Annual Report 2019 | Care by design
1969
A world
of care
Our first humidifier began with three people, in one city and
a can-do prototype made from a humble fruit preserving
jar. In the 50 years since, we’ve transformed from across
town to across continents. Our work is all about talented
people working together to solve problems so that millions
of patients can have healthier, more restful, productive lives.
50 years of care today, many more from tomorrow.
care
2019
BEYOND
collaboration
can-do
2
We know that
when great people
come together with a
can-do attitude
and an utmost
sense of care,
lives are changed.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 3
Helping approximately
14 million patients in more
than 120 countries, our
world of care continues
to expand, grow
and develop.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 4
Contents
OVERVIEW OF OUR BUSINESS
DETERMINING OUR MATERIAL MATTERS
FINANCIAL AND BUSINESS HIGHLIGHTS
CHAIRMAN’S REPORT
CEO’S REPORT
HOSPITAL / HOMECARE OVERVIEW
OUR STRATEGIES
– GLOBAL REACH
– CHANGING CLINICAL PRACTICE
– BETTER PRODUCTS
– SUSTAINABLE, PROFITABLE GROWTH
OUR BOARD
OUR EXECUTIVE MANAGEMENT TEAM
FINANCIAL COMMENTARY
FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
AUDITOR’S REPORT
SOCIAL RESPONSIBILITY & GOVERNANCE
FIVE YEAR SUMMARY
GLOSSARY
GRI CONTENT INDEX
DIRECTORY
5
10
12
14
16
20
22
22
24
26
28
30
32
35
39
43
67
70
99
102
103
105
This report covers the financial year ended 31 March 2019 and is dated 27 May 2019. The report has been
approved by the Board and is signed on behalf of Fisher & Paykel Healthcare Corporation Limited by
Tony Carter, Chairman and Lewis Gradon, Managing Director and Chief Executive Officer.
TONY CARTER, CHAIRMAN
LEWIS GRADON, MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER
Constant currency information contained within this report is non-conforming financial information, as defined by the
NZ Financial Markets Authority (FMA) and has been provided to assist users of financial information to better
understand and assess the company’s financial performance without the impacts of spot financial currency
fluctuations and hedging results, and has been prepared on a consistent basis each financial year. A reconciliation
between reported results and constant currency results is available on page 36 of this report. The company’s
constant currency income statement framework can be found on our website at www.fphcare.com/ccis.
About this report
Welcome to Fisher & Paykel Healthcare’s 2019 Annual Report
– A World of Care.
We are privileged to be in an industry where the work we do has
a direct impact on improving people’s lives, right around the
world. Last year, we estimate that our products were used in the
treatment of approximately 14 million patients.
Our report this year underlines our primary focus on producing
innovative healthcare devices that improve the health and
quality of life for people all over the world, something that we
have been doing for the last 50 years. We also recognise the
importance of sustainable, profitable growth which will enable
us to continue to deliver new innovations and improved patient
outcomes for many years into the future.
Fisher & Paykel Healthcare see corporate social responsibility
and sustainability as inextricably linked to the way we do
business. We know that strong financial performance cannot be
achieved without looking after our people, suppliers and
customers. And being financially successful means we can
continue to be a major contributor to medical care, to our
communities and economies through areas such as tax and
employment, and to return a portion of profits to our
shareholders as dividends. Our awareness of the reciprocal
nature of this is what we believe positions our company
for long-term, sustainable and profitable growth.
This report is designed to meet the evolving needs and
requirements of a wide range of stakeholders. In previous years
we have prepared separate reports, including a separate
Corporate Governance Statement, detailing our governance,
sustainability and social responsibility practices. This year we
have incorporated all of these topics within this one report. As
with all areas of our business, we are constantly looking for
continuous improvement opportunities and would welcome
feedback on this report. Please address any questions,
comments or suggestions to investor@fphcare.co.nz.
Digital versions of this report, and of our previous annual,
interim and sustainability reports, are available at
www.fphcare.com/investor-reports.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 OUR BUSINESS
AT A GLANCE
5
Fisher & Paykel Healthcare is a leading
designer, manufacturer and marketer
of products and systems for use in
respiratory care, acute care, surgery
and the treatment of obstructive
sleep apnea.
Our medical devices and
technologies are designed to
help patients get better faster.
We help patients transition to
less acute care settings, help
them recover more quickly and
provide solutions that can assist
them to avoid more acute
conditions. We also provide the
ability for many patients to be
treated in the home rather than
the hospital.
Product innovation is essential
to our success. Since 1969, when
our first prototype respiratory
humidifier was developed, we
have focused on continuous
development and innovation.
Our aim is to lead the way in the
development of medical devices
and technologies, and our
products are considered leaders
in their respective fields.
We are driven by our purpose of
improving care and outcomes
through inspired and world
leading healthcare solutions.
Assisting clinicians around the
world to deliver the best
possible patient care through
continuous product
improvement, pioneering new
therapies and changing clinical
practice is key to our success.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 6
HOW OUR
BUSINESS WORKS
RESEARCH & DEVELOPMENT
Our R&D is based in New Zealand. The team
spends many hours in hospitals, and with
patients and clinicians, in order to develop
better technology that enhances patient care.
We typically invest around 9–10% of our revenue
in R&D annually.
PATIENTS
Each year millions of patients are treated with
our products in over 120 countries. Seeking to
understand our patients’ needs is what drives
our R&D programme.
The needs of our customers
and their patients drive
everything we do. We call this
Care by Design.
CUSTOMERS
We work with thousands of healthcare
professionals, including doctors, clinicians
and nurses, giving them the products and
tools to deliver the best possible care. Our
largest markets (in order of size) are North
America, Europe, and Asia Pacific.
THERAPIES
60% of our operating revenue is from
products and systems used in hospitals in
invasive ventilation, non-invasive ventilation,
nasal high flow therapy and surgery. The
remainder is from products used in home
environments to treat patients suffering
from obstructive sleep apnea and those in
need of respiratory support.
MANUFACTURING
We manufacture in NZ (approximately 66%)
and Mexico (approximately 34%). The co-location
of engineering, quality, manufacturing, marketing
and clinical teams facilitates collaboration and
an awareness of the medical device process from
concept and design right through to how our
products are used by patients.
SUPPLY CHAIN
We have distribution centres located around
the world and a network of distributors. We
use air, sea, road and rail freight, with a focus
on sustainable and cost effective methods
of transportation. We source materials
from all over the world and look for socially
responsible partners to support our growth.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 Germany
Norway
Denmark
Netherlands
Belgium
Sweden
Poland
Finland
Russia
Turkey
Canada
England
Scotland
Northern Ireland
Ireland
Wales
France
Portugal
Spain
Mexico
USA
Colombia
Brazil
United
Arab Emirates
Saudi Arabia
India
Sri Lanka
Indonesia
Switzerland
Italy
Austria
7
Direct Sales
Distributed sales with F&P people
Distribution Centres
Manufacturing Facilities
South Korea
Japan
Hong Kong
Taiwan
China
Australia
New Zealand
38
Our people are located
in 38 countries
1,493
303
2,416
People in North America
People in Europe
People in New Zealand
335
People in the
rest of the world
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 8
Our inputs
Our outputs
Our
4,500+
people
50 years
of trusted
relationships
Excellence
in R&D
Global
supply
networks
Trusted
brand
Y
G
h
n
u
STR A T E
Global re a c
ur presen c e a r o
LISM
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Utilise our exp
and reduce c
C OMMITMENT
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w
Care by Design.
Improving
care & outcomes
through inspired
and world-leading
healthcare solutions
E
LIF
TIO
N
SHIPS
s
t
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s
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t
r
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a
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p
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R
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Y
RELA
Improved
care &
outcomes for
patients
Increased
efficiency
of care
Increased
shareholder
value
Benefits to
our people
Doubling
our constant
currency
revenue every
5-6 years
AGEING POPULATION | TECHNOLOGY ADVANCEMENT | HEALTHCARE COSTS INCREASING | OTHER EXTERNAL FACTORS
MARKET CONTEXT
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019a sustainable wayEnsure our growth is managed in Sustainable, profitable growthSTRATEGYContinuously strive to improve our productsBetter productsSTRATEGY
9
OUR UNIQUE CULTURE,
VALUES AND BELIEFS
In our view, a company’s culture is often
the key factor that distinguishes between
those that succeed and those that fail.
At Fisher & Paykel Healthcare we have a
culture of remembering our roots, having
genuine care for the work and always
doing the right thing. Actions, not just
words.
In the early days we were the underdogs,
competing against much larger
multinationals with more resources. We
trusted each other, we were inclusive, we
solved problems by looking for
alternatives, and we weren’t afraid to think
differently; to strive to deeply understand
our customers and try new things,
accepting that making mistakes is a
cornerstone of innovation. We knew that
our advantage was our ability to innovate.
Put simply, we had to be better to survive.
While some of our products may now be
the market leaders, we recognise the
importance of maintaining that underdog
mentality. It’s our culture, created back
when we were a team much smaller than
we are today, that will see us into the next
50 years.
Our culture is encapsulated by the following values and beliefs:
OUR VALUES
OUR BELIEFS
Life
We relentlessly focus on
improving patients’ lives and
strive to provide a high quality of
life for our employees.
Relationships
We care for our patients,
customers, suppliers,
shareholders, the environment
and each other.
Internationalism
We are global in people, in
thinking and in behaviours.
Commitment
We value people who are
self-motivated and have a desire
to make a real contribution.
Originality
We encourage original thinking
which leads to the innovative
solutions required to create
better products, processes and
practices.
We believe in doing what is
best for the patient.
We believe the commitment to
doing the right thing is what our
customers will find compelling.
We believe that empathy,
effectiveness and efficiency are
essential to our success.
We believe our people
are our strength.
We believe lessons learned
are the cornerstones
of innovation.
We believe in the need to be
relentless in the pursuit of
healthcare innovation.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 10
DETERMINING OUR MATERIAL MATTERS
In 2018, we conducted a materiality assessment to determine our most
material issues. The process referenced guidance set by the Global
Reporting Initiative (GRI) framework, and “materiality” in this context
differs from financial and audit interpretations and NZX/ASX definitions of
material information.
In 2019, we validated and updated this materiality assessment through
interviews with a small set of key stakeholders who were chosen to
represent different facets of our business.
Results of the materiality assessment are shown in the matrix on the next
page. The highest-ranking issues have been grouped according to our
core business strategies, as indicated below, and will be the focus of this
report. Other issues have also been categorised, and are covered later in
this report, predominantly in the Social Responsibility & Governance
section.
Global reach
Change
clinical practice
CUSTOMER EXPERIENCE
LEGAL COMPLIANCE
PATIENT SAFETY
ETHICAL RESEARCH
ANTI-BRIBERY AND CORRUPTION
MARKET ACCESS RISK
Better products
Sustainable,
profitable growth
PRODUCT INNOVATION
PRODUCT QUALITY
CYBER SECURITY AND
DATA PROTECTION
EMPLOYEE ATTRACTION,
DEVELOPMENT AND RETENTION
SUSTAINABLE, FINANCIAL
PERFORMANCE
HEALTH, SAFETY & WELLBEING
INTELLECTUAL PROPERTY
BUSINESS CONTINUITY
CORPORATE GOVERNANCE
Our materiality process
In 2018, material topics were identified through review of our business
risks matrix, the United Nations (UN) Sustainable Development Goals
(SDGs), GRI issues, and the UN Global Compact. Additionally, we drew on
our knowledge from regular consultation with customers, healthcare
professionals, suppliers and investors. We also considered broader trends,
such as the ageing population, healthcare demographics and disruptive
technologies. Subsequent interviews were conducted with a cross-
functional range of our internal and external stakeholders asking for their
assistance in prioritising our topics. We then consulted and reflected on
the results with members of our Executive Management team.
While we did not expect these topics to change significantly for 2019, we
have again elected to directly engage a cross-section of internal and
external stakeholders, this time through a series of interviews conducted
by an independent third party, thinkstep. Included in the 2019 interviews
were representatives from our employees, customers, physicians,
community, healthcare professionals, investors and suppliers.
When our original materiality matrix was developed we asked our
stakeholders to rank issues according to what they believed should be the
most important to our business. As can be seen in the matrix, there was
strong alignment of views between internal and external stakeholders.
The underlying themes have remained broadly consistent with last year’s
materiality process. Patient safety remains an overriding priority for all
stakeholders. The importance of innovation and product quality were also
common threads in the 2019 interviews. Another theme that came
through very strongly this year was that it is our culture that sets us apart
– a culture that is innovative, supportive and always puts the patient first.
These themes will be explored further in future reports as we continue to
build on the management and reporting of environmental, social and
governance topics we began in 2018.
The approach taken to our materiality assessment and the content in this
report has been informed by the principles of the GRI. A GRI reference
index based on the GRI Sustainability Reporting Standards (2016) can be
found on pages 103 to 104. We anticipate that future reports will be in
accordance with the GRI Standard (core).
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 11
United Nations Sustainable
Development Goals
Fisher & Paykel Healthcare
supports the UN SDGs. We
have identified three goals
where we believe we have a
unique opportunity to make a
positive difference in order to
achieve a better and more
sustainable future for all. We
have highlighted below the
SDGs to which we can
contribute the most and in this
report we share areas and
initiatives where we contribute
toward these goals.
MATERIALITY MATRIX
10.0
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
)
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I
Patient safety
Sustainable financial
performance
Product
innovation
Product quality
Intellectual Property
Legal compliance
Customer
experience
Employee attraction, development
and retention
Business continuity
Health, Safety & Wellbeing
Anti-bribery & corruption
Market access risk
Cyber security & data protection
Diversity & inclusion
Labour practices
Corporate governance
Ethical research
Ethical supply chain
Disruptive technologies
Improving public health
Healthcare demographics
Healthcare waste management
Local employment
Resource efficiency
Community
Carbon & energy
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
STAKEHOLDER CONCERN (external stakeholders only)
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
12
Financial &
business highlights
OPERATING REVENUE
NZ$1.07 billion
9%
NET PROFIT AFTER TAX
NZ$209.2 MILLION
10%
TOTAL DIVIDEND FOR YEAR
NZ 23.25CPS FULLY IMPUTED
SPEND ON R&D NZ$
9% OF OPERATING REVENUE
9%
$100.4m
GROSS MARGIN
56 BASIS POINTS INCREASE
66.9%
HOSPITAL REVENUE GROWTH
NZ$642.3 MILLION
NEW APPLICATIONS CONSUMABLES
REVENUE GROWTH
12%
20% ( CONSTANT
CURRENCY)
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
13
OPERATING REVENUE
NZ$ MILLIONS
NET PROFIT AFTER TAX
NZ$ MILLIONS
.
4
0
7
0
,
1
.
8
0
8
9
.
4
4
9
8
.
5
5
1
8
.
3
2
7
6
.
2
9
0
2
.
2
0
9
1
.
2
9
6
1
.
4
3
4
1
.
2
3
1
1
15
16
17
18
19
15
16
17
18
19
REVENUE BY PRODUCT GROUP
12 MONTHS TO 31 MARCH 2019
REVENUE BY REGION
12 MONTHS TO 31 MARCH 2019
1%
%
9
3
6
0
%
4 %
2 0 %
120+
COUNTRIES
4
7
%
%
9
2
Hospital
Homecare
Distributed & Other
North America
Other
Europe
Asia Pacific
+ INTRODUCED
F&P ViteraTM full face mask,
F&P OptiflowTM 3S nasal cannula,
and new neonatal breathing
circuits for the F&P 950TM Heated
Humidification System.
+ AWARDED
two Gold Pins in the User
Experience category at the
NZ Best Design Awards for
F&P InfoSmartTM Web and our
F&P SleepstyleTM patient app.
+ CONTINUED
with the global roll-out of our
enterprise resource planning
system (ERP).
+ PROGRESSED
an exciting product pipeline, with
several new product launches
anticipated.
+ IMPACTED
the lives of approximately
14 million patients around
the world.
+ COMPLETED
construction of our second
manufacturing facility in Tijuana,
Mexico with operations to
commence during FY20.
+ WELCOMED
Neville Mitchell as a non-executive
director and two new members of
our Executive Management Team;
Lyndal York as CFO and
Marcus Driller as VP-Corporate.
+ GREW
the body of clinical evidence
supporting the use of Optiflow
nasal high flow, including a key
publication demonstrating
significant benefits for Chronic
Obstructive Pulmonary Disease
(COPD) patients in the home
using our myAirvoTM device.
+ INCLUDED
in the FTSE4Good and
Dow Jones Sustainability
Indices for 2018.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 14
Report from
the Chairman
of the Board
Tony Carter
I am pleased to report on what has
been another successful year for our
company with net profit after tax up
10% to $209.2 million. Of particular
note, we were delighted to achieve
the milestone of becoming a
NZ$1 billion company, with
operating revenue of $1.07 billion.
We continue to build on our history of
innovation and global competitiveness and
our drive to do things differently and
better.
It is now 50 years since Fisher & Paykel’s
prototype respiratory humidifier was first
developed. It took three years to get the
Spence and Melville Humidifier to the
prototype stage. The company then
worked with clinicians and patients,
experts from New Zealand’s Department
of Scientific and Industrial Research and
specialist materials manufacturers.
The project spanned from design to
manufacturing logistics to protection of
intellectual property. The focus was on
international sales and a key factor during
development was ensuring the product
met standards specifications for global
markets. As it is today, our philosophy of
collaboration with world-leading clinical
experts was at the forefront of our efforts.
Fifty years on, we are a substantial
business, operating successfully on the
global stage and with a proven track
record. Our product range has grown to
include over 1,400 products and sales have
grown from just $20,000 in 1972 to be over
$1 billion now.
However, some things have not changed.
Our relentless focus on delivering the best
solutions for patients continues to
underpin all that we do and our ‘Care by
Design’ philosophy unites our global team
of over 4,500 people. On behalf of the
Board, I would like to acknowledge the
efforts of all our people in our markets
across the world.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 Protection of Intellectual Property
Throughout our history, we have invested
consistently in R&D, leading to products and
systems which have enabled us to positively
impact the lives of many millions of patients.
Protecting this investment and our
intellectual property is crucial in today’s
competitive global marketplace.
We have now settled all outstanding patent
infringement disputes between the company
and ResMed. We are pleased to bring these
disputes to a close and we appreciate the
support of our customers and shareholders
through the process. We will continue to
defend and protect our intellectual property
where necessary.
Investing in our business
Our aspiration remains to sustainably double
our constant currency revenue every five to
six years and we are investing in our
business to support this growth.
We took possession of our second Mexican
manufacturing facility - the Melville Building
- in January 2019 and our first production
output is expected in the middle of this year.
This is on a 15 hectare campus providing
room for future expansion. The location is
part of a global medical device
manufacturing hub in Tijuana and allows us
access to the established skill set of the local
workforce. The Board visited our Mexican
facilities in September 2018 and we continue
to be impressed with the quality, efficiency
and performance of our Mexican teams.
In New Zealand, we are making good
progress on the construction of our fourth
building, which we expect to be completed
in early 2020. This will house a combination
of R&D, pilot manufacturing and a
15
distribution centre and has been designed
and built with environmental sustainability in
mind, to a New Zealand Building Council
Green Star 5 rating.
Your Board
We farewelled long serving director Arthur
Morris in August last year and welcomed
Neville Mitchell as a non-executive director.
Neville has extensive global financial and
medical device experience and most
recently served as Chief Financial Officer of
ASX-listed Cochlear Limited, the world
leader in the development, manufacture and
sale of cochlear implants.
We were also pleased to welcome Claudia
Wyss as part of the Future Directors
programme, which provides Board
participation for potential directors. We
believe this is a valuable programme that
not only provides benefit to our company,
but also grows the pool of director talent in
New Zealand.
Both Neville and Claudia bring valuable
insights and expertise which complement
that of other Board members.
We continue to find an external independent
review of the Board to be a very useful
process, identifying areas of strength and
opportunities for improvement. This year’s
review helped the Board further refine
succession planning. We were able to use
these insights as part of the director search
process, following which Neville Mitchell was
appointed to the Board.
Dividend
The Board has declared a final dividend of
13.50 cents per share. This takes the total
dividend for the 2019 financial year to 23.25
cents per share and equates to a dividend
payout ratio of approximately 64% of net
profit after tax for the year.
Given the company’s strong performance
over the last five years and reduction of debt
to below the target gearing range, the Board
has determined to suspend the dividend
reinvestment plan. As a result, all
shareholders will receive dividends in cash
for the dividend scheduled to be paid on
5 July 2019.
We have an exciting future
Demand for quality healthcare continues to
increase, alongside the rising costs of caring
for aging and growing populations.
Healthcare providers and patients are
seeking solutions that deliver improved
patient outcomes in more sustainable and
effective ways. Our innovative products and
therapies meet this need, last year improving
outcomes for approximately 14 million
patients around the world. Reducing acuity
of care and, where possible, allowing for
treatment in the home rather than the
hospital, further reduces the pressure on
healthcare systems.
We look forward to continuing to deliver
consistent sustainable growth and value for
our communities and our shareholders for
another 50 years and more.
TONY CARTER
CHAIRMAN
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
16
Report from the
Managing Director &
Chief Executive Officer
Lewis Gradon
Our long term and consistent growth
strategy continues to drive results,
once again delivering record revenue
and strong profit growth as we reached
the milestone of achieving over
$1 billion in revenue.
Our consistently improving results are a
reflection of our innovative products, the
dedication of our teams around the world, a
culture of continuous improvement, and the
value we offer for clinicians and patients.
Care and innovation underpins all that we
do, as we continue to focus on improving
patient outcomes through inspired and
world-leading healthcare solutions.
Our business is structured into two parts –
Hospital and Homecare - both of which
delivered revenue and operating profit
growth in FY19. Sixty percent of revenue was
from products and therapies used in the
hospital in invasive ventilation, non-invasive
ventilation, nasal high flow therapy and
surgery. Thirty nine percent of revenue was
from products used in the home
environment to treat patients with OSA and
those in need of respiratory support.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 17
Hospital
Our hospital business began in invasive
ventilation in the early 1970s. Over the last
20 years, we have expanded into new
applications for our products in the hospital,
including Optiflow nasal high flow therapy,
non-invasive ventilation and surgical
humidification. Revenue in our Hospital
product group grew 12% to $642.3 million
and 62% of hospital consumables revenue
was contributed by these newer applications
for our technology. The most recent
Northern Hemisphere flu season was less
severe than the previous year, but the results
in our hospital product group reflect similar
underlying growth trends to previous
periods. Constant currency growth of 20% in
new applications consumables revenue was
very pleasing given the weaker flu season.
This year we released revolutionary neonatal
breathing circuits for the F&P 950 heated
humidification system, following on from the
successful launch of the adult system. The
feedback we received from customers
during clinical trials has been
overwhelmingly positive, principally in terms
of ease of use and performance. The
neonatal circuits are currently available in
New Zealand and Australia and will be rolled
out to other countries over the next year.
Our Optiflow nasal high flow therapy
remains a key growth driver for our hospital
business. We expect a growing body of
clinical evidence to support the use of
Optiflow for a wider range of patient groups,
and in more areas of the hospital outside the
intensive care unit such as respiratory wards
and in the emergency department. Over the
past year we estimate that approximately
3 million patients were treated with our
Optiflow nasal high flow therapy.
In surgical humidification, we are
concurrently continuing to improve on
existing products and technology. Adding
further tangible benefits for surgeons and
patients; growing the body of clinical
evidence through supporting more clinical
trials; and using our products and the clinical
evidence to generate sales in more markets.
Homecare
Our Homecare group comprises products
and systems used to treat obstructive sleep
apnea (OSA) and for patients requiring
respiratory support in the home. OSA
remains the largest portion of Homecare
revenue, and we see home respiratory
support, which is growing strongly from a
small base, as an exciting opportunity for
our company.
Operating revenue in our Homecare product
group grew 6% to $421.4 million during the
year. A hiatus in OSA mask launches since
the successful release of our F&P Brevida
mask in 2016 was offset by a strong
contribution from the successfully
completed roll out of our new SleepStyle
OSA CPAP system to all major markets, and
from home respiratory support.
We were pleased to launch our new F&P
Vitera OSA mask in May this year. This mask
puts patient comfort first and incorporates
our new VentiCoolTM technology, the next
generation of mask seal and other innovative
design features. Vitera is currently available
in New Zealand, Australia, Europe and
Canada and it will be rolled out around the
world as relevant regulatory clearances are
received.
We see a growing opportunity to deliver
respiratory support in the home for patients
with chronic respiratory conditions, such as
3million
ESTIMATED PATIENTS WERE TREATED WITH
OUR OPTIFLOW NASAL HIGH FLOW THERAPY
OVER THE PAST YEAR
COPD. The publication of a long term study
in Denmark in April 2018, on the benefits of
nasal high flow therapy in the home for
patients with COPD, demonstrated the value
of this therapy and we are sharing this with
clinicians. A number of long term trials are
underway around the world, with expected
timelines of three to five years. We expect to
see increasing uptake of the therapy as the
results from these clinical studies are
published.
Better products
One of our overarching principles is to
develop innovative products which solve
specific problems. R&D remains a
fundamental part of our success story, with
a cumulative $750+ million invested in R&D
since 2001.
Last year, we invested $100 million (equal to
9% of our revenue) into R&D and we have a
full pipeline of new products in development.
Over the past year we were pleased to
launch neonatal breathing circuits for the
F&P 950 heated humidification system, our
new Optiflow 3S nasal cannula and, more
recently, our new Vitera mask.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 18
We are seeing growing demand in China and
India, both of which offer significant future
potential for our company with large
populations and increasing spend on healthcare.
All of our teams work collaboratively with a
large network of leading physicians and
clinical researchers all around the world as
we improve our products and make our
contribution to changing clinical practice.
We held 12 international clinical forums in
our Auckland, New Zealand facility over the
past year. The purpose of these forums is to
consult with experts who directly manage
patients on a day-to-day basis and to
discuss topics of research interest.
Change clinical practice
Helping to improve outcomes and reduce
costs by contributing to changing clinical
practice takes time. Clinical validation from
research, trials and studies is a key
component to this. At any one time, we are
supporting multiple studies around the
world, in partnership with researchers,
clinicians and healthcare providers. These
range from short term pilot trials to
demonstrate feasibility, through to
longer-term studies running over several
years to qualify outcomes.
Our relationships with clinicians around the
world ensure we deliver the best possible
tools and products to enable them to
provide the best possible care.
Global Reach
Since our inception, we have always
identified as a global company, competing
on the worldwide stage. We sell in more
than 120 countries, and we have our own
people in 38 countries. We continue to
identify and assess opportunities to expand
the number of our people selling into
hospital, homecare and surgical
environments. While still a relatively small
proportion of our business today, we are
seeing growing demand in China and India,
both of which offer significant future
potential for our company with large
populations and increasing spend on
healthcare.
Sustainable profitable growth
Our strategy is necessarily very consistent.
We aim to grow our business in a profitable
way that is sustainable over the long term.
We are continuously improving the
foundations of our business in invasive
ventilation in intensive care and the
treatment of OSA. Our medium and longer
term opportunities lie in helping to change
clinical practice to improve care and
outcomes and at the same time reduce
costs to healthcare systems. Clinical practice
is slow to change and requires persistence.
To realise these opportunities we think, act
and invest over the long term.
We are continuing our investment in
improved Enterprise Resource Planning
(ERP) systems with the rollout of the SAP
ERP system across both manufacturing
plants and the Asia Pacific region completed
in 2018. Our focus will be on the
implementation of SAP in our United States
operations during 2019.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 19
4,500+
OUR GLOBAL TEAM OF OVER
4,500 PEOPLE
Our people
Outlook
At its core, a company is a collection of
people. Our approach of ‘Care by Design’
draws together and unites our global team
of over 4,500 people with the simple
thought that we care about what we do, and
the impact we have on patients, customers
and all of our other stakeholders.
We have a highly experienced executive
team and this year we were pleased to
welcome Lyndal York as Chief Financial
Officer. Lyndal is a new appointment
following the retirement of long-standing
CFO, Tony Barclay, in May last year.
Lyndal has strong international experience
within the medical device industry, and as
such, possesses a good understanding of its
unique characteristics. Prior to joining us,
Lyndal most recently served as Chief
Financial Officer of ASX-listed Asaleo Care,
based in Melbourne. Prior to her role at
Asaleo Care, she held Head of Group
Finance and Group Financial Controller roles
at Cochlear over an 11-year period.
Achieving $1 billion in revenue is a milestone
for our company, however, we are not sitting
still. We will continue to build on our
strengths and continuously improve and
expand our portfolio of valued solutions for
healthcare providers and patients.
We expect capital expenditure for the
2020 financial year to be approximately
NZ$150 million as we increase capacity
for both existing and new products and
complete construction of the fourth building
on our Auckland campus.
At current exchange rates we expect full
year operating revenue for the 2020
financial year to be approximately
NZ$1.15 billion and net profit after tax
to be approximately NZ$240 million to
NZ$250 million. Recent changes introduced
by the New Zealand Taxation (Research and
Development Tax Credits) Act 2019, a
significant reduction in patent litigation
costs and forecast currency benefits have
been factored into our earnings guidance
for 2020.
Historically, our growth has come from our
expertise in respiratory humidification and,
in the last two decades, from CPAP therapy
and products to treat OSA. These areas
remain the foundation of our business,
however, we are now using the expertise we
have developed over the last 50 years to
build our presence in new segments in the
healthcare market where we can add value.
We are excited about the potential in
Optiflow nasal high flow in both hospital and
home environments, as well as the longer
term opportunity in surgical technologies.
We are looking forward to the future and
what it holds for our company and are well
positioned to meet growing demand for our
products and systems and continuing to
deliver better healthcare solutions.
LEWIS GRADON, MANAGING DIRECTOR
AND CHIEF EXECUTIVE OFFICER
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 20
Hospital
Invasive ventilation
Our products for invasive ventilation provide
warm, humidified air to patients with bypassed
airways. This can help maintain the natural
balance of heat and moisture in the airways.
Non-invasive ventilation
Non-invasive ventilation is a therapy which
provides airway support for patients through a
face mask. Heated and humidified gas flows can
improve patient comfort and compliance,
reduce airway drying and improve secretion
clearance.
Optiflow nasal high flow therapy
Nasal high flow is a respiratory care therapy
delivering high flows of air and oxygen through
a unique F&P Optiflow nasal cannula. This
allows comfortable, effective delivery of up to
100% oxygen for hypoxemic patients in mild to
moderate respiratory distress.
Surgical technologies
Our surgical products provide warm, humidified
CO2 during surgery, which may protect patients
from hypothermia and post-operative pain and
reduce the risk of surgical site infections,
adhesions and cancer metastasis.
60%
OF OPERATING REVENUE
OPERATING REVENUE GROWTH
(NZ$642.3M)
CONSTANT CURRENCY CONSUMABLE
REVENUE GROWTH FROM NEW
APPLICATIONS
12%
20%
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 21
CPAP therapy
Our range of CPAP machines and masks
support patients with obstructive sleep
apnea. Our masks are extremely popular
and have become well known for their
comfort, simplicity and ease of use, which
is a key factor in patient compliance. Our
patient management and support tools
complete a seamless experience to help
patients succeed in embracing therapy.
