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Post Market Wrap | ResMed March quarter impacted by input cost inflation and higher freight costsPost Market Wrap |

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This Post Market Wrap is presented by KOSEC – Kodari Securities

  • Revenue up by 12 percent to US$864 million and income from operations up by 5 percent to US$253 million
  • Revenue and income results miss Bloomberg consensus estimates
  • Gross margin down by 1.4 percent
  • Selling, general and administrative expenses up US$22 million, or 14 percent to US$182 million
  • Cash flow impacted by US$285 million ATO settlement
  •  Balance sheet remains strong with US$1.9 billion in cash and drawdown availability  
  • Management confident that incremental revenue growth will recover in FY23.  

ResMed Inc (‘ResMed’ or the ‘Group’) is a global medical device business that develops, manufactures, distributes and markets medical devices. ResMed  also develops cloud-based software applications that diagnose, treat and manage respiratory disorders, including sleep disordered breathing, chronic obstructive pulmonary disease and neuromuscular disease. Resmed’s comprehensive out-of-hospital software platforms are designed to assist caregivers and healthcare professionals keep people healthy in the home or care setting of their choice. The product suite includes air flow generators, diagnostic products and mask systems which are expected to help 250 million lives across 140 countries in 2025. 

Soft Gross Margin in March quarter FY22

ResMed increased revenue by 12 percent to US$864 million for the quarter, compared to the March 2021 quarter, and income from operations increased by 5 percent to US$253 million. Non-GAAP diluted earnings per share was up modestly from US$1.30 per share to US$1.32 per share. These numbers came in below market expectations, based on the important Bloomberg consensus estimates. The market was expecting stronger revenue growth, on the basis that ResMed would benefit from the recall of a competitor product in the US non-invasive ventilator market segment. This market share gain was less than anticipated by investors and can be attributed to ongoing semiconductor supply shortages. Semiconductors or micro-chips are an essential component of ResMed’s medical devices, including ventilators.  

The other disappointing aspect of the March quarter result was the 1.4 percent gross margin contraction to 56.8 percent at March 2022, from 58.2 percent at March 2021. The margindecline is attributable to higher freight and manufacturing costs, partially offset by an increase in average selling prices. A US$12/Euro12 device surcharge introduced in January 2022 has not been enough to offset the cost inflation and higher freight imposts that have emerged since the onset of the global COVID pandemic. Selling, general and administrative expenses increased by 14 percent to US$182 million, compared to the March 2021 quarter.This is an increase of US$22 million from a year ago. Clearly ResMed has not been able to avoid the input cost inflation pressures faced by manufacturers in all parts of the world in recent times.

US$285 million ATO settlement impacts cash flow

Cash from operating activities of US$272 million, for the 9 months to 31 March 2022, represents a decline of US$238 million from US$510 million generated in the previous corresponding 9 months.  The significant decline is primarily due to a US$285 million cash settlement with the Australian Taxation Office in the March quarter. This is the final instalment due to the ATO and follows payments of US$97 million in prior reporting periods, bringing the total amount to US$382 million. The settlement relates to transfer pricing irregularities between 2009 and 2018. The profit impact had previously been recognised in the prior financial year.  

ResMed retains a strong balance sheet and at 31 March had US$1.6 billion available for drawdown plus cash and cash equivalents of US$295 million. 

Looking Ahead

Management continues to refer to the extraordinary demand for sleep and respiratory care products around the globe with double-digit top line revenue growth expected for respiratory care products and high single-digit growth in its software-as-a-service business segment.

Despite the industry-specific and macro-economic environment uncertainty in recent times, demand from patients and healthcare providers remains resilient. Management remainsconfident that as supply chain logistical constraints, including semiconductor component shortages are overcome, lost incremental revenue will be recovered in FY23 and beyond.

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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