Fisher & Paykel Healthcare Corporation Limited

for today's call. At this time, everyone except the guest speakers will be in listen-only mode. Later, we'll conduct a question and answer session. We ask for your assistance in keeping the call to a maximum of one hour. If assistance is required at any time, please press the star button followed by zero on your phone and wait for a coordinator. If you require further assistance, you should redial into the call. Please note this conference call is being recorded. I would now like to turn the call over to Marcus Driller, VP Corporate. Please go ahead.

Thank you, Cynthia. Well, good morning, everyone, and welcome to the conference call for Fisher & Paykel Healthcare's full year results for the 2024 financial year. On the call today are Lewis Graydon, Managing Director and Chief Executive Officer, Lyndall York, Chief Financial Officer, Justin Callaghan, VP Sales and Marketing, Andrew Somerville, VP of Products and Technology, and Andy Nicol, our Chief Operating Officer. Lewis and Linda will first provide an overview of the results, and then we'll open up the call to questions. We'll be discussing our results for the year end of 31 March 2024. Earlier today, we provided our 2024 annual report, including financial statements and commentary on our results to the NZX and ASX. These documents can be accessed on our website at fphcare.com forward slash investor. With that and with thunder and lightning here at our campus, I'd now like to turn the call over to Lewis. Yeah, look, thanks, Marcus.

And you can't plan these things, but we are sitting here in the middle of a major downpour in Auckland. I hope there's not too much background noise. And we might sound a little funny to you. That's because we're shouting at the speaker. to try and get over this background thunder, lightning and deluge. So my apologies. Now today I'm going to be using the investor presentation pack that we released at NZX and the ASX this morning. So let's start on page three with the business highlights. Our people continue to work with clinicians around the world to promote the adoption of our therapies. and that's supporting the treatment of approximately 20 million patients during this year. In the hospital business, we've reached some important product milestones. We got regulatory clearance in the United States for a number of products, and that includes the FMP950 system, our OptiFlow Duet nasal cannula as well. We also introduced the Ebo3 into the United States this year, and you can find more details on these in the timing, on page 26 of the presentation pack. In home care, OSA masks had an outstanding year. Our Evora face masks continue to perform well, and we've recently launched our new Solo mask in the United States. So now let's turn to page 4. Operating revenue for the full year was $1.74 billion, up 10% on FY23, and that's 8% in constant currency. And this was driven by solid demand across the hospital, consumables, product portfolio, and strong growth in OC masks. Now, as we explained in our market announcement, reported net profit after tax was impacted by three factors that were unusual, the voluntary product recall, the valuation of the karaka land, and the removal of depreciation deductibility for our New Zealand buildings. And these are all reflected in this table on page four, where we also look at the underlying results. Lyndall's going to touch on this shortly, but I would like to make one brief comment on the karaka land. We're actually pretty pleased that we've got this now, as we consider that owning this site mitigates the risk to our future growth in light of the current increase in uncertainty around potential development of sites like this in Auckland. So including these adjustments, reported net profit after tax for the year was $132.6 million. That's down 56% on FY23 in constant currency. Underlying net profit after tax, which excludes those items, was $264.4 million. That's up 6% on FY23 or 5% in constant currency. And we think it's a better representation of the ongoing operating characteristics of the business for the year. So now let's look at our product groups. We'll start on page six. Hospital operating revenue was $1.1 billion for the full year. That's up 6% or 5% in constant currency. New applications consumed was revenue was up 15% on FY23 or 13% in constant currency. Growth in the second half has come from reduced cumulative respiratory illness hospitalisations in the northern hemisphere compared to FY23. I should really say it's come after reduced cumulative respiratory illness hospitalisations. Because we're thinking of seasonal respiratory illness as including COVID, flu, and RSV-related hospitalizations. FY24 had a strong flu season compared to historical periods, but that's offset by a lower COVID hospitalization rate. And it results in a lower overall seasonal hospitalization compared to the second half of FY23. So I think going forward, we'll be talking about seasonal hospitalizations to incorporate all those moving parts. Now against this backdrop, growth was broad-based across the portfolio. That's including a non-invasive ventilation, OptiFlow for respiratory and anesthesia patients, and invasive ventilation. It all suggests that we are making headway with changing clinical practice. Hospital hardware of over $100 million was pleasing, given the significant volume of hardware sold in recent years, and the fact that we lapped a period with COVID-driven surges in some countries. such as China, for example. So turning now to page eight. Home care operating revenue was $652.3 million. That's up 18% on FY23, or 16% in constant currency. Our Evora full face mask continues to be a strong performer. And we're continuing to add new high-performance masks to our portfolio, and that accommodates a wide range of patient needs, and patient preferences. In April this year, we launched the new Solo mask into the United States. This mask offers automatic fitting and adjustment for patients who prefer something that just works without adjustments or any assistance. We also unveiled our smallest and lightest mask yet, the Nova Micro Nasal Pillows Mask. This has been released in New Zealand and Canada, and launches into Australia, Europe, and the US are to follow later this year. So I'm going to pause there and hand over to our CFO, Lyndall York, for more details on financial performance, and then I'll speak to guidance after that.

