Good afternoon. I'm Scott St. John, Chair of the Fisher and Paykel Healthcare Board. Welcome to the 2021 Annual Shareholders Meeting of Fisher and Paykel Healthcare. Today, we are very pleased to welcome you on the virtual meeting platform provided by our share registrar Link Market Services.
Health and safety is a top priority at Fisher and Paykel Healthcare and the company has a critical role to play as a manufacturer of healthcare products during the global pandemic. Because of the recent cases of COVID-nineteen in the community in Auckland and the government's announcement, we have changed this meeting to a virtual only format. We appreciate your flexibility and understanding. You are still able to vote and ask questions online today. Please refer to the Virtual Annual Meeting online portal guide for instructions.
And if you need help, phone the Link Market Services helpline on 800,200,220. On the information conveyed to me, I declare that a quorum of shareholders is present and the meeting has been duly convened. I would like to introduce your directors to you. Here with me in person and physically distanced is Managing Director and CEO, Lewis Graden. Joining us online are Sir Michael Daniel, Pip Greenwood, Geraldine McBride, Neville Mitchell and Donal O'Dwyer.
The minutes of the Annual Shareholders Meeting have been approved by the directors and are there for inspection. The notice of meeting, including the explanatory notes, has been circulated to all shareholders and I intend to take it as read. The first item on the agenda is the Chair's address where I will give an overview of the company's performance and you will hear from the Chair of each of the Board subcommittees. Then I will ask our Managing Director and CEO, Louis Graden, to provide an update on the current financial year. After addressing any questions on the financial statements, we will move to the resolutions contained in the notice of meeting.
After each resolution is proposed, you will have the opportunity to ask questions with respect to that resolution. Shareholders can submit questions online at any time prior to voting on the resolution by using the online question functionality. The slide presentation and speeches were released to the NZX and ASX today and are available in the Investors section of the company's website at fphcare.com. To open this year's address, I would like to thank healthcare professionals for their incredible efforts and sacrifices during such a challenging year. I would also like to acknowledge the people of Fisher and Paykel Healthcare who have been working so hard behind the scenes to put the right products into the hands of those helping patients.
Our last annual shareholder meeting was also virtual only. In August 2020, it was still early days in the pandemic. Over the past year, I have been amazed at how the business has adapted to the rapid changes required to remain operational during a time of so much uncertainty. That kind of pivot can only happen in an environment of high trust where there is a highly competent executive team and a great company culture. Fisher and Paykel Healthcare's response to COVID-nineteen was anchored in strong business continuity processes that have been developed in advance and we're ready to put into action.
Instead of telling you more about that, I'd rather show you. Back in May, the employees of Fisher and Paykel Healthcare all around the world watched a video of CEO, Louis Graden, reflecting on the 2021 financial year. We thought you, our shareholders, might also like to see a portion of that video. So we will play that for you now.
It's been a remarkable year. Our business is about more than COVID products, but this year has really been dominated by COVID. It's impacted all of us. It's impacted our whole business and we've all made a contribution. We've been successful by living our values and living our culture.
One of those values is life and this has been a year where that value has had a very, very real meaning in so many different ways. Right now, I want to share a selection of how we've lived our values and how we've lived our culture across all the functions in the business, across all the countries in our business and the impact that we've had on the world. We initiated our crisis management procedure in New Zealand on the 28th January last year. We ended up with 10 work streams working across the business. We co opted 120 people into working on those or managing those work streams.
Those work streams manage the increase in raw materials, increase in manufacturing capacity, distributing the product around the world, health and safety in New Zealand on our
New Zealand
site, social responsibility and just looking after our people. We made the decision on both the New Zealand and the Mexican sites to go to 2 meter spacing and if 2 meter spacing was not achievable, we used screens. In the first rapid response, we made screens out of cardboard and perspex and we taped them on. And then over time we improve that screening. In the photos you can see now there are screens between all those people.
They're very, very clear screens which is the point, it's the purpose so that people can see one another and relate to one another and exactly the same in New Zealand and Mexico. This is the Daniel Building. It's the 4th building on our New Zealand site. We completed the building in May last year during a New Zealand lockdown. It was very, very challenging working with the contractors during lockdown conditions.
We managed to get it completed. We started moving manufacturing equipment in there a bit before the building was completed. Now, this is the Daniel clean room, the controlled working environment. That photograph was taken in May last year. And now everything you're looking at now, everything you're seeing, every single piece of equipment was expedited, assembled, installed, tested, wired, plumbed, validated and all this in the Daniel building over the last 12 months.
This is our 2nd building in Mexico, the Malvo building. We shipped our first product out of that building in September 2019. In February 2021, we started work on our 3rd building in Mexico. Now also very, very challenging for the distribution part of our business. There was a time when freight volumes out of New Zealand dropped to less than 1% of normal And this is a picture of a 7 47 sized freighter that we charted.
We picked up full of product for Europe. Challenging conditions that our people worked in in a very challenging environment. We were also working with 3rd party providers as well to increase our volume. We added 9 distribution centers or 9 warehouses over the 12 months to help us cope with the volume. In the U.
