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Contents
Investor
Centre
COCHLEAR ANNUAL REPORT 2014
A hearing life
22
Pg Financial Report
Pg Notes to Financial Statements
Pg Additional Reporting
23 Directors’ Report
Basis of preparation
77 17. Inventories
106 Directors’ Declaration
107 Independent Audit Report
108 Additional information
109 Glossary, Company ASX
Announcement Record
and Company Information
23
Principal activities and
review of operations
and results
61 1. Reporting entity
61 2. Basis of preparation
31 Remuneration Report
Performance for the year
55
Lead Auditor’s
Independence Declaration
62
3. Operating segments
56 Income Statement
57
Statement of
Comprehensive Income
58 Balance Sheet
59
Statement of
Changes in Equity
64 4. Revenue
65 5. Expenses
65 6. Other income
66 7. Earnings per share
67 8. Dividends
78
18. Property, plant
and equipment
80 19. Intangible assets
84 20. Provisions
Financial and capital structure
87
21. Net debt and
finance costs
89
22. Financial risk
management
Capital and reserves
99
23. Capital and reserves
60 Statement of Cash Flows
68
9. Notes to the statement
of cash flows
100 24. Capital management
Income taxes
Other notes
69 10. Income tax expense
101 25. Auditors’ remuneration
70
11. Current and deferred tax
assets and liabilities
101 26. Commitments
Employee benefits
71
12. Employee expenses
71
13. Employee benefit
liabilities
73
14. Share based payments
76
15. Key management
personnel
101 27. Contingent liabilities
102 28. Controlled entities
103 29. Parent entity disclosures
104 30. Changes in
accounting policies
105 31. New standards and
interpretations not
yet adopted
Operating assets and liabilities
105 32. Events subsequent to
the reporting date
77
16. Trade and other
receivables
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Directors’ Report Cochlear Limited for the year ended 30 June 2014
The directors present their report, together with the Consolidated Financial Report of the Consolidated Entity (Cochlear), being Cochlear
Limited (the Company) and its controlled entities, for the year ended 30 June 2014, and the Auditor’s Report thereon.
Directors
The directors of the Company at any time during or since the end of the financial year were Mr R Holliday-Smith, Mrs YA Allen, Mr PR Bell,
Prof E Byrne, AC, Mr A Denver, Mr DP O’Dwyer and Dr CG Roberts.
Information on the directors is presented in the Annual Report. This information includes the qualifications, experience and special
responsibilities of each director. It also gives details of the directors’ other directorships. Information on the Company Secretary including his
qualifications and experience is presented in the Annual Report.
Directors’ meetings
The number of directors’ meetings (including meetings of committees of directors) and number of meetings attended by each of the
directors of the Company during the financial year are:
Board of
directors
Audit
Committee
Medical Science
Committee
Nomination
Committee
Human Resources
Committee
Technology and
Innovation Committee
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Held
Attended
Mr R Holliday-Smith
Mrs YA Allen
Mr PR Bell
Prof E Byrne, AC
Mr A Denver
Mr DP O’Dwyer
Dr CG Roberts
10
10
10
10
10
10
10
10
10
9
10
10
10
10
6
6
-
-
6
6
-
6
6
-
-
6
6
-
-
-
-
2
2
2
2
-
-
-
2
2
2
2
2
2
2
2
2
2
-
2
2
2
2
2
2
-
4
4
4
-
-
-
-
4
4
4
-
-
-
-
-
-
-
3
3
3
3
-
-
-
3
3
3
3
Principal activities and review of operations and results
Operations
Business model
Cochlear’s mission is:
“We help people hear and be heard. We empower people to connect with others and live a full life. We transform the way people
understand and treat hearing loss. We innovate and bring to market a range of implantable hearing solutions that deliver a lifetime of
hearing outcomes.”
Cochlear’s strategy is focused on customer experience, operational excellence, product innovation, people engagement and value creation.
Cochlear’s customer experience strategy is to actively grow the market for implantable hearing solutions. Part of this strategy is increasing
Cochlear’s support for the market. This is being done through directed programs including greater direct to consumer connection, and
increased consumer awareness. Cochlear invested an additional approximate $10 million during the financial year ended 30 June 2014 (F14)
in focused Strategic Growth Initiatives to grow and support the market.
Cochlear’s product innovation strategy is to create and bring to market an extensive segmented portfolio of innovative and quality
products. Cochlear offers a range of advanced solutions to address different types of hearing loss such as:
• cochlear implants, designed to help those people with moderate to profound sensorineural hearing loss;
• bone conduction implants, designed to help those people with conductive hearing loss, mixed hearing loss or single-sided deafness; and
• acoustic implants, designed to help those people with moderate to severe sensorineural or mixed hearing loss.
Cochlear’s implant systems comprise an implant which is inserted during surgery and an external sound processor. This external sound
processor can be upgraded with new technology as it becomes available.
For F14, 88% of Cochlear’s sales revenue was from cochlear implant (Nucleus) products and 12% from bone conduction (Baha) products.
Sound processor upgrade sales revenue accounted for 13% of total sales revenue (15% of the cochlear implant products sales).
The barriers to increasing the penetration of the candidate base include:
• awareness of implantable solutions as a viable option;
• patient motivation;
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• lack of clear referral paths;
• affordability and funding availability; and
• clinic capacity.
Cochlear operates in a global environment. Each of the over 100 countries that Cochlear sells into has differing penetration rates and
reasons for that level of penetration owing to differing cultural and economic situations.
Cochlear estimates that hundreds of thousands of people have been implanted with one of its implants. Cochlear’s business model includes
supporting these customers with innovative and compatible products, through the sale of sound processor upgrades and accessories and
ongoing product support. In F14, the launch of the Nucleus 6 Sound Processor into major markets in the second quarter (Q2) led to an
increase in upgrade sales in the second half (H2) as customers upgraded to the new technology.
Cochlear aims to remain the market leader in implantable hearing solutions. There is no independent published market share data but
Cochlear estimates it has a market leading share of implantable hearing solutions.
Cochlear’s global headquarters is based on the Macquarie University campus in Sydney, Australia. At this location are the corporate offices,
manufacturing, research and development as well as the Asia Pacific regional headquarters.
Cochlear manages its sales and distribution through three geographical regions. There are several principal regional head offices plus many
local offices:
• Americas, which includes the United States of America (US), Canada and Latin America;
• EMEA, which includes Europe, Middle East and Africa; and
• Asia Pacific, which includes Australasia and Asia.
Cochlear has a deep geographical reach, selling in over 100 countries. Cochlear has a direct presence in approximately 20 countries and uses
distributors and agents in other areas.
Manufacturing for the cochlear implant product range is based in Australia, at three sites: Lane Cove and Macquarie University, in
Sydney, and Brisbane. Lane Cove continues to manufacture Cochlear’s legacy products. New implant ranges will be manufactured at
Cochlear’s Macquarie University headquarters including the Nucleus Profile implant recently launched. The Brisbane site is responsible for
manufacturing non-implant components.
The bone conduction implant product range is manufactured in Sweden.
The acoustic implant product range is manufactured across sites in Australia, the US and Belgium.
Cochlear’s supply chain operates with product being distributed from its manufacturing sites in Australia and Sweden to its regional
distribution centres in the US, the United Kingdom (UK) and Panama. The product is then further distributed to the end customer.
The proportion of Cochlear’s sales revenue to end customers by region is approximately: Americas 39%, EMEA 44% and Asia Pacific 17%.
Foreign exchange has a significant impact on Cochlear’s consolidated results. Cochlear has a partial natural hedge with over 90% of sales in
foreign currency and over 50% of costs in foreign currency. To help manage the portion not covered by the natural hedge, foreign exchange
contracts on foreign currency cash flows back to Australia are taken out. These contracts cover a three year period at a declining level of
cover. The Australian dollar (AUD) strengthened during the year against the Japanese yen (JPY) but has weakened against the United States
dollar (USD) and the Euro (EUR). These are hedged currencies.
Operating result F14
Revenue
F14 was an important year for Cochlear as new products were launched and progress made on growth initiatives.
The year commenced without regulatory approvals for key new products, but with the market anticipating imminent launches. This had
the result of a slowdown of sales in Q1 F14 ahead of new product launches. As the year progressed, regulatory approvals came through for
a range of new and innovative products. By the end of the year, Cochlear had launched the largest number of new products in a single year.
These included:
• Nucleus 6 Sound Processor
• a fully featured Nucleus 6 Sound Processor was launched in key European markets in Q1. While not all features on Nucleus 6 Sound
Processor were approved in the US, the sound processor started being sold in that region in Q2. Further approvals for the remaining
features are being received on a progressive basis;
• Nucleus Profile Implant Series
• the world’s thinnest cochlear implant (Nucleus CI512) was launched in Europe and Asia in Q4 and is awaiting approval in other markets;
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• Hybrid System
• the Hybrid System was launched in the US in Q4;
• Baha 4 and Baha Attract Systems
• since being launched in Q2, these bone conduction products have been well received;
• Aqua+ Accessory
• the Aqua+ Accessory was launched in the US in Q3 and is pending approval In Europe; and
• Codacs System
• the Codacs System, part of the acoustics range, received European regulatory approval during F14. Cochlear believes this segment
remains an important part of its product offering and will further broaden the indications for new candidates.
As anticipated, sales in Q2 recovered and were up over 30% from Q1 following approval and the launch of the new products. This
momentum continued in H2.
Sales of cochlear implant units were down 3% to 25,997 for the year. H2 F14 unit sales were up 22% on H1 F14 and up 10% on H2 F13.
Sales revenue was up 15% from that for last year to $820.9 million. In constant currency terms (i.e. restating F13 at F14 foreign exchange
rates), sales revenue was up 3%. The tale of two halves was evident with H2 F14 sales revenue up 18% on H1 F14 and up 28% on H2 F13. In
constant currency, H2 F14 sales revenue was up 16% on H2 F13.
Cochlear implant sales revenue, which included sound processor upgrades, was up 13% to $720.8 million, and up 2% in constant currency.
Revenue from sound processor upgrades (i.e. sales of new sound processors to existing recipients) can be cyclical.
In F14, sound processor upgrade sales were up 27% to $108.0 million from those for the prior year, up 14% in constant currency. Sound
processor upgrade sales increased in H2 F14 following the release of new products.
Sales of bone anchored solutions (including acoustic implant sales) of $100.1 million were up 27% from those for last year and up 13% in
constant currency. Again, the launch of new products in H1 F14 positively impacted sales growth and H2 F14 sales revenue was up 18% on
H1 F14 and up 35% (up 21% in constant currency) on H2 F13.
The AUD depreciated against most of Cochlear’s major currencies during the year which benefited sales revenue in AUD. From a translation
perspective, Cochlear benefited by net $82.1 million i.e. AUD sales revenue was $82.1 million higher when translated at F14 foreign exchange
rates than when translated at F13 foreign exchange rates. Offsetting this was a reduction in profit from foreign currency contracts. Hedges
taken out in prior years and used in line with policy were at higher rates than the average spot foreign exchange rates applicable during the
year on exercise of the foreign currency contracts. This resulted in a loss of $16.0 million compared to a profit of $37.7 million last year.
Future foreign exchange contracts are detailed in Note 22 to the financial statements and indicate future foreign exchange contract rates
closer to the current spot rates for the USD and EUR.
Regional sales
• Americas sales revenue of $320.8 million increased 13% (up 2% in constant currency). The launch of the Nucleus 6 together with the
positive impact of the launched Aqua+ Accessory and the regulatory approval of the Hybrid System in April 2014 meant that H2 F14 sales
revenue was up 14% on H1 F14 and up 27% (up 16% in constant currency) on H2 F13.
In Q4 F13, the US business introduced a Future Technology Exchange Program (FTEP) where new implant recipients could exchange their
sound processors for new technology at no additional cost once the new technology is approved for sale. In F13, revenue on cochlear
implant system sales of $4.6 million was deferred under the FTEP and was recognised in F14 when the new sound processors were
delivered to customers. There is no remaining FTEP deferred revenue at 30 June 2014.
• EMEA sales revenue of $358.5 million increased 27% (increased 10% in constant currency). EMEA revenue growth continues to reflect
the portfolio of geographies in the region, with varying growth rates in different countries. The launch of Nucleus 6 and Baha 4 and Baha
Attract positively impacted sales and H2 F14 sales revenue was up 12% on H1 F14 and up 32% (up 17% in constant currency) on H2 F13.
In Q4 F13, the EMEA business introduced an FTEP in selected countries. In F13, revenue on cochlear implant system sales of $1.8 million
was deferred under the FTEP and was recognised in F14 when the Nucleus 6 Sound Processors were delivered to customers. There is no
remaining FTEP deferred revenue at 30 June 2014.
• Asia Pacific sales revenue of $141.6 million decreased 4% (decreased 9% in constant currency). Asia Pacific revenue growth continues to
reflect the portfolio of geographies in the region, with varying growth rates in different countries.
A Central Government tender sale into China of approximately 1,800 units was recognised in H2 F14 (down from 2,800 units in F13). In
F14, the decrease in sales revenue was a consequence of the lower tender sales in China.
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Australia again achieved double digit cochlear implant unit sales growth. This demonstrates that there continues to be solid growth
prospects for the other regions as they are well below the Australian penetration rates. For example, sales in the UK are approximately
those in Australia, but the UK population is nearly three times the size of that of Australia. There are no statistically different demographics
applicable to hearing impairment in the two countries.
Product sales
As well as a portfolio of geographies, there is also a comprehensive portfolio of products driving Cochlear’s revenue growth:
• cochlear implant sales revenue increased 13% (increased 2% in constant currency) to $720.8 million, with H2 F14 being up 18% on H1
F14 and up 27% (up 15% in constant currency) on H2 F13.
Sound processor upgrade sales revenue for F14 increased 27% (increased 14% in constant currency) to $108.0 million following the
release of Cochlear’s Nucleus 6 Sound Processor in H1 F14; and
• bone conduction and acoustic implant sales revenue grew 27% (increased 13% in constant currency) to $100.1 million. Cochlear
introduced its Baha 4 and Baha Attract during F14 and this biased growth to H2 which was up 18% on H1 F14 and up 35% (up 21% in
constant currency) on H2 F13.
Profit
Net profit after tax (NPAT) in H2 F14 was $72.7 million. This was in line with guidance provided in February 2014 and up 32% on H2 F13.
Full year NPAT for F14 was $93.7 million.
Cochlear’s cost of sales to sales revenue of 30.2% is above that for last year of 29.1%. Lower manufacturing volumes in the first half of F14
adversely impacted manufacturing variances. By H2, volumes had recovered and margins were improved. The cost of sales to sales revenue
margin was 32.8% for H1 F14, but in H2 F14 had returned to historical levels and was 28.1%.
Selling, general and administration (SG&A) expenses were up 16% but up 6% in constant currency. This followed a disciplined approach to
expenditure. Cochlear invested approximately an additional $10 million during F14 in focused Strategic Growth Initiatives aimed at growing
the market. Excluding foreign exchange movements and additional investment in Strategic Growth Initiatives, SG&A expenses increased
3%. The SG&A expense increase covered product launch costs as well as cost increases flagged last year such as the USA Medical Device
Excise Tax and amortisation of enterprise resource planning system upgrades that had been completed late in F13.
Research and development (R&D) expenses of $127.6 million increased 2% but decreased 2% in constant currency. This reflects the
deliberate strategy to hold the R&D expenditure at F13 levels. As detailed earlier, a number of new products were released in F14. The
regulatory and reimbursement regimen differ in the various countries Cochlear sells into and launch timing is governed by these approvals.
A provision of USD 20 million ($22.5 million) was expensed in H1 F14 in relation to the patent dispute lawsuit by the Alfred E. Mann
Foundation for Scientific Research (AMF) and Advanced Bionics LLC (AB) in the US. The directors are of the opinion that the facts and the
law do not support the jury’s findings and Cochlear has applied to overturn the verdict in post-trial motions filed with the District Court. The
directors will appeal any significant adverse Judgment to the United States Court of Appeals for the Federal Circuit.
