Health focus key to Fisher & Paykel's profit

By LIBBY MIDDLEBROOK

Fisher & Paykel's name has been synonymous with the appliance market for decades, pumping thousands of dishwashers and washing machines into the international market each year.

But investors are only just starting to realise the potential of their healthcare division, in spite of the firm beavering away in this sector for more than 30 years.

The market twigged about two years ago, when the manufacturing giant said the earnings of its healthcare division were expected to blossom over the following 24 months.

Last week Fisher & Paykel made good on its promise, reporting a 30 per cent increase in healthcare sales for the March year compared with the same period last year.

"It's been a well-kept secret," said Fisher & Paykel Healthcare general manager Michael Daniell, who started working for the business 21 years ago as a research and development engineer.

"We've been a significant contributor to group earnings for the last five or six years, but it's only in the last one or two years that we've actually been perceived in a really positive light by the market."

Fisher & Paykel Healthcare, which exports more than 90 per cent of products, primarily manufactures respiratory humidification systems used in hospitals to humidify air for critically ill patients who require assisted breathing.

Other products developed during the past three decades include homecare humidifiers for people with sleep disorders and patient warmers, costing from $US2500 ($5270) to $US10,500 ($22,150).

So how has Healthcare become the gleaming star of Fisher & Paykel's three-division business? Mr Daniell said a more defined focus on "what we're good at" had been the key to the company's growth.

In March, the company sold its mobility scooter business for $1 million to Melbourne's Plega Healthcare to focus on the humidification market.

"In the past we've had a few distractions, but now we're focused on being the best in the world at humidifiers."

The group restructuring programme, which separated its whiteware, finance and healthcare businesses into separate units two years ago, has also had an impact on Healthcare's performance along with a new worldwide sales and distribution team.

Healthcare employs more than 400 people in New Zealand and 150 across Asia, Europe and America. It exports to more than 60 countries.

Mr Daniell said each sales unit had broke even in its first year of operation thanks to existing customer bases set up by contract distributors.

"It's really hard to get distributors to give your products the attention you want," he said.

"We saw an opportunity to make a second margin on our business by setting up our own network."

The weaker New Zealand dollar has also been to Healthcare's advantage, with the division contributing $41 million in earnings before interest and tax (ebit) for the 1999/2000 result, 60 per cent of the group's combined ebit result.

Healthcare's margins have also been exceptionally high compared with the rest of the group.

The future looks bright for Fisher & Paykel Healthcare, with growth prospects for humidifiers expected to grow at spectacular rates in the next few years.

New applications for humidification continue to expand along with the recognition of sleep disorders such as obstructive sleep apnoea.

This disorder restricts the flow of oxygen to the lungs.

Healthcare produces an innovative treatment machine for sleep apnea.

Mr Daniell said the company, about to move into a new $30 million manufacturing facility in East Tamaki, had only a tiny portion of the global market so far and expected substantial growth in the next decade through future product development and innovation.

In warming, Mr Daniell said the company had only 1 per cent of a global $US460 million market.

"In the sleep apnoea market for example, we estimate the market's worth at $US400 million.

"We've got only 4 per cent of that so there's a lot of room for us to move, which is great."