K, our salespeople worked for about a month at its peak in the warehouse to help distribute the product in a timely way. Once we've got the product to the country, the next job where our people really lived our values is installing the product in hospitals and it was a massive job. You can see here an emergency hospital in Poland and yes, those are all air holes that you're looking at being installed in that emergency facility. And this was a common story around a lot of the world emergency hospital in South Africa and install in a large hospital in Los Angeles and install in New York. And these are our people all helping out with these installs of these large volumes of equipment.
This is Tina. She's our salesperson in Wuhan in China. You can see she's getting some airbags ready for usage to be installed. And Tina was the first of our people that really experienced what an overwhelmed healthcare system was going to look like. Once we've installed the equipment, the next challenging part is we need to train people on how to use it.
And again, our people really lived our values to get that job done under trying circumstances. And very similar across many countries of the world and all sorts of different training techniques were used. You can see different environments in place. This is in Saudi in Russia. Often our people went into the intensive care environment to deliver that training as well and went through all the precautions and all the procedures that you need to do to do that in a COVID ward.
And by living our values, you can see that we've had an impact on life all around the world and across all of society. This is the Prime Minister of the Czech Republic with an airboat. This is the President of Chile helping to unload our products. And this is the Governor of Baja California also with some airboats. Because of the way we've lived our values in our culture, we've achieved an extraordinary result this year.
It's not over yet many parts of the world are still struggling with COVID. One of the keys to this is getting vaccinated. I was lucky enough to get vaccinated in New Zealand several weeks ago and as Fisher and Paikou we are promoting vaccination for all our people. We're looking forward to when we can get back to business as usual, we're looking forward to when we can travel again, I'm looking forward to when I can see more of you again. Our business is about a lot more than COVID and we are really looking forward to the next phase.
As Lewis said in the video, new teams were set up all across the business. Each had a leader and a control room and every important decision was funneled through that control room. As for the Board, our approach was to stay out of management's way. The executive team developed a regular communications process to the Board and we were well informed. As you could see in the photos, Fisher and Paykel Healthcare products were shipped all over the globe and the company's OptiFlow Nasal High Flow Therapy emerged as one of the leading therapies for treating patients with COVID-nineteen.
That brings us to our financial performance for the 2021 financial year. It was truly a year like no other and the company achieved a record result. Operating revenue was $1,970,000,000 up 56% over the previous financial year or 61% in constant currency. Net profit after tax was $524,000,000 up 82% over the previous year. The total dividend to shareholders for the financial year was $0.38 per share, up 38% over the previous financial year.
The business is structured into 2 major groups, hospital and home care. In the 2021 financial year, the hospital product group made up a higher percentage of revenue than in previous years. Hospital products made up 76% of revenue while home care products made up 24%. Looking more closely at the hospital product group, this includes products for invasive and non invasive ventilation, OptiFlo nasal high flow therapy, and surgery. Last year, revenue for the hospital product group was $1,500,000,000 an increase of 87% or 94% in constant currency.
This increase was largely driven by demand for products used to treat COVID-nineteen patients. Looking at the Home Care product group, this includes products for obstructive sleep apnea or OSA and other therapies used in the home. Last year was challenging as COVID-nineteen restrictions closed many sleep clinics and reduced OSA diagnosis rates. In spite of these setbacks, the Home Care Product Group delivered revenue of $466,000,000 which was an increase of 2% over the previous year or 4% in constant currency. Gross margin decreased by 2 95 basis points for the year to 63%.
This was due to higher freight costs including the increased use of air freight as well as additional COVID-nineteen related costs. However, operating margin was higher than in previous years as sales growth was significantly higher than cost growth during the year. Innovation is critical to the success of Fisher and Paykel Healthcare and the therapies the world will use 10 years from now are in development today. We were unwavering in our commitment to research and development during the 2021 financial year and invested $137,000,000 into R and D. We now have nearly 700 people working in R and D related roles developing the products of the future.
The company could not have achieved so much without the 6,000 plus people of Fisher and Paykel Healthcare and we believe it is important for them to share in the rewards. Our common practice is to pay a profit sharing bonus to our people around the world every 6 months. In the 2021 financial year, this totaled $29,000,000 for the year and the bonus was extended to eligible, temporary and contract workers. It was well deserved and I would like to take this opportunity to personally thank everyone for their contributions. We know that it is important for a successful business to look after the needs of the wider community.
In the 2021 financial year, the company committed $20,000,000 to establish the Fisher and Paykel Healthcare Foundation. This independent charitable organization will enable a more sustainable model for funding the company's community initiatives and charitable giving. We look forward to discussing the foundation's activities next year. Turning now to your Board. We are in the final stage of our search for a new director to replace Tony Carter and with that appointment, we will maintain 7 non executive directors.
We are very close to an announcement and we'll update you on that as soon as we can. The Board operates with the support of 3 subcommittees which are the Audit and Risk Committee, the People and Remuneration Committee and the Quality, Safety and Regulatory Committee. The chairs of each of these committees Neville, PIP and Donal will now provide an update on their areas of focus over the past year. These updates have been pre recorded in order to prevent any technical issues. First, we will hear from Neville Mitchell, who chairs the Audit and Risk Committee.