Thanks, Lewis, and good morning, everyone. On page nine, as Lewis mentioned, we have three abnormal items impacting profit this year. The voluntary recall provision, the Karaka land revaluation, and the removal of depreciation deductibility for our New Zealand buildings. We believe a more meaningful representation of the performance of our business for the year and for the future is the underlying result excluding these three items. On page 10, our underlying gross margin was 61.1% for the year, up 172 basis points from last year or 216 basis points in constant currency. Reduced freight costs account for the large part of the improvement over last year. We have had the benefit of negotiated reduced freight rates for most of this year. We also had a much lower proportion of our shipments going air freight this year, reflecting our inventory levels globally. The return to our usual practice of working on efficiency and margin improvements is making an impact, and along with our pricing, have more than offset the inflationary cost increases now flowing into our gross margin. Including the product recall provision, reported gross margin was 59.9%, up on last year by 95 basis points in constant currency. We remain confident of being able to return to our target gross margin of 65%, as prior to COVID, we had delivered improvements in gross margin of 100 to 150 basis points a year on average. Moving on to page 11. Total operating expenses grew 14%. or 13% in constant currency. This is as we expected, given the full year impact of the people that we added throughout FY23. Underlying operating margin was 21.4%, an increase of 41 basis points, or 36 basis points in constant currency, reflecting the improvement in gross margin. R&D expenses grew 14% to $198 million, and we're 11% of revenue for the year. We have estimated that about 60% of our R&D spend will be eligible for the 15% R&D tax credit this year. SG&A expenses were $493 million, an increase of 14% or 13% in constant currency. Moving to page 12, operating cash flow this year was $430 million, up $191 million from last year. This year, our taxes paid is lower than usual as we prepaid tax during the 2023 financial year, requiring less tax to be paid this year. The reduction of our inventory levels throughout FY24 also assisted operating cash flow this year. Capital expenditure, which includes purchases of intangible assets was $339 million for the year. The increase of $128 million from last year is primarily due to the $190 million paid this year for the Karaka land acquisition. Capital expenditure for the next financial year is expected to be approximately $150 million. Looking at the balance sheet, debtor days were largely in line with the prior year at 45 days. Our net debt at the 31st of March was $32 million and our gearing ratio was 1.8%. Interest bearing debt was $113 million with $77 million of that being current. Turning to page 13, we have declared a fully imputed final dividend of 23.5 cents per share. This represents a 2% increase on the final dividend declared last year and continues our recent track record of increasing our dividends to shareholders. It will be paid on the 10th of July. This brings the full year dividend to 41.5 cents per share, up 2% on last year. Our dividend reinvestment plan remains available for eligible shareholders with a 3% discount to the market price. Looking now at foreign currency on page 14. Foreign currency movements positively impacted our profit after tax by $3 million compared to last year. At 1st of May rates we would have an overall positive impact on net profit after tax of approximately $35 million in FY25 compared to FY24. Hedging would deliver a pre-tax gain of $19 million in FY25. Now with that, it's back over to you, Lewis.

Okay, thanks, Lyndall. So let's turn to Outlook on page 15. At the first of my exchange rates, our guidance for the fall 2025 financial year is for operating revenue to be in the range of approximately $1.9 billion to $2 billion, and net profit after tax to be in the range of approximately $310 to $360 million. And this guidance assumes no significant respiratory disease events within the 2025 financial year, and it assumes further improvement in gross margin. So I think I'll end my results there so that we can open the line to questions.

