Fisher & Paykel Poised for Epic Growth Amid Remarkable Hospital Products.

About Fisher & Paykel Healthcare Corporation Limited

Fisher & Paykel Healthcare Corporation Limited (Fisher & Paykel, the Group, ASX: FPH) commenced operations in 1969 when it developed its first respiratory humidifier prototype and has been listed on the ASX since November 2001. Today the Group is a leading designer, manufacturer and marketer of products and systems for use in acute and chronic respiratory care, surgery, and the treatment of obstructive sleep apnea. The Group’s products are sold in 120 countries, and last year 20 million patients were treated with Fisher & Paykel products.

Steady FY24 result

Solid demand in hospital consumables and strong growth in the obstructive sleep apnea (OSA) mask business helped boost the Group’s revenue for the full year to 31 March 2024 by 10 percent to NZ$1.74 billion. Reported net profit after tax was NZ$132.6 million but was negatively impacted by abnormal items. These included a NZ$98 million write down on a potential development site on land at Karaka, a NZ$19.3 million increase in tax expense following removal of tax deductions for the depreciation of buildings and a NZ$20 million provision for the cost of a voluntary product recall that relates to devices manufactured before 2017. After adjusting for these abnormal items, underlying net profit after tax was up 6 percent to NZ$264.4 million. Like many healthcare industry participants, Fisher & Paykel achieved a buoyant operating cash flow of NZ$429 million, equivalent to an impressive profit to cash conversion ratio of 162 percent.

The Group is likely to maintain its consistent year-on-year revenue growth given its NZ$198 million investment in Research & Development in FY24 that underwrites future demand for its breakthrough medical devices and solutions. In a conservative approach to profit reporting, these R & D costs are expensed as incurred rather than carried forward as an intangible asset from which future economic benefits will be derived.

Forty-six percent of total revenue is sourced from North America, and 27 percent from Europe and 21 percent from Asia Pacific. Hospitals are the most significant customers and account for 62 percent of revenue and the balance relates to the sale of Homecare products.

Fisher & Paykel carries minimal debt with a gearing ratio of just 1.8 percent.

The final dividend was NZ23.5 cents, taking the full year dividend to NZ41.5 cents, an increase of 2 percent on FY23.

2025 result to be determined by the Northern Hemisphere’s respiratory virus season

Fisher & Paykel expects FY25 operating revenue to lift by about 11 percent to between NZ$1.9 billion and NZ$2 billion and net profit after tax to be within the range of NZ$320 million and NZ$370 million. Growth in the Hospital product group is expected to be strong driven by changes in clinical practice and new product introductions, while new mask introductions are set to boost Homecare product revenue. Net profit after tax is anticipated to grow by 30 percent to be between NZ$320 million and NZ$370 million.

These revenue and earnings guidance estimates may prove conservative if there is a breakout of significant respiratory disease events requiring respiratory therapies during the Northern Hemisphere winter. For example, during the COVID pandemic, Fisher & Paykel sold ten years’ worth of respiratory hardware in two years to hospitals all around the world.

Even a slightly worse than mild Northern Hemisphere winter can drive up flu case numbers requiring the greater use of ventilators and generators and hospital consumables, and this has an immediate favourable impact on margins and earnings.

The Group’s underlying gross margin in FY24 was 61.1 percent, compared to 59.8 percent a year earlier. Lower freight costs, manufacturing efficiencies and pricing all contributed to this gain. The Board has declared that returning to 65 percent gross margin is a key priority. The opening of a third manufacturing facility in Tijuana, Mexico and a planned new manufacturing facility in Guangzhou in China is likely to achieve lower product manufacturing costs. Tijuana is a hub for global medical device manufacturers and provides access to a highly skilled workforce and proximity to major markets in the US and Canada.

Product manufacturing efficiencies and ongoing market penetration with existing and planned innovative, breakthrough healthcare products should continue to improve and restore gross margins closer to the previous 65 percent level. If these factors are combined with a severe Northern Hemisphere respiratory virus and flu season that significantly lifts hospitalisations, then shareholders can reasonably expect an upgrade to existing FY25 earnings guidance when half-rear earnings are released in November 2025.