Sounding good

1H23 RESULT

Need To Know

• Result in line with consensus, FY23 guidance maintained (NPAT $290-$305m)
• Volume growth returning post Covid
• Progressive buyback announced, 155cps dividend 

COH’s results were in-line with consensus, driven by strong underlying demand growth. Revenue grew 9% (7%cc) to ~$893m, however underlying NPAT fell 10% (6%cc) to ~$142m reflecting an increase in cloud-computing related expenses, new product launch costs and the impact of the weighting in operating expenses to the second half. COH declared a flat interim dividend of 155cps, and a progressive buyback to reduce the cash balance to ~$200m over several years, with current net cash at $505m. 

Volume growth. Cochlear implant units increased 14% to 21,249 driven by strong demand for the Nucleus 8 Sound Processor (which was launched in the 2H) and continuing recovery from Covid surgery delays across emerging markets. Developed markets grew 10%, and emerging markets grew 20%, with the majority of countries seeing volumes above pre Covid levels. 

Services revenue increased just 1% (0%cc) to ~$259m, with growth slowing due to the anticipation of patients upgrading to the Nucleus 8 product, and the rollout commencing only late in the half. It also follows a strong 1H22 result where revenues were up 21%cc.

Acoustics revenue increased 20% (17%cc) to a record ~$121m with solid demand across all regions as the business benefits from a quality product offering and continued surgery demand recovery. The Osia 2 system continues to gain momentum and the Baha 6 Max continues to generate demand across all regions.

Gross margins were maintained at 75%, aligned with the longer-term target. Operating expenses rose reflecting growing investment in R&D and market growth activities. Cloud computing-related investments increased in-line with guidance, with continued elevated investment expected. Underlying NPAT margin of ~16% was slightly below longer-term targets of 18%.

The balance sheet remains strong with cash flow generation supporting the dividend and buyback program announcement. The dividend of 155cps represents a 72% payout ratio, in line with prior years and target of ~70%.

Investment View

Demand continues to be robust for COH’s products and guidance for FY23 was maintained. Management remains confident in the growth of the market with the significant unmet clinical need for implants to continue to underpin long-term sustainable growth for the business. Post Covid demand continues to recover, and the product rollout underpins future growth opportunities. We retain our buy recommendation.

Figure 1: Strong underlying unit demand growth driving a solid result