Home respiratory support
We have taken our expertise in nasal high
flow therapy and non-invasive ventilation
from the hospital to offer respiratory
support in the home and in long-term care
settings, with the intention of improving
patients’ quality of life and reducing
hospital admissions. The myAirvo device
provides flows of humidified air, which can
contain supplemental oxygen if necessary
through an Optiflow nasal cannula or
tracheostomy connector, and is used for
patients with chronic respiratory
conditions such as COPD or
bronchiectasis.
Homecare
39%
OF OPERATING REVENUE
OPERATING REVENUE GROWTH
(NZ$421.4M)
OSA FLOW GENERATOR CONSTANT
CURRENCY GROWTH
6%
27%
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
22
Global Reach
Increase our presence around the world
MATERIAL ISSUE
Customer experience
We work with thousands of healthcare
professionals around the world, including
doctors, clinicians and nurses, providing
them with the products and tools they need
to deliver the best possible care. We now
have more than 1,000 people in our sales,
marketing and support teams in 38 countries.
Building trusting relationships between our
people and our customers is a critical part of
our sales approach, right around the world.
Sharing our Expertise
Each year, we continue to expand, train and
strengthen our sales teams so they are well
equipped to explain the clinical advantages
of our products and support a beneficial
change in clinical practice.
This was clearly in evidence when Simon
Bedwell, an F&P sales representative in the
Australian state of New South Wales,
was contacted by a doctor in the Nepean
Hospital Neonatal Intensive Care Unit
(NICU). She was caring for two premature
babies, both born at 27 weeks. The babies
had spent six months in hospital, had
become oxygen dependent, and were
experiencing nose bleeds from their therapy.
The medical team had tried several times
to wean the babies off the oxygen, but they
had crashed each time. As a result, the
babies were expected to spend a minimum
of another six months in intensive care.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 23
Going above and beyond
Our sales people will often go above and
beyond to ensure our customers’ needs are
met. In February 2019, the VCU Medical
Center, located in Richmond, Virginia,
decided to implement F&P humidifiers
across seven ICUs and 20 acute care areas.
A team from our US office spent two weeks
working on the implementation - assembling
equipment, training and ensuring that the
transition was smooth and seamless. The
training on its own was a significant
undertaking, with a group of respiratory
therapists, nurses, doctors and other team
members in each of the 27 care areas. The
implementation was completed successfully,
on time and seamlessly, with a follow up visit
three months later.
Jennifer Reed, the Neonatal & Pediatric
Respiratory Manager at VCU Health
commented: “This crew is amazing. They
made me exhausted watching them work.
They kept their enthusiasm up the entire
time. I appreciate each and every one of
F&P’s team members, including those
working behind the scenes to make this
implementation a success. A seriously
impressive team!”
Where there is a will,
there is a way
Even the smallest things can make a
difference as attested to by the actions
of F&P Respiratory Sales Specialist,
Mike Krumholz.
Very early on a Saturday morning, Mike
was contacted by a hospital customer in
New York, who were out of RT380 breathing
circuits. Mike immediately drove with his two
young children to Brooklyn to deliver some
circuits so that patient care could continue.
The respiratory director of the hospital
emailed us with this story and had this to say:
“ Everyone’s time is
precious. The fact that
he went out of his way
to be of assistance was
very much appreciated.
As a customer, I
admire and appreciate
Mike’s dedication
to Fisher & Paykel
and their customers.”
Simon visited the doctor and together they
discussed using humidified nasal high flow
therapy, rather than cold, dry oxygen.
Through their discussion and demonstration
of F&P’s AirvoTM device, it became clear that
a different approach to therapy could
benefit these patients.
The babies were transitioned to the Airvo
and immediately their statistics improved.
One baby was discharged a month later.
The other, whose mother had not been
home for six months as they lived in a very
remote area out of the city, was able to
return home where the mother administered
the therapy herself using the Airvo device.
The baby was completely off the therapy
within three months.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 24
Changing
clinical practice
Utilise our expertise to develop new therapies and
reduce costs to healthcare systems
MATERIAL ISSUE
Patient safety
OUR QUALITY MANAGEMENT SYSTEM
The healthcare device industry is highly
regulated worldwide. Our ability to meet
stringent standards is vital to ensuring
market acceptance of our products. We
comply with these standards by operating a
quality management system certified to a
range of international standards which apply
to both our manufacturing facilities and our
sales network. These include the US Food &
Drug Administration (FDA)’s Quality System
Regulation and the ISO 13485 Quality
Management System standard, along with
other global regulations.
We have over 200 people in our Quality and
Regulatory team, working across product
design and development, manufacturing,
distribution and market surveillance, as
well as operations in New Zealand, Mexico
and the US. Our quality teams operate
as a service to our product and process
development and manufacturing operations
teams, which means that quality controls
are built into the design process through
a partnership approach.
We take a proactive risk management
approach and the quality management
process starts right at the beginning with
the design assurance process and then
encompasses the clinical evidence to
validate the effectiveness and efficiency
of the therapy.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 PUBLISHED CLINICAL PAPERS
NASAL HIGH FLOW FOCUSSED
25
250
200
150
100
50
0
0
0
0
2
2
0
0
2
4
0
0
2
6
0
0
2
8
0
0
2
0
1
0
2
2
1
0
2
4
1
0
2
6
1
0
2
8
1
0
2
Calendar Year
Adult
Neonatal & Paediatric
patients who are being treated in other parts
of the hospital outside of the ICU. These
studies are being conducted globally by the
leading researchers in the field.
F&P is now supporting clinical research
investigating the use of nasal high flow in
the home for patients with COPD. In last
year’s annual report we mentioned the first
significant clinical outcome study, Storgaard
et al was published in April 2018. There are
at least 10 additional studies currently being
conducted in relation to nasal high flow on
COPD patients and we look forward to their
publication over the next five years.
Developing a Body of Clinical Evidence
– Optiflow nasal high flow therapy
We understand what is required to develop
a sufficient body of clinical evidence to drive
practice change. This began in the early
1970’s, supporting research being conducted
on the use of active humidification during
invasive ventilation. Again, we assisted with
clinical studies in the late 1990s to
demonstrate the benefit of humidifying
CPAP therapy for OSA patients. In the first
decade of the 2000s we supported studies
that were investigating the physiological
effect and mechanisms of action of nasal
high flow. In 2018 we saw a further 247
clinical papers published investigating the
use of nasal high flow in different patient
groups. This brings the total number of
published clinical papers on nasal high
flow to 1,584 since 2003, as shown in the
graph above.
Nasal high flow is emerging as a popular
non-invasive mode of respiratory support in
adults and children. Initially, studies
investigated the mechanisms of action and
how nasal high flow works, using computer
and animal models. This then progressed
into clinical indications, followed by studies
confirming the safety and effectiveness of
nasal high flow. In the last five years, a
number of robust clinical outcome studies
have been published, including randomised
controlled trials looking at the outcomes for
patients with acute hypoxemic respiratory
failure. We believe that the clinical evidence
for use of nasal high flow therapy in this
patient group is compelling.
Interest has now turned to studies
investigating mechanisms of action, clinical
indications, safety and effectiveness of nasal
high flow in patients with hypercapnia and in
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 26
Better Products
Continuously strive to improve our products
MATERIAL ISSUES
Product innovation
Product quality
Whether in Hospital or Homecare, our
product development process is informed
by extensive research to understand the
needs of our patients and the environments
our products are used in. This is exemplified
in two of our recent product introductions.
VITERA FULL FACE MASK –
‘REDEFINING COMFORT’.
The vision of the OSA mask development
team is to create CPAP masks that patients
want to use and can easily use.
Despite dramatic improvements in mask
technology in recent years, the number one
unmet need for patients undergoing CPAP
therapy is still mask comfort. When designing
F&P Vitera, the mask development team
focused on designing a full face mask which
is first and foremost a comfortable mask.
Comfortable not just at the initial
consultation, but across a full night’s sleep.
Drawing on the design ‘DNA’ from our highly
successful F&P SimplusTM mask, and
recognising that comfort means different
things to different people, our F&P Vitera
design team focused on stability,
adaptability and breathability.
Stability of the mask is provided by the
Stability Bar. Wide anchoring points on the
top and bottom straps provide a greater
zone of support, reducing the likelihood of
the cushion riding up the face or the mask
dislodging. This zone of support also allows
our next generation RollFitTM XT cushion to
adjust and seal dynamically on a range of
different nose and face shapes, providing
a more adaptable mask.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 27
NEONATAL CIRCUITS FOR F&P 950
The NICU provides a unique challenge
when designing a breathing circuit due
to the changing temperature conditions
between incubator, warmer, and ambient
environment.
When a baby is in an ambient environment,
such as during skin-to-skin contact with a
parent, the circuit will have a single heating
requirement across its length. When a baby
is placed in an incubator or warmer, this
changes. While one end of the circuit
remains in the ambient conditions of the
room, the other is exposed to the heated
environment of the incubator or warmer.
This variation in operating environment
across the length of the circuit creates
challenges for the delivery of humidified
gases while still controlling condensate.
Our vision for the F&P 950 System neonatal
circuit was to provide simplicity for
caregivers by having a circuit that could
handle these changing environments
without the need for any detachable
unheated extensions or other caregiver
intervention.
The result is Thermadapt™, a technology
that is incorporated across the F&P 950
System neonatal circuit range. Thermadapt
enables independent heating of two zones
within the inspiratory limb, allowing the
circuit to adapt to changing temperature
conditions and reducing condensate.
This, coupled with a longer circuit length,
also encourages skin-to-skin contact time,
giving parents the opportunity to bond
with their baby.
With mask headgear typically covering a
portion of a patient’s head, patients can
experience discomfort from heat and
sweating. Vitera headgear features
proprietary breathable fabric – VentiCool
– that allows 21 times greater air flow and
32% more moisture transfer than the
material used in our other leading full face
masks, helping patients keep cool and
comfortable during sleep.
We believe F&P Vitera is our most
comfortable full-face mask yet and reflects
another step forward in patient care.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 28
Sustainable
profitable growth
Ensuring our growth is managed in a sustainable way
MATERIAL ISSUE
Sustainable financial performance
I like that F&P is a global company based in
New Zealand. The culture is what attracted
me the most – everyone in the organisation
believes 100% in doing the right thing for
our customers and patients, no matter
if you are in sales, finance or manufacturing.
Everything is about Care by Design;
delivering better outcomes for our
customers and patients.
Continuous improvement is also ingrained
into the culture and everyone is always
striving to do things better and more
efficiently.
I inherited a high performing global finance
team. As a group, we have an in-depth
understanding of our business and what
drives our results. The rollout of the SAP
system is going well and we are focused on
making sure we get the most benefit from
this. We will also be looking to further refine
our sustainable growth metrics and making
sure they are well embedded in the business.
Fisher & Paykel Healthcare’s new Chief
Financial Officer, Lyndal York, moved from
Australia to New Zealand to take up the role
and says the best thing about working for a
medical device business is knowing that you
are having a positive impact on people’s
lives – and at F&P Healthcare, this belief is
even more pronounced. Lyndal commenced
her role with F&P in March 2019. We asked
what attracted her to the company, her
reflections on the first few months and what
drives her.
There is increasing demand for companies
to take a more proactive approach to
corporate social responsibility and
sustainability. F&P is very conscious of this
and we will be building on the already
transparent approach to reporting and
disclosure. On a personal level, I am looking
forward to meeting investors and ensuring
F&P remains a compelling investment
opportunity.
F&P has a business model built around
long-term thinking. It can take many years to
bring a new product to market, so we need
to make sure we are thinking a long way
ahead to support our product development
pipeline. Our patients are also moving into
different life stages and we’re looking at how
we can support them and our customers as
their healthcare needs change. We are also
looking at how we can use our expertise to
expand into new areas. For example, F&P
is a global leader in respiratory care in
hospitals and we are now looking to
leverage this to offer respiratory support
in the home.
I have worked in medical device businesses
for the past 15 years, including with
companies where most of the sales are
offshore. F&P presents a similar business
model and challenges and I believe my
experience and insights will be of value in
my role. I have also personally experienced
the invaluable benefits of respiratory care
when my daughter was born premature and
spent a number of months being supported
in a neonatal unit. The best thing about
working for F&P is the altruistic factor –
going home at the end of the day, knowing
we are making a positive difference in
people’s lives.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 OUR ASPIRATION: Sustainably DOUBLING
our constant currency revenue every 5-6 years.
OUR ASPIRATION: Sustainably DOUBLING
our constant currency revenue every 5-6 years.
29
RESPIRATORY
HUMIDIFICATION
CPAP
THERAPY/OSA
HOSPITAL
RESPIRATORY
SUPPORT
HOME
RESPIRATORY
SUPPORT
SURGICAL
TECHNOLOGIES
1 2 % + P . A . R E V E N U E G R O W T H C C *
O U R A S P I R A T I O N :
1970
*CONSTANT CURRENCY
TODAY
SHORT-TERM
MEDIUM-TERM
LONGER-TERM
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
30
Tony Carter
Lewis Gradon
Michael Daniell
Pip Greenwood
Geraldine McBride
Neville Mitchell
Donal O'Dwyer
Scott St John
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 31
Our Board
Tony Carter
Chair and non-executive director
TERM OF OFFICE:
Appointed December 2010, last re-elected
24 August 2017, appointed Chair in April 2012.
Tony was managing director of Foodstuffs
New Zealand Limited for ten years, until his
retirement in 2010. Tony is chairman of Air
New Zealand Limited, a director of Fletcher
Building Limited, Vector Limited and ANZ Bank
New Zealand Limited, and a trustee of the
Maurice Carter Charitable Trust.
Master of Engineering, MPhil (Engineering)
COMMITTEE RESPONSIBILITIES:
Member People and Remuneration Committee,
Member Audit & Risk Committee, Member
Quality, Safety and Regulatory Committee.
Lewis Gradon
Managing Director and Chief Executive
Officer
TERM OF OFFICE:
Appointed 1 April 2016, elected 23 August 2016.
Lewis became Managing Director & CEO in
April 2016. Prior to that, he spent 15 years as
Senior Vice President – Products & Technology,
and six years as General Manager – Research
and Development. During his 35 year tenure
with Fisher & Paykel, Lewis has held various
engineering positions overseeing the
development of our range of products as well as
the development of our manufacturing, quality,
intellectual property, supply chain and clinical
research functions.
Bachelor of Science – Physics
Geraldine McBride
Non-executive director
TERM OF OFFICE:
Appointed August 2013, last re-elected
24 August 2017.
Geraldine has been involved in the technology
industry for 30 years and has a wealth of global
experience. She has held senior executive roles
at SAP AG and Dell Inc, and is a former President
of SAP North America. She is a current director
of National Australia Bank and Sky Network
Television Limited, and the founder and CEO of
MyWave.
Bachelor of Science – Zoology
Neville Mitchell
Non-executive director
TERM OF OFFICE:
Appointed November 2018.
Neville was CFO and Company Secretary of
Cochlear Limited between 1995 and 2017. He is
a non-executive director of Sonic Healthcare,
Osprey Medical and Q’Biotics Group and a
member of the Australian Board of Taxation
and a director of the South East Sydney Local
Health District Board. Previously, he served on
the New South Wales Medical Devices Fund, was
Chairman of the Group of 100, and Chairman,
Standing Committee (Accounting and Auditing),
for the Australian Securities and Investments
Commission.
Bachelor of Commerce
COMMITTEE RESPONSIBILITIES:
Member Quality, Safety and Regulatory
Committee.
Michael Daniell
Non-executive director
Pip Greenwood
Non-executive director
TERM OF OFFICE:
Appointed June 2017, elected 24 August 2017.
Pip is a director of Spark New Zealand Limited,
Westpac New Zealand Limited, a current trustee
of the Auckland Writers Festival and served as
a member of the New Zealand Takeovers Panel
from 2007 to 2011. She will also join the Board of
a2 Milk Company Limited on 1 July 2019. Pip was
a partner at Russell McVeagh between 2001 and
2019 and has advised on many market-leading
transactions.
Bachelor of Laws
COMMITTEE RESPONSIBILITIES:
Chair People and Remuneration Committee.
Scott St John
Non-executive director
TERM OF OFFICE:
Appointed October 2015, last re-elected
23 August 2018.
Scott is Chancellor of the University of Auckland,
and a director of Mercury Limited, the NEXT
Foundation and Fonterra Cooperative Group
Limited. Scott was CEO of First NZ Capital
from 2002 to March 2017. He is a member
of Chartered Accountants Australia and
New Zealand and a fellow of the Institute of
Finance Professionals of New Zealand.
Bachelor of Commerce, Diploma in Business
COMMITTEE RESPONSIBILITIES:
Chair Audit & Risk Committee, Member People
and Remuneration Committee.
TERM OF OFFICE:
Appointed November 2001, last re-elected
23 August 2018.
Mike was Managing Director and CEO of Fisher
& Paykel Healthcare from November 2001
to March 2016. He was General Manager of
Fisher & Paykel’s medical division from 1990
to 2001 and previously held various technical
management and product design roles within
the company. Mike is a member of the Council
of the University of Auckland, a director of
Tait International Limited and the Medical
Research Commercialisation Fund, and Chair of
the Medical Technologies Centre of Research
Excellence.
Bachelor of Engineering (Hons)
COMMITTEE RESPONSIBILITIES:
Member Audit & Risk Committee.
Donal O’Dwyer
Non-executive director
TERM OF OFFICE:
Appointed December 2012, last re-elected
23 August 2016.
Donal is Chairman of Atcor Medical Pty Limited
and a director of Cochlear Limited, Mesoblast
Limited and nib Holdings Limited. From 1996
to 2003 he was with Cordis Cardiology, initially
as its president (Europe) and from 2000 to
2003 as its worldwide president. Prior to joining
Cordis, Donal worked for 12 years with Baxter
Healthcare, rising from plant manager in Ireland
to president of the Cardiovascular Group,
Europe, now Edwards Lifesciences.
Bachelor of Engineering, Master of Business
Administration
COMMITTEE RESPONSIBILITIES:
Chair Quality, Safety and Regulatory Committee,
Member People and Remuneration Committee.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 32
Our Executive Management Team
Lewis Gradon
Lyndal York
Paul Shearer
Andrew Somervell
Winston Fong
Brian Schultz
Debra Lumsden
Nicholas Fourie
Jonti Rhodes
Marcus Driller
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 33
Our Executive Management Team
Lewis Gradon
Managing Director & Chief Executive
Officer
Lewis was appointed Managing Director & CEO
in April 2016. He previously served as Senior Vice
President – Products & Technology and General
Manager – Research and Development. During
his 35 year tenure with Fisher & Paykel, Lewis has
held various engineering positions overseeing the
development of our range of products as well as
the development of our manufacturing, quality,
intellectual property, supply chain and clinical
research functions. He received his Bachelor of
Science degree in physics from the University of
Auckland, New Zealand.
Lyndal York
Chief Financial Officer
Paul Shearer
Senior Vice President – Sales & Marketing
Andrew Somervell
Vice President – Products & Technology
Lyndal was appointed CFO in March 2019.
Before joining Fisher & Paykel Healthcare,
Lyndal was CFO at Asaleo Care and prior to this
held Head of Group Finance and Group Financial
Controller roles at Cochlear in Australia over an
11-year period. She has also spent time in the
US, as VP Corporate Accounting and Reporting
at Edwards Lifesciences. Lyndal is a member
of Chartered Accounts Australia and New
Zealand, a graduate of the Australian Institute of
Company Directors, and received her Bachelor
of Economics from Macquarie University
and Masters in Business Administration from
Pepperdine University.
Paul was appointed Senior Vice President
– Sales & Marketing in 2001. Paul previously
served as the General Manager – Sales and
Marketing of Fisher & Paykel’s healthcare
business from 1996. From 1990 to 1998, Paul
held various positions in the business and
established our sales operations in the UK
and US. He has held various positions with
Computercorp Ltd, a computer systems
integrator, and ICL Ltd., a multinational
computer systems company. Paul received his
Bachelor of Commerce degree in marketing
from the University of Canterbury, New Zealand.
Andrew was appointed Vice President –
Products & Technology in April 2016. Since
joining Fisher & Paykel Healthcare in 2006,
he has held various product development
and operations management roles, and most
recently was General Manager — Product
Groups. He has overseen the development
of the OSA product range and managed
research and development, marketing, clinical,
manufacturing, and aspects of the supply chain.
Before joining Fisher & Paykel Healthcare,
Andrew was a Research Fellow at the University
of Auckland, New Zealand, and holds a
doctorate in physics from the same university.
Debra Lumsden
Vice President – Human Resources
Debra was appointed Vice President – Human
Resources in December 2016. Debra is from
the United Kingdom and has over 20 years’
experience working in HR across a variety of
industries and sectors. Before joining Fisher &
Paykel Healthcare, Debra was Vice President
HR at Gilbarco Veeder-Root in the UK, where
she headed up HR for Europe, the Middle East,
Africa, and the Asia Pacific regions. She has
also held senior roles with Insurance Australia
Group, E2V Technologies and BAE Systems.
She has a Bachelor of Science in Social Sciences
from Brunel University and a Master of Business
Administration from Warwick University, United
Kingdom.
Nicholas Fourie
Vice President – Information &
Communication Technology
Nicholas was appointed Vice President –
Information & Communication Technology in
February 2017. Nicholas has been with Fisher
& Paykel Healthcare since 2007, and in that
time has held various systems engineering
and IT management roles, including his most
recent position as ICT Manager – Development
& Engineering. Prior to joining Fisher & Paykel
Healthcare, he was with the South African
division of BHP Billiton. Nicholas holds a
Diploma in Computer Engineering from Damelin
School of Information Technology in South
Africa.
Winston Fong
Vice President – Surgical Technologies
Winston was appointed Vice President
– Surgical Technologies in 2017. Winston
previously served as Vice President – ICT from
2010 and held various IT management, systems
engineering and software development roles in
the business since 1999. Winston received his
Bachelor of Engineering degree with honours
in Electronics & Software Engineering from
Manukau Institute of Technology and Master of
Business Administration from the University of
Auckland, New Zealand.
Jonti Rhodes
General Manager – Supply Chain
Jonti was appointed General Manager – Supply
Chain in 2015. Jonti joined Fisher & Paykel
Healthcare in 2007 as a product design
engineer, and since that time has held roles,
both in New Zealand and the United States,
in quality, regulatory, and most recently as
Group Logistics Manager. Jonti has overseen
the implementation of the New Zealand and
US distribution hubs and played a key role in
the development of our product surveillance
system. He holds a Bachelor of Engineering
(Mechanical) from Auckland University
of Technology and a Master of Business
Administration from the University of Auckland.
Brian Schultz
Vice President – Quality & Regulatory
Brian was appointed Vice President – Quality
& Regulatory Affairs in 2015. Brian previously
served as Quality Manager for New Zealand
Manufacturing since joining the company in
2011. Prior to joining Fisher & Paykel Healthcare,
Brian held quality management positions
within the medical device and pharmaceutical
industries in Australia, Switzerland, the United
Kingdom and the United States. He received his
Bachelor of Science degree from Grand Valley
State University, Michigan, United States.
Marcus Driller
Vice President – Corporate
Marcus was appointed Vice President –
Corporate in February 2019. Marcus joined Fisher
& Paykel Healthcare in 2009 as an in-house
lawyer and since that time has held roles in legal,
investor relations and corporate affairs and most
recently as General Manager – Corporate. Prior to
joining the company, he was with New Zealand
law firm, Russell McVeagh where he specialised
in corporate and commercial law. Marcus is
admitted as a Barrister and Solicitor of the High
Court of NZ, is a member of the Institute of
Financial Professionals NZ Inc and received his
Bachelor of Commerce and Bachelor of Laws
from the University of Auckland.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 34
Financials
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 FINANCIAL COMMENTARY
35
INCOME STATEMENTS
Year ended 31 March
Operating revenue
Gross profit
Gross margin
Other income
SG&A expenses
R&D expenses
Total operating expenses
Operating profit
Operating margin
Financing expenses (net)
Profit before tax
Taxation
Profit after tax
2018
NZ$M
980.8
650.4
66.3%
5.0
(290.9)
(94.7)
(385.6)
269.8
27.5%
(2.0)
267.8
(77.6)
190.2
2019
NZ$M
1,070.4
715.8
66.9%
5.0
(327.8)
(100.4)
(428.2)
292.6
27.3%
(1.4)
291.2
(82.0)
209.2
Variation
Reported
%
Variation
CC (1)
%
Operating expenses
Operating expenses increased 11% (9% in constant currency) to $428.2 million driven by higher
patent litigation expenses. Excluding total patent litigation expenses of $23.4 million, operating
expense growth was 8% in constant currency, reflecting ongoing expenditure to support global
sales growth and the global ERP implementation.
+9
+10
+8
+9
R&D spend of $100.4 million grew 6%, lower than revenue growth following several years of it
growing above revenue. Over the long term we plan for R&D spend to grow in line with constant
currency revenue growth.
56 bps
58 bps
+0
+13
+6
+11
+8
-17 bps
-30
+9
+6
+10
+0
+11
+6
+9
+7
-8 bps
-145
+9
+7
+9
Financing expenses
Total reported financing expenses includes higher interest income on short term deposits and
capitalised borrowing costs associated with our property projects. Offsetting this was foreign
exchange losses on the translation of foreign currency debt.
Tax
Our effective tax rate for the year was 28.2% down from 29% in the prior year. This decrease was
largely due to a benefit from foreign currency conversions and ongoing lower global tax rates.
Callaghan Grant and R&D Tax Credits
Included within other income is $5 million of income from the Callaghan Innovation growth
grant. This growth grant was recently extended through to 31 March 2021. In May 2019 the
New Zealand Government passed the Taxation (Research and Development Tax Credits) Act
which will be effective for us from 1 April 2019. This provides a 15% tax credit on eligible R&D
expenditure and replaces the Callaghan grant.
1 Constant currency (CC) removes the impact of exchange rate movements. This approach is used to assess the Group’s
underlying comparative financial performance without any distortion from changes in foreign exchange rates. A full
reconciliation and basis of preparation is set out on page 36.
Total profit after tax for the year was up 10% to NZ$209.2 million (9% in constant currency).
Revenue
Operating revenue was NZ$1,070.4 million, which was 9% above last year or 8% in constant
currency. Hospital revenue grew 11% in constant currency driven by the growth in Optiflow nasal
high flow therapy. Homecare revenue grew 4% in constant currency. Strong growth in home
respiratory support and from our SleepStyle OSA CPAP system helped offset the hiatus in OSA
mask launches.
Gross margin
Our gross margin improved by 56 basis points to 66.9%, with a continued benefit from product
mix and our Mexico manufacturing facility. This is above our stated long term target of 65%.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 36
FINANCIAL COMMENTARY CONTINUED
CONSTANT CURRENCY INCOME STATEMENTS
RECONCILIATION OF CONSTANT CURRENCY TO ACTUAL INCOME STATEMENTS
2017
NZ$M
2018
NZ$M
888.4
966.0
(301.8)
(327.7)
586.6
638.3
Variation
2017 to
2018
%
+9
+9
+9
Variation
2018 to
2019
%
+8
+6
+9
2019
NZ$M
1040.8
(347.0)
693.8
Year ended 31 March
Profit before tax (constant currency)
Spot exchange rate effect
Foreign exchange hedging result
66.0%
66.1%
5 bps
66.7%
58 bps
Balance sheet revaluation
Profit before tax (as reported)
2017
NZ$M
228.3
(9.3)
22.1
(2.7)
238.4
2018
NZ$M
255.6
(3.2)
14.7
0.7
267.8
2019
NZ$M
277.6
14.3
(1.9)
1.2
291.2
The reconciliation above illustrates that, when comparing the NZD profit before tax shown in the
actual income statement for the 2019 year with the corresponding prior year:
•
•
the movement in average daily spot exchange rates had a favourable impact of $17.5 million;
and
the result of foreign exchange hedging activities was lower by $16.6 million.
Overall, the net favourable effect of movements in exchange rates and the hedging programme
was $1.4 million, including the impact of balance sheet revaluations.
Year ended 31 March
Operating revenue
Cost of sales
Gross profit
Gross margin
Other income
SG&A expenses
R&D expenses
Operating profit
Operating margin
Financing expenses (net)
Total operating expenses
(360.2)
(385.7)
5.0
5.0
(274.2)
(291.0)
(86.0)
(94.7)
231.4
257.6
26.0%
3.1
2.0
-
+6
+10
+7
+11
5.0
(321.7)
(100.4)
(422.1)
276.7
-
+11
+6
+9
+7
26.7%
62 bps
26.6%
-8 bps
-35
+12
(0.9)
277.6
-145
+9
Profit before tax
228.3
255.6
The significant exchange rates used in the constant currency analysis, being the budget
exchange rates for the year ended 31 March 2019, are USD 0.72, EUR 0.59, AUD 0.93, GBP 0.52,
CAD 0.94, JPY 77 and MXN 13.60.
CONSTANT CURRENCY ANALYSIS
A Constant Currency Income Statement is prepared each month to enable the Board
and management to monitor and assess the Group’s underlying comparative financial
performance without any distortion from changes in foreign exchange rates. Constant
Currency Income statements are presented in New Zealand dollars, restated at the budget
foreign exchange rates for the 2019 financial year. These income statements exclude
the impact of movements in foreign exchange rates, hedging results and balance sheet
translations.
This constant currency analysis is non–conforming financial information, as defined by
the NZ Financial Markets Authority, and has been provided to assist users of financial
information to better understand and assess the Group’s financial performance without the
impacts of spot foreign currency fluctuations and hedging results and has been prepared
on a consistent basis each year.
The Group’s constant currency income statement framework can be found on the
company’s website at www.fphcare.com/ccis.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 FINANCIAL COMMENTARY CONTINUED
FOREIGN CURRENCY IMPACTS
The Group is exposed to movements in foreign exchange rates, with operating revenue
generated in a wide range of currencies as shown below.
US dollars
Euros
Australian dollars
Japanese yen
British pounds
Canadian dollars
50%
19%
6%
5%
4%
3%
New Zealand dollars
1%
Other currencies
12%
37
Foreign exchange hedging position
During the year, downwards volatility allowed opportunities to add cover for future years
although widening interest rate differentials favouring USD made longer dated NZD/USD
hedging more difficult. In particular, USD cover for 2020 to 2022 and EUR cover for 2021 to
2027. These hedges are expected to lead to currency benefits particularly in relation to EUR
hedges added. The hedging position for our main currency exposures as at 24 May 2019 is:
Year to 31 March
USD % cover of expected
exposure
2020
85%
2021
60%
2022
2023
2024
2025–27
15%
0%
0%
USD average rate of cover
0.668
0.656
0.663
EUR % cover of expected
exposure
85%
60%
45%
–
35%
–
20%
0%
–
5%
EUR average rate of cover
0.575
0.545
0.525
0.509
0.502
0.473
Hedging cover has been rounded to the nearest 5%.
The Group’s cost base continued to be more diverse with over 55% of cost of goods sold and
over 55% of operating expenses in currencies other than NZD.
