FPH reported 1H22 net profit of NZ$221.8 million, a small 1.6% fall on the same COVID-boosted period last year. Hospital revenue again dominated the revenue mix at 74% of the group, but the divisional revenue was -2% on last year or -1% on a constant currency basis. Homecare revenue was basically flat but increased 3% on a CC basis.
The geographic mix of FPH’s revenue was the surprise element of the result with North American revenue down 12% to NZ$329.8 million, Europe down 14% to NZ$232 million but Asia Pacific was up 45% to NZ$267.2 million.
About 99% of FPH’s revenues are generated in currencies other than NZD (49% in USD, 17% EUR) while around 50% of operating expenses are also in non-NZD currencies. FPH therefore has an extensive hedging program to mitigate potential currency impacts. Operating expenses are expected to increase by around 9%.
Sales of new applications consumables was a healthy 24% (CC) reflecting the change in clinical practice towards nasal high flow therapy. Hospital hardware revenue declined 10% in CC terms.
FPH has embarked on a NZ$700 million capital program that will expand its operational and R&D facilities. A fourth plant is being added in New Zealand while a separate (second) R&D and manufacturing campus is in planning. A third manufacturing facility in Mexico is under construction. A further two manufacturing facilities outside of New Zealand are planned over the next five years.
Investment view
FPH noted that the world has now surpassed 250 million cases of COVID-19 as the Delta variant now passes the baton to the Omicron variant. The rate of hospitalisations is the key factor to watch, and while the world is now a much more vaccinated population, the outcomes are just as uncertain as before.
The lack of 2H22 guidance is understandable. FPH’s commentary mentions falling hospital hardware sales with consumables growth on a sequential basis, muddied by a very sharp drop in key metrics including gross margin.
The horizon sees new anti-viral drugs rolling out to combat COVID hospitalisations making FY23f an important year for FPH as these drugs will accelerate the speed at which high flow nasal oxygen sales contract.
We still see room for consensus revenue forecasts to decline and for margins to adjust to a higher cost base. We retain our Sell recommendation.
