Cochlear Limited · ASX:COH
Cochlear — H1 F08 Earnings Presentation
31 slides from Cochlear's earnings presentation, Feb 12, 2008
Slide 1: Results for the half year ended 31 December 2007
Cochlear Limited Results for the half year ended 31 December 2007 Chris Roberts Chief Executive Officer Neville Mitchell Chief Financial Officer
Slide 2: Cochlear – Overview
Cochlear – Overview • Medical device company (~26yr): global leader in implantable devices for the hearing impaired • Huge unmet clinical need • Cochlear advancing a range of devices: cochlear implants, electro-acoustic implants (Hybrids), direct acoustic cochlear stimulator (DACS) and bone conducti
Slide 3: Record Financial Results for H1 F08
Record Financial Results for H1 F08 H1 F08 H1 F07 $ millions $ millions +/(-)% Cochlear implants 247.5 240.3 ↑ 3% Bone Anchored (Baha) 36.7 30.4 ↑ 21% FX Contracts 13.8 5.4 ↑ 156% Revenue 298.0 276.1 ↑ 8% EBIT 84.7 73.6 ↑ 15% Net Profit After Tax 57.1 48.8 ↑ 17% Core Earnings* 61.9 52.8 ↑ 17% Core E
Slide 4: Continuing Sales Growth in Constant Currency terms
Continuing Sales Growth in Constant 300 Currency* terms Constant Currency* Sales A$'millions 250 • Reported sales of $284.2 million is 5% above H1F07 sales of 200 $270.7 million 150 • Restating H1F07 sales at H1F08 FX rates shows 100 constant currency sales growth of 15% 50 0 4 4 5 5 6 6 7 7 8 F0 F0
Slide 5: Continuing Cochlear Implant Unit Sales Growth
Continuing Cochlear Implant (CI) 9,000 Unit Sales Growth 8,000 7,000 6,000 H1 F08 CI unit sales of CI Unit Sales 5,000 8,968 units, 4,000 up 13% on H1 F07 3,000 2,000 1,000 - H1F01 H2F01 H1F02 H2F02 H1F03 H2F03 H1F04 H2F04 H1F05 H2F05 H1F06 H2F06 H1F07 H2F07 H1F08
Slide 6: Ongoing Sales Growth in Bone Anchored Solutions
Ongoing Sales Growth in Bone Anchored Solutions (BAS) Sales in Constant Currency* 40 • BAS acquired 3/05 35 • Reported sales for H1 F08 up 21% over H1 F07 30 • Constant currency* sales up 29% over H1 F07 CC A$'millions 25 • Intenso with 10X force 20 output expanding indications, for example: 15 ņ Mi
Slide 7: H1 F08 Sales Revenue Regional Split and Constant Currency Growth
H1 F08 Sales Revenue Regional Split (AUD) and Constant Currency (cc) Growth* Americas Europe 42% 43% cc growth ↑8% cc growth ↑24% Asia-Pacific 15% cc growth ↑8% * Constant currency: prior periods restated at H1F08 FX rates
Slide 8: Europe: Half Yearly Sales in Constant Currency
Europe: Half Yearly Sales in Constant Currency* (at F08 FX Rates) • Sales growth H1F08 over H1F07, in constant currency was 24% 120 • Over 70% of European sales through direct operations, with Constant Currency Sales A$'millions 100 distributor markets also growing • MP3000 trial, 252 patients now 8
Slide 9: Asia Pacific: Half Yearly Sales in Constant Currency
Asia Pacific: Half Yearly Sales in Constant Currency* (at F08 FX Rates) • Sales growth H1F08 over H1F07, 45 in constant currency was 8% • China donation - 574 units 40 shipped since start of program Constant Currency* Sales A$'millions 35 ņ Cochlear partnering with various groups (e.g. RIDBC, 30 Uni
Slide 10: Americas: Half Year Sales in Constant Currency