Thanks, Lewis. Cynthia, if I could ask you to please open the lines up for questions. Before we begin, though, can I please ask everybody to limit your questions to two? This is to ensure that everybody has an opportunity to participate. And you can rejoin the queue for any additional questions, preferably one at a time.

Thank you. We will now begin the question and answer session. If you wish to register a question, please press star followed by one on your phone. And if you wish to cancel your registration, you may remove yourself from the queue by pressing star followed by two on your phone.

Thanks. The first question comes from the line of Leanne Harrison at B of A. Please go ahead, Leanne.

Yeah, good morning, Lewis. Good morning, Lyndall. Can you hear me okay? We can. Thanks, Leanne.

We hope you can hear us too.

I can hear you now that the rain stopped over there in New Zealand. We can certainly hear you much clearer. Sounded like you were on an airfield at the time. But let me start with guidance, and then my follow-up question will be on gross margin in relation to that guidance. But on guidance, it's quite a wide range on that NPAT guidance, 310 to 360. I'm just trying to understand, what do you think the key variables are which would result either falling in at the lower end of that range or at the top end of that range?

Well, first of all, the biggest driver would be the revenue range flowing through. And then for the other moving components, I'll hand over to Lyndal.

Yeah, so in terms of the revenue, it's pretty much as that drops down, gives that impact range. Gross margin, we're looking at around about 100 basis points in an underlying basis. That's sort of 200 if you include the recall provision in FY24. And OPEX around about a 10% growth. And that's all sort of give and take. at the lower and the topper end of the range, and then the revenue flowing down.

Okay, thank you. And then if I look at the gross margin drivers, so you're saying you're looking at about 100 basis points improvement. Where's that going to come from? Obviously, you talked about, you know, this year there was improvement being, you know, that freight in terms of renegotiating that. You know, that slide should be cycled through, because if I understand, you renegotiated that, you know, in 2023. So if we think about that GM improvement, can you give us some colour on where do you think that might come from and if there could be further upside?

Yes, absolutely, Leanne. You're spot on that freight's largely done now in FY24, so there's really no benefit further coming from freight into 25. So that 100 basis point of improvement is just that continued improvement and efficiency through the organisation more than offsetting the cost increases coming through.

Okay. Thank you very much. I'll go back in the queue.

Thanks, Leanne. Next question comes from Dan Hurren at MST Marquis. Go ahead, Dan.

Good morning. Thanks very much. I guess my question is just in regard to the home care. With the Evora slowing, Just wondering the experience of that and the exit rate of Avora and whether we should be thinking about, you know, stacking two new mass launches on top of that or is Avora slowing to sort of historical levels after the successful launch?

I probably wouldn't go Avora slowing. If you're looking at H2 versus H1, you know, you've got, in our second half, you've got, I would say, masks lapping the Evora introduction. So I suppose in that regard if you want to go slowing, but in absolute numbers I probably wouldn't go slowing. It's just that we're lapping a really successful introduction. I think that our thinking is that if we can maintain that second half growth rate going through FY25, we'd be doing pretty well.

Okay, thank you. And second question, just on the hospital consumer's business. I mean, obviously lots of movement. There's been so many sort of one-off headwinds and tailwinds over the last two years. Do you get a feel for where consumption is or where utilisation of new apps is perhaps versus the pre-COVID period or before all the volatility?

Not really before all the volatility, but we think there's a good signal in there. We've kind of got this new language now where we need to talk about seasonal hospitalisations because we need to incorporate a seasonal COVID component and then your standard flu component. And from most of the data that's available, US CDC and European country data that you can get, it's pretty clear that that seasonal variation in FY24 is lower than it was in FY25. The seasonality of FY24 is lower than it was in FY23. So against a backdrop of a lower hospitalisation rate in our second half, we think delivering growth of 9% in new apps points to change in clinical practice and it points to progress.

Great. Thanks very much.

Thanks, Dan. Next question comes from Gretel Janu at E&P.

Thanks. Good morning. So I just wanted to follow up on the new app's growth rate. So that moderation in second half to just 9%. I think, you know, some in the market might be a bit disappointed that that's below the 10% mark. So I guess I just want... A little bit more colour in terms of your expectations going forward. Do you expect it to accelerate from here back into the double digits or remain kind of high single digits going forward? Thanks.

