Transcription of Finance News Network Interview with LifeHealthCare Group Limited (ASX:LHC) Managing Director and CEO, Daren McKennayJohn Treadgold: LifeHealthCare Group Limited
(ASX:LHC) is an independent distributor of high end medical devices across Australia and New Zealand. I’m John Treadgold and joining me at the ASX Investor Series is the Company’s Managing Director and CEO, Daren McKennay. Daren welcome to FNN.
Daren McKennay: Thank you, nice to be here.
John Treadgold: Your interim results were strong and exceeded expectations. What was behind the gains?
Daren McKennay: So really what we did in the back half of FY14was make some investment in people and some working capital that brought forward some growth, and business growth opportunities in the business. We saw the momentum from that early investment flow into the first half of FY15. So that’s what predominantly drove the growth and outperformance in that segment.
John Treadgold: You offer your clients a range of sophisticated medical equipment. What are the key operational sectors?
Daren McKennay: The key areas that we’re in that are growing and that have got strong growth opportunitywithin the business, is really across spine and neurosurgery, orthopaedics, the general orthopaedics, cardiology and some imaging devices. They’re really the four key areas that we’re in.
John Treadgold: Your business revolves around relationships with major international distributors. How are you managing recent currency fluctuations?
Daren McKennay: We’re very aware of FX movement, but really we see it holistically as a part of the business and margin management within the business. So when it comes to FX (Forex), specifically we hedge out 12 months and we use that as - it gives us time really to respond in the medium to long term to changes in margin, or that are caused through FX. But otherwise we implement strategies that increase our prices.
We do general price increases. We proactively manage what’s called the prosthesis list, which is a mechanism for getting rebates for a lot of our devices. We look at trading terms with our partners and we manage those, and we look at product mix. And we combine those things and obviously with the hedging in place, that gives us a long period of time to then respond to that. So we can manage that in the medium to long term and not be responsive to short term movements.
John Treadgold: We hear a lot about the growing demand for increasingly advanced medical care. How is Life Healthcare modelling demand going forward?
Daren McKennay: The demand in the areas that we’re in, so we’re specifically focused on high growth, high end devices that are taking advantage of the changes in demographics in society at the moment. So we’re very focused on the degenerative type products within the industry. So we’re seeing growth underlying in our implant businesses, underlying market growth, forecast to be about 7.7 per cent CAGR (compound annual growth rate).
And in the capital businesses, we’re seeing that it’s in low single digit numbers, but strong underlying growth. And then on top of that we’re getting market share gain, which is helping us take an implant business to more than double that market growth rates with our own growth.
John Treadgold: More broadly, what sets LifeHealthcare apart from other operators in the business?
Daren McKennay: So what we’ve done over the years is really - we really compete against large multinationals that have branch operations here in Australia and New Zealand. So what we’ve been able to do as a local company is develop the scale to compete with those multinationals. So on a local level, we have that scale. But we’ve taken the competitive advantage of being a distributor, being able to respond locally to local customer needs, and what they’re after. And that’s attractive to customers, very attractive to customers. But more importantly or equally as importantly, it’s attractive to keep people to bring on the business of key sales people and non-sales people, in the business. We’d rather build a very strong team over the years to compete in this marketplace.
John Treadgold: And finally, what are you focused on for the next 12 months?
Daren McKennay: So really it’s about all growth, so it’s growing the business organically. So if you take the three core growth areas within the business of spine, neurosurgery, it’s an organic growth strategy. Continue to take market share; we’re in number three position in that market, we can see our way to number two within the short to medium term. And then we’re aiming for number one in that space, that’s predominantly an organic strategy. Then we’re building out to other key portfolios, so orthopaedics and cardiology. And they’re a combination of organic strategies, also some acquisition opportunities in that space as well.
John Treadgold: Daren, thank you for joining us on FNN.
Daren McKennay: No problem, my pleasure.
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