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Wednesday, April 9, 2008

Fisher & Paykel Healthcare profit downgrade masks good performance

It was almost inevitable that Fisher & Paykel Healthcare [FPH] would come out with a new lower profit guidance to March 31 2008 today, from a former guidance of NZ$67 million down to $58 million dollars.

A higher NZ dollar marks down profit to the company when repatriated back to New Zealand of approximately NZ$2.5 million every percentage point the $US goes down against our currency.

The very good news that should put shareholders minds at rest is that US revenue was up strongly by 18% to US$ 270 million.

On the back of that though high demand for the company's respiratory humidifier products outstripped supply in the all important United States market.

Clearly this shouldn't have happened and management should be well displeased with their efforts in letting down buyers and consumers alike. This highly competitive market doesn't like mistakes such as these.

High demand also for Fisher's consumables and their respiratory and acute care products allowed CEO,Michael Daniell to comment,"we expect a strong start to the new financial year and continuing increase in demand for our products".

Fisher and Paykel Healthcare have grown strongly in the US market over the last five years and are one of the most innovative and technologically driven companies of its type in the world.

FlexiFit 405 Nasal CPAP/BiPAP Mask with Headgear from Fisher & Paykel

Image courtesy FPH

	Toughen Up: What I've Learned About Surviving Tough Times byMichael Hill
	Think Bigger: How to Raise Your Expectations and Achieve Everythingby Michael Hill

c Share Investor 2008

Tuesday, April 8, 2008

The Warehouse Court of Appeal case lay in "Extra's" hands

Chart for The Warehouse Group Limited <span class=

The Warehouse Group @ Share Investor

Long vs Short: The Warehouse Group
Warehouse bidders ready to lay money down
The Warehouse set to cut lose "extra" impediment
The Warehouse sale could hinge on "Extra" decision
The case for The Warehouse without a buyer
Foodstuffs take their foot off the gas
Woolworths seek leave to appeal to Supreme Court
Warehouse appeal decision imminent
Warehouse decision a loser for all
Warehouse Court of appeal decision in Commerce Commission's favour
MARKETWATCH: The Warehouse
The Warehouse takeover saga continues
Why did you buy that stock? [The Warehouse]
History of Warehouse takeover players suggest a long winding road
Court of Appeal delays Warehouse bid
The Warehouse set for turbulent 2008
The Warehouse Court of Appeal case lay in "Extras" hands
WHS Court of Appeal case could be dismissed next week
Commerce Commission impacts on the Warehouse bottom line
The Warehouse in play
Outcomes of Commerce Commission decision
The fight for control begins soon

Share Investor Forum-Discuss this topic

Quite a number of my readers have been searching for any possible hints on what may happen with The Warehouse Group [WHS .NZ] and the long winded saga over whether it is going to be allowed to be sold to either Foodstuffs or Woolworth's Australia [WOW.AX] when a hearing in the Court of Appeal is heard 29 April-May 1.

Lets get excerpts from the November 29 decision by the High Court to allow a buyer to make a bid for the retailer as to where a judge in the Appeal's Court might go with the High Court precedents :

“We consider that there is a real prospect that the Warehouse Extra will be abandoned when it is reviewed in [ ]. There is also a real prospect that the Warehouse Extra will instead continue to be trialled for a further period and then abandoned without any further stores rolled out. We consider there is not a real and substantial prospect that the Warehouse Extra will continue for long enough to establish the necessary halo on which the concept depends. Because of that, we consider that the roll out of more Extra stores on a scale that would make the concept sustainable is not "likely" to occur.”

This is the main crux of Foodstuff's and Woolworth's argument against the Commerce Commission in the High Court case and the same argument that compelled the Judge to make her decision in their favour.

Warehouse management haven't given an indication in their February profit announcement of any expansion of the "extra" format and didn't make more than a passing comment about its performance. Clearly a nod to the High Court's comments above "There is also a real...then abandoned without any further stores rolled out".

In addition to this, the High Court has also been very insistent that even if The Warehouse managed to roll out their originally planned 15 Extra format stores, that this wouldn't be of sufficient competition to the incumbent supermarkets, so poses no serious threat as a competitor of consequence and another reason for the High Court to make a decision to allow a sale of The Warehouse.

“For completeness, and although we consider that this is not a real prospect, we have also considered the likely state of competition in the event of a roll out of more Extra stores on a scale that would be sustainable for The Warehouse. We consider that the constraint from the Warehouse Extra, once rolled out to 15 stores, would not provide a material constraint on Woolworths or Foodstuffs.”

Now I'm not quite sure if this would be the case but if the new lawyers for the Appeals Court case have an argument to pin their appeal on, then it might focus on the ability of The Warehouse to be a serious contender once the 15 stores were rolled out, if The Warehouse do this of course, but in all probability they wont.

