Correspondence
Back to Correspondence[copy of letter sent to Fisher & Paykel Appliances Holdings Limited]
21st May 2009
Fisher and Paykel New Zealand Limited
PO Box 58732
Greenmount
Manukau 2141
Attention: The Chairman, Gary Paykel
Dear Gary,
I recently completed an analysis of the published financial statements for 47 public companies for the June 2008 or equivalent year end from a banking perspective. Obviously with the public default of Nuplex and the disclosure by them of critical banking covenants, debt has become an issue that the market should be concerned about.
Of those 47 companies 20 were, based on the knowledge that we now have of banking covenants, potentially in debt difficulties. Your company was one of those companies.
Rather than publishing this research which would have been irresponsible, I have instead elected to pass it to the New Zealand Shareholders Association to deal with in its usual manner.
I thus now write to you in my capacity as NZSA Chairman.
Based on your last full year published result, the key bank covenant ratios for your company are as follows:
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Covenant
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Likely level of bank discomfort
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Your result
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Debt to Ebitda
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Above 4 likely default, based on Nuplex disclosure, above 3 discomfort.
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7.58
Debt $554,752k ( bank only)
Including bank debt in finance subsidiary.
Finance payables $323,719k
Finance receivables $584,931k
EBITDA $144,898k
|
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Interest bearing debt to book equity
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Above 1 discomfort above 2 likely default
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1.70
Book equity $646,448
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Interest bearing debt to net tangible assets plus interest bearing debt
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Above 90% default, above 75% discomfort
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78%
NTA’s Plus interest bearing debt $869,892k
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Earnings before interest and tax to interest paid
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Less than $3 discomfort, less than $2 default.
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$4.27
Interest Paid $22,122k
(excluding Finance payables interest, in essence treating interest margin as EBITDA)
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To provide some clarity to the basis on which this analysis is prepared, I refer you to my personal Blog onStuff (Stirring the Pot.) The final in that series is attached as it explains how these numbers were compiled and will assist you in reconciling your reply.
Your difficulties are now in the public domain on the back of declining EBITDA and debt movements on exchange volatility. The result is a drastically worse position than that already evidenced by these figures.
It is time for you to determine what you should do to stabilise your balance sheet.
In our view you should seriously consider a divestment of some or all of your finance arm. The original intention of this was to support your own sales, but given the growth in the availability of consumer finance, this is no longer such a relevant consideration.
You obviously need to raise capital. You are an iconic New Zealand company. Your basic business is sound and would likely be supported by shareholders if given the chance. Therefore we would encourage an underwritten rights issue. We do understand the difficulties of obtaining an underwrite in this market, but regardless, it is time for you to outline your plan.
In the circumstances we ask that you comment on our analysis and the issues raised in such manner as you see fit, and further ask that you disclose your bank covenants in detail and the relevant ratios to show that you were in compliance at your last balance date and remain compliant at the date of your letter. Further you should also disclose your covenants with your capital note holders and your depositors and confirm your compliance with these covenants.
The Association usually publishes its correspondence within 7 days of the letter being issued: however the issues we raise are in our view so fundamental to the wellbeing of both the company and its owners that we will delay publication for up to 21 days to give you the opportunity to respond.
Yours faithfully
NEW ZEALAND SHAREHOLDERS ASSOCIATION
Bruce Sheppard
Chairman