Fisher & Paykel Healthcare Corporation Limited

Welcome to Fisher and Paykel Healthcare's results conference call. My name is Lisa and I'll be your operator 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 the 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.

Thank you, Lisa. Well, good morning, everyone, and welcome to the conference call for Fisher & Paykel Healthcare's first half results for the 2026 financial year. On the call today are Lewis Graydon, Managing Director and Chief Executive Officer, Lyndall York, Chief Financial Officer, Andy Nicol, Chief Operating Officer, Justin Callaghan, VP Sales and Marketing and Andrew Somerville, VP of Products and Technology. Lewis and Lyndall will first provide an overview of the results and then we'll move on to questions. We'll be discussing our results for the six months ended 30 September 2025. Earlier today we provided our 2026 interim report including financial statements and commentary on our results to the NZX and ASX. These disclosures can be accessed on our website.

With that I'd now like to turn the call over to Lewis. Okay and thank you Marcus. Good morning everyone and thanks for joining us here this morning. I'm going to be referring to the investor presentation pack that we released to the NZX and the ASX earlier today. So we'll start on page two with a recap of some of the recent highlights. I'm pleased to note that the company has achieved a billion dollars in first half revenue for the first time and we really appreciate the contributions of our people right around the world during this half. Thank you everyone. We continue to roll out our latest Nova Nasal OSA mask during the period and this is now available in New Zealand, Australia and major markets in Europe. At our investor event in Royal Melbourne Hospital in Australia this year, we showcased the complexity involved in how clinical practice changes. And one way we contribute to that journey is hosting clinical forums. And that's where interested healthcare professionals can get together, compare their clinical practice, compare their results with clinical data and the clinical practice guidelines. And over the last half, we hosted over 100 of these forums globally. Our US team was honoured to be recognised with a Zenith Award from the American Association for Respiratory Care and we got the construction of our fifth building at our East Tamaki campus here in Auckland, New Zealand underway and they're making good progress as we speak. So turn now to page three. Operating revenue for the first half was $1.089 billion, up 14% on the prior period, well that's 12% in constant currency terms. Net profit after tax was $213 million and that's up 39% on the prior period or 28% in constant currency. Lyndal's going to unpack the financial results in more detail shortly. So we'll move on to the hospital product group on page five. Operating revenue was $692 million. That's up 17% on the first half last year or 15% in constant currency. and that's come from a broad-based strength right across the hospital consumables business. New applications consumables revenue was up 18% or 16% in constant currency and when we consider the robust growth that we're lapping from the first half last year, we think this result probably does reflect a consistent ongoing change in clinical practice. Hospital hardware revenue grew 21% in constant currency. And as you will know, hardware revenue can be quite variable on a month-to-month basis, and so we do anticipate that the full year hardware result will probably moderate down from this first half of year result. So turning now to page 7, home care. Home care operating revenue was $396 million, up 10% on our first half last year, or 8% in constant currency. OSA mask growth was 8% or 6% in constant currency. Our latest range of OSA masks has performed well, and the Solo range and the Nova micro range are available in most major markets. And as I mentioned earlier, our Nova nasal is in the early stages of its rollout with a US launch plan for later in our second half. Our home care result also has a strong contribution from OSA hardware growth, which we're not expecting to repeat in the second half. And if anything, we feel it might be a pull forward of demand from the second half. I'll pause there for now and hand over to Lyndal.

