Cochlear Limited Posts 7% Profit Rise, Boosts Dividend Amid Solid Implant Growth

Strong Financial Performance Amid Market Growth

Cochlear Limited has delivered a solid half-year result for the six months ending 31 December 2024, reporting a 7% increase in underlying net profit to $205.5 million on sales revenue of $1.17 billion, up 5% from the previous corresponding period. The company’s earnings before interest and taxes (EBIT) rose 8% to $274.6 million, reflecting operational efficiencies and sustained demand for its implantable hearing devices.

The company’s gross margin held steady at 75%, aligning with its long-term target, despite increased investments in research and development (R&D) and market growth initiatives. Operating expenses grew 10%, driven by expanded R&D spending and marketing efforts to support product innovation and market penetration.

Implant Sales Drive Revenue Growth

Cochlear implant sales were a key growth driver, with unit shipments increasing 5% to 25,390 and sales revenue climbing 12% to $724.5 million. This outpaced unit growth due to a favourable product and country mix, particularly in emerging markets where higher-priced private pay units gained traction. Developed markets saw a 6% unit increase, led by strong growth in the US and Asia Pacific regions, while Western Europe experienced more modest gains.

The adult and senior segments continue to expand robustly, growing approximately 10%, while the children’s segment saw a slight decline following a period of rapid growth. The company noted increasing adult referral rates and some capacity constraints in audiological evaluation and surgery, which it is addressing through remote care tools and streamlined post-operative processes.

Mixed Performance in Services and Acoustics

Services revenue, which includes sound processor upgrades, declined 13% to $305 million, following a strong uptake of the Cochlear™ Nucleus® 8 sound processor in the prior year. The slowdown is attributed to high satisfaction with existing devices and cost-of-living pressures delaying upgrades, especially in the US market.

Conversely, acoustics revenue surged 21% to $140.4 million, propelled by the growing adoption of the Cochlear™ Osia® Implant. The US market saw over 50% unit growth, supported by new product introductions and market share gains, alongside geographic expansion into countries such as France and Italy.

Balance Sheet Strength and Shareholder Returns

Cochlear’s balance sheet remains robust with net cash of $383 million, despite a $130.5 million decrease from June 2024, reflecting ongoing capital investments and share buybacks. The company repurchased $19 million worth of shares during the half-year and declared an interim dividend of $2.15 per share, an 8% increase over the prior year, representing a payout ratio of 68% of underlying net profit.

Outlook and Strategic Investments

Looking ahead to FY25, Cochlear expects to help over 50,000 people with cochlear or acoustic implants and anticipates underlying net profit at the lower end of its $410-430 million guidance range. The company forecasts around 10% growth in cochlear implant units, supported by solid market conditions and the upcoming launch of its next-generation cochlear implant, expected mid-2025 pending regulatory approvals.

Services revenue is expected to decline modestly, reflecting the slower upgrade cycle, while acoustics growth remains strong. Cochlear plans to continue investing approximately 12% of sales revenue in R&D and has increased its cloud-related technology investment to $40 million for FY25, part of a broader $250 million program to upgrade core business systems and manufacturing capabilities.

Capital expenditure is projected between $110-130 million, focusing on capacity expansion in Australia and Malaysia. The company maintains a dividend policy targeting a 70% payout of underlying net profit and has an on-market share buyback program authorized up to $75 million.