Jamie Mackay
Take farmers with you
Fisher and Paykel Healthcare’s net profit shot up by 86 per cent in the first half to $225.5m, driven by increased demand for its hospital hardware used to treat Covid-19 patients.
But New Zealand’s biggest company by market cap was careful in its comments about what the full year would look like, saying the situation was changing month to month.
Its guide for the year to March was based on a raft of assumptions, among them being that hospital hardware sales would return to normal levels from next January.
On that basis, its net profit would be in a range of $400m to $415m, up from $287.3m in its last financial year.
“Our assumptions used in providing this guide are not a prediction of the course of Covid-19 around the world and do not impact our production planning,” chief executive Lewis Gradon said.
He said the company’s biggest achievement over the half-year was the extent to which it ramped up production to meet the extra demand.
Asked in a conference call what business would look like once the pandemic was over, Gradon said: “That is the question. In terms of Optiflow and Airvo we had such low growth penetration prior to the pandemic, we don’t think that we are anywhere near saturation in that market whatsoever.”
Sam Dickie, portfolio manager at Fisher Funds, which counts F&P Healthcare as its biggest single investment, noted the company paid $12 million in bonuses to staff.
He said the outlook was strong but that it still looked conservative.
Gradon was careful not to be drawn into how the company had performed since the end of its September 30 six-month reporting period, except to say that there had been “huge volatility” from month to month. But Fisher Funds’ Dickie said demand would have been strong.
“It is pretty clear that things have accelerated in the last couple of months as the second wave of Covid continued to reverberate around the world.
“The bears will tell you that Covid is a one-off benefit to the company and that once it is over, F&P Healthcare’s products would be
gathering dust on the shelves,” he said. “We absolutely disagree with that.”
Before Covid, F&P Healthcare equipment was most likely to be seen just in hospital intensive care units (ICUs).
“Our view is that the product is now more likely to be used in all areas of the hospitals that treat severe respiratory illnesses, outside of Covid19,” Dickie said.
F&P Healthcare had historically been “under-promisers and over-deliverers”.
“There is no question in my mind that that [earnings guide] is easily achievable.”
Forsyth Barr analyst Chelsea Leadbetter said the company’s ability to respond to meet the material spike in demand to help treat Covid-19 patients was “nothing short of extraordinary”.
She noted the company’s caution in its earnings guide and its list of assumptions.
“The question that a lot of investors and analysts are grappling with is how to forecast the earnings profile beyond the Covid pandemic, and what the new norm will look like,” she said.
“Ultimately they don’t know. We don’t know and I guess we will keep learning as the situation develops globally.”
F&P Healthcare said its result was driven by increased demand for the company’s hospital hardware, in particular its “Optiflow” and “Airvo” systems.
“This reflected a shift in clinical practice toward using nasal high-flow therapy as a front-line treatment for Covid-19 patients in hospital,” it said.
In the hospital product group, which includes products used in acute and chronic respiratory care and surgery, operating revenue grew 93 per cent over the first half of the previous financial year to $681m.
Hospital products made up threequarters of the company’s operating revenue.
Sales in hardware and consumables continued to track surges in Covid-19 globally, as the virus moved across Europe, North America, South America and South Asia. In the homecare product group, which includes products used in the treatment of obstructive sleep apnea and nasal high-flow therapy in the home, operating revenue grew 5 per cent to $226.2m.
A reduction in gross margin for the six-month period to 61.7 per cent was due to the increased use of air freight and the elevated costs associated with it. The company declared an interim dividend of 16 cents per ordinary share, up 33 per cent on the interim dividend last year.
Our [earnings guidance assumptions] are not a prediction of the course of Covid-19 around the world. Lewis Gradon (pictured), chief executive, Fisher and Paykel Healthcare