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Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Fisher & Paykel Healthcare Corp / Equity Bottom-Up

<h2>F&amp;P Healthcare (FPH) 1H22 Result – Initial Impressions</h2>
F&amp;P Healthcare (FPH) delivered a 1H22 result above our expectations with revenue of NZ$900m (FB; NZ$845m), down -1% YoY but up +2% in Constant Currency (CC) terms and NPAT of NZ$221.8m (FB; NZ$193m), down -2% YoY. FPH had pre-announced its first four months revenue showing a decline of -2% in CC terms, implying that the run-rate in August &amp; September was at a similar level YoY as FPH continues to see strong COVID-19 related demand for its Hospital business particularly in the US. Unsurprisingly, no direct quantitative guidance was provided and we look for additional colour for the remainder of FY22 (particularly given rising COVID-19 hospitalisations in Europe, and increasing vaccinations globally) but FPH did state it hasn’t changed its view on outlook for the remainder of the year since its AGM on August 18.
Key points of interest
<ul>
<li>1H22 result breakdown: Revenue -1% YoY, NPAT -2% (CC +2% and -1%) and +15% versus our expectations. Hospital lead the positive surprise with growth maintained in August &amp; September versus the four months update in August, the Hospital performance was significantly ahead of versus our expectations led by hardware. Consumables revenue implied +10% YoY in August and September versus +2% in the first four months. Hardware implied down -10% YoY in August and September versus -13% in the first four months. Homecare was slightly weaker versus our expectations with revenue of NZ$226.9m (FB; NZ$230.9m). Gross margins were 63.1% above 1H21 but slightly below our expectations (63.5%) given elevated freight costs and unfavourable freight mix, SG&amp;A costs were meaningfully below our expectations, down YoY, partly offset by higher R&amp;D costs, a clear positive in the result.&nbsp;</li>
<li>FY22 guidance: As expected FPH has not provided quantitative guidance, but reiterated that it does not expect current level of elevated hospital revenues to continue. Our current forecasts are for revenue of NZ$1,665m (consensus; NZ$1,682m) and NPAT of NZ$373m (consensus; NZ$376m)</li>
</ul>
o&nbsp;&nbsp;Revenue:&nbsp;No quantitative guidance was provided but&nbsp;“in absence of further comparable hospitalisation surges around the world, expect consumables revenue for H2 FY22 to be lower than H2 FY21.”&nbsp;Our current forecasts are for 2H consumables revenue of NZ$501m versus NZ$515m last year.
o&nbsp;&nbsp;Gross margins:&nbsp;No commentary, prior commentary was for flat or lower YoY (FY21; 63.2%, FB FY22E; 63.4%)
o&nbsp;&nbsp;SG&amp;A:&nbsp;No commentary;&nbsp;prior guidance was for CC SG&amp;A growth of +8% YoY (excluding donations). FB estimate; ~+10%
