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Welcome to the Fisher & Paykel Healthcare's Results Conference Call. My name is Eduardo, and I'll be your operator for today's call. [Operator Instructions] Please note this conference is being recorded.
Now I would like to turn the call over to Marcus Driller, VP, Corporate. Please go ahead, sir.
Thank you, Eduardo. Well, good morning, everyone, and welcome to the Fisher & Paykel Healthcare first half 2020 results conference call.
On the call today are Lewis Gradon, our Managing Director and Chief Executive Officer; Lyndal York, Chief Financial Officer; Paul Shearer, Senior VP of Sales and Marketing; and Andrew Somervell, our VP of Products and Technology. Lewis will first provide an overview, followed by some specific comments from Lyndal. And then we'll open up the call to questions for the team. We will be discussing our results for the six months ended 30 September 2019.
We have earlier today provided our 2020 interim report, including financial statements and commentary on our results, to the NZX and ASX. These documents can be accessed on our website at www.fphcare.com/investor.
With that, I'd now like to turn the call over to Lewis.
Well, thanks, Marcus and welcome, everyone. Today I'm going to be referring to the investor presentation pack that we released to the NZX and the ASX this morning. But first also this morning our Chairman Tony Carter announced his intention to retire with effect from the close of the Annual Shareholders Meeting next August. And the current Director Scott St. John has been elected by the Board to succeed Tony's path of a planned succession process.
As the Chairman of our Audit and Risk Committee, Scott has been a strong leader with excellent corporate governance and commercial skills. And he has the unanimous support of his fellow directors. And we'll also have an opportunity to thank Tony at the Annual Shareholders Meeting next year.
So now I will start on Page 2 of the investor presentation pack. We've had a good start to the 2020 financial year with a number of notable business highlights there. We expanded the release of our new products into new countries. And as always we have an exciting product pipeline.
So turning to Page 3. These results exceeded our earlier expectations for the start of the financial year and it's largely driven by robust growth in the Hospital Products Group. Overall, operating revenue for the half grew 12% to a record $570.9 million or 9% growth in constant currency terms. The 17% constant currency revenue growth in our Hospital Product Group and a 1% decline in constant currency revenue for our [technical difficulty] product group.
Now, Lyndal will talk through gross margin and operating expenses shortly. So then coming down to reported net profit after-tax that was up 24% on the prior half at $121.2 million and this represented 23% growth in constant currency terms. Given that positive result, our Board of Directors has approved a 23% increase in the interim dividend to $0.12 per share carrying a full [indiscernible] credit. In accordance with our usual practice, this week, we will pay a profit-sharing [indiscernible] totaling $2.95 million for the half to a qualifying employees around the world. We certainly appreciate the hard work and the commitment to our success.
So now for a closer look at each of the product groups. Let's turn to Page 4. The Hospital product group includes our devices and systems used in invasive ventilation, non-invasive inhalation, nasal high flow therapy and during surgery. 88% of hospital operating revenue was generated from consumables and accessories during the first half.
Turning to Page 5. Revenue from our Hospital Products for the half was $353.6 million, representing growth of 17% in constant currency. And we saw strong demand across our entire hospital product portfolio. But in particular for our Optiflow and Airvo systems, which contribute -- continued to benefit from the growing body of clinical research in the use of nasal high flow therapy.
This half year also included an extended flu season in the United States and less likely assisted growth. Constant currency revenue of 23% in new applications consumables revenue for the first half was driven by our Optiflow nasal high flow therapy. And we also delivered strong growth at our noninvasive ventilation product portfolio. We had robust growth in hospital hardware for the first half at 18% and constant currency terms and that’s we lap the prior period of flat hospital revenue. In this half also included some large one-off tenders. We're pleased with the underlying growth rate, so they're humidifiers Nova hardware. And we do expect hospital hardware growth to return back to more normal levels for the full-year.
So moving on to Page 6. It's the Homecare group. Products are used in long-term care facilities and home settings assisting in the treatment of obstructive sleep apnea or OSA and chronic obstructive pulmonary disease or COPD as well as other chronic respiratory conditions. At a 4% of Homecare operating revenue is generated from consumables and accessories during the half.
