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UPDATE: F&P Healthcare posts 12% rise in 2018 profit, forecasts record profit for 2019

Monday 28th May 2018

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Fisher & Paykel Healthcare, New Zealand's biggest listed healthcare technology company, lifted 2018 annual profit to the top end of its forecast range and said it expects record earnings in the coming year as it benefits from growing global demand. 

The Auckland-based company said profit rose 12 percent to $190.2 million in the year ended March 31, at the top end of its November forecast for $185 million to $190 million. Operating revenue climbed 10 percent to $980.8 million.

It forecast 2019 annual operating revenue in its 50th year of operation of about $1.05 billion and profit of about $210 million. The shares fell 3.5 percent to $12.89 in morning trading as the forecast fell about short of what analysts had expected.

"The market was a little disappointed with the guidance that they have given with the year ahead,"  said Mark Lister, head of private wealth at Craigs Investment Partners. "The result was pretty much in line with expectations (but) the profit guidance for the 2019 financial year was about 3 percent below what analysts were predicting.

"It’s hardly a big miss but this is how share prices operate - they factor in the future and react accordingly."

F&P Healthcare, which makes breathing masks and respirators, estimates it helps in the care of 13 million patients in 120 countries each year and it expects to spend $160 million to $170 million to increase capacity for existing and new products this year, saying it is making good progress with construction of a fourth building on its Auckland site and a second manufacturing facility in Mexico. In the future, it aims to expand its reach to help more than 50 million patients in homes and hospitals every year, in a potential market for respiratory products of more than US$6 billion a year.

"We are well positioned to meet the growing demand for our products from an increasing investment in healthcare across the globe," the company said in a statement to the NZX. "We have a strong new product pipeline including more new humidification systems, flow generators, masks and consumables.”

Sales in its hospital division rose 14 percent to $572.1 million, while homecare products sales increased a more modest 4 percent to $398.1 million.

Lister said the weaker-than-expected forecast for 2019 may be attributed to the timing of a new mask for the treatment of obstructive sleep apnea, as profitability for a mask launched in the 2019 year may not flow through to profits until 2020.

Still, he said the high-growth nature of the company meant earnings could ebb and flow from year to year depending on the cycle for new product launches.

"It's one of our highest quality companies on our market," Lister said. "For long-term investors, I certainly wouldn’t think being 3 percent below expectations is anything to be concerned about. It’s a great quality company addressing a market that is getting bigger and bigger."

F&P Healthcare will pay a final dividend of 12.5 cents per share on July 6, taking the total dividends for the year to 21.25 cents, up 9 percent on the year earlier.

In the 2018 year, its gross profit margin increased by 31 basis points to 66.3 percent, ahead of its target of 65 percent, which it said reflected sales of higher-margin products and lower costs from its plant in Mexico. 

"We expect to see gross margin stability in the 2019 financial year as most of the recent improvement factors have been substantially captured," it said.

Over the past year, the healthcare company invested $94.7 million into research and development, up from $86 million a year earlier and equivalent to 9.7 percent of its revenue. It employs 572 people in research and development, including scientists, engineers and researchers, up from 563 a year earlier.

F&P Healthcare is currently involved in litigation over patent infringement with rival ResMed and said investing to protect its intellectual property it has built up over time is "crucial". The litigation cost narrowed from $20.7 million in 2017 to $15.6 million in the latest financial year with a similar rate expected in the 2019 year, it said.

Its shares have gained 26 percent the past year.


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