BALANCE SHEET
The NZD weakened against all major currencies compared to the previous year. The USD
conversion rate remained similar to the prior comparable period, with a slight increase in EUR
average conversion exchange rate. While foreign exchange hedging contributed a loss of $1.9
million (2018: $14.7 million gain) to operating profit, new hedging in USD and EUR is expected to
realise benefits in future periods.
The average daily spot rate and the average conversion exchange rate (i.e. the accounting rate,
incorporating the benefit of forward exchange contracts in respect of the relevant financial year)
of the main foreign currency exposures for the reported periods are set out in the table below.
Average daily spot rate
Average conversion exchange rate
Year ended 31 March
USD
EUR
2018
0.7148
0.6115
2019
0.6811
0.5883
2018
0.6823
0.5999
2019
0.6804
0.6039
The effect of balance sheet translations for the year resulted in an increase in operating revenue
of $2.4 million (2018: $1.8 million) and an increase in profit before tax of $1.2 million (2018: $0.7
million).
Trade receivables
Inventory
Less Trade and other payables ++
Working capital
Property, plant and equipment
Intangible assets
Other net assets
Net debt
Net assets
2018
NZ$M
127.8
125.4
(69.4)
183.8
476.4
50.4
0.9
49.9
761.4
2019
NZ$M
136.0
136.1
(87.6)
184.5
601.4
61.5
11.4
54.4
913.2
Change
NZ$M
8.2
10.7
(18.2)
0.7
125.0
11.1
10.5
4.5
151.8
++ Trade and other payables exclude all non current payables and all employee entitlements and provisions
Our balance sheet remains strong with working capital well managed.
Trade receivables and inventories increased largely in line with our business growth. Our debtors
days were within the normal range being 46 days (2018: 45 days). Trade and other payables
includes an increase in capital building projects accruals.
The increase in property plant and equipment includes capital investment of $125 million of
which $83 million related to building additions, primarily our NZ and Mexico new building
projects. The increase included a $34 million revaluation of land in New Zealand and Mexico.
These increases were offset by $34 million of depreciation.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 38
FINANCIAL COMMENTARY CONTINUED
Intangible assets increased by $11 million including patent acquisition costs and ERP
implementation costs. The global SAP rollout will continue over the next two to three years, with
the US office implementation expected in June 2019.
CASH FLOWS
The full statement of cash flows is provided on page 42.
Other net asset increases include an increase in net derivative instrument assets, largely
reflecting continued favourable Euro currency positions.
Funding and Short-term Investments
Loans and borrowings
– Current
– Non Current
Bank overdrafts
Total interest-bearing liabilities
Cash and cash equivalents
Short-term investments
Total cash and investments
Net debt
Gearing
Undrawn debt facilities
2018
NZ$M
(13.7)
(52.5)
(16.2)
(82.4)
31.9
100.4
132.3
49.9
-7.3%
165.3
2019
NZ$M
–
(69.0)
(17.3)
(86.3)
48.2
92.5
140.7
54.4
-6.7%
164.1
Change
NZ$M
13.7
(16.5)
(1.1)
(3.9)
16.3
(7.9)
8.4
4.5
0.6%
(1.2)
The average maturity of loans and borrowings of $69 million was 2.5 years and the currency
split was 85% USD; 4% Euros; 4% Australian dollars and 7% Canadian dollars (with no NZD
denominated debt). Interest-bearing debt increased by approximately $4.5 million including the
impact of currency revaluations, and our ongoing building programme in Mexico.
We hold cash balances and short-term investments, mainly in NZD, of $140.7 million at the end
of the period. This balance, and operating cash generated in 2020, will fund the payment of the
final dividend and ongoing payments for our new building in Auckland.
Gearing1
At 31 March 2019 the group had net cash of $54.4 million and gearing of -6.7%. Gearing is below
the target range of -5% to +5% however is forecast to be within the target range by 31 March
2020 following the completion of the significant building programme in New Zealand and
Mexico.
Year ended 31 March
Operating profit before financing costs
Plus depreciation and amortisation
Change in working capital and other
Net interest paid
Net income tax paid
Operating cash flows
Purchase of land and buildings
Purchase of plant and equipment
Purchase of intangible assets
Free cash flows
Dividends paid
2018
NZ$M
269.8
44.6
4.2
(1.7)
(69.1)
247.8
(41.4)
(41.8)
(15.5)
149.1
(102.5)
2019
NZ$M
292.6
41.7
1.7
(1.1)
(81.6)
253.3
(74.0)
(41.4)
(17.9)
120.0
(114.6)
Change
NZ$M
22.8
(2.9)
(2.5)
0.6
(12.5)
5.5
(32.6)
0.4
(2.4)
(29.1)
(12.1)
Operating cash flows
Cash flows from operations for the year increased 2% to $253.3 million. Excluding tax paid, cash
flows from operations increased by 6%. Tax paid is higher than the prior year largely due to
changes in the calculation and timing of New Zealand provisional tax payments providing a cash
flow benefit in the prior year.
Capital expenditure
Property, plant and equipment purchases for the period were $115 million, an increase from
$83 million in the prior year. The $115 million of purchases in 2019 primarily related to building
projects in New Zealand and Mexico, totaling $74 million with the remaining expenditure being
production tooling and equipment costs.
Dividends
Dividends paid of $115 million were 12% higher than the prior year. 10% of eligible shareholders
took up dividends in the form of fully paid ordinary shares under the dividend reinvestment
plan. This plan has been suspended for the final 2019 dividend payment.
1 Net interest-bearing debt (debt less cash and cash equivalents and short-term investments) to net interest-bearing debt and equity (less hedging reserves).
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 FINANCIAL STATEMENTS
39
CONSOLIDATED INCOME STATEMENT
For the year ended 31 March 2019
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2019
Operating revenue
Cost of sales
Gross profit
Other income
Selling, general and administrative expenses
Research and development expenses
Total operating expenses
Operating profit before financing costs
Financing income
Financing expense
Exchange gain (loss) on foreign currency
borrowings
Net financing expense
Profit before tax
Tax expense
Profit after tax
Basic earnings per share
Diluted earnings per share
Notes
4
5
5
11
16
16
2018
NZ$M
980.8
(330.4)
650.4
5.0
(290.9)
(94.7)
(385.6)
269.8
1.6
(3.7)
0.1
(2.0)
267.8
(77.6)
190.2
2019
NZ$M
1,070.4
Profit after tax
(354.6)
Other comprehensive income
715.8
Items that may be reclassified to profit or loss
5.0
Foreign currency translation reserve
Notes
2018
NZ$M
190.2
2019
NZ$M
209.2
Exchange differences on translation of foreign
operations
Hedging reserves
Changes in fair value in hedging reserves
Transfers to profit before tax
Tax on changes in fair value and transfers to
profit before tax
Items that will not be reclassified to profit or loss
Revaluation of land
Other comprehensive income, net of tax
Total comprehensive income
–
0.2
22.7
(17.6)
(1.4)
–
3.7
29.3
(10.0)
(5.4)
34.1
48.2
193.9
257.4
11
9
(327.8)
(100.4)
(428.2)
292.6
3.3
(2.5)
(2.2)
(1.4)
291.2
(82.0)
209.2
33.4 cps
36.5 cps
33.0 cps
36.2 cps
The accompanying Notes form an integral part of the Financial Statements.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 40
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2019
Balance at 31 March 2017
Total comprehensive income
Dividends paid
Issue of share capital under dividend reinvestment plan
Issue of share capital
Movement in share based payments reserve
Movement in treasury shares
Increase in share capital under share based payment schemes for employee services
Balance at 31 March 2018
Total comprehensive income
Dividends paid
Issue of share capital under dividend reinvestment plan
Issue of share capital
Movement in share based payments reserve
Movement in treasury shares
Increase in share capital under share based payment schemes for employee services
Balance at 31 March 2019
The accompanying Notes form an integral part of the Financial Statements.
Notes
17
15
15
17
15
15
17
15
15
17
15
15
Share
capital
NZ$M
183.5
–
–
11.4
0.5
–
–
6.0
201.4
–
–
12.7
0.4
–
–
6.5
221.0
Treasury
shares
NZ$M
(1.7)
–
–
–
–
–
(1.3)
–
(3.0)
–
–
–
–
–
1.2
–
(1.8)
Retained
earnings
NZ$M
391.0
190.2
(113.9)
–
–
–
–
–
467.3
209.2
(127.3)
–
–
–
–
–
Reserves
NZ$M
88.8
3.7
–
–
–
3.2
–
–
95.7
48.2
–
–
–
0.9
–
–
Total
equity
NZ$M
661.6
193.9
(113.9)
11.4
0.5
3.2
(1.3)
6.0
761.4
257.4
(127.3)
12.7
0.4
0.9
1.2
6.5
549.2
144.8
913.2
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 41
Notes
2018
NZ$M
2019
NZ$M
15
15
17
201.4
(3.0)
467.3
95.7
761.4
221.0
(1.8)
549.2
144.8
913.2
EQUITY
Share capital
Treasury shares
Retained earnings
Reserves
Total equity
Total liabilities and equity
1,025.1
1,206.7
The accompanying Notes form an integral part of the Financial Statements.
On behalf of the Board
24 May 2019
Tony Carter
Chairman
Lewis Gradon
Managing Director and
Chief Executive Officer
CONSOLIDATED BALANCE SHEET
As at 31 March 2019
ASSETS
Current assets
Cash and cash equivalents
Short-term investments
Trade and other receivables
Inventories
Derivative financial instruments
Tax receivable
Total current assets
Non-current assets
Derivative financial instruments
Other receivables
Property, plant and equipment
Intangible assets
Deferred tax assets
Total assets
LIABILITIES
Current liabilities
Interest-bearing liabilities
Trade and other payables
Provisions
Tax payable
Derivative financial instruments
Total current liabilities
Non-current liabilities
Interest-bearing liabilities
Provisions
Other payables
Derivative financial instruments
Deferred tax liabilities
Total liabilities
Notes
2018
NZ$M
2019
NZ$M
31.9
100.4
146.0
125.4
18.8
1.7
424.2
36.9
2.5
476.4
50.4
34.7
48.2
92.5
157.9
136.1
19.2
1.4
455.3
47.0
2.6
601.4
61.5
38.9
1,025.1
1,206.7
29.9
112.8
4.7
22.0
9.0
17.3
135.0
4.9
24.4
2.8
178.4
184.4
52.5
2.1
8.6
4.9
17.2
263.7
69.0
2.2
12.7
1.9
23.3
293.5
7
8
6
6
9
10
11
12
13
14
6
12
14
13
6
11
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
42
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2019
CASH FLOWS FROM OPERATING ACTIVITIES
CASH FLOW RECONCILIATION
2018
NZ$M
2019
NZ$M
2018
NZ$M
2019
NZ$M
968.6
1,058.1
Profit after tax
190.2
209.2
Receipts from customers
Grants received
Interest received
Payments to suppliers and employees
(654.9)
(726.9)
Share based payments
5.0
1.0
4.8
3.5
Add (deduct) non-cash items:
Depreciation and amortisation
Movement in provisions
Movement in deferred tax assets / liabilities
Foreign currency translation
Other non-cash items
Net working capital movements:
Trade and other receivables
Inventories
Trade and other payables
Taxation
44.6
4.9
1.6
0.5
(0.8)
(0.1)
50.7
(16.4)
9.6
6.6
7.1
6.9
41.7
5.5
0.3
(3.3)
2.5
(1.3)
45.4
(11.8)
(10.7)
17.4
3.8
(1.3)
Net cash flows from operating activities
247.8
253.3
The accompanying Notes form an integral part of the Financial Statements.
Tax paid
Interest paid
Net cash flows from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Net short-term investments
Sales of property, plant and equipment
Purchases of property, plant and equipment
Purchases of intangible assets
Net cash flows from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Employee share purchase schemes
Issue of share capital
New borrowings
Repayment of borrowings
Dividends paid
Net cash flows from financing activities
Net (decrease) increase in cash
Opening cash
Effect of foreign exchange rates
Closing cash
RECONCILIATION OF CLOSING CASH
Cash and cash equivalents
Bank overdrafts
Closing cash
(69.1)
(2.8)
247.8
(100.0)
0.2
(83.2)
(15.5)
(198.5)
0.9
0.9
31.4
(9.8)
(102.5)
(79.1)
(29.8)
45.6
–
15.8
31.9
(16.1)
15.8
(81.6)
(4.6)
253.3
7.5
0.1
(115.4)
(17.9)
(125.7)
1.8
0.3
40.1
(40.7)
(114.6)
(113.1)
14.5
15.8
0.6
30.9
48.2
(17.3)
30.9
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 Notes to the
Financial
Statements
43
CONTENTS OF THE NOTES
TO THE FINANCIAL STATEMENTS
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
Reporting entity
Basis of preparation and principles of consolidation
Significant transactions and events in the financial
year
Operating revenue and segmental information
Operating profit
Derivative financial instruments
Trade and other receivables
Inventories
Property, plant and equipment
Intangible assets
Income tax
Interest-bearing liabilities
Trade and other payables
Provisions
Share capital
Earnings per share
Reserves
Employee benefits
Contingent liabilities
Commitments
Financial risk management
Significant events after balance date
Other accounting policies
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 44
1. REPORTING ENTITY
Fisher & Paykel Healthcare Corporation Limited (the “Company” or “Parent”) together with its
subsidiaries (the “Group”) is a leading designer, manufacturer and marketer of medical device
products and systems for use in both hospital and homecare settings. Products are sold in over
120 countries worldwide. The Company is a limited liability company incorporated and domiciled
in New Zealand. The address of its registered office is 15 Maurice Paykel Place, East Tamaki,
Auckland. These consolidated financial statements were approved for issue by the Board of
Directors on 24 May 2019.
2. BASIS OF PREPARATION AND PRINCIPLES OF CONSOLIDATION
Statement of compliance and measurement base
The Company is registered under the Companies Act 1993 and is an FMC reporting entity
under Part 7 of the Financial Markets Conduct Act 2013. The Company is also listed on the
New Zealand Stock Exchange (NZX) and the Australian Stock Exchange (ASX). The consolidated
financial statements have been prepared in accordance with the requirements of Part 7 of the
Financial Markets Conduct Act 2013.
These consolidated financial statements for the year ended 31 March 2019 have been prepared
in accordance with New Zealand Generally Accepted Accounting Principles (NZ GAAP). They
comply with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS),
other New Zealand accounting standards and authoritative notices that are applicable to entities
that apply NZ IFRS. The consolidated financial statements also comply with International
Financial Reporting Standards (IFRS). The Group is a for-profit entity for the purposes of
complying with NZ GAAP.
These consolidated financial statements are presented in New Zealand dollars (NZD) to the
nearest million (to one decimal place) unless otherwise stated.
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries
of the Group as at balance date and the results of all subsidiaries for the year then ended. All
subsidiaries are 100% owned within the Group.
Intercompany transactions, balances and unrealised gains on transactions between subsidiary
companies are eliminated. Unrealised losses are also eliminated unless the transaction provides
evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have
been changed where necessary to ensure consistency with the policies adopted by the Group.
Significant accounting policies
Accounting policies are disclosed in each of the applicable notes to the financial statements and
are designated with an
symbol.
Historical cost convention
These consolidated financial statements have been prepared under the historical cost
convention, as modified by the revaluation of financial assets and liabilities (including derivative
instruments) at fair value through profit or loss and/or other comprehensive income, and the
revaluation of land.
Foreign currency
Functional and presentation currency
The consolidated financial statements are presented in NZD, which is the Group’s presentation
currency. Items included in the financial statements of each of the subsidiaries are measured
using the currency of the primary economic environment in which the entity operates (“the
functional currency”).
The Group operates as one integrated business, and the functional currency of all material
global operations is New Zealand dollars, with the exception of the Fisher & Paykel Healthcare
Mexico Properties S.A. de C.V (“Mexico Properties”) which was established for the purpose
of holding the Group’s property in Mexico. Upon completion of the Mexico Properties capital
project it was determined that the functional currency is United States dollars (USD). The results
and financial position of entities that have a different functional currency are translated to NZD
as follows: assets and liabilities are translated at the exchange rate at balance date and Income
Statement items are translated at the average exchange rates for the year. Exchange differences
are recognised in other comprehensive income as a currency translation reserve movement.
Transactions and balances
Foreign currency transactions are translated into the relevant functional currency at the
exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the translation at period end exchange
rates of monetary assets and liabilities denominated in foreign currencies are recognised in the
Income Statement, except when deferred in other comprehensive income as qualifying cash
flow hedges and qualifying net investment hedges.
Critical accounting estimates and judgements
The preparation of financial statements in conformity with NZ IFRS requires the use of
certain critical accounting estimates. It also requires management to exercise its judgement
in the process of applying the Group’s accounting policies. The Directors regularly review all
accounting policies and areas of judgement in presenting the financial statements. Significant
estimates are disclosed in each of the applicable notes to the financial statements and are
designated with an
symbol.
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 3. SIGNIFICANT TRANSACTIONS AND EVENTS IN THE FINANCIAL YEAR
The following significant transactions and events affected the financial performance and
financial position of the Group for the year ended 31 March 2019:
Global patent infringement litigation settlement
In February 2019, Fisher & Paykel Healthcare reached an agreement with ResMed to settle all
outstanding patent infringement disputes between the companies in all venues around the
world.
Under the agreement, all ongoing infringement proceedings against named products were
dismissed. The settlement involved no payment by either party. During the year, the Group
incurred net intellectual property litigation expenses of $23.4 million (2018: $15.6 million).
Further details are included in Note 19.
Capital expenditure
During the year, the building of the Group’s new production facility in Tijuana, Mexico was
completed. Production at the facility is expected to begin in FY20. To date, spending on
the land and building project totals $58.1 million (2018: $10.3 million), excluding furniture
and fittings.
During the year, construction work has progressed for a fourth building on our Auckland,
New Zealand campus. Capital commitments at 31 March 2019 include $69.9 million related to
this project (2018: $126.4 million). To date, spending on this project totals $69.2 million (2018:
$10.3 million). The building is expected to be operational in 2020.
45
4. OPERATING REVENUE AND SEGMENTAL INFORMATION
Sales revenue
Foreign exchange gain (loss) on hedged sales
Total operating revenue
Revenue by Product Group
Hospital products
Homecare products
Distributed and other products
Total operating revenue
Revenue after hedging by geographical location of customer:
North America
Europe
Asia Pacific
Other
Total operating revenue
2018
NZ$M
964.5
16.3
2019
NZ$M
1,072.1
(1.7)
980.8
1,070.4
572.1
398.1
970.2
10.6
980.8
458.5
297.6
181.0
43.7
980.8
642.3
421.4
1,063.7
6.7
1,070.4
501.5
314.6
208.1
46.2
1,070.4
Revenue is recognised at the point in time performance obligations are satisfied by
transferring control of goods to the customer at the transaction price specified in the
contract. Control typically transfers to the customer at the same time as the legal title
passes to the customer, typically on delivery. The transaction price includes all amounts
which the Group expects to be entitled to net of sales taxes and other indirect taxes,
expected rebates and discounts. Where applicable, rebates and/or discounts are included
within the consideration using an estimation typically based on the most likely method,
and are only recognised to the extent that it is highly probable that a significant reversal
will not occur.
There are no significant financing components in the Group’s revenue arrangements.
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
46
4. OPERATING REVENUE AND SEGMENTAL INFORMATION (CONTINUED)
5. OPERATING PROFIT
Segment reporting
The Group operates predominantly in one segment - being the design, manufacture, marketing
and sale of medical devices and systems globally. These products and systems are for use in
respiratory care, acute care, surgery and the treatment of OSA in the home and within the
hospital. Resource allocation decisions are made to optimise the consolidated Group’s financial
operating profit.
During the year management has reassessed the determination of operating segments. This
determination is made to be consistent with the internal reporting provided to the chief
operating decision-maker (CODM), being a group comprising the Board of Directors (which
includes the Chief Executive Officer), Vice-President – Products and Technology, Senior Vice-
President - Sales and Marketing and the Chief Financial Officer.
Revenue is disclosed by the following regions:
North America – United States of America and Canada.
Europe – United Kingdom, France, Germany, Sweden, Turkey, Russia and neighbouring European
countries.
Asia-Pacific – Australia, Japan, India, China, South Korea, Taiwan and Hong Kong.
Other – New Zealand, Latin America, Africa, the Middle East and other countries not included in
the above list.
Non current asset disclosures by geographical location are included in Note 9.
Profit before tax is after charging the following specific expenses:
Auditors’ fees:
Statutory audit and half year review (a)
Other assurance and audit related services (b)
Total audit, other assurance services and audit related services
Other services (c)
Total fees paid to auditors
Donations
Inventory written off (net)
Rental and lease expense
Intellectual property litigation expense (net – refer Note 19)
2018
NZ$M
2019
NZ$M
1.0
0.1
1.1
0.1
1.2
0.2
6.3
11.2
15.6
0.9
0.1
1.0
0.1
1.1
0.1
3.5
13.0
23.4
Other fees paid to auditors
(a) Statutory audit and half year review includes $306,000 (2018: 291,000) paid to PwC
Network firms in the United Kingdom, France Germany, Sweden, Hong Kong, China and Mexico.
(b) Other assurance and audit related services of $50,100 (2018: $60,000) include assurance
procedures in relation to compliance with the constant currency framework and assessment of
eligible expenditure for the purposes of the research and development grant and scrutineering
the counting of votes at the Annual Shareholders’ Meeting (ASM).
(c) Other services in 2019 include treasury risk management advice, remuneration benchmarking
as well as tax compliance. In 2018, other services included these items as well as accounting
standards advice and risk management advice.
Profit before tax is after crediting the following specific income:
Research and development growth grant
5.0
5.0
Government Grants are recognised in the Income Statement over the same period that the
related costs are expensed. Government Grants are recognised when there is reasonable
assurance the Group will comply with the conditions attaching to the grants.
Research and development growth grant
The Callaghan Growth Grant provides reimbursement for eligible research and development
‘R&D’ expenditure up to a maximum of $5.0 million per annum (excluding GST). The initial three
year term of the Callaghan Growth Grant concluded on 30 September 2016 and was extended
to 30 September 2018. The Group has been granted a further extension to 31 March 2021.
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
6. DERIVATIVE FINANCIAL INSTRUMENTS
CURRENT
Foreign currency forward exchange contracts – cash flow hedges
Foreign currency forward exchange contracts – not hedge accounted
Foreign currency option contracts – cash flow hedges
Foreign currency option contracts – time value
Interest rate swaps – cash flow hedges
Interest rate options – cash flow hedges
NON-CURRENT
Foreign currency forward exchange contracts – cash flow hedges
Foreign currency option contracts – cash flow hedges
Foreign currency option contracts – time value
Interest rate swaps – cash flow hedges
Interest rate options – cash flow hedges
47
2018
2019
Assets
NZ$M
Liabilities
NZ$M
Assets
NZ$M
Liabilities
NZ$M
14.4
8.6
14.7
4.0
0.1
0.1
0.2
18.8
27.0
8.4
0.6
0.6
0.3
36.9
0.2
0.1
0.1
–
9.0
4.7
–
–
0.2
–
4.9
0.2
3.8
0.3
0.1
0.1
19.2
43.0
3.1
0.5
0.3
0.1
47.0
2.6
–
–
–
0.2
–
2.8
1.6
–
–
0.3
–
1.9
Derivatives are initially recognised at fair value on the date a derivative contract is entered
into, and are subsequently re-measured to their fair value. The method of recognising
the resulting gain or loss depends on whether the derivative is designated as a hedging
instrument and, if so, the nature of the item being hedged. The Group generally applies hedge
accounting to all derivative financial instruments.
The Group designates certain derivatives as either (1) hedges of the fair value of recognised
assets or liabilities or a firm commitment (fair value hedges) or (2) hedges of highly probable
forecast transactions (cash flow hedges). At the inception of the transaction the Group
documents the relationship between hedging instruments and hedged items, as well as the
risk management objective and strategy for undertaking various hedge transactions.
The Group also documents their assessment, both at hedge inception and on an ongoing
basis, of whether the derivatives that are used in hedging transactions have been and will
continue to be highly effective in offsetting changes in fair values or cash flows of hedged
items. Any ineffective portion is recognised immediately in the Income Statement. Derivatives
that are designated as hedges will be classified as non-current if they have maturities greater
than 12 months after the balance sheet date.
Some components of hedge accounted derivatives are excluded from the designated
risk. Cash flow hedges include only the intrinsic value of options. Time value on options is
excluded from the hedge designation and is marked to market through Other Comprehensive
Income and accumulated within a separate component of equity (‘the Costs of Hedging
Reserve’ within ‘Hedging Reserves’) until such time as the related hedge accounted cash
flows affect profit or loss. At this stage the cumulative amount is reclassified to profit or loss.
Master netting arrangements
The Group enters into derivative transactions under the International Swaps and Derivatives Associate (ISDA) master agreements. The ISDA agreements do not meet the criteria for offsetting
derivatives in the balance sheet. Netting arrangements are only enforceable upon early termination, for example, on occurrence of a credit default.
Refer to Note 21 for information on the calculation of fair values and maturity of undiscounted cash flows for these financial instruments.
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
48
6. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
Contractual amounts of derivative financial instruments were as follows:
Undiscounted foreign currency contractual amounts for outstanding hedges were as follows:
Foreign currency forward contracts and options
Sale commitments forward exchange contracts
Purchase commitments forward exchange contracts
Foreign currency borrowing forward exchange contracts
NZD call option contracts purchased
Collar option contracts – NZD call options purchased (i)
Collar option contracts – NZD put options sold (i)
Interest rate derivatives
Interest rate swaps
Interest rate options
(i) Foreign currency contractual amounts of put and call options are equal.
2018
NZ$M
879.3
60.7
8.5
–
113.7
125.5
42.1
20.7
2019
NZ$M
982.1
63.1
23.5
7.7
86.3
94.6
50.2
22.0
Sale commitments
United States dollars
European Union euros
Australian dollars
British pounds
Canadian dollars
Japanese yen
Chinese yuan
Korean won
Swedish kronor
Danish krone
Purchase commitments
Mexican pesos
Foreign Currency
2018
M
2019
M
US$294.5
US$302.8
€210.7
A$19.6
£21.5
C$21.0
€241.5
A$16.5
£19.4
C$26.6
¥3,670.0
¥4,925.0
¥82.5
¥88.0
₩8,553.7
₩7719.1
kr38.3
kr4.5
kr23.3
kr3.5
MXN$855.5
MXN$941.0
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 7. TRADE AND OTHER RECEIVABLES
8. INVENTORIES
CURRENT
Trade receivables
Loss allowance for doubtful trade receivables
Other receivables
2018
NZ$M
2019
NZ$M
128.3
(0.5)
127.8
18.2
146.0
136.4
(0.4)
136.0
21.9
157.9
Materials
Finished products
Provision for obsolete inventories
49
2018
NZ$M
32.6
103.1
(10.3)
125.4
2019
NZ$M
38.8
107.0
(9.7)
136.1
Inventories are stated at the lower of cost or net realisable value. Cost is determined using
the first-in, first-out (FIFO) method and includes expenditure incurred in acquiring the
inventories and bringing them to their existing location and condition. The cost of finished
goods comprises raw materials, direct labour, other direct costs and related production
overheads (based on normal operating capacity). Net realisable value is the estimated
selling price in the ordinary course of business, less applicable variable selling expenses.
Trade receivables are recognised initially at fair value and subsequently measured at
amortised cost using the effective interest method, less loss allowance for doubtful
trade receivables. Bad debts are written off when they are considered to have become
uncollectable.
Trade receivables credit risk
As at balance date 84% of trade receivables were current (2018: 86%) with less than 1% (2018:
1%) more than 90 days past due. The total loss allowance for doubtful trade receivables covers
the majority of these more than 90 days past due balances.
Customer and receivable concentration
Five largest customers’ proportion of the Group’s:
Operating revenue
Trade receivables
2018
2019
17.5%
12.9%
18.0%
16.6%
There is no history of default in relation to these customers. Further information about the credit
quality and the Group’s exposure to credit risk can be found in Note 21.
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
50
9. PROPERTY, PLANT AND EQUIPMENT
Reconciliation of carrying amounts at the beginning and end of the year
Cost and revaluation
Balance at 31 March 2017
Additions
Transfers
Disposals
Foreign exchange differences
Land
Buildings
Fair Value
NZ$M
Structure
NZ$M
Fit out
and other
NZ$M
117.0
19.9
1.2
–
0.1
89.5
128.7
–
–
–
–
1.1
1.9
–
–
Plant &
equipment
Capital projects
Total
NZ$M
280.5
8.4
30.8
(36.0)
–
Buildings
NZ$M
Other
NZ$M
3.3
20.5
(1.0)
–
–
50.2
36.2
(32.9)
–
–
NZ$M
669.2
86.1
–
(36.0)
0.1
719.4
Balance at 31 March 2018
138.2
89.5
131.7
283.7
22.8
53.5
Revaluation recognised in asset
revaluation reserve
34.1
–
Additions
Transfers
Disposals
Foreign exchange differences
–
7.4
–
0.3
0.3
27.1
–
–
–
1.1
8.6
–
–
–
–
–
34.1
13.9
25.6
(4.4)
–
82.9
(43.1)
–
–
26.9
(25.6)
–
–
125.1
–
(4.4)
0.3
Balance at 31 March 2019
180.0
116.9
141.4
318.8
62.6
54.8
874.5
Depreciation and impairment losses
Balance at 31 March 2017
Depreciation charge for the year
Disposals
Balance at 31 March 2018
Depreciation charge for the year
Disposals
Balance at 31 March 2019
Carrying amounts
At 31 March 2017
At 31 March 2018
At 31 March 2019
–
–
–
–
–
–
–
117.0
138.2
180.0
16.3
1.8
–
18.1
2.0
–
20.1
73.2
71.4
96.8
58.3
6.5
–
64.8
5.7
–
70.5
70.4
66.9
70.9
169.4
26.7
(36.0)
160.1
26.6
(4.2)
182.5
111.1
123.6
136.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.3
22.8
62.6
50.2
53.5
54.8
244.0
35.0
(36.0)
243.0
34.3
(4.2)
273.1
425.2
476.4
601.4
Buildings additions in New Zealand and Mexico include capitalised finance costs of $2.2 million (2018: $0.7 million).
The average effective interest rate used is between 2.8% and 5.4% (2018: 3% and 4.4%).
Land is measured at fair value, based on periodic
but at least triennial valuations by external
independent valuers less any impairment losses
recognised after the date of the revaluation.
Valuations are performed with sufficient regularity
to ensure that the fair value does not differ
materially from its carrying amount.
All other property, plant and equipment is stated
at historical cost less depreciation and impairment.
Historical cost includes expenditure that is directly
attributable to the acquisition of the items. This
cost includes labour attributable to bringing the
assets to the location and working condition for its
intended use.
Depreciation is generally calculated using the
straight line method and is expensed over the
estimated useful lives. Depreciation methods,
residual values and useful lives are reassessed at
each reporting date. Estimated useful lives are as
follows:
Buildings – structure
25 – 50 years
Buildings – fit-out and other
3 – 50 years
Plant and equipment
3 – 15 years
An asset’s carrying amount is written down
immediately to its estimated recoverable amount
if the asset’s carrying amount is greater than its
estimated recoverable amount.
