Fisher & Paykel Healthcare profit surges 86% on Covid-19 demand

Wednesday, 25 November 2020

Fisher & Paykel Healthcare supplies breathing aids for use in hospitals and homes.

Fisher & Paykel Healthcare, which has benefited from a surge in demand for its breathing aids during the coronavirus pandemic, posted an 86 per cent jump in first-half profit and lifted its forecast for the full year.

After-tax profit rose to $225.5 million in the six months to September 30, from $121.2m last year. Revenue increased 59 per cent to $910.2m.

Fisher & Paykel Healthcare has experienced unprecedented demand for its breathing devices this year as hospitals stocked up on the machines and accessories used to help treat patients with the coronavirus.

During the half year, demand for its hospital hardware increased, as clinicians increasingly used nasal high flow therapy as a front-line treatment for Covid-19 patients in hospital.

Revenue for the company’s hospital products division, which includes products used in acute and chronic respiratory care and surgery, surged 93 per cent to $681m, with hospital products making up three-quarters of the company’s total operating revenue.

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Fisher & Paykel Healthcare chief executive Lewis Gradon applauds at the opening in July of the company’s new Daniell building in Auckland.

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“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,” said chief executive Lewis Gradon.

While demand could be volatile, the trend had continued since the company’s September 30 balance date, he said.

“We don’t see any let up,” he said.

The new lockdown announced by French President Emmanuel Macron will begin Friday and last until December 1. Published November 24.

Gradon said the company’s biggest achievement “by far” was ramping up production to cope with demand. It increased production of some of its hospital hardware products by more than six times and doubled output for some of its hospital consumable products since January.

Fisher & Paykel Healthcare has brought forward plans to increase its manufacturing capacity to cope. It accelerated installation of production lines in its Daniell building, its fourth New Zealand manufacturing facility, which was completed during the half year. It is also planning for a third plant in Mexico, expected to be completed in its 2023 financial year.

The company aims to hold three months worth of products to ensure it had enough to cope with peak demand.

“We are nowhere near that kind of holding at the moment,” Gradon said. “Inventory is a nightmare.”

The company’s gross profit margin fell 534 basis points to 61.7 per cent as it used more expensive air freight, without passing the increased cost on to customers.

Healthcare workers attend to a Covid-19 patient at one of the intensive care units at the University Hospital of Torrejon in Torrejon de Ardoz, Spain. Europe’s second wave of coronavirus infections has struck well before flu season even started. Intensive care wards are filling up again and bars are shutting down.

The first-half result was “exceptionally strong,” said Sam Dickie, a senior portfolio manager at Fisher Funds, which holds $330m of Fisher & Paykel Healthcare shares.

“Their key hospital products have become the global standard of care for treating Covid,” he said.

Fisher & Paykel Healthcare already said in August that the full-year profit was likely to be higher than its initial forecast in June, on the back of strong demand. On Wednesday, it raised its expectations again due to sustained stronger hospital hardware sales to a range of $400m to $415m, and increased its revenue forecast to $1.72 billion.

“While this guidance upgrade was expected by the market, it was even stronger than hoped for and still looks conservative,” said Dickie.

The company’s guidance assumes hospital hardware sales will return to normal levels from January 2021.

”The second wave has been going in earnest for weeks now, sadly, and it’s pretty clear that demand for their products has re-accelerated,” said Dickie. “It’s unlikely that their guidance will prove to be accurate.”

Dickie said he is “bullish” on the outlook for Fisher & Paykel Healthcare because the pandemic has meant that its respiratory product Optiflow, previously used mostly by intensive care doctors, was now being used in all areas of hospital.

“There is no better proving ground than a crisis. They have all realised that this product works very well to treat severe respiratory illnesses, of which there are many,” Dickie said. “We think that all this hardware that has been sold to hospitals all around the world will need consumables and be used in different areas of the hospital post-Covid eventually.”

Shareholders would be paid a dividend of 16 cents a share, 33 per cent more than the 12c payment last year.

The company is spending $12m on a profit share bonus for its staff, which it says is “to recognise the incredible efforts of our people”.

Dickie said he welcomed the move to reward “people who have worked so hard to save lives globally and pump out this product as quickly as they can”.

Shares in Fisher & Paykel Healthcare, which is the largest company listed on the NZX, rose 2.3 per cent to $34.82 in late morning trading on Wednesday, pushing up its market capitalisation above $20b. The shares have gained 58 per cent this year.