Fisher and Paykel Appliances, one of New Zealand's best-known companies, is undergoing a massive change of identity, which could mean it takes on an overseas cornerstone investor and drops out of the top 10 sharemarket index.
The company caught most of the market by surprise yesterday with a significant profit downgrade, sombre trading figures and a rise in debt which had analysts wondering how the company could survive in its present form.
Fisher and Paykel Appliances (FPA) shares plunged immediately after the company issued the downgrade, with nearly six million shares changing hands on the day.
However, the number of shares traded late last week could raise some questions, given that the announcement was not made until early yesterday.
For several previous weeks, about 200,000 FPA shares were traded a day on the NZX.
On Wednesday last week, nearly one million shares were traded, on Thursday 1.4 million were traded and on Friday 2.3 million.
The shares opened at $1.20 last Monday but opened at 80c yesterday before falling to 60c during the day - a 50% drop.
ABN Amro Craigs broker Chris Timms said it was too much of a coincidence to see such a jump in trading late last week, and he suggested it could raise the interest of a regulatory body, given the trading update was released only yesterday morning.
FPA announced that its normalised profit after tax was forecast at between $25 million and $30 million, well down on the $42 million forecast by ABN.
The company said it would not proceed with a capital note issue but that it was examining alternative sources of capital.
The directors were considering the merits of issuing equity, including to a strategic cornerstone investor.
Mr Timms said the mere mention of a cornerstone investor indicated the company was probably already "down that track".
"I really can't see a white knight coming out from local investors. It has to be from Asia, as it is not likely to come out of the United States."
Apart from the rising debt issues and profit and sales downgrades, FPA also faced the problem of its falling share price and the effect it would have on fund indices.
If the value of the company fell to a level where FPA was not included in the top 10 index, index funds would need to consider selling FPA and buying the shares of the replacement company.
"We could see sustained selling as the funds moved to change the weighting of their stock. I don't think this should be seen as an opportunity to buy the shares," he said.
Managing director John Bongard said that since the company reported its interim result on November 13, it had been subjected to unprecedented and difficult trading conditions in all markets.
"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."
A table included in a briefing paper showed New Zealand sales, in dollar terms, were down 13.1% in the nine months ended January compared with the previous corresponding period.
Sales in Australia were down 8.5%, United States sales were down 12.9%, European sales were down 19% and rest of world sales were down 3.6%.
To address the immediate issues of declining demand in global markets and the trend for consumers to trade down in their purchase decision, the company was committed to introducing a second-tier brand to some of its major markets, Mr Bongard said.
The success of the Elba brand as an entry point brand in New Zealand had given confidence that a similar offering would succeed in other markets.
The strategy would be quickly replicated, opening the way for greater opportunities to the current consumer preferences.
Fisher and Paykel was launching a range of Elba-branded products exclusively distributed through Sears Outlet stores as a way to expand into the North American market, he said.
Elba branded products would be manufactured in the company's North American manufacturing facilities and sold in Sears stores nationally.
Fisher and Paykel was also in negotiation with Australian customers for introduction of the company's Elba branded products.
As the company continued to wind down its operations at Mosgiel, Mr Bongard heaped praise on the new manufacturing facility in Thailand, which he said was exceeding initial saving expectations.
The Rayong facility, in Thailand, was now fully functioning and producing laundry products for the Australian, New Zealand, Asian and rest-of-world markets.
The electronics factory, which was relocated from Auckland last year, was now fully commissioned within the Rayong facility and was providing components direct to line in Thailand as well as to other global manufacturing sites.
The second factory, being built adjacent to the laundry plant for housing the Brisbane refrigeration line, was on time and nearing completion.
In Mexico, the Reynosa facility was now manufacturing initial release quantities of the new DishDrawer Tall product for introduction on to the North American market next month.
The inventory required for the launch would be completed late this month, at which time the factory would have the capability to manufacture all versions of the DishDrawer for global markets, including New Zealand.
In Dunedin, the range and dishwasher facility was in the final stages of shutdown, Mr Bongard said.
The freestanding range line, along with a limited number of built-in ovens and cooktops, would continue to be manufactured until April, at which time all production would transfer to the Italian and Mexican plants.
In Australia, the Brisbane Cleveland refrigeration factory was on schedule to close in early April.
The North American laundry production facility in Clyde, Ohio, would remain closed until market conditions improved.
The motor line would remain on the Clyde site and continue supplying components to Whirlpool Corp.
Costs associated with implementing the global relocation of manufacturing facilities were now expected to exceed the previous guidance by $5 million to $10 million, partly due to currency effects.
Mr Timms said FPA was on target for its restructuring but that did not solve the main problem of falling sales.
Consumers were not spending as freely on their homes as they once were and many were holding back on upgrading their appliances.
FPA's interest rate costs were likely to rise if the company received a credit rating downgrade, something the company did not need when it was trying to cut costs, he said.
Debt rose by $122 million between March 31, 2008, and January 31 to $512 million, with FPA blaming the "rapid depreciation of the New Zealand dollar".
