Fisher and Paykel Appliances struggles in North America

A writedown of almost 60% in the value of Fisher and Paykel Appliance Holdings' North American business could result in a brand disappearing and wipe out the value of one of its manufacturing plants.

Fisher and Paykel Appliances (FPA) announced yesterday it had written-off its North American assets by $70 million to $75 million.

Before impairment, they were valued at $119.5 million.

Forsyth Barr broker Tony Conroy said the asset write-downs were built into FPA's earlier financial guidance, but the size of the revaluation was large relative to the size of the North American business.

He said the write-down left the carrying value of the North American business about $50 million, which gave implied annual earnings pre-interest and post-tax of $4 million to $5 million.

A direct comparison with current earnings was not possible, because FPA did not publish that figure.

Mr Conroy expected the DCS brand to disappear, because its future appeared tenuous at year end.

The Ohio plant, with an estimated value of $12 million, could be written off, while the value of its Mexican plant could be downgraded.

Before revaluation, FPA valued the DCS brand at $39.5 million.

Plant and equipment was valued at $56.6 million, inventory was $11.5 million and barter credits were $11.9 million.

FPA acting chief executive Stuart Broadhurst said the charge would be recognised in the statement of comprehensive income as of its six-month accounts.

Craigs Investment Partners said the United States was a key contributor to FPA, where it was active at the premium end of the market, but shipments were back 20%.

It forecast a normalised net profit after tax (npat) for the first six months of this financial year at $1.8 million, 90% below the previous corresponding period and 84% lower than the second half of the 2009 year.

Its forecasts were based on a 19% decline in net sales, with a 20% decline appliance sales and 13% fall in finance.

But with the addition of impairment charges, the npat loss for the first half of the 2010 year could exceed $20 million.

This forecast was implicit on the appliances division contributing $36 million to group earnings before interest, tax, depreciation and amortisation (ebitda) of $51.6 million and, to achieve that, FPA needed to maintain margins, benefit from easing raw material prices and cost savings from its global manufacturing strategy.

Craigs has maintained its buy recommendation for the stock and left its target price at 82c, saying it was a cyclical stock and results from manufacturers such as Whirlpool and Electrolux, confirmed the worst was behind the sector.

The FPA share price was steady early yesterday at 64c.