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Operator: Welcome to Fisher & Paykel Healthcare's Results Conference Call. My name is Lisa, and I'll be your operator for today's call. [Operator Instructions] Please note, this conference call is being recorded. I'd now like to turn the call over to Marcus Driller, VP Corporate.
Marcus Driller: Thank you, Lisa. Well, good morning, everyone, and welcome to the conference call for Fisher & Paykel Healthcare's First Half Results for the 2026 financial year. On the call today are Lewis Gradon, Managing Director and Chief Executive Officer; Lyndal York, Chief Financial Officer; Andy Niccol, Chief Operating Officer; Justin Callahan, VP, Sales and Marketing; and Andrew Somervell, VP of Products and Technology. Lewis and Lyndal will first provide an overview of the results, and then we'll move on to questions. We'll be discussing our results for the 6 months ended 30 September 2025. Earlier today, we provided our 2026 interim report, including financial statements and commentary on our results to the NZX and ASX. These disclosures can be accessed on our website. With that, I'd now like to turn the call over to Lewis.
Lewis Gradon: Okay. And thank you, Marcus. Good morning, everyone, and thanks for joining us here this morning. I'm going to be referring to the investor presentation pack that we released to the NZX and the ASX earlier today. So we'll start on Page 2 with a recap of some of the recent highlights. I'm pleased to note that the company has achieved $1 billion in first half revenue for the first time, and we really appreciate the contributions of our people right around the world during this half. Thank you, everyone. We continue to roll out our latest Nova Nasal OSA mask during the period, and this is now available in New Zealand, Australia and major markets in Europe. At our investor event in Royal Melbourne Hospital in Australia this year, we showcased the complexity involved in how clinical practice changes. And one way we contribute to that journey is hosting clinical forums and that's where interested health care professionals can get together, compare their clinical practice, compare their results with clinical data and the clinical practice guidelines. And over the last half, we hosted over 100 of these forums globally. Our U.S. team was honored to be recognized with the Zenith Award from the American Association for Respiratory Care and we got the construction of our fifth building at our East Tamaki campus here in Auckland, New Zealand underway, and they're making good progress as we speak. So turn now to Page 3. Operating revenue for the first half was $1.089 billion, up 14% on the prior period or that's 12% at constant currency terms. Net profit after tax was $213 million, and that's up 39% on the prior period or 28% in constant currency. Lyndal's going to unpack the financial results in more detail shortly. So we'll move on to the Hospital product group on Page 5. Operating revenue was $692 million. That's up 17% on the first half last year or 15% in constant currency, and that's come from a broad-based strength right across the hospital consumables business. New applications consumables revenue was up 18% or 16% in constant currency. And when we consider the robust growth that we're lapping from the first half last year, we think this result probably does reflect a consistent ongoing change in clinical practice. Hospital hardware revenue grew 21% in constant currency. And as you all know, hardware revenue can be quite variable on a month-to-month basis. And so we do anticipate that the full year hardware results will probably moderate down from this first half year result. So turn now to Page 7 for Home Care. Home Care operating revenue was $396 million, up 10% on our first half last year or 8% in constant currency. I would say, mask growth was 8% or 6% in constant currency. Our latest range of OSA mask has performed well and the Solo range and the Nova Micro range are available in most major markets. And as I mentioned earlier, Nova Nasal is in the early stages of its rollout, with a U.S. launch planned for later in our second half. Our home care result also has a strong contribution from OSA hardware growth, which we're not expecting to repeat in the second half. And if anything, we feel it might be a pull forward of demand from the second half. I'll pause there for now and hand over to Lyndal.
