Costly recall fails to silence Cochlear chief’s evangelic sales pitch

Since bionic ear-maker Cochlear held its last AGM, a voluntary product recall has cost the company $101 million.

But even though the company’s revenues were significantly down, chief Chris Roberts yesterday spruiked the company with evangelism rarely seen in Australian corporate chiefs.

“I’d like to end with a call to action,” he announced at the bionic ear-maker’s annual general meeting in Sydney. “You all have an obligation – a responsibility – not as [Cochlear] shareholders, but as members of your community. You know how wonderful Cochlear implants are. When you see people struggling with their hearing, help them. Suggest professional advice from someone who knows a thing or two about Cochlear implants… Please be advocates for this wonderful invention.”

It’s been 30 years since the first implant of Cochlear’s signature product, and since then it’s helped thousands of people to regain their hearing. It’s made healthy profits for its shareholders along the way. This year, the company’s dividend increased for the 16th straight year (to $2.45 a share from $2.25), despite its 2011-2012 financial year profits being significantly lower (the company posted $56.8032 million in profits last August, down 68% on the year before.

Cochlear’s poor financial performance was caused by two factors. The most significant was the aforementioned recall of its CI500 series implants, starting in September 2011, after the detection of higher-than-usual rates of malfunction.

The exchange rate also played a part in Cochlear’s lower profits. This year the Australian dollar appreciated 5% against both the American dollar and the Euro, regions which account for 42% and 41% of Cochlear’s sales respectively. The earnings, when converted back to Australian dollars, shrank.

Despite a difficult year, Roberts was bullish about the company’s future.

Partly, his optimism was because of demographics.

Presenting a 10-year chart, Roberts showed how historically, more than half the new recipients of hearing implants were children. Today, that figure is less than one third.

“There are more and more adults,” he said. “About one in a thousand babies are born deaf, and another one in a thousand go deaf before the age of 12.”

“But 14 in 1,000 adults experience profound hearing loss. That’s an order of magnitude bigger. The over 65s are now 30% of new recipients. In countries like the United States and Australia, there are more new recipients getting implants over the age of 65 than there are children getting them.”

This is good for the community as well as good for Cochlear, Roberts said, quoting three recent studies that have pointed to hearing loss as an important risk factor in cognitive decline among the elderly.

What Cochlear learned from the recall

Cochlear isn’t entirely sure what caused its products to malfunction.

“We understand what happened. We still don’t know why,” chair Rick Holliday-Smith told the AGM yesterday morning.

However, he said the recall had shown the importance of having processes in place to deal with such a risk.

One lesson from the ordeal, said Holliday-Smith, was the importance of never being in the marketplace without at least two products.

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