Input costs take profits for a spin

Forecast growth at Fisher & Paykel Appliances has settled sharemarket nerves after a profit drop due to the surging price of raw materials.

The whiteware manufacturer yesterday reported a full-year net profit of $63.9 million, down 6.7 per cent on the previous year.

The drop came despite a 16.4 per cent rise in revenue to $1.2 billion.

F&P Appliances' share price had fallen about 14 per cent during the past two weeks but climbed 20c yesterday to close at $4.25 after the company forecast 2007 net profit of $75 million to $80 million.

Macquarie Securities analyst Steve Hodgson said the result for last year was pretty much as expected but the outlook for next year had settled some market nervousness.

"The fact that they came out and re-affirmed what everyone was formally forecasting anyway means it was basically something of a relief and hence the share price reaction," Hodgson said.

The company said the profit drop was due to higher raw material and interest costs, and an unfavourable exchange rate.

The company's appliances business posted pre-tax profit up 5.5 per cent at $81.4 million, while the finance division recorded a drop of 5.4 per cent to $28.4 million.

Chief executive John Bongard said the company was pleased with the result, which was slightly ahead of guidance given in February, in light of a tough year.

"The result is an indication of the robustness of both businesses as we've gone through what has been a forgettable 18 months," Bongard said.

He noted that interest expense had been $13.2 million - more than double the previous year's $6.2 million.

The company expected raw material costs to stay at relatively high levels without any major movement in either direction through to December.

Driving cost out of the business remained high on the agenda for the coming year.

"The cost down programme is just absolutely continuous and I can speak for the appliance and finance group on that," Bongard said.

This ongoing review included every part of the company.

"It would be foolish to stand up and give assurance that things aren't going to be moved, because life's just not like that any more."

The company was expecting solid growth in the United States for the F&P and DCS brands.

The relocation of the washer plant to Clyde in the US would reduce working capital and freight costs while providing faster delivery to customers.

The motor plant and Smart Load dryer manufacturing lines, now located in Auckland, would also be moved to Clyde midway through this year.

These transfers were expected to result in a working capital saving of $23 million a year and an improvement in pre-tax profit of $5.8 million.

The local market was expected to weaken and Australia remain flat during the next year, although new products would offer more sales opportunities in both countries.