Cochlear Limited

FY26 sales revenue increased 2% in constant currency to $2.3 billion, and underlying net profit was $322 million. Gross margin declined 3 percentage points to 71%, while comparable operating expenses fell 1% and R&D expenses increased 15% to $323 million, or 14% of sales revenue. Management said FY26 second-half revenue rose 6% and that free cash flow more than doubled versus last year, helped by a $75 million inventory reduction and $130 million improvement in operating cash flow. For FY27, Cochlear guided to low single-digit constant-currency revenue growth, underlying net profit of $330 million to $350 million, gross margin of 70% to 71%, and a small decline in operating expenses; CapEx is expected to be around $100 million.

Dig Howitt framed FY26 as a year of strategic progress despite softer-than-expected growth, emphasizing the long-term market opportunity, low adult penetration, and the company’s push to medicalize adult hearing loss. He repeatedly pointed to the importance of building referral pathways, especially in the U.S., and said the company is systematically expanding programs in medical channels and direct-to-professional education. His tone was confident but realistic: the work will take time, but he said it should deliver year-on-year benefits and support growth over the medium term.

Sarah Thom focused on margin mechanics, saying gross margin fell to 71% from the original 74% budget assumption because of China VBP, Nexa ramp-up inefficiencies, Chengdu utilization, weaker product mix, and a 0.6 percentage point FX headwind. She quantified the year’s margin pressure as 1.5 percentage points from mix, 1.2 points from manufacturing overhead absorption, and 0.6 points from FX, and said fixed overheads have now been reduced to align with FY27. She also highlighted $32 million of restructuring costs, $37 million of STI provisioning, $109 million of fair value losses mainly from Epiminder, $66 million post-tax cloud spend, and about $60 million after-tax cloud spend expected in FY27. On capital allocation and cash, she noted inventory was cut $75 million, working capital fell to $789 million, operating cash flow improved $130 million, and CapEx was $91 million, with FY27 CapEx expected to remain around $100 million.

Analysts pressed management on why U.S. market growth was so slow, and Dig said insurance prior-authorisation delays and macroeconomic hesitation were affecting both the DTC and self-navigated pathways, especially where referrals are inconsistent. He also said the company is expanding efforts in ENT practices and other medical channels, with programs in 4 U.S. cities expanding to 12 over the next 6 months. Questions on pricing focused on whether Nexa could support higher pricing and whether TICI could expand the market; management said Nexa delivered about a 3% average price increase in developed markets and that TICI appears to attract additional patients rather than only cannibalize existing ones. Analysts also asked about visibility and margin recovery, and Sarah said the FY27 plan assumes current mix and no continued overhead under-absorption, while management is focused on getting NPAT margin back to 18% over the medium term.