Americas: Half Year Sales in Constant Currency* (at F08 FX Rates) 120 100 • Sales growth H1F08 over H1F07, Constant Currency* Sales A$'millions in constant currency was 8% 80 • Q1 was flat, Q2 as per forecast • Freedom™ for N24 sales down on H1F07 (∼40% of USA 60 recipients now upgraded) • No Hybrid
Slide 11: Americas Growth Initiatives Include a Focus on Evolving the Business Model
Americas Growth Initiatives Include a Focus on Evolving the Business Model • Expansion of consumer advocacy network Building awareness (an extra ~200 volunteers during H1F08) and a stronger • Recruitment of Territory Outreach Specialists direct channel to (n=12) mobilising referral channel recipient
Slide 12: Bilateral Cochlear Implantation a Driver of Growth
Bilateral Cochlear Implantation a Driver of Growth • Bilateral cochlear implantation provides binaural hearing advantages (e.g. sound localisation) • UK: NICE appraisal consultation documentation recommends simultaneous bilateral cochlear implantation for severe and profound deafness in pre-lingual
Slide 13: Software Release: Custom Sound 2.0
Software Release: Custom Sound™ 2.0 Programming software Custom Sound 2.0 launching now, includes: • Hearing Mentor™- expert guidance to fine tune maps with click of a button everyday noise focus music • Freedom for N22 recipients, honoring our lifetime commitment SmartSound 2: new generation • Impl
Slide 14: Freedom Speech Processor Upgrades
Freedom Speech Processor Upgrades • ∼35% of 36,000 N24 implant recipients upgraded to Freedom for N24 • Freedom for N22 launching in H2F08 (18,000 potential recipients) • Clinical data shows significant improvement in hearing performance, for example for the N22 recipients: CNC Word Test in Quiet 10
Slide 15: Electro-Acoustic Stimulation (EAS)
Electro-Acoustic Stimulation (EAS) for Patients with Residual Hearing (Hybrid S and Hybrid L) • Hybrid S: n= 87 pts in USA trial (enrolment completed H2 F07) • Hybrid L: n=45 pts (Europe & Australia) • EAS workshop in Hannover Dec 07 – Hybrid S: 91% pts had hearing preserved post op (70% 30dB loss
Slide 16: Maximising Hearing Performance Through Scala Tympani Electrode Insertion
Maximising Hearing Performance Through Scala Tympani Electrode Insertion • Recent publications, Aschendorff et al Uni Freiburg and Skinner et al (Wash U - St Louis) confirm importance of scala tympani insertion of electrode for maximising hearing performance. (Word scores negatively correlate with n
Slide 17: Cochlear Summary
Cochlear Summary • Record financial results for H1 F08 – Revenues $298 million ↑ 8% – Core Earnings $61.9 million ↑ 17% • Impact of strengthening AUD managed well, with constant currency sales up 15%, underpinning EBIT growth of 15% • Ongoing progress in building internal capability, R&D and capabil
Slide 18: Financial Results
Financial Results Neville Mitchell Chief Financial Officer
Slide 19: H1 F08 Financial Performance
H1 F08 Financial Performance H1 H1 F08 F07 $ millions $ millions +/(-)% Total Revenue 298.0 276.1 ↑ 8% Reported NPAT 57.1 48.8 ↑ 17% Core Earnings 61.9 52.8 ↑ 17% Dividends Interim Dividend 70c 55c ↑ 27% Record Date 29 February 2008 Payable Date 18 March 2008 Franking 100% 100%
Slide 20: H1 F08 Core Earnings Calculation
H1 F08 Core Earnings Calculation H1 H1 F08 F07 $ millions $ millions NPAT 57.1 48.8 Adjustment items (after tax) • R&D 0.6 0.6 • Acquired intangible amortisation 1.4 1.2 • Share based compensation 2.8 2.2 Core earnings 61.9 52.8
