New products drive Cochlear growth

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Cochlear has reported an 11 per cent increase in revenue and 16 per cent rise in net profit for the six months to the end of December last year.

The company said the highlight was the services business that grew revenue by 28 per cent with sound processor upgrade revenue increasing by 26 per cent in constant currency terms.

According to CEO  president Dig Howitt, “The Services business continues to grow in importance as our recipient base grows, now representing almost 30% of sales revenue. Cochlear's recipients have enthusiastically embraced the Nucleus 7 Sound Processor, the world’s first Made for iPhone cochlear implant sound processor, launched in October 2017, with the addition of the Nucleus Smart App for Android, released in June 2018.”

The cochlear implant business grew revenue by 5 per cent based on unit growth of 5 per cent.

“After delivering eight halves of strong growth driven by a combination of market growth and share gains from new products, our developed markets delivered units in line with the first six months of last year," said Mr Howitt.

“The US experienced a lower rate of growth with a loss of share following a competitor product launch. Western European growth was affected by a combination of factors including health budget constraints in a few markets and increased competitor activity, particularly in Germany. Japan was the highlight with strong demand following the expansion of indications and funding for cochlear implants in late 2017.

“The seniors segment continues to be the fastest growing segment across the developed markets as awareness increases. Surgeries for seniors, particularly in the US, are increasingly being driven by our successful direct-to-consumer marketing campaigns, with a small but growing number being referred from the hearing aid channel. The Cochlear Provider Network in the US is expanding rapidly, increasing education of the indications and benefits of cochlear implants to hearing aid audiologists and providing a referral pathway to cochlear implant surgeons.

“Our emerging markets business had a strong start to the year with units growing by over 15%. Emerging markets provide a long-term growth opportunity as awareness of and affordability for cochlear implants expands. The strong growth we have been experiencing in part reflects investments over many years to strengthen our presence across all regions.”

The company said its acoustics business grew revenue by 7 per cent with demand continuing for the Baha 5 sound processor range.

Mr Howitt said Cochlear is planning a range of new product launches over the next 18 months. He said the company was reaffirming its expectations of delivering a reported full-year net profit of $265-275 million, an 8-12 per cent increase on FY18.

“We expect to continue to deliver growth in revenue and earnings in the coming years, underpinned by the significant investments made in product development and market growth initiatives.

“We will continue to invest operating cash flows in activities aimed at building awareness and market access, with the objective of delivering consistent revenue and earnings growth over the long-term. We are targeting to maintain the net profit margin, reinvesting any efficiency gains, currency or tax benefits into market growth activities, adapting the pace of investment to revenue growth.

“Over the next few years, we have a number of large long-term investment projects including the development of our China manufacturing facility, with the construction phase expected to be complete by the end of FY20, and investments in IT platforms to strengthen our connected health, digital and cyber security capabilities. As previously advised, these projects are expected to increase capital expenditure levels to $80-100 million per annum over the next few years.

“The balance sheet and free cash flow generation remain strong and we continue to target a dividend payout ratio of around 70% of net profit.”