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Post Market Wrap | Fisher & Paykel FY22 Revenue Guidance Down By 14 Percent to $1.7B

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This Post Market Wrap is presented by KOSEC – Kodari Securities

  • Lower COVID hospitalisation cases impacting revenue and operating margin
  • Higher freight costs also creating margin pressure 
  • Future revenue growth dependent on success of new products 
  • No earnings guidance given prevailing uncertainty around COVID-19 variants. 

Fisher & Paykel Healthcare (FPH or the Company) is a New Zealand based medical device manufacturer of products and systems for use in chronic respiratory care, surgery and the treatment of obstructive sleep apnea. The Company comprises 2 key business units, Homecare and Hospital. FPH designs, manufactures and sells its products in 120 countries worldwide.

FY22 revenue guidance

FPH expects full year operating revenue for the March 2022 financial year to be in the range of $1.675 billion to $1.7 billion. This compares to operating revenue of $1.97 billion generated for the full year ended 31 March 2021, a decline of 14 percent. 

The Company attributes the decline to lower respiratory intervention requirements of the current Omicron variant, as compared with the more severe Delta variant. The comparatively mild flu season in the Northern Hemisphere has also contributed to lower demand for hospital consumables. This follows a period of unprecedented demand for humidification products used in respiratory, acute and surgical care during FY21, when hospitalisations in response to COVID-19 case numbers were extraordinary. Hospitalisation numbers are critical to revenue growth because the Hospital product group accounts for approximately 75 percent of total operating revenue. 

The 63.1 percent operating margin earned in FY21 represented a decline of close to 3 percent compared to the previous financial year. Higher air freight utilisation and elevated freight rates were cited as reasons for this margin decline. This adverse trend has continued into the FY22 financial year with the operating margin expected to come in at about 62.5 percent. This compares to Fisher & Paykel’s long term gross margin target of 65 percent.

Looking Ahead

The flattening of the curve following the global surge in COVID-19 has tempered revenue growth while higher freight costs have compressed operating margins, in the current reporting period. The Hospital product group, which was the primary beneficiary of the COVID-19 hospitalisation surge, saw revenue in the FY21 financial year, ramp up by 87 percent to $1.5 billion. This revenue spike was sustained up to the period when the Delta variance was rampant around the world, especially in North America. 

Given subsequent lower hospitalisation rates, the Hospital product group is now focused on testing and trialing new products. The success of such products, including the Visairo mask for non-invasive ventilation in the US and the Evora full mask on NZ and Australia, will have a bearing on medium term revenue growth. R&D research is also a key factor in future revenue growth, with $75 million expended in the first half of the current financial year.     

Significantly, the FPH board has not committed to firm earnings guidance for the FY22 year. The prevailing uncertainty around COVID-19 variants, including the effectiveness of vaccinations, is impacting the number of COVID-19 related hospitalisations around the world. The lack of clear and definitive qualitative evidence is grounds for FPH in leaving earnings details to the release of full financial year results on Wednesday May 25. 

This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.

"Michael Kodari is one of the world's most consistent, top performing investor. A philanthropist and one of the prominent experts of the financial markets, he has been referred to as ‘the brightest 21st century entrepreneur in wealth management' by CNBC Asia and featured on Forbes. Featured on TV as the "Money Expert", on the weekly Sunday program "Elevator Pitch", he is recognised internationally by governments as he was the guest of honour for the event "Inside China's Future", chosen by the Chinese government from the funds management industry, attended by industry leaders, when they arrived in Sydney Australia, on April 2014. Michael and George Soros were the only two financiers in the world invited and chosen by the Chinese government to provide advice, and their expertise on Chinese government asset allocation offshore. With a strong background in funds management and stockbroking, Michael has worked with some of the most successful investors and consulted to leading financial institutions. He was the youngest person ever to appear on the expert panel for Fox, Sky News Business Channel at the age of 25 where he demonstrated his skillset across a 3 year period forming the most consistent track record and getting all his predictions right over that period. Michael writes for key financial publications, is regularly interviewed by various media and conducts conferences around the world."

