F&P Healthcare’s increased profit shows Covid-19 has a bright side (for some) but big spending on R&D pays off, too

Covid-19  is  a  disaster   for the US, and  for many other countries — but  it has sent revenues  for Auckland-based F&P Healthcare soaring.  Investors in the  company  were  ecstatic  this  week   when the    company  posted  a  boomer  profit of   $287m  and  forecast  an even better  one  in the current year.  The share price has soared 102%  in the  past 12  months.

It’s  a  performance  the  country as  a  whole  should  celebrate,  for  more than  80% of the  revenue  is  in  US  dollars.

Operating revenue was $1.26bn, up 18% over last year.  Net profit rose 37% over the previous year.

The increase in revenue was largely driven by growth in the use of the company’s OptiflowTM nasal high flow therapy, demand for products to treat Covid-19 patients, and strong hospital hardware sales throughout the year.

Beginning in January, the demand for  respiratory humidifiers accelerated in a way  the  company said   is unprecedented.

CEO  Lewis Gradon said nasal “high flow” therapy, and in particular Fisher & Paykel’s Optiflow system, had steadily gained acceptance as the preferred front line therapy for Covid-19 patients.

“Demand for our hardware has pretty much followed Covid around the world  It started in China, moved to Europe, moved to the US and now we are seeing more and more from other countries such as Brazil and Russia.”

With new processes, new procedures and new ways of working safely,  F&P Healthcare managed to double and in some instances triple, output for some hospital hardware products over just a few months at the end of the year.

Gradon said for the hospital product group, which includes products used in respiratory, acute and surgical care, operating revenue increased 25% to $801.3m for the year. For the home-care product group, which includes products used in the treatment of obstructive sleep apnea (OSA) and respiratory support in the home, revenue rose 9% to finish at $457m for the year.

During the year, the company introduced its F&P ViteraTM OSA full face mask into the US market and launched the new F&P EvoraTM compact nasal mask in Australasia, Europe and Canada.

“We cannot predict the scope, duration or impact of Covid-19 and its effects on our operations and financial results.In the midst of this uncertainty, we will continue doing what we are known for – expanding our range of innovative products with patients at the centre”, Gradon  said.

“For the first three months of FY21 our hospital product group growth has continued to accelerate, with hardware growth of over 300%, and hospital consumables tracking at over a one-third increase, compared with the first three months of FY20.

“In our home-care product group we are seeing evidence of both a lower OSA diagnosis rate, and OSA mask resupply levels in the beginning of FY21 returning closer to expected levels compared to the elevated levels at the end of FY20.  Homecare growth for the first three months of FY21 has therefore been closer to the FY20 full year rate.”

Some costs, most significantly freight, remained high during the first three months of FY21.

Because  of uncertainty in the extent and duration of the impact of Covid-19 on global demand for the  company’s   products,   Gradon  said  some assumptions  have been made  to allow some guidance for FY21.

On the basis that global hospitalisations due to COVID-19 peak for the first quarter of this financial year, and hospitalisations for respiratory-related illnesses and OSA diagnostic activity steadily return to normal by the end of the first half,  full-year operating revenue for the 2021 financial year would be about $1.48bn and net profit after tax would be about $325m to $340m.

We are continuing to grow manufacturing capacity of hospital products during our 2021 financial year to ensure a further increase in supply of our respiratory products is available if required.”

The company’s future opportunity would be to “translate visible benefits of Optiflow therapy for Covid patients to respiratory patients in general” and then to demonstrate how those benefits could be applied to patients in the home..

The Auckland-based firm employs 5000 staff, mostly in NZ and in Mexico, where it has manufacturing plants.

What  makes  F&P  Healthcare  a  stand-out  in  NZ  industry  is the  amount  it spends  in research and  development.  In the  most recent year  this was 9% of revenue, or $118.5m.

The  company  is  ranked   number one on the  NZX,  with  a  capitalisation  of  $19bn.

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