Lyndal York: Thanks, Lewis, and good morning, everyone. On Page 8, our gross margin was 63% for the half. This is an increase of 110 basis points or 60 basis points in constant currency over the same period last year. The range of margin improvement efforts across our business, including manufacturing efficiency and other efficiency gains continued making a positive impact. U.S. tariffs on hospital products sourced from New Zealand impacted our gross margin by 32 basis points in this half. If the current global tariffs remain in effect as they currently are, our gross margin would be impacted by approximately 130 basis points on an annualized basis with approximately 75 basis points impacting in the 2026 full financial year. Our ongoing investment -- our ongoing improvement efforts are anticipated to more than offset this to provide an overall gross margin improvement for the full year FY '26 of roughly 50 basis points in both constant currency and reported currency using end of October exchange rates. Moving on to Page 9. Total operating expenses grew 8% or 6% in constant currency compared to the prior period. This reflects the higher investments made over the last few years and modest increase in people in the last financial year. Operating margin was 26.3% for the half, an increase of 335 basis points or 286 basis points in constant currency over the same period last year. This reflects the improvement in gross margin as well as our operating expenses growing below revenue growth. R&D expenses grew 4% to $114 million and were 10% of revenue for the half. We continue to estimate that about 60% of our R&D spend is eligible for the 15% R&D tax credit. SG&A expenses were $285.5 million this half, an increase of 10% or 7% in constant currency. Moving to Page 10. Operating cash flow this half was $245.8 million, up 5% from last year. Tax payments this half of $119.6 million were up from $53.8 million in the same period last year. Capital expenditure, which includes purchases of intangible assets, was $61.8 million for the half, up from $55.1 million in the same period last year. This includes the progress on the construction of the fifth building at our East Tamaki campus in New Zealand. Capital expenditure for the full 2026 financial year is expected to be approximately $210 million. Within this is around $125 million on land and buildings, including the next payment on our Karaka land purchase. Looking at the balance sheet, debtor were largely in line with last year at 43 days. Net cash at the 30th of September 2025 was $237.8 million, and our gearing ratio was minus 13.5%. Interest-bearing borrowings were $55 million, all of it being current. Turning to Page 11. We have declared a fully imputed interim dividend of $0.19 per share. This represents a 52% payout of our first half profit and is an increase on the interim dividend declared last year. It will be paid on the 16th of December. Looking now at foreign currency on Page 12. Foreign currency movements positively impacted our net profit after tax by $19 million compared to the same period last year. This largely reflects the movement in spot rates and hedging results when compared to the same period last year. In this half, hedging losses were $6.2 million after tax and foreign exchange losses on balance sheet translations were $1 million after tax. At end of October rates, we would have an overall positive impact on net profit after tax of approximately $10 million to $15 million for the full financial year FY '26 when compared to the full financial year FY '25. This includes hedging losses in FY '26 of $20 million after tax and losses on balance sheet translation of about $0.5 million after tax for the full 2026 financial year. Now back over to you, Lewis.
Lewis Gradon: Okay. Thanks, Lyndal. So turning now to our outlook on Page 13. At 31 October exchange rates, we now expect full year operating revenue to be in the range of approximately $2.17 billion to $2.27 billion. And net profit after tax to be in the range of approximately $410 million to $460 million. And this revenue guidance revision is driven by currency movements since our last update in August. Our Hospital consumables second half growth can be influenced by year-on-year variations in the Northern Hemisphere winter respiratory season, and we don't have any additional insights into the potential impact at present. The available data does indicate that last winter was a historically strong season and so a similar season this year would be pushing our results towards the top end of our guidance. And conversely, a lower season would be tending to push us towards the lower end of guidance. Net profit after tax guidance incorporates this FX-driven revenue update, a 75 basis point impact to gross margin due to tariffs, good progress on gross margin improvements achieved during the first half and maintaining our operating expense growth below our long-term aspirational revenue growth. So I'll end my remarks here, so that we can open the line to questions.
Marcus Driller: Thanks, Lewis. Lisa, if I could ask you to please open up the lines for questions. And can I please ask everybody to limit your questions to 2. This is to ensure that everybody has an opportunity to participate and then you can rejoin the queue for additional questions.
Operator: [Operator Instructions]
Marcus Driller: Okay. So the first question comes from the line of Lyanne Harrison at BofA. Please go ahead, Lyanne.
Lyanne Harrison: Congratulations on hitting that $1 billion revenue for the first half. I might start with guidance and a question for Lyndal. I know you mentioned that FX is driving that increase or upgrade in guidance that you provided today. But for the NPAT level, you mentioned FX tailwinds of about $10 million to $15 million. But from a guidance perspective, your range increased by about $20 million. Can you talk to what else might be in that?
