Cochlear Profit Results Up

Hearing implant systems manufacturer, Cochlear (ASX:COH) has announced a 19 percent increase in net profit at $130.5 million. The company has also announced a final dividend, which is 60 percent franked at $1.05.

• Net Profit after Tax (NPAT) of $155.2 million, up 19%.
• Successful launch of new cochlear implant system Cochlear™ Nucleus® 5 with second half CI unit sales up 20% and full year up 13% to 21,023 units
• Total revenue up 6% to $734.8 million, with sales up 12% in constant currency
• Due to 4% margin expansion EBIT up 20% to $220.5 million
• Free Cash Flow at $166 million up 50% on last year
• Final dividend of $1.05c per share (60% franked) bringing total dividends for the year to $2.00 per share, up 14% on the prior year.

Total Revenue

Total revenues were $734.8 million, up 6%. Sales, excluding FX contracts, were $696.2 million, down 2%. In constant currency (that is restating F09 at F10 FX rates), F10 sales were up 12% compared to F09.

Cochlear implant (CI) sales which included accessories and sound processor upgrades were $603.7 million, down 2%, up 13% in constant currency.
Cochlear implant unit sales increased 13% to 21,023 units, with second half unit sales up 20% reflecting the momentum of the launch of the Nucleus 5 which commenced in the first half. This momentum meant that the majority of implants sold in the second half of F10 were Nucleus 5.

Baha sales of $92.5 million grew 9% in constant currency (down 5% in reported currency).

Regional sales reflected growth in constant currency in all regions: Americas sales of $307.6 million were up 18% in constant currency (2% in reported currency) following the Cochlear Nucleus 5 product releases. EMEA (Europe, Middle East and Africa) sales of $291.5 million were up 7% in constant currency (down 9% in reported currency). The Cochlear Nucleus 5 launch drove double digit growth in the developed countries where it was released.

Tender sales were variable and overall were down on the prior year. Asia Pacific sales of $97.1 million were up 5% and 13% in constant currency. This included 500 units sold into China for the donation program.

Cochlear Expenses

Expenses grew less than sales growth. SG&A fell 1% to $227.4 million (up 7% in constant currency). Research and Development expense fell 2% to $94.9 million (up 1% in constant currency). This controlled approach to expenses combined with the sales growth led to margin expansion with EBIT/Total Revenue improving 4% to 30%.

Free Cash Flow

Cash from operating activities was up 22% to a record $179.5 million. Free cash flow of $166 million was up 50%. Trade receivables of $159.5 million grew 4% over the prior year and debtors days fell to 72 days (F09 73 days). Inventory fell 1% to $104.4 million.

New Headquarters

Cochlear’s new global headquarters building program is on track for completion by the end of the calendar year. On practical completion Macquarie University will pay Cochlear approximately $128 million and lease the building to Cochlear on commercial terms. Some $74.3 million had been spent on the building by 30th June 2010.

Capital management

Total net debt was $113.9 million at 30th June 2010. Excluding $72.8 million of net debt for the new global headquarters at Macquarie University net debt at 30th June 2010 was $41.1 million. This equates to a net gearing ratio of 9% (F09, 21%) defined as (net debt / net debt + equity).

Foreign Exchange

Foreign exchange movements can impact Cochlear’s financial results. In F10 the average Australian Dollar rates appreciated 16% against the USD and 15% against the Euro, compared to F09.

Gains from FX contracts were $38.6 million for the year. This offset some of the effects of an appreciating AUD, although if F09 rates had applied in F10, NPAT would have been $15.1 million more than reported (ie. $170.3 million).

Cochlear Dividends

A final partially franked dividend of $1.05 (franked to 60%) per share was declared and will be paid on 23rd September 2010 based on a record date of 2nd September 2010. The dividend for the year is $2.00, up 14%. The unfranked portion of the dividend has been declared Conduit Foreign Income. This is beneficial to our overseas shareholders as no withholding tax applies to the dividend.