Thanks, Lewis, and good morning, everyone. On page eight, our gross margin was 63% for the half. This is an increase of 110 basis points, or 60 basis points in constant currency, over the same period last year. The range of margin improvement efforts across our business including manufacturing efficiency and other efficiency gains, continued making a positive impact. US tariffs on hospital product source from New Zealand impacted our gross margin by 32 basis points in this half. If the current global tariffs remain in effect as they currently are, our gross margin would be impacted by approximately 130 basis points on an annualised basis. with approximately 75 basis points impacting in the 2026 full financial year. Our ongoing improvement efforts are anticipated to more than offset this to provide an overall gross margin improvement for the full year FY26 of roughly 50 basis points in both constant currency and reported currency using end of October exchange rates. Moving on to page nine. Total operating expenses grew 8% or 6% in constant currency compared to the prior period. This reflects the high investment made over the last few years and modest increase in people in the last financial year. Operating margin was 26.3% for the half, an increase of 335 basis points or 286 basis points in constant currency over the same period last year. This reflects the improvement in gross margin as well as our operating expenses growing below revenue growth. R&D expenses grew 4% to $114 million and were 10% of revenue for the half. We continue to estimate that about 60% of our R&D spend is eligible for the 15% R&D tax credit. SG&A expenses were $285.5 million this half, an increase of 10% or 7% in constant currency. Moving to page 10, operating cash flow this half was $245.8 million, up 5% from last year. Tax payments this half of $119.6 million were up from $53.8 million in the same period last year. Capital expenditure, which includes purchases of intangible assets, was $61.8 million for the half. up from $55.1 million in the same period last year. This includes the progress on the construction of the fifth building at ARIES Tamaki Campus in New Zealand. Capital expenditure for the full 2026 financial year is expected to be approximately $210 million. Within this is around $125 million on land and buildings, including the next payment on our Karaka land purchase. Looking at the balance sheet, yesterday's were largely in line with last year at 43 days. Net cash at the 30th of September 2025 was $237.8 million and our gearing ratio was minus 13.5%. Interest-bearing borrowings were $55 million, all of it being current. Turning to page 11, we have declared a fully imputed interim dividend of 19 cents per share. This represents a 52% payout of our first half profit and is an increase on the interim dividend declared last year. It will be paid on the 16th of December. Looking now at foreign currency on page 12. Foreign currency movements positively impacted our net profit after tax by $19 million compared to the same period last year. This largely reflects the movement in spot rates and hedging results when compared to the same period last year. In this half, hedging losses were $6.2 million after tax and foreign exchange losses on balance sheet translations were $1 million after tax. At end of October rates, we would have an overall positive impact on net profit after tax of approximately $10 to $15 million for the full financial year FY26 when compared to the full financial year FY25. This includes hedging losses in FY26 of $20 million after tax and losses on balance sheet translation of about half a million dollars after tax for the full 2026 financial year. Now back over to you Lewis.

Okay, thanks Lyndall. So turn now to our outlook on page 13. At 31 October exchange rates, we now expect full-year operating revenue to be in the range of approximately $2.17 billion to $2.27 billion, and net profit after tax to be in the range of approximately $410 million to $460 million. And this revenue guidance revision is driven by currency movements since our last update in August. A hospital consumable second half growth can be influenced by year on year variations in the northern hemisphere winter respiratory season and we don't have any additional insights into that potential impact at present. The available data does indicate that last winter was a historically strong season and so a similar season this year would be pushing our result towards the top end of our guidance and conversely a lower season would be tending to push us towards the lower end of guidance. Net profit after tax guidance incorporates this FX driven revenue update, a 75 basis point impact to gross margin due to tariffs, good progress on gross margin improvements achieved during the first half and maintaining our operating expense growth below our long term aspirational revenue growth. So I'll end my remarks there so that we can open the line to questions.

Thanks Lewis. Lisa, if I could ask you to please open up the lines for questions. And can I please ask everybody to limit your questions to two. This is to ensure that everybody has an opportunity to participate. And then you can rejoin the queue for additional questions.

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.

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

Hi, good morning, Lewis. Good morning, Lyndall. Congratulations on hitting that $1 billion revenue for the first half. I might start with guidance and a question for Lyndall. I know you mentioned that FX is driving that increase or upgrade in guidance that you provided today. But for the MPAT level, you mentioned FX, tailwinds of about 10 to 15 million. But from a guidance perspective, your range increased by about 20 million. Can you talk to what else might be in that?

