F&P Healthcare hits record $1 billion milestone

Fisher & Paykel managing director Lewis Gradon has reason to smile. Photo/File.

Fisher & Paykel Healthcare topped $1 billion in revenue, reported a record full-year net profit and expects further gains in the current financial year as it puts litigation behind it and benefits from the lower New Zealand dollar.

Net profit lifted 10 per cent to $209.2 million in the 12 months to March 31 while revenue was up 9 per cent at $1.07 billion, the Auckland-based maker of hospital equipment and personal sleep apnea products said.

The 50 year-old company has come a long way since it was founded. Its first humidifier traces its origins to 1969 with three people in one city and a can-do prototype made from a humble fruit preserving jar. Sales in 1972 were $20,000 ($270,000 in today's money).

Its gross margin for the latest full year lifted by 56 basis points to 66.9 per cent - or 58 basis points in constant currency - driven by a favourable product mix, it said. It is targeting a gross margin of 65 per cent.

"Our record results were driven by our innovative products, the dedication of our teams around the world, a culture of continuous improvement and the value we offer for clinicians and patients," said chief executive Lewis Gradon.

The company will pay a fully imputed final dividend of 13.5 cents per share on July 5 with a June 14 record date. The total annual dividend of 23.25 cents a share is up 9 per cent on the year.

Given the company's strong performance over the last five years and reduction of debt to below the target gearing rang, the board has suspended the dividend reinvestment plan. As a result, all shareholders will receive dividends in cash for the dividend scheduled to be paid on July 5 2019.

The stock was recently down 2.2 per cent at $16.30.

Looking ahead - at current exchange rates - it expects full-year operating revenue to be approximately $1.15 billion and net profit to be $240 million to $250 million.

Recent changes around research and development tax credits and "a significant reduction in patent litigation costs and forecast currency benefits have been factored into our earnings guidance for 2020," the company said in a statement to the NZX.

The New Zealand dollar recently traded at 65.50 US cents, down 2.43 per cent year-to-date, and at 58.41 euro cents. Around 50 per cent of its operating revenue is in US dollars while 19 per cent is in euros.

According to chief financial officer Lyndal York, around 75 per cent of the company's R&D spend will likely be eligible for a 15 per cent tax credit, which represents a net benefit to FY20 net profit of around $8 million. Previously it had a $5 million R&D grant from Callaghan Innovation. R&D equates to around 9 per cent of operating revenue.

After being locked in patent disputes with its rival, ResMed, since 2016 and spent $23.4 million on litigation expenses in the 12 months to March 31 and $15.6 million in the prior financial year, F&P Healthcare has settled all outstanding patent infringement disputes.

Its guidance includes some potential remaining litigation expenses for the current year, but Gradon said it will be "a much smaller amount, maybe a couple of million."

Regarding its specific divisions, operating revenue for the hospital product group, which includes products used in respiratory, acute and surgical care, increased 12 per cent to a record $642.3 million, or 11 per cent growth in constant currency. The division represents 60 per cent of its operating revenue. "We expect consistent underlying trends in the 2020 financial year," said Gradon.

Homecare, which represents 39 per cent of revenue, saw growth of 6 per cent to $421.4 million, or 4 per cent growth in constant currency.

However, revenue from its obstructive sleep care apnea masks slipped 2 per cent in the second half, a trend it expects to continue into the current financial year.

The company anticipates a turnaround once it can introduce its Vitera masks into the US, something it expects to happen mid-way through the year, but noted that it depends on regulation. Overall it expects a "low single digit decline in homecare revenue for the full year," he said.

It is also forecasting around $150 million in capital expenditure as "we increase capacity for both existing and new products and complete construction of the fourth building on our Auckland campus," it said.

- BusinessDesk