Hello, everyone. You may recall that last year, I took over from Scott St. John as Chair of the Audit and Risk Committee. The Audit and Risk Committee, as well as monitoring ongoing accounting and audit matters, assists the Board by reviewing the company's risk management processes and strategies to mitigate the impact of major risks from climate related events to cybersecurity incidences. The objective is to ensure that management have the right frameworks in place to enable high quality decisions in complex and uncertain situations.
Over the past several years, the company has continued to mature its business continuity plans, developing systems, processes and teams to help coordinate and manage a potential crisis. The pandemic tested and in many ways strengthened those plans. Although COVID-nineteen brought some unanticipated disruptions to supply chains, the crisis management framework in place served the business well, and manufacturing sites in New Zealand and Mexico have managed to remain safe and operational throughout the pandemic. Furthermore, the experience of operating through the crisis strengthened key relationships with suppliers and customers as well as leaders in government, trade and foreign affairs. As we indicated last year, the Audit and Risk Committee is now responsible for the governance of climate related risks.
This involves monitoring the company's global carbon footprint and ensuring that climate related risks are embedded into the broader risk management process. This is in line with the recommendations of the task force for climate related financial disclosure. Each year, the business continues to improve its reporting on climate and other sustainability matters. Thank you.
Thank you, Neville. Next, Pip Greenwood will provide an update on the People and Remuneration Committee.
Hello, everyone. On the People and Remuneration Committee, we continue to focus on enabling an environment where good people contribute the most they can over the long term. We recently held a people and culture long term planning day, and we believe we have the right approach in place to nurture our unique culture and achieve sustainable profitable growth. Diversity of thought is the foundation of our culture, and it is important to ensure our culture is inclusive. 1 of the company's diversity and inclusion objectives for 2021 was to understand and improve female representation in the research and development function.
Phase 1 of this project is complete and we now have a better understanding of how gender impacts the experiences of the company's engineers and how this might contribute to low representation of females in R and D. Phase 2 of this project has commenced and this year the business will launch 2 initiatives to improve female representation in R and D. Also this year, the company will extend gender representation diagnostics to its global sales offices in its Mexico manufacturing plant. We continue to monitor pay equity between women and men in the same roles and are pleased to see no statistical difference between genders. One of the committee's responsibilities is advising on executive and board succession and recommending guidelines for executive and director remuneration.
We have reviewed our executive team remuneration procedure and are continuing to progress our succession planning activities. As Scott mentioned, we are nearing the end of our search to identify a replacement for Tony Carter so that we maintain 7 non executive directors on our board. It's important that our board reflect diversity, including of thought and experience, and this process has taken some time. Our list of potential candidates has included people who are international and COVID-nineteen has made it challenging to interview those candidates. However, we have made progress recently and we are looking to be able to be in a position to make an announcement very soon.
Finally, I would like to acknowledge the extraordinary efforts of the people of Fisher and Paykel Healthcare over the last 18 months. Our people are our strength as they have demonstrated on countless occasions. They have a strong connection to our purpose of improving care and outcomes and this continues to enable the success of this extraordinary company. Thank you.
Thank you, Pip. Now Donal will provide an update on the Quality, Safety and Regulatory Committee.
Good afternoon, everyone. 2 of the most important issues affecting the long term value of Fisher and Paykel Healthcare are patient safety and product quality. The Quality, Safety and Regulatory Committee provides oversight in these areas. This year, the company has continued to maintain its compliance to regulatory requirements right around the world. In Europe, medical device regulations changed last year and the company has done a significant amount of work to ensure compliance to the new regulations.
In the U. S, the company has continued to build on its strong relationship with the U. S. Food and Drug Administration, engaging the FDA on new product introductions as well as supporting their strategic initiatives. Additionally, the health, safety and well-being of all of our employees continues to be a top priority.
This year has been dominated, not surprisingly, by the pandemic. The business has taken a conservative and prudent approach to health and safety. Meeting or exceeding local government regulations and manufacturing operations have continued uninterrupted both in New Zealand and Mexico. To support employee well-being, the company offers access to counseling services through the Employee Assistance Program and is focused on returning to sustainable workloads for all. In addition to its COVID-nineteen related safety and wellness initiatives, the business has continued to roll out proactive health and safety processes related to 9 critical risks.
All of these risk factors have now been deployed globally to the highest risk locations and the business has implemented controls to manage those risks. Thank you.
Thank you, Neville, Pip and Donal. As you will see from the notice of meeting, I will be seeking your support for reelection at this meeting. I thought it appropriate to make a few comments now in support of my reelection. I have been on the Board of Fisher and Paykel Healthcare for more than 5 years and this marks my 1st full year as Board Chair. It is a privilege to be part of a company whose products have made such an impact on the lives of people around the world.
I have more than 3 decades of experience in the financial services industry and have advised some great New Zealand companies that operate in global markets and in highly regulated industries. I believe my financial and commercial acumen, my governance experience and my knowledge of Fisher and Paykel Healthcare will continue to bring value to the Board. I am a shareholder myself and I am committed to the success of the company and to delivering results for all shareholders and I seek your endorsement for my reelection. To close, I would like to thank you, our shareholders, for your continued support and loyalty. Your investment in Fisher and Paykel Healthcare helped clinicians treat around 20,000,000 patients in 120 countries during the last financial year.