Yeah, Leanne, that's sort of what Lewis mentioned in terms of the gross margin improvement activities continuing on through the second half and growing our operating expenses below that long-term revenue aspiration to aim for some continued modest growth there.

Okay. And then on the gross margin, can you talk a little bit more? Obviously, you've got very good gross margin expansion this half on a constant currency basis. Can you talk about what aspects contributed most to that gross margin expansion?

Yeah, look, it's really everything that we do in the business. We've been back to sort of business as usual across our business with everything playing a role there. It's our manufacturing teams getting the manufacturing efficiencies, doing all their continuous improvement projects, getting really strong improvement out of that. a bit of pricing through the sales team that we typically get, and just sort of all of that playing a role into the gross margin improvement. And sort of as we anticipate, you know, pre-COVID, we're able to improve gross margin about sort of 100 to 150 basis points on average per year, and we're sort of delivering that.

Maybe one other little bit of colour, Leanne, you know, the complexity in that answer. is in the operations and manufacturing space, typically that's over 3,000 improvement projects per year, all individually relatively small, but all adding up.

Great. Thank you very much. I'll leave it there. That's very helpful.

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

Oh, good morning, everyone. Thanks very much. Look, thanks for the guidance on the tariffs, in fact, in that colour there. But I was hoping you could help us understand, like, how that tariff experience is playing out on the ground with price efficiencies.

I'm sure, Dan. We're thinking of it as just another cost-in, just like all other cost-ins, and it's in the bag of just business-as-usual cost-ins. We're running the business as we normally would. We're running our continuous improvement projects as we normally would. So today, I'd say really no material impact on the ground at all.

And look, a follow-up then. If you have a look around, it appears that Fisher & Pytel have probably been more gentle on price compared to other tariff-impacted companies and broadly the same channel. Is there potential that price becomes more of a lever over time as the world gets used to these tariffs?

You could look at that two ways, Dan. I mean, we've got wonderful opportunities with every single customer we have to improve clinical practice. We don't have a single hospital anywhere in the world, let alone the United States, that's fully penetrated using all of our therapies for every patient. So we think we get a much better result spending our time talking about improving clinical practice, improving care and outcomes. We think that gives us a better result in the short term and the long term. gives the customers a better result. So that's where our focus is at present. OK, thanks, Lewis.

Thanks, Dan. Next questions come from Stephen Ridgewell at Craigs Investment Partners.

Yeah, good morning, and great result, guys. Well done. Just had a couple of questions on the hospital business performance, particularly during the first half, and perhaps what you're seeing. going to the second half, hospital devices were a standout with constant currency growth at 21% in the period and as you may recall back in May I think the indication was you weren't expecting too much from Evo 3 or the Evo 3 NOV in terms of being with material drive. I'm just wondering with that 21% growth we've seen, does that include a strong contribution from those products, or otherwise could you just give us a little bit of colour as to perhaps what's driven that strong result from hospital devices in the first half, please?

Yeah, sure. First caveat, Stephen, is, you know, if you've been following us for more than a year or two, you've seen that that hospital hardware result's very lumpy. It can be lumpy year on year, certainly lumpy half on half. And kind of where we're going with that first half result, I mean, it's a great result, 21%. It looks like a very positive lump. We would not be surprised if it's followed by a negative lump for our second half and kind of reverting to, you know, more traditional growth for the full year. I think that would be our pick. And then the contribution, very consistently in our business, pretty much forever, is a mixture from one generation of product to the previous one. And right now you're seeing that from 850 hardware to 950 hardware and using that from Evo 2 to Evo 3. So that's certainly a contributor. Probably not much more than normal would be my pick. It's always happening.

And just a follow-up to that. Have you seen within that 29% more of a tilt towards growth from the Evo product suite or pretty consistent with the humidifier controllers?