Now on to Page 7. Revenue from our Homecare products for the half was $214.7 million. That represents growth of 2% or a decline of 1% in constant currency terms. We're encouraged by the early response from customers to our new Vitera full face mask in our site. Revenue from Vitera in Australasia, Canada and Europe has offset declines in sales of legacy OSA masks, resulting in an overall mask revenue slightly above our expectations for the first half.
Material was launched in the United States in October. And we expect this trend of Vitera offsetting legacy masks to continue for the second half. And we're also planning to launch another new OSA mask later this financial year. I would say flow generated revenue declined 6% in the first half in constant currency terms. We expect that trend to continue for the full-year.
Our strategy remains to focus on OSA masks and on the home respiratory support opportunity. My Airvo system, which is used to deliver Optiflow nasal high flow nasal high flow therapy in the home. But patients with chronic respiratory conditions grew strongly. And we're encouraged by the recent publication of an observational study in a hospital in France by [indiscernible] published in the advances in therapeutics in respiratory disease journal.
This study concluded the years of long-term nasal high flow therapy allows very severe patients to be discharged to the home and at a reasonable cost. We are aware of at least ten studies currently underway, investing the benefits of nasal high flow therapy and the home for patients with chronic respiratory conditions.
So now I will turn it over to our CFO, Lyndal York and she'll discuss the risks of our P&L, balance sheet, cash flows and foreign exchange position. Over to you Lyndal.
Thanks, Louis and good morning, everyone. If you turn to Slide 8, I would first like to discuss one of the key changes that have impacted our accounts for the 2020 financial year. A new accounting standard for leases came into effect for us from 1 of April 2019.
This requires all operating leases to be recorded on the balance sheet as a right of use or leased assets, with a corresponding lease liability. This increased our property plant and equipment assets by $29 million and added lease liabilities of $34 million. Rental payments will no longer be expensed. Instead there will be a depreciation expense and interest expense.
For the first half, $5.8 million was no longer included as lease expense. Instead, depreciation expense increased by $4.7 million, improving our net operating profit by $1.1 million. Interest expense then increased by $900, 000. This half included an increase in net profit after-tax of a $100,000 from the implementation of the new standard. This also impacts the classification in the statement of cash flows. $4.3 million of lease liability payments in these half is now classified as the cash outflow from financing activities. There is a corresponding increase in cash flows from operating activities by the $4.3 million compared to how it would have been presented prior to the new standard.
Moving onto gross margin on Page 9. Gross margin increased by 26 basis points to 67.1% for the half, or 15 basis points in constant currency. Favorable product mix offset the startup costs of our New Mexico manufacturing facility. We expect the second half constant currency gross margin to be higher than the first half as production starts coming out of the New Mexico manufacturing facility. We still expect the full-year constant currency margin to decline from last year within approximately 50 basis points as regarded to in May.
Moving on to Page 10. Total operating expenses grew 6% or 3% in constant currency. Last year's expenses included $7.7 million of patent litigation costs with ResMed and approximately $1.1 million of lease expenses that are now effectively classified as interest expense.
Excluding these items, operating expenses grew 8% in constant currency. To implement the recently introduced New Zealand R&D tax credit rating that I'll talk about thing. We improved collection of R&D related costs. This resulted in approximately $4 million of incremental costs classified as R&D rather than selling, general and administrative expenses or SG&A. This combined with increased investments led to R&D growing ice 18% to $54 million which is nine percent of revenue.
Excluding the impact from the improved data collection process R&D grew approximately 9% from last year. We have a strong new product pipeline, including new humidification systems, flow generators, masks, consumables and information solutions all under development. SG&A increased 2% to a $152.9 million for the half, or 1% decline in constant currency, largely due to the patent litigation costs last year.
It is also impacted by the incremental costs net classified is R&D. And the reclassification of a portion of the late expenses to interest expense, this year. Excluding the impact of all of these items SG&A grew approximately 8% in constant-currency terms. We anticipate that at constant currency operating expense growth for the second half will be slightly lower than the first half, excluding last year's litigation costs and the late expense rate classification.
Slide 11 shows our financing and tax expenses. The increase in financing expense is primarily due to the late interest expense reclassified from SG&A and the foreign exchange losses to our interest bearing liabilities, including the newly recognized lease liabilities. The other key change impacting our accounts this year is how the New Zealand government incentivizes R&D.
