Cochlear’s growth outlook disappoints

Digital savvy seniors and an expanding body of research on the benefits of hearing to cognition underpin Cochlear’s huge long term growth trajectory, chief executive Dig Howitt says.

Cochlear CEO Dig Howitt.

Digital savvy seniors and an expanding body of research on the benefits of hearing to cognition underpin Cochlear’s huge long term growth trajectory, chief executive Dig Howitt sayas as he delivered a set of results which undershot expectations.

The annual profit and guidance miss was only modest, however, and Mr Howitt dismissed the company’s share price fall as the market getting ahead of itself.

Cochlear shares fell 6.8 per cent to be trading at $314.95 by early afternoon, however remain more than 25 per cent up on the same time last year.

Mr Howitt said the company has a “huge” growth trajectory ahead of it and continues to deliver on its revenue and margin targets of around 10 per cent revenue growth per year and a net profit margin of 18 per cent.

“Hearing loss is way under-treated, there is enormous potential for cochlear implants to change people’s lives through better hearing, particularly for adults and seniors, and many of them are not referred on,” Mr Howitt said.

“Our strategy is about changing that – raising awareness, having people referred, making sure health systems have capacity and funding to meet that demand.”

Mr Howitt said the engagement of older people with social media and other digital channels provided a pathway to raise awareness, which had been boosted for some time by the increasing digital-savviness of that cohort.

And the clinical data on the benefits of good hearing to cognition, in not only slowing decline but even improving cognition, continued to grow, Mr Howitt said.

“There’s plenty of evidence out there already, but there are more studies going on, and more studies that are aimed at showing that treating hearing loss either delays a cognitive decline or improves cognition,” he said.

“There’s a study out of the University of Melbourne which will be published later this year, which shows that older people who’d had a cochlear implant for four and a half years, their working memory and executive function actually improved over the four and a half years they had the implant.”

The engagement of older people with social media and other digital channels provided a pathway to raise awareness of Cochlear’s products.

Mr Howitt said Cochlear was monitoring whether access to clinicians for assessment, and surgery wait times, would become a bottleneck in future, however at the moment they were not a hindrance to growth.

“As demand for cochlear implants grows, we are seeing some signs of growing waiting lists for audiological evaluation and/or surgery in some of our key countries,’’ the company said.

“Audiological capacity constraints are being increasingly addressed by streamlining post-operative appointments and increasing the adoption of remote care tools, which can materially improve clinical capacity in many practices.

“Surgical capacity has been a constraint in some hospitals over the past few months, and we continue to monitor surgical waiting lists.”

Cochlear’s full year results showed sales revenue rose 15 per cent to $2.26bn, with net profit up 19 per cent to $356.8m from a year earlier and underlying profit up 27 per cent to $387m.

The underlying net profit margin was 17 per cent.

Cochlear forecast an uplift in underlying net profit of $410m-$430m for the current financial year, a 6-11 per cent increase, however this was seen as lacklustre by analysts.

Wilsons Advisory analysts said the while the net profit result for FY24 was just shy of its expectations, the guidance for the current year missed by 6 per cent.

ECP Asset Management partner Andrew Dale said the profit was a “solid result”’ but “might fall short of market expectations and the guidance appears relatively soft”.

“We think the real focus for this stock is the longer-term opportunities to sell more into the very under-penetrated elderly market where growth opportunities are endless given the occurrence of hearing related problems,’’ Mr Dale said.

“Cochlear is one of the highest quality medical device companies with the best long-term runway for growth in the market.”

In the cochlear implants division, sales revenue increased 18 per cent to $1.32bn and units increased 9 per cent to 48,040.

In developed markets, unit numbers rose 11 per cent and 5 per cent in emerging markets.

In emerging markets there was strong growth in China, Brazil and Central/Eastern Europe, however the election in India disrupted that market, the company said.

Services revenue increased 15 per cent to $672.3m, with Cochlear saying there was continuing solid uptake of the new sound processor across the developed markets.

“Emerging market sound processor upgrade penetration is continuing to improve in a number of markets as funding improves,” the company said.

Acoustics revenue rose 7 per cent to $256.3m.

The group will pay an 80 per cent franked final dividend of $2.10 a share on October 10, taking its full year payout to $4.10 a share. That’s up 24 per cent from last year.

Originally published as Cochlear’s growth outlook disappoints