Cochlear : COH Half Year Report F17

Cochlear Limited

Dear shareholder,

The positive momentum we have experienced over the past few years has continued into FY17 with strong and consistent growth in units delivered across all regions.

Cochlear implant unit growth was 10%, an increase of 16% when excluding the impact of Chinese Central Government tender units. Developed market units grew around 10% with highlights including continued strong performances from the United States (US) and Western Europe. Emerging market units also grew around 10% with continuing strong growth in India and China Other with solid improvements in Latin America and Central & Eastern Europe.

We have strengthened our market position by continuing to expand our portfolio with market-leading products. During the half Cochlear™ Kanso™, our first off-the-ear sound processor and the Nucleus® Profile™ Slim Modiolar electrode, the world's slimmest electrode, were launched across Europe and the US. We are experiencing strong uptake of both products, with a notable uptick in unit growth during the second quarter in those markets.

Cochlear continues to demonstrate its commitment to being the technology leader in our industry with ongoing investment in research and development (R&D). During the half we invested $72.2 million, 12% of sales revenue, with a pipeline of new products expected to be launched over the coming years.

The Services business, which includes sound processor upgrades and accessories, delivered constant currency

revenue growth of 3%. The Americas and EMEA both grew revenue by around 6% in constant currency driven by continuing demand for the Nucleus 6 Sound Processor.

The Acoustics business had a strong half with sales growth of 20% in constant currency, driven by the uptake of Baha® 5 Power and SuperPower sound processors across all regions.

Strong financial position

Cochlear has delivered a strong profit result with net profit of

$111 million, up 19%. Free cash flow increased by 50% to $85 million and has supported the 18% increase in the interim dividend and a $24 million reduction in net debt since June 2016.

Solid progress made against business priorities

Cochlear's priorities are focused on the customer with initiatives aimed at accelerating market growth through global expansion of awareness and increased market access initiatives. With a growing recipient base, now numbering over 450,000, we are actively strengthening our servicing capability to provide products, programs and digital services to support the lifetime relationship with our recipients.

We made progress against our business priorities in the half. These remain focused on growing the core; building a service business; shaping the organisation and value creation. The key areas of focus have been on continuing to expand the sales force across major developed and emerging markets, expanding our direct-to-consumer programs in the US, Australia, Germany and the UK and building greater engagement with our recipient base.

Financial highlights

• Sales revenue of $604.4 million, up 4% in Australian dollars (8% in constant currency);

• Net profit of $111.4 million, up 19%;

• Basic earnings per share of $1.94 per share, up 18%; and

• Interim dividend of $1.30 share, up 18%, franked at 100%, representing a payout of 67% of first half net profit.

Six months ended December A$m

Dec16 Dec15 Chg %

Sales revenue 604.4 581.7 Ç 4%

FX contracts gain / (loss) 4.8 (23.6)

Total revenue 609.2 558.1 Ç 9%

Earnings before interest & tax (EBIT) 156.4 131.0 Ç 19%

Net finance costs (3.4) (4.7) È 28%

Taxation expense (41.6) (32.3) Ç 29%

Net profit 111.4 94.0 Ç 19%

Basic earnings per share $1.94 $1.65 Ç 18%

Interim dividend per share $1.30 $1.10 Ç 18%

Franking % 100% 100%