So the last six years up to an including FY '19, we’ve received $5 million annually from the Callahan innovation growth grant. This has been included in other income in our income statement and has been taxable. The New Zealand government has implemented a new research and development tax credit fact, which became effective for us from the first of April 2019.
For the full FY '20 [indiscernible]. This provides a 15% tax credit on eligible R&D expenditure and replaces the Callahan innovation growth grant. We are including this tax credit as an offset to our tax expense line in the income statement. We have analyzed our first half R&D expenditure and estimate that approximately 80% to the reported R&D spend will be eligible for the credits.
Based on this assumption, we have recognized an estimated tax credit of $6.6 million in the first half. Recognizing that the R&D tax credit replaces the Callahan innovation growth grams. The net impact to a net profit after tax was $4.8 million [indiscernible], which will support our ongoing R&D investments. Our effective tax rate for the half was 24.1%, down from 28.3% for the same period last year largely due to the introduction of the R&D tax credits. Excluding the impact of this effective tax rate was 28.2%.
Moving to Slide 12. Operating cash flow was a $113.5 million and working capital increased primarily reflecting the growth in the business and our usual inventory build ahead of the northern hemisphere winter. Capital expenditure, which includes purchases of intangible asset was $86.6 million for the half compared with $61.1 million last year, about half of that CapEx for the current year was for our [indiscernible] New Zealand building, which is on track to be complete early next year.
We're now expecting to spend approximately $117 million in CapEx for the full-year. Capitalized costs associated with the SAP project are included within intangible expenditure. The U.S office implementation in June next year went very smoothly and the global SIP rollout will continue over the next few years.
Our free cash flow, which is operating cash flow less capital expenditure and late payment. With $23 million for the half. From this free cash flow and eh short-term deposits we paid $77.5 million in dividends during the half. The balance sheet remains strong. So within the normal range at 47 days and in line with the prior-year. Inventory has increased with business growth and as previously mentioned in preparation for the northern hemisphere winter.
Trade and other payables reflects a decrease in litigation and capital building projects accruals. Net property plants and equipment increased by $89 million from the 31 of March, mainly as a result of building CapEx and the recognition of lease assets. Net debt at 30 of September 2019 totaled $5.2 million compared to a net cash position of $54.4 million at 31st of March predominantly as a result of higher CapEx and dividends.
We had cash balances and short-term investments mainly in New Zealand dollars of $93.6 million at the end of September. Interest-bearing debt was $98.8 million with 76% of that paying on current. The majority of debt is held in U.S. dollars and euros. as a balance sheet hedge.
Turning to Page 13, our gearing ratio at 30 of September 2019 with 0.6% which is within our target gearing range of minus 5% to plus 5%. We expect our net debt to remain unchanged at the end of FY '20. As we complete the New Zealand building projects and pay the interim dividend over the next half. We expect to remain within our target gearing range at the end of FY '20.
As Louis mentioned previously, we will be paying an increased interim dividend of $0.12 per share payable on the 19 of December. This represents a 23% increase on the interim dividend declared last year. It will be fully imputed and a supplementary dividend of $2.1176 per share will be paid to normal residential shareholders.
Looking now at foreign currency on Page 14. Profit before tax year-on-year was benefited by $2.7 million from the New Zealand dollar being weaker than last year. This includes the results of our hedging program, which contributed a loss of $2.8 million for the first half of this year. Over the last six months we have added to our hedging levels in the 1 and 2 year buckets as well as in two years [indiscernible] for some currencies. Most notably, the U.S. dollar.
Our policy remains unchanged. And when there are opportunities to extend our hedging position, we are able to do so. Up to five years forward and in some circumstances ten. At current rates for the second half this half we’re forecasting a similar loss from hedging at this half and a net currency benefit compared to last year of approximately $10 million after-tax
On the next page, we have set out revenue, cost of sales and expenses in key currencies. We include these two assist investors and analysts in understanding our currency exposure. Now over to Lewis who will outline our full-year guidance. Lewis?
Thanks, Lyndal. So turning now to guidance on page 16. Strategic direction remains consistent. We continue to develop new and innovative products and apply expertise to develop new therapies and help change clinical practice and to grow our international presence.
