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Current as of 28/04/17 07:40PM NZST
Jamie Gray is a business reporter for the NZ Herald

Trump tax talk hits Fisher & Paykel, may prompt change in Mexico production

Fisher & Paykel Healthcare chief executive Lewis Gradon. Photo / Supplied
Fisher & Paykel Healthcare chief executive Lewis Gradon. Photo / Supplied

Fisher and Paykel Healthcare's share price dropped sharply today after US President Donald Trump outlined plans for a 20 per cent tax on goods from Mexico, where about a third of F&P's products are made.

The company, which makes specialised medical equipment, saw its share price sink by 30c or 3.3 per cent $8.85 on the back of the news.

Mark Lister, head of private wealth research at Craigs Investment Partners, said the weakness in the share price - following a strong run up - was "almost entirely" due to the headlines coming out of the Trump Administration.

"The tariff could potentially make them [F&P products] cost more, which could mean Fisher and Paykel Healthcare would have to give up some margin," he said.

Fisher and Paykel Healthcare is historically one of the market's stronger performers and often rates as a broker's favourite.

Lister said tension between the US and Mexico could keep the company on the back foot in the short term, but chief executive Lewis Gradon said potential impact of a tariff was minimal.

Earlier today, Trump said the US would impose a 20 per cent tax on all imports from Mexico after Mexican President Enrique Peña Nieto cancelled a planned summit in Washington.

About 30 per cent of the specialised medical appliance maker's products are made in two plants in Tijuana, with the remaining 70 per cent made in New Zealand. North America is the company's biggest market, accounting for 43 per cent of sales.

Gradon said that if necessary, the company could supply the US from New Zealand, and use its Mexico production base to supply the rest of the world.

"A tax is never going to be helpful or positive for business, but we would expect a relatively minor impact because of our ability to supply the United States from either site," he said.

Gradon, in an interview with the Herald, said the company had been in Mexico since 2009 and the country had proven itself to be a good place to manufacture goods.

"Fundamentally, what attracts us to Mexico is that it is a very favourable place to manufacture medical devices because they have a huge manufacturing skill set there," he said.

"We have had a very good experience over the last six or seven years manufacturing in Mexico, in every way," he said. "We have found that it is fundamentally a good place to make stuff.

"If it makes economic sense, we do have the option to supply the US from New Zealand and the rest of the world from Mexico.

As it stands, about half the company's Mexico output goes to the United States.

About 40 of the company's competitors - including its US competitors - also have operations in Mexico.

"Most of our competitors in most of our products - including our US competitors - would be in exactly the same boat," Gradon said.

- NZ Herald

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