I'd go for consistent out of that choice. I mean, they're at different stages, they're at different evolutions, but nothing unusual, no.

Okay, all good. And then the second question is still in the hospital business. Again, so probably another surprise versus where the market was at was on kind of core consumables, which have come in, again, a bit stronger, which, you know, given, and that's not a period of the year where they've respiratory data has a big influence, but we've sort of seen 9% constant currency growth in core. Just curious, is that more market share gains? Have you entered some new markets or won some contracts? Just a bit of colour there would be helpful to understand. Is that growth sustainable into the second half in the core consumables business?

Yeah, so what we think is going on there is during COVID an awful lot of these fully functional ventilators went out that could do invasive, non-invasive and nasal high flow. So We think over time people are using those ventilators across the range and they're using them for non-invasive and nasal high flow in some markets and that does mean that then for us it looks like they're using an invasive circuit. So we think some of the non-invasive, shall we say growth, and maybe even a little bit of the opti-flow, nasal high flow growth in circuits a little bit leaked into what looks to us and looks to you like that traditional consumables or invasive consumables.

Great. That's all from me. Thank you.

Thanks, Devon. Next questions come from Devon Thalinathan at Goldman Sachs.

Yes. Thanks, Marcus. Morning, team. I just want to understand the guidance upgrade for the full year a little bit better. I'm just trying to make sure we understand the moving parts here. Part of it is clearly FX that is helping. But if I look at your first half results, you have come ahead of your guidance for the half, clearly indicating there's underlying momentum in the business because my understanding is your FX for the half hasn't really changed relative to when you set that guidance. So could you help us understand where the business outperformed in the half and perhaps why you don't expect that outperformance to flow through for the full year, if my understanding is right, that your guidance upgrade is largely FX-driven? Thank you.

Absolutely right, and good question. Thank you. So there's two components to that. The first one is hospital hardware, which we kind of just spoke to. It's quite lumpy. That performed pretty well in the last couple of months, and I think probably... doesn't flow into H2 like that. In fact, maybe even goes the other way. And then the other one's also hardware, but OSA hardware. And this is CPAP machines where we've had a customer in a market where 3G is being turned off, accelerate the CPAP replacement cycle. So that's in our home care result. And once again, that hardware's probably come out of the second half.

Okay. And then thinking about the consumables part of your business in the hospital segment, there's a whole range of new products that have, I guess, been released progressively over the last few years. And one particular sort of therapy that seems to be getting a bit more attention from a product launch perspective is in the NIV part of the franchise. Could you perhaps help us understand that a little bit better? How does NIV sort of help the business, particularly given you are focused on changing clinical practice with the high flow part of it? So, perhaps just the overlap between those therapies and how you expect that part of the franchise to grow over the next few periods? Thanks.

Sure. Well, I think overall, are building a respiratory care business that covers all respiratory care applications and usages in a hospital, whatever the requirement and wherever the patient is. So NIV plays a role in that. And the leading clinical change in that space is nasal high flow for respiratory support. But another component of that is more and more usage of NIV. And another component of that is humidified NIV. Probably still less than 20% of the market would be humidifying NIV. So the way we tend to think of it is our driver is a change in clinical practice towards nasal high flow. And once a customer is using that therapy, to some extent, it makes a lot more sense for them to move to humidification and non-invasive therapy as well, or to move to our non-invasive So he said it's kind of following along behind the change in clinical practice.

Thanks for your questions, Devon. Next questions come from the line of Vanessa Thompson at Jefferies.

Good morning. Thanks very much for taking my questions. I just wanted to ask about the respiratory You mentioned that last year it looked like it was a strong season. I think when we look at all respiratory illness combined, my understanding was it looked moderate. Is that wrong or is it that flu requires more support in using royal products than the other viruses? Thank you.

