F&P Healthcare growth forecasts likely to please investors

By NZPA

Friday 31st May 2002

Fisher and Paykel Healthcare's share price may have halved from its peak last year, but the medical products maker will have pleased investors today with its promise of growth.

Healthcare, of which great things were expected when it emerged from Fisher and Paykel Industries in November, reported a net annual profit of $62.32 million today for its first trading period as a separate company. That is up from $11.75 million last year, and in line with expectations.

Healthcare's statement to the stock exchange reported a net profit of $48.13 million, but that included historical results for the finance and appliances business which is no longer applicable.

Healthcare chief executive Michael Daniell said he expected revenue growth of 5 percent for the first quarter of 2002.

"In the first quarter we expect to see revenue growth in US dollar terms of 5 percent overall. We expect revenue growth rates will trend upward as we move forward through fiscal 2003," Mr Daniell told a briefing today.

"In February we said we expected overall revenue growth to be about 10 percent in 2003, with core growth a few points higher. In US dollar terms we're still comfortable with that guidance and feel there may be some potential for upside."

The annual result was on sales of $214.6 million, which on a pro-forma basis of continuing operations compared with $193.1 million for the healthcare operations of a year ago.

Sales for the fourth quarter rose 2.5 percent to $57.2 million, in the face of fears that competition had continued to erode profit margins.

Gross profit margin was steady at 69 percent for the year, and 67 percent for the fourth quarter, reflecting the effect of price reductions on some products and raw material write-downs for obsolete products, Mr Daniell said.

Paul Huxford of Macquarie Equities Ltd said Healthcare had posted a good result.

"It came in slightly ahead of expectation at the ebit (earnings before interest and tax) level, which was about $500,000 more than we were thinking for the quarter."

The weaker fourth quarter was "entirely expected", he said.

"They are yet to lap the price decreases in the sleep side of the business, and we saw that in the third quarter. So comparing the fourth quarter, knowing where pricing was, was always going to be weaker than the fourth quarter last year," Mr Huxford said.

Healthcare, which sent shock waves into the market at its third quarter result when it said it was facing stiff competition with margins being squeezed, said today it was experiencing growth in core products, early acceptance of new products and had a fourth quarter foreign exchange currency gain of $11.9 million.

The company develops and sells products for respiratory humidification, obstructive sleep apnoea (OSA), and neonatal and patient warming.

The highly lucrative -- and competitive -- North American market provided 49 percent of revenues for the year, Europe 28 percent and Asia-Pacific 20 percent.

Mr Daniell said the company's operating margin could be maintained above 35 percent, if the exchange rate remains at an average of US47c.

For 2003 and 2004, Healthcare has taken hedge contracts at an average US44c. The Kiwi traded today traded near US48c, but was at an all-time low around US39c seven months ago.

The company said its successful entry into the nasal mask market would be further strengthened with the release of a new model during the next quarter. In addition, its recently developed proprietary Oracle oral mask was in the process of being introduced throughout the United States.

F&P Healthcare debuted as a stand-alone company in November following the split of parent Fisher and Paykel Industries into separate healthcare and appliance businesses.

After listing its shares quickly raced up to $18.60 before falling sharply after the third quarter result.

Healthcare shares closed up 45c today at $9.20.

The company declared a fully imputed 25 cents per share dividend to be paid on June 27.

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