In the second half of the 2020 financial year, we anticipate consistent underlying trends in Hospital Product Group. So assuming a moderate flu season for FY '20 for the second half, we expect constant currency hospital wins similar to the second half of the FY '19.
In our Homecare product group, we also expect a continuation of recent trends with strong growth in home respiratory support and ongoing pressure in legacy OSA masks. And that results in a constant currency Homecare revenue for the FY -- for the 2020 financial year, similar to the previous financial year in constant-currency terms.
At current exchange rates, we expect to continue to -- we expect -- sorry, at current exchange rates, we continue to expect full-year operating revenue for the 2020 financial year to be approximately $1.19 billion and net profit after-tax to be in the range of approximately $255 million to $265 million.
So Marcus with that, I think we can open the call to questions.
Yes, thanks, Louis. And Eduardo, if I could ask you to please open the lines. Just before we move to the Q&A, could I please ask everybody to limit your questions to two. That's just with a view to giving everybody an opportunity to ask a question. And of course if you do have further questions, you are welcome to join the queue again.
Over to Eduardo.
[Operator Instructions] We will take our first question from David Low at JP Morgan. Please go ahead sir.
Thanks very much. Lewis, if we could just start with the new mask in the U.S. And just with competitive bidding around. 2021 coming, just wondering whether the strategy for the launch differs in any meaningful way from what Fisher & Paykel's done in the past with mask launches?
The real short answer to that David is, no, not at all. I mean that's a great mask. We will be doing what we normally do. And having said that, it was really only launched in the U.S. at the end of October actually. So not changed our strategies.
Okay. Just one of the other question I had just on the R&D reclassification. I presume the benefit from that comes through on the tax credit as well as that you've reclassified it, so it becomes eligible deduction credit, I should say.
So yes and no. It certainly is part of what will be considered for the R&D tax credit. But the R&D tax credit is on eligible R&D spend regardless of where it's classified in the P&L. So this reclassification wasn't to make sure that we accessed more tax credit. It was as a result of the tax credit we have to actually get a lot more granular with the information we're collecting on our R&D spend. And so that has enabled us to be more accurate and more precise about what is our R&D spend and that’s what’s driven the reclassification.
Yes. But I guess from our benefit, is it also gives a number that we can apply that 80% to with greater accuracy, given we can't see how other things are classified and what might be an R&D eligible -- eligible for credit somewhere else in the P&L?
Absolutely. Yes.
Yes. All right. I'll leave it at that. Thank you very much.
Thank you.
Thanks, David. Next question comes from Chelsea Leadbetter at Forsyth Barr. Go ahead, Chelsea.
Thanks, Marcus. And good morning, Lewis and team. I guess, if I can start first question with respect to gross margins. And I appreciate you've given us an outlook for this year and you also have a target that you, or I guess expectation on a longer-term basis, I'm just kind of interested in might be thinking about gross margins generally and outlook. You've still got product mix benefits coming through. How long you think that can continue and then perhaps how to think about when the New Zealand facility comes on stream and the impact of that and the impact this year with respect to the Mexico facility. I mean, just kind of teasing out some of those drivers going on at the moment?
Sure, Chelsea. In terms of our target, we do have a target of 65% -- is our long-term target for gross margin. Now obviously, we are slightly over that at the moment. But we've got currency just [indiscernible] with bringing new buildings online where you have more depreciation and costs upfront before you get volume out of this. We don't expect to see significant gains going forward out of margin. We will continually be having cost increases coming through our business. We spent a lot of effort and time over the past few years, really getting as efficient as we can through our supply chain and through all of our costs. So there's not a lot more capacity that we can do there. So costs are likely to continue increasing and we see the benefit coming from more volume out of Mexico as helping to counterbalance both cost offsets. We also don't expect to see significantly more product mix benefits going forward. So we do expect margins to at the long-term be around that 65% rate, and our aim is to maintain the margin rather than expecting growth coming out of it. In terms of the fourth building in New Zealand, not all of that's going to go into gross margin because unlike Mexico, that whole building isn't dedicated to manufacturing. So a big portion of the costs they will actually go into operating expenses.
