Earnings Transcript for FPH.AX - Q2 Fiscal Year 2025

Operator: Welcome to Fisher & Paykel Healthcare's Results Conference Call. My name is Taryn 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. [Operator Instructions] Please note this conference call is being recorded. I would now like to turn the call over to Marcus Driller, VP, Corporate.

Marcus Driller: Thank you, Taryn. Good morning everyone and welcome to the conference call for Fisher & Paykel Healthcare's first half results for the 2025 financial year. On the call today are Lewis Gradon, our Managing Director and Chief Executive Officer; Lyndal York, Chief Financial Officer; and Andrew Somervell, our VP of Products and Technology. Lewis and Lyndal 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, 2024. Earlier today we provided our 2025 interim report including financial statements and commentary on our results to the NZX and ASX. These disclosures can be accessed on our website at fphcare.com/investor. With that, I'd now like to turn the call over to Lewis.

Lewis Gradon: Okay, thanks, Marcus and good morning to everyone. I'm going to be referring to the investor presentation pack that we released to the NZX and the ASX today throughout. So let's start on page 3 with a recap of some of the highlights for our first half. We released our 950 system in the United States in April and this coincided with the US launch of Airvo 3 as well. Both these additions have added to the momentum in our hospital business and our new Optiflow Duet cannula is now available in most major markets and the evidence continues to build regarding the benefit that this interface provides patients. In homecare, we began selling our Nova Micro mask into New Zealand and Canada during the first half and we launched this into the US just a few weeks ago. This follows hard on the heels of F&P Solo, which has been receiving positive feedback since its launch. Now, on the infrastructure front, our manufacturing site in Guangzhou is now operational following a receipt of regulatory clearance. So now, let's turn to page 4. Operating revenue for the half was $951 million, up 18% on the prior period, so that's 17% in constant currency. Net profit after tax was $153 million, up 43% on the prior period or 51% in constant currency. I'm going to hand over to Lyndal shortly for a more detailed run through the financials. But first let's go to the hospital product group that's on page 6. Operating revenue was $591 million, up 21% year-on-year, and that's in both reported and constant currency. New applications consumables was up 25% or 24% constant currency and we've noted three key drivers for this there. First, the primary driver, our ongoing efforts to change clinical practice. Secondly, good response to the new product introductions around the world. And thirdly, we do see indications that a relatively high hospital census during the half contributed as well. Hospitals seem to be returning to a more normalized capacity and staffing levels. And we think possibly seasonal hospitalizations in the northern hemisphere from FY ‘24 last year may have persisted into the start of our first half. And this contribution has been strong across the whole portfolio of therapies. Optiflow for respiratory support has benefited from those three drivers I just mentioned. Growth in Optiflow for anesthesia remains robust off that relatively low base. And our non-invasive consumers continue to perform well as well. And then outside of new applications, it's good to see strong revenue growth for the consumables used in invasive ventilation as well. Hospital hardware revenue growth of 25% in constant currency is also a positive signal for us. We think pointing to continued progress in changing clinical practice. So let's turn now to page 8. Homecare operating revenue was $359 million, that's up 14% on our first half last year or 13% in constant currency. OSA mask growth was 16%, 14% in constant currency. And as I mentioned at the start of the call, we've been rolling out Solo and Nova Micro across more markets. Both masks have been met by a strong reception and Evora Full OSA mask also continues to perform strongly and that was another key contributor during the half. So while today is mostly talking about our financial results for the six month period, I do just want to take a quick minute to circle back around to the longer term focus and aspirations. So in the short term, and for us we're generally thinking five years or so, it's short term, we see strong growth opportunities with Optiflow and we see that in both general respiratory and anesthesia patients. In that five to 15 year time frame, we continue to invest in developing the home respiratory support opportunity. And then 15 year plus we're building out our surgical technologies products. So I'll pause here and hand over to our CFO, Lyndal York, for a closer look at the financial performance in the first half and then I'll come back to talk about guidance after that. So over to you, Lyndal.

