Cochlear doubles profit

Cochlear's success in the future relies on successful sales of the Nucleus 6 implant.

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published August 7, 2013 6:19 am AEST

The world's largest producer of hearing implants, Cochlear (ASX: COH), released its 2012-13 profit results on Tuesday, reporting sharply higher profit as forecast in early June.

The company generated net profit after tax (NPAT) of $132.6 million, up 133% from the previous financial year and within guidance of $130 to $135 million. Unit sales were up 16%, however revenue from sales was up only 2%, indicating a reduction in margins. Cochlear reported weaker sales in Europe and the Americas but sharply stronger sales in Asia Pacific, largely due to a sizable Chinese tender sale.

In June, Cochlear warned shareholders that weaker sales in the second half of the financial year were expected ahead of the launch of its new Nucleus 6 sound processor. The new processor has recently received regulatory approval in Europe and approval in other major markets is expected later in 2013.

The company did not give a forecast for 2014, instead noting that the "timing of regulatory approvals and effectiveness of the Nucleus 6 launch execution will be important for the 2014 financial year result".

In more upbeat news for investors, Cochlear announced a final dividend of $1.27 per share, franked at 30%. This equates to a yield of around 4.3%, franked at 35%.

The current share price represents a buying opportunity for long term investors, with the stock dropping around 5% last week due to the release of a cheaper Chinese product which spooked investors. The Chinese product is largely targeting a different market to Cochlear, who operate a premium product at a premium price point, and Cochlear are not expecting to be adversely affected by the release.

Foolish takeaway

Cochlear holds a dominant position in the global hearing aid market, controlling around two-thirds of the market. The imminent release of a new processor is expected to boost revenue and profit for Cochlear in the next financial year, however much depends on regulatory approval in the Americas and Asia Pacific. Long-term investors may view the current price weakness as an opportunity to buy a quality company at a reasonable price.

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Motley Fool contributor Andrew Mudie owns shares in Cochlear.

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