Cochlear boasts record half-year results

In what CEO Chris Roberts called "an absolutely fabulous result", bionic ear specialist Cochlear (ASX:COH) has posted record revenue, cochlear implant sales, and core earnings for the half year ended December 31, 2005.

The company's total revenue for the six months was $221.1 million, a 34 per cent increase over the previous corresponding period of $165.2 million.

Cochlear implant sales were also up 30 per cent, to 6518, compared to the half year ended December 31, 2004 (H1 F05). Revenue growth was boosted by Baha sales, following the acquisition of Entific Medical Systems in March 2005. Baha sales were $24.6 million, 30 per cent ahead of Entific Medical System's sales in H1 F05.

"Our core earnings, which is the key metric that we use for our net profit after tax, was up 43 per cent to $47.3 million," said Roberts.

The stronger results reflected the launch of Cochlear's Nucleus Freedom and the Baha acquisition, said Roberts. "The December half was the first half where we had a full six months of both the Nucleus Freedom new generation cochlear implant, and the first full six months of owning Entific Medical Systems," he said. "It's also on the back of the excellent clinical results that the surgeons and recipients have been getting with our products as well."

For example, Roberts said, Cochlear has not had a single failure due to moisture of its Nucleus Freedom speech processor.

Cochlear also saw revenue growth in the Americas region of 51 per cent in constant currency terms to US$71.8 million for the half year (H1 F05: US$47.4 million). This equates to a 46 per cent increase, in Australian dollars. The European region saw a 45 per cent increase from last year's half (35.4 million euros) to 51.6 million euros. The Asia-Pacific saw a 15 per cent increase in revenue to $32.2 million, up 18 per cent in constant currency terms.

"That was because we had a tough comparable [period] in terms of installed basic-type sales in the prior period. In terms of Cochlear implants in Asia-Pacific, they were well above average growth rates," said Roberts.

An independent entity, the Cochlear Foundation was established during the half to support longer-term programs promoting research and awareness of significant hearing impairment treatments. Cochlear made a $1.5 million donation to the foundation in the half year.

The company also increased net inventory by 15 per cent, to $56.7 million over June 30, 2005 levels, and anticipates inventory levels to increase over the next six months.

Roberts said that: "To continue to reward the shareholders we have increased our interim dividend by 29 per cent, from $0.35 up to $0.45 a share."

Cochlear has also paid down some of its debts, with a decrease of 7 per cent in net debt for the half year.

Increased R&D

Core research and development expenditure for Cochlear was $25.7 million for the half year, a 23 per cent increase on last year's half year ($20.9 million).

Roberts said that Cochlear was developing products in four key areas: cochlear implants (next generation chips beyond Nucleus Freedom), hybrid cochlear or electro-acoustic implants combining acoustic and electrical stimulation, bone conduction (a technology bought with Entific), and joint work with Phonak on an implantable cochlear acoustic stimulator.

"We're not short of products to develop but the four that we're prepared to talk about at this stage are acre those plaforms," said Roberts.

Outlook

In December, Cochlear issued a profit upgrade with core earnings guidance of at least $80 million for the full financial year, an increase of 37 per cent over the previous year. "We are quietly confident and that's why we upgraded the guidance we gave in December," said Roberts.

Asked if making Cochlear's products cheaper would increase the company's market, Roberts said that costs related to both the cost of ownership such as rehabilitation and audiology and the cost of the implant itself. "I don't think that halving our price today, would have a significant impact on the volume -- I think it's much more complicated than that," he said.

Cochlear's estimated that its world market share is more than 70 per cent.

The market responded well to Cochlear's results, with the company's shares trading at $50.31 at the time of writing, up $1.96 from $49.25 when trade opened today.