Cochlear's many shades of grey

Cochlear may have had a tough year financially, but the company's outlook tells a more positive story.

Earlier today, the bionic ear maker posted a net profit after tax of just $56.8 million for fiscal 2012. This compares with a profit of a whopping $180.1 million reported for 2011. It's worth noting here that 2011 was a record year for Cochlear, with the company recording a 16 per cent rise in profit on the previous year.

In contrast, 2012 can easily be labelled a disaster. This was largely due to a product recall on its Nucleus CI500 series implants last September. The recall ended up costing the company $138.8 million before tax, and $101.3 million in after-tax costs in fiscal 2012.

But despite the challenging year, Cochlear remains positive for the future.

In the release, the bionic ear maker said that it was in a good place to take advantage of global trends such as bilateral implantation and an ever-increasing ageing population, and would enter fiscal 2013 "a stronger, improved company with a pipeline of products that will continue to drive growth".

Though this is indeed as broad a statement as could be made, there's truth in it.

In fact, as life expectancy continues to rise and fertility rates decline, Cochlear is in a prime position to take advantage of age-related hearing loss.

Speaking after the release of the results, chief executive Chris Roberts said that the ageing population is a major driver of growth for the company. In developed countries, approximately 30 per cent of all new recipients of Cochlear implants are aged 65 and over. This figure is likely to increase over the coming years as populations in developed countries such as Australia, the United States and Germany continue to age.

Unfortunately, Cochlear still needs to deal with the reputational damage caused by the recall of the Nucleus CI500. To its credit, the bionic ear maker dealt with the recall in a swift and ordered manner. Straight away, they had a functioning substitute in place, in the form of the CI24RE implant.

But the details in the company's latest update on the implant recall can be described as meagre at best.

Roberts outlined in the update that the proportion of failed devices reported as of July was 4.2 per cent and that "newly reported failures each month continued falling” throughout the year.

What was notably absent was whether or not there had been any progress made in fixing the malfunction in the implant.

Cochlear identified what the problem was with the implants last December. So questions must now be asked as to why it's taking so long to resolve the issue and why an estimated timeframe can't be given.

Without a full explanation, investors will continue to be nervous about the next generation of products from the implant maker. Cochlear needs to face this head on and look to reassure investors with a more definitive update on product development. We may then see a return to record results for the bionic ear maker.