Cochlear (COH) is the Oz Minerals (OZL) of the industrial boards? Perish the thought, but it has been a rough few months for both companies in 2013 with both producing earnings downgrades and weak outlook statements.
On Monday, Oz Minerals produced a production downgrade for the rest of the year and the year as a whole, and the earnings cuts will no doubt follow.
Yesterday, Cochlear told shareholders to expect another weak result in 2013-14, starting with the six months to December.
Chairman Rick Halliday-Smith told the meeting that continuing downward pressure on margins will result in a first half profit little different to the $77.7 million earned (net) in the first half of 2012-13.
He did forecast a small improvement in the second half of the current year and, to soften the blow, tipped a slight rise in the dividend.
"We expect the fiscal 2014 net profit after tax to be at the prior year level with a heavy bias to the second half," Mr Halliday-Smith told shareholders.
"If our outlook is unchanged we propose to support the interim dividend at $1.27 a share and also the final dividend at this level."
This will mark a slight increase from the interim of 120c and the final of 125c paid in the latest financial year.
News of the dividend rise couldn’t sway investors, who pushed the shares down 3.4% or more than 2% to a day’s low of $57.80, but bargain hunters appeared to send them back over $59.
The shares ended the day off 1.9% or $1.15c at $58.70.
COH YTD – Cochlear warns of tough road ahead
Like Oz Minerals, Cochlear is struggling at the moment and looks like continuing to do so into 2014. That’s despite introducing a new strategy in the year to June.
As the chairman told the AGM: "The strategic review initiated in F12 led to a new strategic plan, presented to and approved by the Board, and this plan is now being rolled out across the global organisation.
"The strategic plan includes initiatives to introduce a range of new products, regain momentum, and refocus effort to support overall market growth, all of which will enhance our opportunity as the market leader.
"A key focus in F13 was ensuring readiness for the launch of the suite of new products. This included marketing, messaging and training of our employees; and obtaining regulatory approvals.
"A number of new market growth initiatives were developed in the context of our overall strategy and these are now being executed in F14.
"We have placed significant focus on further improving the lifelong hearing experience and needs of our recipients in today’s world.
"The aim of these initiatives is to grow the market," Mr Halliday-Smith said.
But there seems to be some more headwinds to negotiate before the benefits of this strategy become apparent, as the chairman indicated in his speech yesterday.
"The current year is important in establishing the base for later years, it involves new product launches and market growth initiatives designed to develop sales growth in F14 and beyond.
"We are conscious of the impact of these activities on the business, and are conscious of the headwind issue created by the F14 reduction in FX hedge revenues, this is expected to be the final significant reduction followed by a more normalised impact going forward.
"It should be noted that these hedging activities only smooth FX volatility over a number of years but recent years have involved a wide range.
"We have maintained our support for the R&D spend and have maintained the growth potential inherent in the business structure.
"These decisions mean there is some pressure in the short term on the operating margin and we have decided to provide guidance for F14 now to ensure the implications of our decisions are understood," Mr Halliday-Smith explained, going on to detail the forecasts for the first half, the full year and the dividend.
It is clear the board is conscious of the solid reputation Cochlear has in the market, and doesn’t want to produce any more earnings downgrades in early 2014 and then in the run up towards the end of the current year next June (which is what happened this year).