Full year earnings before interest and tax (EBIT) of $127.1 million was 29% lower than that for the prior year. Excluding the patent dispute
provision in H1 F14, EBIT was $149.6 million and the EBIT to sales revenue of 18.2% was below that for last year of 25.0%.
The H2 profit growth benefited from the higher sales and H2 F14 EBIT was $100.2 million, up 42% on H2 F13. H2 F14 EBIT was up 103% on
H1 F14 EBIT, excluding the patent dispute provision.
Net interest expense increased $3.8 million to $10.0 million due to higher borrowings. Interest cover was 13 times (2013: 29 times).
The effective tax rate of 20.0% decreased by 3.2 percentage points. Excluding the patent dispute provision, the effective tax rate of 21.6%
decreased by 1.6 percentage points, as the R&D tax concession benefit remained largely unchanged at $11.2 million reflecting the continued
investment in R&D in Australia.
NPAT decreased 29% to $93.7 million.
Excluding the patent dispute provision, NPAT was $109.5 million, again heavily biased to H2.
Overall, NPAT was negatively impacted by $12.5 million due to both translation and transaction movements in foreign exchange rates
during the year.
Financial position
Inventories of $128.6 million at 30 June 2014 were down 2% from 30 June 2013 ($131.6 million). Inventory days decreased to 189 days (30
June 2013: 231 days). This reflects the strong sales in H2 F14 and careful inventory management.
Trade receivables of $201.3 million were up 7% from 30 June 2013 ($187.6 million), reflecting the strong sales in H2 F14. In constant
currency, trade receivables were up 6%. Debtor days decreased to 74 days (30 June 2013: 80 days). Debtor days decreased in all regions
following a concerted effort to improve collections.
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The product recall provision was utilised by a net $15.0 million, with $21.6 million remaining at 30 June 2014. No further amount has been
recognised as a charge or released as a credit in F14.
Intangible assets of $234.1 million (30 June 2013: $235.8 million) are a significant proportion of Cochlear’s total assets. Foreign exchange
movements accounted for $0.7 million of the decrease. Some $170.3 million of the asset total relates to goodwill arising from the earlier
acquisitions of businesses, principally the Entific (Baha) business in 2005. All intangible assets are tested for impairment on an annual basis.
There were no impairments or write-downs of intangible assets in F14.
The final dividend of $1.27 per share brought the full year dividend to $2.54 per share, up 1%. This is in line with guidance provided at the
F13 Annual General Meeting, held in October 2013.
The Board anticipates the F15 dividend will return to a more historical payout ratio of approximately 70% of NPAT.
Net debt was $181.3 million at 30 June 2014 (30 June 2013: $117.8 million). The increase in net debt was driven by:
• profit generated of $93.7 million, with free cash flow of $79.5 million; used by
• payment of dividends of $144.9 million; and
• movements in working capital as discussed above.
Free cash flow was $79.5 million for the year, up from $20.2 million for F13. The free cash flow for F14 was heavily biased to H2, with $65.1
million being generated in H2 F14.
At 30 June 2014, debt facilities of $350 million were in place with remaining terms of two and four years. At 30 June 2014, the unused
portion of the facilities was $110.0 million. All bank covenants were met at year end.
Outlook
There continue to be more people in the world diagnosed with hearing loss who could benefit from Cochlear’s products than are treated
each year. There remains a significant, unmet and addressable clinical need which will continue to underpin long-term sustainable growth.
The clinical and business environments in which Cochlear operates are dynamic and evolving. Cochlear is committed to identifying and
supporting the clinical trends as they will shape its future operating environment. A good example of this is the ongoing trend for
bilateral implantation.
The impact of recently launched products as well as the impact of new products to be launched in F15 will continue to underpin demand
and sales growth for the business.
Cochlear’s latest generation sound processor, Nucleus 6, has now been launched in its major markets and will continue to be launched in
the remaining markets as local regulatory approvals are received.
Baha 4 and Baha Attract have also been launched in major markets and will continue to roll out to other markets as approvals are received.
Cochlear benefits from a geographic portfolio effect, selling into a range of countries. In any year, some countries experience strong growth,
some remain flat and some experience a slowdown. Overall, the trend is for long-term sustainable growth.
Cochlear’s strong relationships with its customers and professionals will continue to underpin demand and sales growth for the business.
Several of the emerging markets are heavily biased to tender sales, including the Central Government of China’s tenders. Cochlear reviews
these tenders carefully and participates at a level that makes commercial sense. In F14, the Chinese tender of approximately 1,800 units
was delivered in H2. The future outcome of tender sales is uncertain.
Cochlear remains committed to funding market growth initiatives. These include candidate identification and support; reimbursement and
government policy aimed at enhancing cochlear implantation; referral path initiatives; and geographic expansion. These will remain a focus
in F15 and will augment overall market growth.
At 30 June 2014, Cochlear had foreign currency equivalent of $431.9 million in foreign exchange contracts. In F15, the average exchange
rate for the USD contracts is 0.93 and the average for EUR contracts is 0.72. At rates applicable on 30 June 2014, a net loss on foreign
exchange contracts in F15 is forecast.
Business risks
Cochlear’s principal business risks are outlined below. These are significant risks that may adversely affect Cochlear’s business strategy,
financial position or future performance. It is not possible to identify every risk that could affect Cochlear’s business, and the actions taken
to mitigate the risks described below cannot provide absolute assurance that a risk will not materialise.
• Product innovation and competition
Cochlear is exposed to the risk of failing to develop and produce innovative products for customers. Increased competition exposes
Cochlear to the risk of losing market share as well as a decrease in average selling prices in the industry. Cochlear is also exposed to the
risk of medical, biological and/or technological advancement by third parties where alternative products or treatments are developed and
commercialised that render Cochlear’s products obsolete. This could result in a loss of business.
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In F14, Cochlear invested 16% of revenue in R&D. Cochlear also works with over 100 external research partners. The creation of new
intellectual property and the protection of new and existing intellectual property are a key focus for Cochlear. Cochlear currently has
patents over a range of features of its technologies.
• Infringement litigation
Cochlear operates in an industry that has substantial intellectual property and patents, designs and trademarks protecting that
intellectual property. Cochlear is exposed to the risk that it will be litigated against for claims of infringement. This could result in Cochlear
paying royalties to be able to continue to manufacture product, or injunctions preventing Cochlear selling products it had developed. In
F14, a provision of USD 20 million ($22.5 million) was expensed in relation to a patent infringement lawsuit by AMF and AB in the US. The
directors are of the opinion that the facts and the law do not support the jury’s findings and Cochlear has applied to overturn the verdict
in post-trial motions filed with the District Court. The directors will appeal any significant adverse Judgment to the United States Court of
Appeals for the Federal Circuit.
• Misappropriation of know-how and intellectual property
Cochlear is exposed to the risk of its know-how and intellectual property being misappropriated either through hacking of its systems or
by employees, consultants and others who from time to time have access to Cochlear’s know-how and intellectual property. This could
result in competitors using this information and increasing their competitiveness. Cochlear could lose market share as a result of this.
Cochlear monitors its systems and has appropriate safeguards and processes in place. Confidentiality agreements are in place with key
employees and third parties that are exposed to Cochlear’s know-how and intellectual property.
• Regulation
Cochlear operates in a highly regulated industry. Medical devices are subject to strict regulations, including data security, of regulatory
bodies in the US, Europe, Asia and Australia as well as many other local bodies in countries where Cochlear’s products are sold. If Cochlear
or a third-party supplier fails to satisfy regulatory requirements or the regulations change and amendments are not made, this could result
in the imposition of sanctions. Delays in achieving regulatory approval can impact Cochlear’s ability to sell its latest technology. These
risks could result in Cochlear’s products being subject to recall and/or the loss of sales and reputational harm.
Cochlear has a worldwide quality assurance system in place.
• Reimbursement
The majority of Cochlear’s customers rely on a level of reimbursement from insurers and government health authorities to fund their
purchases. There is increasing pressure on healthcare budgets globally. Cochlear is also subject to healthcare related taxes imposed by
government agencies and this could negatively impact the ability of candidates to access Cochlear’s products (e.g. the Medical Device
Excise Tax in the US). Government reimbursement for Baha products in the US is currently under review by the Centers for Medicare and
Medicaid Services (CMS).
Cochlear continues to work with reimbursement and government agencies throughout the world to emphasise the benefits and cost
effectiveness of the intervention.
• Product liability
The manufacturing, testing, marketing and sale of Cochlear’s products involve product liability risk. As the developer, manufacturer,
marketer and distributor of certain products, Cochlear may be held liable for damages arising from use of its products during development
or after the product has been approved for sale.
Cochlear maintains product liability insurance and operates a worldwide quality assurance system related to the design, testing and
manufacture of its products.
• Interruption to product supply
Cochlear relies on third-party companies for the supply of key materials and services. This carries the risk of delays and disruptions in
supplies. Certain materials are available from a single source only and regulatory requirements make substitution costly, time-consuming
or commercially unviable. Lifetime and strategic purchases of certain inventory items are made.
Cochlear manufactures its cochlear implant products from two sites in Sydney. The latest generation products are manufactured at
Cochlear’s Macquarie University headquarters and legacy products at a manufacturing site in Lane Cove. Cochlear manufactures its bone
conduction implant products in Sweden. The acoustic implant product range is manufactured across sites in Australia, the US and Belgium.
There is the potential risk of disruption to sales should a manufacturing facility be unable to operate. Any new manufacturing facility will
require regulatory approval prior to being able to produce and sell product from it. This approval could take many months.
Cochlear monitors its suppliers and identifies second-source supply where possible. Inventories are managed and purchased in sufficient
quantities for continued product supply in the short term. Where appropriate, lifetime buys and strategic raw materials purchases are
made. Cochlear also regularly reviews its disaster recovery plans for its manufacturing sites. Two discreet approved manufacturing sites for
implants will be maintained.
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• Political or social instability
Cochlear sells in over 100 countries. Regional political or social instability could negatively impact sales and the receipt of payment for sales.
Cochlear assesses the countries it sells into and does not have a significant concentration of sales in countries impacted by political or
social instability.
• Foreign exchange rates
Cochlear is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional
currencies of the legal entities. The currencies in which these transactions primarily are denominated are AUD, USD, EUR, JPY, Sterling
(GBP), Swedish kroner (SEK) and Swiss francs (CHF). Over 90% of Cochlear’s revenues and over 50% of costs are denominated in
currencies other than AUD.
Currency risk is hedged in accordance with the Board approved treasury risk policy. The treasury risk policy aims to manage the impact of
short-term fluctuations on Cochlear’s earnings. Over the longer term, permanent changes in market rates will have an impact on earnings.
Derivative financial instruments (forward exchange contracts) are used to hedge exposure to fluctuations in foreign exchange rates in a
declining ratio of coverage out to three years.
• Credit
Cochlear’s exposure to credit risk is influenced by the geographical location and characteristics of individual customers. Cochlear does not
have a significant concentration of credit risk with a single customer. The majority of debtors are government supported clinics or major
hospital chains.
Policies and procedures for credit management and administration of receivables are established and executed at a regional level.
Individual regions deliver reports to management and the Board on debtor ageing and collection activities on a monthly basis.
In monitoring customer credit risk, the ageing profile of total receivables balances and individually significant debtors is reported by
geographic region to the Board on a monthly basis. Regional management is responsible for identifying high risk customers and placing
restrictions on future trading, including suspending future shipments and administering dispatches on a prepayment basis.
In addition, absolute country limits are in place and Chief Financial Officer approval is required to increase a limit. These limits are
periodically reviewed by the Audit Committee.
• Interest rates
Cochlear is exposed to interest rate risks in Australia.
Interest rate risk is hedged on a case-by-case basis by assessing the term of borrowings and the purpose for which the funds are obtained.
Hedging against interest rate risk is achieved by entering into interest rate swaps. At 30 June 2014, no hedging had been entered into.
Note: Given the significance of the patent dispute and foreign exchange movements, the directors believe the presentation of non-International Financial Reporting Standards (IFRS) financial measures is useful for the users
of this document as they reflect the underlying financial performance of the business. The non-IFRS financial measures included in this document have been calculated on the following basis:
• constant currency: restatement of IFRS measures in comparative years using F14 foreign exchange rates;
• free cash flow: IFRS cash flow from operating and investing activities excluding interest and tax paid related to non-operating activities; and
• excluding patent dispute provision: IFRS measures adjusted for the expense of the patent dispute provision.
These non-IFRS financial measures have not been subject to review or audit. However, KPMG has separately undertaken a set of procedures to agree the non-IFRS financial measures disclosed to the books and records of
the Consolidated Entity.
Consolidated results
The consolidated results for the financial year are:
Revenue
Profit before income tax
Net profit after tax but before patent dispute provision*
Patent dispute provision, net of tax*
Net profit
Basic earnings per share (cents)
Diluted earnings per share (cents)
* The patent dispute provision was $22,545,000 before tax and $15,781,000 after tax.
2014
$000
804,936
117,114
109,490
15,781
93,709
164.6
164.2
2013
$000
752,721
172,637
132,563
-
132,563
233.0
232.4
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Dividends
Dividends paid or declared by the Company to members since the end of the previous financial year are:
Type
Cents per share
Total amount
$000
Date of payment
%
franked
Tax rate for
franking credit
In respect of the previous financial year:
Final – ordinary shares
In respect of the current financial year:
Interim – ordinary shares
127.0
127.0
72,442
19 September 2013
30%
72,469
27 March 2014
0%
30%
30%
The final dividend in respect of the current financial year has not been provided for in the Financial Report as it was not declared until after
30 June 2014. Since the end of the financial year, the directors declared a final 127 cents per share dividend, 20% franked at the tax rate of
30%, amounting to a total of $72,468,765.
Environmental regulations
Cochlear’s operations are subject to significant environmental regulations under the Commonwealth of Australia and State/Territory
legislation. The Board believes that Cochlear has adequate systems in place to manage its environmental obligations and is not aware of
any breach of those environmental requirements as they apply to Cochlear.
Non-audit services
During the year, KPMG, the Company’s auditor, has performed certain other services in addition to its statutory duties. The Board has
considered the non-audit services provided during the year by the auditor and in accordance with written advice provided by resolution of
the Audit Committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did
not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons:
• all non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the
Audit Committee to ensure that they do not impact the integrity and objectivity of the auditor; and
• the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code
of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor’s own work, acting in a management or
decision-making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards.
Details of the amounts paid to the auditor of the Company, KPMG, and its related practices for audit and non-audit services during the year
are set out below:
Audit services
Auditors of the Company:
KPMG:
– audit and review of financial reports
– other regulatory compliance services
Total audit services
Non-audit services
Auditors of the Company:
KPMG:
– taxation compliance services
Total non-audit services
State of affairs
There were no significant changes to the state of affairs of Cochlear during the financial year.
Consolidated
2014
$
2013
$
1,422,391
42,875
1,465,266
1,336,981
58,925
1,395,906
818,282
818,282
1,211,162
1,211,162
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Remuneration Report
Contents
Section
1.0
Title
Introduction
Description
Describes the scope of the Remuneration Report and the individuals whose remuneration details are disclosed.
2.0
3.0
4.0
5.0
6.0
Remuneration
governance
Describes the role of the Board and the Human Resources Committee, and the use of remuneration consultants
when making remuneration decisions.
Non-executive
director
remuneration
Provides details regarding the fees paid to non-executive directors.
Executive
remuneration
Outlines the principles applied to executive remuneration decisions and the framework used to deliver the various
components of remuneration, including explanation of the performance and remuneration linkages.
Employee share
scheme and other
share information
Service contracts
and employment
agreements
Provides details regarding Cochlear’s employee equity plans including that information required by the
Corporations Act 2001 and applicable accounting standards.
