Wednesday, April 28, 2010

Fisher & Paykel Healthcare: 2010 Full Year Profit Result rests on Foreign Exchange Movement

The 2010 full year profit for Fisher & Paykel Healthcare [FPH.NZ] out late May (provisionally 26 May) is a hard one to calculate but it probably wont be a vast improvement on the 2009 FY result.

Indications are that last years $NZ62 million profit is going to be flatish to slightly up on a good revenue rise spurred on by additional innovations in sleep apnea products and the continuation of purchasing of health related products by US health providers.

This figure will vary depending on how much forward foreign exchange cover the company realises as every cent in movement up in the Kiwi/US dollar cross means $2 million less on the bottom line.

From the 2010 Interim Profit Report from last year (see excerpt below) you can see that FPH's profit calculations were based on an average of 64c to the US dollar and over the last 6 months that average would be closer to 70-72c. The forward exchange cover makes the profit calculation hard to calculate.

"Currency exchange rates continued to be very volatile. During the six months, the NZD:USD spot exchange rate ranged from 0.55 to 0.73 with an average spot rate of 0.64. Our hedging policy again served us well. We had in place at 30 September 2009 a mix of foreign exchange contracts and collar options, up to five years forward, with a face value of approximately NZ$600 million. The US dollar and Euro instruments were at weighted average rates of approximately 0.52 US dollars and 0.44 Euros to the New Zealand dollar and are to protect the company from exchange rate volatility." FPH 2010 Interim Report

Having outlined the above though, underlying revenue and profit in US dollars (most FPH business is done in US dollars and translated back to the NZ dollar where their head office is) will be well up and this is the most important indication of company progress.

The exchange rate factor, while important to shareholders in terms of returns in dividends and realised New Zealand dollar profit, should be secondary to real profit in constant US dollar terms.




FPH shares have been steadily rising over the last couple of weeks and closed flat at $3.49 yesterday.

Disclosure I own FPH shares in the Share Investor Portfolio


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