Okay. Thanks for that. And just a second question in terms of kind of picking up on the competitive bidding dynamic. Can you talk about, I guess your expectations in terms of what that could mean or I guess how that potentially plays out in terms of the pricing landscape in the U.S. market? Is it still within that 2% to 4% decline range that we've kind of talked to and sleep apnea masks for the foreseeable future, or does something change in [indiscernible] competitive bidding?
I think we will pass that question over to Paul, Chelsea.
Hi, Chelsea. Well obviously, competitive bidding is coming up. And obviously we don't know what the impact of this at the moment. But generally we are used to working with competitive bidding. And have -- obviously had some form of impact. But from our point of view, it's really about delivering customers good technology, because technology is -- we can give them the best result because we can make it more efficient and help them reduce costs. So our job is to make sure we're bringing out [indiscernible] this technology as we are seeing with the release of Vitera.
Okay. Thanks, Paul. Appreciate the color. Come back to you later.
Thanks, Chelsea. Next question comes from Stephen Ridgewell at Craigs.
Hey, good morning. Just first question on hospital growth rates. So, it was obviously a good first half of 7% to 10% constant currency. But I just want to dig a little bit deeper into kind of new [indiscernible] growth rate. So we saw 23% in this half versus 22% a year-ago. I mean, given the commentary around extended flu season, I just wonder if we should have seen a little bit of a stronger pick up in -- on our numbers we did see a stronger pick up in the core consumables. Just interested if you could give us a bit of a flavor as to how you're thinking about the -- if you like the look-through growth rate and your extra debt slowed down a little bit over last year, or were there some other factors in new [indiscernible] that we should capable on.
No. Stephen, when we look at the flu impact in our first half, there's probably -- there's two things going on. There is an extended U.S flu season. That's -- that run through April, May, and a bit of June. So that's a contributor. And we also had a strong flu season in Australia and that had a small impact as well. So across-the-board new apps and invasive ventilation as well. We estimate those are with about 1% of growth. Otherwise, you’re saying what you say.
Okay. So [indiscernible] relatively small benefit from the flu season.
Yes. Yes, when you’re looking at a couple of months U.S and Australia is a relative wallet was strong, a small proportion of our business. So we're just lending on around about the 1% mark for those.
Okay. That's helpful. And then second question on Homecare. Good first half or I guess relative to the guide, we had in May, for OSA masks. Just wondering if you’re able to give us a sense of how much market share you believe you're taking in the full face category in the markets for Tierra that's selling in, or sold over the first half.
Yes almost an impossible question to answer, because you’re working with estimates of market size, estimates of new patient starts, estimates of growth. So we think in those markets that you're referring to, we probably are taking market share.
[Multiple speakers] maybe from market share just maybe to talk about constant currency growth rates, what we say in those markets, we have material has been released.
Yes, yes. So the model they really is, it got legacy masks declining and they’re on that declining trend that you've seen over the last year or two, and you've got Vitera offsetting that decline. So that's what's happening outside of U.S. in the first half. And in the U.S you don't have the Vitera offset certainly.
So and I guess going to the comment on the guide that you're expecting that kind of to continue. Does the guide imply that you're expecting flat [indiscernible] constant currency in the second half. What should we expect a little bit better than that given you obviously got that’s going for the U.S market.
Yes. First, looking at the full-year you're in about the right zone there with that Stephen. And it's that phenomena of legacy masks increasing to decline -- increasing decline offset by Vitera. Probably a little bit of pressure on CPCs and then respiratory support growing well.
Thanks. I will get back in the queue.
Thanks.
Thanks, Stephen. Next question comes from Thomas [indiscernible] at Goldman Sachs. Go ahead, Thomas.
Hi. Good morning, guys. Just a question on new application consumables. And good cleanup 23% growth. So could you just confirm what percentage of the additional volumes is actually coming from outside of the ICU?
Yes that’s also really difficult question for us to answer, Thomas. Look, our best estimate is that somewhere between 20% and 30% of our volumes globally are outside ICU.
Yep. And in the U.S. that’s towards the lower-end of the range, you reckon?
Yes, absolutely right. With the U.S at the lower-end, yes.
Perfect. Thank you.
Thanks, [indiscernible]. Next question comes from Andrew Goodsall at MST Marquee. Over to you Andrew.
Thanks very much for taking my questions. Just the first one on new apps consumables. Just trying to understand if during the period, you took any pricing prices and whether you saw any increase in the churn rate of the consumables. I guess against your -- any churn rate against the previous year.