Provides details regarding the contractual arrangements between Cochlear and the executives whose
remuneration details are disclosed.
1.0 Introduction
Cochlear is a geographically diverse business, subject to rapid and changing competitive forces, including currency variations, and with a
long history of growth. The Board remains committed to a strong growth focus and designs its executive remuneration strategies to direct
behaviours towards achieving sustainable growth in shareholder value over the long term. However, as noted last year, these policies must be
flexible enough to enable Cochlear to attract, motivate and retain high performing executives in many locations in a dynamic environment.
The Board’s philosophy and approach to executive remuneration have always been to balance fair remuneration for skills and expertise with
a risk and reward framework that supports longer-term growth of Cochlear as a global business. The comprehensive review of executive
remuneration during the financial year ended 30 June 2013 (F13) was implemented in F14.
Following last year’s review, a number of changes were adopted in respect of Cochlear’s executive key management personnel (KMP)
remuneration policies. As a reminder to shareholders, specific changes adopted are summarised as follows:
1. the Remuneration Report was reformatted with improved disclosure principles adopted;
2. the use of performance shares for long-term incentives (LTI) was suspended;
3. performance rights for executive KMP LTI were introduced;
4. changes in the eligibility criteria for participation in the LTI resulted in fewer executive participants;
5. the remuneration mix for the Chief Executive Officer (CEO)/President and other executive KMP was reweighted;
6. the short-term incentive (STI) opportunity for selected executives was increased;
7. the deferral of STI into performance rights has been introduced effective from 1 July 2013 equivalent to 30% of STI cash earned. The first
allocation of rights under the deferred STI program occurred in August 2014;
8. the use of options for selected executive KMP LTI was retained because options are consistent with Cochlear’s objective to be a growth
company. The use of options as an LTI alternative remains under constant review;
9. the LTI allocation methodology (including the option valuation for LTI dollar value) was changed to ‘gross contract value’ of the option at
the calculation date, before any discounts for performance or service;
10. the performance conditions to apply to the F14 LTI were reviewed. The earnings per share (EPS) hurdle rates remained unchanged at the
high end of market expectations. The total shareholder return (TSR) hurdle rate has been modified after consideration of shareholder
feedback. These settings remain for the F15 LTI program. See section 4.4.2;
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11. selected Board and executive KMP remuneration was independently benchmarked to ensure the remuneration of these key roles meets
external expectations. This remains an ongoing process;
12. director fees remained unchanged in F14, apart from a minor increase in Chairman fees for the Audit Committee and Human Resources
Committee (HRC) to reflect the additional responsibilities and time commitments required; and
13. the remuneration mix for all executive KMP was reviewed to ensure it met external benchmark standards. Changes adopted have been
explained in the Remuneration Report.
The changes adopted in F14 are reviewed annually. At this stage, no material Board or executive KMP remuneration strategy changes are
under consideration for F15.
The Board believes Cochlear’s approach to Board and executive KMP remuneration is a balanced, fair and equitable approach designed to
reward and motivate a successful and experienced executive team to deliver ongoing business growth which meets the expectations of
shareholders over the long term.
The Board will continue to welcome feedback from shareholders on Cochlear’s remuneration practices or on the communication of
remuneration matters in the F14 Remuneration Report and beyond.
1.1 Scope
This Remuneration Report sets out, in accordance with the relevant Corporations Act 2001 (Corporations Act) and accounting standard
requirements, the remuneration arrangements in place for KMP of Cochlear during F14.
1.2 Key management personnel
Key management personnel have authority and responsibility for planning, directing and controlling the activities of Cochlear and comprise
the non-executive directors, and executive KMP (being the executive director and other senior executives named in this report). Details of
the KMP as at year end are set out in the table below:
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Non-executive directors
Rick Holliday-Smith
Yasmin Allen
Paul Bell
Edward Byrne, AC
Andrew Denver
Donal O’Dwyer
Executive director
Chris Roberts
Other executive KMP
Richard Brook
Jan Janssen
Title (at year end)
Change in F14
Chairman
Member, Audit Committee
Member, Human Resources Committee
Chairman, Nomination Committee
Director
Chairman, Audit Committee
Member, Human Resources Committee
Member, Nomination Committee
Director
Chairman, Human Resources Committee
Member, Nomination Committee
Director
Chairman, Medical Science Committee
Member, Nomination Committee
Member, Technology and Innovation Committee
Director
Member, Audit Committee
Member, Medical Science Committee
Member, Nomination Committee
Chairman, Technology and Innovation Committee
Director
Member, Audit Committee
Member, Medical Science Committee
Member, Nomination Committee
Member, Technology and Innovation Committee
Changed committee membership from 1 July 2013
Changed committee membership from 1 July 2013
Changed committee membership from 1 July 2013
No change. Full year
Changed committee membership from 1 July 2013
Changed committee membership from 1 July 2013
CEO/President
Member, Medical Science Committee
Member, Technology and Innovation Committee
No change. Full year
President, European Region
Senior Vice President, Design and Development,
Clinical and Regulatory
No change. Full year
No change. Full year
Neville Mitchell
Chief Financial Officer and Company Secretary
No change. Full year
Mark Salmon
Chris Smith
President, Asia Pacific Region
President, Americas Region
No change. Full year
No change. Full year
There were no key management personnel departures during F14.
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2.0 Remuneration governance
This section of the Remuneration Report describes the role of the Board and the HRC, and the use of remuneration consultants when
making remuneration decisions.
2.1 Role of the Board and the Human Resources Committee
The Board is responsible for Cochlear’s remuneration strategy and policy. Consistent with this responsibility, the Board has established the
HRC which comprises solely independent non-executive directors (NEDs).
The role of the HRC is set out in its Charter, which is reviewed annually and was last revised and approved by the Board in December 2012.
In summary, the HRC’s role includes:
• ensure that the appropriate procedures exist to assess the remuneration levels of the Chairman, other NEDs, executive directors, direct
reports to the CEO/President, Board committees and the Board as a whole;
• ensure that Cochlear meets the requirements of the ASX Corporate Governance Council’s gender diversity principles and
recommendations, and other relevant guidelines;
• ensure that Cochlear adopts, monitors and applies appropriate remuneration policies and procedures;
• ensure that reporting disclosures related to remuneration meet the Board’s disclosure objectives and all relevant legal requirements;
• develop, maintain and monitor appropriate talent management programs including succession planning, recruitment, development; and
retention and termination policies and procedures for senior management; and
• develop, maintain and monitor appropriate superannuation and other pension benefit arrangements for Cochlear.
The HRC’s role and interaction with Board, internal and external advisors, are further illustrated below:
The Board
Reviews, applies judgement and, as appropriate, approves the HRC’s recommendations.
The Human Resources Committee
The HRC operates under the delegated authority of the Board.
The HRC is empowered to source any internal resources and obtain external independent professional
advice it considers necessary to enable it to make recommendations to the Board on the following:
Remuneration policy,
composition and
quantum of remuneration
components for executive
KMP, and performance
targets
Remuneration policy in
respect of NEDs
Talent management
policies and practices
including superannuation
arrangements
Design features of
employee and executive
STI and LTI plan awards,
including setting of
performance and other
vesting criteria
External consultants
Internal resources
Further information on the HRC’s role, responsibilities and membership is contained in the Corporate Governance Report of this Annual
Report. The HRC terms of reference can also be viewed in the Investor Centre, corporate governance section of the Cochlear website,
www.cochlear.com.
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2.2 Use of remuneration consultants
During F14, remuneration consultancy contracts were entered into by Cochlear and accordingly the disclosures required under section
300A(1)(h) of the Corporations Act are set out as follows:
Advisor/consultant — F14
Services provided
Remuneration consultant for the purpose of the
Corporations Act
Ian Crichton, Remuneration
Consultant, CRA Plan Managers
Pty Limited
Review of F14 Remuneration Report
No
Key questions regarding use of remuneration consultants
Did the remuneration
consultant provide
remuneration
recommendations in relation
to any of the executive KMP
for F14?
No
How much was the
remuneration consultant paid
by Cochlear for remuneration
related and other services?
What arrangements did
Cochlear make to ensure that
the making of the remuneration
recommendations would be free
from undue influence by the
executive KMP?
Is the Board satisfied that the
remuneration information
provided was free from any
such undue influence? What
are the reasons for the Board
being so satisfied?
CRA Plan Managers Pty Limited – remuneration services $43,070; other services $33,212.
Cochlear maintains a protocol which governs the procedure for procuring advice relating to KMP remuneration. The
protocol contains a summary of the process for the engagement of the remuneration consultant, the provision of
information to the remuneration consultant and the communication of remuneration recommendations.
Yes, the Board is satisfied. The reasons are as follows: the Chairman of the HRC had oversight of all requests for
remuneration information; and the protocol with respect to the procurement of remuneration related advice
remains in place.
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3.0 Non-executive director remuneration
3.1 NED remuneration
Principle
Fees are set by reference to
key considerations
Comment
Fees for NEDs are based on the nature of the NEDs’ work and their responsibilities. The remuneration rates reflect
the complexity of Cochlear and the extent of the geographical regions in which Cochlear operates. In determining
the level of fees, survey data on comparable companies is considered. NEDs’ fees are recommended by the HRC
and determined by the Board. Shareholders approve the aggregate amount available for the remuneration of
NEDs. A minor increase in Audit Committee Chairman and Human Resource Committee fees was introduced in F14.
Remuneration is structured to
preserve independence whilst
creating alignment
(see also section 3.4)
To preserve independence and impartiality, NEDs are not entitled to any form of incentive payments including
options and the level of their fees is not set with reference to measures of Cochlear performance.
However, to create alignment between directors and shareholders, the Board has adopted guidelines that
request NEDs to hold (or have a benefit in) shares in Cochlear equivalent in value to at least one year’s base fees.
Cochlear does not offer loans to fund share ownership.
Aggregate Board and
committee fees are approved
by shareholders
The total amount of fees paid to NEDs in F14 is within the aggregate amount approved by shareholders at the
AGM in October 2011 of $2,000,000 per year.
3.2 NED fees and other benefits
Elements
Board/committee fees
per annum – F14
Details
Board Chairman fee1
Board NED base fee
Committee fees
Audit
Human Resources
Nomination
Medical Science
Technology and Innovation
$438,000
$146,000
Committee Chair
Committee member
$40,000
$30,000
No fee
$20,000
$20,000
$20,000
$10,000
No fee
$10,000
$10,000
Post-employment benefits
Superannuation
Retirement scheme
Superannuation contributions have been made at a rate of 9.25% of the base fee (but only up to the Australian
Government’s prescribed maximum contributions limit) which satisfies the Company’s statutory superannuation
contributions. The contribution rate increased on 1 July 2014 to 9.5%. Contributions are not included in the base fee.
From 2003, no new NED was entitled to join the Cochlear directors’ retirement scheme. NEDs appointed prior to
this were members of the scheme, which provided NEDs with more than five years’ service, retirement benefits of
up to three times their annual remuneration over the previous three years.
On 23 October 2006, the Board determined that it should implement changes to NED remuneration consistent
with developing market practice and guidelines, by discontinuing the ongoing accrual of benefits under the
existing retirement scheme once the remaining members of the scheme reached their five year service period. The
benefits accrued to that date are indexed by reference to the bank bill rate.
All directors transitioned from the retirement scheme during F07. As at 30 June 2014, Edward Byrne is the only
NED entitled to this benefit. The accrued entitlement for Edward Byrne under the Cochlear directors’ retirement
scheme as at 30 June 2014 was $421,719.
Other benefits
Equity instruments
Other fees/benefits
NEDs do not receive any performance related remuneration, options or performance shares/rights.
NEDs receive reimbursement for costs directly related to Cochlear business.
No payments were made to NEDs during F14 for travel allowances, extra services or special exertions.
1. Committee fees are not paid to the Chairman of the Board.
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3.3 NED total remuneration
Amounts $
Rick Holliday-Smith (Chairman)
Yasmin Allen2,3
Paul Bell4
Edward Byrne3
Andrew Denver3
Donal O’Dwyer
Total
Short-term
benefits
Fees
Post-employment
benefits
Termination
benefits1
Superannuation
benefits
438,000
438,000
196,000
185,192
176,000
171,000
176,000
166,000
196,000
186,000
186,000
186,000
-
-
-
-
-
-
10,902
12,293
-
-
-
-
17,775
16,470
17,255
15,888
16,280
15,338
16,280
14,940
17,255
15,753
16,828
15,961
Total
455,775
454,470
213,255
201,080
192,280
186,338
203,182
193,233
213,255
201,753
202,828
201,961
1,368,000
1,332,192
10,902
12,293
101,673
94,350
1,480,575
1,438,835
Year
F14
F13
F14
F13
F14
F13
F14
F13
F14
F13
F14
F13
F14
F13
1. Amounts accrued for interest during the financial year relating to the directors’ retirement scheme.
2. Increased fee for Chair of Audit Committee.
3. Increases related to serving new Board committee responsibilities for the full year.
4. Increased fee for Chair of Human Resources Committee.
3.4 Minimum shareholding guidelines
The Board has approved minimum shareholding guidelines for NEDs, the CEO/President and those executives who report directly to the
CEO/President. Under these guidelines, all NEDs are requested to accumulate a minimum shareholding in Cochlear shares equivalent in
value to one year’s base fees and all executive KMP are requested to accumulate a minimum shareholding in Cochlear shares equivalent to
one year’s total fixed remuneration, calculated using the prior 365 day average closing share price.
The guidelines were implemented in March 2007. As at 30 June 2014, all executive KMP and NEDs were in compliance with the guidelines.
4.0 Executive remuneration
4.1 Executive KMP remuneration
Cochlear’s executive remuneration policies are designed to attract, motivate and retain a highly qualified and experienced group of
executives employed across diverse geographies. Fixed remuneration components are determined having regard to the specific skills and
competencies of the executive KMP with reference to both internal and external relativities, particularly local market conditions. The ‘at
risk’ components of remuneration are strategically directed to encourage management to strive for superior (risk balanced) performance
by rewarding the achievement of targets that are challenging, clearly defined, understood and communicated within the ambit of
accountability of the relevant executive KMP.
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Executive KMP remuneration objectives are exemplified through three categories of remuneration, as illustrated below:
Executive KMP remuneration objectives
Attract, motivate and retain
executive talent across diverse
geographies
The creation of reward
differentiation to drive
performance values and
behaviours components
An appropriate balance
of ‘fixed’ and ‘at risk’
components
Shareholder value creation
through equity components
Total target remuneration (TTR) is set by reference to the relevant geographic market
Fixed
At risk
Total fixed remuneration (TFR)
Short-term incentives (STI)
Long-term incentives (LTI)
TFR is set based on relevant market
relativities, reflecting responsibilities,
performance, qualifications, experience and
geographic location
STI performance criteria are set by reference
to Cochlear group and/or regional revenue
and EBIT and individual performance targets
relevant to the specific position
LTI targets are linked to both Cochlear group
internal EPS growth and external relative
TSR outperformance measures
Remuneration will be delivered as:
Base salary plus any fixed elements related
to local markets, including superannuation
or equivalents
Part cash and part equity (performance
rights). The equity component will be
subject to service and deferred for 2 years
Equity in options and/or performance rights.
All equity is held subject to service and
performance for 3 years from grant date. The
equity is at risk until vesting. Performance is
tested once at the vesting date
Strategic intent and market positioning
TFR will generally be positioned at the
median compared to relevant market based
data considering expertise and performance
in the role
Performance incentive is directed to
achieving Board approved targets, reflective
of market circumstances. TFR + STI is
intended to be positioned in the 3rd quartile
of the relevant benchmark comparisons
LTI is intended to reward executive KMP for
sustainable long-term growth aligned to
shareholders’ interests. LTI allocation values
are intended to be positioned at the top of
the 3rd quartile of the relevant benchmark
comparisons
Total target remuneration
TTR is intended to be positioned in the 3rd quartile compared to relevant market benchmark comparisons. 4th quartile TTR may result if outperformance is achieved.
