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  • Hearing technology company Cochlear (COH) has confirmed COVID-19 has significantly impacted the company’s activities
  • The company experienced a 60 per cent decline in sales revenue last month compared to April 2019, and an 80 per cent decline in implant sales
  • This could be attributed to a substantial decline in surgeries across the U.S. and Western Europe
  • To prioritise COVID-19 treatment, some surgeries were delayed, apart from some for children
  • Positively, implant surgeries are restarting in developed markets including
    the U.S., Germany and Australia
  • The ASX 200 company has implemented cost reductions, pay and hiring cuts as well as its $1.1 billion capital raise
  • The business is currently cash flow negative and expects this to continue for the next few months
  • Cochlear is up 5.14 per cent at market close with shares trading for $191 each

Hearing technology company Cochlear (COH) has confirmed a significant decline in surgeries across the U.S. and Western Europe.

This comes as no surprise to the company after it completely slashed its earnings guidance in mid-March due to COVID-19.

This followed a downgraded earnings guidance in the month prior but, as hospitals continued to delay non-essential surgeries to prioritise the treatment of the coronavirus, Cochlear felt it was best to avoid forecasting guidance.

Compared to April 2019, sales revenue across the company declined by roughly 60 per cent in April 2020, with cochlear and acoustic implants most severely affected.

Cochlear implant unit sales declined by about 80 per cent across developed markets.

The ASX 200 company stated there were some surgeries, but they were largely for children. In many countries ear, nose and throat (ENT) surgeons, as well as personal protective equipment such as gowns and masks, have been appropriately diverted to help treat COVID-19 patients.

In South Korea and, until recently, in Japan, elective surgeries have continued. In China, surgeries recommenced in late February and continued to recover throughout April.

Surgeries are now running at similar rates to before COVID-19 despite Beijing remaining largely closed for elective surgeries.

On a positive note, implant surgeries are restarting in developed markets including
the U.S., Germany and Australia.

“At this early stage, we are expecting a gradual recovery with expectations that hospitals will proceed cautiously with the resumption of elective surgery, while prioritising the caseload,” CEO and President Dig Howitt said.

“Based on current feedback from surgeons, cochlear implants for children are expected to be prioritised given the long-term impacts on developmental outcomes from delaying surgery,” Dig added.

Cochlear’s Services business, which represents 30 per cent of business-as-usual revenue, has also been impacted with April sales declining by 30 per cent.

While many recipients have been able to remotely access sound processor upgrades, clinic closures have delayed access to sound processor upgrades.

Cochlear, however, does offer tools such as Remote Check and Cochlear Link which help clinicians and patients access services remotely.

Cochlear’s response

Cochlear has significantly reduced non-essential spending and capital expenditure until there is a sustained increase in surgeries.

It has also paused new hires and has implemented temporary pay reductions for the Board and senior management employees.

While it hasn’t accessed them yet, Cochlear expects to be able to participate in various government subsidies, including JobKeeper in Australia. There are similar subsidies available in some Western European countries.

So far, there hasn’t been any change to Cochlear’s supply chain and it doesn’t expect any supply shortages or to fail to meet customer demand over the coming months.

As far as Cochlear’s manufacturing and service and repair centres, they have been deemed ‘essential’ so have continued operating almost as usual, with some reductions in the manufacture of cochlear and acoustic implant systems.

Cochlear’s liquidity position has been strengthened through its $1.1 billion capital raising and $225 million increase in debt facilities. A separate facility is in place to cover damages relating to the AMF litigation case, which Cochlear lost in February this year.

The business is currently cash flow negative and expects this to continue for the next few months.

“Longer-term, there remains a significant, unmet and addressable clinical need for cochlear and acoustic implants that is expected to continue to underpin the long-term sustainable growth of the business,” Dig concluded.

Cochlear ended the day 5.14 per cent in the green, with shares closing at $191 each.

COH by the numbers
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