East Tamaki-based Fisher & Paykel Healthcare Corporation (FPH) today announced a 57 per cent decline in net profit after tax to $95.9 million for the first half of the 2023 financial year.
For the six months ended September 30, 2022, total operating revenue was $690.6m, above the $670m guidance given by the company in its August trading update.
While revenue was down 23 per cent on the first half of the prior year (or 27 per cent in constant currency), this was a 21 per cent increase on the comparable pre-pandemic period, being the first half of the 2020 financial year ($570.9m). Net profit after tax for the first half was $95.9 million, a 57 per cent decline from the prior comparable period, or a 65 per cent decline in constant currency.
Managing director and CEO Lewis Gradon said, “Consistent with what we signalled in August, first half revenue was down on the prior corresponding period as we lapped significant Covid-19-driven demand. Compared to pre-pandemic levels, this represents solid growth.”
In the hospital product group, which includes humidification products used in respiratory, acute and surgical care, revenue for the first half was $438.7m. This marks a decline of 35 per cent on the prior comparable period, or 37 per cent in constant currency. This represents an increase of 24 per cent on the first half of the 2020 financial year. Of total hospital product group revenue, 87 per cent was from the sale of consumables and 13 per cent was from the sale of hardware.
“Customer stock levels of hospital consumables continued to reflect purchases of considerable amounts during our prior half, in preparation for an Omicron hospitalisation wave which proved less severe than originally anticipated,” said Gradon.
“Through the first half, there are positive signs that our hospital customers are working through their excess inventory holdings and total group sales of our hospital consumables have increased sequentially on a month-by-month basis since May. This trend has continued in the second half to date.
“While we believe the number of hospitals which continue to be overstocked is declining, ultimately, these stocking dynamics are short term, and the fundamentals of our sales strategy remain the same. Our teams are committed to helping improve clinical practice and ensuring the hardware our customers have purchased during the pandemic is used to benefit a broader range of patients requiring respiratory support,” said Gradon.
In the homecare product group, which includes products used in the treatment of obstructive sleep apnea (OSA) and respiratory support in the home, revenue was $249.9m, a 10 per cent increase over the prior comparable period, or 4 per cent in constant currency. OSA masks and accessories revenue increased 16 per cent on the prior comparable period, or 10 per cent in constant currency.
“It has been pleasing to see a strong reception for our new Evora Full mask which we began selling into the United States in April following 510(k) approval,” said Gradon. “Initial feedback from clinicians and end users has been positive and this provides added momentum for our team working hard on a robust product pipeline.”
Gross margin was 59.8 per cent, down from 63.1 per cent in the prior period and below the company’s long-term target of 65 per cent. Although global freight rates are seeing prices soften, legs in and out of New Zealand lag this trend which continues to weigh on margin. The company has also been impacted by manufacturing inefficiencies as it carefully balances demand fluctuations while managing manufacturing throughput and higher rates of sickness-related absenteeism in the manufacturing workforce.
The company reached a number of infrastructure milestones over the half to support continued growth. This includes the announcement in September that the company had entered into a conditional agreement to purchase a 105-hectare site for an additional campus in Karaka, Auckland. This acquisition is subject to Overseas Investment Office (OIO) approval and the company expects a response from the agency in the first half of the 2023 calendar year.
The company’s directors have approved an increased interim dividend of 17.5 cents per share (H1 FY22: 17 cents per share). The interim dividend, carrying full New Zealand imputation credit, will be paid on December 21, 2022 with a record date of December 9, 2022.
The company is also reactivating its dividend reinvestment plan through which eligible shareholders can opt to invest all or part of their cash dividends in additional shares with an applicable discount of 3 per cent.
Looking ahead
Gradon said, “Our second half will be impacted by a number of factors, including:
The rate of Covid-19 hospitalisations and the related intensity of respiratory support required;
The severity and duration of a Northern Hemisphere flu season;
The magnitude of RSV (respiratory syncytial virus) hospitalisation surges currently experienced in some regions; and
The impact of ongoing hospital staffing challenges on the surgical procedure backlogs in many countries.
“Given these current uncertainties, we are not providing full-year quantitative revenue or earnings guidance at this time.
“However, we expect second half revenue for the 2023 financial year will be higher than in the first half.
“In our hospital product group, pre-Covid-19 seasonal patterns have typically resulted in higher sales of hospital consumables in the second half compared to the first half. In the 2018 and 2019 financial years (being our most recent years that were unimpacted by Covid -19), our hospital consumable sales were 19 per cent higher in
constant currency during the second half compared to the first half. In addition, it is likely that a proportion of customers have worked through Omicron-driven consumables stock during our first half.
“In our homecare product group, we believe the recent launch of our new Evora Full face mask, combined with improving global supply of CPAP [continuous positive airway pressure] hardware, will contribute to continued growth for the remainder of the year.
“Assuming current, slightly lower freight costs and reduced manufacturing inefficiencies, constant currency gross margin for the second half would improve from the first half by approximately 200 basis points.”
The company is now targeting constant currency operating expense growth of approximately 8 per cent for the full year.
“We remain committed to sustainable, profitable growth,” said Gradon. “Our confidence in the future is unchanged, evidenced by the significant level of investment in new product development, our global sales force and our infrastructure.”
Overview of key results for the first half of the 2023 financial year
57 per cent decline in net profit after tax to $95.9 million, 65 per cent decline in constant currency.
23 per cent decline in operating revenue to $690.6 million, 27 per cent decline in constant currency.
35 per cent decline in hospital operating revenue to $438.7 million, 37 per cent decline in constant currency.
23 per cent decline in constant currency for new applications consumables (products used in non-invasive ventilation, Optiflow nasal high flow and surgical applications) accounting for 68 per cent of Hospital consumables revenue.
10 per cent growth in homecare operating revenue, 4 per cent growth in constant currency.
Investment in R&D was 12 per cent of revenue, or $84.2 million.
3 per cent increase in interim dividend to 17.5 cps (H1 FY22: 17cps).
