F&P baby in best of health

By ELLEN READ

From early experiments with preserving-jar lids and pipes to being a world leader in high-tech medical equipment, Fisher & Paykel Healthcare has come a long way.

Better known for washing machines, fridges and dishwashers, Fisher & Paykel's more than 30-year involvement in healthcare products may come as a surprise.

Fisher & Paykel Industries, as it was then, entered the healthcare field in 1971 when it began manufacturing an electronic version of a respiratory humidifier under licence.

A simple prototype had been developed in conjunction with the Department of Scientific and Industrial Research and Auckland Hospital using an Agee plastic preserving-jar lid and various hoses.

Seven years later the company set up its medical division - which two years ago became the stand-alone company Fisher & Paykel Healthcare.

"It was the best-kept success story secret for many years," says Lewis Gradon, vice-president of research and development. When he joined the company as a design engineer in 1983 there were fewer than 30 people in the division. Now there are more than 700.

"It's retained the F&P family culture the whole way through," Gradon said. "When I started that was relatively unique, but a lot of the things they started have become buzzwords today, so it sounds trite - like teamwork and caring for staff.

"The staff stick around. I got my 20-year watch earlier this year. It's a family thing - they gave my wife one too."

Chief executive Mike Daniell is another long-server. He joined more than 20 years ago as a research and development engineer.

Last week, tieless and in shirt-sleeves, the man who leads Fisher & Paykel Healthcare looked relaxed. One reason for this could have been because the company had just reported yet another healthy profit and signalled the arrival of new products in coming months.

Daniell believes totally in the company, its products and the people around him. He has good reason.

New markets and products, increased profits and shareholder returns and a healthy share price tell the story of the healthcare company.

Daniell puts the company's success down to "perseverance, especially in the early days".

"Now it's about the environment of finding the right products and then having the right people around the world to get them out."

R & D plays a vital role in Healthcare's success. This year, for example, the company increased its annual spending in this area from 5.6 per cent of revenue to 6.4 per cent. F&P Industries split into F&P Healthcare and whiteware maker F&P Appliances (which includes F&P Finance) in November 2001.

The split was prompted by investors marking down the value of the expanding health enterprise because of the slower-growing home appliance business. At $1.25 billion, Healthcare has almost doubled the market capitalisation of its Appliance sister. F&P Healthcare sells most of its products in North America and Europe.

The two biggest earners are the respiratory products and those used to treat obstructive sleep apnoea. It has 600 local and 170 international staff. As of March this year, the company held more than 300 product patents.



While R&D remains key (160 of the 600 local staff are engineers, scientists and physiologists), the company is keen to capitalise on the results and get the money flowing in.

It has a three-pronged sales approach: direct to customers such as hospitals and from its sales offices (in US, Canada, Britain, Ireland, France, Benelux, Italy, Spain, Germany, Austria, Australia and here plus a representative office in China); via 100 distributors in 90 countries; and supplying single-use components to the original equipment manufacturers. This is a big money spinner because the components are cheap to produce and freight and new ones are required for each patient.

If the company has a weakness, it is the field in which it operates. As people live longer, more healthcare competition will spring up. Fisher & Paykel will have to keep delivering.

Right now the company is a stockmarket darling. This year its share price has risen from around $9.50 to over $12. It hit a year high of $13 in October.

Its maiden year net profit of $48.1 million (reported in June last year) was followed this year by a $72.9 million net profit.

For the last financial year, the company had revenue of $208 million and exports accounted for 98 per cent of sales.

Almost half of this was from the US, with Europe contributing 28 per cent, Asia Pacific 20 per cent and other markets 3 per cent. Last week the company announced a net profit for the six months to September 30 of $25.2 million and predicted good times.

A research report from ABN Amro was glowing: "FPH is a class growth story, applying its technology advantage to markets where it has invested in distribution. By continually improving the technology and increasing the markets to which it can apply the technology - in terms of geography, product breadth, product depth and sales and marketing effectiveness - FPH should continue to grow."

Even the Shareholders Association seems to like the company.

At this year's annual meeting, even a share options grant to Daniell failed to muster any opposition from the organisation.

Association chairman Bruce Sheppard said the company had a robust board and was well governed.

"It's out of a good fountain and is a neat company doing good things. We don't have any issues with them," he said.

Investors have not always been kind. In February last year the company's shares dipped almost 19 per cent when it announced a disappointing interim result. But subsequent solid news and results pulled the company back.

A strong culture of innovation stems from the appliance side of the business - where the company, competing with world giants, realised it had to do things differently to win.

"So we've got the Kiwi innovation culture. It's very hands on, very 'try things' and there's no fear of failure," Gradon said.

The company hires most of its technical staff straight from university and with numbers expanding rapidly, this means the workforce is young.

It is not without competition, though - San Diego-based ResMed and Pittsburgh-based Respironics operate in the same market.

But in true Kiwi can-do style, F&P Healthcare seems set to keep on keeping up with the big players while staying put Downunder. A recent expansion to its East Tamaki facility suggests the company intends staying put.

The goals remain ambitious, though. Daniell plans to double sales every five years.



F&P Healthcare's three divisions

Respiratory Humidification: Accounts for 49 per cent of products. The international market is estimated at US$300 million, broken into three categories - heated humidifier controllers and humidifier chambers (of which F&P has a 50 to 60 per cent market share), breathing circuits (10 to 15 per cent market share) and unheated humidifiers and oxygen therapy supplies.

Obstructive Sleep Apnoea: Makes up 41 per cent of products. The market is estimated at US$700 million, and is growing 15 to 20 per cent each year. F&P says up to 60 million people could have the condition worldwide, but only around 5 per cent are diagnosed. Sleep apnoea causes sufferers to stop breathing repeatedly during the night, sometimes for more than a minute. Loss of oxygen and stress on the body can boost the risk of strokes, blood pressure and other medical problems. F&P makes masks that provide high-pressure oxygen, holding the airway open and preventing apnoea attacks.

Neonatal and Patient Warming Units: The newest product area, which accounts for the remaining 10 per cent of products. Neonatal warmers, neonatal resuscitators and neonatal respiratory care devices are used to help newborn infants requiring special care.