Fisher & Paykel Healthcare profit falls 34% as demand starts to normalise after Covid-19 surge

Friday, 26 May 2023

Fisher & Paykel Healthcare reported a 34% drop in annual profit as demand for its breathing aids starts to return to more normal levels from the unprecedented highs seen during the Covid-19 pandemic.

Profit fell to $250.3 million in the year to March 31, from $376.9m a year earlier, the company said in a statement to the NZX on Friday. Revenue slid 6% to $1.58 billion, in line with the company’s forecast for revenue of between $1.55b to $1.6b. It forecast revenue would increase to $1.7b this year.

Fisher & Paykel experienced a surge in demand for its products during the pandemic, selling 10 years’ worth of devices in two years as hospital clinicians turned to nasal high flow therapy as a front-line treatment for Covid-19 patients. Demand subsequently dipped as hospitals worked through their excess inventory, but is now starting to return to normal with second-half revenue up 14%.

“We are coming out of three financial years that were impacted by the Covid-19 pandemic, and our people, suppliers and customers have worked tirelessly to meet global demand surges,” said managing director Lewis Gradon.

“The second half result was encouraging as market conditions progressed towards more of a normal state and both our hospital and homecare product groups delivered good growth.”

During the pandemic, Fisher & Paykel sold its breathing aids to new countries, new hospitals and new areas within hospitals but as the pandemic waned, sales fell from their highs. In the latest year, revenue from its key hospital division, which includes humidification products used in respiratory, acute and surgical care, fell 15% to $1.02b.

Gradon said hospital hardware sales fell 53% in constant currency terms compared with the 2022 financial year, which was more heavily impacted by global Covid-19 surges, and hardware sales in countries or regions that did not experience Covid-19 surges were tracking close to pre-pandemic patterns.

Over time, the company expects hospital clinicians to use the extra respiratory machines purchased during the pandemic for an increasing proportion of respiratory-compromised patients, boosting sales of consumables which connect to the machines and have to be replaced regularly.

Consumables revenue fell 6% in constant currency terms as hospitals worked through their excess inventory. But the company said this trend abated throughout the year, with revenue for the second half up 13% in constant currency.

Sales of the company’s homecare products, which are used to treat obstructive sleep apnea and provide respiratory support at home, rose 18% to a record $553.8m as it benefited from sales of its new Evora full mask, which launched in the US in May last year.

Higher freight costs and manufacturing inefficiencies due to demand fluctuations weighed on the company’s gross profit margin, which fell 369 basis points to 59.4% in constant currency terms.

The company expects margins to lift about 150 basis points a year, with an improvement of about 200 basis points in constant currency terms expected this year.

“During the pandemic, we had a responsibility to get as much product as possible into the hands of our customers and now as demand progresses towards more of a normal state, we're shifting from a supply at all cost mentality to supply in a sustainable, profitable manner,” Gradon said. “As we do so, we're confident in our ability to return to our long term gross margin target of 65% within a three to four year timeframe.”

The company’s shares fell 4.2% to $24.58 in midday trading on the NZX on Friday.

“The market was expecting their gross margin to lift a little bit, and it didn't, it came in below where the market was thinking,” said Greg Main, a director of wealth management at Jarden. “That's just taking longer to normalise than what the market expected.”

While the company has said margins would increase, markets would “take that with a grain of salt” until they saw it, he said.

Fisher & Paykel will pay a final dividend of 23 cents, taking its total dividend for the year to 40.5c, up 3% from the previous year.