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Fisher & Paykel Appliances

The Jenny Ruth Column

Wednesday 26th July 2006

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The $55 million placement to institutions to help fund the acquisition went at $4.60 a share compared to the $4.50 share price before the Elba purchase was announced. Usually companies expect placements to be made at a discount.

While international forays by a depressingly large number of New Zealand companies have destroyed billions of dollars in shareholder wealth, Fisher & Paykel has built up a track record of international growth both from greenfields sites and acquisitions.

It started back in the 1980s when it began manufacturing in Australia. While it has long been an exporter to other countries, its concerted push into the US began in the late 1990s.
If it hadn't, its latest results, depressed though they were by both high raw materials costs and the high New Zealand dollar, would have looked considerably worse.

Fisher & Paykel's annual net profit peaked at $85.3 million in 2004, although that included a $10.1 million dividend from its since sold stake in sister company, Fisher & Paykel Healthcare.

The 2005 result fell to $68.6 million and this year's profit came in at $63.9 million.

But its previously core New Zealand and Australian sales fell from 77.1 per cent of total sales in 2005 to 57.7 per cent in 2006. Now the US market is the company's single biggest, accounting for 38.1 per cent of total sales in 2006, up from just 12 per cent in 2001.

While initially, the company treated the US as an export market using its unique DishDrawer dishwasher as its flagship product, in late 2004 it began manufacturing in the US through its acquisition of Dynamic Cooking Systems (DCS).

Nearly a year later, it announced plans to build a new factory in Ohio and that it would be moving an Australian Smart Drive clothes dryer line and a New Zealand motor manufacturing line there.

By the end of 2005, it had decided to move its SmartLoad dryers line, which was specifically designed for the US market, from New Zealand to the Ohio plant.

The company seems set to repeat its US experience in Europe with the Elba purchase which will boost its European sales to 10 per cent of the total from just 1 per cent in the year ended March.

It has also signalled that it will be taking advantage of spare capacity at the Elba plant near Treviso in Northern Italy to start manufacturing its own brand there - the plant is currently producing 390,000 units a year but has capacity exceeding 600,000 units.

Fisher & Paykel managing director John Bongard says he expects his company's own branded products manufactured at Elba will be on the European market before Christmas. "We were up there two weeks ago and we've settled on the styling, the new Fisher & Paykel style product out of Elba is being tooled right now," he says.

Bongard puts the company's ability to expand internationally down to two things: its innovative products and its use of local staff rather than having New Zealanders running everything.

"You have to have a product that stands up internationally. We do have that with products such as Dishdrawer and Smart Drive washers and the new cooking products and refrigerators," Bongard says.

"That whole innovation platform is very important."

But the people are also important. "We've never tried to put New Zealanders into foreign markets to run the marketing and sales operations," Bongard says.

"We've employed best of class Australians and Americans and, hopefully now, best of class Europeans to help us run the business," he says

"That's one of the mistakes a lot of New Zealand companies make. They will send a team of Kiwis and you can guarantee they will work 24/7, but they don't know the market. They're never going to be successful."

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