So I'd kind of like to restate that, if you don't mind. So our assessment of last year, second half, was that was the biggest flu season data in 15 years. So we think that was the biggie. You've got a COVID component and other components in there. So over time, you'd expect COVID to probably be coming down. And then... We've kind of moved away from classifying them as high and moderate and low and all that kind of thing. It's just too murky. And what we've done last year, what we're trying to do this year, is really just confine our analysis to this year versus last year and not categorise them. We've just found it too confusing. And so when we go down that route, well, last year, H2, our biggest flu season in 15 years, COVID was still relatively material.

Okay. Thank you. Okay. Then my second question, just wanted to ask if you had seen any impacts from the shutdown. I think it was around six weeks and we've seen some of the distributor companies talk to some slowdown. I wondered if that had affected you at all. Thank you.

I would say, I'm looking around the room, not from hospitals, not from FDA, not from reimbursement. We're all shaking our heads on that one.

Okay, thank you. Thanks Vanessa. Next question has come from Matt Montgomery at Forsyth Bar.

Hi guys, good morning. Well done on a solid result. Just on home care for the second half, I was wondering if you could give us a feel for where you see growth rates. Would that be roughly consistent with the first half?

Well, I think probably the case for us is you'd expect a similar result to the first half under similar conditions, certainly for masks. I've spoken to the hardware component of that. We think our first half growth is probably coming out of the second half.

Thanks, it's useful. And then secondly on the anesthesia business, are you able to give us colour for where that's at in terms of growth or as a share of new apps in the first half?

Well, growth is still pretty solid. in the 40% odd, something like that, off that low base. That low base has become a bit over 10% of new apps, consumers, this half.

Thanks.

Thanks, Matt. Next question has come from Craig Wong Pan at RBC.

Thanks and good morning. Just looking at the full year guidance ranges, if I look at what that implies for the second half growth, I calculate the midpoint would imply 6% revenue growth but actually NPAT declining by 1% in the second half. Just wanted to understand is there anything we should be aware of in thinking about NPAT either in the PCP or in this coming second half to explain why there might be a decline in NPAT?

I'll take that. It's really a case of the revenue that Lewis has spoken about, the hardware likely coming back from the second half into the first half. Margin, we're still expecting improvements but we get the full half of impact of tariffs in the second half so there's quite a headwind related to that and then OPEC still managing to grow that below our long-term revenue aspiration. what that ends up being will depend on where we land from a revenue perspective.

OK, thanks. That's helpful. And then just wanted to understand the clinical forums. I mean, Lewis, you called out 100 hosted events this kind of period. Just trying to understand, is that sort of a similar level to usual, or is this going to be something kind of going forward to help you change clinical practice?

So our business is based on a change in clinical practice. That's what we do for a living. It's pretty much what we've always done, and it's relatively unique in our space. It's a relatively unique thing to be doing. And we had an investor day in a hospital in Melbourne earlier this year, and we went through some of the complexities in changing clinical practice. So what I thought I'd do this time is just following up on that theme, getting people more understanding of what changing in clinical practice, what that really means. I'd follow up with giving you some insight into the forums that we run. Having said all that, that is actually pretty normal to us. We generally do over 100, I'd say, every half. Right, okay. Thank you. Just trying to give some insight to that whole process.

Thanks, Craig. Next question has come from Saul Hedesson at Barranjali.

Yeah, good morning. Thanks for taking my questions. First one is on OPEX. I think at the full year 25 results, the guidance was for around 10% growth in operating costs in FY26. Clearly, it's a lot lower in the first half. Maybe, Lyndall, just if you can talk about where you think OPEX growth will land for the full year and what's embedded in that impact guidance range.

Yeah, look, probably sort of high single-digit growth we'd be anticipating for the full year in OPEX.

Okay thank you and Lewis just your comments about sort of pull forward of sales on home care flow generators but also that commentary around hospital hardware. You've had two months almost of the second half, can you comment on what you're actually seeing on the ground in terms of those hardware sales, is that what is giving you the the guide as it relates to second half? Is it what you're already seeing or is that just still effectively an estimate and you don't actually have insights yet into second half performance?