The remuneration structure is designed to ensure top quartile executive KMP remuneration is only achieved if Cochlear outperforms
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4.2 Remuneration composition mix and timing of receipt
4.2.1 Current remuneration mix and amendments for F15
Cochlear endeavours to provide an appropriate and competitive mix of remuneration components balanced between fixed and at risk and
paid in both cash and deferred equity. The broad remuneration composition mix for executive KMP can be illustrated as follows:
Remuneration mix for F14
The review of executive remuneration last year (F13) involved shareholder feedback and market benchmarks to understand context
and positioning and detailed analysis of past remuneration outcomes using the new valuation methodology. Following the review of
remuneration, the Board decided to reweight the performance based elements of total target remuneration and to introduce a deferred
equity component to the STI plan for executive KMP. The effect of this reweighting and application of the new LTI allocation valuation
delivered a lower effective LTI value (through lower LTI allocations) offset by a higher STI opportunity and with a component value
equivalent to 30% of STI cash deferred into equity with a further two year vesting period. This change was made in response to the detailed
remuneration strategy review and to ensure executives are rewarded for sustained performance. The Board believes the new arrangements
better reflect contemporary standards and remuneration benchmark comparisons.
Position
CEO/President
Other executive KMP
TFR
(Cash) at target
33.4% of TTR
STI
at target
LTI
at target
33.3% of TTR
33.3% of TTR
At least 45.1% of TTR
Up to 32.3% of TTR
Up to 22.6% of TTR
The mix of remuneration for the CEO/President and other executive KMP will remain unchanged in F15.
Total fixed remuneration (TFR)
Cochlear’s approach to TFR settings is to aim to position all executives between the median and 75th percentile, but at the lower end of this
range where possible to control fixed costs, exchange rate movements notwithstanding. Only modest increases in TFR were approved in F14
to maintain this balanced approach. Cochlear’s approach to TFR settings will remain largely unchanged in F15.
Short-term incentives (STI)
Cochlear has consistently focused STI on achieving annual revenue and EBIT targets and personal objectives. To support Cochlear’s
balanced approach to TFR, Cochlear has set STI targets aimed at achieving a market competitive TFR + STI between the median and the
75th percentile when budgets are met. STI opportunity was increased in F14 following an independent assessment comprising a higher STI
opportunity and with the introduction of a component value, equivalent to 30% of STI cash earned, deferred into equity for the first time.
The LTI value was also reduced primarily as a function of changing the allocation value. The changes adopted in F14 will remain largely
unchanged in F15.
Long-term incentives (LTI)
As announced last year, the LTI opportunity is now calculated using the ‘gross contract value’. The change from ‘accounting value’ to
‘gross contract value’ materially reduced the number of equity units available for the designated LTI dollar opportunity. Accordingly, some
reweighting of the LTI was adopted in F14. The approach and methodology remain in F15.
Total target remuneration (TTR)
TTR under the remuneration mix adopted will, in the opinion of the Board, deliver an overall risk adjusted reward opportunity which is fair
and market competitive.
Shareholders should note that Cochlear has performance hurdles, particularly for LTI that are at the higher end of the market (S&P/ASX 100
companies) in terms of degrees of difficulty. Further, any LTI award will only have value to the executive if the performance hurdles are met
to enable vesting to occur, and for option related awards, the equity outcomes are positive in terms of share price movement (i.e. the share
price on vesting exceeds the exercise price). In F14, the LTI program delivered a nil outcome and the STI program within a range around 50%.
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4.2.2 Remuneration – timing of receipt of the benefit for F15 onwards
The three complementary components of executive KMP remuneration are ‘earned’ over multiple time ranges. This is illustrated in the
following chart:
Year 1
Year 2
Year 3
Year 4
Year 5
F14
F15
F16
TFR
STI cash opportunity
STI equity deferral (2 years)
LTI
TFR
STI cash opportunity
STI equity deferral (2 years)
LTI
TFR
STI cash opportunity
STI equity deferral (2 years)
LTI
Note: LTI is awarded in year 1 and earned at the end of year 3 but expensed over the three year service period.
As illustrated, executive KMP remuneration is delivered on a cascading basis, with a material component deferred for two (STI) and three
(LTI) years and awarded as equity. This remuneration mix is designed to ensure executive KMP are focused on delivering results over the
short, medium and long term if they are to maximise their remuneration opportunity. The Board believes this approach aligns executive
KMP remuneration to shareholder interests and expectations.
4.3 Total fixed remuneration explained
Total fixed remuneration (TFR) includes all remuneration and benefits paid to an executive KMP calculated on a total employment cost
basis. In addition to base salary, selected overseas executives receive benefits that may include health insurance, car allowances and
relocation allowances. In Australia, retirement benefits are generally paid in line with the statutory Superannuation Guarantee legislation
prevailing. Globally, retirement benefits are generally paid in line with local legislation and practice.
Executive KMP TFR is tested regularly for market competiveness by reference to appropriate independent and externally sourced
comparable benchmark information, including for comparable ASX listed companies, and based on a range of size criteria including market
capitalisation, taking into account an executive’s responsibilities, performance, qualifications, experience and geographic location.
Job evaluation methodologies are applied to assist with managing internal relativities.
TFR adjustments, if any, are made with reference to individual performance, an increase in job role or responsibility, changing market
circumstances as reflected through independent benchmark assessments or through promotion.
Any adjustments to executive KMP remuneration are approved by the Board, based on HRC and CEO/President recommendations.
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4.4 Variable (at risk) remuneration explained
As set out in section 4.2, variable remuneration forms a significant portion of the CEO/President and other executive KMP remuneration
opportunity. Apart from being market competitive, the purpose of variable remuneration is to direct executives’ behaviours towards
maximising Cochlear’s short, medium and long-term performance. The key aspects are summarised below:
4.4.1 Short-term incentives (STI)
Purpose
Performance targets
The STI arrangements at Cochlear are designed to reward executives for the achievement against annual
performance targets set by the Board at the beginning of the performance period. The STI program is reviewed
annually by the HRC and approved by the Board.
Any STI award in excess of the 100% budget opportunity is individually approved by the HRC. All STI awards to
the CEO/President and other executive KMP are approved by the HRC and Board.
The key performance objectives of Cochlear are currently directed to achieving Board approved sales revenue and
EBIT targets, and by the achievement of individual performance goals.
For the current year, sales revenue and EBIT targets had equal weighting.
The weighting between Cochlear group and regional sales revenue and EBIT will depend on the responsibilities
and scope of influence of the executive KMP. Individual performance goals account for a 20% weighting for
executive KMP based on a range of individual performance objectives including strategic objectives determined
each year.
80% of STI is based on financial targets set by the Board and having regard to prior year performance, global
market conditions, competitive environment, future prospects and the Board approved budgets. The specific
targets are not detailed in this report due to their commercial sensitivity.
Validation of performance against the measures set for:
• the CEO/President involves an independent review and endorsement by the Chief Financial Officer (CFO),
reviewed and approved by the HRC and Board; and
• other executive KMP involves a review by the CEO/President based on inputs from the CFO. Final review is
undertaken by the HRC and Board.
Any anomalies or discretionary elements are validated and approved by the Board.
Rewarding performance
The STI performance ratings are determined under a predetermined matrix with the Board determination final.
Mandatory deferral of STI
Effective from 1 July 2013, a mandatory deferral of a portion of STI was introduced to reinforce alignment with
shareholder interests. Grants will be calculated at the end of each year based on EBIT, revenue and individual
performance outcomes and then held for two years until vesting. This achieves additional retention and alignment
of executives with shareholder interests.
The deferred STI component for F14 will be calculated based on 30% of the STI cash amount earned and will be
delivered as performance rights.
The equity component will be independently determined based on the gross contract value using Cochlear’s five
day volume weighted average price following the announcement of full year results in August 2014, that is, based
on a Black-Scholes-Merton pricing model without discounting for service or performance hurdles.
Once the STI awarded as performance rights has been granted, there are no further performance measures
attached to the performance rights other than continued tenure for the vesting period (two years).
Directors’ Report Cochlear Limited for the year ended 30 June 2014AR 14InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 42
Table 1 – Executive KMP STI opportunity and actual F14 STI awarded1
Executive KMP
Position
Chris Roberts
Richard Brook
Jan Janssen
CEO/President
President, European Region2
Senior Vice President, Design and
Development, Clinical and Regulatory
Neville Mitchell
CFO and Company Secretary
Mark Salmon
Chris Smith
President, Asia Pacific Region
President, Americas Region2
Target STI as a %
of F14 TTR
STI awarded as a %
of TTR
Actual cash and
deferred STI award
in F14 ($)
Actual STI forfeited
in F14 as a % of
TTR
33.3%
24.5%
32.3%
32.3%
32.3%
31.5%
18.1%
21.1%
17.7%
17.7%
15.9%
22.2%
760,572
277,426
198,521
244,433
204,584
335,718
15.2%
3.4%
14.6%
14.6%
16.4%
9.4%
1. Includes the monetary value of STI cash combined with the monetary value of STI deferral.
2. European and US based Regional Presidents’ total target remuneration is benchmarked and paid in local currency.
F14 STI payments are similar to those paid in F13 for the KMP. This reflects a number of factors:
• increase in STI target opportunity;
• business performance with EBIT, revenue and individual outcomes resulting in payments within a range between 49.1% – 86.1% of target;
• the patent dispute provision detailed in Note 20 to the financial statements was excluded for the calculation of STI;
• currency fluctuations; and
• momentum built with increased revenues, and careful investment in growth initiatives and cost management and second half guidance met.
4.4.2 Long-term incentives (LTI)
The LTI provides an annual opportunity for executive KMP and other selected executives (based on their ability to influence and
execute strategy) to receive an equity award deferred for three years, that is intended to align a significant portion of executives’ overall
remuneration to shareholder value over the longer term. All LTI awards remain at risk and subject to forfeiture or lapse until vesting and
must meet or exceed EPS growth rates and/or relative TSR performance hurdles over the vesting period.
Purpose
To align executive KMP remuneration opportunity with shareholder value and provide retention stimulus.
Types of equity awarded
LTI up to F13 was provided under the Cochlear Executive Long Term Incentive Plan. See section 5.1 for further details.
A new plan, the Cochlear Executive Incentive Plan (CEIP), was introduced in July 2013. See section 5.1 for
further details.
Under the CEIP, selected senior executives are offered options (being an option at a pre-set exercise price to
acquire ordinary shares of Cochlear Limited) or performance rights (being a nil exercise price right to fully paid
ordinary shares of Cochlear Limited) or a combination of both.
Time of grant
All equity grants will be made after the AGM each year but based on values determined in August.
Time restrictions
Equity grants awarded to the CEO/President and other executive KMP are tested against the performance hurdles
set, at the end of three financial years. If the performance hurdles are not met at the vesting date, options or
performance rights lapse.
Performance hurdles and
vesting schedule
Equity grants to the CEO/President and other executive KMP are in two equal tranches assigned 50% to
compound annual growth in EPS and 50% subject to ranking of TSR against the S&P/ASX 100. The performance
conditions applying to the latest grant (F14) were as follows:
Compound annual growth in EPS (3 years)
Ranking of TSR against S&P/ASX 100 (3 years)
Performance
% of equity to vest
Performance
% of equity to vest
< 10%
0%
< 50th percentile
0%
10% to 20%
50% to 100% pro-rata
50th to 75th percentile
40% to 100% pro-rata
> 20%
100%
> 75th percentile
100%
Options and performance rights vest if the time restrictions and relevant performance hurdles are met. The
Board must approve any special provisions, in accordance with Company policies, in the event of termination of
employment or a change of control. After the three year vesting schedule, any vested options expire after seven
months if they have not been exercised.
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Dividends
No dividends are attached to options or performance rights.
Voting rights
There are no voting rights attached to options or performance rights.
Retesting
There is no retesting of performance hurdles under Cochlear LTI.
LTI allocation
The size of individual LTI grants for the CEO/President and other executive KMP is determined in accordance with
the Board approved remuneration strategy mix. See section 4.2.
The allocation methodology for options and performance rights was changed effective from 1 July 2013. The
target LTI dollar value for each executive is converted to options and/or performance rights according to new
LTI allocation values and is independently determined based on the gross contract value of the relevant equity
instrument and based on a Black-Scholes-Merton pricing model without discounting for service or EPS and TSR
performance hurdles:
• performance option allocation = LTI dollar value/Black-Scholes-Merton value before service or EPS and TSR
performance discounts; and/or
• performance right allocation = LTI dollar value/Black-Scholes-Merton value before service or EPS and TSR
performance discounts.
Table 2 – Vesting outcomes (performance shares and options granted F10 to F12)
Performance shares
Grant date
Vesting timeframe
EPS 3 year
CAGR1
% vested2
% forfeited Relative 3 year
TSR ranking
percentile
% vested2
% forfeited Market price on
vesting date
17-Aug-09
Vested June 2012
16-Aug-10
Vested June 2013
15-Aug-11
Vested June 2014
-24.6%
-5.5%
-19.7%
0.0%
0.0%
0.0%
100.0%
100.0%
100.0%
65th
28th
32nd
79.3%
0.0%
0.0%
20.7%
100.0%
100.0%
$64.40
N/A
N/A
Options
Grant date
Vesting timeframe
Exercise price
EPS 3 year
CAGR1
%
vested2
%
forfeited
17-Aug-09
Vested June 2012
16-Aug-10
Vested June 2013
15-Aug-11
Vested June 2014
$60.04
$69.80
$68.56
-24.6%
-5.5%
-19.7%
0.0%
0.0%
0.0%
100.0%
100.0%
100.0%
1. Compound annual growth rate.
2. All plan participants had the same vesting and forfeiture percentage outcome.
Relative 3
year TSR
ranking
percentile
65th
28th
32nd
%
vested2
%
forfeited
Net market
value at
vesting
79.3%
20.7%
$4.36
0.0%
0.0%
100.0%
100.0%
N/A
N/A
Directors’ Report Cochlear Limited for the year ended 30 June 2014AR 14InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 44
4.5 Other remuneration elements and disclosures relevant to executive KMP
4.5.1 Clawback
Cochlear implemented a clawback policy to take effect from 1 July 2014 to ensure compliance with ASX requirements. There have been no
circumstances where the policy would have applied.
4.5.2 Hedging and margin lending prohibition
Under the Cochlear Trading Policy and in accordance with the Corporations Act, equity granted under Cochlear equity incentive schemes
must remain at risk until vested, or until exercised if options or performance rights. It is a specific condition of grant that no schemes are
entered into, by an individual or their associates that specifically protect the unvested value of performance shares, options or performance
rights allocated.
Cochlear also prohibits the CEO/President or ‘Designated Persons’ (including other executive KMP) providing Cochlear securities in
connection with a margin loan or similar financing arrangement unless that person has received a specific notice of no objection in
compliance with the policy.
Cochlear, in line with good corporate governance, has a formal policy setting down how and when employees of Cochlear may deal in
Cochlear securities.
Cochlear’s Trading Policy is available on the Cochlear website www.cochlear.com under Investor Centre, corporate governance.
4.5.3 Cessation of employment provisions
The provisions that apply for STI and LTI awards in the case of cessation of employment are detailed in sections 6.1 (Service contracts) and
6.2 (Employment agreements).
4.5.4 Conditions of LTI grants
The conditions under which LTI (performance rights and options) are granted, and are approved by the Board in accordance with the
relevant scheme rules, are as summarised in section 5.
4.5.5 Minimum shareholding guidelines
The purpose of the Cochlear NED and executive share ownership guidelines is to ensure appropriate alignment of the interests of Cochlear’s
KMP with the financial interests of Cochlear’s shareholders.
The guidelines aim to create a share ownership focus and culture and to build long-term commitment to the Company by providing
direction to KMP as to minimum levels of share ownership.
Each executive KMP should hold Cochlear Limited shares or vested options to an amount that is equivalent to the prior year’s TFR, or one
time’s base fees for NEDs, based on the 365 day average Cochlear Limited share price for the prior year.