No, not really on turn rate. And that’s just about all volume, Andrew. I wouldn’t describe any of that growth to [multiple speakers].
Okay. So pretty stable on those two measures?
Yes.
And second question just thinking -- looking into competitive bidding and the risk of a bit of a price impact there. With your Mexican plant coming on, is it feasible bps [ph] or is that likely to face way that would allow you to have a COG savings, around about the same time? Just trying to understand the phasing of the benefits there.
Yes, I had a question. We don't really think of it like that. We kind of got the other effect going on due to the mask growth, which is largely Mexico. Mexico has been a smaller proportion of that output last year and this year than previous years. So that could increase in FY '21 and we just think of it as a kind of a general gross margin -- contributor to gross margin improvement.
And helping to offset the cost increases that will continue to go forward.
Okay. But that’s FY '21 effect? And that’s in FY '21?
Lyndal kind of pointed out the key thing. We just kind of going forward we see cost efficiencies out of Mexico just offsetting the inevitable cost earnings.
Yes. Terrific. Thank you very much.
Thanks, Andrew. Next question comes from Steve Wheen at Evans & Partners.
Hey, good morning. I just wanted to ask a question to Lyndal just on the guidance. The currency that is struck on now is going back to sort of. $0.64. So I'm wondering if you might be able to help us see the FX impact on the second half of the year if you were to keep it at what the previous guidance was struck at.
Good question, Steve. Now as you can see we actually have a lot of hedging in place for the rest of the year. So currency has less and less of an impact as we go throughout the year. So a rough, sort of, back of the envelope sensitivity is about $0.01 move in the U.S. equate to maybe $1 million or $2 million at the NPAT level.
Okay. That -- sorry, that includes the hedge effect in there as well.
Yes, it's all in there, yes.
Yes. Right. Second question is just trying to get some -- you've called out the strong growth in both myAIRVO in the Homecare segment, but also strong growth in the noninvasive ventilators on the -- in the consumable side. Could you kind of give us any color around the growth and what's driving that?
So we think in the myAIRVO space it really hasn't been a massive change in clinical data. So it's really just how people getting around to hospitals and getting around to physicians and that sort of slowed, but rather lumpy climb up in usage, probably wouldn't read much more into it than that. In the noninvasive ventilation consumables in the hospital, that's really just getting a bit of traction with noninvasive masks that we introduced 18, 24 months ago, and it really is a much better performing product and we're just starting to get traction there.
So can you play the growth rate for either of those segments?
Well we got them both in new apps. Noninvasive, it probably put in the mid-teens in that kind of region.
Right. Thank you.
Thanks, Steve. Next question comes from Marcus Curley at UBS. Go ahead, Marcus.
First, could you just give a little bit of color around what I think is the guidance for slowdown in the hospital constant currency revenue growth from 17% in the first half to I think you saying a 11% in the second as starting point.
Sure. Well second half last year was more like 12%. What we think is going on there is you will see this really strong hardware growth in our first half, I think that's like 18% constant currency, that's capital equipment. It's lumpy by nature. And you might remember we're letting a first half last year where it was flat. So it's a indication of the lumpiness. So essentially what we're doing there is we are smoothing that lumpy hardware growth and that exceptionally high first half this year, we’re smoothing it over FY '19 and FY '20. So it plays into our second half number. I guess, the short answer is we’re not expecting a lot of hardware growth in that second half. And then the second thing we're thinking is that when we look at FY '19 flu season, we classify that as moderate. Off our model, it does look at the more impactful end of moderate and we are thinking that's unlikely to happen twice. So in our guidance we brought it down to less impactful end of that moderate range that we give.
And just on the hardware -- sure, okay. And just on the hardware sales in the first half, could you give a little bit of color on what type of equipment was sold and what awards [ph], just to get a little bit of perspective in terms of the incremental demand?
Yes. We don't really know what wards it's going to go into with humidifiers. So we really know that [indiscernible] are going to be used with nasal high flow. So we can't go much past that.
Somewhat more [indiscernible] these 950s?
Yes, we're not going to -- we're not going to drill that deep to individual products.
Okay. And then …
Yes -- sorry go ahead.
