Cochlear Warns High Growth Days Are Over

By Glenn Dyer | More Articles by Glenn Dyer

Hearing implant maker Cochlear seems to be going ex-growth (or rather strong growth to a more mature style of earnings growth), judging by a downgrade delivered to yesterday’s annual meeting.

Shareholders were told the company signalled is entering a phase of lower growth over the medium term.

Investors were startled by the news and sent the shares down 5.5% to $202.42, more than two month low.

The meeting was told by chair Rick Holliday-Smith that it was lowering its executives’ bonus targets for earnings per share (EPS) growth over the next three years, from between 10% and 20%, to between 7.5% and 12.5%.

Mr. Holliday-Smith said the existing targets had been in place for 15 years and were now “inconsistent with our expectations and our strategic objectives for growth”, and the new growth targets were more “realistic”.

“Fifteen years ago, our industry was at an earlier stage of development… as we penetrated the newborn segment across our developed markets,” Mr. Holliday-Smith told the group’s AGM in Sydney.

“Today, Cochlear implantation for newborns is the standard of care across most developed markets with most children receiving cochlear implants at around 12 months of age.

“While there are still some developed markets with opportunities for growth in the children segment including the US, Japan, and France, future growth will be focused on the adults in developed markets and children in emerging markets. Each poses its challenges but provides a long-term opportunity.

“The Board believes the components of our diversified revenue base, including the growth in the Services business, and our focus on delivering steady long-term profit growth means the new EPS targets better aligns this component of long-term incentives to the Company’s strategy.

“We want to deliver consistent growth in revenue over time, with earnings expected to grow at a similar rate to revenue as we invest strongly to grow the business into the future, with an intention to hold the net profit margin.

“We believe the revised range reflects stretch performance and will ensure executives are engaged and incentivised appropriately to deliver results.

“The shift will provide better alignment to our strategy, factoring in the market conditions, and related growth rates, that we believe are realistic,” Mr. Holliday-Smith said.

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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