Fisher & Paykel Healthcare: How Humidified Air Built a NZ$2bn Exporter

Fisher & Paykel Healthcare is the rare New Zealand manufacturer that sets the global standard in its niche, and it did so by treating a single physiological idea, that air delivered to sick lungs should be warm and wet, as a 50-year research programme. This article explains where the company came from, how its razor-and-blade model makes money, why Covid produced both a windfall and a slump, how the Mexican factories turned from a cost advantage into a tariff question, and what the latest results say about the next decade. It is part of the New Zealand Company Stories hub.

How did Fisher & Paykel Healthcare begin?

Fisher & Paykel Healthcare began in the late 1960s as a side project inside an Auckland appliance maker, when a hospital specialist and two engineers built a humidifier for ventilated patients. The first unit sold in 1970, and the medical business grew quietly for three decades.

The parent, Fisher & Paykel, had started in 1934 as an importer of refrigerators and washing machines and later became New Zealand’s dominant whiteware manufacturer. The healthcare idea came from outside: Dr Matt Spence, an intensive care specialist, wanted a better way to humidify the gas delivered to patients on ventilators. Dry, cold air damages the airway lining and thickens secretions. Working with electrical engineer Alf Melville and appliance engineer Dave O’Hare, he produced a prototype built around a heated water chamber, reportedly using a preserving jar in early experiments.

By 1990 the medical division had been renamed Fisher & Paykel Healthcare and was turning over about NZ$29 million a year. The decisive moment came in 2001, when the group split in two. The appliance business was separated, and eventually sold to China’s Haier in 2012, while the healthcare company listed on the NZX and ASX in its own right. The smaller half proved to be the more valuable by a wide margin, and has for years been the largest or near-largest company on the exchange described in the NZX story.

What does Fisher & Paykel Healthcare sell today?

The company sells two families of products: Hospital, which covers humidification for invasive ventilation, non-invasive ventilation, nasal high flow therapy and surgery, and Homecare, which is mostly masks and devices for obstructive sleep apnoea. Hospital is the larger and faster-growing group.

In the year to 31 March 2026, Hospital revenue was NZ$1.51 billion, up 18%, and Homecare revenue was NZ$802.7 million, up 8%. That is roughly a 65/35 split. The hospital franchise is anchored by Optiflow, the nasal high flow system that delivers heated, humidified air and oxygen through a wide nasal cannula at flow rates far above conventional oxygen therapy. The company groups Optiflow, non-invasive ventilation and surgical humidification as “new applications”, and consumables for those uses grew 18% in FY2026.

In Homecare, the company is a mask specialist rather than a full-line sleep company. Its masks are used with flow generators from several manufacturers, and new models drive the cycle: the Nova Nasal mask, launched in the United States during FY2026, was the main contributor to that year’s mask growth of 7%. The company says its products supported the care of about 24 million patients during the year.

How does Fisher & Paykel Healthcare make money?

It makes money the way a printer company does: hardware is placed in hospitals, and each patient then consumes a chamber, a breathing circuit and an interface that are thrown away after use. Consumables are the large majority of revenue and almost all of the growth.

The economics follow from that structure. A humidifier or high flow device sits on a ward for years. Every patient treated with it generates a small, repeat, high-margin sale that is specified by clinicians rather than procurement officers. Gross margin in FY2026 was 63.7%, up 80 basis points, and the stated long-term target is 65%. Research and development absorbed NZ$235.5 million, about 10% of revenue, a ratio the company has held for many years and which funds a steady flow of clinical trials as well as new products.

The second leg of the model is clinical change. The company does not simply sell boxes; it tries to shift medical practice, persuading hospitals to use nasal high flow earlier and in more wards, from intensive care to emergency departments, general wards and anaesthesia. Each change in guidelines enlarges the pool of patients who consume a circuit. That is slow, expensive selling, done by a direct sales force in more than 50 countries, and it is hard for a competitor to replicate quickly.

Why did Covid produce both a boom and a bust?

Covid made nasal high flow a frontline therapy almost overnight, so hospitals bought years’ worth of devices and circuits in 18 months. When the surges ended they stopped ordering and ran down stockpiles, and revenue and profit fell for two years.

The numbers are stark. Revenue was NZ$1.26 billion in the year to March 2020. In FY2021 it jumped to NZ$1.97 billion and net profit reached about NZ$524 million. Hospitals in Europe and North America placed humidifiers and high flow devices on a scale that would normally have taken many years of selling.