It's just an estimate. I mean when we look at our hospital heart rate numbers on a six monthly basis you can see they're pretty lumpy. There's nothing to read into it. On a month or two I wouldn't read much into it but I guess our pick is we probably wouldn't expect to see that first half again and the second half that kind of volume.

Great. Thank you. That's all I had.

Thanks, Saul. Next question has come from Marcus Curley at UBS.

Good morning. Just on the home care business, you reported 6% in masks. It's probably a touch below market. Could you just talk a little bit about what you think is happening there? Maybe it reflects weakness in the full face category again or just some colour would be useful.

Okay, sure. I think the fundamental is lapping 14% growth. This half last year, so this half last year, we had the Solo Nasal, Solo Pillows were launched. That drove 14%. In the second half, we had Nova Micro launch. In the second half, we also had three or four launches from competitors in that half, and that still drove 9%. So I think the This H1 store is more about what we're lapping and it's about no new introductions for us materially during the half.

Have you seen any impact in those growth rates in the installed base or resupplied part of your business or is it too difficult to tell in terms of your visibility into that?

As far as we can tell, I'd say no. We haven't seen any unusual impact in resupply at all.

Yeah. And on home care, competitive bidding most likely kicking off next year. Do you have a view on how that would affect the industry and yourselves?

Justin White?

Yeah. Hey, Mark. It's Justin here. Yeah, I think, I mean, at this stage, you know, the final rules and requirements around competitive bidding haven't been really disclosed. And we expect the market to sort of react in a reasonable way. So we're not reading too much into it at this stage.

It's still pretty early. So, Justin, your base view would be reimbursement levels in the US relatively stable? You wouldn't be expecting a material decline?

I think we'd be expecting whatever the adjustment is, it would be a lot more reasonable. There's a lot more experience in that space now from our customers. I think we're not expecting anything too major. Okay, thank you.

Thanks Marcus. Next question has come from Andrew Payne at CLSA.

Yeah, morning. Thanks for taking my question and congrats on the result. Just looking at your full year guidance of $460 at the top end of the range for MPAT, and just kind of working down, looking at that at the top end of the range, you've done $213 in the first half, so you need $247 in the second half to hit the top end of the range. If we back out FX there, bringing that down to $237 constant currency, that would imply just 6% growth year over year in MPAT Obviously, you've got the tariff impact in there, which if I'm right, it's about 120 basis points annualized. That adds another 4%, but OPEX is also performing better than expected. Just trying to get a bit of color around that growth rate at the top end of the range. It looks somewhat achievable, even with maybe a slightly worse flu season year over year.

Maybe one thing, Andrew, that I'll just clarify first. Currency is actually a headwind in our second half compared to the second half of last year. So these numbers, instead of it being a tailwind of the 10 that you were talking about, it's actually a headwind of close to that. Because if you remember, the first half we've got a $19 million benefit at NPAT, which is for the full year, probably 10 to 15. So that means the second half itself has got quite a tailwind. Sorry, headwind. Sorry. Yes. So that's really the main... And then it's pretty much revenue dropping down, the tariff coming in, but still getting some good improvements, excluding that tariff for gross margins. and OPEX in that sort of five single digit growth.

Yeah okay, so even with the FX kind of moving favourably I assume that's just impacted by the hedging that you have in place?

Yeah, look, it's a range of things. The biggest mover in the currency compared to the second half last year is actually in balance sheet translations where we had a gain of about $7 million last year in the balance sheet translations. So not expecting much this year. So there's a large part of that headwind.

Okay, sure. Yeah, okay, that makes sense. And then just... Obviously, it's difficult to really kind of talk to this, but, you know, there's the ongoing tariff investigation. And I don't know if you can provide any clarity around if a similar tariff was applied in Mexico, what that would mean in terms of margin impact to the business.