Yeah, we've got to make some assumptions about the seasonal hospitalisation period that you're following. But we're thinking, you know, all things being equal, we're thinking we should be at mid-teens for new apps.

So that's for FY25, mid-teen?

Yeah, yeah, sorry, yeah, for FY25, yeah, absolutely.

Okay, excellent. Thanks, that's very clear. And then just in terms of hospital hardware, big step up in second half relative to your first half numbers. Is that Evo 3 that's gaining more traction there or just, you know, further replacements or entering into new hospital contracts?

Look, I think it's just actually lower than normal fluctuation, actually. At the best of times, our hardware number is quite lumpy year on year. And then delving into individual components or shorter timeframes, it's just so lumpy. So, you know, we really don't read anything into that kind of movement at all.

Okay, great. Thanks very much.

Thanks, Gretel. Next questions come from the line of Adrian Orwong at Jarden.

Good morning, team. Just wondering if I could sort of stay in hospital consumables. Are you able to give us a reference for where anaesthesia sort of ended for the second half? I think at the first half you referenced just short of 10% of new app sales.

Yeah, Adrian, we're going to sit on, yeah, still just a bit less than 10%. It's off a small base and it's very strong growth.

Right, OK. And so on that basis, like, is it fair to sort of... Like, because your IV concern will sort of... If I just think first half versus second half, it's sort of... Like, first half was strong at 8%, second half feels more like 4%. And does that mean, like, the core sort of NIV... high flow was kind of more like 8% in the second half, like 7% to 8% off sort of 13% in the first half, like just doing the maths of anaesthesia?

Yeah. I mean, sure, do that maths. But, Adrian, the caution there is that's all about what you're lapping. And, you know, first half, we're lapping a destocking period. Second half, we're lapping seasonal hospitalisations. We're lapping a China COVID surge. So certainly on this side of the table, there's not much we can figure out from the comparisons of 24 against 23 growth rates.

Right, okay. Well, maybe if I ask slightly differently, like I noticed like you sort of haven't necessarily, like in terms of Salesforce investment in 24, that's sort of less by number versus 23. Are you anticipating sort of lifting that into 25? to lift that growth rate that you referred to in Gretel's question?

If I take you back to how we think about it, typically we will add salespeople roughly in line with revenue growth. We're continuing to do that and we're doing that now. The one thing that changed several years ago is we made a strategic decision that we would allocate a proportion of that sales rep growth to a specialised sales force just for anaesthesia. But otherwise, I guess what I want to make clear is the philosophy and the thinking has remained exactly the same. We're adding sales people at a rate roughly proportional to revenue growth. We had a few years there where that was a hard one to figure out. But we're back to that mentality. The only difference is allocating some of them specifically to anesthesia.

OK. Maybe can I ask a second question? In terms of if we look over the COVID period from sort of, if you like, FY23 to 24, there has been strong reinvestment in R&D with the additional gross margin dollars that you've kind of extracted. And that we have seen that intensity as a proportion of sales step up. Like for the next five years, like the products that we know about and you sort of described on 26, would they be what you expect to underpin the majority of the next five years of revenue growth? Or with the recent like reinvestment or lifting of R&D spend, we would be expecting to see new ones at the end of that period?

I think the context there is you've got a little bit of a COVID gap, sure, but otherwise we're on the same track we've always been on, and that is in the longer term there will be new therapies, and that's driven by products and technologies, and we will be continuously updating the technologies that we have today. I don't see any change going forward. And over the next five years, again, I think it's just a part of the continuum. We'd expect to be seeing constant new product introductions every year, year after year, in different geographies as we roll them out and across all parts of the business. So no different over the next five years to what you saw before COVID.

So just clarify that. But I would have thought that your 950 and your Evo 3 would have been more platform introductions as opposed to just, say if you're on the mask side of business, we would expect new ones every couple of years.

Well, there's different cycles across the product ranges. I would say masks are a quicker cycle time typically than the hospital products.

Yeah, that's right. I mean, an OSA mask development time might be three to five years, whereas the platform might be, you know, 10 years, up to 10 years. Okay.

Thanks, Adrian, for your questions. Next questions come from Vanessa Thompson at Jefferies. Please go ahead, Vanessa.

Thanks very much. Thanks for taking my questions. I just wanted to ask about operating margin. We've spoken about gross margin this morning and that the target of 65% is still on track. And I wondered if the 30% target for operating margin in the next two to three years is also still on track.

