F&P plunges after profit shock

Company chiefs last month said F&P was running in line with expectations. Photo / Kenny Rodger

Fisher & Paykel Appliances' share price has fallen more than 10 per cent after a profit warning and revelations of more talks with its bankers.

The whiteware maker had appeared to be back on track after signing a deal with Chinese appliance maker Haier in May to buy a 20 per cent stake to help bail it out of debt problems. But it shocked the market with more bad news late on Thursday.

That saw its share price plunge 11c, or around 15 per cent, in early trading yesterday, although it bounced back slightly to close down 9c at 65c.

The company has blamed its warning on higher-than-expected levels of competition and depressed market conditions in its United States business as well as higher-than-expected costs at its factory in Mexico.

But market commentators have questioned how there could be such a vast difference in its forecasts for the prospectus sent out in May for its capital raising and now.

Back then it predicted a full-year net profit of $11.7 million, but now that has turned into a $2 million to $5 million loss for the year to March 31.

"When you have raised equity and gone through the whole disclosure process ... it has come as a surprise so soon after that," said Rickey Ward, joint head of equities at Tyndall Investment Management ,which manages shares in Fisher & Paykel.

At last month's annual meeting the company also said it was running in line with expectations.

But acting chief executive Stuart Broadhurst, who has stepped up to fill the role after long-serving chief John Bongard resigned after having treatment for prostate cancer, said the company had believed things would improve after a good start to the financial year but sales had dropped strongly in July after competition was stepped up.

"We believe what we are seeing is a floor in volumes now but we don't see any recovery in the near future."

He would not give a figure for how much that would affect the half-year result but said revenue from the North American market would be 12 per cent down for the full year.

Broadhurst said the decision to update the market was made only late on Thursday after it was felt that the changes would have a significant impact on the financials.

Despite the share price drop, Broadhurst said feedback had been very understanding of the situation in the US.

Market commentator Arthur Lim said Fisher & Paykel was the first New Zealand company to come back after a capital raising and give a profit warning.

"I think that is why they have been punished so much. This is bad news."

Lim said many in the market would also expect more downgrades now.

"That will be a deep concern."

But he said the difference between now and February's shock announcement was that Fisher & Paykel seemed to have its debt under control.

"Once the debt is down to those levels I think the banks can see ifthey need to the debts can berepaid."

Fisher & Paykel said its debt was still forecast to fall below $200 million and it intended to pay off an amortising banking facility six months early.

But the poor trading performance had breached a budget performance covenant with its banking syndicate and the company was in talks to try to get a waiver. It expected to hear back by Wednesday.

Lim said that as a cyclical company he expected Fisher & Paykel to bounce back in time but the danger now was that Haier could see the loss of confidence from investors as an opportunity to increase its stake in the business.

"If they made an offer I think they would get it - it's a real risk."