The guidelines were introduced in March 2007 and all executive KMP were expected to acquire the relevant number of shares over three
years from implementation of the guidelines. As at 30 June 2014, all executive KMP were in compliance with the guidelines.
4.6 Relationship between Cochlear performance and executive KMP remuneration
4.6.1 Cochlear financial performance (F10 to F14)
Sales revenue ($million)
EBIT ($million)
NPAT ($million)
Basic EPS (cents)
Total dividend per share (cents)
Share price as at 30 June ($)
F10
696.2
220.5
155.2
275.7
200.0
74.32
F11
732.2
242.7
180.1
318.2
225.0
72.00
F12
704.6
76.5
56.8
100.0
245.0
65.84
F13
715.0
178.9
132.6
233.0
252.0
61.71
F14
820.9
127.1
93.7
164.6
254.0
61.70
For further explanation of details on Cochlear performance, see the Principal activities and review of operations and results section of the
Directors’ Report on pages 23 to 30.
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4.6.2 Cochlear current year performance and relationship to executive KMP remuneration
Cochlear sales grew 15% year on year with second half sales revenue up 28% on the corresponding period last year. New product launches
combined with investments in market growth initiatives drove this growth. In F14, a provision of $22.5 million was expensed in relation to
the patent dispute lawsuit. A loss of $16.0 million (F13 profit of $37.7 million) was made on foreign exchange contracts. Earnings per share
in F14 of 164.6 cents was 29% below F13.
The Board evaluates STI each six months and considers the mix of components and targets to ensure they remain focused but sensitive to
market challenges.
The STI payouts to KMP this year ranged from 49.1% to 54.9% of their opportunity, with the exception of the President of the Americas
Region and the President of the European Region who earned 70.3% and 86.1% of their opportunity respectively. This reflects the relatively
stronger bone anchored solutions and European regional performance in F14 as explained in the Principal activities and review of operations
and results section.
The executive KMP again performed at expectations with respect to their personal objectives.
The Board believes that the payout ratios on STI in F14 fairly reflected individual, business and Cochlear performance expectations and that
overall executive KMP remuneration remain aligned to Company performance.
4.6.3 Cochlear EPS and TSR performance (F10 to F14) and relationship to executive KMP remuneration
As explained in section 4.1, Cochlear’s remuneration framework aims to incentivise executive KMP towards long-term sustainable growth of
the business internationally and the creation of shareholder value in the short, medium and long term. This is developed in two ways:
• cash (and equity) STI, whether paid immediately or deferred, depend on revenue and EBIT performance and outcomes for the completed
performance year (as explained in section 4.4.1); and
• LTI, in the form of options and performance rights, are linked to compound annual growth in EPS and relative TSR performance (as
explained in section 4.4.2).
EPS (internal) and relative TSR (external) are generally accepted proxies for creation of shareholder value. It is the Board’s intention to
review the suitability of these performance criteria and settings on a regular basis to ensure they best serve shareholders’ interests.
Earnings per share (EPS)
Cochlear’s basic EPS over the last five years is displayed in the graph below:
318.2
275.7
F10
F11
For more information, see the Directors’ Report.
233.0
164.6
F13
F14
100.0
F12
The table below illustrates Cochlear’s compound annual growth in basic EPS in respect of performance for grants from F10 to F12:
Grant date
17-Aug-09
16-Aug-10
15-Aug-11
Compound annual EPS growth
EPS vesting performance
F10
18.0%
F11
16.7%
15.4%
F12
-24.6%
-39.8%
-68.6%
F13
F14
-5.5%
-14.4%
-19.7%
0.0%
0.0%
0.0%
Refer the Principal activities and review of operations and results section of the Directors’ Report on pages 23 to 30 for details on the
performance of Cochlear.
As a result of Cochlear underachieving the EPS growth targets set, none of the 2011 equity grants vested.
Directors’ Report Cochlear Limited for the year ended 30 June 2014AR 14InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 46
Total shareholder return (TSR) – unaudited
Cochlear’s relative TSR performance over the relevant performance periods up to 30 June 2014 in respect of vested equity grants is set out
below. This information is unaudited.
Grant date
17-Aug-09
16-Aug-10
15-Aug-11
Relative 3 year TSR
percentile ranking
TSR vesting performance
65th
28th
32nd
79.3%
0.0%
0.0%
TSR is a function of share price growth and dividends reinvested. However, Cochlear’s performance over time, is affected by a range
of variables, including currency volatility, global economic and geopolitical conditions, market growth for its products and other
competitive pressures.
Cochlear did not meet the minimum threshold of TSR performance for the 2011 equity grants, so none of the 2011 equity grants vested.
4.7 Executive remuneration table – audited statutory disclosure (accounting cost to Cochlear)
Year
Fixed remuneration
Variable remuneration
Total
Proportion of total
remuneration
Amounts $
Name
Short-term
Other employment costs
Total
Salary
Non-
monetary
benefits1
Super-
annuation
benefits
Long
service
leave
Short-
term2
Bonus
Deferred
STI3
Value of
options
Chris Roberts6
F14
1,384,305
F13
1,349,920
-
-
17,775
40,218 1,442,298 585,055
58,506
767,593
16,470
36,468 1,402,858
701,125
-
538,118
Value of
perform-
ance
shares/
rights
-
-
Long-
term4,5
Total
Performance
related
Equity related
%
%
1,411,154 2,853,452
49.5%
29.0%
1,239,243
2,642,101
46.9%
550,499
77,685
90,433
461,027
65,909
77,526
-
-
718,617 213,405
21,340
126,994
27,480
389,219 1,107,836
604,462
166,468
-
123,627
-
290,095
894,557
487,444
473,605
524,363
507,936
567,844
550,889
-
-
-
-
-
-
17,775
17,165
522,384 152,708
15,271
82,980
71,230
322,189
844,573
16,470
40,906
530,981
136,314
-
79,450
36,435
252,199
783,180
129,280
15,001
668,644 188,025
18,803
90,228
103,626
400,682 1,069,326
134,724
17,895
660,555
168,523
-
72,697
78,284
319,504
980,059
17,775
28,534
614,153
157,372
15,737
64,668
131,483
369,260
983,413
16,470
(540)
566,819
216,151
-
50,833
102,536
369,520
936,339
35.1%
32.4%
38.1%
32.2%
37.5%
32.6%
37.5%
39.5%
20.4%
15.9%
13.8%
20.1%
14.8%
19.9%
15.4%
21.5%
16.4%
670,243
22,264
13,562
540,868
20,708
12,235
-
-
706,069 258,245
25,824
140,147
59,964
484,180 1,190,249
40.7%
19.0%
573,811
132,934
-
138,301
11,954
283,189
857,000
4,184,698
99,949
286,600 100,918 4,672,165 1,554,810
155,481
1,272,610
393,783 3,376,684 8,048,849
3,884,245
86,617
273,895
94,729 4,339,486 1,521,515
-
1,003,026
229,209 2,753,750 7,093,236
33.0%
42.0%
38.8%
17.5%
22.6%
17.4%
1. Benefits include the provision of pension plans, car allowances, health insurance, and relocation costs which are market based payments.
2.
Short-term and long-term incentive bonuses are awarded annually. The service and performance criteria are set out in this report. See section 4.4.1 Table 1 for more detail on F14 STI payments delivery. For F14,
STI paid represent 49.1% to 54.9% of executive KMP opportunity, with the exceptions of the President of the Americas Region and the President of the European Region who earned 70.3% and 86.1% of their
opportunity respectively.
3. Deferred STI is ‘invested’ in performance rights and deferred for two years. The cost of the plan is expensed across three years, and this amount represents the portion of F14 STI deferral expensed in F14.
4. The value of options and performance shares/rights is calculated at the date of grant using the Black-Scholes-Merton pricing model discounted for vesting probabilities of performance criteria. The value of options and
performance shares/rights is allocated to each reporting period evenly over the period from grant date to vesting date. The amount expensed each reporting period includes adjustments to the life-to-date expense of
grants based on the reassessed estimate of achieving non-market performance criteria and final vesting amounts for the non-market performance criteria options and performance shares/rights.
The value disclosed above is the portion of the value of the options and performance shares/rights recognised as an expense in the financial year. The ability to exercise the options and performance shares/rights is
conditional on Cochlear achieving certain performance hurdles. Further details of options and performance rights granted during the financial year are set out in this report.
The total value of options and performance shares/rights recognised in the current financial year for each executive KMP is higher than in the previous financial year due to a change in assumptions on discounts used for
vesting probabilities related to plans that are yet to vest.
5.
6. Chris Roberts is an executive director.
7. Year on year increases in fixed remuneration are largely attributable to currency fluctuations.
8. CFO remains on a defined contribution superannuation plan based on a fixed percentage of salary.
9. Total remuneration increase reflects a 3% base increase and increased long service leave accrual.
10. Year on year increases in fixed remuneration are attributable to currency fluctuation and market based salary increase.
Richard Brook7
Jan Janssen
Neville Mitchell8
Mark Salmon9
Chris Smith10
Total
Total
F14
F13
F14
F13
F14
F13
F14
F13
F14
F13
F14
F13
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4.8 Executive remuneration table – unaudited
This table represents the value to the executive of cash paid and vested equity awards (intrinsic value) received during the year and unvested
equity awards (IFRS-2 value) granted during the financial year, at risk. The LTI equity granted is a value determined under IFRS-2 which
may or may not vest depending on future outcomes that are uncertain. Accordingly, this table incorporates data that could represent the
accumulation of outcomes arising from multiple years.
Year
Fixed remuneration and cash incentives received
Past at risk
remuneration received
during year
Actual
remuneration
received
Future at risk remuneration received
Amounts $
Fixed
remuneration1
Incentives2
Total cash
Intrinsic value of
vested options3
Intrinsic value
of vested
performance
shares3
Incentives
(deferred as
cash)4
Deferred STI
LTI (equity)
granted during
year5
Chris Roberts
Richard Brook
Jan Janssen
Neville Mitchell
Mark Salmon
Chris Smith
Total
Total
F14
F13
F14
F13
F14
F13
F14
F13
F14
F13
F14
F13
F14
F13
1,402,080
509,264
1,911,344
-
1,366,390
780,312
2,146,702
38,802
718,617
167,620
886,237
-
604,462
162,124
766,586
13,019
505,219
114,439
619,658
-
490,075
148,124
638,199
9,507
653,643
141,000
794,643
-
642,660
183,638
826,298
13,697
585,619
160,541
746,160
-
567,359
192,616
759,975
12,809
706,069
161,941
868,010
-
573,811
160,574
734,385
14,818
4,571,247
1,254,805
5,826,052
-
4,244,757
1,627,388
5,872,145
102,652
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,911,344
375,483
175,517
1,030,699
2,185,504
299,692
-
1,026,353
886,237
130,730
64,021
170,649
779,605
619,658
647,706
84,945
97,871
59,602
-
184,030
45,813
156,874
-
196,030
794,643
120,615
56,408
204,133
839,995
73,590
-
242,593
746,160
112,690
47,212
185,579
772,784
115,859
-
254,190
868,010
148,052
77,473
222,477
749,203
51,748
-
250,102
5,826,052
5,974,797
985,441
685,436
466,444
1,970,411
-
2,153,298
1. Represents the value of base salary, non-monetary benefits and superannuation received during the year (excludes the accrued value of long service leave).
2. Represents STI payments received during the financial year. For example, F14 data includes F13 second half-year STI and F14 first-half year STI payments.
3. Reflects the intrinsic value of vested employee share scheme benefits at the end of the financial year.
4. Reflects STI payments related to the current financial year but paid in future years. For example, F14 data includes the F14 second-half year STI payment scheduled for payment during F15.
5.
Represents the value of equity grants (options and/or performance rights) calculated at the date of grant using the Black-Scholes-Merton pricing model discounted for vesting probabilities of performance criteria.
These grants were awarded during the year, are unvested and will be subject to achievement of future performance hurdles.
Directors’ Report Cochlear Limited for the year ended 30 June 2014AR 14InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 48
5.0 Employee share scheme and other share information
This section provides:
1. a description of the employee share schemes (ESS) Cochlear uses to provide equity rewards to Cochlear employees;
2. disclosures required in relation to ESS grants provided to executive KMP;
3. disclosures required about ESS instruments that Cochlear has issued;
4. disclosures required in relation to Cochlear Limited shares and other ESS instruments held by executive KMP;
5. Cochlear’s share ownership guidelines; and
6. Cochlear’s Trading Policy.
5.1 Employee share schemes operated by Cochlear
Plan details
Cochlear Employee Share
Plan (CESP)
Date established: 1999
Type of instruments
Ordinary shares
Details
Issue of ordinary shares annually
to eligible employees.
Cochlear Executive Long Term
Incentive Plan (CELTIP)
Date established: 2003 AGM
Ordinary shares (options and/or
performance shares)
Cochlear Executive Incentive
Plan (CEIP)
Date established: July 2013
Awards consisting of ordinary shares;
performance rights; options; and/or
share appreciation rights
A long-term performance
incentive scheme designed to
reward participants for achieving
market competitive EPS growth
and relative TSR, as approved.
Participants receive options and/
or performance shares based on a
predetermined formula.
A performance incentive
scheme designed to reward
participants for achieving market
competitive business outcomes.
Participants receive an award
based on a predetermined formula,
as approved by the Board from
time to time based on market
standards and trends.
Purpose
The purpose of the CESP is to
encourage general employee
equity participation through tax
concessional legislation which
currently facilitates tax effective
issues of up to $1,000 worth
of shares annually per eligible
employee. Under the 2013 (FY14)
grant, 1,318 employees each
received an award of 16 shares
under the plan. Executive KMP and
other executives rewarded under
the Cochlear Executive Long Term
Incentive Plan or the Cochlear
Executive Incentive Plan are not
eligible for this program.
The purpose of the CELTIP is
to encourage employees and
executives of Cochlear to receive
performance shares or performance
options. Vesting of performance
shares and performance options
occurs only if Cochlear achieves
challenging and market competitive
EPS growth and relative TSR hurdles.
Target allocations are made based
on seniority, the ascribed LTI
remuneration value and a value
formula approved by shareholders
in 2003.
The purpose of the CEIP is to develop
the principles established with the
CELTIP but to create greater flexibility
in award structure to cater for
Cochlear’s expanding geography and
to meet changing market standards
and expectations. The offer terms
for CEIP awards will be flexible but
will meet contemporary LTI design
standards. The first grant of options
and performance rights under this
plan was made on 15 October 2013.
Also refer section 4.4.2.
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5.2 Employee share scheme grants to executive KMP
5.2.1 Analysis of share based payments granted as remuneration
Details of vesting profile of the options and performance shares/rights granted as remuneration to each executive KMP are set out below:
Chris Roberts
Richard Brook
Jan Janssen
Neville Mitchell
Mark Salmon
Chris Smith
Grant date
Number
granted
Number
vested
17-Aug-09
16-Aug-10
15-Aug-11
13-Aug-12
58,599
86,272
117,620
231,161
15-Oct-13
123,023
23,235
-
-
-
-
Options
Number
forfeited/
lapsed1
58,599
86,272
-
-
-
Total
616,675
23,235
144,871
17-Aug-09
16-Aug-10
15-Aug-11
13-Aug-12
15-Oct-13
19,663
17,674
23,495
41,448
7,249
Total
109,529
17-Aug-09
16-Aug-10
15-Aug-11
13-Aug-12
15-Oct-13
Total
17-Aug-09
16-Aug-10
15-Aug-11
13-Aug-12
15-Oct-13
Total
17-Aug-09
16-Aug-10
15-Aug-11
13-Aug-12
15-Oct-13
Total
17-Aug-09
16-Aug-10
15-Aug-11
13-Aug-12
15-Oct-13
14,358
17,559
11,128
26,491
6,664
76,200
20,686
21,302
27,538
10,928
13,723
94,177
19,344
22,363
28,859
-
10,239
80,805
22,379
-
20,823
45,063
14,955
7,796
-
-
-
-
7,796
5,693
-
-
-
-
5,693
8,202
-
-
-
-
8,202
7,670
-
-
-
-
19,663
17,674
-
-
-
37,337
14,358
17,559
-
-
-
31,917
12,484
21,302
-
-
-
33,786
11,674
22,363
-
-
-
7,670
8,873
34,037
22,379
-
-
-
-
-
-
-
-
Total
103,220
8,873
22,379
Performance shares/rights3
Market value of
exercised options ($)2
Number
granted
Number
vested
Number
forfeited/
lapsed
Market value of vested
shares ($)4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,617
3,617
-
-
2,234
2,473
3,325
8,032
-
-
-
6,120
2,934
9,054
-
-
-
8,016
3,284
11,300
-
5,781
1,045
1,577
3,198
11,601
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,781
-
-
-
5,781
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1. For the F10 grant, this column includes options that were forfeited due to not having met performance hurdles and options that vested that were not exercised and subsequently lapsed.