15 larger than supermarket stores would be good competition in the local areas in which they operate, but when you look at the New Zealand food market as a whole you can see the High Court's statement makes good sense. Real competition just wouldn't be there when one considers Foodstuffs and Woolworth's OZ combined, have over 200 markets of various brands and target markets.

The High Court also found the following:

The Court found (in some respects appearing to go beyond even Woolworths' submissions):

The pricing impact when a Warehouse Extra is opened is the same regardless of whether it is in a location where a Pak'n Save is also located;
The evidence indicates that Woolworths considers it worthwhile to observe the Warehouse Extra, not that Extra has led to a material change in Woolworths' competitive strategy;
The impact at Sylvia Park is difficult to gauge. What is clear is that the market share remains very small;
Foodstuffs has not responded to the presence of the Warehouse Extra at Sylvia Park;
Any price change in response to the Warehouse Extra at Whangarei is well below the level at which the Court would have concern;
Neither Foodstuffs nor Woolworths has responded to the Warehouse Extra in Te Rapa;
There is nothing in the evidence that indicates that the Warehouse Extra would cause pricing impacts of 2% or greater in the local markets;
The Warehouse Extra does not aim to be a main player in food (it seeks to get to 3% of the market), it does not intend to be a price leader;
The Warehouse Extra does not intend to behave as a maverick;
The one-stop convenience model has provided innovation but that innovation has not had the effect of constraining Woolworths or Foodstuffs.

To me, it is very interesting to note the local vs national competition arguments concluded from the evidence put forward by the participants in the High Court hearing.

Even if The Warehouse was to take the Warehouse extra format national, the most even the company sees as their share of the grocery market is 3%. Just on company intention alone it is clear why the High Court made its decision in November, they just wouldn't have been a serious competitor in the supermarket sector in this country, under any scenario put forward at the hearing and therefore having Foodstuffs or Woolworths buy them wouldn't be seen as removing a serious competitor to our two company supermarket duopoly.

Fast forward to the Appeal Court case in May and you can see that The Commerce Commission are going to have a tough case to argue against the November High Court decision.

You cant see them using the extra format stores as an argument to preclude either Foodstuffs or their giant competitor, Woolworths, from making a pitch at The Warehouse, because "Extra" doe not, and will not in the future, provide any serous competition in the grocery market and therefore a purchaser of The Warehouse would not have a competitive advantage over the remaining player or provide a third supermarket chain to the New Zealand retailing landscape.

The only thin veil I can see The Commerce Commission arguing a Appeal Court case on is a time factor.

That is, if The Warehouse were allowed to continue to trade as it now is, its Extra format stores, would in time, prove to be as successful as similar formats have been overseas. Walmart is a good example of this success. But that will clearly be hard to prove as results so far have been far below Warehouse management expectations and overseas comparisons.

The Commerce Commission seem in an un-winnable place in my opinion, because ultimately, their main basis in argument, The Warehouse Extra, isn't performing well and furthermore isn't going to be seriously considered as a long term prospect, even by The Warehouse themselves.

Disclosure: I own WHS shares

Related Links

The Warehouse Financial Data

Monday, April 7, 2008

Biology a major key in the glass ceiling for women

The minute you focus your energies on hiring your staff because you must have “diversity” or a broad range of people in your company is the minute that you are making a fatal mistake.

Clearly a lot of those men and women on our listed company boards are not the brightest light bulbs in the supermarket but we won’t go there in this column.

After the perennial report from the Human Rights Commission showed that there were a lot less female directors in New Zealand’s publicly listed companies, 45 female directors in the stock market's top 100, readers of their report could be forgiven for thinking that general work culture needs more women sitting behind the big mahogany desk simply because they were born without a particular appendage.

There is some truth to that but probably not the reason that you think.

Last week, Equal Employment Opportunities Commissioner Judy McGregor said she'd like the top 10 companies on the NZX to say they are making moves to bring women on to their boards. She points the finger at Fisher & Paykel Appliances.

"I would say about 80 per cent of its whiteware is bought by women, and it markets itself as the sponsor of the Silver Ferns, “says McGregor. "If it's good enough for women to buy the product, and market the product to women, would it not be good to have women on the board?"

NZ Herald, 6 April 2008

Granted, it maybe wise to have a broad range of thinking in the boardroom but Fisher and Paykel does focus group research on the products that they sell, with women as contributors, and in this way, the end user, usually women, have an input into what they use.

The CEO of Fisher and Paykel Appliances[FPA] is John Bongard, he has been with the company for 35 years. John started as a purchasing cadet and rose through the ranks until he was appointed Chief Executive Officer in 2004.

This is where I get to the meat that is missing from the likes of Judy McGregor and Shayne Quanchi’s-from Hallentsteins Glassons[HLG]-argument.

A large part of the “missing women” at board room level hasn’t got a lot to do with the “Old boys club” or knowing the right people, although that clearly still goes on, but it has more to do with biology.

We all know women can do most things that men do right? Right, including footing it in the boardroom but something that women also do is reproduce-no not buying identical shoes-but have our kids.

