Cochlear (COH) Trading update summary

Business performance and market dynamics

• Sales and profit are lower due to weaker demand in developed markets, especially among adults and seniors, and disruptions in emerging markets, notably the Middle East due to conflict.

• Developed market growth, particularly in cochlear implants, is below expectations, with adult and senior segment growth likely under 5% for the year.

• Hospital system pressures in Europe, especially the UK and Germany, have led to longer waiting lists, industrial action, and deprioritization of cochlear implant surgeries.

• Consumer sentiment in the U.S. is at a historic low, impacting both referrals and conversion rates for hearing treatments.

• Hearing aid sales trends are closely correlated with cochlear implant sales, amplifying revenue variability.

Regional and segment-specific challenges

• Middle East sales are impacted by war, leading to order cancellations, reduced surgeries, logistical constraints, and increased receivables risk.

• China faces premium product sales pressure due to withdrawn reimbursement in special access zones.

• Services and Acoustics segments are performing in line with or above expectations, with Q3 services revenue up 13% and acoustics up 11% in constant currency.

• Pediatric segment in developed markets is now less than 30% of sales, with recent declines in the U.S. and flat performance in Europe.

Financial implications and guidance

• FY26 underlying net profit guidance reduced to $290-330 million, down from previous $435-460 million, reflecting lower sales, margin pressure, and FX impacts.

• Lower sales and manufacturing output, along with a stronger Australian dollar, are pressuring profitability.

• Gross margin guidance has been revised down to 72%, with a one percentage point reduction expected to impact net profit by $20 million.

• Second half constant currency sales growth is guided at 2%-6%, with ongoing uncertainty in developed markets and the Middle East.

• Cost base reshaping and stronger AUD expected to further impact net profit by $18-25 million and $25 million respectively.