Cochlear Ltd (COH)

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18 August 2020

Results 

Full Year 2020

Full Year 2019

Change

Cochlear implant units

31,662

34,083

-7%

Sales Revenue ($m)

1,352.3

1,446.1

-6%

Cost of Sales ($m)

344.4

351.1

-2%

Underlying Earnings (EBIT) ($m)

206.9

359.3

-42%

Underlying Net Profit (NPAT) ($m)

153.8

265.9

-42%

Reported Net Profit/(Loss) ($m)

(238.3)

276.7

n/a

Final Dividend ($)

-

1.75

n/a

Cochlear (COH) swings to full year loss as Covid-19 hits implant sales 

What happened?

  • Hearing device maker, Cochlear’s (COH) full year revenue dropped 6% to $1.35 billion as underlying net profit after tax (NPAT) slumped 42% to $153.8 million. COH reported a net loss for the year of $238.3 million after recording a net profit of $276.7 million the year before.
  • COH has decided to suspend its dividend until the current trading uncertainty from Covid-19 improves. As a result, no final dividend has been declared.

Why did it happen?

  • Covid-19 has had a big impact on the business with the cancellation of elective surgeries hurting the uptake of Cochlear implant sales in the second half of the year. Cochlear also received $23.6 million in government assistance. Another major factor weighing on the net loss was the $416.3 million in after-tax patent litigation expenses which relates to a long-running patent infringement case in the US. 
  • COH earns revenue from three main product lines – Cochlear implants, Services (i.e. sound processor upgrades) and Acoustics (bone conduction and acoustic implants). COH makes ~50% of its revenue from the Americas (US, Canada & Latin America), ~35% from Europe, Middle East & Africa and 15% from Asia Pacific.
  • Cochlear implants is its biggest revenue maker with roughly 60% of total revenue. Implant units sold fell 7% for the year with second half units falling 26%.This led to a decline in revenue to $818 million as cochlear implant sales for developed markets, like Europe and the US, plunged 80% in April compared to the year before. While surgeries have recommenced across many markets, the recovery is uneven across a number of the developed markets. 
  • Emerging markets, like China (largest emerging market), has seen the quickest recovery as the country managed to curb the virus. However, surgeries in other emerging markets like India and Latin America remain soft on the Covid-19 virus.
  • Services is the next biggest seller comprising about 29% of total revenue. Revenue also fell 9% for the year with a sharp 23% decrease in the second half. The falls were heavily focussed in the fourth quarter due to Covid-19 resulting in closed clinics delaying sound processor upgrades.
  • Acoustics, which is the smallest division in terms of revenue (~11%), saw the largest decline of 20% in its sales revenue again due to the delay of elective surgeries. Acoustic revenue is mainly made in the US & UK markets. US surgeries recommenced since May but UK has not yet restarted. Consumers are also likely to put off getting implants in anticipation of the next generation Cochlear™ Osia® 2 System (bone conduction implant).

Where to now?

  • Cochlear has decided against providing any net profit guidance for FY21 due to the ongoing uncertainty of Covid-19 on potential revenues. The resumption of surgeries still remains inconsistent across different regions as areas with high virus numbers keep elective surgeries on hold.
  • The ongoing patent dispute is still before the US Supreme Court with COH advising of a US$75 million provision. COH is appealing a US$280 million judgement against the business. 

Tags:

COH

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