Lyndal York: Yes, Lyanne, that's sort of what Lewis mentioned in terms of the gross margin improvement activities continuing on through the second half and growing our operating expenses below that long-term revenue aspiration to aim for some continued modest growth there.
Lyanne Harrison: Okay. And then on the gross margin, can you talk a little bit more, obviously, got very good gross margin expansion this half one on a constant currency basis. Can you talk about what aspects contributed most to that gross margin expansion?
Lyndal York: Yes. Look, it's really everything that we do in the business. We've been back to sort of business as usual across our business with everything playing a role there. It's our manufacturing teams, getting the manufacturing efficiencies, doing all their continuous improvement projects, getting really strong improvement out of that, a bit of pricing through the sales team that we typically get and just sort of all of that playing a role into the gross margin improvement. And so as we anticipate, pre-COVID, we're able to improve gross margin about sort of 100 to 150 basis points on average per year, and we saw delivering that.
Lewis Gradon: Maybe one other little bit of color, Lyanne, the complexity in that answer is in the operations and manufacturing space. Typically, that's over 3,000 improvement projects per year, all individually relatively small, but all adding up.
Marcus Driller: Thanks, Lyanne. Next question comes from Dan Hurren, MST.
Dan Hurren: Look, thanks for the guidance on the tariff impact and that color there. But I was hoping you could help us understand like how that tariff experience is playing out in the ground with price efficiencies?
Lewis Gradon: Sure, Dan. We're thinking of is just another cost-in just like all other cost-ins and it's in the bag of just business as usual cost-ins. We're running the business as we normally would. We're running our continuous improvement projects as we normally would. So today that's really no material impact on the ground at all.
Dan Hurren: And look, a follow-up then. If we -- if you have a look around, it appears that Fisher & Paykel will probably be more gentle on price compared to other tariff impacted companies and broadly the same channel. Is there a potential that the price becomes a more of a lever over time as sort of the -- as the world gets used to these tariffs.
Lewis Gradon: Could look at that 2 ways down. I mean we've got wonderful opportunities with every single customer we have to improve clinical practice. We don't have a single hospital anywhere in the world let alone in the United States, that's fully penetrated using all of our therapies for every patient that could. So we think we get a much better result spending our time talking about improving clinical practice, improving current outcomes. We think that gives us a better result in the short term and the long term, gives the customers a better result. So that's where our focus is at present.
Marcus Driller: Thanks, Dan. Next question come from Stephen Ridgewell at Craigs Investment Partners.
Stephen Ridgewell: Just had a couple of questions on the hospital business performance, particularly during the first half and perhaps what you're seeing going to the second half. Hospital devices were a standout with constant currency growth of 21% in the period. Unless you may recall back in May, I think the indication was you weren't expecting too much from Airvo 3 or Airvo 3 NIV in terms of being a material driver. I'm just wondering, was that 21% growth we've seen, does that include a strong contribution from those products or otherwise, could you just give us a little bit color as to perhaps what's driven that strong result from Hospital Devices in the first half, please?
Lewis Gradon: Yes, sure. First caveat, Stephen, is if you've been following us for more than a year or 2, you've seen that, that hospital hardware result is very lumpy, can be lumpy year-on-year, certainly lumpy half-on-half and kind of where we're going with that first half result, but I mean it's a great result, 21%. It looks like a very positive lump. We would not be surprised if it's followed by a negative lump for our second half and kind of reverting to more traditional growth for the full year, that would be our pick. And then the contribution very consistently in our business pretty much forever is a mix shift from one generation of product to the previous one. And right now, you're seeing that from 850 hardware to 950 hardware, and you're seeing that from Airvo 2 to Airvo 3. So that's certainly a contributor. Probably not much more than normal would be my pick, it's always happening.
Stephen Ridgewell: And so just a follow-up to that. Have you seen within that 21% more of tilt towards growth from the Airvo product suite or pretty consistent with the humidifier controllers?
Lewis Gradon: I don't think consistent out of that choice. I mean there are different stages, there are different evolutions, but nothing unusual there.