Lyndal York: Thanks, Lewis, and good morning everyone. On page 9 our gross margin was 61.9% for the half, up 141 basis points from the same period last year or 198 basis points in constant currency. Overhead efficiency was a significant contributor to this improvement. We grew our overheads at a much lower rate than our production volume compared to the same half last year. Our work on efficiency and margin improvements also continued making an impact. Moving on to Page 10, total operating expenses grew 11% in both reported and constant currency compared to the same period last year. This is in line with expectations given the impact of the people that we added throughout FY ‘24. Operating margin was 22.9% for the half. That was an increase of 394 basis points or 420 basis points in constant currency from the same period last year. This reflects the improvement in gross margin as well as our operating expenses growing below our revenue growth. R&D expenses grew 14% to $110 million and were 12% of revenue for the half. For the first half results, we recognized $9 million for the R&D tax credit. Last week, we received approval of an increased cap of the tax credit, accommodating our continued investment in R&D. We estimate that about 60% of our full year R&D spend will be eligible for the 15% tax credit. SG&A expenses this half were $260.5 million, an increase of 10% in both reported and constant currency. Moving to Page 11. Operating cash flow this half was $233 million, up 49% from the same period last year. This reflects the growth in profit and reduction in net working and other capital in this half compared to an increase last year. Tax payments were lower than usual in the first half of last year as we prepaid tax during the 2023 financial year, requiring less tax to be paid in the 2024 financial year. Capital expenditure, which includes purchases of intangible assets, was $55 million for the half, down from $275.5 million in the same period last year. The first half last year included $190 million paid for the Karaka land acquisition. Capital expenditure for the full 2025 financial year is expected to be approximately $120 million. Looking at the balance sheet. Debtor days were largely in line with the prior year at 44 days. Net cash at the 30th of September was $50 million, and our gearing ratio was minus 2.9%. Interest-bearing debt was $66 million, all of it being current. Turning now to Page 12. We have declared a fully imputed interim dividend of $0.185 per share. This represents a 3% increase on the interim dividend declared last year and continues our recent track record of increasing our dividends to shareholders. This represents a 71% payout of our first half profit and will be paid on the 18th of December. Given our strong financial performance and our net cash position, our dividend reinvestment plan has been suspended. Looking now at foreign currency on Page 13. Foreign currency movements negatively impacted our net profit after tax, or NPAT, by $2.7 million compared to the same period last year. Movements in spot rates, offset by hedging results benefited NPAT by $2.5 million when compared to the first half last year. More than offsetting this was an increase in after-tax foreign exchange losses on balance sheet translations to be $6.8 million for this half. The New Zealand dollar appreciated significantly over the last part of this half to end on the 30th of September very strongly compared to where it was on the 31st of March. From when we provided guidance in August, the movement in exchange rates from the 31st of July to the 30th of September resulted in the balance sheet revaluation impact on NPAT moving from a negligible gain to a loss of $6.8 million. At end of October rates for the remainder of the year, we would have an overall positive impact on NPAT of approximately $15 million for the full FY '25 financial year when compared to FY '24. This includes full year FY '25 hedging gains of $14 million after tax and full year FY '25 losses on balance sheet translations of $4.7 million after tax. Now back over to you, Lewis.

Lewis Gradon: Okay. Thanks, Lyndal. So now we'll turn to outlook on Page 14. At 31st October rates, we continue to expect full year 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 $320 million to $370 million. For our Hospital product group, we expect similar contributions in the second half from changing clinical practice and new product and productions. Hospital consumables is the big mover in any second half projection for us, and that's due to the inherently unpredictable nature of seasonal hospitalizations and these days, that's including the impact of COVID, flu and RSV on top of general seasonality. And that potential variation from year-to-year is exacerbated by COVID. So our guidance range accommodates a broad range of Northern Hemisphere seasonal hospitalization scenarios. And that ranges from a relatively low season to what would be an approximately moderate season. The second half that we're lapping has the second biggest flu season 15 years and a material cover component, and so it seems reasonable to expect those components to come down. In our Homecare product group, we've introduced three new mask models into the major markets over the last 10 months. They're performing well, and we think they'll continue to drive similar results for the remainder of the financial year. So, I'll end my remarks there, so we can open the line to the questions.

Marcus Driller: Thanks, Lewis. Taryn, if I could ask you to please open the line up for questions. Can I please ask everybody to limit your questions to two. This is to ensure that everybody has an opportunity to participate. You can rejoin the queue for any additional questions.

Operator: [Operator Instructions]

Marcus Driller: Thanks. The first question comes from Lyanne Harrison at BofA. Please go ahead, Lyanne.

Lyanne Harrison: Hi, good morning, all. Can you hear me okay?

Marcus Driller: Loud and clear.

Lyanne Harrison: Let's start with those comments you just made on guidance in the hospital, I guess, the hospital revenues where you're talking about the range from relatively down to approximately moderate seasonal hospitalization. I just wanted to understand what's the benchmark that you're comparing that to? Because you mentioned also last year. So is that what you're saying you expect it to fall low or moderate compared to the seasonality or the range of hospitalizations that we saw last year? Or is it relative to, I guess, a longer-term average?