And then just secondly on OSA, looking into next year, maybe this is a question for Paul. With two new masks operating, is it reasonable to assume -- let's just forget about competitive bidding impacts at the moment, yet the business could get back to a market growth outcome, or is that too optimistic for FY '21?
Marcus, I think that if we got a second mask coming out with Vitera store going in on next year, I think we get a good reception of the new mask, which we expect to get. I think there will be a reasonable expectation with start to be really moving up to market growth rates.
Okay. Thank you.
Thanks, Marcus. Next question comes from Jack Crowley at Jarden.
Good morning, team. Just one question from me. Just hoping to tease out homecare guidance a little bit better and thinking I guess about that 1% constant currency decline in the first half. This is full-year kind of flat assumption, which implies, I guess, relatively immaterial pick up in the second half. I guess, you had mentioned that trend of Vitera continuing to offset the legacy pressures. But given that we've got the launch of that in the U.S. it takes place in the second half. Do we need to think about guidance as, I guess, escalating pressures on the legacy masks the U.S. introduction of Vitera off sets or is it kind of more of the case of I guess. Vitera not having a meaningful uplift into FY '21, or how should we kind of pace those things together?
Well, in that guidance, we’ve got Vitera going pretty well. But what we're doing is -- in the guidance, we are increasing the decline of the legacy masks. So that’s your offset.
Okay. Okay so that makes sense. And then just as a follow-up to that, is there any kind of I guess quantification that you guys could give us about, I guess what you think the constant currency decline as from the legacy mask thing Vitera to one side.
Well, look, I can just point to the data you can see. And if you look at last year in the first half that was 2% in masks. The second half was minus 2%. Then in the first half, you've seen modest 1% and it's got Vitera in it. In outside the U.S. for a bit less than the first half. So that should imply that declines increasing and we just carried forward that increasing decline that you can see there into our second half.
Got it. Okay. Perfect. That’s all from me. I appreciate the time. Thank you.
Thank you, Jack. Next question comes from John Deakin-Bell at Citigroup.
Hi, there. Just sort of kind of a macro question on the OSA business. When we look at the competitive landscape, do you think the market is growing at a higher rate than it has been historically because notwithstanding obviously you haven't had a masks the competitors are growing at quite rapid levels.
Look, I think the answer to that John is we don’t know. We can't be sure, especially of our volumes in our trajectory. And the other comment I would make is that we give you a pure play OSA mask number. I'm not totally sure what the other numbers you are looking at represent.
Yes. Fair enough. And just on Optiflow. Can you just give us a bit of a feel for how you think it penetrated through ICU, both in the U.S. and maybe in Europe at this point. It's obviously growing rapidly and a fantastic product. It's just a bit half from the outside to get a feel for how penetrated you are.
This is two levels to the penetration question. Across U.S. and Europe, we would say, we’ve got something in about 70% of ICUs U.S a little under -- sorry, U.S a little over, Europe a little under. And then the second level of penetration is how much do they use it to the extent they could and we would say about 5% to 10% of those ICUs use Optiflow fully on all patients that they could.
Got it. There's a long road ahead. That's great. Thank you.
Yes. Just good news.
Thanks, John. Next question comes from Stephen Ridgewell at Craigs. Thanks for getting back in the queue. Stephen?
Thanks, Marcus. I just wanted to talk a little bit about myAIRVO. So I just think the disclosure is devices, we were about 16% of hunky division sales. Could you call out perhaps what percentage of Homecare sales was myAIRVO during the period and being characterized the growth rate for myAIRVO, that sort of still similar to that new growth rate or would you characterize it a little bit faster, a little bit slower than that.
Stephen, we really don’t like cooling our growth rates for individual products. So sorry about that. We lead that one there. it. But we can say that myAIRVO is growing at a new end, right. Yes.
Okay. So -- Okay. That’s helpful. And then given the vice sales, but kind of looks like they're pretty flat year-over-year in Homecare and myAIRVO is growing at a decent [indiscernible]. Should we take from it, that slates style, its going backwards at a pretty decent clip as well?
Yes, fair assumption. That’s your offset.
Yes. Thanks. And then just one for Lyndal. The numbers are right. I think CapEx guide's increased about $20 million. So apologies if this has been covered off. But since the May guide, so from what [indiscernible]. Was there any -- I guess, what were the drivers for that increase?