Stephen Ridgewell: Okay, good. And then the second question is still on the hospital business. Again, so probably another surprise versus where the market was at was on kind of core consumables, which have come in again, a bit stronger, which given -- I know it's not purely with the respiratory data has a big influence, but we sort of see 19% constant currency growth in core. Just curious, is it sort of more market share gains have you entered some new markets or won some contracts. Just a bit of color there would be helpful to understand. Is that growth sustainable into the second half in the core consumables business?
Lewis Gradon: Yes. So what we think is going on there, is during COVID an awful lot of these fully functional ventilators went out that could do invasive, noninvasive and nasal high flow. So we think, over time, people are using those ventilators across the range and they're using them for noninvasive and nasal high flow in some markets. And that does mean that for us, it looks like they're using an invasive circuit. So we think some of the noninvasive should we say growth and maybe even a little bit of the Optiflow nasal high flow growth in circuits a little bit sleeked into what looks to us and looks to you like that traditional consumables or invasive consumers.
Marcus Driller: Thanks, Stephen. Next question come from Davin Thillainathan at Goldman Sachs.
Davinthra Thillainathan: I just want to understand the guidance upgrade for the full year a little bit better. Just trying to make sure we understand the moving parts here. Part of it is clearly FX that is helping. But if I look at your first half results, you have come ahead of your guidance for the half, clearly indicating there's underlying momentum in the business? Because my understanding is your FX for the half hasn't really changed relative to when you set that guidance. So could you help us understand where the business outperformed in the half and perhaps why you don't expect that outperformance to flow through for the full year, if my understanding is right that your guidance upgrade is largely FX driven.
Lewis Gradon: Absolutely right and good question. Thank you. So there's 2 components there. First one is hospital hardware, which we kind of just spoke to. It's quite lumpy. That performed pretty well in last couple of months. And I think probably doesn't flow into H2 like that. In fact, maybe even goes the other way. And then the other one is also hardware but OSA hardware. And this is CPAP machines where we've had a customer in a market where 3G is being turned off, accelerate the CPAP replacement cycle. So that's in our home care result. And once again, that hardware has probably come out of the second half.
Davinthra Thillainathan: Okay. And then thinking about the consumables part of your business in the Hospital segment. There's a whole range of new products that have, I guess, been released progressively over the last few years. And one particular sort of therapy that seems to be getting a bit more attention from a product launch perspective is in the NIV part of your franchise. Could you perhaps help us understand that a little bit better how does NIV sort of help the business, particularly given you are focused on changing clinical practice with the high flow part of it. So perhaps just the overlap between those therapies and how you expect that part of the franchise to grow over the next few periods?
Lewis Gradon: Sure. Well, I think, overall, we are building our respiratory care business that covers all respiratory care applications and usages in a hospital, whatever the requirement and wherever the patient is. So NIV plays a role in that. And the leading clinical change in that space is nasal high flow for respiratory support. But another component of that is more and more usage of NIV and another component of that is humidified NIV, probably still less than 20% of the market would be humidifying NIV. So the way we tend to think of it is our driver is a change in clinical practice towards nasal high flow. And once a customer is using that therapy to some extent, it makes a lot more sense for them to move to humidification and noninvasive therapy as well or to move to our noninvasive therapy offering. So we said it's kind of following along behind the change in clinical practice.
Marcus Driller: Thanks for your questions, Davin. Next questions come from the line of Vanessa Thomson at Jefferies.
Vanessa Thomson: I just wanted to ask about the respiratory season. You mentioned that last year, it looks like it was a strong season. I think when we look at all respiratory illness combined my understanding was it looked moderate. Is that wrong? Or is it that flu requires more support -- inducing more of your products than the other viruses?
Lewis Gradon: So I'd kind of like to restate that, if you don't mind. So our assessment of last year, second half was that was the biggest flu season data in 15 years. So we think that was a biggie. You've got a COVID component and other components in there. So over time, you'd expect COVID to probably be coming down. And then we've kind of moved away from classifying them as high, moderate and low and all that kind of thing. It's just too murky. And what we've done last year, what we're trying to do this year is really just confine our analysis to this year versus last year and not categorize them. We've just found it too confusing. And so when we go down that route, well, last year, H2, our biggest flu season in 15 years, COVID was still relatively material.