Lewis Gradon: Yeah. Good question, Lyanne. Thanks. Our thinking there is that we're lapping an unusual half with a big flu and COVID. So we're looking at our H2 following H1 sequential trends historically. And when we look back, that top end of our guidance would now represent what we've seen in the last two -- or the most recent two years prior to COVID, it's pretty similar to sequential growth that we would have called a moderate season at the time.

Lyanne Harrison: Okay. So we're looking at the two years prior to COVID, so if we're looking at the, I guess, the ‘19/’20 flu season and the ‘18/’19 flu season is what we should be comparing to?

Lewis Gradon: One more clarification. That's the two years prior to COVID that we classified as moderate, a moderate flu season. I think from -- I don't remember exactly, I think that might have been 2014, 2018, something like that, But those were the years that we were thinking at the time were moderate and this top end of our guidance sequentially looks similar to that.

Lyanne Harrison: Okay, so if we look at 2014, did you say 2014 to 2018?

Lewis Gradon: Well, you're right, but I can't remember the exact years that would have been used in that comparison. That's something around there.

Lyanne Harrison: Okay. Okay. If you could come back to that, that would be great, because then we'll compare the hospitalization status particularly, yes. In terms of my second question, this is about growth margins. Obviously, we saw some huge improvements in growth margins due to the overhead efficiency.

Lewis Gradon: Leanne, you're breaking up.

Lyanne Harrison: Can you hear me okay? Okay, my next question is on gross margin. In terms of the overhead efficiencies and initiatives that you achieved for the first half of 2025, can we expect that to continue at the same cadence for the second half?

Lyndal York: Yeah, I'll take that one Lyanne. We probably wouldn't expect them to carry on at the same cadence, so the overhead efficiency will get less as we go through and grow into the overhead structure that we've got. So that will diminish over time that we would expect. And then the improvement -- the impact from the improvements can be very lumpy depending on when they kick in. We just sort of track that we're still doing those improvement projects and getting them complete.

Lyanne Harrison: And when we spoke at the last result, you mentioned something along the lines of expecting a 100 basis points underlying gross margin improvement for the full year or 200 basis points improvement excluding the recall cost. Does that still apply in terms of what you're expecting for full year ‘25?

Lyndal York: Look, because we've had quite a strong first half, that probably goes up a little bit to about 150 basis points give or take and that's probably both constant currency and reported using the exchange rates at the end of October for the rest of the year.

Lyanne Harrison: Okay. That's 150 basis points underlying?

Lyndal York: For the full year.

Lyanne Harrison: Yep, yep. Okay, great. Thank you. I'll leave it there.

Marcus Driller: Thanks, Lyanne. Our next questions come from Craig Wong-Pan at RBC. Please go ahead, Craig.

Craig Wong-Pan: Thanks. Look, just wanted to talk about the first half revenue. I think that was a good performance coming in just a bit above the top end of your guidance. Could you just talk about what has driven that better-than-expected performance? I mean slightly above but just wanted to understand what parts have kind of outperformed your expectations?

Lewis Gradon: Yeah, another good question. Expectation is a range. So I probably would describe it as within expectation, as within a range. We think helping it along in hospital, you don't get census data for another 12 to 18 months officially, but if you look at the early report, early indicators for census, we think census is probably up in the half, maybe in the 4% to 5% range. So we think that's a contributor. And when we look at our volumes and the FY ‘24 flu season, FY ‘24 flu season was kind of not a big peak but longer and we think that's extended into our April, May a little bit. So we think there's a bit of a tailwind from that in there. I think that's the best answer I can give you.

Craig Wong-Pan: Okay, thank you. And then my second question, just on the Chinese manufacturing facility that's now up and running, did that have any kind of commissioning costs or was that a benefit to margins in the period? I'm just trying to understand the financial impact of that in this period and how we should think about that going forward.

Lyndal York: Yeah, it doesn't have much of an impact into margin. It's a small facility, a leased facility, so fairly negligible impact on margin.

Craig Wong-Pan: Okay, thank you.

Marcus Driller: Thanks for your question. Thanks, Craig. Next questions come from Daniel Hurren at MST Marquee. Go ahead, Dan.

Daniel Hurren: Good morning, everyone. Thanks very much. Look, full year guidance unchanged. I think the first half of the guidance you gave a little while ago implied that the first half was stronger than you had originally anticipated. So by sort of process elimination, that means that the second half, I guess it was an expectation, the second half would be upgraded as well. Firstly, is that right? And I guess, and if so, what do you see in the current trading period that would suggest that momentum is not going to be maintained quite as much in the second half?