I will now invite Lewis, our Managing Director and CEO, to go into more detail on the company's performance and to give you an update on our current outlook for the 2022 financial year. Lewis?
Well, thank you, Scott. First up, I do want to echo Scott's words and thank the healthcare professionals worldwide who are caring for patients this year and last year as well. I also would like to acknowledge the people of Fisher and Paykel Healthcare who are working in our manufacturing facilities, our warehouses, our offices, and many of us still working or many of them still working in their own homes in many parts of the world to meet the ongoing demand for respiratory products during the pandemic. Also today, I'd like to thank the team at Fisher and Paykel Healthcare and our long term event partners, Edge Creative, for turning what we hoped would be an in person meeting today into this virtual event. Both those teams worked pretty much all night to get this set up.
So thanks, guys. Today, we updated the market on our progress for the 1st 4 months of the 2022 financial year. So that's through to the 31st July. Revenue for that 1st 4 months was $583,000,000 with 74% of revenue from our hospital product group and 26% from our home care product group. In constant currency, revenue for the 4 months was 2% below the prior comparable period, but remembering that was a period of high demand during the initial surges of COVID-nineteen in North America and Europe.
In our hospital product group, constant currency revenue for the 4 months of the 'twenty two financial year was 3% below the prior comparable period. This consisted of a 13% decline in hardware sales, partially offset by 2% growth in consumables. 66% of hospital revenue was from the sale of consumables and 34% was from the sale of hardware. Compared to pre COVID levels, overall hardware volume remained elevated, and that was largely driven by some regions experiencing COVID-nineteen hospitalization surges during the period. In North America and Europe, total hardware sales declined 62% and total consumable sales declined 14% from the same period last year in constant currency terms.
That was influenced by reduced COVID-nineteen hospital admissions during the period and our customers' decisions on how much stock of consumables to hold after the big demand they'd seen in our Q4 across December January. Compared with pre COVID-nineteen levels, volumes in North America and Europe remained elevated. Outside North America and Europe, hardware grew 42% and consumables grew 31% over the prior comparable period, again in constant currency terms. Now hospital consumable sales continue to reflect the clinical practice shift from invasive ventilation towards the use of OptiFlow nasal high flow therapy. And that was evident in new applications consumables growth of 17% for the period in constant currency.
In our Home Care product group, constant currency revenue for the 4 months ended 31st July 2021 was 4% above the prior comparable period. And that includes 4% growth in obstructive sleep apnea or OSA masks. Now given the continuing uncertainties associated with the vaccination rates, the efficacy of the various vaccines against the various variants of the coronavirus and the government responses and the public's responses to COVID-nineteen case numbers, we're not providing quantitative revenue or earnings guidance for the remainder of the 2022 financial year. With the ongoing global vaccination activity and most countries having now experienced a COVID-nineteen hospitalization surge and then a boosted hospital treatment capacity to some extent, we do not expect our hospital hardware revenue to continue at this elevated level for the remainder of this financial year. We are ready for it though just in case it does.
In the short term, we do expect our hospital sales will continue to be impacted by COVID-nineteen related hospital admissions. And we're seeing this effect now in North America, where demand is currently increasing in conjunction with the local COVID-nineteen hospitalization surges. How much stock our individual customers choose to hold and then run down in response to rapid increases and then rapid decreases in COVID-nineteen related demand is also likely to influence our apparent consumables volume, in particular, over short term periods. And that also contributes to an environment that is very difficult to predict and difficult to analyze. In our Home Care product group, growth in OSA Masks is dependent on new patient diagnosis rates.
We currently expect that they will continue to be at or above FY 'twenty one rates for the remainder of the 2022 financial year. And on that basis, we would expect growth in RSA masks for the year. Freight costs have remained elevated and we have continued growing our investment in R and D and in SG and A as we discussed in May. Now if we look through the short term swings, the longer term enduring impact from COVID-nineteen is that more of our devices have been placed into hospitals and many more hospital staff have been trained on how to use them. There is a broader awareness of our therapies and products amongst respiratory therapists and physicians.
Nasal high flow therapy has been featured in the media all over the world. And what we have now for you is a clip of a new story that aired recently in Southern California that illustrates that point really well.
Now while vaccines remain out of reach for many Southern California residents, treatments and therapies for COVID-nineteen patients remains a top priority. Recently more hospitals have been relying on an
this small device is making a big difference in the fight against COVID nineteen. It's part of a treatment known as nasal high flow therapy and offers an alternative to intubating patients and putting them
on a ventilator. Your odds if you have to go on a ventilator are less than if you don't.
The device pumps warm humidified air into a patient's lungs through a nasal cannula, helping them breathe better while their body works to fight the virus. Unlike traditional mechanical ventilators, the nasal high flow is much less invasive. Patients can still talk, eat and take medication while getting the oxygen they desperately need.
You walk by their room, they're on their phones with the family, they're FaceTiming, They're one guy I know was, you know, gambling online, playing poker.
This particular treatment started long before COVID, but the company behind the device says the pandemic caused demand to soar, both in Southern California and across
the country. Our hospitals that may have had tens and tens of high flows have now got hundreds of high flow units. Chris Hutchinson is
with the manufacturer Fisher and Paykel Healthcare.
