F&P Healthcare fleeing high dollar
Fisher & Paykel Healthcare, whose strong sales growth in the US is being clipped by an equally strong kiwi dollar, will expand production in Mexico and target sales growth in other currencies. The company “is acutely conscious of the effect of the high NZ dollar on shareholder returns,” said managing director Michael Daniell. “Exchange rate volatility continues to be extreme, with the New Zealand dollar well above its long-term average value, particularly when compared to the US dollar and euro.”
Foreign exchange hedging earned $38 million in Healthcare’s latest year, when it posted record operating revenue of $506 million. But net profit fell 27% in New Zealand dollars, its reporting currency, to about $53 million. The decrease reflected “unfavourable exchange rate movements” which turned a 9% gain in sales in US dollars into a 1% gain in the kiwi currency to $506 million. So far this year, the kiwi dollar has advanced 6% against the greenback and traded recently at 82.17 US cents. But on a trade-weighted basis the gain is only 2%. The US Dollar Index, which measures the greenback against a basket of major currencies, has declined 6.1%.
Healthcare gets 54% of operating revenue in US dollars and 23% in euros. The kiwi has slipped just 1.5% against the euro this year. Assuming the kiwi dollar trades between 80 cents and 85 cents for the rest of the financial year, the company sees annual revenue of between $515 million and $530 million, Daniell told the meeting. That would be up from $503 million last year. Annual net profit is forecast at $60 million to $65 million, down from the range it gave in May of $62 million to $76 million and down from last year’s $71.6 million.
The company’s response has been to expand its plant in Mexico, where its operations have widened from manufacturing its respirators and sleep apnea masks to direct sales and even R&D. Sleep apnea may be an untapped global market, based on figures the company cites of 10 million people who have the condition worldwide where they stop breathing momentarily during sleep. This has been linked to heart disease and other ailments, it says. It plans to generate most of the growth in its consumables products by ramping up output at its factory in Tijuana, where it began manufacturing in April last year.
“We are achieving the expected manufacturing cost savings, and the Mexico facility is beginning to contribute positively to operating margin,” Daniell said. The shift to Mexico has accelerated. Originally half of its high-volume consumables were to be made there within fives years. By speeding up the move, it will “achieve the expected $20 million of annual savings sooner.”
The shares rose 1.7% to $2.38 on the NZX on Friday.