Market slams Healthcare shares

By Phil Boeyen, ShareChat Business News Editor

Thursday 14th February 2002

Concerns over margins and increased competition in the obstructed sleep apnoea market saw Fisher & Paykel Healthcare (NZSE: FPH) shares drop to new lows after releasing its third-quarter results early Thursday.

The pressure on the Healthcare business also dragged down shares in F&P Appliances (NZSE: FPA), which owns 20% of its former sibling. By midday Thursday FPH shares had lost around 15% in value, falling from $14 to $12 a share.

Healthcare has a strong reputation for growth and investors are likely to have been put off by the fact that operating revenue from continuing operations for the three months ended December rose by just 1% to $55.8 million.

Although operating revenue from the company's three core product groups rose by 7% the growth was partially offset by a decline in sales of distributed products due to the termination of distribution arrangements in New Zealand with Datex-Ohmeda.

Operating revenue from distributed products fell to $3.4 million from $5.8 million previously.

Net profit from continuing operations after taxation increased in the quarter by 28% to NZ$14.1 million, but this was helped by favourable foreign currency effects. Operating profit from continuing operations fell by 6% to $20 million compared with the previous quarter.

In a conference call on the result analysts were keen to find out what kind of effect increased competition will have on the company's sales in the obstructed sleep apnoea (OSA) market.

The company's stock has already been under pressure after Florida-based Innomed Technologies announced earlier in the year that it had launched a new sleep apnoea device.

Healthcare boss, Michael Daniell, admits that in terms of pricing in the OSA market the company had come from a privileged position and had to bring its prices down as competition grew, impacting on margins.

However he was keen to point out the company's success with humidification technology in the market.

"Earlier in the fiscal year we repositioned our CPAP humidifiers and integrated flow generator-humidifiers in response to competitor pricing. During the third quarter, sales volumes of our integrated flow generator-humidifiers increased by more than 23%.

"We also experienced continuing growth in demand for our recently introduced Aclaim nasal mask and began the introduction of our innovative Oracle oral mask."

Asked about the falling share prices in the wake of Thursday's result Mr Daniell wouldn't comment specifically but reiterated that the business is in a very healthy position, with strong operating margins and plenty of future growth opportunities.

Looking to the fourth quarter Mr Daniell says the company is looking for around a 5% increase in operating revenue compared to the previous year.

Further out, in fiscal 2003, he predicts the company will record overall revenue growth of about 10% with core product growth slightly higher.

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