The sort of work that we normally do in a in a year's period of time, we've been doing that in in sort of a couple months. In
the early days of COVID, Hutchinson says many doctors and nurses relied on the same practices they used during the SARS outbreak in 2003, but quickly realized this virus acted differently and they needed to change course.
There was a high mortality rate, and many patients were not coming off mechanical ventilation. And they sort of took back a step back and revised and reviewed what they were doing.
As a result, he says this alternative therapy became the primary option. Nasal high flow patients have reported faster recovery times and reduced stays in the hospital, freeing up much needed space in the ICU, now reserved for the most dire COVID cases.
I think it may change sort of the way that we handle respiratory failure once this pandemic is over because, it used to be, oh, the oxygen is a certain level. Let's let's put this person on a ventilator. We don't think that way anymore.
Yes. So this increased attention on nasal high flow therapy like you've seen in that video has really accelerated the adoption of OptiFlow in a way we could not have imagined only a few years ago. Importantly, over the longer term, Nasal Hi Flo is not only for treating COVID-nineteen patients. It has applications across a broad range of patients requiring respiratory support. Our sales over the next few years will probably be affected by how long it takes to return to normal hospital admissions and the speed of change to utilizing OPTIFlow Nasal High Flow Therapy for those general respiratory patients as was discussed in the video.
We're expecting that helping clinicians realize the benefits for patients in hospitals and homes will be a key area of focus for us over the next few years. Now following on from the increased sales in the 2021 financial year, we are accelerating some of our research and development projects, and we're expanding our global sales teams to support the growing installed base of nasal high flow systems. We're also bringing forward some of our longer term building projects and production capacity projects to ensure that we have supply if and when it's needed. Now, lately, I'm often asked what's next for our business after COVID-nineteen. As Scott said, the 2021 financial year was an unusual year, and it was always going to be interesting following a year like that.
If you've followed us for a while, then you know that we have always taken a long term view. Our business was on a growth trajectory before the pandemic, and our strategy has not changed. We are still aiming to deliver sustainable profitable growth over the long term through better products, changing clinical practice and expanding our global reach. That work to research, develop and prove the benefits of our products and therapies started more than 50 years ago. It continues today, so that we will be ready to help clinicians treat more patients far into the future.
In closing, I want to thank our customers, clinical partners, suppliers and the employees for their continued support of the company. As always, I'm grateful to you, our shareholders for supporting our purpose, our values, our strategy and our team. Thank you.
Thank you, Louis. The 3rd item on the agenda is to receive and consider the financial statements and auditors report as contained in the company's annual report for the year ended 31 March, 2021. This is the opportunity for shareholders to ask any questions specifically on the financial statements, the auditors report or the company's 2021 annual report. Please note that there will be an opportunity for general questions once all items on the agenda have been considered. Are there any questions?
There are no specific questions on the financial statements, auditors report or company's 2021 annual report.
As there are no questions, I will move on to the next item on the agenda. The 4th item on the agenda is the consideration of the formal resolutions. There are 5 resolutions and each resolution is an ordinary resolution. This means they are required to be passed by a simple majority, more than 50% of the votes of shareholders who are entitled to vote on the resolutions and do vote. Shareholders will be asked to vote on each resolution after the resolution has been proposed and discussed.
Voting on the resolutions will proceed using the online meeting platform. To vote, you will need to click get a voting card at the top of your web page or below the video. You will be asked to enter your shareholder number or proxy number to validate. You can then select how you wish to vote by clicking for, against or abstain in respect of each resolution. Remember to click submit vote on the bottom of the card once you have selected all of your votes.
Further information is available in the Linked Markets Services Virtual Annual Meeting online portal guide and you can call the helpline for assistance. Following the voting of the resolutions, we will be happy to take any general questions you may have in regard to our company and operations. Online participants can submit general questions at any time during the meeting by using the online question function. The registrar Link Market Services will complete the counting of all votes and complete their duties as scrutineers for the purposes of the poll. We will make an announcement of the results of the voting to the NZX and ASX once this process has been completed.
We now move to consideration of the individual resolutions. Explanatory Note 1 of the notice of meeting explains the requirement that 1 third of the company's directors must retire by rotation at the Annual Shareholders Meeting in accordance with the company's constitution. The first motion relates to the reappointment of myself as a director. Earlier, I spoke in support of my reelection. It is appropriate that I call upon Pip Greenwood, who is the chair of our People and Remuneration Committee, to chair the meeting for this resolution.
Thank you, Scott. I have the pleasure in moving that Scott St. John be re elected as a director of the company. Is there any discussion on the motion?
There are no questions on this particular resolution, PIP.
Thanks, Marcus. There appears to be no further discussion. So could you please now record your vote on this resolution? Thank you. I now invite the chair to continue with the further motions.
The second resolution is on the reelection of Sir Michael Daniel as a director. Before I put the motion, Mike will speak to you regarding his reelection as a Director. His speech was also pre recorded.