Vanessa Thomson: Okay. Thank you. Okay, and my second question, I just wanted to ask if you had seen any impact from the shutdown. I think it was around 6 weeks, and we've seen some of the distributor companies talk to some slowdown. I wanted to get that affected you at all?
Lewis Gradon: Shutdown. I would say I'm looking around the room, not from hospitals, not from FDA, not from reimbursement. We're shaking our heads on that one.
Marcus Driller: Thanks, Vanessa. Next questions come from Matt Montgomerie at Forsyth Barr.
Matt Montgomerie: Well done on a solid result. Just on Home Care for the second half. I was wondering if you could give us a feel for where you see growth rates. Would that be roughly consistent with the first half?
Lewis Gradon: Well, I think probably the case for us is you'd expect a similar result to the first half under similar conditions, certainly for masks. And I've spoken to the hardware component of that. We think our first half growth is probably coming out of the second half.
Matt Montgomerie: And then secondly, on the anesthesia business, are you able to give us color for where that's in terms of growth or as a share of new apps in the first half?
Lewis Gradon: Well, growth is still pretty solid, still got a 40% odd, something like that off that low base, that low base has become a bit over 10% of new apps consumables this half.
Marcus Driller: Thanks, Matt. Next questions come from Craig Wong-Pan at RBC.
Craig Wong-Pan: Just looking at the full year guidance ranges. If I look at what that implies for the second half growth, I calculate the midpoint would imply 6% revenue growth, but actually NPAT declining by 1% in the second half. Just wanted to understand, is there anything we should be aware of in thinking about NPAT either in the PCP or in this coming second half to explain why there might be a decline in NPAT?
Lyndal York: I'll take that. It's really a case of the revenue that Lewis has spoken about, the hardware likely coming back from the second half into the first half. Margin, we're still expecting improvements, but we get the full half of impact of tariffs in the second half. So there's quite a headwind related to that. And then OpEx still managing to grow that below our long-term revenue aspiration. And so what that ends up being will depend on where we land from a revenue perspective.
Craig Wong-Pan: Okay. That's helpful. And then just wanted to understand the clinical forums. I mean, Lewis, you called out 100 hosted events this kind of period. Just trying to understand, is that sort of a similar level to usual? Or is this going to be something kind of going forward to help you change clinical practice?
Lewis Gradon: So our business is based on a change in clinical practice. That's what we do for living. It's pretty much what we've always done, and it's relatively unique in our space. It's a relatively unique thing to be doing. And we had an Investor Day in a hospital in Melbourne earlier this year, and we went through some of the complexities and changing clinical practice. So what I thought I'd do this time is just following up on that theme, giving people more of an understanding of what changing in clinical practice, what that really means. I'd follow up with giving you some insight into the forums that we run. Now having said all that, that is actually pretty normal to us. We generally do over 100, I'd say, every half. Just trying to give some insight to that whole process.
Marcus Driller: Thanks, Craig. Next question has come from Saul Hadassin at Barrenjoey.
Saul Hadassin: First one is on OpEx. I think at the full year '25 results, the guidance was for around 10% growth in operating costs in FY '26. Clearly, it's a lot lower in the first half. Maybe Lyndal, just if you can talk about where you think OpEx growth will land for the full year and what's embedded in that NPAT guidance range?
Lyndal York: Yes. Look, probably sort of high single-digit growth we'd be anticipating for the full year in OpEx.
Saul Hadassin: Okay. And Lewis, just your comments about sort of pull forward of sales on Home Care flow generators, but also that commentary around Hospital Hardware. You've had 2 months almost of the second half. Can you comment on what you're actually seeing on the ground in terms of those hardware sales? Is that what is giving you the guide as it relates to second half? Is it what you're already seeing? Or is that just still effectively an estimate and you don't actually have insights yet into second half performance?
