Good margins for F&P China deal

File photo / Richard Robinson

Fisher & Paykel Appliances' move to increase its supply of components to a Chinese manufacturer is a positive development and should result in healthy profit margins, says an analyst.

The listed whiteware maker yesterday announced an arrangement to supply "components and technology, predominantly motors" to its cornerstone shareholder, China's Haier.

The deal would generate revenues of between $20 million and $35 million, the company said.

It would also require a capital investment of around $25 million by the New Zealand firm, including working capital.

"The revenue isn't the key thing - it's margin or what money they make off that revenue and that [margin on these components] should be better than the business as a whole," said Forsyth Barr analyst Andrew Harvey-Green. "There won't be many overheads attached to these revenues."

F&P Appliances has been supplying the Chinese manufacturer with direct drive washing machine motors since last year, and yesterday's announcement indicated the deal was an extension of that existing business.

Stuart Broadhurst, chief executive of the East Tamaki-based company, said Production Machinery - a wholly owned subsidiary of F&P Appliances - would build a new plant in Thailand where the motors would be made. "It will be in addition to a motor plant we already have in Thailand - it's expanding our capability," he said.

The company said the supply of components under the new arrangement would begin early next year. Broadhurst said the latest agreement involved the "next generation" of direct drive motors, designed for different types and sizes of washing machines.

Haier's Asia Pacific president, Philip Carmichael, said last year that the Chinese firm made about 10 per cent of the world's washing machines.

The company, based in the northeastern city of Qingdao, bought a 20 per cent stake in F&P Appliances in 2009 for $82 million. At that time the Kiwi firm was struggling with debt.

The supply agreement must gain approval from F&P Appliances' shareholders, due to NZX listing rules involving related parties, unless a waiver of that requirement is secured, the company said.

Shares closed up 0.5c at 57.5c last night.