Good afternoon. Thank you for the opportunity to address you today. It is a privilege to be part of a business which has achieved so much, created opportunities for so many people and which has a clear strategy for further success. Particularly so over the past year and a half as the team has responded so well to the pandemic, providing devices to help in the care of an extraordinary number of COVID patients while also ensuring supply of essential devices to the many other caregivers and millions of patients that we serve. I began my now 42 years with the company in research and development and then with involvement in regulatory, quality, manufacturing, international sales, marketing, governance and all the facets of the rapidly growing business.
I have a deep understanding of the clinical applications and markets that we serve and a broad knowledge of the wider medical devices industry as well as the rapidly evolving international regulatory environment. I've extended that knowledge as a board member of the Australia Based Medical Research Commercialization Fund and Leading Hearing Implant Company, Cochlear Limited. And here in New Zealand, I've chaired the Medical Technology Center of Research Excellence for the past 6 years. Our culture, integrity and relentless innovation to improve care and sustainably taking those innovations to the world are essential to our continuing development and success. I look forward with your support to contributing to our ongoing strategy, growth and achievements.
Thank you.
Thank you, Mike. I have pleasure of moving as an ordinary resolution that Sir Michael Daniel be reelected as a Director of the company. Are there any questions on the resolution?
There is a question from Grant Diggle, who's the proxy holder for the New Zealand Shareholders Association. The question is, given Sir Michael's long tenure on the Board, can we have some indication of his intentions if he is reelected?
So, I'm going to pass that question to you, Mike. I certainly hope that you intend to be here for a while, but over to
you. Thank you, Scott, and thank you, Grant, for the question. As I mentioned in that short video a moment ago, our business is very much based on innovation and long term thinking in a very specialized medical device field. I intend to continue to contribute using my deep experience to our governance, our ongoing strategy and sustainable growth for as long as the F and P team, the Board and our shareholders see that as being beneficial. Thank you.
There are no further questions on this resolution.
There appears to be no further discussion. So could you please now record your vote on this resolution? Thank you. The 3rd resolution is to authorize the directors to fix the fees and expenses of PWC as the company's auditor. Under the Companies Act, PWC is automatically reappointed as the auditor of the company.
Therefore, I now move as an ordinary resolution that the directors be authorized to fix the fees and expenses of PwC as the company's auditor. Are there any questions on the resolution?
There are no questions on this resolution, Scott.
There appears to be no discussion. So could you please now record your vote on this resolution? The 4th resolution is to approve the issue of performance share rights or PSRs to Lewis Graden, Managing Director and Chief Executive Officer of the company. Approval is being sought to issue up to 60,000 PSRs to Lewis Graden. The PSRs are issued in accordance with the 2019 performance share rights plan and the key terms of that plan are summarized in the explanatory note 3 of the notice of meeting.
The plan is unchanged from when it was introduced in 2019. The Board believes that the consistent issue of PSRs will create strong incentives for management to grow the value of the business at a rate greater than a peer group of multinational medical device companies, but effectively excluding the effects of movements in the New Zealand dollar. Therefore, I now move as an ordinary resolution that approval be given to the issue for the issue of up to 60,000 performance share rights under the Fisher and Paykel Healthcare 2019 Performance Share Rights Plan to Lewis Graden, Managing Director and Chief Executive Officer of the company. Are there any questions on the resolution?
There are no questions on this resolution.
There appears to be no discussion. So could you please now record your vote on this resolution? The 5th resolution is to approve the issue of options to Lewis Graden, Managing Director and Chief Executive Officer of the company. The option plan operates alongside the company's performance share rights plan. The key terms are also summarized in explanatory note 3 and again the plan is unchanged from when it was introduced in 2019.
This year approval is being sought to issue up to 190,000 options to Lewes Graden. I therefore now move as an ordinary resolution that approval is given for the issue of up to 190,000 options under the Fisher and Paykel Healthcare 2019 Share Option Plan to Lewis Graden, Managing Director and Chief Executive Officer of the Company. Are there any questions on the resolution?
No, Scott. There are no questions on this resolution either.
There appears to be no discussion. So could you please now record your vote on this resolution? That concludes the voting on resolutions today. Please ensure that you have now submitted your electronic voting card. The votes will now be counted by Link Market Services.
The results of the voting will be announced on the NZX and ASX as soon as they are available. I would now like to give shareholders an opportunity to ask any questions concerning any matters relating to the company.
The first question comes from Peter Gendt. The question is what risks does the Board see in regards to cyber security both in terms of the business directly and your supply chain? Related, what steps are you at the Board level are undertaking to prepare the business to survive a cyber security incidents because eventually one will happen and we have seen both domestically and internationally the results of these.
Thank you very, very much for your question. And it won't surprise you to hear us say that we take cybersecurity extremely seriously. We spend a lot of time on cybersecurity at both the Board, but more specifically within the audit and risk function or subcommittee of the board. We test on a regular basis and continue to expand the type and style of testing that we are implementing. It is a very, very active part of our responsibility and one that we would characterize as having no finish line in terms of the way we approach it.
Lewis, do you have anything to add to that?
Yes, sure. We've got a full time team within our business that work on cybersecurity. We engage the best experts that we can find from around the planet And we run simulations frequently. We're running one yesterday actually on how we respond. And we have business continuity plans that we regularly practice and update.
