F&P shares jump 15pc on job cuts

Three factory closures see 1070 jobs go

Fisher & Paykel Appliances' shares posted their biggest ever one-day gain after the whiteware maker revealed plans to lay off about 1070 staff to cut costs.

F&P said today it would close its Dunedin dishwasher factory, Brisbane fridge plant and Californian cooking appliance factory within 18 months and move production to cheaper facilities in Thailand, Italy and Mexico.

The move will see 430 jobs lost at the Mosgiel, Dunedin plant. In Brisbane, 310 jobs will go with 330 staff laid off in California.

F&P blamed "ongoing manufacturing cost escalations" for its decision, which it says will save $50 million a year before tax.

Shares in F&P surged 34 cents, or 15 per cent, to $2.54 on the sharemarket. That was F&P's biggest one-day gain since F&P Industries was split into F&P Appliances and F&P Healthcare in 2001. The stock's previous biggest gain was 9.5 per cent in March 2004.

Aside from the strong New Zealand dollar, and high interest rates, F&P said the increasingly complex and costly compliance costs of manufacturing in its home countries had contributed to its decision. The firm has also been battling high costs for raw materials such as steel, plastics and copper.

"On top of these factors, free trade agreements with low cost labour countries like China and Thailand have created a playing field we are unable to compete in," F&P managing director John Bongard said.

F&P said the decision to close the Dunedin plant had been taken in consultation with the Engineering, Printing and Manufacturing Union although the union disputed this.

Financial benefits from the Dunedin closure were expected to amount to about $14.5 million a year with one-off costs of $26 million, both before tax. Capital expenditure was expected to amount to $7.8 million.

Engineering and product development would continue in Dunedin.

Today's news follows F&P's moves last year to shift production of washing machines, clothes driers and electronic circuit boards used in its fridges, washing machines, driers and ovens to Thailand from Auckland at the cost of 446 jobs. F&P's Thai operations in Rayong will pay no tax for eight years.

ABN Amro analyst Dennis Lee said F&P was simply following the global trend set by rivals such as Sweden's Electrolux.

 "The indication is quite clear. They have to find the place that can provide them with the lowest cost production," Mr Lee said.

For its 2006-07 financial year F&P posted a 4 per cent fall in profit to $61.2 million. The 2007-08 result is due to be announced next month.

F&P said one-off costs from the closures announced today would total about $50 million before tax and be taken in the 2008-09 year. Capital expenditure to fund the move was estimated at $100 million.

The cost of shifting would be funded through an expected $100 million windfall from selling property in New Zealand and Australia, F&P said. Meanwhile, additional savings were expected from sourcing components from local vendors.

"All of our competitors globally are currently manufacturing in low cost labour countries," Bongard said.

"Our products are innovative and high end but unless we can reduce some of the cost disparities in the manufacturing process, particularly the cost of labour, we will not be able to continue to provide an adequate return to our shareholders."

F&P will continue making fridges and production machinery in Auckland. In total, F&P will retain more than 1600 New Zealand staff.

"It is with real regret that we are forced to make these relocation announcements, even though they are commercial imperatives for the business," Bongard said.

F&P also announced today that it was splashing out $US41 million ($NZ51.7 million) to buy a Mexican factory from alliance partner Whirlpool Corporation.

The factory, in Reynosa, would start producing fridges and dishwashers for F&P in July and January, respectively.

-With NZPA