Lewis Gradon: Yeah, sure, Dan. I'd reinterpret that. I mean, I think when we first gave guidance, we were thinking of our top end as a comparable seasonal hospitalization rate to last year. And when we look at the first half we've had, we're kind of restating the top end to equivalent to what would have historically been a moderate season. So that was the first part of your question. Current trading period, we don't see any signal that would point us either direction on the seasonal impact yet.

Daniel Hurren: Okay. Thanks very much. And a follow up question. And apologies for asking a question on result day, not specifically related to the result, but I was hoping you might be able to give us some thoughts on how we should think about the impact of all these tariffs that are in the news at the moment. The US and Mexico appear to be shaping up to each other. Is there any easy way to think through this or any sort of broad outline you could help us with?

Lewis Gradon: Yeah, thanks for the apology on that one Dan. I appreciate that. We really don't want to be drawn into any speculation on that whatsoever. But to try and give you a bit more than that, maybe I can help you with the framework that we'd be thinking within and we'd be thinking long term. We'd be focusing opportunities that we have versus risks. And for us, we're typically thinking about where we would put our growth in volume rather than moving things around. Am I missing questions, Dan? So, Dan, the politics will do.

Daniel Hurren: Well, you go mate, sorry, the silence I thought would be very odd. No, sorry, just to clarify, so really the politics of the day is more affecting your future strategy, is that what you're suggesting?

Lewis Gradon: Yeah, absolutely. We've got to think about the long-term. We've got to think about where the opportunities are and as I say, I think the other key point for us is that we do provide products and therapies that improve care and outcomes. So whatever your scenario, we feel that that does give us some flexibility to work with our customers on mitigating things that might come our way. That'd be the other comment. Otherwise for us, we're thinking about the growth, how we grow and where the growth goes, where the manufacturing for growth goes.

Daniel Hurren: Okay, thanks so much, we really appreciate that.

Marcus Driller: Thank you, Dan. Next question comes from Adrian Allbon at Jarden.

Adrian Allbon: Good morning team. Perhaps for you Lewis, just coming back to the hospital product group on Slide 6. Just, I was wondering if you could give us a bit more sort of breakdown of what's sort of driving the IV consumables, because they look like they've grown 13% and I think the second half was about 8%. Are you able to say how much is the price, maybe sort of new gains and new geographies?

Lewis Gradon: So I think the price is about 2% of that growth and then I'd be pointing at the other drivers that we've talked about, probably a bit of benefit from sensors, probably a bit of benefit from flu straying into that first half.

Adrian Allbon: Okay and then just within the new apps consumables, I think in the last couple of results calls you've given an indication of how much anesthesia represents of the new apps. I think just at the year end it was just under 10%. That would give us a guide as to where anesthesia sort of ended the first half?

Lewis Gradon: Yeah, Dan, that's moved from just under 10% to about 10%. Adrian, sorry mate.

Adrian Allbon: Okay, so no real, so just under to just over?

Lewis Gradon: Just under to about.

Adrian Allbon: Okay, okay. And so by deduction, that means that kind of like the main chunk of this growth has come from effectively your core Optiflow?

Lewis Gradon: Yeah, I think with this kind of number, you can assume the growth is coming from everywhere.

Adrian Allbon: So, I guess the other two elements within that new app that make a differences in NIV and if you like high flow oxygen. So are they sort of broadly even contributors?

Lewis Gradon: OptiFlow tends to grow at a stronger rate than NIV and this half's no different but I mean I'll come back to that comment that actually, the growth is strong across everything.

Adrian Allbon: Yeah, okay. Because I guess the other positive from that is like it's quite a good sort of tick-up on the sales force efficiency as well, which I presume speaks to your sort of protocol at the hospital level and clinical practice that you're calling out.

Lewis Gradon: Yeah, I think that's a fair comment.

Adrian Allbon: Okay, and then just maybe just saying, with the Airvo 3, given you've introduced it as a new platform, are you sort of able to give a bit more feedback on how that's been implemented in hospitals?

Lewis Gradon: How it's being, we just missed that word, implemented.

Adrian Allbon: Like, I guess one of the kind of key things is obviously it's a wider -- it's got a wider application to the hospital given it's mobile and it's got auto-titration and all that sort of stuff.

Lewis Gradon: That's exactly right. I mean it's playing out I think as intended. Airvo 3 does facilitate adoption throughout more of a hospital. And that was the goal and our take is that's exactly what's happening.