2. The market value of exercised options calculated as at the closing market price of shares of the Company on the ASX on the date of exercise less the applicable exercise price times the number of options.
3. Under grants made under CELTIP from 2009 to 2012, participants could elect to receive options or performance shares, so all holdings referred to under “Performance shares/rights” granted from 2009 to 2012 represent
performance shares. Under the CEIP, participants could elect to receive options or performance rights, so all holdings referred to under “Performance shares/rights” granted in 2013 represent performance rights.
4. The market value of vested performance shares calculated as at the closing market price of shares of the Company on the ASX on the date of vesting times the number of performance shares.
Directors’ Report Cochlear Limited for the year ended 30 June 2014AR 14InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 50
The options granted in F14 have an exercise price of $59.13 and an expiration date of 10 March 2017. The options granted during the year
have a fair value (IFRS-2) of $11.38 at grant date for options with EPS performance based conditions and $9.93 at grant date for options
with TSR based conditions. The performance rights granted during the financial year had a fair value (IFRS-2) at grant date of $53.22 for
performance rights with EPS performance based conditions and $28.85 at grant date for performance rights with TSR based conditions.
5.2.2 Exercise of options and performance shares/rights granted as remuneration
During F14, no options were exercised by the CEO/President or by other executive KMP. Those executives with vested options remaining
from the F10 CELTIP grant were unable to exercise them due to market conditions, and the F11 CELTIP grant did not meet the performance
hurdles so there was no vesting from this grant.
There are no amounts unpaid on the shares issued as a result of the exercise of the options in prior years.
5.2.3 Analysis of movement in options and shares
The movement in number and value during the financial year of options over ordinary shares of Cochlear Limited acquired under the CELTIP
and CEIP held by executive KMP is detailed below:
Opening value
Granted in year
Exercised in year
Forfeited/lapsed in year
Closing value
Number
Value ($)1
Number
Value ($)2
Number
Value ($)3
Number
Value ($)4
Number
Intrinsic
value ($)5
Chris Roberts
458,288
3,022,568
123,023
1,030,699
Richard Brook
Jan Janssen
Neville Mitchell
Mark Salmon
Chris Smith
90,413
60,871
59,768
51,222
74,759
769,505
535,382
7,249
6,664
60,733
55,832
607,332
13,723
114,973
571,647
10,239
85,783
556,004
14,955
125,294
Total
795,321 6,062,438
175,853 1,473,314
-
-
-
-
-
-
-
-
-
-
-
-
-
-
109,507
1,280,015
471,804
316,169
25,470
291,167
72,192
18,630
23,252
269,711
44,283
17,126
21,302
261,373
52,189
35,268
22,363
274,391
39,098
26,314
8,873
84,575
80,841
38,434
210,767 2,461,232
760,407
451,941
The movement in number and value during the financial year of performance shares/rights acquired under the CELTIP and CEIP held by
executive KMP is detailed below:
Opening value
Granted in year
Exercised in year
Forfeited/lapsed in year
Closing value
Number
Value ($)1
Number
Value ($)2
Number
Value ($)3
Number
Value ($)4
Number
Intrinsic
value ($)5
Chris Roberts
Richard Brook
Jan Janssen
-
-
-
-
-
-
3,617
109,916
4,707
215,217
3,325
101,042
Neville Mitchell
6,120
249,027
8,016
326,177
8,403
414,055
2,934
3,284
3,198
89,160
99,796
97,183
27,246 1,204,476
16,358
497,097
Mark Salmon
Chris Smith
Total
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,617
223,169
8,032
495,574
9,054
558,632
11,300
697,210
5,781
296,284
5,820
359,094
5,781
296,284
37,823 2,333,679
1.
2.
3.
The value derived under IFRS-2 of remaining options and performance shares granted but not yet forfeited, lapsed or exercised at the beginning of the financial year is the value of the options and performance shares
calculated at grant date using the Black-Scholes-Merton pricing model and discounted for vesting probabilities of performance criteria. The total value of the options and performance shares granted is included in the
table above.
The value derived under IFRS-2 of options and performance rights granted during the financial year is the value of the options and performance rights calculated at grant date using the Black-Scholes-Merton pricing
model and discounted for vesting probabilities of performance criteria. The total value of the options and rights granted is included in the table above. This amount is allocated to remuneration over the vesting period
(i.e. in each of F14 to F16).
The calculated value of options exercised during the year is calculated as the market price of shares of the Company on the ASX as at close of trading on the date the options were exercised after deducting the price
paid or payable to exercise the option.
4. Value is calculated under IFRS-2 on date of grant.
5.
The intrinsic value of options and performance shares/rights calculated as at the closing market price of shares of the Company on the ASX on 30 June 2014 less the applicable exercise price times the number of
options (negative values are treated as zero in the totals) and performance shares/rights as at the closing market price of shares of the Company on the ASX on 30 June 2014.
Directors’ Report Cochlear Limited for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+ 51
5.3 Potential dilution if options vest and ordinary shares issued – unaudited
At the date of this report, the number of ordinary shares that would be issued if all options were vested, having met the service and
performance conditions, and exercised and assuming ordinary shares were issued, is as follows:
Grant date
Number of options
Issued
Exercised
Forfeited/
lapsed
At report
date
Exercise price per
share ($)
Exercise period
Current net value of
outstanding options
as at 30 June 2014
($)1
17-Aug-092
16-Aug-103
15-Aug-114
13-Aug-124
15-Oct-13
Total
85,674
399,869
517,065
735,392
224,314
1,962,314
-
-
-
-
-
-
85,674
399,869
-
-
60.04 Aug-12 to 30-Jun-14
69.80 Aug-13 to 30-Jun-15
32,178
484,887
68.56 Aug-14 to 30-Jun-16
28,265
707,127
62.78 Aug-15 to 30-Jun-17
-
224,314
59.13 Aug-16 to 10-Mar-17
545,986 1,416,328
-
-
-
-
576,487
576,487
1. Price as at 30 June 2014 was $61.70. The exercise price for options granted in F12 and F13 was above the market price as at 30 June 2014.
2. Lapsed options from the F10 grant relate to vested options that were not exercised and expired.
3. No options from the F11 grant vested.
4. Lapsed options from unvested grants (granted in F12 and F13) relate to plan members who have departed Cochlear.
5.4 KMP equity interests – unaudited
In accordance with the Corporations Act (section 205G(1)), Cochlear is required to notify the interests (shares and rights to shares) of
directors to the ASX.
In the interests of transparency and completeness of disclosure, this information is provided for each NED (as required under the
Corporations Act) and all executive KMP as well.
Please refer sections 4.5.2 (Hedging and margin lending prohibition) and 4.5.5 (Minimum shareholding guidelines).
The table below indicates Cochlear Limited shareholding:
NEDs
Held at 1 July 2013
Purchases
Sales
Cochlear Limited
ordinary shares as at 30
June 2014
Total intrinsic value
of Cochlear Limited
securities as at year end
($)3
Rick Holliday-Smith
Yasmin Allen
Paul Bell
Edward Byrne
Andrew Denver
Donal O’Dwyer
Total NEDs
9,250
2,950
3,000
3,250
4,000
5,000
27,450
-
-
-
-
-
1,000
1,000
-
-
-
-
-
-
-
9,250
2,950
3,000
3,250
4,000
6,000
570,725
182,015
185,100
200,525
246,800
370,200
28,450
1,755,365
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The table below indicates Cochlear Limited shareholding including any vested but unexercised options and performance shares:
Executive KMP
Held at 1 July
2013
Purchases
Received on
exercise of
options and
performance
shares
Sales
Cochlear
Limited
ordinary shares
as at 30 June
2014
Vested options
over Cochlear
Limited
ordinary
shares1
Vested
performance
shares over
Cochlear
Limited
ordinary
shares2
Total intrinsic
value of
Cochlear
Limited
securities as at
year end ($)3
Executive director
Chris Roberts
Other executives
Richard Brook
Jan Janssen
Neville Mitchell
Mark Salmon
Chris Smith
Total executive KMP
719,803
-
7,700
13,328
10,000
7,240
10,000
768,071
-
3,500
-
908
-
4,408
-
-
-
-
-
-
-
-
719,803
-
(10,930)
-
-
-
(10,930)
7,700
5,898
10,000
8,148
10,000
761,549
-
-
-
-
-
-
-
-
-
-
-
-
-
-
44,411,845
475,090
363,907
617,000
502,732
617,000
46,987,574
1. The number of vested but unexercised options.
2. The number of vested but unexercised performance shares.
3.
The intrinsic value of Cochlear Limited ordinary shares and vested performance shares as at the closing Cochlear Limited share price on the ASX on 30 June 2014, plus the intrinsic value of vested options calculated as
at the closing Cochlear Limited share price on the ASX on 30 June 2014 less the applicable exercise price times the number of options (negative values are treated as zero in the totals). Please note the share ownership
guidelines apply an average share price to NEDs’ and executive KMP’s holdings, not intrinsic value at year end.
The table below indicates any unvested options and performance shares/rights issued to executive KMP but still subject to performance hurdles:
Unvested options over Cochlear
Limited ordinary shares1
Unvested performance shares/rights
over Cochlear Limited ordinary shares2
Total intrinsic value of unvested
options and performance shares/rights
as at year end ($)3
Executive director
Chris Roberts
Other executives
Richard Brook
Jan Janssen
Neville Mitchell
Mark Salmon
Chris Smith
Total executive KMP
471,804
72,192
44,283
52,189
39,098
80,841
760,407
-
3,617
8,032
9,054
11,300
5,820
37,823
316,169
241,799
512,700
593,900
723,524
397,528
2,785,620
1 . The number of unvested options.
2. The number of unvested performance shares/rights.
3.
The intrinsic value of unvested performance shares/rights as at the closing Cochlear Limited share price on the ASX on 30 June 2014 and the intrinsic value of unvested options calculated as at the closing Cochlear
Limited share price on the ASX on 30 June 2014 less the applicable exercise price times the number of options (negative values are treated as zero in the totals).
6.0 Service contracts and employment agreements – audited
6.1 Service contracts
Cochlear does not enter into service contracts for executive KMP, other than the CEO/President.
The following sets out details of the service contract terms for the current CEO/President, Dr Roberts:
Length of contract
Dr Roberts is on a permanent contract, which is an ongoing employment contract until notice is given by
either party.
Notice periods
In order to terminate the employment arrangements, Dr Roberts is required to provide Cochlear with six months’
written notice. Cochlear must provide Dr Roberts with 12 months’ written notice.
Termination on notice
by Cochlear
Cochlear may terminate employment by providing six months’ written notice or payment in lieu of the notice
period based on total fixed remuneration (TFR). On termination on notice by Cochlear, unless the Board
determines otherwise Dr Roberts shall receive:
• payment equivalent to 12 months’ TFR;
• pro-rated STI benefits for the months of service in the financial year to which the plan relates; and
• if determined by the Board, in its sole discretion, the entitlements (if any) to LTI benefits.
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Death or total and
permanent disability
If Cochlear terminates employment for reasons of death or total and permanent disability, a severance payment
will be made that is equal to 12 months’ TFR.
All STI and LTI benefits are either:
• released in full or on a pro-rata basis; or
• remain subject to performance requirements clawback and are released at the original vesting date,
at the discretion of the Board with regard to the circumstances.
On death or total and permanent disability, the Board has discretion to allow unvested STI and LTI benefits to vest.
Statutory entitlements
Payment of statutory entitlements of long service leave and annual leave applies in all events of separation.
Post-employment restraints
For a period of 12 months after termination date without the consent of Cochlear for engagement in business
competition or to induce Cochlear NEDs or staff to terminate their employment.
6.2 Employment agreements
Other executive KMP operate under employment agreements.
The following sets out details of the employment agreements relating to other executive KMP. The terms for all other executive KMP are
similar but do, on occasion, vary to suit different needs.
Length of contract
All other executive KMP are on permanent contracts, which is an ongoing employment contract until notice is
given by either party.
Notice periods
Resignation
In order to terminate the employment arrangements, other executive KMP are required to provide Cochlear with
between 60 days’ and six months’ written notice.
On resignation, unless the Board determines otherwise:
• all unvested STI or LTI benefits are forfeited.
Termination on notice
by Cochlear
Cochlear may terminate employment by providing between 60 days’ and 12 months’ written notice or payment
in lieu of the notice period based on TFR. On termination by Cochlear, unless the Board determines otherwise:
• unvested STI or LTI benefits may be exercised or paid within 30 days of notice being given.
Redundancy
If Cochlear terminates employment for reasons of redundancy, under Cochlear policy a severance payment will be
made of up to 12 months’ TFR.
All STI and LTI benefits are either:
• released in full or on a pro-rata basis; or
• remain subject to performance criteria and vesting date,
at the discretion of the Board with regard to the circumstances.
Death or total and
permanent disability
On death or total and permanent disability, the Board has discretion to allow all unvested STI and LTI benefits
to vest.
Termination for
serious misconduct
Cochlear may immediately terminate employment at any time in the case of serious misconduct, and other
executive KMP will only be entitled to payment of TFR up to the date of termination.
On termination without notice by Cochlear in the event of serious misconduct:
• all unvested STI or LTI benefits will be forfeited; and
• any ESS instruments provided to the employee on vesting of STI or LTI awards that are held in trust,
will be forfeited.
Statutory entitlements
Payment of statutory entitlements of long service leave and annual leave applies in all events of separation.
Other arrangements
Richard Brook – President, European Region will receive:
• a maximum of Swiss francs (CHF) 30,000 for repatriation costs in the case of termination or resignation.
Post-employment restraints
All other executive KMP are subject to post-employment restraints for up to 12 months.
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Directors’ Report Cochlear Limited for the year ended 30 June 2014
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Indemnification of officers
Under the terms of Article 35 of the Company’s Constitution, and to the extent permitted by law, the Company has indemnified the
directors of the Company named in this Directors’ Report, the Company Secretary, Mr NJ Mitchell, and other persons concerned in or
taking part in the management of the Consolidated Entity. The indemnity applies when persons are acting in their capacity as officers of the
Company in respect of:
• liability to third parties (other than the Company or related bodies corporate), if the relevant officer has acted in good faith; and
• costs and expenses of successfully defending legal proceedings in which relief under the Corporations Act 2001 is granted to the
relevant officer.
Insurance premiums
During the financial year, the Company paid a premium for a Directors’ and Officers’ Liability Insurance policy and a Supplementary Legal
Expenses Insurance policy. The insurance provides cover for the directors named in this Directors’ Report, the Company Secretary, and
officers and former directors and officers of the Company. The insurance also provides cover for present and former directors and officers of
other companies in the Consolidated Entity. The directors have not included in this report details of the nature of the liabilities covered and
the amount of the premium paid in respect of the Directors’ and Officers’ Liability and Supplementary Legal Expenses Insurance policies, as
such disclosure is prohibited under the terms of the contract.