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Money

Boeing CEO to depart with lucrative exit package despite chaos

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Boeing CEO Dave Calhoun is set to step down from his position at the end of the year, walking away with a substantial payout despite challenges faced during his tenure.

Here are the key points:

  • Massive Payout: Despite Boeing’s stock price plummeting by 43% since Calhoun took over as CEO in 2020, he is poised to receive a $24 million payment upon his departure.

  • Additional Compensation: Calhoun holds options that could potentially earn him an additional $45.5 million if his successor manages to boost Boeing’s share price by 37%.

  • Comparative Compensation: Calhoun’s compensation during his tenure exceeds that of CEOs in similar industries, despite Boeing’s stock underperforming in comparison.

Boeing CEO Dave Calhoun’s impending departure at the end of the year has sparked controversy as he stands to walk away with a substantial payout, despite the company’s tumultuous journey under his leadership.

READ MORE: Boeing CEO to step down

Despite inheriting a company reeling from the aftermath of two deadly 737 Max crashes, Calhoun’s tenure has been marred by further setbacks, including the recent Alaska Airlines door blowout incident that further tarnished Boeing’s reputation.

Boeing offers CEO $5.3 million incentive to stay through recovery …

With Boeing’s stock price plummeting by 43% during Calhoun’s time at the helm, questions arise about the correlation between executive compensation and company performance, especially in the face of such significant challenges.

‘Raised eyebrows’

Calhoun’s lucrative exit package, valued at $24 million, has raised eyebrows among shareholders and industry observers alike.

Additionally, the potential for Calhoun to earn an additional $45.5 million based on the future performance of Boeing’s shares has intensified scrutiny over executive compensation practices.

This sizable payout contrasts starkly with Boeing’s stock performance, which has significantly underperformed compared to both industry peers and broader market indices, highlighting the dissonance between executive rewards and shareholder value creation.

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Money

It’s been a record year for CEO compensation

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In 2023, Broadcom’s CEO Hock Tan was granted a stock award worth $161 million, propelling him into the realm of highest-paid CEOs.

However, as the company’s share price surged, the value of Tan’s award skyrocketed to approximately $1.3 billion, outpacing even the shareholders’ annual returns.

Tan’s compensation reflects a broader trend among top executives in the tech sector, where awards of restricted stock and stock options surged in value alongside company share prices.

Notably, CEOs like Charles Robbins of Cisco Systems and Shantanu Narayen of Adobe also saw substantial increases in their compensation, doubling in some cases.

The disclosure of such equity growth in executive compensation is a new requirement by the Securities and Exchange Commission (SEC), providing shareholders with insights into the changing value of executives’ awards throughout the year.

CEO pay is on the rise.

New heights

Overall, CEO pay at major S&P 500 companies reached new heights in 2023, rebounding from slower growth in the previous year. The median pay for these CEOs rose to $15.6 million, up from $14.1 million in 2022, reflecting a surge in equity awards.

Broadcom clarified that Tan’s stock award is designed to span five years, with no plans for additional equity grants or cash bonuses during that period.

Tan’s compensation, which amounts to approximately $33 million annually over five years, is contingent upon his continued tenure and specific share price targets.

While the initial valuation of Tan’s restricted shares stood at $160.5 million, the surge in Broadcom’s share price prompted the company to reassess the likelihood of meeting vesting conditions.

This reassessment suggests that Tan may not receive all the shares initially granted.

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Money

Market forecast: weather whirlwinds influencing investments

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Prime conditions for commodity investments arise from global weather shifts, geological tensions, and rising interest rates.

With global weather patterns causing disruptions in traditional supply chains, coupled with geopolitical tensions over natural resource access, and the anticipation of higher interest rates impacting financial markets, the conditions for commodity investments have reached exceptional levels.

Amidst this backdrop, Farrer Capital has emerged as a standout player, leveraging its unique ‘blue ocean’ approach to capitalize on price dislocations and scarce competition in the market.

Mark Wyld from MW Wealth joins the show to share his insights on the inclement weather impacting the market.

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