So the next question also comes from Peter Jin. And the question is, what risks does the Board see in regards to climate change, both in terms of the business directly and your supply chain? Related, what steps are you at the Board level undertaking to prepare the business to be resilient to climate change?
Okay. So I'm going to pass this question to Louis, but you will note there's a reasonably extensive coverage of this in the annual report. But Louis, can you take us through an answer for that, please?
Sure. It's a complex question with a complex answer because again, you've hit on something that touches most of our business. And I think the important thing for us is we have a process, we have an integrated process where we look at climate change risks on an ongoing basis and we do an annual review. And a couple of the key things, I'm looking at pages 7273 of this year's annual report. You'll see there where we identify the climate related risks and we look at some of the metrics.
And of course, some of the key metrics that we use are the science based targets that we've committed to in line with the Paris agreement. And then you can see the general reporting structure we've got in our annual report is steadily improving. And I'd refer you to Page 72, 73, What's the rest of the question? Yes, look, it's an integrated part of our process, I would say, with an annual review. And you'll see that steadily being more and more disclosed in our annual report.
Just to add that in this space where we see risk, we actively run scenario analysis that is very, very forward looking. So, again, it is a very important piece of our forward thinking infrastructure.
So, the next question comes from Ray Tolofson. The question is, I'm a shareholder and member of Team Invest. In April, Marcus Driller did a Q and A with our Melbourne group. As a follow-up to that, I had a discussion with Hayden Brown about Fisher and Paykel Healthcare activities investigating potential recycling of consumables. Will you please comment on where this initiative is at?
Yes. Really, really good question. So the challenging here is that these are medical device consumables and they're treated as contaminated waste. You don't know what condition the patient had. These days it's potentially COVID.
So it's treated as contaminated waste, medically contaminated waste. And then what you do with that waste is generally in most countries, most regions of the world going to be subject to all sorts of regulations and requirements. So what we can do as the manufacturer of that, we can try and develop ways for those customers to separate the products. But then it's still a complicated disposal process that's going to vary. So what we've been doing is working out ways where they can separate into different materials and then piloting doing that.
We've piloted with some local New Zealand DHBs that whole process. And then we've also joined up with a company that's planning on managing this or building a business to manage this process internationally. And at this point in time, I just can't remember the details of that business. But that's something we think is a good idea and we are working with them to try and facilitate that process.
The next question comes from Dave Pei. And the question is, how has the global chip shortage impacted FPH's ability to fulfill the demand on its devices?
Yes. So another really good question. It's been a big topic in our supply chain function for most products, most raw materials we go out at least 12 months. For many of them we go out 18 months looking at the assurance of supply. So far on the global chips and integrated circuits and things like that, we're good at at least 12 months.
If we identify any kind of shortage or something that's going to impact, The idea is that we'd have at least 12 months to start working on what our alternatives are. But so far as I know on the actual chip shortages, we're good.
Just for clarity, we have not missed an order in that space. But if you have a look at the annual accounts, you'll notice that our that we have with intent been taking our inventories up to give us more breathing space right across the board.
The next question comes from Susan Robinson. And the question is, are you expecting to fill the supply gap open due to Phillips CPAP recall?
Lewis, I'll pass that to you.
Yes. It's kind of related to the previous question actually. So there's a couple of things there. Maybe not everyone's familiar with that. So Phillips, a competitor in the OSI space, has recalled their CPAPs.
And so other manufacturers somehow need to or not record and replacing their CPAPs and other manufacturers need to step in and try and fill that demand for a little while. The challenge for us is that we're very, very small part of that market compared to Phillips. So anything that we could even potentially do is going to be very small compared to their volumes. The next challenge is that if we wanted to do something, we're tapped out with building manufacturing capacity in our hospital products. And then the third challenge just really means we're not able to help all that much at all relates to the previous question.
It is challenging enough getting more materials, especially in the global chip space to make what we plan to make, let alone trying to really, really increase the volume. So all that adds up to we're doing everything we can. We're not probably not going to have a material impact on the volume required as a result of that recall, and it's probably not going to have a material impact on our business either.
The next question comes from Derek Gower. And the question is, I'm advised that the near 50% increase in ResMed since June was because of a Phillips recall. If this recall was such a major event, I wonder why there does not appear to be a similar result to FBH?
So, we won't so much comment on ResMed's share price movement. But Lewis, I'll just pass it to you to explain how that event plugs into our business.
Yes. Our SA business is largely about masks. So that's the first comment. I've touched on this in the previous two answers actually. CPAP is a very, very small part of our business.
I'd say probably the answer to the question, Derek, is that it's a different ResMed is very different shape business to us and I really can't comment on them. But I hope I've given you good insight into what the impact is on us.
So the next question comes from Fiona Sterling. And the question is, could you advise the company's intention in relation to the current high levels of retained earnings?
So, in terms of the earnings that the company is generating at the moment, we see plenty of runway for us in terms of reinvesting the funds that we are generating into future growth. That is what we are doing whilst maintaining the dividend profile that we have. Louis, you want to add anything to that?
I think that's pretty complete, Scott. It's a conservative approach. We need to be ready for whatever happens and we've just seen some stuff happen, haven't we?
