F&P Healthcare profit buffeted by exchange rates

Fisher & Paykel Healthcare is focusing on widening the range of currencies it trades in as an unfavourable exchange rate with the greenback puts profits under pressure.

The Manukau-based, listed medical device manufacturer reported a 54 per cent fall in net profit to $16.9 million for the six months to September 30.

It attributed the drop in profitability mainly to negative exchange rate movements, particularly the kiwi's high cross rate with the US dollar.

During the six months the company conducted 56 per cent of its sales in the American currency.

In US dollar terms, operating revenue for the six months was up 9 per cent at US$173.8 million.

But converted into NZ dollars, sales of $245 million were down 3 per cent on the prior period.

F&P Healthcare chief executive Mike Daniell said despite having about 70 per cent of its exchange rate exposure hedged for the coming half year, the unhedged 30 per cent created "quite a headwind" for the firm.

The company was also using other methods, beyond hedging, to mitigate currency risk.

"Over the last year we've begun selling directly in Japan, Taiwan, Turkey and Hong Kong," Daniell said. "Therefore, we're in the local currencies of those countries so that supplies more [currency] diversity."

He said cost savings resulting from the company's new Mexican plant - commissioned in April - would be seen in the next financial year.

"[The Mexican facility] is actually a cost right now, but capacity is ramping up to plan," Daniell said. "It also gives us a geographic diversity in manufacturing, which was the primary motivation [for setting up the Tijuana plant] but with the exchange rate where it is, the cost savings will be very helpful."

The plant, in the border town of Tijuana, employs about 160 staff.

News of the fall in profits hit the firm's share price, pushing it down 7c to close at $2.95 last night.

Daniell said underlying revenue growth was expected to increase during the current half year in its products used for the treatment of obstructive sleep apnoea, including the new Icon flow generator range.

A lull was expected in respiratory humidifier purchases following a spike in sales during the final half of the last financial year as a result of the swine flu pandemic.

F&P Healthcare estimates with an NZ/US exchange rate of US77c over the coming months it will see a net profit in the range of $48 to $51 million, after non-deferred tax adjustments, for the financial year ending March 31, 2011.

The company reported a net profit of $71.6 million in its last full-year result.

Forsyth Barr analyst Guy Hallwright said yesterday's profit forecast was as expected, given the current exchange rate situation.

"We're looking for margin improvements and higher revenue growth as new product lines come in," he said.

The company spent $18.6 million on research and development during the half year, 14 per cent up on the prior period.

Work has begun on F&P Healthcare's new 31,000sq m building at its East Tamaki site, with the project expected to be completed in late 2012.