Thank you. Operating margin target we would imagine would lag. the achieving our gross margin target by a year or two or so.

Right. Thank you. And then my second question, just wanted to ask the expectations of R&D, ratio of R&D to sales for EQUA25. Thanks. We should be continuing the 11% range.

I shouldn't catch that. R&D. R&D.

Yeah, that intensity. So we've given that revenue range whereas we're probably locking in a less wider range for R&D and OPEX spend so depending on where we land within the revenue but we're looking at growing our OPEX which is R&D and SG&A by about 10% next year.

Thanks very much.

Thanks, Vanessa. Next questions come from the line of Matthew Chevrier at Citi. Please go ahead, Matthew.

Yeah, good morning. Thanks for taking my questions. I just wanted your views on the potential impact that some capitated arrangements may have in the US on your OSM ask business.

We're not sure what you're referring to there, Matthew. Can you help us out with the question?

Yeah, you had like Humana, for example, who used a capitation model to support for its patient population that signed up to Medicare Advantage in some states, and they signed up some capitated arrangement with some DMEs to provide things like CPAP.

Yeah, Matthew, it's Justin here. I think probably what you're referring to there really affects the DMV provider, how they get paid. It doesn't really change too much how often they choose to replace the mask for the patient, so we don't see any real effect directly, you know, mask volumes per patient, as an example.

Thank you, Justin.

Okay. Thank you, Justin. And then my other one was just on the 820. the new device. I was just curious to understand how important is this predecessor, the 810, and what are your aspirations for the 820?

Well, the 820 is largely intended for use in our home care applications, so supporting home care patients, home care ventilated patients, and so on. Sometimes these long-term facilities might use 820s. So it's important to keep the technology moving along. It's a relatively small part of the overall business.

Got it. Thanks very much.

Thanks, Matthew. Our next questions come from Stephen Ridgewell at Craig's.

Good morning. Just two questions. First of all, on OSA masks, just interested in the early reception you've seen to the Solo since its launch in the US over the last couple of months, it sounds like, and also any colour you can provide on how Solo performed in Australia over the second half, and then just bring it all together. Can you help us understand the expectations for OSA mask constant currency growth at the top and the low end of the guidance range, please?

Hi Steven, Justin here. I think I'll perhaps take on the question about the mask performance. So obviously it's early days in the US, but the feedback's been tremendous. I think the features that we're promoting in that product are well received by the customer and they're viewed by the customer. So it's a good product out the gates. And in Australia, they've had, you know, continue to get good feedback since they're nearly a full year on the release. So we see it performing what we have with our other masks, and that's a little bit to our thinking moving forward.

Yeah, and then, you know, we're thinking of, you know, in a midpoint of guidance, maintaining H2 in OSA mask growth, so around the 10% mark. I think total swing around that, you know, you might be talking a percent or two top end, lower end, something like that.

Yep, that's helpful. Thanks, team. And look, just a second one on the Evo 3. I guess, can you comment on the take-up of that product since launch in the US market? And then, again, just running back to guidance, I mean, it's a hard one for you to forecast and for the analysts too. At the top end of the range, what are the assumptions for device sales and perhaps at the low end as well, please?

Okay, sounds like two questions, Steve. Do you want to take the Evo III?

Yes, Steve. I'll perhaps take the first question. Yes, so Evo III, we've had that in the US now for a couple of months. Again, the performance has been good. The feedback from the customer and from the market has been really, really solid. But like all capital equipment we've mentioned already, it's sort of up and down, so it's the timing of how much that will drive the impact this year. But the feedback's good and it's doing the job. And so we're really pleased with it. The teams are really pleased with it.

Yeah, and for the second part of your question, top-end, bottom-end range, I presume we're talking about hospital consumables.

For the hardware. Sorry?

Hospital hardware. Oh, for hospital hardware. Well, I'll go back to the lumpy comment and... I think in guidance, bottom end may be flat, top end plus 20% would be within our range.

That's helpful. Thanks, Lewis.

Thanks, Stephen. Next questions come from David Lowe at JPMorgan.

Thanks very much. Just on the gross margin expectations trajectory, could we just talk about when do you expect to get back to that 65% level? And Linda, this wasn't quite clear what you said about freight. I mean, it seems to be done, but I thought you made the comment that air freight was still significant. Maybe I misunderstood.

