Fisher & Paykel Healthcare CEO Lewis Gradon talks company culture

Fisher & Paykel Healthcare CEO Lewis Gradon talks company culture

The constant need to innovate and drive company culture is not easy. This year, when the Auckland-based company will mark 50 years since it developed its first humidifier, it is looking to push through the $NZ1 billion mark in operating revenue, at current exchange rates.

‘Classic Kiwi’

In the 2018 financial year it posted a record $NZ190.2 million net profit after tax, up 12 per cent on the previous year. Sales climbed 10 per cent to $NZ980.8 million, and investment in research and development was $NZ94.7 million, representing 10 per cent of revenue. The company manufactures in Mexico, the United States and New Zealand and exports to more than 90 countries. In November, FPH stuck with full-year 2019 guidance for 7 per cent to 10 per cent net profit growth.

“Our aspiration is to double the business in constant currency terms every five or six years,” Gradon says. “That has been our history and implies top-line growth of around 12 per cent per annum.”

The 57-year-old calls himself a “classic Kiwi” who loves fishing and golf and reckons he has his grandmother’s keen sense of humour. His mother ran a preschool centre while his father was a secondary school teacher. He worked in all kinds of jobs in his youth: as a baggage handler for Air NZ, a night-shift cleaner and an assistant winemaker at Villa Maria winery near Auckland (although he admits he mostly cleaned the stainless-steel barrels).

“Things don’t go well year after year by mistake or luck,” Lewis Gradon says. Louie Douvis

He joined FPH aged 22. “I really wanted to design something – that was my driving ambition – and FP was the first job that offered me this,” he says.

Gradon says he has many mentors in FPH but also admires companies such as NZ-based Ryman Healthcare, a retirement village operator, and Australia’sCSLfor their prolonged consistent results.

“Things don’t go well year after year by mistake or luck,” he observes.

Gradon says culture has been key to FPH’s years of success, including before he joined the company. Fisher & Paykel is an iconic New Zealand brand started by Sir Woolf Fisher and Maurice Paykel. The company began in 1934 as an importer of refrigerators, washing machines and radios. In the mid-1950s it moved to manufacturing products using its own technology. In 1971, it entered the respiratory care market with the development of a unique humidifier system for use in critical care and listed on the NZ stock exchange in 1979.

In 2001, Fisher & Paykel Industries Limited was renamed Fisher & Paykel Healthcare Corporation and a new company, Fisher & Paykel Appliances Holdings, was established to hold the appliances and finance business. The healthcare company was listed on the Australian stock exchange in November 2001.

A key feature of FPH’s success has been a consistent focus on its core expertise of heating and humidifying air. The business was built on a vision to emulate a body’s natural humidification process.

Gradon says as a survival tactic early on, to compete with giants such as GE and Whirlpool, the company had to be innovative to attract and retain the right people. For example, the company has run an open-plan office for 25 years, well before it was a common practice to promote “openness and communication.”

He says it is culture that also drives people to do what is best for the patients, which results in good business.

Growth options

Along with other medical device companies, FPH also focuses on designing products that help patients move out of expensive hospital settings to less acute care and help them recover more quickly. This reduces costs to private insurers and government-funded healthcare systems.

The Optiflow nasal high-flow therapy in the hospital business has been the growth driver over past five years. Optiflow provides respiratory support via nasal cannulas. While about 30 million patients around the world could benefit from the device, FPH treated about 2.5 million patients last year. “There is still a long way to go,” Gradon says.

He also sees an opportunity in treating chronic obstructive pulmonary disease in the home. FPH plans to launch a new mask range for sufferers of obstructive sleep apnoea next year. Optiflow in the home could provide further growth options in the medium-term.

About half of FPH products are sold in North America and almost all its revenue is generated offshore.

Despite its successes, a major cloud hanging over the business is the continued patent litigation with ResMed over the past two years. The news flow around the litigation would intensify in the second half of the year, FPH flagged in its results. The patient litigation spans the US, Germany, New Zealand and Australia, where both companies have co-filed infringement and patent validity claims, mostly to do with a range of masks.

Citi, in a note to clients, says: “The disputes are complicated, expensive and difficult to predict … and the impact on FPH is materially greater than for ResMed”.

In September, FPH trimmed its earnings forecast after San Diego-based ResMed lodged complaints with the US International Trade Commission.

FPH spent $NZ15.6 million on litigation in the year ended March 31. Costs are tipped to ratchet higher, to between $NZ20 million and $NZ30 million, this year.

But asked why the two companies do not get together and negotiate a solution, Gradon is resolute. “Both companies are trying to protect their shareholders’ interests.”

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