Cochlear Limited posted a 5% increase in sales revenue to $1.17 billion for the half year ended December 2024, driven by strong cochlear and acoustic implant growth despite a decline in Services revenue. The company anticipates FY25 underlying net profit at the lower end of guidance amid increased cloud investments and prepares for new product launches.
- Sales revenue up 5% to $1,170 million, with cochlear implant revenue rising 13% in constant currency
- Statutory net profit increased 7% to $205 million; underlying net profit margin steady at 18%
- Services revenue declined 12% in constant currency, offset by 22% growth in acoustics
- Interim dividend increased 8% to $2.15 per share, payout ratio at 68%
- Next-generation cochlear implant and off-the-ear sound processor expected mid-2025 launch
Strong Implant Sales Drive Revenue Growth
Cochlear Limited has delivered a solid first half for the 2025 financial year, reporting a 5% increase in sales revenue to $1.17 billion. This growth was primarily fueled by a 13% rise in cochlear implant revenue on a constant currency basis, alongside a robust 22% increase in acoustics revenue. The company sold 25,390 cochlear implant units, a 5% increase over the prior corresponding period, with notable strength in developed markets such as the US and Asia Pacific.
While adult and senior segments saw approximately 10% growth, the children’s segment experienced a modest decline, reflecting a normalization after strong double-digit growth in the previous half. Emerging markets showed slower unit growth, impacted by lower tender volumes but buoyed by higher-priced private pay segments in China and India.
Services Revenue Decline and Margin Stability
Services revenue, which includes sound processor upgrades, declined 12% in constant currency, following a 29% surge in the first half of 2024. This slowdown is attributed to a deceleration in uptake of the Cochlear™ Nucleus®8 sound processor and cost-of-living pressures delaying replacements, particularly in the US. Despite this, Cochlear maintained an underlying net profit margin of 18%, consistent with its longer-term target, even after factoring in increased cloud computing investments.
Operating expenses rose 10%, driven by expanded R&D and market growth activities, including investments in new product development and market access initiatives. The company’s gross margin held steady at 75%, underscoring operational efficiency amid these investments.
Financial Position and Shareholder Returns
Cochlear’s balance sheet remains robust with net cash of $383 million, despite a $130 million reduction from June 2024, largely due to inventory build-up ahead of upcoming product launches. Capital expenditure of $44 million focused on capacity expansions in Australia and Malaysia. The company declared an interim dividend of $2.15 per share, an 8% increase year-on-year, reflecting confidence in cash flow generation and a payout ratio of 68% of underlying net profit.
Looking Ahead: New Products and Guidance
Looking forward, Cochlear expects underlying net profit for FY25 to be at the lower end of its $410-430 million guidance range. This outlook incorporates a continued decline in Services revenue and higher cloud-related investments, now forecasted at $40 million for FY25. The company is preparing for the commercial release of its next-generation cochlear implant and a new off-the-ear sound processor, the Nucleus® Kanso® 3, anticipated from mid-2025 pending regulatory approvals.
Acoustics growth is expected to remain strong, supported by geographic expansion of the Osia® implant system. Cochlear also plans to continue investing approximately 12% of sales revenue into R&D to sustain long-term growth and competitive positioning. The company’s ongoing operating model redesign and core system upgrades have expanded in scope, with total investments now expected to reach $250 million.
Overall, Cochlear’s half-year results highlight a company balancing solid implant sales growth with strategic investments and evolving market dynamics, setting the stage for a pivotal year ahead.
Bottom Line?
Cochlear’s solid implant growth and upcoming product launches promise momentum, but Services revenue softness and rising investments warrant close investor scrutiny.
Questions in the middle?
- How will the new off-the-ear sound processor impact Services revenue starting FY26?
- What are the risks and timelines associated with regulatory approvals for the next-generation cochlear implant?
- How will increased cloud-related investments affect profitability and operational efficiency beyond FY25?