o&nbsp;&nbsp;Capex&nbsp;guidance of $700m for space and buildings over the next five years:&nbsp;FPH’s stated that it has “set aside” NZ$700m for “space and buildings” over the next five years as they plan to expand with three new facilities outside of New Zealand and one more within New Zealand. Our understanding is that this is separate from operational capex and compares to our previous expectations of NZ$225m over the next five years.
<ul>
<li>Dividend and balance sheet: 1H22 dividend of NZ 17cps, slightly below our NZ 18cps expectations. The company remains in a net cash position, with gearing below its target range (-5% to +5%).</li>
<li>Operating cash flow weak due to tax payment: Operating cash flow was NZ$90m down versus 1H21 due to taxes paid NZ$107m above last year. Excluding the impact of this operating cash flow was up +6% YoY.</li>
</ul>
Investor briefing – 10am NZT
Dial in: 09 913 3624 for NZ (+61 2 7250 5438 for Australia); conference code 245311.&nbsp;Webcast&nbsp;link on&nbsp;<a href="http://www.fphcare.com/investor" target="_blank" data-saferedirecturl="https://www.google.com/url?q=http://www.fphcare.com/investor&amp;source=gmail&amp;ust=1637886154354000&amp;usg=AOvVaw0nXz2HKhW6FmKcejKzyZzQ" rel="noopener">www.fphcare.com/investor</a>
1H22 result summary
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 165.8pt; height: 12.75pt;">
&nbsp;
</td>
<td style="width: 56.8pt; height: 12.75pt;">
1H21
</td>
<td style="width: 56.8pt; height: 12.75pt;">
1H22
</td>
<td style="width: 56.8pt; height: 12.75pt;">
% chg
</td>
<td style="width: 65.8pt; height: 12.75pt;">
Forsyth Barr
</td>
<td style="width: 56.8pt; height: 12.75pt;">
% diff
</td>
<td style="width: 56.8pt; height: 12.75pt;">
Consensus
</td>
</tr>
<tr>
<td style="width: 165.8pt; height: 12.75pt;">
Total revenue
</td>
<td style="width: 56.8pt; height: 12.75pt;">
910.2
</td>
<td style="width: 56.8pt; height: 12.75pt;">
900.0
</td>
<td style="width: 56.8pt; height: 12.75pt;">
-1.1%
</td>
<td style="width: 65.8pt; height: 12.75pt;">
845.0
</td>
<td style="width: 56.8pt; height: 12.75pt;">
7%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
865.6
</td>
</tr>
<tr>
<td style="width: 165.8pt; height: 12.75pt;">
Gross profit
</td>
<td style="width: 56.8pt; height: 12.75pt;">
561.9
</td>
<td style="width: 56.8pt; height: 12.75pt;">
567.7
</td>
<td style="width: 56.8pt; height: 12.75pt;">
1.0%
</td>
<td style="width: 65.8pt; height: 12.75pt;">
536.9
</td>
<td style="width: 56.8pt; height: 12.75pt;">
6%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
547.8
</td>
</tr>
<tr>
<td style="width: 165.8pt; height: 12.75pt;">
Gross margin
</td>
<td style="width: 56.8pt; height: 12.75pt;">
61.7%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
63.1%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
1.34bp
</td>
<td style="width: 65.8pt; height: 12.75pt;">
63.5%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
-0.5%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
63.3%
</td>
</tr>