I think I can help on that. So I just want to give you the science. We can make an estimate of what we think gross margin is going to be over the next 12 months. There are thousands of moving parts in that, David. So we just think of it as sort of plus or minus 50 basis points. And then with regard to the, and so trying to forecast FY26 and 27, you know, we can't do that with any precision whatsoever. What we're relying on is our track record prior to COVID of improving gross margin. And it's all these moving parts. We're back to that behaviour. We're doing the same things we did then. And the track record was that over, I forget now, five, six, seven years or something like that, we were able to generate 100 to 150 basis points of gross margin improvement a year. So that's kind of where that guidance is coming from.

And then I'll cover up the freight. And I guess, David, the freight part of it, what I was saying is that we've got a big benefit into gross margin in FY24. We're not expecting any big benefit or cost, really, in FY25. assuming that we've got reasonable amounts of inventory around the world and we've renegotiated our rates that will apply through 2025. So we're not seeing a major impact of freight for next year.

Barring any unclean air. Barring air, correct. Of course.

Yeah, I understood that. I just thought your comment about air freight was a bit unclear. But look, it's neither here nor there. Thanks.

Okay, I will clarify that. So in FY24, we did send a lower portion of our volume air freight than we used to pre-COVID, so that could be a bit of a headwind. But as you will see in our pack that we relocated our international export distribution, so that reduces some of that freight rate and will help counterbalance a potential increase in the percentage of air freight. Okay.

Great, that's much clearer. Thanks very much.

Thanks, David. Next question's come from Matt Montgomery at Forsyth Bar.

Thanks, guys. Good morning. Just on anaesthesia, I'd be keen for you to talk to, I guess, feedback from the larger developed markets as you've begun to increase the sales force there, and then also just in terms of OptiFlow Switch regulatory approval status. I know a couple of years ago that the product was yet to be approved in most large developed markets, so I'd just be keen for an update there on where it's at and potential timing.

Justin, you want to take the first part?

Yep, absolutely, Matt. So Justin here. Yeah, so regarding anesthesia, the performance or sales growth there, so we've sort of been... We're progressively putting teams into the markets as each market's set right to go after that space, and so that's been progressing quite well. It's still a small part of the business, though, but what we're seeing in each of those markets is in line with what we would expect to see, so in line with their expectations, and so we're quite pleased by it. But it is market by market, and that's what we're now progressively doing. But as mentioned, it is still a good growth, but on a small base at the moment. But very pleasing, and we're excited about it.

Yeah, and then on the regulatory approval, Matt, we don't have clearance for Switch in the US yet, and these are notoriously dangerous things to predict.

Maybe just to follow up there, what's the delays or headwinds to approvals?

It's just an unpredictable process. There's no fundamental issue, no fundamental questions. It's how long the regulator takes to respond can be completely dependent on the regulator's workload at the time. Mate, there's no fundamental issue, but it's just not a thing you can predict.

Yeah, that's fine and understandable. And, Lyndall, just one on gross margins. So your comment for 100 basis point expansion for Airfly 24 implies sort of only 50 bps on the second half. Could you just maybe talk to the drivers here in a bit more detail? It just feels slightly conservative when you... put together your comment around 100 to 150 BIPs, I guess, pre-COVID in terms of that track record.

Sorry, Matt, I'm a bit confused. Are you talking 24 or 25?

Yeah, I'm talking your 25 guidance, but if you did 61 and a half, you did 61 and a half in the second half, and your guidance is essentially for 62 for the full year.

Yeah, so don't forget, we've had a lot of the improvement in 24 was the freight, which we don't get again. We still have cost increases coming in in 25, so we still have headwinds of that facing us. So we actually think that's a really good result for 25 if we can get that 100 that we've sort of put into the guidance there, give and take, all of those improvements more than offsetting the cost increases that are still to come into 25.

And no freight benefit.

And no freight benefit, yeah.

Thanks for your questions, Matt. Next questions come from the line of Saul Hedesson at Baron Joey. Please go ahead, Saul.

Yeah, thanks. Good morning. Linda, just a clarification to start with. You mentioned an FX impact in 25 figure of $35 million. Can I just clarify, if we look at the FX impact in 24, are you saying that that $35 million is effectively sort of $4 million less than what the impact was in 24? Is that what you're referencing, that $35 million?