Revaluations of land
Any revaluation increment is credited to the asset
revaluation reserve included in equity, except to
the extent that it reverses a revaluation decrement
for the same asset previously recognised in the
Income Statement, in which case the increment is
recognised in the Income Statement.
Any revaluation decrement is recognised in the
Income Statement, except to the extent that
it offsets a previous revaluation increment for
the same asset, in which case the decrement is
debited directly to the asset revaluation reserve
to the extent of the credit balance existing in the
revaluation reserve for that asset. Upon disposal
or derecognition, any revaluation reserve relating
to the particular asset being sold is transferred to
retained earnings.
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
9. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Property, plant and equipment and intangible assets by geographical location:
51
New Zealand
Mexico
North America
Europe
Asia Pacific
Other
Land revaluation
As described in Note 21 land in Mexico and New Zealand is considered to be a level 3 asset
within the fair value hierarchy for valuation purposes. There are certain estimates associated
with determining fair value, with the significant input being comparable land sales information
per square metre (‘psm’) for similar properties adjusted to reflect relevant physical and
locational characteristics. Valuation of land is performed in accordance with the provisions of
NZ IAS 16 Property, Plant and Equipment and NZ IFRS 13 Fair Value Measurement.
New Zealand
The New Zealand land holding was valued by Jones Lang LaSalle (JLL NZ), with an effective
date of 31 March 2019 in accordance with the Australia and New Zealand Property Institute
Valuation Standards. The valuation of land ranged from $400 psm for land with improvements
and $350 psm for development land.
Mexico
The Group has approximately 15 hectares of land in Tijuana. An independent valuation of
the Mexico land was conducted by Jones Lang LaSalle (JLL Mexico) as at 31 March 2019
in accordance with the International Valuation Standards. The land has been valued at
US$15.7 million (NZ$23.0 million) representing US$100 psm (NZ$143 psm).
Carrying amounts of land if measured at historical cost
At historical cost
At Fair Value
New Zealand
Mexico
2018
NZ$M
63.5
117.0
2019
NZ$M
70.9
157.0
2018
NZ$M
21.2
21.2
2019
NZ$M
21.2
23.0
2018
NZ$M
438.3
76.9
6.9
2.4
2.2
0.1
2019
NZ$M
542.1
108.7
7.3
2.5
2.2
0.1
526.8
662.9
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
52
10. INTANGIBLE ASSETS
Cost
Balance at 31 March 2017
Additions
Transfers
Disposals
Balance at 31 March 2018
Additions
Transfers
Disposals
Balance at 31 March 2019
Amortisation and impairment losses
Balance at 31 March 2017
Amortisation for the year
Disposals
Balance at 31 March 2018
Amortisation for the year
Disposals
Balance at 31 March 2019
Carrying amounts
At 31 March 2017
At 31 March 2018
At 31 March 2019
Patents,
trademarks &
applications
Software
Other
ERP project in
progress
Total
NZ$M
NZ$M
NZ$M
NZ$M
NZ$M
44.4
4.4
0.3
(0.9)
48.2
3.5
2.7
(0.1)
54.3
16.7
3.6
(0.8)
19.5
3.9
–
23.4
27.7
28.7
30.9
34.0
8.0
–
–
42.0
10.6
–
(1.4)
51.2
18.9
6.0
–
24.9
3.5
(1.4)
27.0
15.1
17.1
24.2
5.0
–
–
–
5.0
–
–
–
5.0
3.6
–
–
3.6
–
–
3.6
1.4
1.4
1.4
0.3
3.2
(0.3)
–
3.2
4.5
(2.7)
–
5.0
–
–
–
–
–
–
–
0.3
3.2
5.0
83.7
15.6
–
(0.9)
98.4
18.6
–
(1.5)
115.5
39.2
9.6
(0.8)
48.0
7.4
(1.4)
54.0
44.5
50.4
61.5
Software: Acquired computer software licences are initially
capitalised at cost, which includes the purchase price and other
directly attributable cost of preparing the asset for its intended
use including employee costs. Direct expenditure, which
enhances or extends the performance of computer software
beyond its specifications and which can be reliably measured,
is added to the original cost of the software. Software costs are
amortised over the useful economic life of 3 to 15 years.
The ERP implementation project costs are transferred from ERP
project in progress to Software, as each stage is completed.
Patents and trademarks: Patents and trademarks have a finite
useful life and are carried at cost less accumulated amortisation
and impairment losses. Amortisation is calculated using
the straight line method to allocate the cost of patents and
trademarks over their anticipated useful lives of 5 to 15 years.
In the event of a patent being superseded or a trademark
registration is not continued or renewed, the unamortised costs
are expensed immediately.
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
11. INCOME TAX
INCOME TAX EXPENSE
Profit before tax
Tax expense at the New Zealand rate of 28%
Adjustments to tax:
Non-assessable income
Non-deductible expenses
Foreign rates other than 28%
Effect of foreign currency translations
Prior period over provision
Tax expense
This is represented by:
Current tax
Deferred tax
Tax expense
Effective tax rate
DEFERRED TAX
Balance at 31 March 2017
Amounts recognised in:
Other comprehensive income
Directly in equity
In the Income Statement
Balance at 31 March 2018
Amounts recognised in:
Other comprehensive income
Directly in equity
In the Income Statement
Balance at 31 March 2019
53
2018
NZ$M
267.8
75.0
(0.4)
1.7
1.1
(0.1)
0.3
77.6
77.1
0.5
77.6
29.0%
2019
NZ$M
291.2
81.5
(0.3)
2.4
(0.2)
(0.8)
(0.6)
82.0
85.2
(3.2)
82.0
28.2%
Tax expense comprises current and deferred tax. Tax expense is recognised in the Income
Statement except to the extent that it relates to items recognised outside of the Income
Statement, in which case it is recognised in Other Comprehensive Income or directly in Equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates
enacted or substantively enacted at the balance date. It also includes any adjustment to tax
payable in respect of previous financial years.
Deferred tax arises due to temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and those for tax purposes.
Deferred tax is determined using tax rates (and laws) that have been enacted or
substantively enacted by balance date and are expected to apply when the related deferred
tax asset is realised or the deferred tax liability is settled.
IMPUTATION CREDITS
New Zealand imputation credits available for use in subsequent
reporting periods
Australian franking credits available for use in subsequent
reporting periods
2018
M
2019
M
NZ$92.5
NZ$118.8
A$8.3
A$9.1
Provisions and
accruals
Property,
plant and
equipment and
intangibles
Financial
instruments
NZ$M
42.3
–
–
2.4
44.7
–
–
6.1
50.8
NZ$M
(16.9)
–
–
(2.5)
(19.4)
–
–
(3.6)
(23.0)
NZ$M
(8.9)
(1.4)
–
(0.6)
(10.9)
(5.4)
–
(0.3)
(16.6)
Other
NZ$M
1.0
–
1.9
0.2
3.1
–
0.3
1.0
4.4
Total
NZ$M
17.5
(1.4)
1.9
(0.5)
17.5
(5.4)
0.3
3.2
15.6
Deferred tax assets and liabilities are offset within the Balance Sheet where they relate to income taxes levied by the same taxation authority.
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
54
12. INTEREST-BEARING LIABILITIES
CURRENT
Bank overdrafts
Borrowings
NON-CURRENT
Borrowings expiring
Between one and two years
Between two and three years
Between three and four years
Between four and five years
2018
NZ$M
16.1
13.8
29.9
–
52.5
–
–
52.5
2019
NZ$M
17.3
–
17.3
44.1
–
–
24.9
69.0
Borrowings are recognised initially at fair value, net of transaction costs incurred.
Subsequent to initial recognition, borrowings are measured at amortised cost, applying the
effective interest rate method. Financing expenses directly attributable to the acquisition,
construction or production of a qualifying asset are capitalised as part of the cost of that
asset.
Borrowings are classified as current liabilities unless the Group has an unconditional right
to defer settlement of the liability for at least 12 months after the reporting date.
Borrowing Facilities
Borrowings have been aged in accordance with the expiry dates of the facilities as there are no
required principal payments before the expiry of each facility. At year end the weighted average
interest rate is 2.7% (2018: 2.4%).
Key lenders to the Group are Debt Certificate Holders under the Negative Pledge Deed. In
April 2017, an amended Negative Pledge Deed was executed. The negative pledge includes the
covenant that security can be given only in limited circumstances.
The companies in the Group providing the undertakings under the amended Negative Pledge
Deed are:
Fisher & Paykel Healthcare Corporation Limited
Fisher & Paykel Healthcare Limited
Fisher & Paykel Healthcare Treasury Limited
Fisher & Paykel Healthcare Properties Limited
The principal covenants of the negative pledge are that:
(a) the interest cover ratio for the Group shall not be less than 3 times earnings before
interest, tax, depreciation and amortisation (EBITDA);
(b) the net tangible assets of the Group shall not be less than $200 million; and
(c) the total tangible assets of the Guaranteeing Group shall constitute at least 80% of the
total tangible assets of the Group.
Refer to Note 21 (d) for further information on these covenants.
Unused lines of credit
Bank overdraft facilities
Borrowing facilities
2018
NZ$M
26.8
138.5
165.3
2019
NZ$M
31.2
145.0
176.2
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
13. TRADE AND OTHER PAYABLES
14. PROVISIONS
CURRENT
Trade payables
Employee entitlements
Other payables and accruals
NON-CURRENT
Employee entitlements
Other payables and accruals
2018
NZ$M
32.7
43.4
36.7
2019
NZ$M
55.1
47.4
32.5
Warranty provision
CURRENT
Balance at beginning of the year
Current year provision
112.8
135.0
Warranty expenses incurred
8.0
0.6
8.6
11.2
1.5
12.7
Balance at end of the year
NON-CURRENT
Balance at beginning of the year
Current year provision
Warranty expenses incurred
Balance at end of the year
55
2018
NZ$M
2019
NZ$M
3.2
8.6
(7.1)
4.7
2.0
0.1
-
2.1
4.7
7.6
(7.4)
4.9
2.1
0.1
-
2.2
Trade and other payables represent liabilities for goods and services provided to the Group
prior to the end of the financial period which are unpaid. The amounts are unsecured and
are usually paid within 60 days of recognition. Trade payables are recognised initially at fair
value and subsequently measured at amortised cost using the effective interest method.
Refer to Note 18 for further details of employee entitlements and benefits.
Provisions are recognised where the Group has a present legal or constructive obligation
as a result of past events and it is more likely than not that an outflow of resources will be
required to settle the obligation, and the amount can be reliably estimated.
Warranty
Provision for warranty covers the obligations for the unexpired warranty periods for
products, based on recent historical costs incurred on warranty exposure. Currently typical
warranty terms are 1 to 2 years for parts or parts and labour.
As the provision for warranty is based on historical warranty rates, the actual future
warranty claims experienced by the Group may be different to that of the past. Factors
that could impact the provision for warranty include the success of the Group’s quality
system, as well as future parts and labour costs. Where the Group is aware of specific
product warranty issues these are included in the provision.
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
56
15. SHARE CAPITAL
16. EARNINGS PER SHARE
Share capital at beginning of the year
Issue of share capital under dividend reinvestment plan (i)
Issue of share capital
Increase in share capital under share based payment schemes
for employee services
Share capital at end of the year
Less treasury shares (ii)
Number of issued shares
2018
NZ$M
183.5
11.4
0.5
6.0
201.4
(3.0)
198.4
2019
NZ$M
201.4
Profit after tax
2018
NZ$M
190.2
2019
NZ$M
209.2
12.7
Weighted average number of ordinary shares
570,023,436
572,780,545
Adjustment for share options, PSRs and ESRs
6,426,201
5,270,055
0.4
6.5
Weighted average number of ordinary shares
for diluted earnings per share
221.0
Basic earnings per share (cents per share)
(1.8)
Diluted earnings per share (cents per share)
219.2
576,449,637
578,050,600
33.4 cps
36.5 cps
33.0 cps
36.2 cps
Basic earnings per share is calculated by dividing the profit after tax of the Group by the
weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share is calculated by adjusting the weighted average number
of ordinary shares outstanding to assume conversion of all dilutive potential ordinary
shares. Options, Performance Share Rights (PSRs) and Employee Share Rights (ESRs) are
convertible into the Company’s shares, and are therefore considered dilutive securities for
diluted earnings per share.
Number of shares on issue at beginning of the year
567,686,436
571,230,264
Shares issued:
Dividend reinvestment plan (i)
Employee share purchase schemes
Exercise of share options
946,443
918,827
182,982
138,619
90,510
77,980
Exercise of share options under cancellation facility
1,727,514
954,488
Exercise of performance share rights
548,270
436,670
Number of shares on issue at end of the year
571,230,264
573,708,739
Less treasury shares (ii)
(425,725)
(210,457)
570,804,539
573,498,282
Incremental costs directly attributable to the issue of new shares or options are shown
in equity as a deduction. Where any Group company purchases the Company’s equity
share capital (treasury shares), the consideration paid, including any directly attributable
incremental costs (net of income taxes), is deducted from equity attributable to the
Company’s equity holders until the shares are cancelled or reissued.
Where such shares are subsequently reissued, any consideration received (net of any
directly attributable incremental transaction costs and the related income tax effects) is
included in equity attributable to the Company’s equity holders.
All shares are fully paid. All ordinary shares rank equally with one vote attached to each fully
paid ordinary share.
(i) Shares were issued under the Company’s dividend reinvestment plan at an average price of
$13.87 (2018: $12.05) per share.
(ii) The treasury shares are those shares held and controlled by Fisher & Paykel Healthcare
Employee Share Purchase Trustee Limited.
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
57
Dividends
All dividends are recognised as distributions to shareholders.
During the year, supplementary dividends of $13.6 million were paid to non resident
shareholders (2018: $10.7 million), for which the Group received an equivalent foreign investor
tax credit entitlement. The foreign investor tax credit entitlement is included in income taxes
paid within the Statement of Cash Flows.
Dividends
2017 final
2018 interim
31 March 2018
2018 final
2019 interim
31 March 2019
Cents per
share
11.25
8.75
20.00
12.50
9.75
22.25
NZ$M
64.0
49.9
113.9
71.5
55.8
127.3
Subsequent event – dividend declared
On 24 May 2019 the directors approved the payment of a fully imputed 2019 final dividend of
$77.5 million (13.50 cents per share) to be paid on 5 July 2019. A supplementary dividend of
2.3824 cents per share was also approved for eligible non-resident shareholders.
17. RESERVES
Hedging reserves
Asset revaluation reserve
Employee share based payment reserves
Foreign currency translation reserve
Total reserves
Nature and purpose of reserves
2018
NZ$M
30.2
53.5
12.0
–
95.7
2019
NZ$M
44.1
87.6
12.9
0.2
144.8
Hedging reserves
Cash flow hedge reserve: This reserve is used to record unrealised gains or losses on hedging
instruments that are recognised directly in equity.
Costs of hedging reserve: This reserve contains the cumulative net change in the time value on
currency options which are excluded from hedge designations of foreign currency risk.
Amounts are recycled to the Income Statement when the associated hedged transactions affect
the Income Statement.
Asset revaluation reserve
The asset revaluation reserve relates to the revaluation of land. For details refer to Note 9.
Share based payment reserves
Employee share option reserve: This reserve is used to recognise the fair value of options, PSRs
and ESRs granted but not exercised or lapsed. Tax deductions in excess of the cumulative share
based payment expense are recognised in equity.
Amounts are transferred to share capital (including income tax benefits) when the vested
options or performance share rights are exercised by the employee or lapse upon expiry.
Employee share entitlement reserve: This reserve is used to recognise the fair value of shares
granted but not exercised or lapsed. Amounts are transferred to share capital when the shares
are exercised or lapsed.
Foreign currency translation reserve
The foreign currency translation reserve contains foreign exchange differences arising on
consolidation of assets and liabilities of overseas entities with a functional currency other than
New Zealand dollars.
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 58
18. EMPLOYEE BENEFITS
Wages and salaries
Other employment costs
Employer contributions to defined contribution superannuation
plans inclusive of tax
Equity settled share based payment expense
Movement in liability for long service leave
2018
302.7
15.2
8.4
4.9
0.7
2019
NZ$M
337.8
12.2
9.2
5.5
3.0
331.9
367.7
Wages and salaries, annual leave and sick leave
Liabilities for wages and salaries, including non-monetary benefits, annual leave and
accumulating sick leave, are recognised within employee entitlements in respect of
employees’ services up to the reporting date, and are measured at the amounts expected
to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are
recognised when the leave is taken and measured at the rates paid or payable.
Equity settled share based payments
The fair value (at grant date) of PSRs, ESRs and options granted to employees is
recognised as an employee expense in the Income Statement over the vesting period with
a corresponding increase in the employee share based payment reserve. When options,
PSRs or ESRs are exercised, the amount in the share based payment reserve relating to
those options, together with the option exercise price paid by the employee, is transferred
to share capital. When any vested options, PSRs or ESRs lapse, upon employee termination
or unexercised options reaching maturity, the amount in the share based payment reserve
relating to those options, PSRs or ESRs is also transferred to share capital.
Long service leave
The liability for long service leave is recognised in employee entitlements in trade and
other payables and measured as the present value of expected future payments to be
made in respect of services provided by employees up to the reporting date. Consideration
is given to expected future wage and salary levels, experience of employee departures and
periods of service. Expected future payments are discounted using market yields at the
reporting date on national government bonds with terms to maturity and currency that
match, as closely as possible, the estimated future cash outflows.
a) Employee share based compensation
The Board believes that the issue of a combination of options and share rights broadly in equal
value proportions provides appropriate incentive for participating employees to grow the
total shareholder return of the Company. The combination of the option, PSR and ESR Plans
assist the Group to attract, motivate and retain key employees in an environment where such
employees are in high demand both within New Zealand and internationally. Options and share
rights are issued to employees as a long-term component of remuneration in accordance with
the Group’s remuneration policy. Details of the option and share based payment arrangements
are described below.
(i) Employee option plans
The Employee Share Option Plans allow employees to acquire shares of the Company. One
option gives the employee the right to subscribe for one ordinary share in the Company subject
to meeting the vesting conditions. No amount is payable for the grant of options.
Options vest at any time between the third and the fifth anniversary of the grant date, as long
as the Company’s share price on the NZX has, at any time on or after the third anniversary,
exceeded the “escalated price” and as long as the employee remains in service. This “escalated
price” is determined using a base price established on or around the grant date being the
volume weighted average price for a share on the NZX for the 5 business days prior to the grant
date; and
•
•
increasing the last calculated base price each year by a percentage determined by the
Board, based on independent advice, to represent the Company’s cost of capital; and
reducing the resulting figure by any dividend paid by the Company in respect of a share in
the 12 month period immediately preceding that anniversary.
(ii) Employee performance share rights plan
The Employee Performance Share Rights (PSR) Plan allows employees to acquire shares of
the Company. One share right gives the employee the potential to exercise a share right for an
ordinary share in the Company at no cost. Share rights become exercisable if the Company’s
gross total shareholder return (TSR) performance exceeds the performance of the Dow Jones
US Select Medical Equipment Total Return Index (DJSMDQT) in New Zealand dollars over the
same period. If the Company’s TSR performance exceeds that of the DJSMDQT at either of the
third, fourth or fifth anniversary of the grant date of the PSRs, some or all of the PSRs become
exercisable as long as the employee remains in service. Where an employee has exercised a
portion of their PSRs before the fifth anniversary of the grant date, the remaining PSRs lapse at
the time that portion has been exercised.
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
59
18. EMPLOYEE BENEFITS (CONTINUED)
(iii) Employee share rights plan
The Employee Share Rights (ESR) Plan was introduced in 2019 and allows certain New Zealand
and Australian employees to acquire shares of the Company. ESRs automatically vest on the
third anniversary of their grant date at no cost to the employee as long as the employee remains
in service, at which point the Company will issue or transfer to the employee one ordinary share
for each vested ESR.
All unexercised PSRs and Options expire on the fifth anniversary of the grant date.
PSRs, ESRs and Options granted to employees have no voting rights until they have been
exercised and ordinary shares issued.
(iv) Other Employee share and stock purchase plans
All New Zealand and Australian full time employees are eligible, after a qualifying period, to
participate in the Employee Share Purchase Plans, with no interest being charged on the loans,
and shares issued at a discount of 20% of market price. The qualifying period between grant
and vesting date is 3 years, at which point the shares are transferred to the employees and
become freely transferable. 210,457 shares (2018: 425,725) are held by the Trustees of the plans,
being 0.0% (2018: 0.1%) of the Company’s issued and paid up capital. At 31 March 2019 the total
receivable owing from employees was $0.6 million (2018: $1.4 million).
North American employees working more than 20 hours per week, in accordance with section
423 of the US Internal Revenue Code, as amended are eligible to participate in an Employee
Stock Purchase Plan. Shares under this Plan are issued at a discount of 15%, are allocated to
employees at the time of issue and vest immediately. Shares issued under this plan in 2019
totalled 90,510 shares (2018: 40,409).
Movements in the number of Options, PSRs and ESRs outstanding and their exercise prices are as follows:
Number outstanding
As at beginning of the year
Granted during the year
Exercised during the year
Lapsed during the year
As at end of the year
Exercisable at year end
Number of employees holding employee share options, PSRs and ESRs
Weighted average exercisable price
Weighted average contractual life (months)
Fair value of share options or rights granted during the year (NZ$M)
Fair value of share options or rights granted during the year ($ per share)
2018
2019
Options
Performance
Share Rights
Employee
Share Rights
Options
Performance
Share Rights
Employee
Share Rights
6,326,248
1,410,109
1,119,685
408,183
(2,527,553)
(548,270)
(90,392)
(38,709)
4,827,988
1,231,313
1,299,717
503
$8.16
33
3.0
$2.72
1,480
503
–
41
3.2
$7.72
–
–
–
–
–
–
–
–
–
–
–
4,827,988
1,231,313
–
670,303
216,937
126,377
(1,569,457)
(436,670)
–
(120,406)
(39,350)
(4,022)
3,808,428
972,230
122,355
929,970
478
$10.46
33
2.3
$3.39
–
478
–
39
2.2
–
227
–
29
1.8
$10.16
$14.38
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 60
18. EMPLOYEE BENEFITS (CONTINUED)
Key inputs and assumptions
Employee Option Plans
Share price at grant date
Exercise price
Expected share price volatility
Dividend yield
Risk free interest rate
Cost of equity
Performance Share Rights
Share price at grant date
NZD/USD exchange rate of grant date
5 year NZD risk free rate
5 year USD risk free rate
Expected share price volatility
Expected NZD/USD volatility
Expected DJSMDQT index volatility
Employee Share Rights
Share price at grant date
Expected share price volatility
Dividend yield
Risk free interest rate
b) Key management and director compensation
2018
2019
Short term benefits
Directors fees
Share based benefits
Employer contributions to defined contribution
superannuation plans
2018
NZ$M
2019
NZ$M
6.6
1.0
1.1
0.2
8.9
6.3
1.0
1.2
0.2
8.7
Key management personnel includes the Chief Executive Officer and direct reports. The
amounts of key management and director compensation outstanding as at balance date are
$1.6 million (2018: $2.5 million).
The table excludes any dividends received on the Company’s shares held by the Directors or key
management personnel.
$12.13
$11.81
27.00%
1.55%
2.47%
8.60%
$12.13
0.7260
2.47%
1.76%
27.00%
12.00%
14.00%
–
–
–
–
$15.16
$14.91
27.00%
1.99%
2.55%
8.20%
$15.16
0.6560
2.59%
2.90%
27.00%
13.00%
13.00%
$15.16
27.00%
1.99%
2.55%
The expected price volatility is derived by analysing the historical volatility over the most recent
historical period corresponding to the term of the Option, PSR or ESR.
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 19. CONTINGENT LIABILITIES
20. COMMITMENTS
Contingent liabilities are subject to uncertainty or cannot be reliably measured and are not
provided for. Disclosures as to the nature of any contingent liabilities are set out below.
Judgements and estimates are applied to determine the probability that an outflow of
resources will be required to settle an obligation. These are made based on a review of the
facts and circumstances surrounding the event and advice from both internal and external
parties.
As previously disclosed, Fisher & Paykel Healthcare and ResMed were involved in patent
litigation in a number of countries.
The dispute included patent infringement proceedings filed by ResMed in the United States
District Court for the Southern District of California, the United States International Trade
Commission (“US ITC”), the Regional Court in Munich, Germany and the High Court of
New Zealand alleging that certain FPH products including its Simplus, Eson and Eson 2 range of
masks and its ICON CPAP device infringe ResMed Patents. It also included patent infringement
proceedings filed by FPH in the United States District Court for the Southern District of
California, the US ITC, the Regional Court in Munich, Germany and the Federal Court of Australia,
alleging that certain ResMed products including its AirSense flow generators, AirFit P10, Swift LT
and Swift FX masks, and ClimateLine heated tubes infringe FPH Patents.
Capital expenditure commitments contracted for but not
recognised as at the reporting date:
Within one year
Between one and two years
Between two and five years
Gross commitments under non-cancellable operating leases:
Within one year
Between one and two years
Between two and five years
Over five years
Each party responded that the patents asserted by the other were not infringed and were
invalid.
Leases
61
2018
NZ$M
2019
NZ$M
99.1
50.3
2.1
151.5
8.8
6.7
7.2
–
79.7
1.2
–
80.9
9.4
8.3
8.3
0.7
22.7
26.7
As disclosed on 21 February 2019, FPH and ResMed reached a settlement on all outstanding
patent infringement disputes between the companies in all venues around the world. The
settlement involves no payment or admission of liability by either side and as a result of the
settlement, there will be no further infringement proceedings by the parties against the above
named ResMed and FPH products.
The parties continue to pursue various patent invalidity proceedings in Europe, the United
States and New Zealand.
The Directors are unaware of any claim or other contingencies that would have a material
impact on the operations of the Group.
Leases in which a significant portion of the risks and rewards of ownership are retained by
the lessor are classified as operating leases. Payments made under operating leases (net of
any incentives received from the lessor) are charged to the Income Statement on a straight
line basis over the period of the lease.
Operating lease commitments relate mainly to building leases. Certain building leases give a
right to renew the lease which are not included in the lease commitments disclosure.
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
62
21. FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk
and interest rate risk), credit risk and liquidity risk.
The Board of Directors has approved policies and guidelines for the Group that identify and
evaluate risks and authorise various financial instruments to manage financial risks. These
policies and guidelines are reviewed regularly.
a. Market risk
(i) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various
currency exposures, primarily with respect to the US dollar, Euro, Japanese yen and Mexican peso.
Foreign exchange risk arises when future commercial transactions and recognised assets and
liabilities are denominated in a currency that is not the entity’s functional currency.
The purpose of the Group’s foreign currency risk management activities is to protect the
Group from exchange rate volatility with respect to New Zealand dollar net cash movements
resulting from the sale of products in foreign currencies to foreign customers, and the purchase
of raw materials in foreign currencies from foreign and domestic suppliers. The Group enters
into foreign currency option contracts and forward foreign currency contracts within policy
parameters to manage the risk associated with anticipated sales or costs. The terms of the
foreign currency option contracts and the forward foreign currency contracts generally do not
exceed 5 years. However, with Board approval, the foreign currency option contracts and the
forward foreign currency contracts may have terms of up to 10 years.
Foreign exchange contracts and options in relation to sales are designated at the Group level as
hedges of foreign exchange risk on specific forecast foreign currency denominated sales.
Major capital expenditure in foreign currency may be hedged with forward exchange contracts
and options and may be designated as hedges.
Balance sheet foreign exchange risk arising from net assets held by the Group may be hedged
either by debt in the relevant currency, foreign currency swaps or by foreign currency option
contracts and forward foreign currency contracts.
(ii) Price risk
The Group has no material exposure to price risk.
(iii) Interest rate risk
The Group’s main interest rate risk arises from floating rate borrowings drawn under bank debt
facilities. When deemed appropriate, the Group manages floating interest rate risk by using
floating-to-fixed interest rate swaps and interest rate options. Interest rate swaps have the
economic effect of converting borrowings from floating to fixed rates. Interest rate options give
the right, but not the obligation, to enter into an interest rate swap at a fixed rate at a future
date. Under the Group Treasury policy, the mix between economically fixed and floating debt
is reviewed on a regular basis. Interest rate swaps and options are accounted for as cash flow
hedges.
The carrying amounts of significant financial assets and liabilities are denominated in the following foreign currencies:
2018
Cash
Short-term investments
Trade receivables
Trade and other payables
Bank overdraft
Borrowings
2019
Cash
Short-term investments
Trade receivables
Trade and other payables
Bank overdraft
Borrowings
NZD
NZ$M
12.7
100.4
1.4
(25.3)
–
–
89.2
27.4
92.5
1.6
(31.7)
–
(2.9)
86.9
USD
NZ$M
11.6
–
53.3
(20.5)
(2.7)
(52.5)
(10.8)
10.0
–
57.8
(23.9)
(2.0)
(55.9)
(14.0)
EUR
NZ$M
JPY
NZ$M
AUD
NZ$M
CAD
NZ$M
GBP
NZ$M
MXN
NZ$M
Other
NZ$M
Total
NZ$M
2.1
–
31.7
(8.5)
(4.0)
(8.5)
12.8
1.6
–
33.2
(6.3)
(2.6)
(4.9)
21.0
0.2
–
14.3
(1.6)
(6.2)
–
6.7
0.3
–
16.1
(1.4)
(10.0)
–
5.0
–
–
6.9
(3.1)
(0.7)
(3.5)
(0.4)
–
–
7.8
(3.2)
(0.4)
(3.4)
0.8
0.4
–
5.5
(0.5)
(0.2)
(1.8)
3.4
0.8
–
5.6
(0.6)
–
(1.9)
3.9
–
–
5.2
(2.9)
(1.0)
–
1.3
–
–
4.7
(3.9)
(1.2)
–
(0.4)
1.5
–
–
(4.0)
–
–
(2.5)
1.7
–
–
(3.4)
–
–
(1.7)
3.4
–
10.0
(3.6)
(1.3)
–
8.5
6.4
–
9.6
(14.7)
(1.1)
–
0.2
31.9
100.4
128.3
(70.0)
(16.1)
(66.3)
108.2
48.2
92.5
136.4
(89.1)
(17.3)
(69.0)
101.7
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 63
21. FINANCIAL RISK MANAGEMENT (CONTINUED)
Summarised sensitivity analysis
The following table summarises the sensitivity of the Group’s financial assets and financial
liabilities to interest rate risk and foreign exchange risk.
A sensitivity of +/-10% for foreign exchange risk has been selected (2018: +/-10%). The Group’s
primary foreign currency exposure is the NZD versus the US dollar, with other currencies as
discussed above forming the balance of the exposure. The Group believes that an overall
sensitivity of +/-10% is reasonably possible given the exchange rate volatility observed on a
historical basis for the preceding 5 year period with a higher weighting given to exchange rate
volatility over the preceding year and the range of market expectations for potential future
movements. A sensitivity of +/-1% has been selected for interest rate risk (2018: +/-1%). This
sensitivity is based on reasonably possible changes over a financial year using the observed
range of historical data for the preceding 5 year period.