Adrian Allbon: Okay. Thank you.

Marcus Driller: Thanks for your questions. Thanks, Adrian. Next question has come from Vanessa Thomson at Jefferies. Please go ahead, Vanessa.

Vanessa Thomson: Good morning team and Thank you for taking my question. I just wanted to ask, the Evora growth seems to have continued for, well, perhaps longer than I expected. I think it was launched in the US in April ‘22 and it sounds like it's still getting good growth. Does that product seem to have a longer trajectory or do they always have that length of trajectory? Thank you.

Lewis Gradon: I don't know how to comment on it that longer or not but I mean your assessment is right. That's been a strong contributor for a number of years now and it probably comes back to as long as our customers can see a difference between our mask offerings and what they're currently doing we're going to get pretty good growth and the assessment there would be that that's continuing.

Vanessa Thomson: Thank you. And then just on the OSA mask growth, the growth was a little lower this half, if I've got that right, than PCP. Resnet had spoken to that funnel of OSA patients increasing through GLP runs and essentially wearable devices. Is that something that you guys could comment on? Thank you.

Lewis Gradon: I think not really. I mean we don't see much that you can't, except our number and we're relatively small part of the number. So we don't really have any read on that at all, Vanessa.

Vanessa Thomson: Thank you.

Marcus Driller: Thanks for your questions, Vanessa. Next questions come from Matt Montgomerie at Forsyth Barr.

Matt Montgomerie: Hi guys, good morning. I just want to go back to the very top in Lyanne's question around assumptions for hospitalizations. I take it that you were saying you're assuming a similar flu season in the hospital business to ‘14 and ‘18. If we go back to ‘18 and look at the skew between the first half and second half in your hospital business and then assume 15% homecare growth, I find it hard to get, I guess, below $2 billion in revenue. I'm just wondering what I'm missing here in terms of your assumptions.

Lewis Gradon: Yeah. Okay. So first thing, I can't -- I didn't do that analysis, Matt, so I can't remember exactly which year it was, I'm now being reliably informed FY ’14 -- no calendar '14, '15, and calendar '16, '17, are referenced here, yes, those were years we considered moderate. And then the other thing when you're doing your sum is that we are assuming that this first half that we've got right here now has a bit of tailwind and it has a tailwind from the FY '24 season and it has a tailwind from the census uplift a little bit higher than normal. So that brings your sequential growth down a wee bit on that comparison.

Matt Montgomerie: Yeah. I mean, are you able to quantify that tailwind? You've obviously made an assumption.

Lewis Gradon: Yes. I wish I could, Matt. But no, I mean, we think that's a directional indicator.

Matt Montgomerie: Okay. And then just on Homecare, we should interpret your guidance of similar growth in the second half of this year is what you delivered in the first half?

Lewis Gradon: Yeah, absolutely. I mean we just think all the same dynamics are in place. So that's probably your best assumption.

Matt Montgomerie: Yeah. And just I'll squeeze one more in, back to anesthesia. I think the comment back in May was that you're expecting growth of maybe 50% in the anesthesia business. Is that still how we should be thinking about it?

Lewis Gradon: Look, it's thereabouts. But whenever you're looking at growth rates like that, I think you need to tail them off every year, bring them back a wee bit every year.

Matt Montgomerie: Yeah. But just for this year, though.

Lewis Gradon: Yeah.

Matt Montgomerie: Thank you.

Marcus Driller: Thanks, Matt. Next question come from Mathieu Chevrier of Citi. Go ahead, Matthew.

Mathieu Chevrier: Yeah, good morning. Thanks for taking my question. Just one on CapEx. I think your guidance is a little lower than it was for '25. I was just curious if you could give us an idea as well for FY '26 and '27?

Lyndal York: Yeah. So CapEx is always a tricky one to get the timing right, Matthew. So that's all just sort of timing of when the acquisitions are going to take place. As you recall, we did have elevated CapEx expenditure through the COVID years as we were making sure that if we needed to produce more to treat patients than we could. And so what you've seen over the last year and this year is slightly subdued CapEx in the plant and equipment side, and that's probably going to continue on the plant and equipment side for maybe another year or so before it gets back to a more normal range. The big lumpiness in there, though, is for land and building. So we've still got about $60 million to pay for the Karaka site in January -- across January and December 2026. And then we're going to start building our fifth building here at East Tamaki, probably the beginning of next financial year. So for FY '26 and '27, there will be the building cost for the building. So there will be certainly more elevated CapEx over '26, '27.

