Cochlear holds onto $10.4m of JobKeeper cash after repaying $25m

Cochlear’s boss Dig Howitt has defended the company’s decision to hold to $10.4m of JobKeeper money.

Cochlear CEO Dig Howitt says repaying JobKeeper is “appropriate”. Picture: James Croucher

Cochlear chief executive Dig Howitt has defended the company’s decision to hold onto $10.4m - or 31 per cent - of the federal government’s wage JobKeeper wage subsidy it received at the onset of the COVID-19 pandemic.

Mr Howitt said on Friday the hearing implant giant would repay almost $25m in JobKeeper money to the federal government, saying it was the “right thing to do” as Cochlear’s statutory net profit surged 50 per cent to $236.2m in the half year to December 31.

But Cochlear will not repay all of the JobKeeper money it received. Mr Howitt said the company would retain $10.4m in taxpayer support it received last financial year which he said was vital in retaining the company’s workforce when COVID-19 struck.

“The JobKeeper money that we are returning was from our accounts for this financial year. We received $10.4m from last financial year when our sales were off more than 50 per cent and we did use that to keep full employment,” Mr Howitt said.

“We had our manufacturing workforce working 50 per cent for three months and we were able to pay them their full wages through that time.

“People sort of forget what it was like in March and April, and the key issue was confidence - confidence in the outlook and confidence there would be revenue to keep people employed, which JobKeeper did. It was a very good program from the government.”

Mr Howitt said the JobKeeper repayment would also be treated as an expense in the company’s accounts but would be tax neutral.

“The income we receive from governments is classed as other income in the accounts, so it goes into that line item. When we reverse it we will put it through that same line item to keep it clean.

“The money we received we did spend on supporting people’s jobs. But we will obviously have other cash that we will use to repay. We are just working through the detail of that.

“The income from JobKeeper was taxed and treated as revenue and the return of it will be treated as an expense, so it’s tax neutral in a sense.’

Cochlear - which completed a $1.1bn capital raising last year, joins fast food chain owner Collins Foods, Domino’s, Nick Scali and Adairs in returning JobKeeper payments to the federal government.

Mr Howitt said the Cochlear was now expecting a 46-59 per cent boost in full year underlying net profit to $225-245m, and was “confident of the resilience of our hearing implant business”, particularly as global COVID-19 vaccination programs begin.

The upbeat forecast comes after Cochlear’s total revenue eased 2 per cent to $743.2m in the six months to December 31. Meanwhile, underlying net profit - which excludes $59.0m in patent litigation‐related tax and other benefits, $34.7m in innovation fund gains and $17.2m in COVID government assistance - dropped 6 per cent to $125.3m.

Including these $110.9m gains, statutory net profit rose 50 per cent to $236.2m.

Cochlear will also reinstate its dividend, with an interim payout of $1.15 per share, unfranked, on April 20. This compares with a dividend of $1.60, fully franked, in the previous corresponding period.

Investors lapped up the news, with Cochlear’s shares surging 8.4 per cent to $221.68 compared with a 1.3 per cent slump across the broader share market.

“We experienced consistent improvements in surgery rates across most markets since May as hospitals adapted to managing cochlear implant surgeries during COVID,” Mr Howitt said.

“Momentum since November has slowed across a few countries as a result of the current surge in COVID infection rates. The deployment of COVID vaccines, and the rapid return to surgeries that followed the March/Aprilshutdowns, gives ussome confidence that any further surgery deferrals could also recover quickly.”

Sales of cochlear implant units declined 8 per cent to 17,377 after emerging markets slid 30 per cent. But developed markets reported a 5 per cent in Cochlear implant sales.

“Western Europe experienced a small decline in units for the half. Momentum grew rapidly until the end of October with a pullback again in November/December in response to increasing COVID infections and new government lock downs across many countries,” Mr Howitt said.