No, we haven't really gone there. I mean, I think, you know, our thinking about tariffs is... somewhat coloured maybe compared to most, but anything we think about to do with tariffs or to manage tariffs or to change things because of tariffs, that's time and effort that we're not putting into growth. So, you know, that's always, I'd say, front of mind for us, actually, when tariffs are the topic.

OK, that's all I had. Thanks.

Thanks, Andrew. Next question's come from Adrian Orbon at Jarden.

Good morning, team. Maybe just a clarification question. Maybe this is for you, Lyndall. Just in your interim report, as you get to the bottom of the comments from Neville and Lewis, there is like a discretionary bonus of $9 million to be shared amongst the employees. Just to understand that, is that a normal feature, and you just called it out this time, and how is it sort of accounted for?

Yeah, so we've been doing this. This is profit share payment that we make to all employees globally, and we've been doing it since we were formed, basically. Since before listing. Since before listing. And we do normally show that amount in our annual report every year and in our interim report. So nothing's changed, nothing out of the ordinary.

Okay, and would that have been accrued into the first half anyway, just as per normal?

Correct, yeah.

Or is it a full-year payment?

No, no, no. It's each half-month payment for a year.

OK. All right. No problem. Sorry about that. Just a second question. Like, also in that sort of interim report, like, you make a call-out on the Renovate study, which I guess in the theme of this one, like, you sort of... You are putting a bit more emphasis on the change in clinical practice. Like, is my sort of read of that, that sort of, like, quite... It's a large sort of clinical trial that sort of... you're presenting some useful results in terms of, for hypoxic cases, using high flow as a triaging-type product. Is that the right way to think about the output from that study and how you might be using it to sort of educate?

Well, I think the thing about that study is the number. I think it's towards 2,000 patients, so it's a large number of patients, and covers COVID and not COVID as well. and it's a comparison against non-invasive inhalation, if memory serves me correctly, which is kind of a step up, and it finds nasal high flow, the word they use is not, non-inferior, non-inferior. Inferior. Yeah, you've got a therapy that the user would rather use, you've got a therapy that the patient would rather have, and it's not inferior to NIV. That would be the short version.

Right. And obviously, but presumably that also dovetails nicely into like the Evo 3 being wider use across the hospital as well and simpler to use for as you go down the staff levels.

Well, yeah. I mean, I want to be careful. We've called out one. It had a lot of priests at the time it was released. It's unusual. It's big numbers. It's an elegantly done and analysed study, but it's one of hundreds and probably more compelling than two clinical practice guidelines around the world. And that's really stepped up to issuing clinical guidelines from the different professional bodies.

Okay thank you.

Next question has come from David Bailey at Morgan Stanley.

Yeah thanks Marcus. Morning. One for Lyndall and one for Lewis. Lyndall, 50 bps in gross margin this year including 75 bps from tariffs. So if you strip out tariffs you're doing 125. You sort of said on a four-year run rate, four-year tariff impact is 130. So as I look at fiscal 27, should we be thinking that all else equal, there's an incremental 65 basis point tariff impact to come through, and then the underlying will give you sort of 60. So just trying to understand the incremental change from the tariff impacts in 27, just given that we know that the underlying should be around 125 basis points or so.

Yeah, David, look, you're spot on that there's another top-up of that headwind of tariffs coming into FY27, so you're right, sort of 65 bps, and, look, anywhere from sort of 100 to 150 basis points on average a year we try to do as underlying improvements.

Yep, OK, that's helpful. Thank you. And just for Lewis, I mean, there's some commentary here around clinical adoption. There's clinical evidence that comes through. There's a sales and marketing effort as well. Just wondering if you can sort of talk to a little bit about how those two have progressed and then in terms of utilisation of hardware and asset turns, how is that sort of driving more consumables used per device if you can?

