New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

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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<br>1H22 Preview&nbsp;— Focus&nbsp;on Costs and Outlook</h2>
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<p><strong>NEUTRAL</strong></p>
<p>We expect to see the first signs of the earnings decline when FPH reports its 1H22 result on Thursday, 25 November. Our key focus areas are; (1) any insights into the remainder of FY22 and the demand profile post COVID-19,&nbsp; (2) gross margins and the impact from increased freight costs, and (3) SG&amp;A cost control in light of likely declining revenue.&nbsp;</p>
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<h3>Key points of interest ahead of&nbsp;FPH's&nbsp;1H22 result</h3>
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<li><strong>Any insights into FY22 outlook</strong>:&nbsp;FPH has pre-announced its first four months&nbsp;revenue showing a decline of -2% in Constant Currency (CC) terms. Our revenue proxy for the&nbsp;remainder of 1H22 points to a sharp decline in August and September, leaving our 1H expectations down ~-7%&nbsp;YoY. We believe focus will be on 2H&nbsp;commentary. While we don't expect quantitative guidance we look for any insights into expectations for the remainder of FY22 and the demand profile thereafter. Our revenue proxy for October showed an improvement on recent months&nbsp;(down ~-4%&nbsp;YoY), our current FY22 forecasts are for revenue of NZ$1,665m (consensus; NZ$1,682m) down -16%&nbsp;YoY&nbsp;and NPAT of NZ$373m (consensus; NZ$376m) down -29%&nbsp;YoY.</li>
<li><strong>Cost creep?</strong>&nbsp;We expect material negative operating leverage in FY22 as FPH continues to invest and grow awareness of its products,&nbsp; further amplified by the ongoing unfavourable global freight dynamic.
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<li>Gross margins: Despite elevated volumes, FPH saw material&nbsp;YoY&nbsp;gross margin contraction in FY21 due to freight pressures (costs and mix). FY22 qualitative guidance is for gross margins to be flat or lower&nbsp;YoY&nbsp;(63.2% in FY21). This is below longer-term targets of 65%.&nbsp; We look for an update on this and forecast 1H22 gross margins of&nbsp;63.5% (consensus; 63.3%).</li>
<li>SG&amp;A: Guidance is for CC SG&amp;A growth of +8%&nbsp;YoY&nbsp;&nbsp;(excluding donations). Our current forecasts are for ~+10%.</li>
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<h3>Investor briefing&nbsp;— 10am NZT</h3>
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<p>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=1637712228921000&amp;usg=AOvVaw3u9oOnnF2f4BmFbYpaI_GC" rel="noopener">www.fphcare.com/investor</a>.</p>
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F&amp;P Healthcare 1H22 Preview&nbsp;— Focus&nbsp;on Costs and Outlook

NEUTRAL
We expect to see the first signs of the earnings decline when FPH reports its 1H22 result on Thursday, 25 November. Our key focus areas are; (1) any insights into the remainder of FY22 and the demand profile post COVID-19,&nbsp; (2) gross margins and the impact from increased freight costs, and (3) SG&amp;A cost control in light of likely declining revenue.&nbsp;


Key points of interest ahead of&nbsp;FPH's&nbsp;1H22 result



Any insights into FY22 outlook:&nbsp;FPH has pre-announced its first four months&nbsp;revenue showing a decline of -2% in Constant Currency (CC) terms. Our revenue proxy for the&nbsp;remainder of 1H22 points to a sharp decline in August and September, leaving our 1H expectations down ~-7%&nbsp;YoY. We believe focus will be on 2H&nbsp;commentary. While we don't expect quantitative guidance we look for any insights into expectations for the remainder of FY22 and the demand profile thereafter. Our revenue proxy for October showed an improvement on recent months&nbsp;(down ~-4%&nbsp;YoY), our current FY22 forecasts are for revenue of NZ$1,665m (consensus; NZ$1,682m) down -16%&nbsp;YoY&nbsp;and NPAT of NZ$373m (consensus; NZ$376m) down -29%&nbsp;YoY.
Cost creep?&nbsp;We expect material negative operating leverage in FY22 as FPH continues to invest and grow awareness of its products,&nbsp; further amplified by the ongoing unfavourable global freight dynamic.

Gross margins: Despite elevated volumes, FPH saw material&nbsp;YoY&nbsp;gross margin contraction in FY21 due to freight pressures (costs and mix). FY22 qualitative guidance is for gross margins to be flat or lower&nbsp;YoY&nbsp;(63.2% in FY21). This is below longer-term targets of 65%.&nbsp; We look for an update on this and forecast 1H22 gross margins of&nbsp;63.5% (consensus; 63.3%).
SG&amp;A: Guidance is for CC SG&amp;A growth of +8%&nbsp;YoY&nbsp;&nbsp;(excluding donations). Our current forecasts are for ~+10%.





Investor briefing&nbsp;— 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.


F&P Healthcare: 1H22 Preview — Focus on Costs and Outlook