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Cochlear records healthy profit, dividend growth in 1H17

Glenn Freeman  |  14 Feb 2017Text size  Decrease  Increase  |  

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The hearing implant manufacturer reports net profits up 16 per cent to $111.4 million, a $1.30 interim fully-franked dividend, and 19 per cent EBIT growth for 1H17.


The uplift comes despite some softening of demand for Cochlear (ASX: COH) hearing implants in China, where a shift in government tender purchases saw the number of tender units fall to 1,100 over the half, down from 1,700 in the first half of fiscal 2016.

"The positive momentum we have experienced over the past few years has continued into FY17 with strong and consistent growth in units delivered across all regions. Cochlear implant unit growth was 10 per cent, an increase of 16 per cent when excluding the impact of Chinese Central Government tender units," said Cochlear's CEO and president, Chris Smith.

Morningstar's equity analyst, Chris Kallos, also downplayed the effect of the Chinese government tender units on the firm's expansive international operations: "The important thing is that they maintained guidance, and that was quite ambitious ... they are on track to meet the high end of that."

Cochlear, which has a narrow-moat rating from Morningstar, is maintaining its target of between $210 million and $225 million in net profits for fiscal 2017, as outlined at its annual general meeting in October 2016.

Sales volumes of Cochlear implant units increased 10 per cent over the half to 16,234, up from 14,748 units in the first half of fiscal 2016.

This was supported by its launch of a new processor during the period, the Cochlear Kanso, and strong uptake of its Nucleus Profile implants, which were released in fiscal 2015.

"Across developed markets of the US, Australia, Germany and the UK, Cochlear increased sales 10 per cent, which is above market ... which suggests they've also grown market share," Kallos said.

"The ageing population demographic is creating huge commercial opportunities in the senior hearing loss segment ... 90 per cent of the market they are targeting is over the age of 18."

Its pursuit of market growth initiatives in these regions, including direct-to-consumer, is also proving successful, "particularly in reaching people not captured in the traditional hearing-aid channel," he added.

Cochlear recorded 8 per cent revenue growth in its core region of the Americas--spanning the US, Canada and Latin America--"which is very impressive after a very strong previous half," Kallos said.

Over the half, Cochlear also increased its presence in some of its non-core markets, adding distribution channels in Eastern Europe and the Middle East, with Europe, the Middle East and Africa accounting for 34 per cent of total sales revenue.

Within its Asia-Pacific operations, the business also added new sales capacity in India, which represents a small but rapidly growing market.


"We continue to experience positive momentum across the business with investments made in product development and market growth initiatives expected to underpin growth in the second half," said Cochlear's Smith.

"The balance sheet position and free cash flow generation remain strong and we continue to target a dividend payout ratio of around 70 per cent of net profit."

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Glenn Freeman is Morningstar's senior editor.

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