While its cousin has been sold off, F&P Healthcare is quietly growing into the largest New Zealand-owned technology company, doubling in size every five years. What's the secret to the spectacular growth – and can it continue? CEO Mike Daniell talks to Idealog’s Vincent Heeringa.
Your growth has been spectacular. Can you give us a quick summary?
We’ve grown at somewhere between 16 and 17 percent every year for the past 30 years, which means we double in size every five years or so. We double the R&D team every five to eight years. Right now we have 330 R&D staff and will expand that to 700 once our new building is completed. There’s no sign the growth will stop.
What’s your secret?
Two things. We’re building on some very good technology [we] developed in the 1970s, which over time we improved, making us the leader in surgical respiratory care. But secondly we’ve used this as a platform for developing the range of devices for each patient and also as a springboard for
We started out in adult intensive care, but then took the same humidification technology into neo-natal intensive care, and then into the home to treat obstructive sleep apnoea and back into the hospital for non- invasive ventilation. So it is really a story of diversification based on a proven technology.
It’s very impressive – so why is the share price so low?
The exchange rate.
Simple as that?
Yes, in 1990 if we sold a face mask for US$100 we got $250 back. Now we get $120. That’s our challenge. The New Zealand dollar’s doubled in value and we think we’ve done a pretty good job to be as profitable as we are, which is roughly consistent at 20 percent net profit before tax. We’ve done it through a long-term strategy to accommodate the Kiwi at US$0.80.
What’s the strategy?
We have to keep growing. And we’ll continue to grow if we continue to differentiate our products. That also means reducing costs so we can extract greater margins.
You’ve got a manufacturing plant in Mexico. Cheaper than here, I presume?
Yes, it’s about one-fifth of the cost for manufacturing staff, although the professionally qualified staff are paid more than in New Zealand because they can cross the border and get work in the US.
I want to talk about innovation. Do your ideas come from technology or from studying the market?
It’s based on patient need. Our engineers spend a lot of time in hospitals observing patients and their care. It’s a gold mine for ideas. The key idea is to keep patients alive, reduce their time in hospital and preferably keep them at home.
So is that a formal ‘discovery’ programme?
It’s not so much a formal programme, but more like a conversation with the medical staff and the patients. The formality starts once we have the insight around the product and then we proceed to clinical trials. That’s quite an expensive process – it can cost about $3 million.
Your cousins were the subject of a takeover. Are you also vulnerable?
We’re publicly listed, so the shares can be traded. But that’s a question for our shareholders.
Is distance to market the problem it used to be?
Not really. New Zealand’s in the middle of the globe – we’re always in touch with two out of three markets during the day. Also, when you’ve got such a small market as New Zealand, everything you do is developed for the international customer, whereas the domestic US market is so big that their products sometimes don’t quite translate across the globe. We spend about $3 million on travel per year, which seems like a lot, but how much more than our competitors? Even if you are in Europe or Asia, you still have to travel.
Can you stay in New Zealand and continue to grow?
Yes. Our major challenge is not capital or markets. We have teams all around the world and we’ve funded our growth through operating capital. Our challenge is sourcing talent. So long as we can source experienced international talent, there’s no reason why we can’t be based in New Zealand. I can see us getting to more than 1,000 people in our R&D team in New Zealand alone.