Industry rumours suggest that Fisher & Paykel Appliances may be on the verge of asking the New Zealand government to bail them out after it reported record losses and suffered a massive drop in value last week on the New Zealand stock market.
However New Zealand Shareholders’ Association chairman Bruce Sheppard is advising the NZ Government it may have to bail out Fisher & Paykel Appliances.
When asked what conditions would prompt a bailout for F&P, John Key, the New Zealand Prime Minister, said: “If we got into a situation where a New Zealand corporate could not raise money in its own name, could not receive the level of funding that was required from the banks and we deemed it to be in the best interests of the country for the Government to step in and provide those funds on a temporary basis.”
However Mr Key refused to specifically identify Fisher & Paykel as a company that would sit in, what he described as, “There are a limited group of corporates which would sit within that quarter.”
Mr Sheppard said Fisher & Paykel Appliances was strategically important to New Zealand but it would have been more strategically important if still had all its manufacturing in New Zealand. It has been shifting manufacturing to Mexico and Thailand.
Although at the moment this is speculation on the part of the New Zealand stock market there may well be some substance to the rumours given that Fisher & Paykel announced a profits warning and that sales in all global markets had fallen, singling out the UK as being particularly bad.
Fisher & Paykel has stated the global recession has impacted consumer demand, with sales for the nine months to January down 13.1% in New Zealand, 8.5% in Australia, 12.9% in the US and 19% in Europe.
Shares in Fisher & Paykel Appliances closed at $1 (NZD) on February 13, a record low since the company was created through the split of Fisher & Paykel Holdings in 2001.
Managing director, John Bongard said that, “We expect the factory efficiency gains from the increased production, combined with lower labour and material costs, will more than offset the increased cost of freight, duty and working capital,”.
He added that the company had “some issues” around debt that were “making things very tight for us”.
“The board is committed to making sure we manage the business and the balance sheet very carefully. The banks that we have been working with have been fully informed of our position and they remain extremely supportive of our business and our forward business plan. Nonetheless the board believes with the current economic climate it is prudent to strengthen the balance sheet, so, we are reviewing our capital structure,” he said.
Pay Cuts & Possible Job Losses
Fisher & Paykel has reduced the chief executive’s salary by 7.5% and executive staff by 5%.
Mr Bongard said on Radio New Zealand that “countries in Europe are a train wreck in terms of consumer demand”.
He said the salaried staff move would cut 5% from the company’s wage bill.
The company would look at running fewer shifts for its waged workers and it also used temporary waged workers.
Mr Bongard said the company had come up with an innovative approach to cutting costs, which staff had been positive about.
“These days job security is more important to people than the amount of dollars that go home,” he said.
However, Mr Bongard said he could not rule out mass redundancies.
“Things are very volatile at the moment,” he said.
Debts & Possible Buyers
Of immediate concern to a twitchy sharemarket however was F&P’s debt levels. The company said it may consider getting a cornerstone shareholder in – something that would have been unthinkable for the company even a year ago.
“We have been talking to a number of potential strategic partners – I can’t tell you who, obviously for good sound commercial reasons,” Bongard said.
“As yet the size of any strategic or cornerstone stake – although we’ve got some ideas on it – we wouldn’t be sharing that at the moment.”
Fisher & Paykel already have strong ties to Arcelik (Beko) and also with Whirlpool and it is known that Arcelik do have cash to potentially buy the brand.
It would appear, in light of all this information, that Fisher & Paykel are in a bad, bad way and that the company’s immediate future is far from certain.