The gap that comes while a women raises a child could be as much as five years away from the workforce, starting at around 30 these days, a crucial age in the forming of a lifelong career in the boardroom, and on the way to the top, and I would argue fatal in terms of developing the skills needed to get good boardroom positions in our listed companies.

Blaming others for a biological fact for your lack of representation at the long table is ignoring the blatantly obvious.

Two examples of how women in this country back up my argument, but there are many more, are the omnipresent Helen Clark, Prime Minister of New Zealand and the former CEO of Telecom, Teresa Gattung.

Now regardless of how bad or good you might think either of these two are and were at their prospective jobs, and I think they were truly awful, they rose to the very top of their professions.

There are, however, a couple of things these two women have in common. Sacrifice and determination to get to the top.

It is no secret that the personal lives of Clark and Gattung have been filled with sacrifice. Neither having children, or had successful and fulfilled relationships with the opposite sex.

Is it a coincidence that these two have lackluster personal lives? I think not.

We all know how many men out there have sacrificed family life, hardly see the kids and end up divorced simply because they were married to their career.

More time was put into Helen and Teresa’s careers, that is what they obviously wanted, and fair enough they both achieved their goals. Well done.

While there are women who are able to do both the mother thing and have a career, I don’t think it is possible to do both well and long term.

Jens Mueller, of the Waikato School of Management, who set up www.finddirectors.com a year ago, says about 30 per cent of the 320 directors on the site are very well-qualified women. "If you broaden your search you will sweep up some superbly qualified women," he says.

Now the Waikato University is the most PC mad institution in the country and it is no surprise that their School of Management has a wrong headed approach by focusing on women as possible candidates for director positions rather than the best individual for the job.

When you go down this track you follow the University thinking that ultimately there must also be a quota of Maori, Pacific and Asian candidates nominated simply because they fit some grouping rather than being the best for the position.

Presumably one day there will also be a lack of left handed, lesbian, tea growing women from the Alaskan foothills not being represented in our board rooms, but will they be good employees?

Seeing as there is so much emphasis on men and the positions that they reach in business vs. the low levels that women reach, it may do just as well to measure in some way how well men do in running a business vs. women to get a better idea of how competent each are?

That might truly tell us something.

Friday, April 4, 2008

Watching Sky Television

Chart for Sky Network Television Limited (SKT.NZ)

A continued drop in share price for SKT, in the face of an historically high Kiwi dollar,
doesn't bode well for the company when the NZ dollar loses value.

Sports, The Sopranos, Coronation Street and Late Night with Letterman, my personal Fav-we all watch too much TV but is it a good investment?

On first glance Sky Television Network [SKT.NZX] looks like a great blue chip, with excellent prospects and good cashflow. They announced an excellent profit of just over $NZ 51 million for the half year to Dec 31 2007 which was up roughly 40% on the same period last year.

I would argue though that Sky could face an uncertain future, for a number of reasons.

The technology needed to keep the company updated and competitive is very expensive and will require much shareholder cash to do so. Sky need to continually update technology, because they will face intense competition in the future, from cheaper and better services from foreign lands sending their content to customers in New Zealand, through broadband pipes that look set to get bigger from this year.

Another large problem Sky face is the cost of programming.

Currently the Kiwi exchange rate vs the US dollar, where the bulk of Sky programming is purchased, is at near post float highs and has been unusually high for a couple of years.

This is unlikely to continue, as historically the NZ dollar averages below 60c to the US dollar.

Like other shares listed on the NZX, the price of SKT has been hit badly, down to $4.90 currently but off from an all time high of above $6.50 just over 2 years ago.

The share price really should be doing alot better considering the historically high NZ/US dollar cross.

Further weakness in share price will clearly be the order of the day when the NZ dollar falls.

The company is in a dominant position at present in the pay TV market, it is the only player, but its customer satisfaction isn't good, as they use their monopoly position to excuse weak customer care.

Something that monopolies like Telecom NZ Ltd [TEL.NZX], and Auckland International Airport Ltd[AIA .NZX] also suffer from.

Sky Television management need to be a bit more savvy in their outlook to the competition that is out there.

With the internet and mobile technology playing an ever increasing influence in the war for consumers eyeballs, their attitude to that technology and a better attention to customer service and satisfaction will help them counter their competition.

The jury however, is still out over whether they can achieve that.

Disc: I own AIA shares in the Share Investor Portfolio

Sky Network Television @ Share Investor

Long Term View: Sky Network Television Ltd
Watching Sky Television
Market Quickie: Sky TV Worth Watching

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c Share Investor 2008

Share Investor

Wednesday, April 9, 2008

Fisher & Paykel Healthcare profit downgrade masks good performance

Tuesday, April 8, 2008

The Warehouse Court of Appeal case lay in "Extra's" hands

Monday, April 7, 2008

Biology a major key in the glass ceiling for women

Friday, April 4, 2008

Watching Sky Television

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