Fisher & Paykel Appliances told shareholders to expect a big fall in first-half profit, but the company is resolute in the belief that the historic steps it is taking offshore will improve profits long-term.
The appliance exporter is responding to a crunch from the high New Zealand Dollar, high input costs and high shipping rates by shifting production out of New Zealand to reduce costs and be closer to larger markets.
The company is optimistic a new high-end range will sell well in international markets even in the midst of a global credit crunch.
The closure of New Zealand factories has hurt a loyal workforce and today shareholders were told there was pain for them too. "We expect the normalised first-half after-tax result to be approximately 50 percent down on the previous corresponding period," chief executive John Bongard told the annual meeting.
Abnormal costs associated with the relocations will take the first-half bottom line to a $7-$10 million loss.
After-tax earnings for the full year are forecast to be at the low end of analysts' current projections.
But the relocation of manufacturing is going well and the savings from the new Thailand factory are exceeding expectations. The company will be putting up its prices in all its markets in the next two months.
" The second half of the year will see the full gains from the Thailand plant and preliminary gains from the Mexican plant being realised, " the company said.
This along with a relocation of some cooking products to an Italian factory from December onwards will " have significant positive impact on future bottom line results".
The high New Zealand dollar reduced sales revenues by $74.9m last year.
Fisher & Paykel sells one in two whiteware appliances in New Zealand and one in two of them are now the low-end Elba brand.
The company is increasing its market share in North America even with that market back by 10 percent to 15 percent.
The company is also excited about a new strategic partnership with Arcelik from Turkey.
The company today signalled a sale of capital notes in New Zealand later this year to diversify funding profile.
Fisher & Paykel has produced more than one million dishdrawer dishwashers in 10 years and the innovative product was a catalyst for expansion offshore.
"Innovation remains our competitive advantage," Mr Bongard said.
Izona, an elite range of products at the ultra high end of the market, will be released to all markets in the coming months.
The initial offering is limited to three new products, a cooktop called CookSurface, an auto-sensing rangehood called VentSurface and CoolDrawer, a refrigerator/freezer in a drawer concept. "It can be converted from a freezer or refrigerator mode, to a wine chiller or pantry mode, at the touch of a button," Mr Bongard said of CoolDrawer.
He also said that the finance business the company failed to sell was stable but experiencing increase d funding costs and higher bad debts. Debenture reinvestment rates have stabilised and are currently at 60-65 percent.
"The business has significant cash flow with payments from customers exceeding $600m per annum. This strong level of cash flow together with the ongoing support from investors and banks underpins the business. "
In the midst of an economic downturn and in a year in which the company was accused of selling out on its own country Mr Bongard concluded " we have a proud heritage and I know we will take this with us as the business develops globally".