By Gareth Vaughan
Consumer financier Fisher & Paykel Finance has proven a star turn for its whiteware making parent Fisher & Paykel Appliances Holdings, contributing 74% of the group's half-year earnings before interest and tax (ebit).
The strong performance of the finance company contrasts with the collapse of a huge chunk of New Zealand's finance company sector and with another profit warning from the group's appliances arm as it struggles with weak demand for whiteware products.
F&P Appliances Holdings' financial results for the six months to September 30 show 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 appliances operations contributing 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 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.
Alastair Macfarlane, managing director of F&P Finance which is one of just seven companies covered by the Crown retail deposit guarantee scheme until December 31, 2011, said the business had "prospered" despite a challenging economic environment and soft retail trading conditions.
“Operationally we improved earnings through containing overheads, focusing on asset quality and arrears management," Macfarlane said.
“High levels of liquidity have been maintained and we have significant committed bank funding facilities which extend for three years. At period end committed bank funding facilities exceeded NZ$334 million, of which NZ$121 million was un-drawn," Macfarlane added.
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.
Macfarlane told interest.co.nz in June that F&P Finance, which was then covered by the Crown retail deposit guarantee scheme, was trying to wean itself from the extended scheme even before the scheme was due to take effect on October 12.
F&P Finance, which appointed Carlos da Silva and Hugh Rennie QC as independent directors to meet the Reserve Bank's non-bank deposit taker regulations in September, also sources funding through a securitisation programme and retail debentures. The retail debenture reinvestment rate during the period was 67% with total debentures at NZ$154 million at September 30, down 12% from NZ$175 million a year earlier. The consumer lender said NZ$78 million of its NZ$285 million securitisation programme was un-utilised at September 30.
Overall, excluding equity, F&P Finance gets 37% of its funding from bank loans with its banks including ANZ, BNZ and Westpac, 36% from the securitisation to fund its Farmers business, and 27% from retail debentures. F&P Appliances Holdings had NZ$204 million of shareholder funds in its finance subsidiary at September 30, up from NZ$199 million at March 31.
Meanwhile, F&P Finance's half-year interest income rose 7% to NZ$57.6 million with interest expense down 5% to NZ$19.9 million and net income up 15% to NZ$48.5 million. Bad debt expenses fell 11% to NZ$8.6 million.
F&P Finance, which has a BB credit rating from Standard & Poor's, said its cost to income ratio was down to 34.5% from 38.6%, net margin up to 10.7% from 10.1%, and return on equity up to 22.4% from 14.9%. Gross receivables rose 6% to NZ$625 million with provisions up 4%, or NZ$1 million, to NZ$25 million.
The F&P Appliances Holdings group forecast March 2011 year ebit of about NZ$35 million from its F&P Finance division, up from NZ$28.9 million in the year to March 2010. It expects the appliances business to deliver ebit of between NZ$28 million and NZ$35 million compared to NZ$29.4 million in the March 2010 year.
F&P Appliances Holdings has had a tumultuous couple of years after its debt blew out to more than NZ$500 million in May 2009, breaching banking covenants, and sales dropped during the global financial crisis. The firm has also shifted much of its 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.
F&P Appliances Holdings bailed itself out by selling a 20% stake to Chinese rival Haier as part of a NZ$143 million rights issue of new shares.
The group today reported half-year net profit of NZ$11.3 million versus a loss of NZ$82.4 million in the same period last year when it booked NZ$107 million worth of abnormal costs and asset impairments compared with none in the six months to September this year.
However, it now expects annual ebit of between NZ$63 million and NZ$70 million, down from a previous forecast of about NZ$78 million, due to weak demand for whiteware.