Then the tide went out. By FY2023 revenue had fallen to NZ$1.58 billion and net profit to NZ$250.3 million, a decline of 34% in a single year. Hospital revenue dropped 15%, hospital hardware by more than half, and gross margin slid to 59.4% as freight costs soared and factories built for pandemic volumes ran below capacity. The share price, which had more than doubled, gave much of it back.

What the bust obscured was the gift inside it. The pandemic left an installed base several times larger than before, and a generation of clinicians who had used the therapy. The task since has been to turn idle devices into routine use, and the consumables growth of the past three years suggests that is happening.

Who owns and governs Fisher & Paykel Healthcare?

Fisher & Paykel Healthcare is a widely held public company, dual-listed on the NZX and ASX, with no controlling shareholder. Its register is dominated by institutional funds and index investors in New Zealand, Australia and offshore, alongside a large base of local retail and KiwiSaver holders.

The governance pattern is unusual chiefly for its continuity. Lewis Gradon, the managing director and chief executive, has led the company since 2016 after decades running its product development; his predecessor, Michael Daniell, held the role for 26 years. Senior engineers and managers tend to be promoted from within, and the company employs more than 7,000 people, over 900 of them in research and development.

Because the stock is a heavyweight in local indices, it sits in most balanced funds run by the managers profiled in the KiwiSaver story. That gives ordinary New Zealand savers a larger exposure to hospital purchasing cycles in the United States and Europe than most realise. Dividends rise with earnings: the FY2026 total was 52.0 cents a share, up 22%, and the balance sheet is deliberately run with almost no net debt.

Why does Fisher & Paykel Healthcare manufacture in Mexico?

The company manufactures in Tijuana because it needed a second site close to its largest market, with lower labour costs and protection against a single-country disruption. Mexico now makes a little under half of total output, and New Zealand the remainder.

The first Tijuana facility opened in 2010 and the campus has been expanded several times since. Auckland’s East Tāmaki site remains home to research, the most complex production and head office. The company has also bought a large block of land at Karaka, south of Auckland, for a second New Zealand campus to be developed over decades, and has announced a manufacturing presence in China to serve that region.

For years the split was a pure cost and resilience story. In 2025 it became a trade-policy story. When Washington announced new tariffs in April 2025, the company disclosed that about 45% of its manufacturing volume came from Mexico and 55% from New Zealand, that the United States accounted for about 43% of revenue, and that roughly 60% of US volumes were supplied from Mexico and 40% from New Zealand.

How have US tariffs affected Fisher & Paykel Healthcare?

Tariffs have raised costs without derailing earnings. The company estimated that US tariffs on hospital products sourced from New Zealand cut gross margin by about 90 basis points in FY2026, yet margin still rose to 63.7% and net profit grew 24%.

The exposure had two parts. Goods made in New Zealand faced an initial 10% US tariff, later lifted to 15% for New Zealand exporters generally, as set out in the article on New Zealand and the 2025 US tariffs. Goods from Mexico faced a 25% tariff unless they complied with the rules of origin in the US-Mexico-Canada Agreement. The practical task for management was therefore partly an origin-documentation exercise in Tijuana and partly a question of which products to make where.

The company chose not to treat the tariff as a reason to rebuild its footprint in a hurry. Mr Gradon said at the time that long-term thinking was guiding decisions. For FY2027 the guidance includes a net gross-margin impact of about 50 basis points from US tariffs and from higher costs linked to conflict in the Middle East, which has affected freight and input prices. The 65% margin goal has been pushed out rather than abandoned.

What do the latest numbers show?

The year to 31 March 2026 was the strongest in the company’s history outside the pandemic distortion: operating revenue of NZ$2.31 billion, up 14%, and net profit after tax of NZ$468.5 million, up 24%, with growth in both product groups.

Hospital consumables grew 16%, which matters more than any other line because it measures how intensively the enlarged installed base is being used. Profit grew faster than revenue because operating costs rose more slowly than sales, the operating leverage investors had been waiting for since the trough.

For the year to March 2027, the company has guided to revenue of NZ$2.45 billion to NZ$2.57 billion and net profit of NZ$500 million to NZ$550 million at exchange rates prevailing at the end of April 2026. The bottom of that range would be close to the pandemic record; the top would exceed it comfortably.

Who competes with Fisher & Paykel Healthcare?

In hospitals the company competes with ventilator and respiratory-care makers that offer their own humidification and high flow options; in sleep apnoea it competes mainly with ResMed and Philips. In neither market does it face a rival built around humidification alone.

