"What saw us grow and grow earnings was the realisation it's best to put resources into a narrower range of things and build from there," Mike Daniell said.
Retiring Fisher & Paykel Healthcare [NZX: FPH] boss Mike Daniell says he realised the importance of focus rather than diversifying the company's efforts about 20 years ago.
At the time, the company's range extended to mobility scooters for the elderly and it was importing a wide range of medical products into New Zealand. Now F&P Healthcare's product range is in two groups – respiratory care, acute care, and surgery, and treatment of obstructive sleep apnoea – with breathing masks, humidifiers, infant resuscitators and warmers and associated accessories.
"What saw us grow and grow earnings was the realisation it's best to put resources into a narrower range of things and build from there," Mr Daniell said.
The company's mantra now is that any new product expansion has to have commonality of patients, commonality of distribution, or commonality of technology and "preferably all three," he said.
"We're moving into the surgical environment where we have commonality through technology. The patients are different and, although the distribution is still through hospitals, it's to different people in the hospitals. We have much larger confidence at doing that because we have great technology," Mr Daniell said.
The company's annual research and development spend is almost 10% of revenue, $65 million last year, among the highest of any comparable-sized companies in New Zealand and Daniell said the continuous development of new products and improvements of existing products has been a key to its success.
However, he said there's often a long time lag between spending the money on R&D and generating income to help pay for it.
"Our experience is that you spend three to four times as much on sales and marketing as on R&D. It's one thing to develop it but you have to get the message out about it and distribute it around the world and you need money for that," he said.
The medical device manufacturer has huge global potential ahead of it and few barriers in the way providing it keeps its current high level of spending on research and development, he said.
Mr Daniell will retire at the end of the 2016 financial year in March, after 36 years with the company and 25 years as its managing director and chief executive. He's being replaced by Lewis Gradon, currently the company's senior vice president of products and technology, who has been with the company for 32 years.
"Lewis, my successor's background has very much been in R&D, as was mine when I started," Mr Daniell said.
The company is on target to make $1 billion in revenue within the next three years. Based on an exchange rate of 65USc, operating revenue for the 2016 financial year is forecast to be about $800 million and net profit between $135 million and $140 million.
Its products are used by more than 10 million patients worldwide yet Daniell said over the next 10 to 15 years the number of patients who could benefit from them may increase to as many as 200 million as a result of an ageing demographic and increasing investment in healthcare in developing countries.
According to the US Department of Health and Human Services, the over-60 year population segment in developed countries is forecast to rise from 23% to 32% of total population by 2050, a number significant to the medical device industry because the elderly use a high amount of healthcare resources.
Mr Daniell said "it was as good a time as any" to retire early next year by which time he'll be 59. He will stay on the F&P Healthcare board as an extra director, has a governance role on the University of Auckland Council, and may seek other directorships.
He said when Fisher & Paykel Appliances was spun off into another company, it was never envisaged that the remaining healthcare business would grow to the size it has.
"We believed it would grow because we had very successful technology to work with but no-one in their wildest dreams saw it growing to $1 billion revenue within the next three years," he said.
(BusinessDesk)