Slide 21: H1 F07 – H1 F08 Core Earnings
H1 F07 – H1 F08 Core Earnings 100.0 Reconciliation in Constant Currency 36.9 (14.9) 90.0 80.0 (0.6) (6.6) 70.0 (2.6) (4.9) 1.8 61.9 60.0 52.8 50.0 40.0 30.0 20.0 10.0 0.0 5 2 .8 3 6 .9 -1 4 .9 -0 6 . -6 .6 -2 .6 -4 .9 1 .8 6 1 .9 H1 F'07 Core Gross Margin Sales & Adminstration R&D costs Interest Net
Slide 22: Research & Development (R&D) Expense
Research & Development (R&D) Expense H1 F08 H1 F07 $ millions $ millions R&D Expense (Incl. Minority share) 39.0 34.7 Capitalised Development - (0.4) Amortised Development 0.8 1.3 39.8 35.6 R&D Expense (excluding minority interest) as % of total revenue 13.1% 11.8%
Slide 23: Cash Generated
Cash Generated H1 F08 H1 F07 $ millions $ millions Net cash provided by operating activities before 70.1 57.5 changes in assets and liabilities Changes in assets & liabilities (Increase) in trade debtors (20.0) (16.2) (Increase) in inventory (7.6) (9.1) (Increase) in net tax assets (4.5) (3.4) Other
Slide 24: H1 F08 Working Capital: Inventory
H1 F08 Working Capital Inventory (Days Stock Held) 120.0 250 • H1 F08 Inventory steady at 214 days, 100.0 200 $99.5m Inventory ($ millions) Days stock held 80.0 • Inventory up 8% 150 60.0 • Policy of 8 week finished goods plus 100 40.0 strategic stocks 50 20.0 0.0 - Jun-01 Jun-02 Jun-03 Jun-04 Jun-0
Slide 25: H1 F08 Working Capital: Debtors
H1 F08 Working Capital Debtors (Days Outstanding) • Increase in debtor days to 85 (June 07, 79) $160.0 90 • Specific countries, e.g. Net Receivables ($ millions) $140.0 80 $120.0 70 Southern $100.0 60 Mediterranean longer 50 Days $80.0 40 $60.0 30 $40.0 20 $20.0 10 $0.0 0 Jun-01 Jun-02 Jun-03 Jun-04
Slide 26: Cochlear Gearing
Cochlear Gearing 31 Dec 07 31 Dec 06 $ millions $ millions Short term debt 161.4 96.7 Long term debt 39.0 104.5 Debt 200.4 201.2 Cash 62.0 69.5 Net debt 138.4 131.7 Average interest rate 5.5% 3.8% Net gearing ratio 32% 36%
Slide 27: Cochlear Summary
Cochlear Summary • Record financial results for H1 F08 – Revenues $298 million ↑ 8% – Core Earnings $61.9 million ↑ 17% • Impact of strengthening AUD managed well, with constant currency sales up 15%, underpinning EBIT growth of 15% • Ongoing progress in building internal capability, R&D and capabil
Slide 28: Thank you. Any questions?
Thank you Any questions?
Slide 29: Foreign Exchange
Foreign Exchange Rates applied F08 vs F07 H1 F08 H1 F07 Average rates (used for translating P&L) USD 0.87 0.76 Euro 0.62 0.60 JPY 101.2 90.3 Contract rates (used to bring FX to Aust) USD 0.78 0.74 Euro 0.59 0.57 JPY 83.0 65.9
Slide 30: Foreign Exchange Rates Going Forward
Foreign Exchange Rates Going Forward Average Contract Rates USD Euro JPY SEK Weighted average – exchange rates going forward 0.80 0.59 83.84 5.29 • Total mark to market FX gain at 31 December 2007: $13.1m
Slide 31: H1 F08 Core Earnings Reconciliation
H1 F08 Core Earnings Reconciliation H1 F08 H1 F07 $m $m Earnings before interest and tax 84.7 73.6 Core earnings adjustments pre-tax • R&D 0.8 0.9 • Acquired intangible amortisation 1.4 1.2 • Share based compensation 2.9 2.2 Core EBIT 89.8 77.9 Net interest (5.0) (2.7) Core tax expense (22.9) (23.9)