Review of F&P taking longer than expected

By DANIEL RIORDAN

The authors of a far-ranging review of Fisher & Paykel, whose recommendations could include spinning off the company's lucrative healthcare division, are finding the job more complex than expected, says the manufacturer's managing director, Gary Paykel.

Fisher & Paykel asked Deutsche Bank six months ago to prepare a review identifying the best long-term path for the company.

Mr Paykel said directors had received a number of interim papers from the review but were still awaiting the final product.

"I think Deutsche Bank is finding it a bigger job than they first thought," he told the Business Herald.

The company's major shareholders have been told that decisions based on the review will be made in the year's fourth quarter.



Mr Paykel said he had no strong views on what should happen to the company - unlike many of the company's investors and sharebroking analysts who have been advocating the need for healthcare's wealth to be unlocked by moving the division outside the parent company.

Barry Lindsay, investment manager of 6 per cent shareholder Axa New Zealand, says healthcare is the jewel in the crown and needs better treatment.

"The key issue is how to get the value represented by the healthcare business into the current share price. At the moment, it doesn't get enough recognition."

He said splitting up the company and floating healthcare on Nasdaq, the US technology-rich stock exchange, was a strong option.

"Its revenues are US-driven and it should get a better weighting rather than be buried inside a whiteware manufacturer."

In the year to March 2000, healthcare contributed 60 per cent of the company's earnings before interest and tax (ebit) on profit margins well above those of the whiteware division.

Healthcare's sales have grown at 15 per cent or more for the past five years, and are expected to double over the next five years. Almost all of the potential improvements included in analysts' forecasts for the company come from healthcare.



The pressure for a split is believed to be particularly strong from overseas investors, who have little interest in investing in whiteware.

Two of the company's four biggest investors are foreign fund managers Mercator Asset Management and the Capital Group Companies, each with just under 7 per cent.

"A corporate team advising a corporate? That tends to suggest they'll recommend what generates the most fees, and that's a break-up," said one more-cynical-than usual analyst.

But UBS Warburg analyst David Lane said splitting the company was far from a done deal.

"Management would need to be presented with rock solid reasons before they went and split up something they've worked very hard to turn around. They have a big passion for what they do, they employ a lot of New Zealanders and have worked hard to put efficiencies into the business."

He said the early stages of the company's restructuring plan started last September had gone well, and that had been reflected in the share price's run from about April to July, when it had spurted from around 600c to 750c.

Since then, however, a slower housing market in Australia and New Zealand with its pessimistic outlook for whiteware sales had handcuffed the price. It closed last week at 730c.

The overall goal of the restructuring plan was to return 15 per cent of shareholder funds by year two, double healthcare's revenue within five years with similar margins, and lift whiteware's ebit margin to 10 per cent by year three.

Whiteware's ebit margin for the year to last March was 6 per cent, up from 4.4 per cent in 1999.



Mr Lane said management saw synergies between the two divisions - the most noticeable being the use of the dishdrawer motor in one of healthcare's humidifier products.

Fisher & Paykel's biggest shareholder is AMP, which holds 7 per cent. Its NZ equities manager, Stephen Walker, agreed the company had moved to address whiteware's "worryingly low" returns but said it still had some way to go.

"The key issue is sales. They need more for the assets they've got."

He declined to comment when asked if AMP would prefer to see the company split. "But it has to do something to get better recognition for healthcare."