Govt not ruling out Fisher and Paykel help

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Prime minister John Key has revealed he has asked officials to draw up a list of options that could be used to rescue struggling companies such as Fisher and Paykel Appliances.

The Kiwi whiteware manufacturer has revealed its debt is ballooning and its profits are dwindling - news which sent its share price plummeting.
           
Key says a bail-out is a last resort, but the government is considering issues like whether there is a systemic risk to the economy and whether intervening is in the long term interests of the country.

"It's an iconic company that employs 1,600 people. These are highly unusual times. We're not going to rule out the option that the government could get involved," he says.

On Monday, the company said it expected a net profit of $25 million to $30 million, down up to 54% on last year.

With a deteriorating New Zealand dollar, its total bank debt has also grown from $122 million in March 2008 to $512 million at the end of January. Debt is forecast to hit $570 million by the end of March.

Fisher and Paykel Appliances is now looking at reviewing its capital structure and alternative sources of capital.

As yet, the government has not offered the company assistance, and neither has Fisher and Paykel asked for it.

But, Chris Timms of ABN Amro Craigs says the government has helped New Zealand companies in the past, such as Air New Zealand.

"John Key does mention that if there's a significant impact to this company and obviously the jobs in the economy, they are...prepared look at all options," he says.

News that the government could step in to help out Fisher and Paykel Appliances saw the whiteware company's shares rebound 10% on Tuesday morning after plunging as much as 42% on Monday.

However, Brian Gaynor from Milford Asset Management says although Fisher and Paykel is an iconic company, it has been moving its operations out of New Zealand to take advantage of lower labour costs in Thailand and Mexico.

He says bailing them out could set a precedent. 

"What I think the government should come out with is say 'what are the criteria for the type of companies it is going to bail out?' It's no use making a decision company by company because there are icon names we'll all want to bail out," he says.

Gaynor says there are three main reasons why the company has had a tough time, particularly over the last year.

Globally, the car, electrical and furniture and fittings industries particularly have been suffering in the economic downturn. For Fisher and Paykel Appliances, sales are down 20%.

The cost of shifting production to Thailand and Mexico has also been taxing.

"When you do that you tend to keep production up in the old plant as well starting up production in the new plant. That means that you often have very high stocks, which is what Fisher and Paykel Appliances ended up with," he says.

He also says Fisher and Paykel Appliances has not yet been able to sell its manufacturing operations in Australia, so there has been no sale funds going towards the new plants.

"It looks like its in a perfect storm for Fisher and Paykel Appliances, everything has gone wrong in the last six months," he says.

Gaynor hopes the private sector, either in the form of capital raising or a cornerstone investor, will help bail the company out rather than the government.

Timms says a cornerstone investor would likely to come from Asia.

Meanwhile, Labour is urging the government to spell out clear criteria under which the government would bail out failing Kiwi companies.