Correct. So the $35 million is at the total NPAT line of all currency impacts, 25 over 24. So the reported results for 25 at the 1st of May rates, if that applied for the full year, we'd have a benefit to NPAT in 25 reported by $35 million. The number I spoke to in 24, so 24 over 23 was that $2 or $3 million. But that's a year-on-year comparison. So there's significant tailwinds of currency into 25 if these rates hold.

Yeah, understood. And then my second question was just on CapEx. So just noting the step down to $150 million in FY25, which kind of gets you back to CapEx spend roughly in FY19. So is there a metric that we should think about in terms of your CapEx over the next three years as a percentage of sales, or is it just going to remain lumpy over the next few years based on developments that you've got going on?

Yeah, there will be some lumpiness there as we develop and do the fifth building here in New Zealand. So certainly we're expecting a bit of spend there for 25, but the bulk of that spend probably 26, 27.

Okay, that's all I had.

Thank you, Saul. Next question's come from Andrew Payne at CLSA.

Yeah, hi, morning, thanks for taking my question. Just on the recall, you've noted that you stepped up vision to 20 mil. Can I just get a bit of a view on what the reason was for that and how confident you are that will cover it and also how you're progressing with the recall?

Yeah, sure. These are units that 7 to 12 years old and the challenging part and the moving number is how many of them do you think are still out there and in use and we had an original estimate of that and essentially what we've done here is we've revised it up based on the early responses from customers and what they have and the 20 million reflects what we've seen so far with over half the responses in. So I think that was That gives us confidence that we're probably getting a bit closer. In terms of progression, I think we're probably a bit over. In terms of volume, I think we're a bit over. In terms of responses, we're over halfway through it.

Okay. So there could be a bit of increase there. Is that right?

Well, based on the data we've got now, that's over half of the responses. Over half the customers have responded. So we think that's a fairly reliable data point. And we're confident the 20 million covers it. There is a theory out there that your early responders are people that have some, and your late responders are people that don't have any. So I put that out there as a potential theory.

Okay, that's great. And yes, sir, just coming back to gross margin. Look, you're talking about your views on pre-COVID 150 basis points improvement each year, and everyone's focused on obviously getting back to that 65%. But from there, do you think you can keep growing above that 65% or do you think it taps out there?

Well, the goal always was to get to the 65% gross margin and the 30% operating margin, keep working on efficiencies and continuous improvements, but reinvest that back into the business and try and lift growth. And we're back to having that as a goal.

We think that those targets are what's sustainable over the long term. So once we get to that point, we feel like that's sort of world-class margins and if we can sustain that, we're quite happy and that continual reinvestment to continue the strong growth of our business.

Yeah, okay, that makes sense. Great, thanks.

Thanks, Andrew. Next questions come from Craig Wong Pan at RBC.

Good morning. I just wanted to ask about the mask market in home care. Just trying to understand the competitive dynamics there. Could you make any comments about what you're seeing there with competition, if any particular competitors are doing anything different recently?

Well, the market's kind of these days dominated by ResMed. And our fundamental strategy for all competitors is to have a product offering where the customer can see a difference between the performance of what we have and what the competitor has. I don't think much has really changed in the last few years. We have the same strategy, and we're pursuing the same outcome, really. In terms of market dynamics, the only thing that's really happened there over the last four or five years is the competitive landscape, if anything, has reduced.

Okay, and with kind of Philips, I guess just as a follow-up, with sort of Philips, have you seen much change from them?

Justin's shaking his head. Oh, sorry.

No, it's all right. He's shaking his head. Sorry. Hi, Craig. Justin here. Not really. We think, you know, as far as in the major markets, you know, globally, the landscape's kind of consistent, as Lewis pointed out. It's all based around having the right technology for the customer, for the patient, and we're still on that same trajectory we've always been on. But I don't see any material different from a competitive landscape.

And then just my second question. On CAPEX guidance, so to Saul's question about the lumpiness of that coming through, That seems to be sort of different to commentary that you provided previously. I just wanted to understand, has there been a delay or re-phasing of those building projects?

No. Look, we continually assess, looking out over the next five to ten years, what we think our requirements might need to be and our priority and our strategy is to always have buildings ahead of when we think that we're actually going to need them. And so when we put out some guidance a few years ago, we were in the eye of the COVID volatile storm. And so we were foot flat down going, just build, build, build. We're going to need more buildings, need more buildings. Now that that demand has sort of stabilised and we've normalised out of it, we've assessed and we don't need to go as hard or as fast with those buildings, but still making sure that we've got empty buildings and we've got a new empty building in Mexico that we've still got room to grow into.