Events subsequent to the reporting date
Other than the matters noted below, there has not arisen in the interval between the end of the financial year and the date of this Directors’
Report, any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect
significantly the operations of Cochlear, the results of those operations, or the state of affairs of Cochlear in future financial years:
Dividends
For dividends declared after 30 June 2014, see Note 8 to the financial statements.
Lead auditor’s independence declaration
The lead auditor’s independence declaration is set out on page 55 and forms part of the Directors’ Report for the financial year ended
30 June 2014.
Rounding off
The Company is of a kind referred to in Australian Securities and Investments Commission (ASIC) Class Order 98/100 dated 10 July 1998
and in accordance with that Class Order, amounts in the Directors’ Report and Financial Report have been rounded off to the nearest one
thousand dollars, unless otherwise indicated.
Dated at Sydney this 5th day of August 2014.
Signed in accordance with a resolution of the directors:
Director
Director
Investor
Centre
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Lead Auditor’s Independence Declaration
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Investor
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Lead auditor’s independence declaration under section 307C of the Corporations Act 2001
To: the directors of Cochlear Limited
I declare that, to the best of my knowledge and belief, in relation to the audit for the year ended 30 June 2014 there have been:
(i)
no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
(ii) no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Sydney, 5 August 2014
Cameron Slapp, Partner
56
Income Statement Cochlear Limited and its controlled entities for the year ended 30 June 2014
Revenue
Cost of sales
Gross profit
Selling and general expenses
Administration expenses
Patent dispute provision
Research and development expenses
Other income
Other expenses
Results from operating activities
Finance income
Finance expense
Net finance expense
Profit before income tax
Income tax expense
Net profit
Basic earnings per share (cents)
Diluted earnings per share (cents)
The notes on pages 61 to 105 are an integral part of these consolidated financial statements.
Note
4
5(a)
20
6
5(b)
21(d)
21(d)
10
7
7
2014
$000
2013
$000
804,936
752,721
(248,285)
(208,072)
556,651
(234,711)
(44,162)
(22,545)
544,649
(202,781)
(38,157)
-
(127,562)
(124,715)
2,532
(3,112)
2,379
(2,515)
127,091
178,860
324
(10,301)
(9,977)
117,114
(23,405)
93,709
164.6
164.2
659
(6,882)
(6,223)
172,637
(40,074)
132,563
233.0
232.4
AR 14InvestorCentreContentsNextPrevious-– – –+
57
Statement of Comprehensive Income Cochlear Limited and its controlled entities for the year ended 30 June 2014
Net profit
Other comprehensive income/(loss)
Items that will not be reclassified subsequently to the income statement:
Defined benefit plan actuarial gains/(losses)*
Total items that will not be reclassified subsequently to the income statement
Items that may be reclassified subsequently to the income statement:
Foreign currency translation differences
Effective portion of changes in fair value of cash flow hedges, net of tax
Net change in fair value of cash flow hedges transferred to the income statement, net of tax
Total items that may be reclassified subsequently to the income statement
Other comprehensive income/(loss) for the period, net of tax
Total comprehensive income
* Restated for change in accounting policy, refer Note 30.
The notes on pages 61 to 105 are an integral part of these consolidated financial statements.
2014
$000
93,709
306
306
2,344
6,007
11,149
19,500
19,806
113,515
2013
$000
Restated*
132,563
(230)
(230)
29,179
(21,206)
(26,384)
(18,411)
(18,641)
113,922
AR 14InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 58
Balance Sheet Cochlear Limited and its controlled entities as at 30 June 2014
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Current tax assets
Prepayments
Total current assets
Trade and other receivables
Property, plant and equipment
Intangible assets
Deferred tax assets*
Total non-current assets
Total assets
Liabilities
Trade and other payables
Forward exchange contracts
Loans and borrowings
Current tax liabilities
Provisions
Deferred revenue
Total current liabilities
Forward exchange contracts
Loans and borrowings
Provisions*
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained earnings
Total equity
* Restated for change in accounting policy, refer Note 30.
The notes on pages 61 to 105 are an integral part of these consolidated financial statements.
Note
9(a)
16
17
11
16
18
19
11
21(c)
11
20
21(c)
20
2014
$000
2013
$000
Restated*
56,127
214,953
128,613
8,600
12,586
52,689
203,748
131,574
6,207
11,004
420,879
405,222
5,505
75,776
234,115
52,761
944
65,898
235,774
57,422
368,157
360,038
789,036
765,260
78,644
6,643
3,141
8,442
57,557
15,151
81,874
14,915
3,309
6,002
63,224
22,506
169,578
191,830
2,624
234,274
53,355
290,253
459,831
329,205
144,136
(32,191)
217,260
329,205
13,242
167,160
38,517
218,919
410,749
354,511
118,788
(32,433)
268,156
354,511
AR 14InvestorCentreContentsNextPrevious-– – –+
59
Statement of Changes in Equity Cochlear Limited and its controlled entities for the year ended 30 June 2014
Shares repurchased, net
2,331
(4,679)
Amounts $000
2013
Balance at 1 July 2012
Total comprehensive income
Net profit
Other comprehensive (loss)/income
Defined benefit plan actuarial losses*
Foreign currency translation differences
Effective portion of changes in fair value of cash
flow hedges, net of tax
Net change in fair value of cash flow hedges
reclassified to the income statement, net of tax
Total other comprehensive income/(loss)
Total comprehensive income/(loss)
Transactions with owners, recorded directly
in equity
Share based payment transactions
Dividends to shareholders
Balance at 30 June 2013
2014
Balance at 1 July 2013
Total comprehensive income
Net profit
Other comprehensive income
Defined benefit plan actuarial gains
Foreign currency translation differences
Effective portion of changes in fair value of cash
flow hedges, net of tax
Net change in fair value of cash flow hedges
reclassified to the income statement, net of tax
Total other comprehensive income
Total comprehensive income
Transactions with owners, recorded directly
in equity
Treasury shares issued to employees
Share based payment transactions
Deferred tax recognised in equity
Dividends to shareholders
Balance at 30 June 2014
Issued capital
Treasury
reserve
Translation
reserve
Hedging
reserve
Share based
payment
reserve
Retained
earnings
Restated*
Total equity
Restated*
125,865
(4,729)
(84,153)
30,910
36,481
278,334
382,708
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
29,179
-
-
-
-
-
(21,206)
(26,384)
29,179
(47,590)
29,179
(47,590)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,740
132,563
132,563
(230)
-
-
-
(230)
29,179
(21,206)
(26,384)
(230)
(18,641)
132,333
113,922
-
-
(2,348)
2,740
-
(142,511)
(142,511)
128,196
(9,408)
(54,974)
(16,680)
39,221
268,156
354,511
128,196
(9,408)
(54,974)
(16,680)
39,221
268,156
354,511
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
945
-
-
-
-
-
2,344
-
-
2,344
2,344
-
-
-
-
-
-
-
-
6,007
11,149
17,156
17,156
-
-
-
-
-
-
-
-
-
-
-
-
93,709
93,709
306
-
-
-
306
2,344
6,007
11,149
306
19,806
94,015
113,515
(24,403)
(945)
4,971
1,119
-
-
-
-
-
-
4,971
1,119
-
(144,911)
(144,911)
152,599
(8,463)
(52,630)
476
19,963
217,260
329,205
Transfer between reserves
24,403
* Restated for change in accounting policy, refer Note 30.
The notes on pages 61 to 105 are an integral part of these consolidated financial statements.
AR 14InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 60
Statement of Cash Flows Cochlear Limited and its controlled entities for the year ended 30 June 2014
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Grant and other income received
Interest received
Interest paid
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities
Acquisition of property, plant and equipment
Acquisition of enterprise resource planning system
Acquisition of other intangible assets
Net cash used in investing activities
Cash flows from financing activities
Repayments of borrowings
Proceeds from borrowings
Shares repurchased, net
Dividends paid
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents, net of overdrafts at 1 July
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents, net of overdrafts at 30 June
The notes on pages 61 to 105 are an integral part of these consolidated financial statements.
Note
2014
$000
2013
$000
809,039
669,311
(665,370)
(555,798)
2,532
344
(10,558)
(24,570)
111,417
(23,497)
(6,997)
(1,452)
2,379
617
(6,967)
(39,815)
69,727
(21,074)
(14,477)
(14,868)
(31,946)
(50,419)
(79,500)
146,500
-
(144,911)
(77,911)
1,560
52,689
1,878
56,127
(89,000)
195,000
(2,348)
(142,511)
(38,859)
(19,551)
68,486
3,754
52,689
9(b)
8
9(a)
AR 14InvestorCentreContentsNextPrevious-– – –+
61
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014
Basis of preparation
This section of the Financial Report sets out the Company’s accounting policies that relate to the financial statements as a whole. Where an
accounting policy is specific to one note, the policy is described in the note to which it relates.
1. Reporting entity
Cochlear Limited (the Company) is a company domiciled in Australia. The consolidated financial statements of the Company as at and
for the year ended 30 June 2014 comprise the Company and its controlled entities (together referred to as Cochlear or the Consolidated
Entity). Cochlear is a for-profit entity and operates in the implantable hearing device industry.
2. Basis of preparation
(a) Statement of compliance
The Financial Report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards
(AASBs) adopted by the Australian Accounting Standards Board and the Corporations Act 2001. The consolidated financial statements comply
with International Financial Reporting Standards (IFRS) and Interpretations adopted by the International Accounting Standards Board.
The consolidated financial statements were approved by the Board of directors on 5 August 2014.
(b) Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for derivative financial instruments which are
measured at fair value. The method used to measure the fair value of derivative instruments is discussed further in Note 22.
(c) Functional and presentation currency
These consolidated financial statements are presented in Australian dollars (AUD), which is the Company’s functional currency.
The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, all financial
information presented in Australian dollars has been rounded to the nearest one thousand dollars unless otherwise stated.
(d) Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of controlled entities at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated
to the functional currency at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities denominated in foreign
currencies that are stated at historical cost are translated using the exchange rate at the date of the transaction. Non-monetary assets and
liabilities denominated in foreign currencies that are stated at fair value are translated to the functional currency at the foreign exchange
rates ruling at the date the fair value was determined.
Foreign exchange differences arising on translation are recognised in the income statement.
Financial statements of foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, generally are translated
to the functional currency at foreign exchange rates ruling at the reporting date.
The revenues and expenses of foreign operations are translated to the functional currency at rates approximating the foreign exchange rates
ruling at the dates of transactions.
Foreign currency differences arising from translation of controlled entities with a different functional currency to that of the Company are
recognised in the foreign currency translation reserve (translation reserve). When a foreign operation is disposed of, in part or in full, the
relevant amount of its translation reserve is transferred to the income statement and reported as part of the gain or loss on disposal.
Foreign exchange gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of
which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and are
recognised in other comprehensive income, and presented in the translation reserve in equity.
(e) Use of judgements and estimates
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may
differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the financial
year in which the estimate is revised and in any future years affected.
AR 14InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 62
2. Basis of preparation (continued)
Management discussed with the Audit Committee the development, selection and disclosure of Cochlear’s critical accounting policies and
estimates and the application of these policies and estimates.
Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in
the consolidated financial statements is included in the following notes:
Note 13 – Employee benefit liabilities
Note 14 – Share based payments
Note 19 – Intangible assets
Note 20 – Provisions
Note 22 – Financial risk management
Note 27 – Contingent liabilities.
(f) Basis of consolidation
Controlled entities
Controlled entities are entities controlled by the Company. The Consolidated Entity controls an entity when it is exposed to, or has rights
to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The
financial statements of controlled entities are included in the consolidated financial statements from the date that control commences until
the date that control ceases.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in
preparing the consolidated financial statements.
Special purpose entities
Cochlear has established special purpose entities (SPEs) for trading and investment purposes. A SPE is consolidated if, based upon an
evaluation of the substance of its relationship with Cochlear and the SPE’s risks and rewards, Cochlear concludes that it controls the SPE. SPEs
controlled by Cochlear were established under terms that impose strict limitations on decision-making powers of the SPE’s management.
(g) Comparatives
Comparative information is reclassified where appropriate to enhance comparability.
(h) Goods and services tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from
the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the relevant
taxation authority is included as a current asset or liability in the balance sheet.
Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and
financing activities which are recoverable from, or payable to, the relevant taxation authority are classified as operating cash flows.
Performance for the year
3. Operating segments
An operating segment is a component of Cochlear that engages in business activities from which it may earn revenues and incur expenses,
including revenues and expenses that relate to transactions with any of Cochlear’s other components if separately reported and monitored.
Cochlear has three reportable segments, which are determined on a geographical basis and are the strategic business units of Cochlear.
Segment results, assets and liabilities include items directly attributable to a segment, as well as those that can be allocated on a reasonable
basis. Unallocated items comprise corporate and other net expenses and corporate and manufacturing assets and liabilities.
Information about each reportable segment is included below. Performance is measured based on segment profit before income tax as
included in the internal management reports that are reviewed by Cochlear’s CEO/President, who is also the chief operating decision-maker.
Segment profit before income tax is used to measure performance as management believes that such information is the most relevant in
evaluating the results of each operating segment.
The CEO/President regularly reviews an operating segment’s operating results to make decisions about resources to be allocated to the
segment and assess its performance, and for which discrete financial information is available.
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+ 63
Information about reportable segments
Americas
EMEA(1)
Asia Pacific
Total
2014
$000
2013
$000
2014
$000
2013
$000
Restated*
2014
$000
2013
$000
2014
$000
2013
$000
Restated*
Reportable segment revenue
320,800 284,394 358,459 283,023
141,604
147,613 820,863
715,030
Reportable segment profit before income tax
149,083
134,439
167,182
131,523
43,464
57,672
359,729 323,634
Reportable segment assets*
Reportable segment liabilities*
Other material items
Depreciation and amortisation
Write-down in value of inventories
Acquisition of non-current assets
111,592
111,905
194,073
177,353
81,231
70,146 386,896 359,404
24,029
31,349
39,174
55,325
13,009
12,633
76,212
99,307
850
310
478
720
139
1,997
1,672
112
141
1,812
2,547
1,035
920
133
568
1,020
3,767
3,412
267
255
555
547
3,593
3,102
(1) Europe, Middle East and Africa.
* Restated for change in accounting policy, refer Note 30.
Reconciliations of reportable segment revenues, profit or loss, assets and liabilities and other material items
Revenues
Reportable segment revenue
Foreign exchange (losses)/gains on hedged sales
Consolidated revenue
Profit or loss
Reportable segment profit before income tax
Corporate and other net expenses
Foreign exchange (losses)/gains on hedged sales
Patent dispute provision
Net finance expense
Consolidated profit before income tax
Assets
Reportable segment assets*
Unallocated corporate and manufacturing assets
Consolidated total assets
Liabilities
Reportable segment liabilities*
Unallocated corporate and manufacturing liabilities
Consolidated total liabilities
* Restated for change in accounting policy, refer Note 30.
2014
$000
820,863
(15,927)
804,936
359,729
(194,166)
(15,927)
(22,545)
(9,977)
117,114
2014
$000
386,896
402,140
789,036
76,212
383,619
459,831
2013
$000
715,030
37,691
752,721
323,634
(182,465)
37,691
-
(6,223)
172,637
2013
$000
359,404
405,856
765,260
99,307
311,442
410,749
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 64
3. Operating segments (continued)
2014
Other material items
Depreciation and amortisation
Write-down in value of inventories
Acquisition of non-current assets
2013
Other material items
Depreciation and amortisation
Write-down in value of inventories
Acquisition of non-current assets
Revenue by product
Cochlear implants
Bone anchored hearing aids (Baha)
Total
4. Revenue
Sale of goods before hedging
Foreign exchange (losses)/gains on hedged sales
Revenue from sale of goods
Rendering of services
Total revenue
Reportable segment total
Corporate and
manufacturing total
$000
$000
Consolidated
total
$000
3,767
555
3,593
3,412
547
3,102
23,088
981
28,353
19,592
935
34,880
2014
$000
720,762
100,101
820,863
2014
$000
813,004
(15,927)
797,077
7,859
804,936
26,855
1,536
31,946
23,004
1,482
37,982
2013
$000
636,393
78,637
715,030
2013
$000
708,710
37,691
746,401
6,320
752,721
Sales revenue comprises revenue earned (net of returns, discounts and allowances) from the provision of products or services. Revenue from
the sale of goods is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the
buyer. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due or if there is a risk of return
of goods or there is continuing management involvement with the goods. Revenue from the sale of services is recognised when the service
has been provided to the customer and where there are no continuing unfulfilled service obligations.