In hospital respiratory care, large ventilator manufacturers such as Dräger, Hamilton Medical and others have added high flow modes to their machines, and specialist firms sell stand-alone high flow systems. The company’s defence is depth: a complete consumables system, a body of clinical evidence it has funded for two decades, and a sales force that spends its time on clinical education.

In Homecare the picture is different. ResMed is far larger and sells the whole system of device, mask and software. Philips’ Respironics business was badly damaged by a product recall that began in 2021, which reshuffled share across the market. Fisher & Paykel Healthcare remains a strong third in masks, winning on comfort and fit. A newer uncertainty is the spread of GLP-1 weight-loss drugs, which may reduce the severity of sleep apnoea in some patients; so far the device makers report that more people are entering diagnosis, but the long-run effect is unsettled.

What are the main risks?

The principal risks are concentration in the United States, trade policy, currency, hospital budget pressure and the possibility that clinical adoption of high flow therapy slows. None is new, but several have become more acute since 2025.

• Geography: North America generates about 48% of revenue, so US hospital purchasing and reimbursement rules matter more than conditions at home.
• Currency: revenue is earned largely in US dollars and euros while a big share of cost is in New Zealand dollars and Mexican pesos. Hedging smooths but does not remove the effect, which is why results are quoted in constant currency.
• Trade and logistics: tariffs, rules of origin and freight disruption all sit directly in gross margin.
• Clinical evidence: the growth case depends on guidelines continuing to favour humidified high flow. An adverse large trial would slow adoption.
• Valuation: the shares have long traded on a high multiple of earnings, so small disappointments produce large price moves, as 2022 showed.

There is also a domestic risk of a different kind. A company this successful attracts takeover speculation and, with it, the question of whether New Zealand’s best technology firms stay headquartered at home, a theme that runs through the stories of Rocket Lab and other exporters.

How does Fisher & Paykel Healthcare compare with other New Zealand healthcare companies?

It is the only large New Zealand healthcare company that earns almost all its revenue abroad from products it invents. The others in the sector are distributors, property-backed care operators or public agencies whose economics are set at home.

The contrast is instructive. EBOS Group has far higher revenue, more than A$13 billion, but earns thin margins moving other firms’ medicines. Ryman Healthcare owns billions in property but depends on house prices and debt markets. The state drug buyer described in the Pharmac story exists to push prices down. Fisher & Paykel Healthcare, by contrast, has pricing power derived from intellectual property and clinical evidence, and the New Zealand public health system is a trivial share of its sales.

What can founders and CFOs learn from Fisher & Paykel Healthcare?

The main lesson is that a narrow technical advantage, compounded patiently and sold direct, can beat diversification. The company has spent half a century on one problem and has resisted acquisitions, leverage and adjacent markets that would have diluted it.

1. Fund R&D as a fixed share of revenue. Holding research at about 10% of sales through booms and slumps kept the product pipeline full when revenue fell in FY2022 and FY2023.
2. Own the customer relationship. Direct sales teams in more than 50 countries cost more than distributors but give control over clinical education and pricing.
3. Keep the balance sheet boring. With negligible debt, the company could carry excess capacity through the post-Covid slump without a capital raising.
4. Build optionality into the supply chain early. The Mexican site was opened a decade before tariffs made manufacturing location a board-level issue.
5. Report the distortion honestly. Management warned repeatedly during 2020 and 2021 that pandemic demand was not a new baseline. Investors who listened were less surprised.

For CFOs, the constant-currency discipline is worth copying: every growth figure is published both as reported and with currency stripped out, which keeps internal debate focused on volume and mix.

What happens next for Fisher & Paykel Healthcare?

The next phase is about converting a pandemic-sized installed base into routine therapy, restoring gross margin to 65%, and building capacity for a company management expects to keep doubling in constant-currency revenue roughly every five to six years.

Three things are worth watching. First, the FY2027 guidance implies revenue growth of 6% to 11% and profit growth of 7% to 17%; delivery would confirm that FY2026 was not a one-off. Second, trade policy: the tariff rate on New Zealand goods, the status of Mexican output and any device-specific measures will determine how quickly the margin target is reached. Third, capital spending on the Karaka campus and on overseas plants will rise over the decade, testing the company’s habit of funding everything from cash flow.

Leadership succession is the quieter question. Mr Gradon has been chief executive for a decade, and the company’s tradition suggests an internal successor when the time comes. Continuity has been an asset; the next leader will inherit a business twice the size of the one that entered the pandemic, with a more complicated map of factories and trade rules.

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