Lewis Gradon: It's just an estimate. I mean when we look at our hospital hardware numbers on a 6-monthly basis, you can see they're pretty lumpy. There's nothing to read into it. On a month or 2, I wouldn't read much into it. But I guess our pack is we probably wouldn't expect to see that first half again in the second half that kind of volume.
Marcus Driller: Thanks, Saul. Next question comes from Marcus Curley at UBS.
Marcus Curley: Just on the Home Care business, you reported 6% in masks. It's probably a touch below market. Could you just talk a little bit about what you think is happening there? Maybe it reflects weakness in the full face category again? Or just some color would be useful.
Lewis Gradon: Okay. Sure. I think the fundamental is lapping 14% growth this half last year. So this half last year, we had the Solo Nasal, Solo pillows were launched that drove 14%. In the second half, we had Nova Micro launch. In the second half, we also had 3 or 4 launches from competitors in that half. And that still drive 9%. So I think this H1 story is more about what we're lapping, and it's about no new introductions for us materially during the half.
Marcus Curley: Have you seen any impact on those growth rates in the installed base or resupply part of your business? Or is it too difficult to tell in terms of your visibility into that?
Lewis Gradon: So as far as we can tell, I'd say no. We haven't seen any unusual impact in resupply at all.
Marcus Curley: And then just on Home Care, competitive bidding most likely kicking off next year. Do you have a view on how that would affect the industry and yourselves?
Lewis Gradon: Justin, what?
Justin Callahan: Marcus, it's Justin here. I think, I mean, at this stage, the final rules and requirements around competitive bidding haven't been really disclosed. And we expect the market to sort of react in a reasonable way. So we're not reading too much into it at this stage. It's still pretty early.
Marcus Curley: So Justin, your base view would be reimbursement levels in the U.S. relatively stable. You wouldn't be expecting a material decline?
Justin Callahan: I think we'd be expecting whatever the adjustment is it would be sort of a lot more reasonable. There's a lot more sort of experience in that space now from our customers. So I think it's -- we're not expecting anything too major.
Marcus Driller: Thanks, Marcus. Next questions come from Andrew Paine at CLSA.
Andrew Paine: Congrats on the results. Just looking at your full year guidance of $460 million at the top end of the range for NPAT. And just kind of working down, looking at that at the top end of the range, you've done $213 million in the first half. So you need $247 million in the second half to hit the top end of the range. If we back out FX there, bringing that down to $237 million constant currency, that would imply just 6% growth year-over-year in NPAT. Obviously, you've got the tariff impact in there, which if I'm right, that's about 120 basis points annualized. So that adds another 4% but OpEx is also performing better than expected. So just trying to get a bit of color around that growth rate at the top end of the range. It looks somewhat achievable even with maybe a slightly worse flu season year-over-year.
Lyndal York: Maybe one thing, Andrew, that I'll just clarify that currency is actually a headwind in our second half compared to the second half of last year. So these numbers instead of being a tailwind of the 10 that you were talking about, it's actually a headwind of close to that. So because if you remember, the first half, we've got a $19 million benefit of NPAT. And we said for the full year, probably $10 million to $15 million. So that means the second half itself has got quite a tailwind -- sorry, headwind. So -- and then it's pretty much revenue dropping down, the tariff coming in, but still getting some good improvements, excluding that tariff for gross margin and OpEx in that sort of high single digit growth.
Andrew Paine: Yes. Okay. So even with the FX kind of moving favorably. I assume that's just impacted by the hedging that you have in place?
Lyndal York: Yes. Look, it's a range of things. They're the biggest mover in the currency half compared to the second half last year is actually the balance sheet translations where we had a gain of about $7 million last year in the balance sheet translations. So not expecting much this year. So there's a large part of that headwind.
Andrew Paine: Okay. Sure. Okay, that makes sense. And then just obviously, it's difficult to really kind of talk to this, but there's the ongoing tariff investigation. I don't know if you can provide any clarity around if a similar tariff was applied in Mexico, what that would mean in terms of margin impact to the business?