All variables other than the applicable interest rates and exchange rates are held constant.
Interest rate change
Impact on net profit after tax
Impact on hedging reserves
(within equity)
Foreign exchange rate change
Impact on net profit after tax
Impact on hedging reserves
(within equity)
2018
2019
NZ$M
-1%
NZ$M
+ 1%
NZ$M
-1%
(0.6)
(1.9)
(2.5)
-10%
0.8
(63.3)
0.6
2.0
2.6
+ 10%
(0.7)
52.7
(0.7)
(1.7)
(2.4)
-10%
(0.9)
(70.1)
(62.5)
52.0
(71.0)
NZ$M
+ 1%
0.7
1.7
2.4
+ 10%
0.7
60.3
61.0
Fair value estimation
NZ IFRS 13 for financial assets and liabilities measured at fair value requires disclosure of the fair
value measurements by level from the following fair value hierarchy:
•
•
•
Level 1 – Quoted price (unadjusted) in active markets for identical assets and liabilities;
Level 2 – Inputs, other than quoted price included within level 1, that are observable for the
asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices);
Level 3 – Inputs for assets and liabilities that are not based on observable market data (that
is, unobservable inputs).
All the Group’s financial instruments held at fair value have been measured at the fair value
measurement hierarchy of level 2 (2018: level 2), as all significant inputs required to ascertain
the fair value are observable.
The fair value of derivative instruments designated in a hedging relationship is determined using
the following valuation techniques:
•
•
•
Foreign currency forward exchange contracts have been fair valued using quoted forward
exchange rates and discounted using yield curves from quoted interest rates that match the
maturity dates of the contracts.
Foreign currency option contracts have been fair valued using observable option volatilities,
and quoted forward exchange and interest rates that match the maturity dates of the
contracts.
Interest rate swaps are fair valued by discounting the future interest and principal cash
flows using current market interest rates that match the maturity dates of the contracts
These valuation techniques maximise the use of observable market data where it is available
and rely as little as possible on entity-specific estimates.
Refer to Note 9 for further information about land that is measured at fair value including a
summary of the valuation techniques used.
All financial assets other than derivatives are classified as loans and receivables including
short-term investments. All financial liabilities other than derivatives are classified as measured
at amortised cost. Financial liabilities measured at amortised cost are fair valued using the
contractual cash flows. The carrying value of financial assets and liabilities other than derivatives
approximates their fair value. In considering the fair value of interest bearing assets and
liabilities the estimated future interest rates approximate the discount rates used in a fair value
assessment.
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 64
21. FINANCIAL RISK MANAGEMENT (CONTINUED)
b. Liquidity risk
Management monitors rolling forecasts of the Group’s liquidity position on the basis of expected cash flow.
The table below set out the contractual, undiscounted cash flows for non-derivative financial liabilities and derivative financial instruments.
2018
Bank overdrafts
Trade and other payables
Borrowings
Total non-derivative financial liabilities
Foreign currency forward exchange contracts
– Inflow
– Outflow
Foreign currency option contracts
– Inflow
– Outflow
Interest rate derivative instruments net inflows (outflows) (i)
Total derivative financial instruments
2019
Bank overdrafts
Trade and other payables
Borrowings
Total non-derivative financial liabilities
Foreign currency forward exchange contracts
– Inflow
– Outflow
Foreign currency option contracts
– Inflow
– Outflow
Interest rate derivative instruments net inflows (outflows) (i)
Total derivative financial instruments
(i) Interest rate swaps derivative cash flows are estimated using forward interest rates at reporting date.
< 1 year
NZ$M
1–2 years
NZ$M
2–3 years
NZ$M
5+ years
NZ$M
Contractual
cash flows
NZ$M
Consolidated
Balance Sheet
NZ$M
16.1
70.0
15.3
101.4
407.5
(400.6)
6.9
–
–
–
(0.1)
6.8
17.3
90.8
1.9
110.0
459.5
(447.1)
12.4
–
–
–
–
–
–
1.3
1.3
289.0
(277.9)
11.1
–
–
–
–
11.1
–
–
45.5
45.5
–
–
53.4
53.4
244.3
(230.6)
13.7
–
–
–
0.3
14.0
–
–
26.6
26.6
301.1
(286.0)
15.1
274.9
(250.0)
24.9
–
–
–
–
–
–
–
–
12.4
15.1
24.9
–
–
–
–
–
–
–
–
–
–
0.1
0.1
–
–
–
–
–
–
–
–
–
–
–
–
16.1
70.0
70.0
16.1
70.0
66.3
156.1
152.4
940.8
(909.1)
31.7
–
–
–
0.3
32.0
17.3
90.8
74.0
28.0
12.8
0.9
41.7
17.3
89.1
69.0
182.1
175.4
1,035.5
(983.1)
52.4
–
–
–
–
52.4
53.7
7.7
0.1
61.5
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 65
22. SIGNIFICANT EVENTS AFTER BALANCE DATE
Other than the dividends disclosed in Note 17, there are no significant events after balance date.
21. FINANCIAL RISK MANAGEMENT (CONTINUED)
c. Credit risk
The Group is exposed to credit risk in respect of trade receivables, financial instruments,
cash and cash equivalents and short-term investments in the normal course of business. The
maximum exposure to credit risk is represented by the carrying value of these financial assets.
Credit risk is managed on a Group basis with no significant concentration of credit risk.
The Group has policies in place to ensure that sales of products and services are made to
customers with an appropriate credit history. There are no significant trade receivable balances
relating to customers who have previously defaulted on amounts due to the Group.
Derivative counterparties, cash transactions, cash at banks, and short-term investments are
limited to high credit quality financial institutions. The Group has policies that limit the amount
of credit exposure to any one financial institution according to the credit rating of the financial
institution concerned. Over 96% of cash and short term investments (2018: 97%) is held with
counterparties with credit rating of Standard and Poors’ A- and above.
The Group’s exposure to credit risk from derivative financial instruments is limited because it
does not expect non-performance of the obligation contained therein due to the credit rating
of the financial institutions concerned. The Group does not require collateral or other security to
support derivative financial instruments.
d. Capital risk management
The main objective of capital risk management is to ensure the Group operates as a going
concern, meets debts as they fall due, maintains an appropriate capital structure, and manages
the cost of capital. Group capital comprises all components of equity. To maintain or alter
the capital structure the Group has the ability to review the size of the dividends paid to
shareholders, return capital or issue new shares, reduce or increase debt or sell assets.
There are a number of external bank covenants in place relating to debt facilities. These
covenants are calculated monthly and reported to the banks semi-annually. The principal
covenants relating to capital management are the interest cover ratio, the net tangible assets
minimum requirement and total tangible assets ratio. The consequences of a breach of these
covenants would depend on the nature of the breach, but could range from an instigation of an
event of review, to a demand for repayment. There have been no breaches of these covenants or
events of review for the current or prior period.
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 66
23. OTHER ACCOUNTING POLICIES
a. Changes to accounting policies
During the period the Group adopted NZ IFRS 15 ‘Revenue from Contracts with Customers’,
effective 1 April 2018. Based on the assessment performed by the Group, the impact of the
revised standard on the Group’s revenue recognition is minimal and no transition adjustments
have been made. The majority of revenue earned by the Group is derived from the satisfaction
of a single performance obligation for each contract which is the sale of products. This revenue
has historically been recognised at the time legal title of the products passes to the customer.
It has been determined that the customer obtains control of products at the same time as legal
title passes to the customer, typically on delivery. In relation to the contract price, it has been
determined that there are no material changes under NZ IFRS 15 to the accounting for rebates,
discounts, or any other variable consideration. It has also been determined that there are no
significant financing components as part of the Groups sales arrangements. The new accounting
policy is disclosed in Note 4.
There have been no other changes in accounting policies.
b. Standards, Interpretations and Amendments to Published Standards
The following accounting standards and amendments to existing standards are not yet effective
and have not been early adopted:
NZ IFRS 16, ‘Leases’: The current accounting model for leases requires leasees to make a
distinction between a finance lease (on balance sheet) and an operating lease (off balance
sheet). NZ IFRS 16 now requires a lessee to recognise a lease liability reflecting future lease
payments and a ‘right-of-use’ asset for virtually all lease contracts. The standard will be effective
for the Group for the year ended 31 March 2020. Lease commitments as set out in Note 20
predominantly relate to leased properties outside New Zealand that are expected to be brought
onto the balance sheet.
The nature of expenses related to leases will now change because the Group will recognise a
depreciation charge for right-of-use assets and interest expense on lease liabilities. Previously,
the Group recognised an operating lease expense over the term of the lease. Based on
the information currently available, the Group estimates that it will recognise right-of-use
assets within a range of approximately $28-30 million and lease liabilities within a range of
approximately $32-$35 million on 1 April 2019.
The estimated impact was calculated using a discount rate derived from the incremental
borrowing rate for each relevant overseas territory when the interest rate implicit in the lease
was not readily available.
The Group plans to apply NZ IFRS 16 initially on 1 April 2019, using the modified retrospective
approach. Certain practical expedients are expected to be applied. The cumulative effect of
adopting NZIFRS 16 will be recognised as an adjustment to the opening balance of retained
earnings at 1 April 2019, with no restatement of comparative information. This is a non cash
adjustment and will not impact the Group's ability to comply with its debt covenants.
Impact on our earnings:
Applying the new standard will impact our operating margin and net profit. Rental and lease
expenses are effectively reclassified into a deprecation component and an interest component
to reflect the implied financing in the lease. This will result in an increase in our operating
margin, offset by an increase in the financing costs. Our estimate is an increase to operating
margin of between $1-2 million.
There are no other new standards or amendments to existing standards which have or are
expected to have a material impact on the Group.
c. Impairment of non-financial assets
Assets that have an indefinite useful life or are under development are not subject
to amortisation and are tested annually for impairment. Assets that are subject to
amortisation are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. The recoverable amount is
the higher of an asset’s fair value less costs to sell, and value in use. For the purposes
of assessing impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows (cash generating units).
d. Goods and Services Tax (GST)
The Income Statement has been prepared so that all components are stated exclusive
of GST. All items in the Balance Sheet are stated net of GST, with the exception of trade
receivables and payables, which include GST invoiced.
e. Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with financial
institutions, other short-term highly liquid investments with maturities of three months
or less that are readily convertible to known amounts of cash and which are subject to
an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown
within current interest-bearing liabilities on the Balance Sheet.
f. Short-term investments
Short-term investments includes all other current investments that do not meet the
definition of Cash and cash equivalents. The Group’s balance is made up of deposits with
financial institutions with maturities at the date of acquisition between 90 and 120 days.
g. Research and development
Research expenditure is expensed as incurred. Development costs that are directly
attributable to the design and testing of identifiable and unique products controlled by
the Group are recognised as intangible assets only when all the following criteria are met:
it is technically feasible to complete the product so that it will be available for use or sale;
management intends to complete the product and use or sell it; there is an ability to use
or sell the product; it can be demonstrated that the product will generate future economic
benefits; adequate technical, financial and other resources to complete the development
and to use or sell the product are available; and the expenditure attributable to the product
during its development can be reliably measured and is material. Directly attributable
costs capitalised as part of the product would include employee costs and an appropriate
portion of relevant overheads. Other development expenditures that do not meet these
criteria are recognised as an expense as incurred. Development costs previously recognised
as an expense are not recognised as an asset in a subsequent period. Development costs
recognised as an asset are amortised over their estimated useful lives.
h. Financial guarantee contracts
A financial guarantee contract is a contract that requires a company within the Group to
make specified payments to reimburse the holder for a loss it incurs because a specified
debtor fails to make payment when due. Financial guarantee contracts are initially
recognised at fair value. Financial guarantees are subsequently measured at the greater of
the initial recognition amount less amounts recognised as income or the estimated amount
expected to have to be paid to a holder for a loss incurred.
NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
67
INDEPENDENT AUDITOR’S REPORT
To the shareholders of Fisher & Paykel Healthcare Corporation Limited
We have audited the consolidated financial statements which comprise:
•
•
•
•
•
•
the consolidated balance sheet as at 31 March 2019;
the consolidated income statement for the year then ended;
the consolidated statement of comprehensive income for the year then ended;
the consolidated statement of changes in equity for the year then ended;
the consolidated statement of cash flows for the year then ended; and
the notes to the consolidated financial statements, which include significant accounting
policies.
OUR OPINION
In our opinion, the accompanying consolidated financial statements of Fisher & Paykel
Healthcare Corporation Limited (the Company), including its subsidiaries (the Group), present
fairly, in all material respects, the financial position of the Group as at 31 March 2019, its financial
performance and its cash flows for the year then ended in accordance with New Zealand
Equivalents to International Financial Reporting Standards (NZ IFRS) and International Financial
Reporting Standards (IFRS).
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (New Zealand)
(ISAs (NZ)) and International Standards on Auditing (ISAs). Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the consolidated
financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1
(Revised) Code of Ethics for Assurance Practitioners (PES 1) issued by the New Zealand Auditing
and Assurance Standards Board and the International Ethics Standards Board for Accountants’
Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
Our firm carries out other services for the Group in the areas of treasury risk management
advice, remuneration benchmarking, tax compliance, scrutineering the counting of votes at the
Annual Shareholders’ Meeting and other assurance services in relation to constant currency
disclosures and the assessment of eligible expenditure for the purposes of the research
& development growth grant. The provision of these other services has not impaired our
independence as auditor of the Group.
OUR AUDIT APPROACH
Overview
An audit is designed to obtain reasonable assurance whether the
financial statements are free from material misstatement.
Overall Group materiality: $14.5 million, which represents approximately
5% of profit before tax.
We chose profit before tax as the benchmark because, in our view, it
is the benchmark against which the performance of the Group is most
commonly measured by users, and is a generally accepted benchmark.
We have determined that there is one key audit matter being revenue
recognition.
Materiality
Audit scope
Key audit
matters
Materiality
The scope of our audit was influenced by our application of materiality.
Based on our professional judgement, we determined certain quantitative thresholds for
materiality, including the overall Group materiality for the consolidated financial statements as a
whole as set out above. These, together with qualitative considerations, helped us to determine
the scope of our audit, the nature, timing and extent of our audit procedures and to evaluate
the effect of misstatements, both individually and in aggregate on the consolidated financial
statements as a whole.
Audit scope
We designed our audit by assessing the risks of material misstatement in the consolidated
financial statements and our application of materiality. As in all of our audits, we also
addressed the risk of management override of internal controls including among other matters,
consideration of whether there was evidence of bias that represented a risk of material
misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an
opinion on the consolidated financial statements as a whole, taking into account the structure of
the Group, the accounting processes and controls, and the industry in which the Group operates.
Our Group audit scope focused on the major operating subsidiaries which were selected based
on their contribution to the Group’s revenue or profit before tax. In aggregate, the subsidiaries
selected for full scope audit procedures contributed 88% of the Group’s revenue and 87% of the
Group’s profit before tax. We performed analytical procedures over the other subsidiaries.
Audits of each subsidiary are performed at a materiality level calculated by reference to a
proportion of Group materiality appropriate to the relative scale of the business concerned.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 68
INDEPENDENT AUDITOR’S REPORT
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current year. The key audit matter below
was addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter.
Key audit matter
Revenue recognition
How our audit addressed the key audit matter
The Group’s revenue primarily consists of the sale of products which totalled $1,070.4
million in the year ended 31 March 2019 as outlined in Note 4.
We obtained management’s assessment of the impact of adopting NZ IFRS 15 for each territory.
On a sample basis:
As described in Note 23, the Group adopted NZ IFRS 15 Revenue from Contracts with
Customers for the year ended 31 March 2019 and management has assessed the impact of
adoption on the Group’s recognition of revenue.
In determining the correct recognition of revenue, management has considered the
following factors:
•
•
•
the Group’s products are sold to customers in multiple territories with varying sales
contract terms and conditions;
in certain markets sales are made to distributors and include rebate arrangements; and
there is potential for manual intervention in the timing of revenue recognition because
of the time between despatch of products and the transfer of control to customers.
Management has concluded that:
•
•
•
revenue is primarily derived from the satisfaction of a single performance obligation for
each contract which is the sale of products;
control of product transfers to the customer/distributor at the same time as legal title
passes; and
the adoption of NZ IFRS 15 did not result in any transition adjustments.
We have given significant audit focus and attention to the recognition of revenue in light of
the factors referred to above and the adoption of NZ IFRS 15.
• we examined contracts with customers to validate that management’s conclusion in
•
relation to transfer of control was appropriate; and
validated that the rebate, payment and pricing arrangements supported the recognition of
a sale on transfer of control to the distributor.
We completed detailed audit procedures over revenue including:
•
•
•
•
evaluating and testing key controls in place over the recording of revenue;
utilising data assurance techniques to match cash received during the year and amounts
receivable at balance date to invoices issued to customers and obtaining supporting
evidence for any significant transactions that were not matched to cash or receivables;
for a sample of transactions within accounts receivable at balance date we obtained either
a confirmation of the amount owing from the customer, or evidence that the amount owing
was received by the Group subsequent to year end; and
defining the time period, both before and after 31 March 2019, where there was a
heightened risk of error in relation to the timing of recognition of sales transactions. This
involved determining the potential time difference between when revenue is recognised
in the accounting system and when legal title passes. For a sample of transactions
recognised within the defined time period we confirmed that the date on which revenue
was recognised by management was appropriate by examining the associated invoice, the
terms of the sales contract, and the relevant delivery documentation.
No exceptions were identified from our procedures.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 INDEPENDENT AUDITOR’S REPORT
69
INFORMATION OTHER THAN THE FINANCIAL STATEMENTS AND AUDITOR’S REPORT
The Directors are responsible for the annual report. Our opinion on the consolidated financial
statements does not cover the other information included in the annual report and we do not
express any form of assurance conclusion on the other information.
reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
A further description of our responsibilities for the audit of the financial statements is located at
the External Reporting Board’s website at:
In connection with our audit of the consolidated financial statements, our responsibility is to
read the other information and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit,
or otherwise appears to be materially misstated. If, based on the work we have performed on
the other information that we obtained prior to the date of this auditor’s report, we conclude
that there is a material misstatement of this other information, we are required to report that
fact. We have nothing to report in this regard.
RESPONSIBILITIES OF THE DIRECTORS FOR THE CONSOLIDATED FINANCIAL
STATEMENTS
The Directors are responsible, on behalf of the Company, for the preparation and fair
presentation of the consolidated financial statements in accordance with NZ IFRS and IFRS,
and for such internal control as the Directors determine is necessary to enable the preparation
of consolidated financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the consolidated financial statements, the Directors are responsible for assessing
the Group’s ability to continue as a going concern, disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless the Directors either
intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED
FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements, as a whole, are free from material misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (NZ)
and ISAs will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could
https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/
audit-report-1/
This description forms part of our auditor’s report.
WHO WE REPORT TO
This report is made solely to the Company’s shareholders, as a body. Our audit work has been
undertaken so that we might state those matters which we are required to state to them in
an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the Company and the Company’s
shareholders, as a body, for our audit work, for this report or for the opinions we have formed.
The engagement partner on the audit resulting in this independent auditor’s report is Keren
Blakey.
For and on behalf of:
Chartered Accountants
24 May 2019
Auckland
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 70
Social
Responsibility
& Governance
Contents
PEOPLE
REMUNERATION
COMMUNITY AND ENVIRONMENT
GOVERNANCE
RISK MANAGEMENT
SHAREHOLDER & COMPANY INFORMATION
71
76
80
84
93
95
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
PEOPLE
PeoPLe
Culture, purpose and values
Our business’ purpose is to improve care and outcomes for patients, clinicians and communities
around the world. This is a purpose that is about people. If we are to truly deliver on this, we
know we need the best people and the best environment in which the best ideas can grow.
We recognise that our ongoing success is a direct result of the skills and expertise of our people.
We value self-motivation, the drive to make a real contribution, continuous improvement and
innovative thinking. We have more than 4,500 people working in, or supporting, over 120
countries around the globe.
The tables below outline our total numbers of people by headcount.
Gender
Women
Men
Total
2018
2019
1 One employee with gender undisclosed
Region
NZ
Mexico
Rest of World
Total
Permanent
Temporary
Permanent
Temporary
2,152
998
907
4,057
151
10
10
171
2,226
1,126
953
4,305
218
66
6
290
Gender
Women
Men
Total2
71
Of all permanent employees globally, 19% were covered by collective bargaining agreements
compared to 21% in 2018.
2018
2019
Permanent
Temporary
Permanent
Temporary
1,911
2,146
4,057
122
48
1711
2,089
2,216
4,305
199
91
290
2018
2019
Full-time
Part-time
Full-time
Part-time
1,895
2,146
4,041
32
11
43
2,083
2,245
4,328
29
20
49
2 New Zealand temporary employees (casual, fixed term, temporary, temporary part-time and contract temporary) are
not included in these numbers due to the changing nature of their hours.
Diversity & Inclusion Policy
One of our core beliefs is that the commitment to doing the right thing is what our customers
will find compelling. This extends to doing the right thing by our own people.
This commitment involves:
1.
Empowering employees to reach their potential
We believe our people are our strength, and are committed to providing equal
employment opportunities for our people, and an environment where everyone has the
opportunity to reach their full potential.
2. Creating an inclusive culture
We are global in people, in thinking and in behaviour, and we believe that an inclusive
culture is essential for diversity to thrive. We are committed to fostering an inclusive
workplace where our employees feel they are treated fairly and their contributions are
respected and valued.
3. Measuring and reporting on our objectives and progress
We relentlessly strive to provide a high quality of life for our employees and believe
that “what gets measured gets improved”. We will use both quantitative and qualitative
measures to review our diversity and inclusion performance and, as with all areas of our
business, have a focus on continuous improvement.
A copy of the company’s Diversity and Inclusion Policy is available on the company’s website.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
72
PeoPLe CONTINUED
Caring for our people
We offer our people the opportunity to work for a world class, successful company where
each person is valued and respected. We fully support the principles in the United Nation’s
Declaration on Human Rights and the International Labour Organisation Declaration on
Fundamental Principles and Rights at Work, including non-discrimination, freedom of
association and collective bargaining, and freedom from forced and child labour. We seek to
uphold human rights in all business activities.
We pay our employees fairly based on performance and the complexity and size of the
individual role. The table below outlines the gender pay ratio calculated within salary bands and
functions using the average pay ratio between females and males.
New Zealand
(Salaried and Waged)
Outside of New Zealand
(Salaried only)
Total
2018
2019
99.3%
99.4%
97.6%
98.7%
98.0%
98.9%
The annual salary review procedure was updated this year to improve consistency across teams
by requiring managers to report the employee’s performance rating as part of the review. This
assisted with calibration and contributed to the increase in the gender pay ratio observed this
year.
We recognise that the results we achieve are built on the hard work and dedication of our team
of more than 4,500 employees across the world. In recognition of this contribution, and as has
been our longstanding practice, we pay our employees a profit-sharing bonus. In FY19, this
represented approximately 2.4% of annual base pay for each employee, and a total profit-share
of $5.7 million.
As part of our 2019 diversity objectives, we commenced the evaluation of job roles in
Mexico using Hay Evaluation Methodology. This evaluation will be completed this year, and
will allow us to more accurately analyse the gender pay ratio in Mexico in like-for-like roles.
2018
2019
Women
Men Women % Men % Women
Men Women % Men %
Board
Senior executives1
2
1
6
8
All employees2
1,910
2,138
25%
11%
47%
75%
89%
53%
2
2
6
8
2,089
2,216
25%
20%
49%
75%
80%
51%
1 “Senior executive”, as it is used in the table above, refers to the Chief Executive Officer and senior executives reporting
directly to the Chief Executive Officer.
2 Temporary staff are not included in the above numbers.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
73
PeoPLe CONTINUED
The table below reports the age ranges of our people across Board and employee categories.
Under 30
years old
30 – 50
years old
Over 50
years old
% Under 30
years old
% 30 – 50
years old
% Over 50
years old
Board
Senior executives1
–
–
–
8
All employees2
1,134
2,460
8
2
711
–%
–%
26%
–%
80%
57%
100%
20%
17%
1 “Senior executive”, as it is used in the table above, refers to the Chief Executive Officer
and senior executives reporting directly to the Chief Executive Officer.
2 Temporary staff are not included in the above numbers.
Note: This is the first year that the age across employee categories is reported.
Therefore, no comparison is provided to 2018.
Creating an inclusive culture
We strive to create an environment in which our people feel a sense of belonging, and no one is
excluded in their day-to-day interactions. This year, we sought to get a deeper understanding of
our employees’ perceptions of our culture.
Employee Perceptions on Inclusion
We performed a detailed analysis into the comments indicating our people’s perceptions on
inclusivity from our employee engagement survey, MySay. The results of the analysis indicated:
• Our workplace is generally perceived as inclusive, with a lack of discrimination experienced
by our people;
• Celebrations for cultural and religious events are perceived as demonstrations of workplace
inclusivity; and
• Diversity in our workforce is perceived as representative of the inclusiveness of our
recruitment processes.
However, the analysis also revealed some areas that are the expected byproducts of the diverse
workforce that we have. The results indicated that the perceived lack of workplace flexibility, use
of languages other than English, and the perception that ideas are not valued equally were seen
as barriers to inclusion. We have commenced a formal root cause analysis process in order to
identify appropriate actions for these findings.
Flexible Working Policy and Procedure
We understand that life can be busy, and commitments our people have outside of work can
vary and change unexpectedly. Having a flexible working culture is becoming increasingly
important to help attract the right people and ensure our people can contribute effectively over
the long term. Our flexible working policy and procedure were updated this year to meet these
changing needs.
Attracting great talent
We work closely with universities, schools and community groups to attract the best graduates
for our teams. Fisher & Paykel Healthcare has partnered with the Faculty of Engineering at
the University of Auckland to help achieve their strategy of increasing the number of women
studying engineering from 27% to 33% by 2020.
Our graduates participate in a 12-month programme that incorporates business awareness,
mentorship, feedback sessions, internal and external training and team building events. For roles
requiring more experience or specialised skills, we search across the global employment market
through targeted recruitment campaigns. We take a proactive approach to finding people
whose values match with ours.
As part of our 2019 diversity objectives, the vacancies filled by internal applicants and
other applicant tracking metrics in New Zealand were monitored. Across the year, we
observed a 32% increase in the number of vacancies filled internally compared to the
previous year. This was the result of intentional effort to ensure that we were developing
our current talent for progression where appropriate. We also continued to observe a
consistently higher female conversion rate of applicants into new hires throughout the
year. This improvement was the result of changes in recruitment practices to mitigate
unconscious bias, including the introduction of video interviewing into our graduate
recruitment process.
We will continue to track these metrics in order to improve our recruitment efforts.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 74
PeoPLe CONTINUED
The tables below outline the total number and rate of our new employee hires. Hire rate
is calculated as the number of new hires in each category divided by the total number of
employees in that category as at 31 March.
Region
New Zealand
Mexico
Rest of World
Total
Gender
Women
Men
Total
2018
2019
New employees
Hire rate
New employees
Hire rate
263
413
181
857
12%
41%
20%
21%
257
382
186
825
11%
34%
19%
19%
2018
2019
New employees
Hire rate
New employees
Hire rate
469
388
857
24%
18%
21%
443
382
825
21%
17%
19%
2018
2019
Age group
New employees
Hire rate
New employees
Hire rate
Under 30 years old
30 – 50 years old
Over 50 years old
Total
432
390
35
857
43%
16%
5%
21%
461
348
16
825
40%
14%
2%
19%
Growing our talent
We aim to develop our people through work experience combined with coaching and learning.
Our learning and development function runs development programmes for our people,
supported where necessary by third party providers. Our programmes are designed for people
at all levels within the organisation, including leadership training for those in management
positions.
In New Zealand, we host a five day literacy and numeracy programme that aims to increase
the capability and confidence of our manufacturing employees in communication, team work,
continuous improvement and health and safety. Tailored for the specific needs of our employees
and aligned with our company values, the programme has been running for three years and over
200 people have participated.
The figures below illustrate the average hours of training that employees in New Zealand have
undertaken during the reporting period. There was an overall reduction in formal training in 2019
compared to previous years due to a move towards increased experiential and informal learning.
2018
2019
25
20
15
10
5
0
2018
2019
25
20
15
10
5
0
Employees
Senior Executives
Women
Men
Our support processes for succession planning involves identifying experiences that employees
require to develop the knowledge and skills for progression. This allows us to be deliberate
in providing opportunities for our people through initiatives such as secondments, project
assignments, job enrichment and enlargement.
As part of our 2019 diversity objectives, the gender promotion metric in New Zealand
was monitored and reported quarterly. Across the year, we continued to see an equivalent
overall promotion rate by gender in our salaried employees.
We also monitored the promotion rates across different job levels and observed that
promotions for male employees were in higher job levels compared to promotions for
female employees. To rectify this, we have initiated a pilot into the use of calibration
criteria during the promotions process for some roles across the business with the aim of
improving standardisation of our promotions criteria and reducing unconscious bias. The
impact of this change will be monitored for effectiveness.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 PeoPLe CONTINUED
75
Retaining our talent
We believe that maintaining a culture where teamwork, flexibility and diversity are valued will
create an environment that will retain our people. We understand that people’s needs and
goals can be different, and we segment our employees and individualise retention interventions
specific to their needs and in line with our culture.
As part of our 2019 diversity objectives, the global labour turnover was monitored and
reported quarterly. We saw a reduction in employee turnover across our global workforce,
contributed to by the significant reduction in turnover in Mexico. The female turnover rate
reduced significantly, and reversed the trend seen in previous years, to be lower than the
male turnover rate.
objectives for Diversity & Inclusion
The People and Remuneration Committee is responsible for overseeing the company’s Diversity
& Inclusion Policy. Each year, the People and Remuneration Committee review and report to the
Board on the company’s Diversity Policy, its diversity objectives and the company’s achievement
against its diversity objectives, including the representation of women at all levels of the
organisation.
The company has appointed the Chief Executive Officer and Vice President – Human Resources
as the company’s Diversity Managers.
In order to continue to advance our progress with improving diversity and inclusion in the
company, the following objectives are set for the 2020 financial year.
Region
New Zealand
Mexico
Rest of World
Total
Gender
Women
Men
Total
Age group
Under 30 years old
30 – 50 years old
Over 50 years old
Total
2018
2019
Number of
Leavers
Turnover rate
Number of
Leavers
Turnover rate
194
359
118
671
9%
36%
13%
16%
197
243
139
579
9%
22%
15%
13%
2018
2019
Number of
Leavers
Turnover rate
Number of
Leavers
Turnover rate
360
311
671
18%
14%
16%
275
304
579
13%
14%
13%
2018
2019
Number of
Leavers
Turnover rate
Number of
Leavers
Turnover rate
338
307
26
671
33%
13%
4%
16%
225
304
50
579
20%
12%
7%
13%
OBJECTIVES FOR THE 2020 FINANCIAL YEAR:
•
Perform an ethnicity diagnostic of our operations in New Zealand.
• Monitor the impact and effectiveness of the updated Flexible Working Policy.
