Approval Delays Hit Cochlear

By Glenn Dyer | More Articles by Glenn Dyer

Cochlear (COH) was another company given a pounding yesterday from investors upset at what was in the interim profit report, even though much of the bad news was already in the market.

The shares opened down more than 10% and ended down 8.8% at $53.68.

Cochlear revealed that earnings fell, revenue fell, but the company remains confident of the second half forecast, but short of the AGM forecast for the full year profit of $133 million.

Interim net profit slumped by 73% to $21.0 million due to cash put aside for a patent dispute, and excluding the provision for the patent dispute, net profit was down 53%.

Cochlear again blamed customers delaying purchases until new products are launched and foreign exchange contract losses – both were factors blamed for the weak result in 2012-13.

Revenues for the hearing implant manufacturer fell 5% to $371.1 million, which helped produce a 54% drop in earnings before interest and tax to $49.4 million for the December 31 half year.

Despite the weakness, directors kept faith with shareholders and lifted the interim dividend 2c a share to 12 a share.

That wasn’t enough to stop the sell off.

COH 1Y – Cochlear in the wars again with investors

Brokers said the result fell well under market expectations for a net profit of $59.3 million, EBIT of $81 million and sales of $387.9 million.

On a volume basis, sales of Cochlear units fell 14% to 11,712 in the period.

The fall in unit sales was due to the delivery of 1,900 implants as part of a Chinese tender in the first half of 2012-13 not being repeated in the current period.

Chief executive Chris Roberts said in yesterday’s statement that the company had experienced a difficult period.

But he said new regulatory approvals gained at the beginning of the period had sparked a resurgence of sales towards the end of the half.

"The net effect of the timing of these approvals and launches was that quarter one sales continued to decline," Mr Roberts said in the statement.

"With the release of the new products, quarter two sales were up over 30 per cent on quarter one. There is sales momentum going into the second half and the company," he said.

It seems that is the reason why Cochlear had reaffirmed second half guidance.

The company said it was on track to deliver second-half net profit in the range of $70 million to $80 million, on account of sales of the Nucleus 6 sound processor in major markets and expected regulatory approval of the Hybrid cochlear implant system in the US and the subsequent launch.

Cochlear shares had fallen 16% over the past year. The fall is now closer to 26%.

But the company was frank about the importance of the 2014 financial year.

"FY14 is an important year for Cochlear as new products are scheduled for regulatory approval and commercial launch in all product categories," it said yesterday.

"The year commenced without these regulatory approvals, but with the market still anticipating imminent new product launches. This had the result of a slowdown of sales in the second half of F13, which continued into the first quarter of F14.

"The Nucleus 6 sound processor received regulatory approval in the key markets of Europe and USA and was then launched. Regulatory approval in the USA did not include all features and further approvals are being received on a progressive basis.

"Baha 4 and Baha Attract were also launched in the second quarter in major markets and have been positively received.

"As anticipated, sales in quarter two recovered and were up over 30% from quarter one following approval and the launch of the new products," directors said.

The takeaway from the result is that meeting this task without a hiccup will be why Cochlear will spend much of the next year on investors’ watch list for further surprises on the downside.

It will have to prove that it is over the earnings problems which have hurt it in the past year or so.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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