Bruce Sheppard's debt debate points the finger at you

Bruce Sheppard's crusade on NZX listed companies and their debt levels has apparently come to an end but what has it achieved?

Well, it is always good to get frank and open debate about our listed companies, because if you have been reading my comments over the years the NZX and their mates are almost a closed shop as far as communication and disclosure are concerned.

Bruce also highlighted several companies that have either collapsed or a sailing very close to the wind in terms of their debt levels; Cadmus-Provenco, Nuplex Ltd [NPX.NX], Fisher & Paykel Appliances [FPA.NZ] and more.

The non-reply's to Bruce's letters from Sky Network Television [SKT.NZ] and Team Talk reveal more about respective company management and poor attitude to shareholders apart from a possible debt problem.

Nothing substantive in terms of conclusions were made by Bruce but he quite rightly puts the responsibility back on individual investors to do their own homework:

Just as I and the SA are prepared to be judged by what we do, right or wrong, well or badly, so too should companies be judged. So rather than me analysing the responses in detail or providing you with any guidance on the strength or weakness of the companies written to, you must do this for yourself by reading our letters and their replies.

The companies were on my list because I thought, and still think, they have too much debt and are at risk in an economy such as this. That is my prerogative, you will each have your own risk profiles and you will each analyse the prospects and debt profile of these companies for yourself. It is my view that debt is the number one risk faced by equity investors today and that is why I did this work. 

Read the full conclusion @ Stirring the Pot

Why am I interested in Bruce's opinion so much on such matters?

Well, I mostly like what he says, he stimulates debate and he is an influential person.

The main point of Bruce's debt exercise? Looking at issues like debt, company management and company performance are essential when investing and should be done by you dear reader.

Oh, and he also finally disclosed ownership of shares in a couple of companies.

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c Share Investor 2009

List of Bruce Sheppard's top NZX listed company debt worries (UPDATE 7)

This update adds GFF, SKT & SKC to the List

Further to rumblings made by Bruce Sheppard on behalf of the New Zealand Shareholder's Association in May that in his opinion, roughly 20 listed companies in New Zealand were breaching banking covenants and after writing to these companies 2 so far have replied to Bruce. He is naming names as each company replies to him.


1. Fisher & Paykel Appliances [FPA.NZ]

2. Nuplex [NPX.NZ]

3. Tourism Holdings [THL.NZ] - Read THL's letter to Bruce
4. Vector Ltd [VCT.NZ] - Read VCT's letter to Bruce

5. Freightways Ltd [FRE.NZ] - Read Bruce's letter to FRE & the reply
6. Skellerup Holdings [SKL.NZ] - Read Bruce's letter to SKL & the reply

7. Comvita Ltd [CVT.NZ] - Read Bruce's letter to CVT & the reply

8. Ebos Ltd [EBO.NZ] - Read Bruce's letter to EBO & the reply

9. Abano Healthcare Group [ABA.NZ] Read Bruce's letter to ABA & the reply

10. Metlifecare Ltd [MET.NZ] Read Bruce's letter to MET & the reply

11. Restaurant Brands Ltd [RBD.NZ] Read Bruce's letter to RBD & the reply

12. Kirkcaldie & Stains [KRK.NZ] Read Bruce's letter to KRK & the reply

13. Sky Network TV [SKT.NZ] Read Bruce's letter to SKT *

14. Sky City Entertainment Group [SKC.NZ] Read Bruce's letter to SKC & the reply

15. Goodman Fielder [GFF.NZ] Read Bruce's letter to GFF & the reply *


I will post the rest here as and when the other 5 odd companies reply to Brucie.

The laggers need to get a wriggle on, otherwise it wont look good for them.

Bruce is going to list those that didn't reply to him next week.


Disc I own FRE, SKC & GFF shares in the Share Investor Portfolio


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c Share Investor 2009

Seppuku looking like an attractive alternative to doing nothing

I am not asking for a ritual Seppuku that originated from Japanese Samurai Swordsmen and is still practiced occasionally by shamed Japanese CEO's today but bloody hell I would like at least an attempt at showing responsibility and least some sense of shame when our business leaders do wrong. (gee I have been writing some negative stuff over the last few days - I will be back to stocks next column, I promise)

New Zealand leaders, especially the CEOs of our listed companies are renown for not taking responsibility for making mistakes and costing shareholders precious dollars and company reputations, in fact some have made an art of the practice.