I think to be fair, Craig, we did say at the time with the COVID strategy, We're keeping the pedal to the metal. We're going to keep building capacity until things stabilize. That's what we said at the time. That's what we were thinking at the time, which kind of implies an overshoot.

OK, fair enough. Thank you.

Thanks, Craig. Next questions come from David Bailey at Macquarie.

Thank you, Simei. I just have a follow-up question to Saul, actually. Just want to make sure the numbers are right for currency. So am I right that 264 is the 24 number? Midpoint of guidance is 335 million MPAT. Are you saying 35 million of that 71 million delta is coming from currency?

Yes.

OK, so we're looking at more like a 300 midpoint, excluding currency, sort of 13.5% MPAT. growth at the midpoint.

Yeah.

Yep. And just as a follow-up to Craig's question, you know, if there's been no real material change in the market dynamics around OSA masks, you know, does that imply that the new patient starts as stepped up materially or recovered post a COVID lull? Or do you think there's incremental market share gains coming through there from Philips as well?

Do you want to talk to that, Justin?

Yeah, I think probably at this stage, David, I think the new patient starts volume, and we still model it out to be fairly, you know, percent-wise, fairly similar to previous. Obviously that step up with the CPAP supply kind of sort of probably washed through previous year. So, you know, we're growing above market growth rates at the moment, which implies market share gains, and so that's probably what we should be expecting to see with some of these new forests we'll be bringing to the market.

Just to follow up there, what do you think the new patient stats are, growth rate?

Well, that's always a tricky one, isn't it? You know, typically it's always been around that sort of, you know, high, mid, single-digit... Yeah.

..teens. The reason we're being cagey, David, and Justin used a careful word, we model it. We don't actually have any hard data that would help you out with that question.

That's helpful. Thank you.

Thanks, David. Next question has come from Christian Bell at Jarden.

Good morning. So just on your sort of OpEx comments you're looking to pull back, on growth from 14% to 10% into 25%. Just wondering, where is the main pullback coming from? Is it in R&D or SG&A, or is it sort of even across the two of those?

Look, it's evenish, and it's driven. For us, OPEC's growth is largely driven by the people we added the prior year. So FY24 was driven by adding, I think, 9% or 10% people the prior year. and we get them for a whole year. FY25 will be largely driven by adding about 5% to our total OPEX headcount, if you like, going into FY25. So that's the basis of the numbers. In terms of the ratio, I'd say it's pretty similar. And we do tend to think of it as OPEX. And the spread across R&D and sales and the rest of it for us is not really the driver.

Okay, great. Thank you. And then just secondly, when you mentioned mid-teens growth for the new apps, are you able to sort of give a sense of the growth mix across HIV, NHF and anaesthesia? Like, is it mostly coming from NHF? And then is that sort of driven by more salespeople on the ground or more leverage on the current sales force?

All of the above. Always happening. Adding salespeople always contributes. We're always looking to get leverage on what our people do per person. I think the short answer is all of the above.

So just to follow on from there, are you sort of expecting anaesthesia at a sort of similar growth rate to what you have been seeing? And perhaps there is a bit of a slight pickup in NHF in 25 compared to 24?

Yep, I think that's on the money.

Yep. Thank you for clarifying. Thanks. Questions?

Thanks, Christian. That's the end of questions. The question is in the queue. in bright sunshine here now in East Tamaki. It's changed in the course of 50 minutes. I'll turn over to Lewis for some concluding comments.

Okay, well look, thanks Marcus and hey, thanks to everyone on the call for your questions. We do appreciate it. Now looking ahead, we've got all the right foundations in place for future success. We've got fabulous portfolio products. We've got strong relationships with customers and clinical partners and we've certainly invested in the infrastructure to meet our future needs. I'd like to acknowledge the people of Fisher & Paykel for your efforts in delivering the innovative products to market. Thank you. And my thanks also go to our customers, suppliers, clinical partners, and, of course, our shareholders for your continued support. So thank you very much, everybody, and please enjoy the rest of your day.

This concludes today's call. Thank you for your participation. You may now disconnect.