Yes, that's a double banger. I'll answer the second one first. Because our therapies are used across such a diverse range of hospital situations, from EDs to recovery rooms to general wards to ICUs, we don't really have a utilisation versus consumable terms per device model or predictor, because there's so much variation in there, we can't do it. So we've kind of abandoned that measure. Then in terms of clinical evidence, sales and marketing effort, The big mover there is clinical practice guidelines. Once we have clinical practice guidelines from a reputed clinical body, our approach is generally to use the clinical practice guideline and I think I'm looking at Justin, I don't think we've got any hospital anywhere on the planet perfectly implementing clinical practice guidelines on every patient they could.

Not yet.

Correct. So at this stage of the nasal high flow evolution anyway, it's about the clinical practice guidelines and that's what we utilise in our sales if it's more than anything else.

Yeah, understood. Okay, maybe just a different way to ask it then is do you think the devices are being used more broadly across the hospital?

Yeah, we do. Yeah, absolutely.

Okay, thank you.

Thanks David. Next question has come from Christine Trinh at Macquarie Bank.

Good morning everyone. Have you got me?

Got you.

Great. Congratulations again on a strong result. Just two quick questions from me on the consumable space. Firstly, new apps growth of 16% on Syncurrency was ahead of our expectations. Can we expect a similar level of growth going forward? And on the US launch of the Nova in the second half, can we just get your expectations for contributions to growth there? We're thinking kind of double digits like we saw in the first half of 25?

US Nova, let me talk to that first. Probably later in H2, so I wouldn't be making any material contribution at this stage. It's probably later in our second half. And then new apps at 16%. So when we think about second half, we're moving into the seasonal hospitalisation zone, and you would think that if we had a similar seasonal hospitalisation this second half compared to last year, you should probably get a similar growth rate in the second half to what you saw in the first half. This time round, because of the very high flu season numbers from last year and also COVID probably decreasing, we would characterise last year as probably really high and probably top end of range. If we had a similar season this year, we'd expect we'd be at top end.

Great. And just on that Nova piece, if it's in the first half of 27, can we just get your thoughts on growth expectations for that half?

Yeah, maybe we're a bit too far out for us at the moment, Christine.

Okay, no worries. Thank you.

Thanks.

Next question comes from Marcus Curley at UBS. Please go ahead, Marcus.

Thanks for the follow-ups. Could you just talk a little bit, maybe a little about the trajectory on R&D? Obviously, 4% in half is low for the business. Is that just reflecting some lumpy projects or are you genuinely starting to see lower percentages of R&D for the business in the next, say, 12 to 24 months?

Yeah Marcus, what that is is really reflecting the higher than sort of our normal revenue aspirational growth over the past number of years. So it's just sort of writing that as a sort of average over time. So we'd probably expect that to remain a little bit on the lower side, sort of low to mid single digits for probably another year or two.

And then just on anaesthesia, could you provide any colour in terms of, you know, any noticeable difference between Trace and Switch? Specifically, you know, is it sedation or GA driving it, or both? Just, you know, can you get a bit of colour in terms of the different components of the market?

It kind of depends on the release track we've taken. places where we've had trace and switch from day one, probably comparable contributions. And then at least in the US, we led with trace and we're still leading with trace. That's the bulk of it in the US. So the answer to your question, it varies depending on what we led with and when we led with it.

And switch... is in the US these days?

Well, it's approved in the US. We are still following up all the trace opportunities in the US at present.

And they're different to a switch opportunity?

Yes, yep, that's right.

OK, thank you.

Thanks, Marcus. We don't have any more questions in the queue, so I will now turn over to Lewis for some concluding comments.

All right. Well, thanks, Marcus. And thanks to everybody for your questions today. And as always, I'd like to conclude by thanking all of the people at Fisher & Paykel for your contribution this half. And we'd like to acknowledge the support of our customers, suppliers, clinical partners and shareholders. So thank you, everybody, and... Enjoy the rest of your day.

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