Our company and cultural history is unfortunately littered with a very long list of them.

I have one such man in my sights for special attention, John Bongard from Fisher & Paykel Appliances [FPA.NZ]

When the company announced a few days back the appointment of two new board members from their largest shareholder and recent savior of the company from collapse Haier, one might have expected JB to take a running leap off a short board table and announce he would be taking early retirement from his CEO position.

It seems that it s not to be but that is not unusual in these days of avoidance of responsibility

John Bongard borrowed too much money too quickly to move the New Zealand domiciled and created company to overseas manufacturing bases and buying an overpriced European appliance maker a few years ago with borrowed money certainly didn't help -sure expand, but do so in a financially prudent and methodical manner without putting your company and your shareholder's moola at risk.

The thing is you eventually have to pay the money back or default on your loans as FPA did.

Go on, while I'm having a bitch I should be having a go at the rest of the board as well because they voted along with JB.

Lets hope the two Chinese gentlemen that have just put their feet under the board table can sort out the bottom drawers from the top loaders.

The company will simply limp along in the same hopeless direction they have under Bongard if they don't.


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c Share Investor 2009

Stock of the Week: Fisher & Paykel Appliances Ltd

This is the beginning of a new a column. A regular outing, I will pick one stock that may have been in the news - good or bad-or one that simply takes my fancy and recommend that investors might like to take another look at it to see if it fits their investment profile.




The inaugural Stock of the Week pick is Fisher & Paykel Appliances [FPA.NZ]. Long given a good stiff verbal beating by my good self over many years the main reason why I am picking this stock for closer scrutiny is the ability for you short term investors out there for you to make a quick buck rather than the slow and sometimes painful ones that I make.

Yes, yes, yes you could have bought at NZ 37c a few weeks back but the company's future survival wasn't clear at that point.

The stock closed at 66c on Friday and is on a trading halt until this Wednesday 27 May.

It seems there is to be some material news out this Wednesday in regard to the success or otherwise of its capital raising process.

It seems likely that the news is going be that some kind of finance has been found to keep the company going, at least for the short to medium term, with a 200 million rights issue mooted by BusinessDay over the weekend, the main reason given by FPA management for putting a trading halt on today.

There is some life left in this beast yet, how much we cannot be too sure, but there is short to medium term money to be made if one gets in early on positive news after trading is lifted on Wednesday. The short-term money to be made will be on buying quickly on Wednesday and flicking shares off to those who want to participate in the rumoured capital raising (it could actually be a cornerstone shareholder instead of or as well as) or buying quickly and holding medium to longer term hoping that the company can trade its way out of its current financial, revenue and profit troubles.

It is worth a look at and I will be taking a cursory glance at it on the big day to see if I can gain any benefit from it, as I am not against a short term punt myself.

Good luck.


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Fisher & Paykel Appliances


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c Share Investor 2009

Fisher & Paykel Appliances future looking bleak

For those of you who have followed my rantings on this that and the other over the last 2 years or so, you will know I haven't got much time for Fisher and Paykel Appliances [FPA.NZ] the so-called "kiwi business icon" and today is no exception.

Get ready for another rant.

It has been poorly run for many years and was only a success largely because of protectionism in New Zealand and has fought that protectionism and lost the battle.

To me Fisher and Paykel Appliances is looking terminal. It has more than half a billion of debt on its books, with a massive slashing of its sales and profit, and bleak hope for the future.

The company is technically bankrupt.

For management to blame the current credit meltdown is moronic and dishonest at best. There has been clear evidence of a spiraling down of company fortunes over the last 10 years, not the least the massive debt that has been allowed to build up.

It shows the lack of forward planning that management did nothing about that debt until the very last minute and it is only the current dire credit climate and global economic circumstances that have accelerated an inevitable credit crunch.

FPA management have been blessed with less foresight than an Al Gore devotee with a blindfold on that they couldn't see the end coming.

The simple fact that it has taken more than six weeks to find some poor sucker to poor millions of dollars more into this loser shows the less savvy investor that nobody really wants to touch it with a 10 foot dish draw.

Having said that what the company does have to its advantage is one or two products that could be useful to another company looking for an edge in the whiteware market and a brand name with just enough cache left that could be used by a more competitive and well managed whiteware manufacturer.