It's really just bringing forward starting a few extra CapEx projects on production lines towards the end of this year, that we sort of had in the long-term plan for next year, such as bringing forward a little bit of production lines making sure that we always have capacity well ahead of when we need it.
It's good news increase.
Okay. That’s all for me. Thank you.
Thanks, Stephen. Next question comes from Tom Deacon at Macquarie.
Hi. Good morning, guys. Just wondering if you guys might be able to give us a little bit of detail on how much of the OSA mask growth historically has been attributable to you think to re-supply. So noting the OIGs and we speak [indiscernible] re-supply ongoing in the state?
Attributable to re-supply. Again, that’s a number we just don't have visibility. When we make a sale of whether that's a new patient or whether it's re-supply. So it's just --we just kind of comment on it.
Okay. That's helpful. Thanks
Thanks, Tom. We don't currently have any further questions in the queue. So we will give you 10 seconds or so. If anyone else would like to ask a question. Otherwise, we will -- just one further call for questions. We’ve got one from Steve Wheen at Evans & Partners. Steve, go ahead.
Yes. I thought I might just take the opportunity to see if you have noticed the flu data for the current Northern Hemisphere that started off very strongly. It's sort of tracking similar sort of level to one of the more recent strongest flu seasons we are seeing for some time. So I just wondering if you've seen that and that's part of your inventory build that you are preparing for.
It's not related to the inventory build and yes we do monitor it closely. And if you look back over the last ten years you see you all sorts of shapes to that, Steve. We're not going to read too much into it. We won't be absolutely sure what it is probably till the end of March.
Yes. Suffice to say that, but it's still at that moderate level in terms of your guidance.
Yes, yes. That wouldn’t move our guidance at all, no.
Yes. Okay. Thank you.
Thanks, Steve.
Thanks, Steve. A question from Marcus Curley at UBS.
I just wanted -- you obviously highlighted some of the recent studies underway for myAIRVO and Home. I just -- could you provide a little bit of perspective in terms of what you think the time frames there yet, for the development of those markets into material revenue sources. You.-- probably obviously at a loose level, maybe framed with when you expect some of the key study results to be released.
Look I can only be loose on that. Look, what you’ve seen over the last couple of years, is you’ve seen steady growth in that PD in the home with clinical evidence. There was a little bit of a milestone in March last year, [indiscernible] when the DIaMonD study came out. That was a bit of a milestone and it's kind of just contributes. There's no sort of step functions on this clinical data. And it's as we talk to early adopters with a bit more clinical data, we can get a bit further up the early adopter curve, it's kind of that simple. And it might make the proceeds a bit easier. So to get material, material to us. Revenue from there. You do need a kind of a body of clinical evidence and we expect that's going to occur over the next decade or so, Marcus. But we think in the meantime, we'll stay on this kind of trajectory. And we sort of history has been, we don't really see milestone studies that tune into a step function. That's just something else for our people to use and it makes the conversation maybe a bit easier or it means that more paperwork are prepared to discuss that.
And also trials underway in the U.S., what would be the time frames for the results?
Yes. So, look, I probably can't run through all of them for you. There's one I’m thinking of and it's going through a fairly typical track of doing a pilot study. So that we can size and fund a big study. So we’re likely to see the pilot study results. Andrew, can you give me a helping hand?
Yes. That's the results of the pilot study should be out within the next six months or something like that. But we need to bear in mind that it's just pilot and relate to a much bigger topic and that study will take a considerable amount of time.
In funding and study design for the big study will be based on the pilot data.
Okay. Thank you.
Okay. Thanks, Marcus.
Thanks, Marcus. We don't have any further questions in the queue. So Lewis, I'll hand over to you to conclude.
Okay. Thanks, Marcus. Look, in summary, we have an exciting future beyond 50 as we continue to innovate to improve care and develop new applications for our technologies. And we really do appreciate the support of our customers, employees, shareholders, suppliers and clinical partners who are on this journey with us. Thanks to you. We are estimating that Fisher & Paykel Healthcare products will be used by more than 50,000 patients in a 120 countries during this financial year. So thank you all for very much for joining us today. Thanks.
That now concludes today's call. Thank you for participation. You may now disconnect.