26 May 2014

F&P Healthcare tips profit expansion

7:59 am on 26 May 2014

Fisher & Paykel Healthcare expects its profit margin to increase by about 2 percentage points this year, once the impact of fluctuating exchange rates are taken into account.

That's thanks to a favourable product mix, lower production costs in Mexico and manufacturing and supply chain efficiencies.

The company's profit margins increased by 4 percentage points in the 12 months that ended in March, leading to a 26 percent rise in annual net profit.

The profit rise reported last week reflects increasing acceptance of the firm's cutting-edge medical devices and is despite strong headwinds from the high New Zealand dollar.

The company, which makes respiratory care systems, posted a $97.1 million profit for the 12 months ended March. If the currency had remained steady, the profit uplift would have been 46 percent.

Chief executive Mike Daniell said cutting costs wasn't his company's major motivation when it began manufacturing in Mexico.

He said when the company began planning for the Mexico facility five years ago the intention was to have more than one manufacturing location to ensure security of supply.

Mr Daniell said Fisher & Paykel Healthcare devices are estimated to treat about 9 million people each year and it's important to ensure there is no problem with supply.

He said although that was the original motivation the fact that Mexico is a much lower cost location for manufacture than New Zealand has become very helpful as the New Zealand dollar become stronger and stronger.

Mr Daniell said the improvement will come from new products which have a slightly better margin, an increased proportion of the company's output coming from Mexico and from increased efficiencies in its New Zealand manufacturing.

He said the company expects about half its output to come from Mexico and half from New Zealand within the next three of four years.