For that reason alone the best thing for the company is for it to be broken up and sold.

That is sad, but some "business icons" have their best days behind them and Fisher and Paykel Appliances is definitely one of those.

Will the company survive?

Unlikely in its current form.

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c Share Investor 2009

Promise of Bailout bad omen for taxpayers

Seems John Key is a socialist in drag:

Prime Minister John Key has signalled that the Government could step in as a last resort to prevent renowned whiteware maker Fisher & Paykel from collapsing. Stuff.co.nz

F& P have been ripping kiwis off for 75 years with overpriced poorly made whiteware and now taxpayers could be bailing it out because of its bad management.

This is something Labour would have contemplated so is clearly the wrong thing to do.

I own shares in Sky City Entertainment and they employ 5000 people, more than 3 times of those working at F & P.

Would they bail Sky City out?

No.

Dumb Johnny dumb, let the company fold. 

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c Political Animal 2009

Fisher & Paykel Appliance's profit downgrade continues fine tradition

Today's poor trading update announcement for Fisher & Paykel Appliances [FPA.NZ] was really of no surprise to the market as a whole and to those insiders who traded the stock down over the last week because they knew this announcement was due soon.

There will be more bad sales updates to follow methinks because today's indication only covers the last few months of trading since the previous profit announcement at the end of 2008.

I wrote back in May 2007 the main reason why I see the company having problems and it ain't the recession or the exchange rate:

While the left of Lenin media and every two-bit polly and union rep have a go with their own wide of the mark opinion, blaming the F & P move on a high dollar and high costs the fact is that F & P have never been competitive but are now being forced to by the market reality of cheap well constructed and better designed appliances coming from the very places that Fishers are now moving to...Share Investor Blog 2007

I see today that John Bongard, Company CEO, is still blaming outside influences beyond his control. Sales are down but that shouldn't account for a halving in profit.

It is bad management of costs, poor product at high costs and a siege mentality to selling that still lingers from the days when the company wouldn't allow any other brands in a store if they sold their product.

Bongard continues that tradition accepting today that he wouldn't say no to a taxpayer handout if it was offered one.

Bongard needs to fall on his sword for poor management over his tenure and now would be a good time.

I wrote on January 21 that the company was "looking fair value" at $1.32 but countered that with a warning that appliance makers were going to be hit hard.

This is clearly going to continue for sometime and likely to get worse before it gets better and there could be another profit downgrade before the company profit announcement in May.

The opportunity presents itself now for savvy investors to buy a stake in the company for less than half the price it was less than a month ago.

Fisher & Paykel are contemplating a capital raising on a pro-rata basis which means that any existing shareholder will have a right to purchase x amount of securities when it begins so if you are looking to get a stake a dilutionary effect on the share price will likely happen so you could well get shares for less than today's closing price of NZ $0.65c , down 35c on the day.

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c Share Investor 2009

Fisher & Paykel Appliances looking fair value

I have given Fisher & Paykel Appliances [FPA.NZ] a beating over the last few years.

This is mainly due to its future prospects as a long-term going concern and the value that the stockmarket has previously given it.

The stockmarket plunge of the last year or so has largely changed my opinion.

That and more than a few changes management have made, and global economic circumstances as they are, have worked in the company's favour.

Lets have a look at the circumstances outside company control that are benefiting them first.

Input costs such as steel, plastics and appliance component's will have drastically come down in price over the latter quarter of 2008 and during the beginning of this year.

Couple this with a collapsing NZ dollar and you have a recipe for a profit improvement when the global economy recovers.

The full financial force of management moving key areas of manufacturing to Thailand is also set to be shown in the next reporting season come mid-May.

I must reiterate that my previous history of negative comments on the company focused primarily on Fishers attempts to compete globally by manufacturing in the high cost base of New Zealand with small production runs with niche products.

This has been slowly ameliorated by introducing a lower cost brand that sells alongside Fisher & Paykel branded goods and competes on a more level footing with the LG's, Mitsubishi's and other big appliance brands.

This is where I may have been a bit short-sighted in my previous criticism of the company.

If the company can grow its lower cost brand, making more units and therefore lower production cost, then they will be more able to compete with the aforementioned brands.

Selling their niche appliances alongside will be the icing on the cake.