Mathieu Chevrier: And could you give us a range?

Lyndal York: We haven't finalized a contract for the build yet, so I would prefer not to.

Mathieu Chevrier: Okay. No worries. And then just another one on margins. I was just curious to understand how freight rates are tracking and if you're still expecting gross margins to recover in F '27 and operating margins another year or two after that. Thank you.

Lyndal York: Yeah. Look, freight rates is actually a bit of a tailwind for us at the moment, which is sort of two big drivers to that. One, we'd locked in our rates at probably the lowest point for most of this year. And they're locked in for pretty much this entire financial year, but we'll sort of revert back to more market rates for next year. So we see that being a headwind to margin next year. Also, the amount that we're sending air freight this year is lower than it actually even was before COVID. So that's not sustainable. So we see that also being a headwind coming into '26. So we think for margin, we've had a strong first half improvement here. We've been sort of at pains to say over the past year or so. This isn't going to be a straight line improvement of margin. There'll be ups and downs. But as long as the trend line is heading in the right direction. We're happy with that. So we do have some headwinds coming into '26, so that we'll see where we land there. But yes, sort of over the next two to three years still feels reasonable if everything keeps going according to plan, but many, many factors there. And then, yeah, operating margin, we would expect that sort of a year or two after that.

Mathieu Chevrier: Great. Thank you.

Marcus Driller: Thanks, Mathieu. Next questions come from Andrew Paine at CLSA.

Andrew Paine: Yeah. Thanks for taking my question. Just looking at SG&A ex D&A, it looks like it grew about mid-single-digits this half. Just trying to understand the driver of this lower cost growth. Ideally, you're seeing improved sales staff efficiency, given the increase in clinical practice change. And if that's the case, do you expect that operating leverage to continue?

Lyndal York: Yeah. So we are planning to sort of grow our operating expenses, and we look at operating expenses as a whole sort of SG&A and R&D together. We are planning on growing that a bit below our long-term growth aspiration target of 12.5%. So, trying to keep that overall growth at around that sort of 11-ish percent. We think over time, will give us that leverage. How much leverage we get in a particular year will depend on what the revenue is in that year. But we're sort of certainly aiming to grow it a bit lower than our long-term average for a while, which is getting that operating leverage.

Andrew Paine: Got you. That’s great. And just on that, was there any currency tailwinds. We're looking at some of the currencies in terms of where your people are located in manufacturing. Was there any currency factors there at play?

Lyndal York: For the first half, total currency impacts when we look at this half compared to last half is actually a hit of $2.7 million. And for the full year, when looking at possibly a benefit of about $15 million to NPAT if the end of October rates remain for the rest of the year, about a $15 million tailwind compared to FY '24 for FY '25. And that's incorporated in the guidance numbers we've given.

Andrew Paine: Yeah. Okay, that’s great. And just quickly just on the OSA masks, you've obviously got a few masks that are being launched in the market. Can you just talk about the competitive dynamics and where you think you are in terms of market share following these launches, it looks like Phillips is losing share. ResNet has some masks out there, but it would just be good to understand what it's like on the ground and if you are capturing share, where you're taking it from.

Lewis Gradon: Yeah, that's really difficult for us to comment on, Andrew. We don't have any scientific basis to make that comment. But when we look at our growth rate and any other things you can see. It looks like we'd be taking market share even harder to say we're from, but potentially a bit everywhere will be my best guess.

Marcus Driller: Thanks for your questions, Andrew. Next questions come from the line of Saul Hadassin at Barrenjoey.

Saul Hadassin: Good morning. Thanks for taking my question. Let's keep it to one. Lewis, just the new plant in Guangzhou, China, what products, is that plant manufacturing? And similar to Mexico, is that plant really providing product into the region? Or will products manufactured in that plant make its way into the US.

Lewis Gradon: So at the moment, it's a subset of our nasal high flow Optiflow therapy that's on that plant. Over time, I think we'll be just continuously expanding the range that's manufactured in that plant. And then at present that output is destined for China, I think over time, that will grow. There's no concrete plan at present for China output from our China plant to be supplied to the US.

Saul Hadassin: All right. Thanks. That’s all I have.

Marcus Driller: Thanks, Saul. Next questions comes from Marcus Curley at UBS. Go ahead, Marcus.

Marcus Curley: Good morning. Lewis, you referred to the statement you talked about the benefits of clinical practice change continuing on your same pace in the second half. I just wondered if you could sort of call out what you thought that was as an element of growth in the first half.