The question comes from Roshan Joseph. The question is following on the question of cybersecurity, what is being done to ensure the medical devices are secured?
Yes. So once again, our business is a little bit different in that we don't store any personal data or identified data or anything like that on our devices.
The next question comes from David Alfred Seifert. The question is Mexico has a less settled law and order environment than New Zealand. How confident are you of the safety of both the plant and the F and P staff in Mexico?
Lewis, I'll get you to answer this question. But we do think about the jurisdictions that we operate in as a board, we get briefed on the areas that we operate in. I just note that our plant is in a well established medical device area. Lewis, you got anything to
Yes. That's pretty much what I would have said. I mean, if you look at the Tijuana area where we're located, it is a major medical device manufacturing hub. There's over 40 medical device manufacturers in that area. It's been established for over 40 years.
So we don't see it quite like that. We probably are a little more security conscious in Mexico than we are in New Zealand with regards to the site. But otherwise, I think we're pretty comfortable with our site and where it is located in Tijuana.
We have another question here. It's from Paul Hawken. And the question is, this was asked actually in regard to the financial statements and auditors report, but it's just been submitted. So, will FY 'twenty one guidance be provided before the end of the calendar year?
We have no intentions of doing that at this point, but I guess we will have to wait and see.
Look, what we're trying to do is provide as much guidance as we possibly can. We don't like not providing guidance. The problem is all the things we pointed to in the news release mean we're really not able to in this environment. So I think, Scott, if we think that we can provide some guidance, we're going to do it. We're just not in that position yet.
And it's even difficult to say when we might be.
The interim month, interim market volatility that we're continuing to see just makes it unwise for us to go down that path at the moment. At the point at which we feel confident and comfortable doing that, we will. That said, I would note that COVID is a data rich environment.
The next question comes from Robert Crean. And the question is the carrying value of inventories has increased significantly over the past 12 months. What does the current level of does the current level of inventories translate into number of days sales and other levels of materials and finished goods expected or needed to further increase given the continuation of the global COVID-nineteen pandemic in global hospital customer demands?
We touched on inventory just a little earlier, but Lewis, I'll get you to perhaps step through an answer there.
It's a real interesting one, David, because you've hit the nail on the head. We used to think of inventory in terms of day sales. If you're in finance, that was historical. If you're in planning, that's forecast day sales. Now challenges with this volatility of our demand and of our history, the day sales is just, or week sales or whatever you want to call it, is just not a really good measure.
So we are thinking of it more in terms of dollars rather than day sales. And I think from year end to year end, it was about double, which it was about in line with revenue growth. Having said that, given the situation in the world, given COVID, given our role in COVID, we will be comfortable increasing both finished goods and raw materials inventories into the future. We think that's probably the right thing to do.
There's a whole lot of reasons that sit behind that. But primarily, we want to be in a position, as Lewis said earlier, to respond quickly if patients need our products.
The next question comes from Doug Cockcroft. Question is the Australian and New Zealand governments have adopted the PEPPOL e invoicing framework for all suppliers to their public sectors such as DHBs. Is FPH looking at adopting an electronic invoice model?
Lewis, I'll leave this one with you perhaps. Are you familiar
with that? Well, what I do know is that we're capable of doing electronic invoicing. And when that's what governments require, that's what we do. I'm not actually familiar with people or the actual Australian, New Zealand government requirement, but we've got more than up to date ERP systems. So I think we'll be good.
Question from Susan Robinson. Can you please give an example of how else your devices are being used in the hospital setting beyond COVID patient use?
Boy, that is a far reaching question. What am I far reaching question. I'm going to have to be careful I don't spend the next hour on that one. So of course, we had a pretty substantial business long before COVID. That's the first thing.
They use an intensive care for all patients that are ventilated. Would it be too ambitious of me to wander around the room? Here we go. So intensive care ventilator, intubated patient, Fisher and Paykel humidifier. Now this fellow could have been intensive care.
He could have come from surgery, trauma, pneumonia, all sorts of things. It was kind of a rough medical reasons or surgical reasons he could be in intensive care. We also have devices used with non invasive ventilators. So that's when a patient might be in intensive care, might be outside intensive care. They're going to have a nasal mask or a full face mask over their nose and mouth and they're going to be ventilated.
They could be in a respiratory unit or a high dependency unit or intensive care unit. That's a non invasive ventilator. That's the humidifier that would go on it. And then when you get to nasal high flow, that's this one here. Cut beyond the range of the camera.
So Nasal High Flow is our AirVO product. And that could be used anywhere in a hospital, in the emergency department, in a general ward or in a respiratory ward. So when you look at that whole range of products, adult versions, neonatal versions, that's potentially with different levels of clinical evidence, any patient that comes into a hospital that needs some kind of respiratory support.
There are no further questions, Mr. Chairman.
Well, ladies and gentlemen, that concludes the formalities. Again, we appreciate your participation in this virtual only format. I thank you for your attendance and continued support of the company. And I'd like to echo what Lewis said earlier and thank the Fisher and Paykel team and those supporting us in terms of putting this on today at very, very short notice under these circumstances. It is greatly appreciated.
So thank you.