F & P China 'marriage' brings mutual benefits

Fisher & Pykel oven. Photo / Supplied

It's been almost two years since Chinese manufacturing giant Haier snapped up a cornerstone stake in Fisher & Paykel Appliances, at a time when the Kiwi manufacturer was laden with debt.

Both firms say they're pleased with the partnership's progress, but the road to recovery has been long for F&P, which is still suffering from sluggish economic conditions.

Two earnings downgrades have been announced by the East Tamaki-based manufacturer over the past five months.

Despite ongoing challenges, F&P Appliances' situation has improved since early 2009 when the Haier deal took place and the firm was facing some of the darkest days in its almost eight-decade history. Its debt had swelled to more than half a billion dollars as the company invested in relocating manufacturing operations to lower-cost countries.

An additional challenge was the global downturn, which was sapping demand for F&P products. The firm's banks slapped the company with a debt repayment regime.

Then Haier stepped into the picture, investing around $82 million in return for a 20 per cent stake in the Kiwi company.

This news was welcomed by the market, with F&P Appliances' share price closing up 56 per cent at $1.03 following the announcement of the deal.

Qingdao-based Haier has annual revenues of up to $25 billion, more than 60,000 staff and manufacturing operations in 25 countries. Its products - which include fridges and freezers, televisions, dishwashers and mobile phones - are sold in more than 100 countries.

But what prompted Haier to become the largest shareholder of a debt-laden company that had just reported a net-loss of $95.3 million? "Our primary objective was that Fisher & Paykel has very good, very unique technology," says Philip Carmichael, Haier's Asia Pacific president.

Since the Chinese firm bought its stake, F&P has begun selling Haier its direct drive washing machine motors. Other intellectual property around washing machine control systems has been licensed to Haier, which F&P Appliances collects royalties on.

Production Machinery Limited (PML), a F&P Appliances company that makes production machinery for other manufacturers, will soon install a new washing machine line at one of Haier's Chinese plants.

Brett Butterworth, the vice-president of F&P Appliances' Haier project management office, says it has taken some time to get to know the Chinese company and understand how it operates.

"We are very happy with [the partnership] and we've been strengthening our relationship with the various areas of the company over the two years [since Haier purchased its stake]," he says.

Carmichael, who also sits on F&P Appliances' board as one of two directors representing Haier, says the Chinese firm is interested in the Kiwi company's new refrigerator compressor technology, which was unveiled last year following 17 years of top-secret product development.

F&P Appliances has set up strict controls around the transfer of technology to the Chinese manufacturer - including patents - to safeguard its IP, says Butterworth.

The New Zealand firm is also using Haier's distribution channels to gain access to China, while F&P Appliances is returning the favour for its cornerstone shareholder in Australasia.

Last May F&P Appliances opened its flagship Chinese showroom in Hangzhou, near Shanghai.

Haier is responsible for selling the New Zealand firm's products in China, and is aiming to fit out new high-end apartment blocks with F&P products.

Butterworth says F&P Appliances has also been discussing opportunities to sell products manufactured at its Italian plant into the Middle East and Africa through Haier's distribution channels.

Despite the sluggish retail environment in this part of the world, Carmichael says Haier is achieving strong sales growth in Australasia and taking market share away from other manufacturers.

Haier and F&P Appliances say they have positioned their products in the Chinese and Australasian markets in a way that avoids direct competition between the two firms.

Haier is also manufacturing products for F&P Appliances, which the Kiwi company sells under its own branding. This practice is commonplace among appliance makers, and the Chinese company was making units for the Kiwi firm even before it became a shareholder.

But Carmichael says Haier will be making more products for F&P as the partnership progresses.

"These will not be Haier products with another name slapped on them - these will be designed for Fisher & Paykel, built for Fisher & Paykel by Haier."

When the Chinese manufacturer's purchase of its cornerstone shareholding was announced in 2009, Liang Hai Shan - a Haier board member - was asked by a reporter if the company would "take F&P over" in the future.

Liang said that would "depend on the market".

A year later, when several Australian and New Zealand journalists were assembled at Haier's headquarters, the company's "global branding strategy" caused some mild excitement when it was revealed during a presentation. "Get in, stay in ... takeover," went the motto.

Haier executives later explained the global branding motto reporters had heard was merely a poor translation of Mandarin.

It should have been translated as "get in, stay in ... and be a leader", they said.

At that time, Haier vice-president Zhou Yunjie said the firm had no plans to increase its stake in the New Zealand company.

Market commentator Arthur Lim, however, says F&P Appliances' low share price makes the company ripe for a takeover attempt. "It would be very surprising if Haier are not thinking about it," Lim says.

Carmichael says the company has no plans to up its stake in the Kiwi firm "at this time".

F&P Appliances' debt had reduced to $149.2 million by the time the company reported its interim result in November.

Analysts say a full recovery in the Kiwi firm's fortunes will rely on a broad improvement in the global economic situation.