<tr>
<td style="width: 165.8pt; height: 12.75pt;">
R&amp;D costs
</td>
<td style="width: 56.8pt; height: 12.75pt;">
(64.6)
</td>
<td style="width: 56.8pt; height: 12.75pt;">
(75.7)
</td>
<td style="width: 56.8pt; height: 12.75pt;">
17.2%
</td>
<td style="width: 65.8pt; height: 12.75pt;">
(69.8)
</td>
<td style="width: 56.8pt; height: 12.75pt;">
9%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
72.4
</td>
</tr>
<tr>
<td style="width: 165.8pt; height: 12.75pt;">
SG&amp;A
</td>
<td style="width: 56.8pt; height: 12.75pt;">
(151.1)
</td>
<td style="width: 56.8pt; height: 12.75pt;">
(143.6)
</td>
<td style="width: 56.8pt; height: 12.75pt;">
-5.0%
</td>
<td style="width: 65.8pt; height: 12.75pt;">
(163.2)
</td>
<td style="width: 56.8pt; height: 12.75pt;">
-12%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
168.4
</td>
</tr>
<tr>
<td style="width: 165.8pt; height: 12.75pt;">
EBITDA
</td>
<td style="width: 56.8pt; height: 12.75pt;">
346.2
</td>
<td style="width: 56.8pt; height: 12.75pt;">
348.4
</td>
<td style="width: 56.8pt; height: 12.75pt;">
0.6%
</td>
<td style="width: 65.8pt; height: 12.75pt;">
304.0
</td>
<td style="width: 56.8pt; height: 12.75pt;">
15%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
309.5
</td>
</tr>
<tr>
<td style="width: 165.8pt; height: 14.25pt;">
EBIT
</td>
<td style="width: 56.8pt; height: 14.25pt;">
309.2
</td>
<td style="width: 56.8pt; height: 14.25pt;">
302.4
</td>
<td style="width: 56.8pt; height: 14.25pt;">
-2.2%
</td>
<td style="width: 65.8pt; height: 14.25pt;">
257.0
</td>
<td style="width: 56.8pt; height: 14.25pt;">
18%
</td>
<td style="width: 56.8pt; height: 14.25pt;">
265.2
</td>
</tr>
<tr>
<td style="width: 165.8pt; height: 12.75pt;">
NPAT
</td>
<td style="width: 56.8pt; height: 12.75pt;">
225.5
</td>
<td style="width: 56.8pt; height: 12.75pt;">
221.8
</td>
<td style="width: 56.8pt; height: 12.75pt;">
-1.6%
</td>
<td style="width: 65.8pt; height: 12.75pt;">
192.8
</td>
<td style="width: 56.8pt; height: 12.75pt;">
15%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
199.7
</td>
</tr>
<tr>
<td style="width: 165.8pt; height: 12.75pt;">
Underlying EPS
</td>
<td style="width: 56.8pt; height: 12.75pt;">
39.2
</td>
<td style="width: 56.8pt; height: 12.75pt;">
38.5
</td>
<td style="width: 56.8pt; height: 12.75pt;">
-1.8%
</td>
<td style="width: 65.8pt; height: 12.75pt;">
33.4
</td>
<td style="width: 56.8pt; height: 12.75pt;">
15%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
34.3
</td>
</tr>
<tr>
<td style="width: 165.8pt; height: 12.75pt;">
Interim dividend (cps)
</td>
<td style="width: 56.8pt; height: 12.75pt;">
16.0
</td>
<td style="width: 56.8pt; height: 12.75pt;">
17.0
</td>
<td style="width: 56.8pt; height: 12.75pt;">
6.3%
</td>
<td style="width: 65.8pt; height: 12.75pt;">
18.0
</td>
<td style="width: 56.8pt; height: 12.75pt;">
-6%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
18.5
</td>
</tr>
</tbody>
</table>