Lewis Gradon: We kind of think of all of our hospital growth as fundamentally being a change in clinical practice, maybe plus census. And typically, it's a census as well worth 2% or 3% plus demographics. So I'm not sure how else can I help you with that? Our hospital business is driven by change in clinical practice. One way or another, that's what everything is oriented towards and that's what everything is pointed at. That's what our product range does that our salespeople work on.

Marcus Curley: Can you call out -- if you strip out the flu season impacts what you think the hospital business would be growing at in the second half at the top end of your guidance?

Lewis Gradon: You strip out flu and if you didn't have what we're thinking, which is flu, a little bit of flu in H1 and a little bit of census uplift in H1, you'd expect your second half. When I say flu, let's use that as a generic term for seasonal hospitalizations because it's a lot more than flu. If you stripped out the seasonality, you'd expect second half growth to be the same as first half growth. So we typically look at the difference between the two as the seasonality.

Marcus Curley: And then [indiscernible] one-off impact, didn't it?

Lewis Gradon: Yeah.

Marcus Curley: Is it high to mid-teens?

Lewis Gradon: Sorry, what’s mid-teens?

Marcus Curley: The underlying growth in hospital business, excluding seasonal impacts.

Lewis Gradon: Yes, you can certainly get there yeah, in most scenarios. Yeah.

Marcus Curley: Okay, great. Look at the homecare growth has obviously accelerated a little bit on the second half of last year, but it went from 11% to 13% constant currency. Do you think that's a little underwhelming given Solos in the US market? You've obviously got the two versions of Solo, a high-priced product. It just felt like it didn't quite get there.

Lewis Gradon: Well, we're thinking the exact opposite, we're pretty pleased with 14% constant currency growth enough Marcus. We think that's good.

Marcus Curley: Okay. So you're comfortable with how that has gone to launch in the US?

Lewis Gradon: Pleased with how that's gone.

Marcus Curley: Are you still pricing it at a premium?

Lewis Gradon: Yeah.

Marcus Curley: Okay. Thank you.

Marcus Driller: Thank you, Marcus. Next questions come from David Low at JPMorgan.

David Low: Thanks very much. I'll try to continue on with the impossible questions. Let’s start with the tariffs. Let's assume the tariffs that have been announced on Truth Social that we put in place. What's the implication versus competitors? I mean it seems to me that there are not a lot of obvious competitors in the hospital, kind of the business given your innovative products. But in homecare, they probably are. Just wondering how you're thinking through the potential impact of the tariffs that have been announced were to be put in place, please?

Lewis Gradon: Yeah. Look, I really don't want to be drawn into that speculation to be absolutely frank with you. And then when it comes to talking about competitors, we definitely don't want to go there. our focus is really on our business and what we do.

David Low: It seems to me that the competitors are not based in Mexico and hence, you’d be -- Fisher & Paykel would be at a disadvantage. But look, we can take that one offline into the purely speculative realms. Another similarly difficult question, I suspect. COVID seasonality, what's your take on it? Do you think COVID census is going to move with flu numbers? Or do you think it's completely differentiated in terms of when the COVID case numbers missed?

Lewis Gradon: Well, this is speculation, and I'm happy to go this way as long as you just remember this is a speculation. So overall, your takers, we'd be expecting the impact of COVID to decrease year-on-year, overall over the long term. Seasonality, so far, the data looks like it's got a little bit of a double seasonality, a little bit in the summer and a little bit in the winter and you're going off a couple of years there, steadily decreasing. That’d be my take. I think we're thinking that's a reasonable expectation. A little bit of a double bump steadily decreasing each half. Moving with flu members, was the other part of your question, I think, so far, it seems too.

David Low: Although you're talking about some bump as well. I guess have you thought that -- have you made concrete assumptions in the guidance you've given around COVID or is this still a little bit on the unpredictable side?

Lewis Gradon: No, we haven't really. The implication of that guidance analysis at the top end as you're looking at what we've historically called a moderate flu season. I just remind you, we used flu -- and everybody uses flu season really is a standard for seasonal hospitalizations. Flu's a small part of it. COVID going forward is small and probably smaller. Yes.

David Low: Thanks for that. I mean I don't know the questions are purely speculative. I would observe that the guidance is hard for us when you point to very particular seasons -- but then you tell them, tell us we need to make an adjustment for the first half. I mean it sort of losses that, I guess, our ability to even understand what you think is moderate and what do you think is mild. I mean the numbers are there. I'll leave it at that.

