Cochlear withdraws guidance in response to COVID-19

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Australian company Cochlear has withdrawn its earnings guidance for financial year 2020 in response to the spread of COVID-19 after confirmation an increasing number of health systems are deferring elective surgery.

In February, the company reported a positive result for the six months to the end of December 2019, saying it expected to report an underlying net profit for the full year of $270-$290 million. This represented a 2-9 per cent increase on the previous year.

However, in a statement yesterday, CEO and President Dig Howitt said, “Since the update we provided on 18 February, we have seen COVID-19 spread rapidly across many countries. We are now seeing a growing number of health authorities either recommend or enforce surgery deferrals.

"Over the weekend, the US Surgeon General has urged hospitals and healthcare systems to consider suspending elective surgical procedures in an effort to reduce the strain on the healthcare system until the rate of infection of COVID-19 is under control. We expect these actions to impact surgeries in our major markets, particularly the US and Western Europe.

“The business has been on track to deliver its earnings guidance driven by strong growth in cochlear implant system sales across the developed markets. However, we expect to experience a significant decline in sales in the immediate future. There is a high level of uncertainty surrounding the impact of COVID-19 in terms of the extent and duration of the reduction in surgeries and the ability for recipients to access sound processor upgrades. As a result, we are not in a position to provide an earnings outlook to the market at this time and withdraw our earnings guidance for FY20. An update on trading conditions will be provided when appropriate.”

The company's share price fell 20 per cent in response to the announcement.

The company said in relation to China, after a delay to surgeries during February, a small but growing number of surgeries have recommenced over the past few weeks, although they remain well below the previous run rates.

It said its Chinese suppliers have also resumed production of components, which are used primarily for sound processors and accessories. 

"The business continues to carry at least three months inventory of most components and is managing distribution carefully to enable continued supply of products to customers," it said.

It added, "Cochlear has a conservatively geared balance sheet, headroom in existing debt facilities and is confident it can arrange increased debt facilities to assist with meeting future cash requirements. In response to an expected slowing in surgeries, Cochlear is reducing all non-essential spending and capital expenditure for the balance of the financial year. The business has also implemented a hiring freeze."

“Since the initial outbreak of COVID-19, we have taken steps to ensure the health and safety of our employees, clinics and professional partners while continuing to support our recipients to hear now, and always. Our employees have valuable experience and make incredible contributions to Cochlear’s mission. We do not have plans to reduce our workforce as we believe this disruption will be temporary," continued Mr Howitt.

“As the global leader in implantable hearing solutions, we continue to see the long-term opportunity to grow the hearing implant market. We expect that many of the delayed surgeries will progress once hospitals resume normal operations. Our view to the longer-term opportunity to grow our markets remains unchanged and we have a strong balance sheet that enables the business to weather the expected short-term decline in demand caused by COVID-19.”