<table class="table table-striped">
<tbody>
<tr>
<td style="width: 165.8pt; height: 12.75pt;">
&nbsp;
</td>
<td style="width: 56.8pt; height: 12.75pt;">
1H21
</td>
<td style="width: 56.8pt; height: 12.75pt;">
1H22
</td>
<td style="width: 56.8pt; height: 12.75pt;">
% chg
</td>
<td style="width: 65.8pt; height: 12.75pt;">
CC growth
</td>
<td style="width: 56.8pt; height: 12.75pt;">
Forsyth Barr
</td>
<td style="width: 56.8pt; height: 12.75pt;">
% diff
</td>
<td style="width: 56.8pt; height: 12.75pt;">
Consensus
</td>
</tr>
<tr>
<td style="width: 165.8pt; height: 12.75pt;">
Hospital hardware
</td>
<td style="width: 56.8pt; height: 12.75pt;">
252.0
</td>
<td style="width: 56.8pt; height: 12.75pt;">
221.2
</td>
<td style="width: 56.8pt; height: 12.75pt;">
-12%
</td>
<td style="width: 65.8pt; height: 12.75pt;">
-10%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
177.0
</td>
<td style="width: 56.8pt; height: 12.75pt;">
25%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
171.0
</td>
</tr>
<tr>
<td style="width: 165.8pt; height: 12.75pt;">
Hospital consumables
</td>
<td style="width: 56.8pt; height: 12.75pt;">
429.0
</td>
<td style="width: 56.8pt; height: 12.75pt;">
449.0
</td>
<td style="width: 56.8pt; height: 12.75pt;">
5%
</td>
<td style="width: 65.8pt; height: 12.75pt;"></td>
<td style="width: 56.8pt; height: 12.75pt;">
433.4
</td>
<td style="width: 56.8pt; height: 12.75pt;">
4%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
451.1
</td>
</tr>
<tr>
<td style="width: 165.8pt; height: 12.75pt;">
Hospital - total
</td>
<td style="width: 56.8pt; height: 12.75pt;">
681.0
</td>
<td style="width: 56.8pt; height: 12.75pt;">
670.2
</td>
<td style="width: 56.8pt; height: 12.75pt;">
-2%
</td>
<td style="width: 65.8pt; height: 12.75pt;">
1%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
610.4
</td>
<td style="width: 56.8pt; height: 12.75pt;">
10%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
629.5
</td>
</tr>
<tr>
<td style="width: 165.8pt; height: 12.75pt;">
Homecare - total
</td>
<td style="width: 56.8pt; height: 12.75pt;">
226.2
</td>
<td style="width: 56.8pt; height: 12.75pt;">
226.9
</td>
<td style="width: 56.8pt; height: 12.75pt;">
0%
</td>
<td style="width: 65.8pt; height: 12.75pt;">
3%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
230.9
</td>
<td style="width: 56.8pt; height: 12.75pt;">
-2%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
237.1
</td>
</tr>
<tr>
<td style="width: 165.8pt; height: 12.75pt;">
Distributed / Other
</td>
<td style="width: 56.8pt; height: 12.75pt;">
3.0
</td>
<td style="width: 56.8pt; height: 12.75pt;">
2.9
</td>
<td style="width: 56.8pt; height: 12.75pt;">
-3%
</td>
<td style="width: 65.8pt; height: 12.75pt;"></td>
<td style="width: 56.8pt; height: 12.75pt;">
3.8
</td>
<td style="width: 56.8pt; height: 12.75pt;">
-23%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
3.0
</td>
</tr>
<tr>
<td style="width: 165.8pt; height: 12.75pt;">
Total revenue
</td>
<td style="width: 56.8pt; height: 12.75pt;">
910.2
</td>
<td style="width: 56.8pt; height: 12.75pt;">
900.0
</td>
<td style="width: 56.8pt; height: 12.75pt;">
-1%
</td>
<td style="width: 65.8pt; height: 12.75pt;">
2%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
845.0
</td>
<td style="width: 56.8pt; height: 12.75pt;">
7%
</td>
<td style="width: 56.8pt; height: 12.75pt;">
865.6
</td>
</tr>
</tbody>
</table>
Source: Forsyth Barr analysis, Company reports