•
Implement actions to address the findings related to inclusiveness
from the MySay engagement survey.
•
Establish a Diversity and Inclusion Committee.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
REMUNERATION
76
REMUNERATION
We are focused on attracting, motivating and retaining high quality employees who will enable
us to achieve our short and long-term strategic objectives. We operate in international markets
where substantial competition exists for skilled employees. Our ability to attract, motivate and
retain capable people depends in large part upon the remuneration packages we offer.
This section describes how we remunerate our employees, Executive Management and
non-executive directors.
Employee Remuneration
Our salaried employee remuneration programme consists of a base salary, a component
providing the potential for an annual bonus based on relevant company performance and, in
certain countries, superannuation, insurance and the opportunity to purchase shares and/or
receive share options.
Salaried employees receive base remuneration packages that are generally benchmarked
against similar positions in companies of comparable size and complexity. The People and
Remuneration Committee uses industry remuneration surveys, conducted by outside consultants
in determining remuneration levels. Remuneration is generally reviewed annually with the
amount of any increases determined by factors such as company performance, general
economic conditions, marketplace remuneration trends and individual performance.
The table below describes the remuneration (inclusive of the value of other benefits) received by
employees or former employees in 2019 totalling NZ$100,000 or more, presented in bands. We
operate in a number of countries where remuneration market levels differ widely. The offshore
remuneration amounts are converted into New Zealand dollars.
Remuneration
$
100,000 – 110,000
110,001 – 120,000
120,001 – 130,000
130,001 – 140,000
140,001 – 150,000
150,001 – 160,000
160,001 – 170,000
170,001 – 180,000
180,001 – 190,000
190,001 – 200,000
200,001 – 210,000
210,001 – 220,000
220,001 – 230,000
Number of
employees
Remuneration
$
Number of
employees
177
144
115
86
78
46
45
53
46
27
26
18
23
230,001 – 240,000
240,001 – 250,000
250,001 – 260,000
260,001 – 270,000
270,001 – 280,000
280,001 – 290,000
290,001 – 300,000
300,001 – 310,000
310,001 – 320,000
320,001 – 330,000
330,001 – 340,000
340,001 – 350,000
350,001 – 360,000
20
13
14
11
7
6
2
4
3
2
3
2
2
Remuneration
$
360,001 – 370,000
370,001 – 380,000
400,001 – 410,000
420,001 – 430,000
440,001 – 450,000
450,001 – 460,000
460,001 – 470,000
480,001 – 490,000
540,001 – 550,000
580,001 – 590,000
Number of
employees
Remuneration
$
Number of
employees
1
2
3
2
2
2
1
2
1
2
590,001 – 600,000
600,001 – 610,000
620,001 – 630,000
650,001 – 660,000
690,001 – 700,000
730,001 – 740,000
870,001 – 880,000
1,190,001 – 1,200,000
1,220,001 – 1,230,000
1,300,001 – 1,310,000
1
1
1
1
1
1
1
1
1
1
Executive Management remuneration
The People and Remuneration Committee is responsible for reviewing the remuneration of
Executive Management in consultation with the CEO.
The remuneration packages of the majority of Executive Management consist of a combination
of a fixed remuneration package, an annual variable remuneration (AVR) component, a long
term variable remuneration (LTVR) component, and the company-wide profit sharing bonus, as
described further below.
The total remuneration earned by, or paid to, Executive Management is set out in note 18 of the
financial statements.
Fixed remuneration
All members of Executive Management receive a fixed remuneration component that is based
on the scale and complexity of the role, market relativities, qualifications and experience, and
performance. This also includes any KiwiSaver or other superannuation contribution. Other
benefits, including life insurance, are also available to eligible Executive Management and are
included in fixed remuneration.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 77
Profit-sharing bonus
As outlined in the ‘People’ section all our employees, including Executive Management, who
have worked with us for more than 6 months are eligible to receive a profit-sharing bonus twice
per year.
5-year summary of TSR performance
The chart below shows our TSR compared with the performance of DJSMDQT over the previous
five years. For the past four years, our TSR performance has exceeded that of the DJSMDQT, and
PSRs issued to Executive Management in these years have 100% vested.
300
250
200
150
100
Fisher & Paykel Healthcare
Dow Jones U.S. Select
Medical Equipment Index
S&P/NZX 50 Index
Mar 15
Mar 16
Mar 17
Mar 18
Mar 19
To enable better comparability of the relative shareholder return performance, the Dow Jones U.S. Select Medical
Equipment Index closing prices have been converted to NZD at the daily closing rate quoted by the Reserve Bank of
New Zealand.
ReMUNeRATIoN CONTINUED
Variable remuneration
The majority of Executive Management receive variable remuneration linked to performance
each financial year.
Plan
Measures
Annual Variable
Remuneration
(AVR)
The AVR component is designed to remunerate Executive Management relative
to the company’s annual financial performance and non-financial objectives.
Meeting both the financial and non-financial targets results in a payment of
100% of the AVR amount. The AVR payment amount is adjusted pro-rata, with
each 1% above or below financial targets resulting in a 2% increase or decrease
in payment. The maximum payment is 132% of the AVR amount at 20% over
achievement. Should the financial measures in aggregate be underachieved by
more than 10%, no AVR is payable.
The relative weighting of AVR measures and the target achieved in 2019 is set
out below.
Measures
Constant currency operating profit
Constant currency revenue
Constant currency pre-tax operating cash flow
Non-financial measures
Weighting
% of Target
Achieved
45%
25%
10%
20%
102.9%
99.2%
102.2%
Variable
Long Term
Variable
Remuneration
(LTVR)
LTVR components are designed to align Executive Management with
shareholder interests over the longer term, and provide a longer term
employee retention benefit.
The LTVR plans available to Executive Management are described below.
Further information on these and other LTVR plans can be found in the
“Long Term Variable Remuneration” section of our website.
Share Option Plan – Options vest at any time between the third anniversary
and the fifth anniversary of the grant date as long as the share price on the
NZX has exceeded the escalated price. The escalated price is determined by a
representative amount representing the company’s cost of capital.
Performance Share Rights Plan – PSRs become exercisable if the company’s
gross total shareholder return (TSR) exceeds the performance of the Dow
Jones US Select Medical Equipment Total Return Index (DJSMDQT) over the
same period.
Employee Share Purchase Plan – Executive Management can choose to
participate in this Plan up to the value of $2,340. Shares are issued at
a discount of 20% of market price, on terms permitted by the plans in
accordance with sections DC13 and 14 of the New Zealand Income Tax Act
2007, with no interest being charged on the loans. The qualifying period
between grant and vesting date is 3 years.
For employee share purchase plans or equity-based remuneration schemes operating with
respect to company securities, no director or employee is permitted to enter into financial
products or arrangements which operate to limit the economic risk of their vested or unvested
entitlements.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 78
ReMUNeRATIoN CONTINUED
Ceo Remuneration
The CEO remuneration structure is consistent with the Executive Management remuneration structure described previously. The 2019 remuneration target and maximum remuneration mix
is set out below.
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
2019
2018
25%
25%
24%
30%
LTVR
AVR
FIXED REMUNERATION
100%
50%
46%
Fixed
Target
Maximum
Salary
$
1,231,953
992,639
Employer
superannuation
contribution
$
85,867
74,690
Fixed
remuneration
subtotal
$
1,317,820
1,067,329
AVR1
$
690,356
629,253
LTVR
awarded2
$
669,916
616,327
Subtotal
$
1,360,272
1,245,580
Total remuneration
(single figure)
$
% AVR
against maximum
$
2,678,092
2,312,909
78%
80%
1 The 2019 AVR above was earned in the 31 March 2019 financial year, but will be paid in the 2020 financial year. The 2018 AVR was earned in the 31 March 2018 financial year but was paid in the 2019 financial year. AVR value includes the
company-wide profit-sharing bonus.
2 LTVR includes Options and PSRs awarded during the financial year. In 2019, Lewis Gradon was granted 32,466 PSRs and 100,313 share options. In 2018 Lewis Gradon was granted 40,598 PSRs and 111,364 share options. Share Option and PSR
plans granted in the 2018 and 2019 financial years will vest, if the performance criteria is met, in the 2021 and 2022 financial years respectively. Details of the plans and valuation methodology is set out in Note 18 to the financial statements.
AVR achieved in 2019
The AVR financial targets achieved are set out in the Executive Management section on the previous page. During 2019 the CEO achieved 100% of his non-financial measures. The AVR earned in
2019 is 49% of fixed remuneration.
LTVR vested in 2019
The following long term incentives vested in 2019. These awards were granted to Lewis in his previous capacity as Senior VP, Products and Technology:
Grant year
Securities
Performance period
Performance measure
Vesting outcome
Financial year 2016
PSR
September 2015 to September 2018
Absolute TSR
Share Options
September 2015 to September 2018 Cost of capital escalated share price
100% vested
100% vested
1 Represents the NZX closing price of FPH Ordinary Shares on the vesting date multiplied by the number of PSRs vested
2 Represents the difference between the exercise price and the NZX closing price of FPH ordinary shares on the vesting date, multiplied by the number of Share Options vested
Shares
vested
26,000
73,000
Value on vesting
$
384,8001
552,6102
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
ReMUNeRATIoN CONTINUED
Non-executive directors’ remuneration
Remuneration strategy
The People and Remuneration Committee is responsible for establishing and monitoring
remuneration policies and guidelines for directors which enable us to attract and retain
directors who contribute to the successful governing of the business and create value for
shareholders. We also take advice from independent consultants and take into account
fees paid to directors of comparable companies in New Zealand and Australia as part of
our assessment of the appropriate level of remuneration of directors. A summary of our
independent consultants’ remuneration report is available on our website.
The maximum total monetary sum payable by the company by way of directors’ fees is
$1,050,000 per annum as approved by shareholders at the 2017 Annual Shareholders'
Meeting. Executive directors are not entitled to receive any remuneration solely in their
capacity as directors of the Company.
Non-executive directors do not take a portion of their remuneration under an equity
security plan but directors may hold shares in the company, details of which are set out on
page 89 of this report. It is our policy to encourage directors to acquire shares on-market.
No non-executive director is entitled to receive a retirement payment.
79
Remuneration
The total directors’ fees received by non-executive directors in 2019, including a breakdown of
Board fees and Committee fees, is set out below. The fees payable are determined based on the
time commitment and responsibilities of each role.
Audit & Risk
Committee
$
People and
Remuneration
Committee
$
Board Fees
$
Quality,
Safety and
Regulatory
Committee
$
Travel
allowance1
$
Total
remuneration
$
Director
Tony Carter2
224,700
Michael Daniell
98,850
16,850
Pip Greenwood
Geraldine
McBride
Neville Mitchell3
Arthur Morris4
Donal O’Dwyer5
98,850
98,850
38,054
39,062
98,850
22,450*
224,700
115,700
121,300
98,850
6,487
8,871*
8,161
52,702
47,933
16,850
20,257*
21,200
157,157
Scott St John
98,850
28,100*
16,850
143,800
Total
796,065
44,950
56,150
35,615
29,361
962,141
* Designates Chair of Committee
1 Directors based in Australia are paid a travel allowance of $21,200 per year to attend Board meetings in New Zealand.
2 Tony Carter is the Board Chair. No additional fees are paid to the Board Chair for Committee roles.
3 Neville Mitchell’s remuneration is set in NZD but paid in AUD at the prevailing exchange rate at the date of payment.
Neville Mitchell joined the Board (and the QSR Committee) in November 2018.
4 Arthur Morris retired from the Board (and as Chair of the QSR Committee) in August 2018.
5 Donal O’Dwyer’s remuneration is set in NZD but paid in AUD at the prevailing exchange rate at the date of payment.
Donal O’Dwyer became the Chair of the QSR Committee in August 2018 when Arthur Morris retired.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
COMMUNITY AND ENVIRONMENT
80
CoMMUNITy ANd eNvIRoNMeNT
We see looking after our wider community and the environment as inextricably linked to the
way we do business. We know that strong financial performance cannot be achieved without it.
And being financially successful means we can continue to be a major contributor to medical
care, to our communities and economies through areas such as tax and employment.
Community
We seek to build and nurture strong, lasting partnerships with local communities and
organisations relevant to our company and people. Through a combination of financial and
in-kind support, we have implemented and sponsored various community development
programmes, particularly in the areas of healthcare, science and technology. As we continue to
grow, our capacity to expand and enhance these important programmes will also increase.
We have established a corporate social responsibility (CSR) group in New Zealand, which
promotes and assists in the coordination of CSR initiatives across the company. This group’s
purpose is to “build brighter and healthier communities through care and collaboration” and
looks for opportunities to create common shared value in the areas of improving access to
healthcare and the promotion of career pathways in Science, Technology, Engineering and
Mathematics (STEM).
Improving access to healthcare
Middlemore myAirvo Project
In partnership with our local hospital, Middlemore Hospital, we identified that there are a
large number of people in our shared South Auckland community that suffer from COPD and
are unable to afford ongoing treatment in the home. As a result, these people are frequently
readmitted to hospital.
In a pilot project, Fisher & Paykel Healthcare donated 12 myAirvo devices and the required
consumables for the life of each patient who is provided one of the myAirvo devices by
Middlemore Hospital. In 2018, new research was published in the International Journal of COPD
which demonstrated significant benefits of nasal high flow therapy for COPD patients using our
myAirvo device.
The trial showed statistically significant results, with the primary outcome being a significant
reduction in patients’ exacerbation rate, or worsening of their condition for those being treated
with nasal high flow therapy. The study also showed for those patients using the myAirvo, that
all cause hospitalisation rates decreased over the course of the year, for those who followed the
protocol.
Access to healthcare in the Pacific Islands
We partner with Take my Hands which is a social enterprise that collects usable medical
equipment and resources that are no longer being used in New Zealand and redistributes them
to organisations that work with those in need in the Pacific region. In particular, we provided
engineering and research support in conducting a needs assessment for low resource healthcare
settings in the Pacific Islands. Together with the University of Canterbury and Take my Hands,
the partnership now aims to build biomedical technician capacity in the Pacific region.
Cure Kids Partnership
We partner with Cure Kids, New Zealand’s largest funder of child health research, on two
separate initiatives. The first is a project in Fiji where Cure Kids are piloting ways of improving
the availability, affordability and clinical access of oxygen to save lives. Severe pneumonia in
children and serious newborn illnesses, for which oxygen is a life-saving treatment, are leading
causes of death in Fiji. For pneumonia, treating children with oxygen reduces death by 35%, yet
many health facilities in Fiji don’t have a reliable supply. The team are replacing oxygen cylinders
in health centres – which are expensive, logistically difficult, and often result in unreliable oxygen
supplies – with bedside oxygen concentrators, which produce oxygen from the ambient air. For
health centres with unreliable power supplies, a custom-designed solar power system is installed
to ensure that a 24/7 supply of oxygen is available for patients when needed. The programme
trains health workers and biomedical engineering staff to ensure that the new solution translates
into improved outcomes for patients.
The second initiative is a significant project that we hope will result in material improvements in
the health and outcomes for children with respiratory illness in New Zealand. We look forward to
sharing more details about this initiative with you in next year’s report.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 81
Sustainable Tax Strategy
We understand that collecting and paying tax is an important contribution to the economies,
societies and communities in which we operate. In support of our overall business strategy
and objectives, we pursue a tax strategy that is principled, transparent and sustainable in
the long term. Our Group’s tax contribution includes the payment of corporate income taxes,
employment related taxes and other taxes that we pay or collect on behalf of governments.
We support the OECD Business and Industry Advisory Committee (BIAC) Statement of Tax
Principles for International Business and have endorsed these principles in our published Group
Tax Strategy which was reviewed and approved by our Board in November 2018.
Our tax strategy sets out our approach to tax governance and tax management aligned to our
conservative appetite for tax risk with the key purposes to ensure that we comply with all of
our tax obligations, undertake all transactions with a business purpose considering all of our
stakeholders and have an open and transparent relationship with tax authorities.
Our business model is centred in New Zealand and the functions, assets and risks of
implementing our strategy mean that the majority of our taxes are paid in New Zealand. Most of
our manufacturing activities and tangible assets are located in Auckland, and substantially all of
our R&D is performed, and the associated intellectual property owned, in New Zealand.
CoMMUNITy AND eNvIRoNMeNT CONTINUED
Clinical and research support
We provide financial sponsorship of the Auckland-based Middlemore Hospital, Auckland City
Hospital, and the Intensive Care Foundation in Australia.
Clinical studies are an important element in building confidence in the efficacy of our products,
particularly in new clinical settings. We contribute product and funding to clinical research
globally that validates improvements in patient care and outcomes. We work closely with
clinicians and healthcare organisations to support these studies and identify ways in which our
products can help them provide better healthcare solutions. As at 31 March 2019, the company
was involved as official sponsors of 25 clinical trials globally. The company also provides product
or funding support for a large number of other clinical trials that are conducted each year.
The company has recently partnered with the American Thoracic Society Foundation to make
a US$100,000 research grant to advance research in respiratory support with nasal high flow
in patients with COPD. The ATS Foundation/Fisher & Paykel Healthcare Research Award in
Respiratory Support with nasal high flow was this year awarded to Spryidon Fortis, MD of the
University of Iowa.
STEM education and sponsorship
We run a comprehensive programme of educational events, where we visit local schools
and universities to discuss career pathways in STEM. We also sponsor a range of events and
organisations in the science and engineering fields. These have included the New Zealand
Robotics Charitable Trust (Kiwibots), ‘the Wonder Project’, where we provide ambassadors
to visit local schools to talk about STEM careers, and ‘South Sci’, mentoring of students
undertaking scientific projects in local schools, as explained further below.
As previously noted, Fisher & Paykel Healthcare has partnered with the Faculty of Engineering
at the University of Auckland to help achieve their goal of 33% women in their first-year student
cohort by 2020.
South Sci
‘South Sci’ is a participatory science platform aimed at engaging youth with science and
building relationships between local businesses, researchers, schools and youth.
It is co-hosted by COMET Auckland and the STEM Alliance Aotearoa, and funded by
the New Zealand Government’s Ministry of Business, Innovation and Employment. The
programme encourages community groups to put forward science topics of interest to
them, and if accepted, provides funding and support to enable investigation of the project.
We have a number of scientists and engineers involved in the programme who have
assisted with assessments of the community applications and providing advice on how
project plans could be developed and budgeted.
One of the projects we are currently supporting is at Beachlands School who are
researching the sleep habits of primary school kids and how to be activists for healthier
sleep in their community.
It is hoped that our involvement in the programme will encourage local youth to engage
with science and consider careers in science and engineering related fields.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 82
CoMMUNITy AND eNvIRoNMeNT CONTINUED
environment
We are committed to protecting the environment by maximising the efficient use of resources
and minimising waste, to contribute to a sustainable society. Our commitment to the
environment can be seen across our business, from the way our people work, to how we interact
with distributors and suppliers.
Environmental management systems
Our global teams have continued to perform strongly in external ISO14001 Environmental
Management System audits, which confirm the day to day management of environmental risks
and opportunities across our manufacturing sites in New Zealand and Mexico. We are audited
annually against that standard and certified tri-annually by the Swiss-based European notified
body, Société Générale de Surveillance.
Carbon & energy programme
We meet the requirements of CEMARS (Certified Emissions Measurement and Reduction
Scheme) certification having measured greenhouse gas emissions in accordance with ISO
14064-1:2006 and are committed to managing and reducing our impact in respect of the
operational emissions of the organisation. Our teams have a strong focus on energy savings,
which is the most efficient way to reduce emissions. Over the last five years, more than 3 GWh
of electricity have been saved through a range of initiatives including LED light replacement,
solar array installation (110kw) and optimisation of onsite systems.
Carbon emission intensity for our global operations (tCO2e/NZ$M), reduced from 48.2 to 37.2
during FY18. CEMARS results for this year will be available during July 2019, and can be found
on the sustainability section of our website. Further information on the CEMARS programme can
be found on the CEMARS website www.enviro-mark.com.
Continuous improvement initiatives that form part of the environmental management
system, included the installation of onsite electric vehicle chargers to facilitate the
reduction in vehicle emissions related to our people commuting to work. We partnered
with the Energy Efficiency & Conservation Authority and were awarded 50% funding
towards this sustainability initiative, which will result in more than 45 EV chargers being
available for employees and visitors at our Auckland campus.
Eco-efficiency programme
As part of our eco-efficiency strategy, we have established collaborative teams working on a
range of topics which include sustainable packaging, bioplastics and 3D printing recycling. Our
teams also use environmental lifecycle assessment software, which will be an important tool to
assist with ongoing continuous improvement.
Global recycling capacity constraints, led by the change in recycling policies by the China
“National Sword” policy continue to impact recycling performance, with 69% of our New
Zealand waste stream recycled. This was a reduction from 74% during the prior year. Our
teams continue to seek recycling solutions for the materials we use, and have been active in
developing innovative recycling solutions with international recycling leaders.
Carbon Emission Intensity
M
$
Z
N
/
e
2
O
C
t
70
60
50
40
30
20
10
0
38.76
31.24
9.71
2016
5.86
6.33
8.82
2017
6.46
8.94
2018
17.35
Freight
Electricity
Air Travel
Total
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
CoMMUNITy AND eNvIRoNMeNT CONTINUED
Sustainability disclosure
We participate annually in a suite of sustainability disclosure programmes. During the last
year, CDP (previously known as the Carbon Disclosure Project) announced that we scored a
‘B’ in their Climate Change disclosure initiative for 2018, which was the equal best score of
all New Zealand based organisations. 2019 results will be made available later in 2019, with
scores available on the CDP website.
Sustainability disclosures have also contributed to the organisation being included in the
Dow Jones Sustainability and FTSE4good indices.
83
Topic
Carbon
Intensity
Recycling
efficiency
Rainwater
collected
CDP
Description of
measure
Operational
emissions intensity
(tCO2e/NZ$M)
% of waste recycled
at our New Zealand
campus
m3 of rainwater
harvested at our
New Zealand
campus
CDP Climate
Change²
Target
Reduction of
5% per annum1
2017
48.2
2018
37.2
2019
Annual
CEMARS audit
June 2019
75%
86%
recycled
74%
recycled¹
69%
recycled2
2,936m3
3,608 m3
3,580 m3
B
B
Assessed
July 2019
Notes:
1 Science Based Targets in line with IPCC (Intergovernmental Panel on Climate Change) guidance are
under development.
2 Recycling efficiency has been adversely impacted by global recycling capacity constraints driven
largely by the China “National Sword” policy.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 GOVERNANCE
84
GoveRNANCe
Corporate Governance Statement
The Board and management of the company are committed to ensuring that the company
adheres to best practice governance principles and maintains the highest ethical standards. The
Board regularly reviews and assesses the company’s governance structures to ensure that they
are consistent, both in form and in substance, with best practice.
ethical behaviour
As a business we are committed to doing the right thing. It is important to us and is what our
customers, employees, and shareholders find compelling. We ensure we comply with our legal
and ethical obligations throughout our business operations, from the way we source materials,
design and manufacture our products, through to selling our products across the world.
The company is listed on both the NZX and the ASX (Foreign Exempt Listing Category).
Corporate governance principles and guidelines have been introduced in both countries. As
at the date of this report, the company complies with all of the recommendations of the NZX
Corporate Governance Code. In addition, although the company is not required to comply with
the ASX Corporate Governance Council’s Corporate Governance and Recommendations (ASX
Principles) given its Foreign Exempt Listing on the ASX, the company considers its corporate
governance practices and procedures substantially reflect the ASX Principles.
The full content of the company’s corporate governance policies, practices and procedures
can be found in the corporate governance section of the company’s website –
www.fphcare.com/corporategovernance.
We have policies and procedures in place to ensure we conduct our business in a legally,
ethically, and socially responsible manner. These policies are available on our website, and
summary information with respect to a number of our policies can also be found below.
Codes of Conduct
We expect our employees and directors to maintain high ethical standards. A Code of Conduct
for the company and a separate Directors’ Code of Conduct set out these standards.
The Codes cover a range of areas relevant to legal and ethical behaviour, including competing
fairly, health and safety, data protection and privacy, working with customers and suppliers,
sanctions compliance, responsible marketing, financial records and reporting, continuous
disclosure and insider trading, combating bribery and corruption and interactions with
healthcare professionals. It also covers matters such as confidentiality, conflicts of interest,
receipt of gifts, and corporate opportunities.
The Codes explain how an employee or director can report an actual or suspected breach of the
Code. This is also detailed in our Speak Up (or whistle-blowing/protected disclosures) policy,
which ensures employees know how to report potentially unethical or illegal behaviour or
breaches of our Code of Conduct, without fear of retaliation or harassment.
We have developed e-training on the Code of Conduct, and in 2017 and 2018, this training was
undertaken by employees globally. The e-training is part of induction for new employees. The
Code of Conduct is also available on our internal intranet. New directors are provided a copy of
the Director’s Code of Conduct during their induction training.
We have an in-house legal team that provides advice and assistance to the business globally on
how to comply with our various legal obligations, and engage external legal counsel to assist us
as and when required.
We maintain a schedule for regularly reviewing and updating corporate governance policies and
charters. The Code of Conduct was last reviewed on 29 March 2019.
Securities Trading Policy and Guidelines
We are committed to ensuring our people are aware of their obligations when trading in or
intending to trade in company Financial Products. Our Securities Trading Policy and Guidelines
details our policy on, and rules for, all directors, officers, contractors or employees who intend to
trade in company Financial Products. The Policy explains insider trading laws, and the legal and
reputational risks of failing to comply with such laws. A copy of the Policy is available on our
website.
Supplier Code of Conduct
We are committed to building a supply chain structure that supports our approach to corporate
social responsibility and sustainability. To ensure that our supply chain is transparent and
coordinated across our wider supply chain network, an integrated ERP system in conjunction
with our strong quality management system is utilised.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 GoveRNANCe CONTINUED
85
Our Supplier Code of Conduct reflects our values and our expectations for the conduct of all
suppliers, contractors and consultants, and their affiliates, who provide goods or services to our
group of companies. We find business relationships are more productive and effective when
they are built on trust, mutual respect and common values. As such, we seek relationships with
suppliers who share a common commitment to:
Interactions with healthcare professionals
As we are a medical device business, we must comply with laws and regulations on interacting
with healthcare professionals in various countries around the world. It is critical that our
activities do not improperly influence the medical decisions of healthcare professionals or the
purchasing decisions of entities that buy our products.
1.
Incorporate quality business processes within their day to day operation;
2. Conduct their business ethically and with integrity;
3. Comply with all laws and regulations;
4. Respect human and employee rights;
Our Policy on Interactions with Healthcare Professionals ensures that we act ethically and legally
in our interactions with healthcare professionals, comply with all applicable laws, and do not
provide improper benefits or inducements to healthcare professionals. We provide training to
employees on this policy.
5. Promote and maintain a health and safety culture within their organisation;
Ethical research
Clinical trials
We have formal procedures in place to ensure that we adhere to the International Conference on
Harmonisation Good Clinical Practice (GCP) standards during all clinical investigations we carry
out. GCP standards cover the design, conduct, recruitment, recording and reporting of clinical
investigations that involve the participation of human subjects.
Our procedures have also been compiled based on the ISO 14155:2011(E) standard for: Clinical
investigation of medical devices for human subjects – Good clinical practice and the EU Medical
Devices Directive.
These procedures are designed to ensure that the data and reported results of all clinical trials
are credible and accurate and that the rights, integrity and confidentiality of trial participants
are protected.
Animal Ethics
Regulatory bodies occasionally require biocompatibility testing of our medical device materials.
This testing follows a risk management approach based on ISO 10993-1, Biological Evaluation
of Medical Devices. ISO 10993-1 includes requirements for the wellbeing of animals and for
minimising the number of animals involved, and tests are conducted in laboratories accredited
to international standards (ISO 17025).
We may sometimes participate, observe or otherwise be involved in clinical studies which
include animal testing.
We minimise this impact by ensuring these activities are approved by the relevant animal ethics
committees and comply with applicable legislation. We support efforts to further reduce animal
testing by funding and supporting research in sophisticated physiological computer models.
6. Design for sustainability;
7. Monitor and minimise any negative impacts on the environment; and
8. Have systems in place to ensure business continuity, continuous improvement and
protection of intellectual property.
Within our upstream supply chain, our active risk mitigation means we continuously monitor
and partner with socially responsible organisations that believe in doing the right thing. We dual
source both directly from our manufacturers, service providers and third parties all over the
world within our key risk areas.
While materials are procured from all over the globe, a large portion of the externally procured
materials originate from suppliers in Asia and North America. To support our suppliers and
ensure transparency, we have local teams that enable us to personally interact and be present
within our suppliers’ operations on a regular basis. The local teams also organise visits from the
New Zealand-based global procurement teams to enable mutual collaboration.
Anti-bribery and corruption
In the course of our business we interact with a wide range of government officials and private
sector individuals or businesses, including government regulators, inspection authorities and
healthcare professionals.
We do not tolerate bribery, corruption, kickbacks or other types of improper benefits, whether
committed by our own people or by anyone we deal with.
Most of the countries in which we operate have strict anti-bribery and corruption laws that
apply to our interactions with public officials. Failing to comply with these laws could have
serious consequences for us, both as individuals and as an organisation. In some cases, these
consequences could include criminal charges. We have processes in place for assessing anti-
bribery and corruption risk and implement measures to mitigate these risks.
Our Code of Conduct sets out our expectations for all employees in combatting bribery and
corruption. We never offer or accept (or ask a third party to offer or accept) bribes, facilitation
payments, secret commissions or kickbacks to or from any person. These rules apply to all our
business activities, including any interactions we may have with government officials or with any
private person or business, either locally or overseas.
The Code requires that where we suspect bribery or corruption, either by our own people or by
any of our suppliers, customers or other business partners, we report it immediately. The Speak
Up policy ensures that all employees know how to make such a report and can be confident
that concerns will be taken seriously and investigated and will not result in retaliation or other
harassment.
During the year ended 31 March 2019 the company is not aware of any instances of corruption or
of incidents in which employees were dismissed or disciplined for corruption.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 86
GoveRNANCe CONTINUED
The Board
The Board plays a vital role in setting and overseeing our strategic direction and driving the
business forward. Strong governance from a diverse and experienced Board ensures we can
achieve our aims of improving patient care and outcomes through inspired and world leading
healthcare solutions, thereby sustainably increasing shareholder value.
The biography of each Board member, including each director’s skills, experience, expertise and
term of office, is set out in the “Our Board” section of this report.
Role of the Board
The Board is ultimately responsible for our strategic direction. The specific roles and
responsibilities of the Board, and the Board’s procedures, are set out in detail in our Board
Charter, available on our website. In summary, the Board is elected by our shareholders to:
•
•
•
•
•
establish our strategies and objectives;
identify and manage risks;
review and approve budgets and business plans;
adopt our remuneration policy and other policies governing the way we operate our
business; and
provide governance of internal decision making and management.
The Board delegates management of the day-to-day affairs and responsibilities of the Company
to the CEO and Executive Management to deliver the strategic direction and goals set by the
Board. The specific responsibilities delegated to Executive Management are recorded in the
Board Charter and the Delegation Policy. A summary of the Delegation Policy is available on our
website.