Lewis Gradon: We haven't really gone there. I mean, I think -- our thinking about tariffs is somewhat colored may be compared to most but anything we think about to do with tariffs or to manage tariffs or to change things because of tariffs, that's time and effort that we're not putting into growth. So that's always as a front line for us, actually, in tariffs are the topic.
Marcus Driller: Thanks, Andrew. Next questions come from Adrian Allbon at Jarden.
Adrian Allbon: Maybe just a clarification question. Maybe this is for you, Lyndal. Just on your interim report, and as you get to the bottom of the comments from Neville and Lewis, there is like a discretionary bonus of $9 million to be shared amongst the employees. Just to understand that, is that a normal feature? Or is it -- and you just called it out this time? Or -- and how is it sort of accounted for?
Lyndal York: Yes. So we've been doing this. This is a profit share payment that we make to all employees globally, and we've been doing it since we were formed basically...
Lewis Gradon: Since before listing.
Lyndal York: Since before listing. And we do normally show that amount in our annual report every year and in our interim report. So nothing's changed, nothing out of the ordinary.
Adrian Allbon: Okay. And would that have been accrued until the first half anyway, just as per normal?
Lyndal York: Correct, yes.
Adrian Allbon: Or is it a full year payment?
Lyndal York: No, no, no. It's half on that premium.
Adrian Allbon: Okay. All right. No problem. Sorry about that. Just the second question, like also in that sort of interim report, like you make a call out on the RENOVATE study, which I guess in the theme of this one, like you sort of -- you are putting a bit more emphasis on the change in clinical practice. Like is my sort of read of that, that's sort of like quite -- it's a large sort of clinical trial that's sort of you're presenting some useful results in terms of for hypoxic cases using high flow as a triaging type product. Is that the right way to think about the output from that study and how you might be using it to sort of educate?
Lewis Gradon: Well, I think the thing about that study is the number, I think it's towards 2,000 patients. So it's a large number of patients and covers COVID and not COVID as well. And it's a comparison against noninvasive ventilation if memory serves me correctly, which is kind of a step up. And if finds nasal high flow, the word they use is not non-inferior, non-inferior. So as we're saying -- yes, yes, you've got a therapy that the user would rather use. You've got a therapy that a patient would rather have, and it's not inferior to NIV. That would be the short version.
Adrian Allbon: Right. And obviously -- but presumably, that also dovetails nicely into like the Airvo 3 being wider use across the hospital as well and simpler to use for -- as you go down the staff levels.
Lewis Gradon: Yes. I mean I want to be careful. We've called out one. It had a lot of press at the time it was released. It's unusual. It's big numbers elegantly done an analyzed study, but it's one of hundreds and probably more compelling is into clinical practice guidelines around the world. And that's really stepped up the issuing of clinical guidelines from the different professional bodies.
Marcus Driller: Thanks, Adrian. Next questions come from David Bailey at Morgan Stanley.
David Bailey: One for Lyndal and one for Lewis. Lyndal, 50 bps in gross margin this year, including 75 bps from tariffs. So if you strip out tariffs, you're doing 125. You sort of said on a full year run rate, full year tariff impact is 130. So as I look at fiscal '27, should we be thinking that all else equal, there's an incremental 65 basis point tariff impact to come through and then the underlying will give you sort of 60. So just trying to understand the incremental change from the tariff impacts in '27, just given that we know that the underlying should be around 125 basis points or so.
Lyndal York: Yes, David. Look, you're spot on that. There's another top up of that headwind of tariffs coming into FY '27. So you're right, sort of 65 bps. And look, anywhere from sort of 100 to 150 basis points on average a year, we try to do is underlying improvement.
David Bailey: Okay. That's helpful. And just for Lewis, I mean there's some commentary here around clinical adoption. There's clinical evidence that comes through to the sales and marketing effort as well. Just wondering if you can sort of talk to a little bit about how those two have progressed? And then in terms of utilization of hardware and asset turns on, how is that sort of driving more consumables used per device, if you can?
