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F&P Health moves away from volatile US dollar

By Christopher Adams

F&P Health's products include respiratory humidifiers and sleep apnoea devices. Photo / Dean Purcell
F&P Health's products include respiratory humidifiers and sleep apnoea devices. Photo / Dean Purcell

Increasing sales in the local currencies of countries such as Turkey, Hong Kong and Japan is reducing Fisher & Paykel Healthcare's exposure to a volatile US dollar, its chief executive says.

The Manukau-based medical technology manufacturer yesterday reported a full-year profit of $52.5 million, a 26 per cent reduction on the prior year's result but slightly above the guidance range of $48 million to $51 million the firm provided in November. Shares yesterday closed down 11c, or 3.5 per cent, to $3.00.

The company attributed the sharp drop in profitability to unfavourable exchange rate movements, costs involved with the establishment and expansion of its new plant in Mexico and a $3.2 million distribution termination payment.

F&P Healthcare chief executive Mike Daniell said the company - whose products include respiratory humidifiers and sleep apnoea treatment devices - earned 54 per cent of its revenue in US dollars in the year to March 31, 2011.

The exchange rate ranged between US70c and US80c over the past year, creating a headwind when the firm converted revenue into New Zealand dollars.

The company said it had around $520 million in foreign exchange contracts in place over the next five years as protection against negative currency movements.

Daniell said the proportion of sales in US dollars had decreased by two percentage points between the 2010 and 2011 financial years, a trend likely to continue.

"Over time we are becoming less exposed to the US dollar with our sales in Canada, Japan, Taiwan, Turkey and Hong Kong moving from US dollars to local currencies," he said.

Daniell said the firm's two fastest growing markets were now China and India, where heavy investment in health infrastructure was taking place.

Morningstar analyst Nachi Moghe said the growth in markets outside the United States was a positive sign for the firm, which split from Fisher & Paykel Appliances in 2001.

"It will help them to diversify their revenue base," he said.

Daniell said that within the next 10 years the company may even look to establish a second offshore manufacturing site, possibly in Asia.

But he said the expansion potential available in Mexico and Auckland, where the company will soon open a new $95 million building, would enable the firm to double its capacity over the next five years.

Daniell forecast a net profit for the firm's current full-year in the range of $62 million to $76 million.

Operating revenue of $530 million to $580 million was also expected.

"Our underlying revenue growth accelerated in the March quarter and we are anticipating a continuation of strong operating revenue growth this year, supported by new products and growth in new applications," Daniell said.

Goldman Sachs analyst Marcus Curley said the broad full-year guidance given yesterday reflected the impact of exchange rates.

"The story is one of strong underlying growth offset by currency headwinds which continue to be substantial given where the dollar is."

Curley said the growth in sales in new currencies was a "positive, incremental step", but the company would gain more benefit from a weaker kiwi against the greenback.

"It's very difficult to work out when [the exchange rate] is going to start moving in the right direction for exporters," he said.

- NZ Herald

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