Cochlear says coronavirus will hit full-year profit growth

The hearing implant maker has been forced to factor in a significant decline in second-half sales to China.

Cochlear says the coronavirus outbreak will significantly affect sales to China in the short term. Picture: AFP

Listed hearing implant maker, Cochlear, is bracing for a profit hit of up to $30m as it warns the impacts of the deadly coronavirus are spreading from outside mainland China to Hong Kong and Taiwan.

Cochlear chief executive Dig Howitt says it is difficult to determine how long the epidemic - which has killed more than 900 people and infected thousands more - will last, including if the virus will spread deeper into Western nations.

The coronavirus outbreak has shut down China - with most people, including Cochlear’s staff, urged to work from home - while travel to and from, as well as within the country, has been heavily restricted to limit the spread of the virus.

“At this stage we just don’t know how long this will go on for. We are certainly not seeing any impact (in Western nations) but it’s very hard to speculate,” Mr Howitt said.

“Given the (China) travel restrictions that are in place - they’re obviously in place to limit the spread.”

However, those travel restrictions have hit Cochlear’s operations in Taiwan - despite having a similar number of coronavirus cases to Australia - and Hong Kong.

Mr Howitt said hospitals in Hong Kong and Taiwan had joined mainland China in deferring elective surgeries, including Cochlear implants.

“Hong Kong public hospitals have stopped CI (Cochlear implant) surgery at the moment. Taiwan is certainly deferring surgeries at the moment and part of our business in Hong Kong and Taiwan is medical tourism from mainland China and with the travel restrictions that are in place, those surgeries are clearly not going ahead.”

Cochlear is expecting to deliver full year profit of $270-290m, compared with previous guidance of $290-300m. This represents an increase of 2-9 per cent compared with FY18.

The company’s shares fell more than 2.8 per cent to $237.75 in early afternoon trade on Wednesday.

The outbreak comes ahead of Cochlear’s biggest month of hearing implant sales in China, which is normally in March when the country along with other nations marks World Hearing Day.

Mr Howitt said he would not embark on any cost management issues in Greater China - a top five market for Cochlear - to protect the company’s profit.

“We are not taking any cost management initiatives in China right now. It makes sense to keep all of our people employed and trying to generate new demand, and for the foreseeable future, that’s what we’ll do. I can’t speculate beyond that if this runs on for a very long period what we would do.”

Mr Howitt said during the SARS epidemic in 2002, Cochlear experienced a “material reduction in sales in China over a three month period”. He said this was followed by a sales uplift as the backlog of delayed surgeries cleared, and was expecting a similar pattern to emerge during the coronavirus outbreak.

“We are confident that many of the delayed surgeries will progress once hospitals resume normal operations. No allowance has been made for any impact on sales outside Greater China.”

But Mr Howitt said it was difficult to determine how long the recovery would take.

“Normally there is excess capacity. What’s a little unclear though is quite a lot of elective surgery has been delayed, so it won’t just be catching up on Cochlear implants when things resume to normal.

“We certainly expect to see when things return to normal a rebound and a catchup but what’s very hard to know now is over what period that catch up will take.”

Cochlear announced in July 2017 a $50m investment in a state-of-the-art factory in Chengdu, Sichuan province to make hearing implants and sound processors for China and emerging markets. The factory has increased Cochlear’s production capacity by about 50 per cent.

“Cochlear has been building its presence in China for more than 20 years and this investment recognises the importance of our business in China and will support the future growth of our emerging markets business,” Mr Howitt said at the time.

On Tuesday, He said Cochlear remained committed to its China expansion and operations.

“Cochlear continues to invest in expanding its market presence and developing a manufacturing footprint in China as we believe in the long-term potential of the market. The Chinese cochlear implant market is important now and into the future and we remain committed to maintaining a leading position,” Mr Howitt said.

Cochlear will release its interim results on February 18.