Cochlear doubles profit

Cochlear's success in the future relies on successful sales of the Nucleus 6 implant.

a woman

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The world's largest producer of hearing implants, Cochlear (ASX: COH), released its 2012-13 profit results on Tuesday, reporting sharply higher profit as forecast in early June.

The company generated net profit after tax (NPAT) of $132.6 million, up 133% from the previous financial year and within guidance of $130 to $135 million. Unit sales were up 16%, however revenue from sales was up only 2%, indicating a reduction in margins. Cochlear reported weaker sales in Europe and the Americas but sharply stronger sales in Asia Pacific, largely due to a sizable Chinese tender sale.

In June, Cochlear warned shareholders that weaker sales in the second half of the financial year were expected ahead of the launch of its new Nucleus 6 sound processor. The new processor has recently received regulatory approval in Europe and approval in other major markets is expected later in 2013.

The company did not give a forecast for 2014, instead noting that the "timing of regulatory approvals and effectiveness of the Nucleus 6 launch execution will be important for the 2014 financial year result".

In more upbeat news for investors, Cochlear announced a final dividend of $1.27 per share, franked at 30%. This equates to a yield of around 4.3%, franked at 35%.

The current share price represents a buying opportunity for long term investors, with the stock dropping around 5% last week due to the release of a cheaper Chinese product which spooked investors. The Chinese product is largely targeting a different market to Cochlear, who operate a premium product at a premium price point, and Cochlear are not expecting to be adversely affected by the release.

Foolish takeaway

Cochlear holds a dominant position in the global hearing aid market, controlling around two-thirds of the market. The imminent release of a new processor is expected to boost revenue and profit for Cochlear in the next financial year, however much depends on regulatory approval in the Americas and Asia Pacific. Long-term investors may view the current price weakness as an opportunity to buy a quality company at a reasonable price.

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Motley Fool contributor Andrew Mudie owns shares in Cochlear.

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