The Board regularly reviews and assesses our governance structures, policies, and procedures
to ensure these are in-line with international best practice and legal requirements. The Board
Charter was last updated on 29 March 2019.
Nomination and appointment of directors
The number of directors is determined by the Board, in accordance with the Company’s
constitution. The constitution requires that there are at least four directors, and no more than
nine directors, and governs the process for the appointment and removal of directors. A director
is appointed by ordinary resolution of the shareholders although the Board may fill a casual
vacancy.
Under the NZX Listing Rules, a director must not hold office (without re-election) past the third
annual meeting following the director’s appointment or 3 years, whichever is longer. A director
appointed by the Board must not hold office (without re-election) past the next annual meeting
following the Director’s appointment.
When searching for and nominating candidates to act as a director, the People and
Remuneration Committee takes into account such factors as it deems appropriate, including
diversity of gender, background, experience, and qualifications of the candidate, independence
and the Board skills matrix. It may use external search firms to assist with locating possible
candidates and gathering relevant information.
When considering the re-election of an existing director the People and Remuneration
Committee will also consider the length of service of the director, and the director’s
performance on the Board to date. It is the Board’s general expectation that a non-executive
director will hold office for an aggregate period of approximately nine years (including re-
elections).
We undertake a number of checks before appointing a director and putting forward to
shareholders a candidate for election as a director, and ensure we provide shareholders with all
relevant information to inform their decision on whether to elect or re-elect a director.
At the ASM on 23 August 2018, Arthur Morris retired from the Board and Scott St John and
Michael Daniell retired by rotation and, being eligible, offered themselves for re-election and
were re-elected to the Board. Neville Mitchell was appointed to the Board on 12 November 2018
and will stand for election at the ASM to be held on 28 August 2019.
Other procedures relating to the nomination and appointment of directors are outlined in the
Appointment and Selection of New Directors Policy available on our website.
Board diversity and skills matrix
At Board level, diversity allows the Company to benefit from a range of different perspectives,
which leads to healthier debate and decision making. As we operate in specialised international
markets, the Board believes that it is important to have a Board consisting of members with
diverse backgrounds, experience and skills. The Board also believes that the tenure of each of
its members is important as it seeks to balance independent, institutional knowledge gained
through length of service and the importance of fresh perspectives in decision-making.
The following table summarises the current key skills and experience, and tenure of the Board.
Skills and
experience
Financial acumen
Sales/Marketing
Engineering/
Science/Technology/
Manufacturing
Medicine/Medical
Device
Legal/Regulatory
Governance
International
Business Experience
Tony
Carter
Lewis
Gradon
Michael
Daniell
Pip
Greenwood
Geraldine
McBride
Neville
Mitchell
Donal
O’Dwyer
Scott St
John
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
Tenure (years)
8.5
3
17.5*
2
5.5
0.5
6.5
3.5
* Michael Daniell was appointed as a non-executive director on 1 April 2016 following his retirement as Managing
Director and CEO.
While some directors will have greater expertise in certain areas than others, the Board has
determined the table above on the basis of directors who have at least the minimum required
level of skill and experience in each area.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 87
Based on these assessments, the Board considers that as at 31 March 2019 a majority (six) of
the directors are independent, namely Tony Carter (Chair), Pip Greenwood, Geraldine McBride,
Neville Mitchell, Donal O’Dwyer and Scott St John, and that Michael Daniell and Lewis Gradon
are not independent.
Induction and continuing development of directors
A formal induction programme is available to new directors to ensure that they have a working
knowledge of our business. The programme includes one-on-one meetings with management
and a tour of our R&D and manufacturing facilities. All directors are regularly updated on
relevant industry and company issues. From time to time the Board may also undertake
educational trips to receive briefings from customers and visit operations of the company
outside of New Zealand. There is an on-going programme of presentations to the Board by all
business units.
All directors are members of the Institute of Directors (or overseas equivalent), and attend
training sessions to remain current on their duties as directors. The company also arranges
training for directors and management on specific issues as the need arises.
GoveRNANCe CONTINUED
Written agreements with directors
Upon appointment, non-executive directors are issued a letter setting out the terms and
conditions of their appointment. This includes information about their role and duties, time
commitments, term of appointment, remuneration and insurance, access to information, and
disclosure and compliance obligations. A copy of the standard form of this letter is available
on our website. The CEO has an employment agreement setting out his roles and conditions
of employment. Further information about the remuneration of directors is set out in the
Remuneration section of this Report.
Directors’ and officers’ insurance and indemnity
The Group has arranged, as provided for under the Company’s Constitution, policies of directors’
and officers’ liability insurance which, with a Deed of Indemnity entered into with all directors,
ensure that generally directors will incur no monetary loss as a result of actions undertaken
by them as directors. Certain actions are specifically excluded, for example, the incurring of
penalties and fines which may be imposed in respect of breaches of the law.
Independence of directors
We are committed to ensuring that a majority of directors are independent of the Company, and
do not have any interests, positions, associations or relationships which might interfere, or might
be seen to interfere, with their ability to bring independent judgement to the issues before the
Board.
The Board has regard to the factors described in the NZX Corporate Governance Code when
assessing the independence of directors. After consideration of these factors, the company is of
the view that:
1. No director is a substantial shareholder of the company or an officer of, or otherwise
associated directly with, a substantial shareholder of the company;
2. Lewis Gradon is a director who is currently employed in an executive role by the
company;
3. Michael Daniell is a director who was employed in an executive role by the company
until 31 March 2016 and there has not been a period of at least three years between
ceasing such employment and serving on the Board;
4. No director has been a principal of a material professional adviser or a material
consultant to the company or another group member, or an employee materially
associated with such service provider, within the last three years;
5. No director is a material supplier or customer of the company or other group member,
or an officer of, or otherwise associated directly or indirectly with, a material supplier or
customer;
6. No director has a material contractual relationship with the company or another group
member other than as a director of the company;
7. No director has served on the Board for a period which could, or could reasonably be
perceived to, materially interfere with the director’s ability to act in the best interests of
the company; and
8. All directors are free from any interest or any business or other relationship which
could, or could reasonably be perceived to, materially interfere with the director’s
ability to act in the best interests of the company.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 88
GoveRNANCe CONTINUED
Board performance
We have a Performance Evaluation Policy in place relating to the performance of the Board, the
Board Committees and individual directors. A summary of the Performance Evaluation Policy
is available on our website. The Performance Evaluation Policy, in accordance with the Board
Charter, requires the Board to undertake a two-yearly performance evaluation of itself that:
•
•
•
•
compares the performance of the Board with the requirements of its Charter;
reviews the performance of the Board Committees;
sets forth the goals and objectives of the company for the upcoming year; and
effects any improvements to the Board Charter deemed necessary or appropriate.
The Board has engaged an external consulting company to facilitate the Board’s performance
evaluation during 2018.
Our Executive Management are also subject to regular performance reviews. The performance
of senior executives is reviewed by the CEO who meets with each senior executive to discuss
their performance, as measured against key performance targets (both financial and non-
financial) previously established and agreed with that executive.
Board Committees
The Board has three permanent Committees which support the Board by working with
management on relevant issues at a suitably detailed level and then reporting back to the
Board. These Committees and their members as at 31 March 2019 are:
• Audit & Risk Committee
Members: Scott St John (Chair), Tony Carter and Michael Daniell
All members are non-executive directors, and two of three (including the Chair) are
independent.
•
People and Remuneration Committee
Members: Pip Greenwood (Chair), Tony Carter, Donal O’Dwyer and Scott St John
All members are independent non-executive directors.
• Quality, Safety and Regulatory Committee
Members: Donal O’Dwyer (Chair), Tony Carter and Neville Mitchell
All members are independent non-executive directors.
Each Committee has a charter setting out its objectives, procedures, composition and
responsibilities. A summary is set out below, and copies of these charters are available on our
website. The Board may from time-to-time establish other Committees for specific purposes.
Audit & Risk Committee
The primary function of the Audit & Risk Committee is to assist the Board in fulfilling its
responsibilities relating to the company’s risk management and internal control framework, the
integrity of its financial reporting, and the company’s internal and external auditing processes
and activities. The Committee has an annual work plan and monthly reporting to the Board
which enables it to properly and regularly inform the Board monthly on significant financial
matters relating to the company.
Employees and external auditors are invited to attend meetings when it is considered
appropriate by the Committee. The Committee, at least once per year, meets with the auditors
without any representatives of management present and is encouraged to seek advice from
external consultants or specialists where the Committee considers that necessary or desirable.
The Audit & Risk Committee closely monitors financial reporting risks in relation to the
preparation of the financial statements. The Committee, with the assistance of management,
works to ensure that the financial statements are founded on a sound system of risk
management and internal control and that the system is operating effectively in all material
respects in relation to financial reporting risks. As part of this process, before the company’s
financial statements are approved, the CEO and CFO are required to state in writing to the
Board that, to the best of their knowledge, the company’s financial reports present a true and
fair view of the company’s financial condition and operational results and are in accordance
with the relevant accounting standards and those reports are founded on a sound system of risk
management and internal control which is operating effectively.
People and Remuneration Committee
The People and Remuneration Committee’s role is to oversee and regulate remuneration and
organisation matters of the company, including recommending the company’s human resources
strategy for directors and senior executives, reviewing remuneration and benefits policies,
monitoring company performance against the Diversity & Inclusion Policy, and reviewing
performance objectives and remuneration of the company’s Chief Executive Officer and senior
executives. It also seeks advice on and recommends director remuneration structure and
recommends director appointments to the Board.
Quality, Safety and Regulatory Committee
The Quality, Safety and Regulatory Committee addresses characteristics specific to the
company’s business. The objective and purpose of the Quality, Safety and Regulatory
Committee is to assist the Board in fulfilling its responsibilities relating to the oversight of
the company’s quality management system, health and safety risk management system, and
strategies, activities and policies regarding sustainability, corporate social responsibility and the
environment. As part of the company’s internal audit function, regular quality system specific
internal audit reports are received by the Committee.
Board & Committee meetings
Normally, the Board holds eight formal meetings a year. One of those meetings is typically
focused on reviewing the company’s annual business plan and budget, and at a separate
meeting the long-term strategic plan is considered. The Board also meets with senior executives
to consider matters of strategic importance. At the company’s ASM held on 23 August 2018, all
of the then-serving directors attended the meeting.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 GoveRNANCe CONTINUED
89
Committees generally meet three or four times per year, or as required to carry out their
responsibilities. Details of attendance at Board and Committee meetings during the year ended
31 March 2019 are set out below:
Directors’ shareholdings
Directors held interests in the following ordinary shares in the Company as at 31 March 2019:
Name
Tony Carter
Lewis Gradon1
Michael Daniell2
Pip Greenwood
Arthur Morris
Neville Mitchell
Donal O’Dwyer
Scott St John
Ownership
Beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Beneficial
Ordinary Shares
76,101
603,502
971,809
3,800
29,915
7,200
68,569
13,457
1 Lewis Gradon also had a beneficial interest in 326,677 options issued under the 2003 Share Option Plan and a
beneficial interest in 97,064 performance share rights issued under the PSR Plan.
2 Michael Daniell also had a beneficial interest in 40,000 options issued under the 2003 Share Option Plan.
Board
Audit & Risk
Committee
People &
Remuneration
Committee
Quality, Safety
& Regulatory
Committee
Eligible
to
Eligible
to
Eligible
to
Eligible
to
attend Attended
attend Attended
attend Attended
attend Attended
Tony Carter
Lewis Gradon
Michael Daniell
Pip Greenwood
Geraldine McBride
Neville Mitchell1
Arthur Morris2
Donal O’Dwyer
Scott St John
8
8
8
8
8
3
4
8
8
8
8
8
8
8
3
4
8
8
4
4
3
4
4
4
5
5
5
5
5
5
5
5
2
2
1
2
1
2
¹ Neville Mitchell was appointed to the Board and Quality, Safety and Regulatory Committee in November 2018.
² Arthur Morris retired from the Board in August 2018.
Takeover Protocol
The Board adopted a new Takeover Protocol in 2018 to assist the directors and management
with the response to unexpected takeover activity. The Protocol summarises key aspects of
takeover preparation, and sets out governance, conflict and communications protocols for
takeover response. This Protocol provides that in the event of a takeover offer, the Board would
establish an Independent Takeover Response Committee to manage its takeover response
obligations.
Company Secretary
The Company Secretary is responsible for supporting the proper functioning of the Board and
ensuring the appropriate policies and procedures are followed. The Company Secretary reports
directly to the Board, through the Chair, on all governance matters as outlined in the Board
Charter.
Disclosure of interests by directors
Directors’ certificates to cover entries in the company’s interests register in respect of
remuneration, insurance, indemnities, dealing in the company’s shares, and other interests have
been disclosed as required by the Companies Act 1993.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 90
GoveRNANCe CONTINUED
Share dealings by directors
In accordance with the Companies Act 1993 and the Financial Markets Conduct Act 2013, the
Board has received disclosures from the directors named below of acquisitions or dispositions
of relevant interests (as defined in the Financial Markets Conduct Act 2013) in the company
between 1 April 2018 and 31 March 2019, and details of those dealings were entered in the
company’s interests register.
Name
Transaction
shares Price per share
Date
Number of
Tony Carter
Share purchases under DRP1
Lewis Gradon
Share sales
Share issue for cancellation
of 80,000 options
Granted 32,466 PSRs
Granted 100,313 options
40
540
38
521
9,000
12,000
18,000
53,891
–
–
$14.8773
6 Jul 2018
$15.0455
6 Jul 2018
$12.3105
21 Dec 2018
$12.2575
21 Dec 2018
$14.3933
11 Jun 2018
https://www.fphcare.co.nz/drp.
$14.5369
13 Jun 2018
$15.0846
24 Sep 2018
$14.9526
15 Jun 2018
–
–
13 Sep 2018
13 Sep 2018
Name
Transaction
shares Price per share
Date
Number of
Arthur Morris
Share purchases under DRP1
Donal O’Dwyer
Share purchases under DRP1
Scott St John
Share purchases under DRP1
73
155
71
149
561
541
102
99
$15.0849
6 Jul 2018
$15.0090
6 Jul 2018
$12.2559
21 Dec 2018
$12.2560
21 Dec 2018
$15.0328
6 Jul 2018
$12.2559
21 Dec 2018
$15.1170
6 Jul 2018
$12.2420
21 Dec 2018
1 DRP means the company’s dividend reinvestment plan. For more information see
Exercise of 26,000 PSRs
26,000
$15.2500
21 Sep 2018
Share issue for cancellation
of 30,000 options
15,825
$15.2500
21 Sep 2018
Michael Daniell
Share sales
Share issue for cancellation
of 150,000 options
25,000
25,000
5,229
44,771
30,000
10,000
10,000
101,335
$13.7896
6 Jun 2018
$14.3734
7 Jun 2018
$15.0724
26 Jun 2018
$15.1835
27 Jun 2018
$15.1250
18 Sep 2018
$15.0400
11 Mar 2019
$15.0500
12 Mar 2019
$14.8900
19 Jun 2018
Exercise of 30,000 PSRs
30,000
$15.0900
17 Sep 2018
Share issue for cancellation
of 40,000 options
20,882
$14.8300
12 Mar 2019
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 GoveRNANCe CONTINUED
General disclosure of interests by directors
In accordance with Section 140(2) of the Companies Act 1993, the directors named below have
made a general disclosure of interest by a general notice disclosed to the Board and entered in
the company’s interests register. General notices given by directors which remain current as at
31 March 2019 are as follows:
Name
Entity
Tony Carter
Air New Zealand Limited
Fletcher Building Limited
Fisher & Paykel Healthcare Employee Share Purchase
Trustee Limited
ANZ Bank New Zealand Limited
Loughborough Investments Limited
Avonhead Mall Limited
Antony Carter Family Trust No 2
Foodstuffs Auckland Perpetuation Trust
Foodstuffs Auckland Protection Trust
Maurice Carter Charitable Trust
Tony and Frances Carter Family Trust
Capital Solutions Limited
Capital Training Limited
Relationship
Chair
Director
Director &
Shareholder
Trustee
91
Name
Entity
Geraldine McBride National Australia Bank Limited
Sky Network Television Limited
MyWave Holdings Limited
Neville Mitchell
Sonic Healthcare Limited
Osprey Medical
Q’Biotics Limited
Relationship
Director
Director
Board of Taxation
South East Sydney Local Health District
Board Member
Arthur Morris
(retired)
Mercy Healthcare Auckland Limited
Southern Cross Hospitals Limited
Auckland School of Medicine Foundation
Southern Cross Health Trust
Donal O’Dwyer
Cochlear Limited
Mesoblast Limited
NIB Holdings Limited
Director
Trustee
Director
Nyxoah SA (by virtue of directorship of Cochlear)
Shareholder
Advisor
Scott St John
Te Awanga Terraces Limited
Lewis Gradon
Independent Selection Panel of Fonterra Co-op Group
Limited
Member
Fisher & Paykel Healthcare Employee Share Purchase
Trustee Limited
Other Group entities listed in the ‘Subsidiary Company
Directors’ section of this Report
Director
Michael Daniell
Medical Technologies Centre of Research Excellence
Chair
Tait Limited
Tait International Limited
MRCF Pty Limited
MRCF IIF GP Pty Limited
Director
Council of the University of Auckland
Council Member
Pip Greenwood
Russell McVeagh
Westpac New Zealand Limited
Spark New Zealand Limited
Auckland Writers Festival Trust
Rakino Trust
Theresa Gattung Investment Trust
Milbrook 7th Trust
Oriental Trust
Portia Trust
Partner
Director
Trustee
Fonterra Cooperative Group Limited
Hutton Wilson Nominees Limited
Captain Cook Nominees Limited
NEXT Foundation
Mercury NZ Limited
St John Family Trust
Macleod Trust
Council of the University of Auckland
Butland Medical Foundation
Director &
Shareholder
Director
Beneficiary &
Trustee
Chancellor
Trustee
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
92
GoveRNANCe CONTINUED
Reporting & disclosure
We are committed to the promotion of investor confidence by ensuring that the trading of our
shares takes place in an efficient, competitive and informed market. We believe that evenly
balanced disclosure is fundamental to building shareholder value and earning the trust of
employees, customers, suppliers, communities and shareholders.
Continuous disclosure
Our Market Disclosure Policy establishes our disclosure policies for meeting our continuous
disclosure obligations. A summary of the Market Disclosure Policy is available on our website.
This explains the respective roles of directors, officers and employees in complying with
continuous disclosure obligations, confidentiality of information, external communications with
analysts and shareholders, and responding to rumours and market speculation.
The Disclosure Committee, comprising the CEO, CFO and VP – Corporate, and the Disclosure
Officer, the VP – Corporate or alternatively the General Counsel NZ, are responsible for
administering compliance with our Market Disclosure Policy, including continuous disclosure
obligations. Market disclosure requires the approval of either the Board or the Disclosure
Committee, depending on the circumstances. The Market Disclosure Policy was last updated on
29 March 2019.
Company policies
We have policies and procedures in place to ensure we conduct our business with integrity, and
in a legally, ethically, and socially responsible manner. Key governance documents including our
Codes of Conduct, Securities Trading Policy and Guidelines, Board and Committee Charters,
Diversity Policy, Remuneration Policy, and Market Disclosure Policy are available on our website.
Financial reporting
We are committed to reporting our financial information in an objective, balanced, and clear
manner. Financial results are reported in this annual report in accordance with the New Zealand
equivalent of International Financial Reporting Standards. This annual report includes detailed
financial commentary and notes to the financial statements which explain any changes to
financial reporting.
This annual report also includes the Chair’s comments on strategic progress and the CEO’s
report summarises performance and progress towards our strategic objectives. It explains
how we deliver value for shareholders and key performance indicators such as revenue, profit,
constancy currency information, dividend growth and gearing, are used to link results to our
strategy.
We ensure that financial information reported in investor material for roadshows, company
overviews, and other documents is portrayed in an accurate, fair, and understandable format.
Other reporting
We are also committed to transparent reporting of non-financial objectives, such as
environmental, social, and governance (ESG) factors, as well as risk, health & safety, and
business strategy. Our annual report references the guidelines and principles set out by the
Global Reporting Initiative (GRI), and a GRI referenced content index, based on the 2016
standards.
Auditors
External audit
The Audit & Risk Committee has oversight responsibility for our external audit arrangements.
The Board has adopted the External Financial Auditors Independence Policy which
complements the Audit & Risk Committee Charter by outlining the requirements for the
provision of services by any external auditor we engage. The purpose of the Policy is to ensure
that our external auditor carries out its function independently and without impairment,
safeguarding the reliability and credibility of external financial reporting.
The External Financial Auditors Independence Policy establishes a framework for the selection
and appointment of external auditors, outlines the services which may be ordinarily performed,
may be performed with approval of the Audit & Risk Committee, or must not be performed by
external auditors, and the responsibilities of external auditors.
The Policy requires the CFO to report at each Audit & Risk Committee meeting any work (audit
and non-audit) conducted by the external auditor, including the fees paid to the external
auditors for non-audit services. Procedures for communication between the Audit & Risk
Committee, Board, senior management, and the external auditors are set out in the Audit & Risk
Committee Charter.
The Audit & Risk Committee is responsible for monitoring performance and independence
of the external auditors. The Policy requires the external auditor to report to the Audit &
Risk Committee annually in writing, confirming that they are independent and disclosing all
relationships that may bear on independence. Under the Audit & Risk Committee Charter, the
Audit & Risk Committee is responsible for recommending appropriate action to the Board in
response to this report.
The Board requires our external financial auditors to attend the ASM each year to answer any
question from shareholders relating to the audit for that financial year.
The Audit & Risk Committee Charter and the External Financial Auditors Independence Policy
can be found on our website.
Internal audit
Internal audit is a key component of our objective-centric risk management approach. In
addition to internal mechanisms, including self-assessments and internal reviews, the Board
engages external advisors to carry out internal audit functions on various parts of the business
as needed. The focus is to assist the business with the evaluation of the effectiveness of key risk
management control.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 RISK MANAGEMENT
RISk MANAGeMeNT
93
In working to achieve our purpose of improving care and outcomes through inspired and world-
leading healthcare solutions, it is our responsibility to understand and manage the risks faced
across our entire organisation.
The purpose of designing, implementing and maintaining an effective, structured approach to
risk management is to help improve the quality of decisions the business makes in the pursuit of
achieving our growth objective of providing an expanding range of innovative medical devices
that improve patient care and outcomes.
Components of our risk management approach
Our business risk management approach is derived from ISO 31000 Risk Management –
Principles and Guidelines and enhanced to focus on Fisher & Paykel Healthcare’s key strategic
objectives. For product risk, ISO 14971 Medical Devices Application of Risk Management is the
standard we follow specific to medical device design and manufacturing. For health and safety,
our focus is on the implementation of global health, safety and wellbeing standards that are
aligned with ISO 45001 and a greater emphasis on the effective management of critical risks.
The diagram below provides a high-level summary of our risk management approach:
5.
MoNIToR
ANd RevIeW
1.
eSTABLISHING
THe CoNTeXT
PURPoSe
Inform decision
making regarding
risks to the business
to create and
protect value
2.
IdeNTIFy &
evALUATe
RISkS
4.
CoMMUNICATe
ANd CoNSULT
3.
deveLoP
& IMPLeMeNT
A ReSPoNSe
Through this approach to risk management, we can:
•
•
•
Ensure prompt resolution of internally identified risk to compliance with laws and
regulations to maintain the provision of quality products, protect patient safety and ensure
appropriate relationships with customers and stakeholders;
Enable improved decision making, planning and prioritisation through a structured
understanding of opportunities and threats to strategic objectives; and
Support value creation by enabling management to deal effectively with future events
that create uncertainty, pose a significant risk or opportunity and to respond in a prompt,
efficient and effective manner.
While no risk management system can ever be fool proof, our goal is to make sure that material
risks are appropriately identified and managed within acceptable levels.
Examples of activities to identify and mitigate our material risks are described below.
Business Risk Management
As part of our annual business planning process we piloted an analysis of risk to strategies. The
purpose of this approach is to generate better quality information on risks and opportunities
to our strategies and help managers make the best possible decisions regarding strategy
execution.
We also revised our approach to analysing the macro and industry risks that we face as a
medical device manufacturer selling product globally. A quantitative risk analysis has been
completed using the inputs gathered during a discovery process which involved interviews with
employees across the business. The modelling approach used is a simulation which generates
a probability distribution curve plotting the likelihood of risks exceeding certain amounts. This
approach provides greater insights over single point estimates by showing not only what could
happen, but how likely each outcome is.
Product quality and safety
Ensuring patient safety and the quality of our products is a key priority. We establish processes
that effectively manage risk and drive continuous improvement in product quality throughout
the lifecycle of our products.
We have introduced proactive quality control mechanisms within our manufacturing operations.
Through the use of data collection and statistical analysis, we are improving the control of our
manufacturing processes, with the aim of being able to intervene and correct a process prior
to product quality being compromised. This approach is providing further assurance that our
customers and patients receive high quality products that are safe and effective.
Health, safety and wellbeing
We are committed to ensuring the health, safety, and wellbeing of our people. To do so, we
continue to drive performance improvement across our global operations through the ongoing
development and implementation of global health, safety and wellbeing management systems
and processes which are aligned with ISO 45001:2018.
Targeted interventions to prevent high frequency/low consequence musculoskeletal injuries
have been particularly effective during the past financial year as illustrated by the significant
improvement in our ‘lag’ performance indicators, the Total Recordable Injury Frequency Rate
(TRIFR) and the Lost Time Injury Frequency Rate (LTIFR), as shown in the ‘Health and safety
data’ section on the following page.
In addition, we have placed greater emphasis on the effective management of the critical risks
common across our global operations; i.e. low frequency/very high consequence risks with the
potential to result in a fatality, serious injury or illness. In the past year, subject matter expert
groups were assembled from across our operations globally to establish critical risk standards.
Regular monitoring of the implementation of these critical risk standards will become an
important ‘lead’ performance indicator for us.
The improvements to our health, safety and wellbeing risk management systems and
performance indicators will provide a safer and healthier work environment for our people.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 94
RISk MANAGeMeNT CONTINUED
Material business risks and strategies to mitigate
After completing the risk management processes outlined on the previous page, and in line
with the materiality assessment in the ‘Materiality’ section of this Report, we have identified and
described a selection of key business risks, and strategies to mitigate these, in the table below.
Area
Principal risk
Strategies to mitigate
Product
quality and
patient
safety
Patients are
harmed as a
result of using
our products
We operate a worldwide quality management system related
to the design, testing and manufacture of our products.
Furthermore, we foster an organisational culture of product
safety and continuous improvement.
Market access Maintaining
regulatory
compliance
is required to
market and sell
our products in
certain countries
We have a regulatory affairs processes for obtaining and
maintaining product licenses, as well as a quality management
system that ensures compliance with applicable regulatory
requirements.
We have monitoring steps in place to evaluate the
effectiveness of our programmes, and our executive
management team conducts regular management reviews.
Health and
safety
Work related
injuries
Our focus is on the implementation of global health, safety
and wellbeing standards that are aligned with ISO 45001 and a
greater emphasis on the effective management of critical risks.
Intellectual
Property
Third parties
asserting IP
rights against us
Sustainable
profitable
growth
Foreign
exchange
losses
Business
continuity
Continuity
and quality
of supply
We design and implement preventative and recovery risk
controls for critical health, safety and wellbeing risks across
our global business.
Our health, safety and wellbeing progress is reported regularly
to the Board and to the Quality, Safety and Regulatory
Committee three times a year.
We have a comprehensive patent portfolio across our
technologies and we actively and robustly manage IP litigation
risk. As part of our product development phase we conduct
freedom to operate searches during product design. We
monitor competitor patent filings and take action as required.
Currency risk is hedged in accordance with the Board
approved hedging policy. The hedging policy aims to manage
the impact of short-term fluctuations on our cash flow.
Longer term, we use derivative financial instruments to hedge
exposures over future years. A diversity of currency exposures
also provides natural hedges.
To ensure risk is managed within our global supply chain,
we actively monitor our end to end processes and systems
through an internal risk management process and implement
actions to prevent disruption. We utilise a business impact
analysis to identify, understand and quantify the impact of
a material disruption to a key facility, location, supplier or
business process. This approach enables us to prioritise the
most significant potential exposures to the business.
Area
Principal risk
Strategies to mitigate
Cyber security
and data
protection
Cyber security
attack resulting
in disruption to
operations and
data breach.
To manage our risk and protect the data entrusted to us,
we are constantly reviewing and improving our control
mechanisms to ensure we can proactively respond to
developing cyber threats. As a result, we have been increasing
our use of independent reviews to test and identify potential
risks to ensure we focus on the right cyber risks.
Governance of risk
Our Board is dedicated and fully committed to its role of ensuring quality, safety, compliance
and effective risk management. The Board provides oversight of senior leadership’s
management of risk, meets regularly with key risk management functional leaders and receives
regular reports from senior representatives on material risk and mitigation strategies.
The Audit & Risk Committee reports to and assists the Board by reviewing and ensuring our risk
management processes (excluding any risks related to quality, safety and regulatory functions)
can provide reliable information to the Board on the status of major risks that could impact on
the achievement of our objectives.
The Quality, Safety & Regulatory Committee reports to and assists the Board by reviewing
our quality, health and safety and regulatory risk management approach to ensure effective
mechanisms and internal controls are in place to identify and manage areas of material risk and
maintain compliance with applicable regulations.
Health and safety data
Injury rates1
TRIFR
LTIFR
2017
5.62
1.62
Global
2018
7.79
4.82
2019
2.33
0.47
Injury rates (per million
hours worked)
TRIFR
LTIFR
Severity
Fatality
Serious injury
Lost time injury
Medical treatment injury
Restricted work injury
First aid injury
Pain and discomfort
New Zealand
Mexico
Rest of World
2018
2019
2018
2019
2018
2019
12.35
7.36
4.33
0.68
1.42
1.42
0.00
0.00
4.48
2.80
0.52
0.52
0
0
30
6
16
235
88
0
1
3
4
12
213
136
0
0
3
0
0
0
2
0
0
0
0
0
28
26
0
0
6
1
1
6
6
0
0
1
0
0
8
8
1 We have reviewed our health, safety and wellbeing performance reporting processes and lag indicator (LTI, MTI, RWI)
definitions to align with internationally recognised standards. As a result, our TRIFR and LTIFR more accurately reflect
our current safety performance.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 SHAREHOLDER AND COMPANY INFORMATION
SHAReHoLdeR ANd CoMPANy INFoRMATIoN
95
The company has in place an investor relations programme to facilitate effective two-way
communication with investors. We aim to build strong relationships with our shareholders and
investors based on integrity, transparency, and trust. Our intention is to provide shareholders
with all relevant information about the company to enable them to actively engage with us and
exercise their rights as shareholders in an informed manner.
ASM and shareholder voting
Our ASM is currently held in Auckland, New Zealand, as the Board believes this location best
facilitates attendance by shareholders. Our next ASM is scheduled to be held at the Paykel
Building, Fisher & Paykel Healthcare, 15 Maurice Paykel Place, East Tamaki, Auckland, New
Zealand on Wednesday, 28 August 2019 at 2pm (NZST).