Lewis Gradon: Yes. So that's sort of a double bang. I'll answer the second one first because our therapies are used across such a diverse range of hospital situations from EDs to recovery rooms to general wards to ICUs, we don't really have a utilization versus consumable terms per device, model or predictor because there's so much variation in there. We can't do it. So we've kind of abandoned that measure. And then in terms of clinical evidence, sales and marketing effort, the big mover there is clinical practice guidelines. Once we have clinical practice guidelines from a reputed clinical body, our approach is generally to use the clinical practice guideline. And I think I'm looking at Justin, I don't think we've got any hospital anywhere on the planet perfectly implementing clinical practice guidelines on every patient they could.
Justin Callahan: Not yet.
Lewis Gradon: Any comment?
Justin Callahan: Correct.
Lewis Gradon: So at this stage of the nasal high flow evolution anyway, it's about the clinical practice guidelines, and that's what we utilize in our sales, if it's more than anything else.
David Bailey: Yes. Understood. Okay. Maybe just a different way to ask it then is, do you think the devices are being used more broadly across the hospitals?
Justin Callahan: Yes, we do. Yes, absolutely.
Marcus Driller: Thanks, David. Next questions come from Christine Trinh at Macquarie Bank.
Christine Trinh: Congratulations again on a strong result. Just 2 quick questions from me on the consumables space. Firstly, New Apps growth of 16%, constant currency was ahead of our expectations. Can we expect a similar level of growth going forward? And on the U.S. launch of the Nova in the second half, can we just get your expectations for contributions to growth there? We think in kind of double digits that we saw in the first half of '25.
Lewis Gradon: U.S. Nova, let me talk to that first, probably late in H2. So I wouldn't be making any material contribution at this stage probably later in our second half. And then New Apps at 16%. So when we think about second half, we're moving into the seasonal hospitalization zone. And you would think that if we had a similar seasonal hospitalization, this second half compared to last year, this should probably get a similar growth rate in the second half to what you saw in the first half. This time around, because of the very high flu season numbers from last year and also COVID probably decreasing, we would characterize last year as probably really high and probably top end of range. If we had a similar season this year, we'd expect we'd be at top end.
Christine Trinh: Great. And just on that Nova piece, if it's in the first half of '27, can we just get your thoughts on growth expectations for that half?
Lewis Gradon: Yes, maybe way bit too far out for us at the moment, Christine.
Marcus Driller: Next question comes from Marcus Curley at UBS. Please go ahead, Marcus.
Marcus Curley: Could you just talk a little bit maybe a little about the trajectory on R&D. Obviously, 4% in half is low for the business. Is that just reflecting some lumpy projects? Or are you generally starting to see lower percentages of R&D for the business for the next, say, 12 to 24 months?
Lyndal York: Yes, Marcus, what that is, is really reflecting the higher than sort of our normal revenue aspirational growth over the past number of years. So it's just sort of writing that as the sort of average over time. So we'd probably expect that to remain a little bit on the lower side, sort of low to mid-single digits for probably another year or 2.
Marcus Curley: Great. And then just on anesthesia. Could you provide any color in terms of any noticeable difference between trace and switch specifically, is it sedation or GA driving it or both? Just can you get a bit of color in terms of the different components of the market?
Lewis Gradon: It kind of depends on the release track we've taken places where we've had Trace and Switch for -- from day 1, probably on comparable contributions. And then at least in the U.S., we led with Trace, and we're still leading with Trace. That's the bulk of it in the U.S. So the answer to your question, it varies depending on what we led with when we led with it.
Marcus Curley: And Switch is in the U.S. these days?
Lewis Gradon: Well, it's approved in the U.S. We are still following up all the Trace opportunities in the U.S. at present.
Marcus Curley: And that's different to a Switch opportunity?
Lewis Gradon: Yes. That's right.
Marcus Driller: Thanks, Marcus. We don't have any more questions in the queue. So I will now turn over to Lewis for some concluding comments.
Lewis Gradon: All right. Well, thanks, Marcus, and thanks to everybody for your questions today. And as always, I'd like to conclude by thanking all of the people at Fisher & Paykel for your contribution this half. And we'd like to acknowledge the support of our customers, suppliers, clinical partners and shareholders. So thank you, everybody, and enjoy the rest of your day. Thank you.
Operator: This concludes our call today. Thank you for your participation. You may now disconnect.