Fisher & Paykel Healthcare First Half Year Revenue Down

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Fisher & Paykel Healthcare Revenue Down

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First half-year revenue down 1 per cent to $900 million and net profit after tax down 2 per cent to $222 million; a solid result given extraordinarily high COVID induced hospitalisation and product demand, in prior comparable period.

  • 35 per cent gross margin improvement compared to the first half of 2021, attributable to partial reversal of higher freight costs incurred in the previous comparable period

 

  • Interim 17 cents dividend payable on 15 December, inclusive of full New Zealand imputation credit

 

  • $75.7 million R & D investment for 6 months to 30 September 2021 and $700 million for increased manufacturing and distribution capacity planned for coming 5 years

 

  • COVID uncertainty precludes FY22 quantitative earnings guidance; however medium term growth prospects remain solid.

Fisher & Paykel Healthcare Corporation Limited (‘FPH‘ or the ‘Company‘) is a New Zealand-based healthcare group that designs, manufactures and markets products for use in acute and chronic respiratory care, surgery and in the treatment of sleep apnoea. The Company’s products are sold in 120 countries.

FPH comprises 2 product groups; Hospital and Homecare. Hospital products are used in invasive ventilation and include humidification products essential in respiratory, acute and surgical care, including COVID patients. Homecare products include devices and systems to treat obstructive sleep apnoea in the home and comprise masks and flow generators as well as data recording and data management technologies.

FY22 half-year results to 30 September 2021

FPH announced a gratifying half-year result given the numbers were coming off the back of a period of extraordinary high demand for nasal high flow therapy and respiratory hospital products, arising from COVID-19 hospitalisation surges globally. Total operating revenue for the period was $900 million, a 1 per cent decline from the previous corresponding period. However, revenue in the previous financial year was up 56 per cent, boosted by a surge in demand for nasal high flow therapy products, in response to extremely high COVID induced hospitalisation rates globally. Net profit after tax was for the first half was $222 million, 2 per cent lower than the first half 2021 profit outcome.

Seventy-four per cent of total revenue or $670 million is generated by the Hospital product group. This component of the healthcare business provides the humidification products, hardware equipment and therapies essential for COVID patients requiring respiratory care. Two thirds of this $670 million is from the sale of consumables, while the remaining third relates to the sale of installed hospital hardware. It is the ongoing use of this installed base of hospital hardware that underpins future earnings growth. The other favourable longer-term impact of COVID is the heightened awareness and experience of more clinicians being exposed to the superior benefits of FPH’s therapies and products, compared to competitor offerings.

The remaining 26 per cent of total revenue is sourced through the Homecare product group.  These products are used in the treatment of obstructive sleep apnoea and respiratory support in the home.

Gross margin improved 1.35 per cent compared to the first half of 2021.  This improvement can be attributed to a partial reversal of higher freight costs incurred in the previous comparable period.  These costs however remain elevated, compared to pre-pandemic levels.

An interim dividend of 17 cents will be paid on 15 December and will carry a full New Zealand imputation credit. This is 6 per cent higher than the corresponding first half-year.

The Future

The Company continues to invest for the future. R & D investment in the 6 months period to September 2021 was $75.7 million. In addition, manufacturing and distribution capacity is being increased, with a $700 million capital expenditure program announced for the coming 5 years. This includes expanding the existing Auckland campus and acquiring land for a second New Zealand campus where R & D and manufacturing activities can be co-located. Longer term, three manufacturing plants will be built outside New Zealand. The first of these is under construction in Tijuana, Mexico.

FPH did not provide quantitative earnings and revenue guidance for the remainder of FY22, given the uncertainty around hospitalisations and government responses to COVID-19 case numbers. This was the same position adopted at the time of release of FY21 full year numbers.

The significant boost to hospital hardware sales revenue experienced in FY21 is unlikely to be repeated in FY22, as hospitals around the world now have sufficient hardware capacity to deal with current COVID levels. Hospital consumables revenue for the second half year is likely to be less than the second half of last financial year, as hospitalisations approach normality. Homecare product sales are dependent on patient diagnosis rates which are expected to be above FY21 rates in the second half year. This business segment accounts for just 26 per cent of total revenue.

The 6 per cent increase in the interim dividend and announced capital expenditure commitments of $700 million over 5 years, backed up by an elevated installed base of FPH hardware in hospitals around the world, is supportive of a positive long-term earnings prognosis for FPH.

 

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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