Shareholders can also attend remotely using a virtual tool. Notice of the ASM is released to
the NZX and ASX, and posted on our website, at least 20 working days prior to the meeting.
We encourage active participation by shareholders at the ASM and shareholders may present
questions in person or digitally to engage with the Board and executive leadership and ask
questions.
Shareholders have the right to vote on major decisions which may change the nature of the
company. Each shareholder has one vote per ordinary share they own in the company, equally
with other shareholders, and may vote at a meeting in person, or by proxy, representative
or attorney. We offer an electronic voting facility to allow shareholders to vote ahead of the
meeting without having to attend or appoint a proxy, and we also allow voting through an app.
Share information
Stock exchange listing requirements
The company’s shares were listed on the NZX Main Board on 14 November 2001 and on the
ASX on 21 November 2001. On 20 June 2016 the company changed its admission category to
an ASX Foreign Exempt Listing. As part of this change, the company is still required to comply
with the NZX Listing Rules but is not required to comply with many of the ASX listing rules. For
the purposes of ASX Listing Rule 1.15.3, the company confirms that it has complied with the NZX
listing rules during the year ended 31 March 2019.
Neither the NZX nor the ASX has taken any disciplinary action against the company during the
year ended 31 March 2019. In particular, there was no exercise of powers by the NZX under NZX
Listing Rule 9.9.3.
Shareholder communications
Our Shareholder Communication Policy facilitates communication with shareholders through
written and electronic means, and by facilitating shareholder access to directors, Executive
Management and our auditors. A copy of our Shareholder Communication Policy is available on
our website.
We communicate with shareholders through the following channels:
investor section of our website;
•
• Annual Report;
Interim Report;
•
• ASM;
• webcasts;
•
•
regular disclosures on company performance and news; and
disclosure of presentations provided to analysts and investors during regular briefings,
meetings and roadshows.
Our Website
The company’s website is frequently the first port of call for shareholders and therefore is a core
component of our Shareholder Communications Policy. We include on our website a range of
information relevant to shareholders and others concerning the operation of the company.
We make available a webcast of our ASM and management presentations of financial results.
Webcast details will be published on the NZX and ASX before the event so that shareholders
and other interested parties may participate.
The company encourages shareholders to receive their shareholder communications
electronically to help reduce our environmental footprint and costs.
Direct communication
Shareholders may, at any time, direct questions or requests for information to directors or
management by contacting Marcus Driller, our VP Corporate and Company Secretary, at
marcus.driller@fphcare.co.nz or +64 27 578 9663.
We have a modern communication framework in place so shareholders can receive
communications in a manner that best suits them. We provide shareholders with the option
to receive communications from, and send communications to, us and our share registrar
electronically. Commencing in 2018, we have offered shareholders the ability to attend our ASM
digitally, ask questions through a virtual tool, and to vote electronically or using an app.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 96
SHAReHoLDeR AND CoMPANy INfoRMATIoN CONTINUED
Current on-market share buyback
There is no current on-market buy-back of the company’s ordinary shares and during the year
ended 31 March 2019 none of the company’s ordinary shares were purchased on-market under
or for the purposes of an employee incentive scheme or to satisfy the entitlements of holders of
options or other rights to acquire ordinary shares granted under an employee incentive scheme.
The company does not have any restricted securities or securities subject to voluntary escrow
on issue.
Incorporation and limitations on the acquisition of shares
The company is incorporated in New Zealand and is not subject to Chapters 6, 6A, 6B and
6C of the Australian Corporations Act 2001. In general, securities in the company are freely
transferable and the only significant restrictions or limitations in relation to the acquisition of
securities are those imposed by the New Zealand Takeovers Code, the Overseas Investment
Act 2005 (NZ), and the Commerce Act 1986 (NZ). The company does not impose additional
ownership restrictions.
Credit rating
The company does not currently have an external credit rating status.
Current NZX waivers
No waivers were sought from or granted under either of the NZX or ASX Listing Rules within
the 12 month period preceding the balance date of the company. During the same period the
company relied on the following waivers previously granted by the NZX to issue options under
its share option plans, PSRs under its PSR plan and shares under its share purchase plans:
(1) waiver from NZX Main Board Listing Rule 7.1.10 and 7.1.16 in respect of the issue of
options under the company’s share options plans (granted 19 August 2011);
(2) waiver from NZX Main Board Listing Rule 7.1.10, 7.1.16 and 8.1.7 in respect of the
company’s performance share rights plan (granted 7 August 2012).
Distribution of shareholders and holdings
The Company only has one class of shares on issue, ordinary shares, each conferring to the
registered holder the right to one vote on any resolution, and these shares are listed on the NZX
and ASX. There are no other classes of equity security currently on issue. The total number of
ordinary shares of the company on issue at 31 March 2019 was 573,708,739 ordinary shares.
The distribution of shareholdings as at 31 March 2019 was as shown in the table below:
Size of shareholding
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 50,000
50,001 to 100,000
100,001 and over
Total
Number
of holders
7,916
9,777
2,386
1,546
86
102
21,813
%
36.3
44.8
10.9
7.1
0.4
0.5
Number of
ordinary shares
3,567,608
23,723,754
16,963,847
29,062,338
5,980,651
494,410,541
100.0
573,708,739
%
0.6
4.1
3.0
5.1
1.0
86.2
100.0
The employee share options, rights and PSRs on issue to employees are disclosed in Note 18 of
the Financial Statements. There are no voting rights attaching to share options, rights, or PSRs.
Substantial product holders
According to company records and notices given under the Financial Markets Conduct Act
2013 the substantial product holders in ordinary shares (being the only class of quoted voting
products) of the company as at 31 March 2019, were as follows:
Substantial Product Holder
Date of notice
Number of
ordinary shares
held as at date
of notice
Holding as a %
of total ordinary
shares on issue as
at 31 March
BlackRock, Inc and related bodies
corporate
21 March 2019
28,725,458
5.007%
The Vanguard Group, Inc
18 December 2018
30,145,141
The Capital Group Companies, Inc
15 June 2018
29,329,458
5.254%
5.112%
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 97
SHAReHoLDeR AND CoMPANy INfoRMATIoN CONTINUED
Principal shareholders
The names and holdings of the twenty largest registered shareholders in the company as at
31 March 2019 were:
Shareholder1
Ordinary Shares
HSBC Nominees (New Zealand) Limited
JPMORGAN Chase Bank
HSBC Nominees (New Zealand) Limited
HSBC Custody Nominees (Australia) Limited
Citibank Nominees (NZ) Ltd
J P Morgan Nominees Australia Pty Limited
Tea Custodians Limited
New Zealand Superannuation Fund Nominees Limited
Accident Compensation Corporation
Citicorp Nominees Pty Limited
National Nominees Limited
Cogent Nominees Limited
Custodial Services Limited
FNZ Custodians Limited
Custodial Services Limited
National Nominees New Zealand Limited
Premier Nominees Limited
BNP Paribas Noms Pty Ltd
BNP Paribas Nominees NZ Limited
JBWERE (NZ) Nominees Limited
71,736,515
60,286,151
59,413,263
52,906,329
33,353,537
30,293,331
13,085,129
12,950,583
12,540,052
12,369,954
11,005,850
9,176,607
8,441,641
8,092,342
6,593,628
6,523,207
5,849,663
5,572,039
5,355,664
4,128,067
%
12.5
10.5
10.4
9.2
5.8
5.3
2.3
2.3
2.2
2.2
1.9
1.6
1.5
1.4
1.2
1.1
1.0
1.0
0.9
0.7
other Group information
Principal activities
The Company is a world-leading designer, manufacturer and marketer of products and systems
for use in respiratory care, acute care, surgery and the treatment of obstructive sleep apnea.
There were no significant changes to the state of affairs of the Company or to the nature of the
Company’s (or its subsidiaries’) principal activities during the year ended 31 March 2019.
Use of company information
We did not receive any notices from directors requesting to use company information received
in their capacity as directors which would not otherwise have been available to them.
Donations
Please refer to Note 5 of the Financial Statements for the Group’s donations in the financial year
to 31 March 2019.
Entries recorded in the interests register
Except for disclosures made elsewhere in this Report, there have been no entries in the
Company’s interests register made during the year ended 31 March 2019.
Other subsidiary company information
No entries were made in the interests register of any subsidiary during the year ended 31 March
2019.
No employee of the Group who is appointed as a director of a Group entity receives or retains
any remuneration or other benefits in his or her capacity as a director. The remuneration and
other benefits of Group employees and former employees totalling $100,000 or more during
the year ended 31 March 2019 are included in the relevant bandings for remuneration disclosed
in the ‘Employee Remuneration’ section of this Report.
During the year ended 31 March 2019, all directors of subsidiaries were full-time employees of
the Group, with the exception of:
a. Tony Carter who is a director of Fisher & Paykel Healthcare Employee Share Purchase
Trustee Limited.
b. Lawrence Gibbons who is a director of Fisher & Paykel Healthcare S.A. de C.V. (Mexico).
1 In the above table, the shareholding of New Zealand Central Securities Depository Limited (NZCSD) has been
c. Alex Koshy who was a director of Fisher & Paykel Healthcare India Private Limited (India)
re-allocated to the underlying beneficial owners.
until 19 January 2019.
Tony Carter and Lawrence Gibbons do not receive any remuneration or other benefits for their
roles as directors of the above subsidiaries. Alex Koshy received $8,510 for his role as a director
of Fisher & Paykel Healthcare India Private Limited.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 98
SHAReHoLDeR AND CoMPANy INfoRMATIoN CONTINUED
Group structure
All subsidiary companies in the Group are ultimately 100% owned by the Company. The Group
structure and the persons who held office as directors of subsidiary companies at 31 March 2019
are detailed below:
Entities
Directors
Fisher & Paykel Healthcare Corporation Limited* Owns:
Fisher & Paykel Healthcare Limited (NZ)*1
Fisher & Paykel Healthcare Treasury Limited (NZ)*1
Fisher & Paykel Healthcare Employee Share Purchase
Trustee Limited (NZ)¹
Fisher & Paykel Healthcare Asia Limited (NZ)1
Lewis Gradon, Paul Shearer,
Andrew Somervell
Lewis Gradon, Paul Shearer,
Andrew Somervell
Tony Carter, Lewis Gradon
Lewis Gradon, Paul Shearer,
Andrew Somervell
Fisher & Paykel Healthcare Americas Investments
Limited (NZ)1
Lewis Gradon, Paul Shearer,
Andrew Somervell
Fisher & Paykel Healthcare Pty Limited (Australia)
Fisher & Paykel Healthcare Limited (UK)
Fisher & Paykel Holdings Inc. (USA)¹
Fisher & Paykel do Brasil Ltda (Brazil)
Lewis Gradon, Paul Shearer,
David Boyle, Graham Gourd
Lewis Gradon, Paul Shearer,
Nicholas Connolly, Patrick McSweeny
Lewis Gradon, Paul Shearer,
Andrew Somervell
Brazilian law does not require
directors. Decision making authority
lies with the directors of its
shareholders.
Fisher & Paykel Healthcare (Guangzhou) Limited (China) Lewis Gradon, Paul Shearer,
Fisher & Paykel Healthcare Limited (Canada)
Fisher & Paykel Healthcare Limited* (NZ) Owns:
Fisher & Paykel Healthcare Properties Limited (NZ)*1
David Boyle, Zhiping Hou
Lewis Gradon, Paul Shearer,
Justin Callahan
Lewis Gradon, Paul Shearer,
Andrew Somervell
Fisher & Paykel Healthcare Asia Limited (NZ) Owns:
Fisher & Paykel Healthcare Asia Investments Limited
(NZ)1
Lewis Gradon, Paul Shearer,
Andrew Somervell
Entities
Directors
Fisher & Paykel Healthcare Asia Investments Limited (NZ) Owns:
Fisher & Paykel Healthcare India Private Limited (India)2 Lewis Gradon, Paul Shearer,
David Boyle, Chris Kamolins
Fisher & Paykel Healthcare K.K. (Japan)
Fisher & Paykel Healthcare Limited (Hong Kong)
Lewis Gradon, Paul Shearer,
Hideo Goto
Lewis Gradon, Paul Shearer, David
Boyle, Zhiping Hou
Fisher & Paykel Healthcare Americas Investments Limited (NZ) Owns:
Fisher & Paykel Healthcare S.A. de C.V. (Mexico)
Fisher & Paykel Healthcare Colombia S.A.S (Colombia)
Lewis Gradon, Andrew Somervell,
Lawrence Gibbons
Legal Representatives: Bryan Peterson,
James Tuck
Fisher & Paykel Healthcare Mexico S.A. de C.V. (Mexico) Lewis Gradon, Paul Shearer,
Bryan Peterson
Fisher & Paykel Healthcare Properties S.A. de C.V.
(Mexico)1
Lewis Gradon, Andrew Somervell,
Jonathan Rhodes
Fisher & Paykel Healthcare Limited (UK) Owns:
Fisher & Paykel Healthcare SAS (France)
Fisher & Paykel Holdings GmbH (Germany)
Fisher & Paykel Healthcare AB (Sweden)
Lewis Gradon, Paul Shearer,
Patrick McSweeny, Ian Hopkinson
Ian Hopkinson, Patrick McSweeny,
Kerstin Bille
Lewis Gradon, Paul Shearer,
Patrick McSweeny, Ian Hopkinson
Fisher Paykel Sağlık Ürünleri Ticaret Limited Şirketi
(Turkey)
Lewis Gradon, Paul Shearer,
Patrick McSweeny
Limited Liability Company Fisher & Paykel Healthcare
(Russia)
Lewis Gradon, Paul Shearer,
Bryan Peterson, Anatoly Filippov
Fisher & Paykel Holdings Inc. (USA) Owns:
Fisher & Paykel Healthcare Inc. (USA)
Lewis Gradon, Paul Shearer,
Justin Callahan
Fisher & Paykel Healthcare Distribution Inc. (USA)
Lewis Gradon
* Companies Operating Under a Negative Pledge Deed
1 Tony Barclay retired as a director of these subsidiaries effective 31 May 2018
2 Alex Koshy retired as a director of this subsidiary effective 19 January 2019
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 FIve yeAR SUMMARy
For the years ended 31 March
All figures in NZ$M (except as otherwise stated)
FINANCIAL
PERFORMANCE
Sales revenue
Foreign exchange gain (loss) on hedged sales
Total operating revenue
Gross profit
Gross margin
Other income
SG&A expenses
R&D expenses
Total operating expenses
Operating profit before financing costs
Operating margin
Net financing expense
Tax expense
Profit after tax
REVENUE North America
By Region and
product group
Europe
Asia Pacific
Other
Hospital products
Homecare products
Core products subtotal
Distributed and other products
Total operating revenue
Growth Rates
Reported
Revenue
Gross Profit
R&D expenses
Net Profit after tax
Growth Rates in
Constant Currency
(1)
Revenue
Gross Profit
Net Profit Before tax
R&D expenses
2015
644.0
28.3
672.3
410.9
61.1%
5.0
(180.9)
(65.0)
(245.9)
170.0
25.3%
(11.3)
(45.5)
113.2
290.7
223.4
127.2
31.0
357.2
302.0
659.2
13.1
672.3
8%
12%
20%
17%
13%
22%
55%
20%
2016
818.5
(3.0)
815.5
521.7
64.0%
5.0
(242.3)
(73.3)
(315.6)
211.1
25.9%
(10.3)
(57.4)
143.4
385.9
253.7
142.6
33.3
436.3
365.8
802.1
13.4
815.5
21%
27%
13%
27%
13%
19%
18%
13%
2017
869.5
24.9
894.4
590.4
66.0%
5.0
(269.3)
(86.0)
(355.3)
240.1
26.8%
(1.6)
(69.3)
169.2
433.0
272.0
154.8
34.6
500.4
381.5
881.9
12.5
894.4
10%
13%
17%
18%
14%
17%
21%
17%
2018
964.5
16.3
980.8
650.4
66.3%
5.0
(290.9)
(94.7)
(385.6)
269.8
27.5%
(2.0)
(77.6)
190.2
458.5
297.6
181.0
43.7
572.1
398.1
970.2
10.6
980.8
10%
10%
10%
12%
9%
9%
12%
10%
99
2019
1,072.1
(1.7)
1,070.4
715.8
66.9%
5.0
(327.8)
(100.4)
(428.2)
292.6
27.3%
(1.4)
(82.0)
209.2
501.5
314.6
208.1
46.2
642.3
421.4
1,063.7
6.7
1,070.4
9%
10%
6%
10%
8%
9%
9%
6%
(1) Constant Currency (CC) removes the impact of exchange rate movements. This approach is used to assess the Group’s underlying comparative financial performance without any distortion from changes in foreign exchange rates. A full
reconciliation for the most recent 3 years and basis of preparation is set out on page 36. The 2015, 2016 and 2017 growth rates in constant currency have been sourced from the 2016 and 2017 annual reports respectively.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 100
FIve yeAR SUMMARy CONTINUED
For the years ended 31 March
All figures in NZ$M (except as otherwise stated)
FINANCIAL
POSITION
Property, plant and equipment
Total assets
Total liabilities
Shareholders’ equity
Return on assets (%)
Return on equity (%)
Net Debt (including short-term investments)
Gearing Ratio (1)
2015
367.4
669.8
(198.6)
471.2
24.4%
36.2%
51.9
10.3%
2016
389.6
766.8
(225.1)
541.7
28.0%
39.7%
44.4
7.7%
2017
425.2
878.2
(216.6)
661.6
29.0%
39.6%
(0.2)
0.0%
2018
476.4
2019
601.4
1,025.1
1,206.7
(263.7)
761.4
28.1%
37.6%
(49.9)
-7.3%
(293.5)
913.2
26.1%
34.8%
(54.4)
-6.7%
Basic shares outstanding at 31 March
557,940,257
563,841,265
567,686,436
571,230,264
573,708,739
DIVIDENDS AND
EARNINGS PER
SHARE (CENTS PER
SHARE)
Dividends declared
Interim
Final (2)
Total ordinary dividends
Basic earnings per share
Diluted earnings per share
CASH FLOWS Net cash flow from operating activities
CAPITAL
EXPENDITURE
Free cash flow (3)
Dividends paid
Plant and equipment
Land and buildings
Intangible assets
Total
Plant & equipment capital expenditure : depreciation ratio
5.80
8.00
13.80
20.4
19.9
146.8
92.0
(47.9)
38.1
1.2
14.3
53.6
1.4
6.70
10.00
16.70
25.6
25.1
144.6
77.1
(68.2)
46.3
1.7
17.7
65.7
1.6
8.25
11.25
19.50
29.9
29.5
193.6
130.6
(89.4)
44.1
3.8
15.1
63.0
1.5
8.75
12.50
21.25
33.4
33.0
247.8
149.3
(102.5)
41.8
41.4
15.5
98.7
1.3
9.75
13.50
23.25
36.5
36.2
253.3
120.0
(114.6)
41.4
74.0
17.9
133.3
1.3
(1) Net interest-bearing debt (debt less cash and cash equivalents and short-term investments) to net interest bearing debt and equity (less hedging reserves).
(2) Final dividend is paid in the following financial year.
(3) Free cash flow represents net cash flows from operating activities less capital expenditure.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 FIve yeAR SUMMARy CONTINUED
For the years ended 31 March
All figures in NZ$M (except as otherwise stated)
PATENT
PORTFOLIO
NUMBERS
US patents
US patent applications (includes PCTs) (1)
Non-US patents
Non-US patent applications (excludes PCTs) (1)
2015
118
287
496
410
2016
138
329
559
582
2017
161
357
714
732
2018
186
385
870
912
PEOPLE NUMBERS People numbers (2)
3,151
3,587
4,112
4,174
By function:
R&D
Manufacturing and operations
Sales, marketing and distribution
Management and administration
By region:
New Zealand
North America
Europe
Rest of World
EXCHANGE RATES
NZ$ 1 =
AVERAGE DAILY SPOT RATES
AVERAGE CONVERSION RATES (3)
433
1,818
738
162
509
1,992
907
179
1,943
2,142
751
221
236
0.8098
0.7896
0.5259
0.4953
0.8583
0.8130
68.27
10.68
USD
USD
EUR
GBP
AUD
CAD
JPY
MXN
922
258
265
0.6786
0.7235
0.5794
0.4718
0.9000
0.8720
68.38
10.71
563
2,405
948
196
2,307
1,231
271
303
0.7090
0.6957
0.5935
0.4812
0.9143
0.8787
69.67
12.09
572
2,386
994
222
2,258
1,314
294
308
0.7148
0.6823
0.5999
0.5018
0.9246
0.9218
72.34
12.62
(1) PCTs (Patent Cooperation Treaty) are unified patent applications across a number of jurisdictions.
(2) People numbers are represented as full time equivalents.
(3) Actual exchange rates achieved in delivering or purchasing net foreign currency in relation to the Group’s exposures. The average rate includes hedged, spot and close-out transactions in each year.
101
2019
222
427
988
1,080
4,547
581
2,680
1,047
239
2,416
1,493
303
335
0.6811
0.6804
0.6039
0.5105
0.9163
0.8973
73.21
13.24
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019
102
GLoSSARy
ASM
ASX
AUD
AVR
CEO
CFO
CODM
Company
Constant Currency
CPS
CSR
DJSMDQT
DRP
EBITDA
ERP
ESG
ESR
Annual Shareholders’ Meeting
Australian Stock Exchange
Australian Dollar
Annual Variable Remuneration
Chief Executive Officer
Chief Financial Officer
Chief Operating Decision Maker
means Fisher & Paykel Healthcare
Corporation Limited
is our way to measure performance
of the company without any
distortion from changes in foreign
exchange rates
cents per share
Corporate Social Responsibility
Dow Jones US Select Medical
Equipment Total Return Index
the Company’s Dividend
Reinvestment Plan
Earnings before interest, tax,
depreciation and amortisation
Enterprise Resource Planning which
is software used to track information
across all departments and business
functions
Environmental, Social and
Governance
Employee Share Right
Executive Management the Executive Management team as
FDA
FMA
FTE
FY
GRI
Group
set out on pages 32 and 33
United States Food & Drug
Administration
Financial Markets Authority
Full Time Equivalent
Financial Year
Global Reporting Initiative
means Fisher & Paykel Healthcare
Corporation Limited together with its
subsidiaries
GST
IFRS
IP
IPR
LTIFR
LTVR
MSCI
Net Debt
NZ GAAP
NZ IAS
NZ IFRS
NZD
NZX
OECD
OEM
PCT
PSR
PTAB
QSR
R&D
SDG
SG&A
STEM
TRIFR
TSR
UN
Goods and Services Tax
International Financial Reporting
Standards
Intellectual Property
USD
US ITC
VP
United States Dollar
United States International Trade
Commission
Vice President
Key medical terms used throughout this Report
COPD
CPAP
GCP
ICU
NICU
OSA
Chronic Obstructive Pulmonary
Disease
Continuous Positive Airway Pressure
Good Clinical Practice
Intensive Care Unit
Neonatal intensive care unit
Obstructive Sleep Apnea
Inter Partes Review which is a
procedure for challenging the validity
of a US patent before the US Patent
Trial and Appeal Board
Lost Time Injury Frequency Rate
Long Term Variable Remuneration
Morgan Stanley Capital International
Debt less cash and cash equivalents
and short-term investments
New Zealand Generally Accepted
Accounting Practice
New Zealand International
Accounting Standards
New Zealand Equivalents to
International Financial Reporting
Standards
New Zealand Dollar
New Zealand Stock Exchange
Organisation for Economic
Cooperation and Development
Original Equipment Manufacturer
Patent Cooperation Treaty
Performance Share Right
United States Patent Trial and Appeal
Board
Quality, Safety & Regulatory
Research and Development
Sustainable Development Goal
Sales, General and Administrative
Science, Technology, Engineering and
Mathematics
Total Recordable Injury Frequency
Rate
Total Shareholder Return
United Nations
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 GRI CoNTeNT INdeX
103
Disclosure
Description
Location/Response
Disclosure
Description
Location/Response
GRI 102 General Disclosures
102-1
102-2
102-3
102-4
102-5
102-6
102-7
102-8
102-9
102-10
102-11
Name of the
organisation
Activities, brands,
products, and
services
Location of
headquarters
Location of
operations
Cover
Annual Report: pp. 20–21
Inside back cover
Annual Report: p. 7
Ownership and legal
form
Annual Report: pp. 44, 96 and 97
Markets served
Annual Report: p. 7
Scale of the
organisation
Information on
employees and other
workers
Annual Report: pp. 14 and 99–101
Annual Report: pp. 71–75
Supply chain
Annual Report: p. 84
Significant changes
to the organisation
and its supply chain
None, other than the opening of our second
manufacturing facility in Tijuana as described on page
15 of this Annual Report.
Precautionary
Principle or approach
We support a precautionary approach towards
environmental management. While we see little
apparent risk for our own operations, we do see an
opportunity to help our customers manage this risk
through effective product lifecycle management and
sustainable design.
Business and Industry Advisory Committee (BIAC)
Statement of Tax Principles for International Business
UN Declaration on Human Rights
ILO Declaration on Fundamental Principles and Rights
at Work
102-12
External initiatives
102-13
Membership of
associations
• American Association of Homecare
• American Association of Respiratory Care
• American Chamber of Commerce
• Association for Anaesthetic and Respiratory Device
Suppliers
• Australasian Investor Relations Association
• Australasian Sleep Association
• Australian College of Critical Care Nurses
• Business New Zealand
• Colorectal Society of Australia and New Zealand
• Diversity Works
• Employers and Manufacturers Association
• Guangdong Investment Promotion Association in
China
• International Electrotechnical Commission /Technical
Committee 62
• International Organisation for Standardisation /
Technical Committee 121
• Japan Association of Health Industry Distributors
• Japan Association of Medical Devices Industries
• Latin America New Zealand Business Council
• Medical Technology Association New Zealand
• National Association for Medical Direction of
Respiratory Care
• Sleep Health Foundation
• Sustainable Business Network
• Taipei Medical Instruments Commercial Association
• The Japan Fair Trade Council of the Medical Devices
Industry
Strategy
102-14
Statement from
senior decision
maker
Annual Report: pp. 14–19
Ethics and integrity
102-16
Governance
Values, principles,
standards, and norms
of behaviour
Code of Conduct available online at
www.fphcare.co.nz/corporategovernance
102-18
Governance structure Annual Report: pp. 84–92
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 104
GRI CoNTeNT INdeX CONTINUED
Disclosure
Description
Location/Response
Stakeholder engagement
102-40
102-41
102-42
102-43
102-44
List of stakeholder
groups
Collective bargaining
agreements
Identifying
and selecting
stakeholders
Approach to
stakeholder
engagement
Key topics and
concerns raised
Annual Report: p. 10
Annual Report: p. 71
Annual Report: p. 10
Annual Report: p. 10
Annual Report: pp. 10–11
Reporting practice
Entities included in
the consolidated
financial statements
Defining report
content and topic
Boundaries
Annual Report: p 98
Annual Report: pp. 10–11
List of material topics Annual Report: pp. 10–11
Re-statements of
information
No restatements
102-45
102-46
102-47
102-48
102-49
102-50
102-51
102-52
102-53
102-54
102-55
102-56
SPECIFIC STANDARD DISCLOSURES
Disclosure
Description
Location/Response
GRI 200 Economic standard series
GRI 103
Management approach 2019
Annual Report: pp. 16–19, 28
GRI 201: Economic performance
201-1
Direct economic value generated
and distributed
Annual Report: pp. 34–69
GRI 205: Anti-corruption
GRI 103
205-3
Management approach 2019
Annual Report: pp. 84–85
Confirmed incidents of corruption
and actions taken
Annual Report: p. 85
GRI 400 Social standard series
GRI 401: Employment
GRI 103
401-1
Management approach 2019
Annual Report: pp. 71–75
New employee hires and
employee turnover
Annual Report: pp. 71–75
GRI 403: Occupational health and safety
GRI 103
403-2
Management approach 2019
Annual Report: pp. 93–94
Types of injury and rates of injury,
occupational diseases, lost days,
and absenteeism, and number of
work-related fatalities
Annual Report: p. 94
Changes in reporting No significant changes from previous reporting periods.
GRI 404: Training and education
Reporting period
Cover
Date of most recent
report
Annual Report: p. 4
Reporting cycle
Annual reporting cycle
Contact point for
questions regarding
the report
Claims of reporting in
accordance with the
GRI Standards
investor@fphcare.co.nz
Annual Report: p. 10
GRI content index
Annual Report: pp. 103–104
External assurance
No external assurance for non-financial disclosures
External assurance for financial statements (See Annual
Report: pp. 67–69)
GRI 103
404-1
Management approach 2019
Annual Report: p. 74
Average hours of training per
year per employee
Annual Report: p. 74
GRI 416: Customer Health and Safety
GRI 103
416-2
Management approach 2019
Annual Report: p. 93
Incidents of non-compliance
concerning the health and safety
impacts of products and services
No instances of non-compliance
with regulations resulting in a
fine, penalty or warning.
GRI 418: Customer Privacy
GRI 103
418-1
Management approach 2019
www.fphcare.com/privacy
Substantiated complaints
concerning breaches of customer
privacy and losses of customer
data
No substantiated complaints
received concerning breaches of
customer privacy.
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 dIReCToRy
DIRECTORY
In New Zealand:
The details of the company’s principal administrative and registered office are:
SHARE REGISTER
In New Zealand:
Link Market Services Limited
Physical address: 15 Maurice Paykel Place, East Tamaki,
Auckland 2013, New Zealand
Physical address: Level 11, Deloitte Centre,
80 Queen Street, Auckland 1010, New Zealand
105
Telephone: +64 9 574 0100
Facsimile: +64 9 574 0158
Postal address: PO Box 14348, Panmure,
Auckland 1741, New Zealand
Internet address: www.fphcare.com
Email: investor@fphcare.co.nz
In Australia:
The details of the company’s registered office are:
Physical address: 19-31 King Street, Nunawading,
Melbourne, Victoria 3131, Australia
Telephone: +61 3 9871 4900
Postal address: PO Box 159, Mitcham,
Victoria 3132, Australia
Postal address: PO Box 91976,
Auckland 1142, New Zealand
Facsimile: +64 9 375 5990
Investor enquiries: +64 9 375 5998
Internet address: www.linkmarketservices.co.nz
Email: enquiries@linkmarketservices.co.nz
In Australia:
Link Market Services Limited
Physical address: Level 12, 680 George Street,
Sydney, NSW 2000, Australia
Postal address: Locked Bag A14,
Sydney South, NSW 1235, Australia
Facsimile: +61 2 9287 0303
Investor enquiries: +61 2 8280 7111
Internet address: www.linkmarketservices.com.au
Email: registrars@linkmarketservices.com.au
Fisher & Paykel Healthcare Corporation LimitedAnnual Report 2019 Fisher & Paykel Healthcare is a world leader in
medical devices and systems for use in respiratory
care, acute care, surgery and in the treatment of
obstructive sleep apnea.
www.fphcare.com
© 2019 Fisher & Paykel
Healthcare Corporation Limited