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September 21, 2004

Cochlear faces challenge in US

From: Australian Financial Review, Australia - Sep 21, 2004

Sep 21 12:28 AAP

Hearing implant company Cochlear said today it had the potential for robust medium- to long-term growth, including in the Americas, but improving its disappointing sales in the key US market in the short term would be challenging.

"The recent strategy review has highlighted the potential for medium- to long-term growth, which is consistent with the Cochlear executive long-term incentive plan targets of about 20 per cent compound average annual growth in earnings per share over a three-year period," chairman Tommie Bergman and chief executive Chris Roberts said in the company's 2004 annual report out today.

"Cochlear is in a unique position to capitalise on its broad-based competitiveness, with a superior market presence, a history of product innovation and an exciting product pipeline in the future."

In August, Cochlear reported a disappointing full-year result and said it was hard to offer guidance for 2005.

Cochlear, which announced three profit downgrades in 2003/04 and was hit by flat sales and strong competition in its main US market, reported net profit of $36.7 million, down 37 per cent on the previous year.

Dr Roberts has said the result was disappointing, but Cochlear's progress in the second half of the year showed that the company had stabilised.

Cochlear said in the annual report that in the Americas, the outlook for strong growth over the medium to long term continued.

"In the short term, however, lower growth trends across the industry in the USA, clinic capacity problems and the ongoing issues of awareness and reimbursement will continue to be key challenges," the company said. "These will be tackled in financial year 2005 but the sales impact will not be immediate."

Cochlear said part of its international strategy was to increase its presence in key markets and the company consequently had acquired distribution businesses in Japan, the Benelux countries of Belgium, The Netherlands and Luxembourg, and France since June 30, 2004, for a total consideration of $23.3 million.

"Vertical integration on certain select markets will help our growth efforts," Cochlear said.

The company said a key business management issue for future growth was the capacity of clinics to deal with ongoing growth in demand.

A further constraint on growth was the delay in some strategies achieving their expected potential.

Neonatal screening for early detection of implant candidates was expected to lead to rapid uptake by those patients who would benefit but the time frame for adoption was longer than anticipated.

The annual report showed that Dr Roberts, who joined the company in February 2004, received a total remuneration for the year of about $416,000, including $274,000 in salary and $138,000 in performance-related bonus.

Former chief executive Jack O'Mahony received about $910,000 for the year, including leaving benefits of $300,000.

© 2004 Australian Financial Review