Cochlear’s annus horribilis caught up with it on Tuesday when the financial cost of the turbulent year was laid open for all to see.
The hearing implant maker and marketer revealed a net loss for the year to June of $238.3 million thanks to the combined costs of the impact of coronavirus shutdowns in China and elsewhere, product marketing problems, and the huge cost of a long-running patent litigation case in the US.
Naturally, against that background, there’s no final dividend for 2019-20 ($1.75 a year ago) after the interim of $1.60 was paid earlier this year. That’s a cut of more than 50% in the annual amount paid to shareholders.
The company said sales revenue fell 6% for the 2020 financial year to $1.4 billion, driven by a 22% slide in second-half sales resulting from the impact of COVID-19 and associated lockdowns. Sales had been up 9% in the first half.
The sales performance of Cochlear units. Cochlear implant units 7% to 31,662 over the year with the first half up 13% and second half down 26%.
That fall in turn dropped the year’s underlying net profit by 42% to $153.8 million.
On top of that was the $416.3 million payment in litigation expenses after losing an appeal of a patent infringement case in the US earlier this year that saw damages awarded to two competitors.
That took the loss for the year to $238.3 million, well under the $276.7 million profit for 2018-19. Even without the US legal damages, the company’s bottom line would have been down on the previous year’s figure.
But investors were not unhappy – the results were well guided and the fact that there seems to be an upturn in activity convinced investors to chase the shares yesterday.
The shares ended the session up 9.8% at $217.74.
Like so many other companies Cochlear had been warning of profit hits due to the virus as early as April when the company’s implant sales revenue dropped 60%. The company raised around $1 billion from shareholders in the first major capital raising of the pandemic.
Heading into 2021, Cochlear says that volumes of cochlear implant sales and surgeries were returning in developed markets but that risks remained high because of pandemic uncertainty.
“While the resumption of elective surgeries is positive, we caution that there is still a risk, noting second waves of COVID-19 cases are likely to remain a reality for some time and may result in new restrictions to elective surgeries complicating recovery plans and timing,” the company said in an update to investors.
Cochlear’s services revenue, which includes upgrading of sound processors, fell 7% to $395.5 million as the closure of hearing clinics delayed users from getting upgrades to their implants.
Cochlear did not provide profit guidance for the 2021 year due to the uncertainty of the COVID-19 recovery globally. Investors think otherwise, judging by Tuesday’s price rise.
