F&P Healthcare poised to make windfall if birdflu hits humans

By NZPA

Thursday 17th November 2005

Fisher & Paykel Healthcare stands to make a windfall if birdflu becomes a human-to-human pandemic.

Two years ago, severe acute respiratory syndrome (Sars) boosted profits at the respiratory products maker by millions and, if birdflu becomes a pandemic as many experts believe, it would likely reap far bigger gains.

Chief executive Michael Daniell said at the half year result briefing today the company was increasing inventory and putting measures in place "to ensure we can help out".

"Clearly a human pandemic would result in millions of seriously ill people and clearly our products are used to treat seriously ill respiratory patients," he said.

The company was putting planning procedures and protocols in place in its factories in the hope its workers will turn up should the virus hit New Zealand.

One analyst, who declined to be identified, said: "It could be good for the stock and bad for the world".

The company lifted its September half-year net profit 12% to a record $31.6 million with revenue up 15% to $135m.

Even without the birdflu scenario, it lifted its previous revenue forecast by $US5m ($NZ7.4m) to US$195-200m for the full year.

Pretax profit in the first half rose 10.8% to $47.7m. Of that, $18.9m came from foreign exchange hedge gains. A shadow hangs over future earnings, 61% of which occur in the US, because the insulating hedges run out at the end of this financial year.

The hedges gave Healthcare an effective exchange rate of US55c compared with the current rate of US68c. A US1c movement in the exchange rate has a $2m after tax effect on the bottom line.

Forsyth Barr analyst Greg Main said the result was a good one, in line with expectations. The company had flagged the higher growth forecast at the annual meeting in August and its shares have been rising strongly as Healthcare has picked up market share from rivals, ResMed of Australia and Respironics of the US.

Healthcare's shares hit a record $3.86 yesterday, but fell back to $3.69 this afternoon on a "buy the rumour, sell the fact" reaction.

Some brokers had what others called inflated expectations with one hoping for a net profit of $38m.

An increased, fully imputed interim dividend of 5.4cps, up from 5c a year ago, will be paid on December 9. Daniell said the balance sheet was strong enough to maintain a similar dividend even if the currency holds up and hits profits dip in NZ dollar terms.

Strong sales of a series of new products, particularly its star line, obstructive sleep apnea (OSA) masks, up 42%. That gave the company confidence for the full year, Daniell said.

Operating margins in the mid-thirties will be maintained.

The higher revenue came at cost with selling, general and administrative expenses up 16% to $39.9m, or 23% in constant currency terms, as the company continued to expand operations and sales teams in North America, Europe and Asia.

Daniell gave assurances expenses growth would be contained. Revenue growth was achieved through market share gains by the company's expanding product range and increasing activities in other international markets. He said new products in the pipeline, particularly a home humidifier, would maintain the momentum.

The Auckland factory will be nearly doubled in size in July. The new space will be occupied mainly by the OSA product group, and improved R&D facilities.

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