credit Crisis has significantly impacted sales, particularly late in the second fiscal half.
"Slow Christmas sales and very weak macro conditions have led to a reduction in revenue for all markets. In addition competition for volume has also impacted margins.
"The Company has recently initiated a number of internal cost down measures in response to the current global economic conditions.
"These include an immediate salary reduction for the CEO of 7.5% and Executive staff of 5%. The Company is finalising a scheme with all salaried employees whereby staff will take one rostered day off a month.
"They will have the option to substitute this day with annual leave, thereby ensuring continuity of income.
"These new initiatives are over and above the ongoing cost down programs currently operating within the business."
The North American market is in “severe decline,” Fisher & Paykel said. “With intense market competition continuing and competitors fighting to retain sales volumes, margins have been put under pressure.”
In the 10 months ended January, sales in New Zealand and the US dropped 13%, while those in Europe slumped 19%. Sales in Australia fell 8.5% as the housing sector retreated.
The company will shut a laundry factory in Ohio, because of the slump in demand and will supply the US from Thailand.
That move and the impact of the falling New Zealand dollar, means the cost of the company’s relocation strategy may be NZ$10 million higher than the NZ$50 million previously indicated.
The sharp fall in the currency, and rising inventories may push group debt to NZ$570 million at March 31, and the company is considering selling shares to existing holders, seeking a cornerstone investor, and selling and leasing back its site in East Tamaki, Auckland.
In a subsequent statement FPA directors said:
"The Directors of the Company are reviewing the Group’s capital structure and examining a range of potential sources of capital.
If an equity raising is conducted, the Company expects it would include a pro rata entitlement offer to eligible shareholders.
"The securities issued under any pro rata entitlement offer would be ordinary shares, having the same rights as the existing ordinary shares of the Company. The proceeds would be used to repay debt.
"The Directors expect to provide a further update on the timing of any pro rata entitlement offer to investors and the market in early March."
The company said its NZ finance business will need an extra $NZ50 million in new capital to give it sufficient strength for a credit rating.
The finance arm is participating in the NZ government’s deposit and loan guarantee. The extra capital will be needed early in 2010.
