By Gareth Vaughan
Consumer lender Fisher & Paykel Finance, which is covered by the extended Crown retail deposit guarantee scheme, is expected to again be the stand out performer when its parent reports its full-year financial results this Friday.
Whiteware maker Fisher & Paykel Appliances will report results for the year to March 31. Its subsidiary, F&P Finance, delivered 74%, or NZ$18.9 million, of the group's NZ$25.7 million half-year earnings before interest and tax (ebit) in the interim results released last November.
F&P Appliances has had a tumultuous couple of years after the group breached its banking covenants in May 2009 when its debt topped NZ$500 million, sales plummeted, the firm shifted much of its whiteware manufacturing to cheaper countries such as Thailand and Mexico from New Zealand, Australia and the United States and suffered asset write-downs and big losses.
The iconic New Zealand firm, founded as F&P Industries in January 1934 by Maurice Paykel and his soon-to-be brother-in-law Woolf Fisher, bailed itself out after its covenant breach by selling a 20% stake in itself to China's Haier as part of a NZ$143 million issue of new shares. See more on its troubles here.
On the trading front, things may not have improved much for the appliances business. In November the group forecast full-year ebit from its appliances operations of between NZ$28 million and NZ$35 million. But it then downgraded this just three weeks later on December 17, to between NZ$15 million and NZ$25 million, citing deteriorating retail trading conditions. The appliance unit delivered NZ$29.4 million ebit in the March 2010 year.
However, the full-year forecast for F&P Finance was left unchanged at ebit of NZ$35 million, up from NZ$28.9 million in the previous year.
26.7% plays 1.7%
In a research report ahead of the result, Craigs Investment Partners analyst Dennis Lee said he expects another strong result from F&P Finance, helped by good asset quality and a favourable interest rate environment.
"We expect F&P Finance to be a steady performer continuing the solid performance we saw in the first-half," Lee said. "The drivers are cost containment and continued focus on asset quality and credit management with the benefit of a low interest rate environment."
Goldman Sachs analyst Adrian Allbon expects F&P Finance's ebit to rise 23% to NZ$35.6 million. He forecasts an operating ebit margin of 26.7%, up from 21.2%. That compares with Allbon's forecast for the appliance business of an operating ebit margin drop to just 1.7% from 2.9%.
Founded in 1973, F&P Finance started out with the primary activity of renting TVs under the F&P Dealer Rentals Ltd name. In 2003 it acquired the Farmers Trading Company’s finance and insurance operations in a NZ$311 million deal.
As of September 30 last year, F&P Finance said it had total debentures of NZ$154 million, down 12% from NZ$175 million a year earlier. Its retail debenture reinvestment rate during the half-year was 67% The company said NZ$78 million of its NZ$285 million securitisation programme was un-utilised at September 30 and NZ$121 million of its NZ$334 million worth of bank loans was un-drawn. Its banks include ANZ, BNZ and Westpac.
One of just four companies still carrying a Crown retail guarantee
F&P Finance is one of just four companies - alongside Building Society Holdings ( to be known as Heartland New Zealand from June), PGG Wrightson Finance and the Wairarapa Building Society, to be covered by the extended Crown retail deposit guarantee scheme which runs until December 31 this year. See more on the four companies and how they're positioned for the end of the guarantee here.
Alastair Macfarlane, F&P Finance's managing director, recently told interest.co.nz the company had sufficient funding through bank loans to fully repay all its debentures irrespective of their term or whether they were Crown guaranteed or not.
"In fact we hold a surplus liquidity position to achieve this objective if required," Macfarlane said. "Having said that we expect investors to reinvest upon maturity, although at this stage it is difficult to judge the level and for what term. The maturity profile of the book has a meaningful proportion maturing beyond the 31 December 2011 date. Our last 12 monthly average reinvestment rate remains consistent with previous years."
As Allbon notes comments on the annual results on F&P Finance will be watched for any mention of diversifying the funding mix ahead of the end of the Crown guarantee.
F&P Finance has a BB speculative, or "junk", grade credit rating from Standard & Poor's. It is offering 7% for its 2 year un-guaranteed debenture. See all term deposit and debenture rates.
Parent F&P Appliances' half-year results showed normalised ebit up 42% to NZ$25.7 million with ebit from F&P Finance up 52% to NZ$18.9 million and, although it was up 18%, ebit from the appliances unit contributed just NZ$6.77 million. This means the finance unit's EBIT to revenue margin was 26%, while the appliance unit's was 1.4%.
Group interim revenue fell 6% to NZ$549.8 million with appliances revenue down 8% to NZ$477.7 million and F&P Finance revenue up 9% to NZ$72.1 million.
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