F&amp;P Healthcare (FPH) 1H22 Result – Initial Impressions
F&amp;P Healthcare (FPH) delivered a 1H22 result above our expectations with revenue of NZ$900m (FB; NZ$845m), down -1% YoY but up +2% in Constant Currency (CC) terms and NPAT of NZ$221.8m (FB; NZ$193m), down -2% YoY. FPH had pre-announced its first four months revenue showing a decline of -2% in CC terms, implying that the run-rate in August &amp; September was at a similar level YoY as FPH continues to see strong COVID-19 related demand for its Hospital business particularly in the US. Unsurprisingly, no direct quantitative guidance was provided and we look for additional colour for the remainder of FY22 (particularly given rising COVID-19 hospitalisations in Europe, and increasing vaccinations globally) but FPH did state it hasn’t changed its view on outlook for the remainder of the year since its AGM on August 18.
Key points of interest

1H22 result breakdown: Revenue -1% YoY, NPAT -2% (CC +2% and -1%) and +15% versus our expectations. Hospital lead the positive surprise with growth maintained in August &amp; September versus the four months update in August, the Hospital performance was significantly ahead of versus our expectations led by hardware. Consumables revenue implied +10% YoY in August and September versus +2% in the first four months. Hardware implied down -10% YoY in August and September versus -13% in the first four months. Homecare was slightly weaker versus our expectations with revenue of NZ$226.9m (FB; NZ$230.9m). Gross margins were 63.1% above 1H21 but slightly below our expectations (63.5%) given elevated freight costs and unfavourable freight mix, SG&amp;A costs were meaningfully below our expectations, down YoY, partly offset by higher R&amp;D costs, a clear positive in the result.&nbsp;
FY22 guidance: As expected FPH has not provided quantitative guidance, but reiterated that it does not expect current level of elevated hospital revenues to continue. Our current forecasts are for revenue of NZ$1,665m (consensus; NZ$1,682m) and NPAT of NZ$373m (consensus; NZ$376m)

o&nbsp;&nbsp;Revenue:&nbsp;No quantitative guidance was provided but&nbsp;“in absence of further comparable hospitalisation surges around the world, expect consumables revenue for H2 FY22 to be lower than H2 FY21.”&nbsp;Our current forecasts are for 2H consumables revenue of NZ$501m versus NZ$515m last year.
o&nbsp;&nbsp;Gross margins:&nbsp;No commentary, prior commentary was for flat or lower YoY (FY21; 63.2%, FB FY22E; 63.4%)
o&nbsp;&nbsp;SG&amp;A:&nbsp;No commentary;&nbsp;prior guidance was for CC SG&amp;A growth of +8% YoY (excluding donations). FB estimate; ~+10%
o&nbsp;&nbsp;Capex&nbsp;guidance of $700m for space and buildings over the next five years:&nbsp;FPH’s stated that it has “set aside” NZ$700m for “space and buildings” over the next five years as they plan to expand with three new facilities outside of New Zealand and one more within New Zealand. Our understanding is that this is separate from operational capex and compares to our previous expectations of NZ$225m over the next five years.

Dividend and balance sheet: 1H22 dividend of NZ 17cps, slightly below our NZ 18cps expectations. The company remains in a net cash position, with gearing below its target range (-5% to +5%).
Operating cash flow weak due to tax payment: Operating cash flow was NZ$90m down versus 1H21 due to taxes paid NZ$107m above last year. Excluding the impact of this operating cash flow was up +6% YoY.

Investor briefing – 10am NZT
Dial in: 09 913 3624 for NZ (+61 2 7250 5438 for Australia); conference code 245311.&nbsp;Webcast&nbsp;link on&nbsp;www.fphcare.com/investor
1H22 result summary




&nbsp;


1H21


1H22


% chg


Forsyth Barr


% diff


Consensus




Total revenue


910.2


900.0


-1.1%


845.0


7%


865.6




Gross profit


561.9


567.7


1.0%


536.9


6%


547.8




Gross margin


61.7%


63.1%


1.34bp


63.5%


-0.5%


63.3%




R&amp;D costs


(64.6)


(75.7)


17.2%


(69.8)


9%


72.4




SG&amp;A


(151.1)


(143.6)


-5.0%


(163.2)


-12%


168.4




EBITDA


346.2


348.4


0.6%


304.0


15%


309.5




EBIT


309.2


302.4


-2.2%


257.0


18%


265.2




NPAT


225.5


221.8


-1.6%


192.8


15%


199.7




Underlying EPS


39.2


38.5


-1.8%


33.4


15%


34.3




Interim dividend (cps)


16.0


17.0


6.3%


18.0


-6%


18.5









&nbsp;


1H21


1H22


% chg


CC growth


Forsyth Barr


% diff


Consensus




Hospital hardware


252.0


221.2


-12%


-10%


177.0


25%


171.0




Hospital consumables


429.0


449.0


5%



433.4


4%


451.1




Hospital - total


681.0


670.2


-2%


1%


610.4


10%


629.5




Homecare - total


226.2


226.9


0%


3%


230.9


-2%


237.1




Distributed / Other


3.0


2.9


-3%



3.8


-23%


3.0




Total revenue


910.2


900.0


-1%


2%


845.0


7%


865.6




Source: Forsyth Barr analysis, Company reports

F&P Healthcare (FPH): 1H22 Result – Initial Impressions