Of course the only stumbling block to this whole process of transformation is going to be the global recession that I have already mentioned.

It has hit sales of appliance companies like Fishers badly-you can always put off that fridge purchase in the tough times!

All is not lost though it wont last forever.

Id love to see Fisher & Paykel make it to the big time.

The stock was down 1c today to NZ$1.32, not quite at its low of $1.18 but clearly close.

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c Share Investor 2009

Fisher & Paykel: A Tale of two Companies

The two Fisher stocks, Fisher and Paykel Healthcare[FPH] and Fisher and Paykel Appliances[FPA] are interesting propositions when looking to top up the portfolio with a potential good long-term growth company.

These two stocks used to be parts of one company and lately the share prices of the seperate companies have been trading at a similar level.

The long-term growth story and prospects for FPA and FPH could not be more different though.

Fisher and Paykel Appliances, the small white ware producer is struggling at present.

While FPA has done well in the past and continues to grow revenue, its profit margins continue to slip as competitors have produced cheaper product with more advanced technology, previously the sole domain of FPA. Their best days appear to be behind them.

The company has responded to cheaper and more savvy foreign product by cutting production in New Zealand, their home base and moving to cheaper cost bases in Thailand.

In my opinion, this will be the only way they can continue to compete with global giants such as LG and clearly this is a case of ever diminishing returns with a finite term for cost savings. FPA simply cannot compete successfully long-term with their much bigger global competition.

Management at FPA seem to be a little confused about what direction they are heading in though. They want to compete by producing more white ware units but say they want to be a niche player with higher margins. They cannot compete as a high volume producer because they are simply too small and even as a niche player they struggle against competitors flashier product.

I have a more positive spin with regard to Fisher and Paykel Healthcare though.

The only black spot that I see on the horizon for FPH and something that it shares with FPA, is the high New Zealand Dollar but that is going to be a temporary thing as the status quo for our currency is usually for it to be weak and there is no reason why that wont be the case again given the sad state of our economy.

FPH is a company on a continued drive, in its niche market as a health equipment products producer, to expand the company through innovation, technological advantage and being at the cutting edge of its business by investing in research and development to keep its very high margins.

The margin story for this business is one of the most exciting parts, apart from the technological breakthroughs they have made for the likes of sleep apnoea and various breathing apparatus.

Most companies would kill for the margins that FPH provide for their shareholders and this puts them in good stead as they move forward and continue to innovate with new products and therefore hopefully similar high margins.

The biggest breakthroughs and innovations seem to be coming from the new sleep apnoea products range. In the year to March 2007, FPH's revenue from sleep apnoea products rose 27 per cent to $162.1 million.

At last month's annual meeting, CEO Mike Daniell estimated that F&P had around 7 per cent of the global market for such products, which is growing at about 15 per cent a year.

These products will help FPH to compete with its competitors Respironics and ResMed , its two main rivals, which both sell these products.

This kind of innovation is part of the culture of the company and it will clearly continue to be a driver of profit growth as the company gets bigger.

The two Fisher stocks were split for a reason. Management knew this at the time of the split and the tales of both companies since tell the story that management probably knew as they were taking the knife to the combined company.

"Mr Market" moves in mysterious ways and I'm still a little curious as to why he has valued these two companies with a similar share price because their future prospects couldn't be more different.


*Disclosure: I own Fisher and Paykel Healthcare


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c Share Investor 2007 & 2009

Market Musings on the NZX

Market watchers in North America and Europe may well be asleep as I write this. If you were down in this part of the world you would be watching your portfolio drop once again after NZX investors took their lead from you who are asleep at present. The NZX is down 60 points as I write with the ASX down 165.



My portfolio is down almost 20% from this years highs and the bulk of that drop has been in the last two weeks.

Fear has gripped our market and our dollar cross with the US dollar has fallen from an all time high of over 81c to less than 70c as I write because foreign investors are moving their Kiwi investments offshore for "safer" risks.

I am not selling and will not sell but my main problem at the moment is when to buy more of what I already hold. There are 4 stocks out of the 11 that I hold that have fallen below their original purchase price but they seem to becoming cheaper and cheap by the day. I wait with my finger poised on the buy button on my computer screen.