Lewis Gradon: I feel your pain, David, no need to apologize for that. So I feel your pain. But I think trying to characterize seasons and a seasonal impact with any precision, it's just not a practical game. Seasonality [indiscernible] it's inherently unpredictable and the impact of seasonal is inherently unpredictable. I think just to maybe bring this back down to ground, this seasonality that we're talking about, it's actually a relatively small part of our business, right? Off the cuff, it's -- on average, maybe 5% of our business. The issue that you're dealing with here is when you have a big one, go after a small one, it looks like minus 5% to you. That's the issue you're dealing with. And that's why I think we're talking about it so much.

David Low: Yeah. I think for us, just clearly understanding what your assumptions are, is helpful. And I think, unfortunately, the way you've characterized it, if that -- it gets a bit lost because you gave us very specific seasons and that's great, but then we don't really know what adjustment you think is right for the first half. And I know we're asking for unreasonable precision but just clearly understanding what the assumptions were that were in there because that, of course, allows us to monitor it more carefully as we go.

Lewis Gradon: Absolutely. Well, no, I'm happy to help you because I understand it's a big topic for you guys. In terms of monitoring it, if these hospitalizations over this second half look something like what we've called out is our previous historical moderate seasons, well then you're heading towards -- and everything else remains equal, you're heading towards the top end of our guidance.

David Low: Yeah, okay. That’s clear. Thank you.

Marcus Driller: Thanks, David. Next questions come from Rob Morrison at Craigs. Go ahead, Rob.

Rob Morrison: Hey, good morning. Can you guys hear me?

Marcus Driller: We got you, Rob.

Rob Morrison: All very good. So first question, I note that a product called Airvo 3 NIV has been approved by the US FDA. Is that -- and I assume that's a Airvo 3 with NIV capability, is that on sale in the US currently? And does guidance assume a contribution from that 2H ‘25?

Lewis Gradon: No, it's not currently available in the United States at the moment, it's limited release, New Zealand only. I wouldn't expect it in this year.

Rob Morrison: Thank you. And so device growth of 21% in hospital was pretty strong. Was that largely driven by the Airvo 3 or were device sales stronger across the board?

Lewis Gradon: So hospital hardware or device growth, yeah, it's strong. There's a little bit of a distortion there, maybe two distortions, and that is that we are lapping a half where our sales force. Our sales force has previously been focused on customers that had acquired a lot of hardware during COVID. That was the strategy. That was the call point and that's what we were doing. So kind of by definition, that doesn't really drive hardware growth. And the US also probably more extreme in those acquisitions than anywhere else. So we're lapping a hardware was pretty low. Based on our sales strategy, hardware was pretty low, primarily in the US. And then the second -- so there's a lot of growth. We're back to selling business as usual. We're moving hardware. And then I think the second possible impact there is we launched 950 in Airvo 3 in the US concurrently in this first half. So we're suspecting there's a bit of pent-up demand in there as well for those new products because it's been a long time coming for the US.

Rob Morrison: Okay. Thank you.

Lewis Gradon: That’s a big driver for the hardware growth, mate.

Rob Morrison: Okay. Helpful, thank you. And final thing, like you don't want to answer too many specifics on Mexico, but maybe very high level, during the first Trump administration, there was a lot of very aggressive talk and then that didn't eventuate on tariffs that could affect companies like you? Is our base case a similar assumption this time?

Lewis Gradon: Similar assumption to -- what's similar to what, Rob?

Rob Morrison: Sorry, just not too much eventuated the last time he was in office.

Lewis Gradon: Your guess is as good as mine on that one. I mean the current or the latest situation is based on the entry of illegal drugs and migrants into United States. So you can -- your guess as good as mine, Rob, maybe better.

Rob Morrison: No worries. Cool. Thank you guys so much.

Lewis Gradon: I'll probably just add one more comment. That Mexican plant for us, we see that as a fabulous asset. It's stock full of really committed people with a really long track record of constantly growing their efficiencies.

Marcus Driller: Thanks, Rob, for those questions. We don't have any other questions in the queue. So if you have any follow-ups after this, please feel free to call me or Dan. And so now I'll turn it over to Lewis for some concluding comments.

Lewis Gradon: Okay. Thanks, Marcus. Thanks, everyone, for joining us today on the call. Thanks also very much for your questions. I would like to finish by acknowledging the people of Fisher & Paykel Healthcare for your ongoing efforts and your contribution to this result. And as always, a word of thanks to our customers, suppliers, clinical partners and shareholders. We do appreciate your support. So thank you very much, everyone, and enjoy the rest of your day.

Operator: This concludes today's call. Thank you again for your participation. You may now disconnect, and have a great day.