Cochlear profits, shares fall
Cochlear shares fell $7.5, or 9.3 per cent, to close at $72.96 yesterday.
The profit is up from a $20.4 million loss in the same period last year.
The Sydney-based company is still recovering from a $140 million recall of one of its embedded hearing devices in September 2011, which tainted the company's blue chip reputation and drove the company into a loss in the first half of last financial year.
The share price has since recovered from an initial plunge to $45, rising to an 18-month high of $81 last week.
Chief executive Chris Roberts said the results were "pleasing" but had been affected by the rising Australian dollar, which had taken a chunk out of its potential profits.
"If the same currencies had prevailed as the prior half, our profit would have been 20-odd million more," he said.
Without factoring in the cost of the recall process, Cochlear's net profit after tax was down 3 per cent from an underlining profit of $80.1 million in the previous corresponding period.
The results were below analyst expectations of $81.2 million, and have raised questions about the company's grip on market share - particularly in China and the developing world, where growth is crucial.
UBS healthcare analyst Andrew Goodsall said the company had recently faced strong competition over a contract in China, forcing the price of implants significantly down.
"There's been no growth in America and Europe, and 33 per cent growth in China," he said.
"China is a huge feature in this result. Without China there will be low growth."
Mr Goodsall said competitor Advanced Bionics had also significantly narrowed Cochlear's lead in the market with the introduction of new hearing devices.
"The key issue is competitor threat. They have been competing against inconsistent competitors for a decade, and now they are competing against a quite competent, aggressive competitor."
Mr Roberts said Cochlear planned to reintroduce the recalled CI500 series implant but would not give a specific date.
"We want to do more work on this product," he said.
Although there were no recall costs for the period to 31 December 2012, a provision of $44.6 million remained to cover any future costs, including lawsuits and warranty claims.
Frequently Asked Questions about this Article…
Cochlear reported a first‑half profit of $77.7 million, but investors pushed the share price down amid worries about weakening market share (especially in China and developing markets) and the impact of a stronger Australian dollar. The shares fell $7.50, or 9.3%, to close at $72.96.
Cochlear posted a turnaround first‑half profit of $77.7 million, up from a $20.4 million loss in the same period last year. Excluding the cost of the recall process, net profit after tax was down 3% from an underlying profit of $80.1 million in the prior corresponding period, and the results were slightly below analyst expectations of $81.2 million.
The September 2011 recall of one embedded hearing device (reported cost of $140 million) damaged Cochlear's blue‑chip reputation and contributed to a loss in the first half of the prior financial year. Although there were no recall costs in the period to 31 December 2012, the company still holds a $44.6 million provision to cover potential future costs such as lawsuits and warranty claims.
Cochlear's chief executive Chris Roberts said the stronger Australian dollar reduced the company's potential profits. He estimated that if currency levels had stayed the same as the prior half, profit would have been about $20 million higher.
Analysts raised questions about Cochlear's grip on market share in China and other developing markets, which are important growth drivers. UBS healthcare analyst Andrew Goodsall noted intense price competition in China that pushed implant prices down, making China a key factor in the company's overall growth prospects.
According to UBS analyst Andrew Goodsall, competitor Advanced Bionics has significantly narrowed Cochlear's market lead by introducing new hearing devices. Goodsall described Advanced Bionics as a competent, aggressive rival that poses a meaningful competitor threat.
Cochlear said it plans to reintroduce the recalled CI500 series implant but did not give a specific date. CEO Chris Roberts said the company wants to do more work on the product before bringing it back to market.
Cochlear retained a provision of $44.6 million to cover any future recall‑related costs, including potential lawsuits and warranty claims. There were no recall costs recorded in the half‑year period ending 31 December 2012.
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