One stock I am looking at more closely, now that the Summerset Retirement float has been cancelled today, is my holding in Ryman Healthcare (RYM) the Retirement home operator. It is looking tasty but could go lower.

Opportunities also abound in NZs Blue chips. Telecom New Zealand(TEL) is due a 14c dividend soon and is trading well down. Fletcher Building (FBU) has been given a right troweling as of late, with a 23c dividend due and Sky City Casino (SKC) has its chips down a few days before their full year announcement on Monday 21 August.

Auckland International Airport (AIA) has news that just over 6% of its shares have been purchased by Infratil (IFT) in conjunction with a Government Retirement fund, a potential blocker of a merger between AIA and Dubai International Aerospace. Strangely AIA shares are up today.

Steel and Tube (STU) the steel maker and supplier, have announced a 10% profit decrease today on increased business costs and increased revenue. A 14c dividend waits in the wings for STU shareholders.

Fisher and Paykel Appliances(FPA) has announced that they are moving their electronics division to Thailand. It will share a factory roof with the washer division that announced plans to move there earlier this year. 96 jobs will go from South Auckland with a saving to FPA of 6 million dollars.

Meanwhile the Labour Government is in trouble with its voters because the partially State owned and listed airline , Air New Zealand (AIR) has been carrying Australian troops to get them to theatres of war in the Middle East, something that cuts against the beliefs of Labour ministers and a minority of over vocal New Zealanders. The share price landed sharply.

On a much lighter and perhaps tasty note, for the third day in a row Burger Fuel(BFW) has failed to trade.



www.shareinvestorforum.com





  c Share Investor 2007

Fisher & Paykel Appliances: In a Spin over nothing

Given the recent increase in the Kiwi dollar since this article about Fisher & Paykel Appliances [FPA.NZ] was written in May and published elsewhere, I thought I would update it.

In May the scenario was as follows.

So Fisher and Paykel(FPA) are moving their NZ washing division to Thailand and closing down their operation in South Auckland. So what.

It is very sad that semi-skilled workers in a low wage area no longer have work and that a New Zealand company long imbued with a kiwi badge will now be slapped together by a man or woman that may have paddled a boat or cycled to to work. Is it really a surprise or something out of the ordinary? Well, quite frankly no.

While the left of Lenin media and every two-bit polly and union rep have a go with their own wide of the mark opinion, blaming the F & P move on a high dollar and high costs the fact is that F & P have never been competitive but are now being forced to by the market reality of cheap well constructed and better designed appliances coming from the very places that Fishers are now moving to.

There may be incentives layed at the feet of companies like F & P to go to far flung areas where labour is cheaper than a life but it is just a market reality that this kiwi company has finally faced. You cannot compete with huge white ware companies on the small scale that F & P do. You are either a niche player with a product that commands a premium and those days are now over for Fishers or you ramp up production and compete on cost. F & P don't have scale so they will struggle in that market as well.

It is a natural progression in any capitalist nation for a business to want to cut costs at every opportunity. If that means moving the business to another town or across the world to another country then must needs must.

While it is clear that Government has driven up the dollar with wasteful and profligate spending it is also even clearer that govt could do one thing to not only keep current industry here but bring more manufacturing from abroad. No tax breaks from govt lackeys trying to pick winners, no incentives for this and that. Cut corporate tax to 10%.

The Irish have found for the last 10 years that this works. In a similar sad position themselves, as we are now, 1 million kiwis living overseas and the same amount on welfare, the far scattered Irish came back home and the success of their economy is the stuff of legend.

The moaners need to stop moaning. Central and local govt need to butt out of business and that means stealing well needed capital through high taxes and compliance costs must end. Govt is not the answer to the problem here ,it is the reason

It would behove the mass business media to focus on the real story here. The answer is not more welfare, this time for business, the answer is lower costs, regardless of a "high dollar".


Three months on, in August, Fisher and Paykel's share price has dropped further and margins will have been squeezed even more.

The good news for the company though is that the factory in Thailand will be closer to completion and therefore we will see a more competitive base for them to compete with the high volume producers.

Likewise the Kiwi dollar looks to be on a turn and with in conjunction with the cheaper production costs the savings will go straight to the bottom line.

Of course steel and other commodity prices have risen further still but Gary Paykel's shift to Asia means this will have less of a consequence than if they had remained bogged down in South Auckland.

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c Share Investor 2007