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Why Cochlear Limited (COH) shares were leading the ASX 200 today

The Cochlear Limited (ASX:COH) share price was trading 10% higher at lunchtime following the release of its half-year financial report.

For context, the broader Australian share market or S&P/ASX 200 (ASX: XJO) was trading at 7118.3, up 0.06%.

About Cochlear Ltd

Cochlear is one of the world’s leading medical businesses. Cochlear designs, manufactures and supplies the Nucleus cochlear implant, the Hybrid electro-acoustic implant and the Baha bone conduction implant.

Graeme Clark invented the first device in 1982, allowing first-user Graham Carrick to hear for the first time for 17 years. Some of the most recent modifications allow users to play sound from their phone directly into their implant.

In the Rask video above, I explain the difference between ‘underlying’ results and ‘statutory’ results. Knowing the difference between these two numbers is essential to understanding most Australian financial reports. Take one of our free finance courses by clicking here.

Cochlear’s Key Results

This period Last period Change
Revenue 777.6 711.9 9.23%
Profit 157.7 128.6 22.63%
Cash flow 126.8 164.1 -22.73%
Dividends (dollars) 1.60 1.55 3.23%

Source: Cochlear Ltd announcements; author calculations, AUD millions unless otherwise stated.

As can be seen above, the company’s revenue came in at $777.6 million, up $65.7 million over the prior corresponding period in 2019.

Fueling Cochlear’s increase in revenue was a 13% jump in the number of Cochlear implant units, which rose from 16,740 units last year to 18,894 in this half-year reporting period.

The rise in installed units pushed revenue from implants up 14% and Services revenue up 9%. The Services business generates revenue when, for example, a patient comes back for a sound processor upgrade or improvement to their device. The only laggard for sales came from the Acoustics line (e.g. bone conduction and acoustic implants), which reported a 9% fall in revenue.

Cochlear’s profit was $157.7 million, up $29.1 million, and on the cash flow statement, which is an important financial statement since it represents the underlying health of a business, operating cash flow was $126.8 million, down $37.3 million.

Dividends declared by the company stood at $1.60, up 3.23% year over year. The dividend is fully franked.

“The business delivered a 9% increase in sales revenue (5% in CC) with underlying net profit in line with HY19. The highlight was the strong growth in cochlear implant revenue with lower than expected Acoustics sales,” Cochlear CEO Dig Howitt said. “We have continued to invest in product development and market growth initiatives to drive long-term market growth.”

“The balance sheet is strong with cash flow generation sufficient to fund investing activities, capital expenditure and growing dividends to shareholders whilst maintaining conservative gearing levels.” – Howitt

Cochlear spent some $49.8 million in capital expenditure during the half, up from the $36 million spent in the same period last year.

Outlook

Looking toward the future, Cochlear expects to deliver an underlying profit result of between $270 million and $290 million, which would represent a 2%-to-9% increase on last year’s result.

Earlier this month, the company downgraded its guidance from $290 million – $300 million due to the issues associated with the Coronavirus.

“While we are delivering strong results from the cochlear implant business, profit growth will be lower than our original expectations due to the impact of the coronavirus on sales in Greater China,” Howitt added.

Cochlear shares were last seen trading at $249.19, giving the company a market capitalisation more than $10 billion.

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