Revenues are recognised at the fair value of the consideration received net of the amount of GST.
The accounting policy for foreign exchange gains/losses arising from hedges of forecast sales transactions is set out in Note 22.
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+ 65
5. Expenses
(a) Cost of sales
Carrying amount of inventories recognised as an expense
Other
Write-down in value of inventories
Total cost of sales
(b) Other expenses
Net foreign exchange loss
Total other expenses
(c) Profit before income tax has been arrived at after charging the following items:
Operating lease rental expense
Loss on disposal of property, plant and equipment
6. Other income
Grant received or due and receivable
Other income
Total other income
2014
$000
2013
$000
239,462
202,124
7,287
1,536
4,466
1,482
248,285
208,072
3,112
3,112
20,415
2,611
2014
$000
1,378
1,154
2,532
2,515
2,515
15,485
1,482
2013
$000
1,401
978
2,379
Other income, including government grants, is recognised on a systematic basis over the years necessary to match it with the related costs
for which it is intended to compensate or, if the costs have already been incurred, in the year in which it becomes receivable. The income is
deemed to be receivable when the entitlement is confirmed.
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 66
7. Earnings per share
Basic earnings per share
The calculation of basic earnings per share for the year ended 30 June 2014 was based on net
profit attributable to equity holders of the parent entity of $93,709,000 (2013: $132,563,000)
and a weighted average number of ordinary shares on issue during the year ended 30 June
2014 of 56,930,736 (2013: 56,890,261) calculated as follows:
2014
2013
Net profit attributable to equity holders of the parent entity
$93,709,000
$132,563,000
Weighted average number of ordinary shares (basic):
Issued ordinary shares at 1 July (number)
Effect of options and performance shares exercised (number)
Effect of shares issued under Employee Share Plan (number)
Weighted average number of ordinary shares (basic) at 30 June
Basic earnings per share (cents)
Diluted earnings per share
56,915,289
56,865,878
599
14,848
13,619
10,764
56,930,736
56,890,261
164.6
233.0
The calculation of diluted earnings per share for the year ended 30 June 2014 was based on net
profit attributable to equity holders of the parent entity of $93,709,000 (2013: $132,563,000)
and a weighted average number of ordinary shares on issue during the year ended 30 June
2014 of 57,055,237 (2013: 57,047,096) calculated as follows:
Net profit attributable to equity holders of the parent entity
$93,709,000
$132,563,000
Weighted average number of ordinary shares (diluted):
Weighted average number of shares (basic) (number)
Effect of options and performance shares and rights (number)
Weighted average number of ordinary shares (diluted) at 30 June
Diluted earnings per share (cents)
56,930,736
124,501
57,055,237
164.2
56,890,261
156,835
57,047,096
232.4
Cochlear presents basic and diluted earnings per share (EPS) for its ordinary shares. Basic EPS is calculated by dividing the net profit
attributable to equity holders of the parent entity for the financial year, after excluding any costs of servicing equity (other than ordinary
shares) by the weighted average number of ordinary shares of the Company, adjusted for any bonus issue.
Diluted EPS is calculated using the basic EPS earnings as the numerator. The weighted average number of shares used as the denominator
is adjusted by the after-tax effect of financing costs associated with the dilutive potential ordinary shares and the effect on revenues and
expenses of conversion to ordinary shares associated with dilutive potential ordinary shares adjusted for any bonus issue.
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+ 67
8. Dividends
Cents per share
Total amount $000
Franked/unfranked
Date of payment
Dividends recognised in the current financial year by the Company are:
2014
Interim 2014 ordinary
Final 2013 ordinary
Total amount
2013
Interim 2013 ordinary
Final 2012 ordinary
Total amount
127.0
127.0
254.0
125.0
125.0
250.0
72,469
72,442
144,911
71,295
71,216
142,511
0% Franked
27 March 2014
30% Franked
19 September 2013
40% Franked
12 March 2013
35% Franked
20 September 2012
A liability for dividends payable is recognised in the financial year in which the dividends are declared.
Franked dividends declared or paid during the financial year were franked at the tax rate of 30%.
Subsequent events
Since the end of the financial year, the directors declared the following dividends:
Final 2014 ordinary
Total amount
127.0
127.0
72,469
72,469
20% Franked
25 September 2014
The financial effect of the 2014 final dividend has not been brought to account in the financial statements for the year ended 30 June 2014
and will be recognised in the subsequent financial year.
There are no further tax consequences as a result of paying dividends other than a reduction in the franking account as shown below:
Dividend franking account
30% franking credits available to shareholders of Cochlear Limited for subsequent financial years
The above amounts are based on the balance of the dividend franking account at year end adjusted for:
• franking credits that will arise from the payment of the current tax liability;
• franking debits that will arise from the payment of dividends recognised as a liability at the year end; and
• franking credits that the Company may be prevented from distributing in subsequent financial years.
Company
2014
$000
2,392
2013
$000
696
The ability to utilise the franking account credits is dependent upon the ability to declare dividends. The impact on the dividend franking
account of dividends proposed after the balance sheet date but not recorded as a liability is to reduce it by $6,211,608 (2013: $9,313,969).
No additional current tax liability will arise to the extent that franking credits are available with which to pay fully franked dividends.
Dividends in excess of the balance of the dividend franking account will either be unfranked or result in a franking deficit tax liability payable
by the Company to the extent that franking credits are provided that do not exist. The Company’s policy is not to pay dividends with
franking credits that will result in a franking deficit tax liability.
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+
68
9. Notes to the statement of cash flows
(a) Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less. Bank overdrafts
that are repayable on demand and form an integral part of Cochlear’s cash management are included as a component of cash and cash
equivalents for the purpose of the statement of cash flows.
Cash and cash equivalents at the reporting date as shown in the statement of cash flows are reconciled to the related items in the balance
sheet as follows:
Cash on hand
Cash on deposit
Cash and cash equivalents
(b) Reconciliation of net profit to net cash provided by operating activities
Net profit
Add items classified as investing activities
Loss on disposal of property, plant and equipment
Add non-cash items
Amounts set aside to provisions*
Depreciation and amortisation
Reversal of impairment of property, plant and equipment
Equity settled share based payment transactions
Net cash provided by operating activities before changes in assets and liabilities
Changes in assets and liabilities
Change in trade and other receivables
Change in inventories
Change in prepayments
Change in deferred tax assets*
Change in trade and other payables
Change in current tax liabilities
Change in provisions*
Change in deferred revenue
Effects of movements in foreign exchange
Net cash provided by operating activities
* Restated for change in accounting policy, refer Note 30.
2014
$000
41,432
14,695
56,127
2013
$000
Restated*
31,455
21,234
52,689
93,709
132,563
2,611
1,482
60,865
26,855
(6,346)
4,971
182,665
(15,766)
2,961
(1,582)
4,661
(3,230)
47
(51,694)
(7,355)
710
111,417
60,639
23,004
-
2,740
220,428
(43,677)
(30,276)
(2,596)
(6,240)
(6,618)
6,485
(75,409)
4,417
3,213
69,727
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+ 69
Income taxes
10. Income tax expense
Recognised in the income statement
Current tax expense
Current year
Adjustment for prior years
Deferred tax benefit
Origination and reversal of temporary differences
Total income tax expense
Numerical reconciliation between income tax expense and profit before income tax
Net profit
Income tax expense
Profit before income tax
Note
2014
$000
2013
$000
25,412
(420)
31,440
(3,143)
24,992
28,297
11
(1,587)
(1,587)
23,405
11,777
11,777
40,074
2014
2014
2014
2013
Reported
Patent
dispute
provision
Before patent
dispute
provision
Reported
$000
$000
$000
$000
93,709
23,405
15,781
109,490
132,563
6,764
30,169
40,074
117,114
22,545
139,659
172,637
Income tax expense using the Company’s domestic tax rate of 30% (2013: 30%)
35,134
6,764
41,898
51,791
Increase in income tax expense due to:
Non-deductible expenses
Decrease in income tax expense due to:
Research and development allowances
Share based payment deductions
Effect of tax rate in foreign jurisdictions
Adjustment for prior years
1,437
(11,221)
(357)
(1,168)
-
-
-
-
23,825
6,764
30,589
(420)
-
(420)
1,437
2,637
(11,221)
(10,560)
(357)
(1,168)
(332)
(319)
43,217
(3,143)
Income tax expense on profit before income tax
23,405
6,764
30,169
40,074
Deferred tax recognised in other comprehensive income/(loss) relating to derivative financial instruments*
Total deferred tax recognised in other comprehensive income/(loss)
Deferred tax recognised directly in equity relating to share based payments
Total deferred tax recognised directly in equity
* Restated for change in accounting policy, refer Note 30.
Note
11
11
2014
$000
2013
$000
Restated*
7,353
(20,819)
7,353
(20,819)
(1,119)
(1,119)
2,537
2,537
Income tax expense comprises current and deferred tax. Current and deferred tax are recognised in the income statement except to the
extent that they relate to a business combination, or items recognised directly in equity or in other comprehensive income.
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+
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10. Income tax expense (continued)
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax
liability arising from the declaration of dividends. Deferred taxes are explained in more detail in Note 11.
Additional income tax expenses that arise from the distribution of cash dividends are recognised at the same time that the liability to pay
the related dividend is recognised. Cochlear does not distribute non-cash assets as dividends to its shareholders.
The Company and its wholly-owned Australian resident entities are part of a tax-consolidated group. As a consequence, all members of the
tax-consolidated group are taxed as a single entity. The head entity within the tax-consolidated group is Cochlear Limited.
11. Current and deferred tax assets and liabilities
Assets
2014
$000
2013
$000
Restated*
Liabilities
2014
$000
2013
$000
Net
2014
$000
Recognised deferred tax assets and liabilities
Property, plant and equipment
Intangible assets
Inventories
Provisions*
Deferred revenue
Forward exchange contracts
Other
Tax losses carried forward
Deferred tax assets/(liabilities)
Set off of tax
Net deferred tax assets
3,608
53
17,519
29,665
792
-
5,806
1,118
58,561
(5,800)
52,761
4,395
55
16,063
26,326
3,382
6,407
4,713
1,297
62,638
(5,216)
57,422
(977)
(1,610)
-
(5)
-
(229)
(2,979)
-
(5,800)
5,800
-
2013
$000
Restated*
3,666
(1,754)
16,063
26,326
3,382
6,407
2,035
1,297
2,631
(1,557)
17,519
29,660
792
(229)
2,827
1,118
(729)
(1,809)
-
-
-
-
(2,678)
-
(5,216)
5,216
52,761
57,422
-
-
-
52,761
57,422
* Restated for change in accounting policy, refer Note 30.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:
• temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects
neither accounting nor taxable profit or loss;
• temporary differences related to investments in controlled entities to the extent that it is probable that they will not reverse in the
foreseeable future; and
• taxable temporary differences arising on the initial recognition of goodwill.
The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Consolidated Entity expects, at
the end of the financial year, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws
that have been enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to
income taxes levied by the same taxation authority on the same taxable entity, or on different tax entities, but they intend to settle current
tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable
that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and
are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Unrecognised deferred tax liabilities
At 30 June 2014, a deferred tax liability of $37.6 million (2013: $23.3 million) relating to investments in subsidiaries has not been
recognised because the Company controls whether the asset will be recovered or the liability will be incurred and it is satisfied that it will
not be incurred in the foreseeable future.
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+ 71
Movement in temporary differences during the year
Carrying amount at beginning of financial year
Recognised in the income statement
Recognised in other comprehensive income/(loss)*
Recognised directly in equity
Effects of movements in foreign exchange
Carrying amount at end of financial year
* Restated for change in accounting policy, refer Note 30.
Note
10
10
10
2014
$000
57,422
1,587
(7,353)
1,119
(14)
52,761
2013
$000
Restated*
50,495
(11,777)
20,819
(2,537)
422
57,422
Current tax assets and liabilities
The current tax assets for the Consolidated Entity of $8.6 million (2013: $6.2 million) represent the amount of income taxes recoverable
in respect of current and prior years and arise from the payment of tax in excess of the amounts due to the relevant taxation authority.
The current tax liabilities for the Consolidated Entity of $8.4 million (2013: $6.0 million) represent the amount of income taxes payable in
respect of current and prior financial years.
Employee benefits
12. Employee expenses
Wages and salaries
Contributions to superannuation plans
Increase in leave liabilities
Equity settled share based payment transactions
Total employee benefits expense
13. Employee benefit liabilities
Current
Provision for long service leave
Provision for annual leave
Provision for short-term incentives
Wages and salaries accrued
Total current employee benefit liabilities
Non-current
Provision for long service leave
Defined benefit plan*
Provision for directors’ retirement scheme
Total non-current employee benefit liabilities
Total employee benefit liabilities
* Restated for change in accounting policy, refer Note 30.
2014
$000
233,432
17,633
488
4,971
2013
$000
208,585
15,846
2,069
2,740
256,524
229,240
2014
$000
6,016
17,035
8,014
31,065
1,857
32,922
5,200
3,130
422
8,752
2013
$000
Restated*
7,325
16,850
6,275
30,450
515
30,965
3,589
3,161
411
7,161
41,674
38,126
Note
20
20
20
20
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+
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13. Employee benefit liabilities (continued)
Wages, salaries and annual leave
Liabilities for employee benefits for wages, salaries and annual leave represent present obligations resulting from employees’ services
provided up to the reporting date, calculated based on remuneration wage and salary rates that Cochlear expects to pay as at the reporting
date including related on-costs, such as workers’ compensation insurance and payroll tax.
Long service leave
The provision for employee benefits for long service leave represents the present value of the estimated future cash outflows to be made by
the employer resulting from employees’ services provided up to the reporting date.
The provision is calculated using expected future increases in remuneration rates, including related on-costs, and expected settlement dates
based on turnover history, and is discounted using the rates attaching to national government securities at the reporting date, which most
closely match the terms to maturity of the related liabilities. The unwinding of the discount is treated as a long service leave expense.
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which the entity pays fixed contributions into a separate entity and
will have no legal or constructive obligation to pay further amounts.
Obligations for contributions to defined contribution plans are recognised as an expense in the income statement as incurred.
Cochlear makes contributions to defined contribution plans. The amount recognised as expense was $16.5 million for the year ended 30
June 2014 (2013: $14.9 million).
Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan.
The Company’s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future
benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets.
The calculation of defined benefit obligations is performed annually by a qualified actuary using the direct to equity method. When the
calculation results in a potential asset for the Company, the recognised asset is limited to the present value of economic benefits available
in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic
benefits, consideration is given to any applicable minimum funding requirements.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest)
and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income. The Company
determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used
to measure the defined benefit obligation at the beginning of the annual period to the then net defined benefit liability (asset), taking into
account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net
interest expense and other expenses related to defined benefit plans are recognised in profit or loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain
or loss on curtailment is recognised immediately in profit or loss. The Company recognises gains and losses on the settlement of a defined
benefit plan when the settlement occurs.
Cochlear makes contributions to defined benefit plans. These defined benefit plans cover, in aggregate, 84 employees. Cochlear contributed
cash of $1.1 million (2013: $0.9 million) to defined benefit plans in the year ended 30 June 2014 and expects to contribute $1.1 million in the
year ending 30 June 2015.
Directors’ retirement scheme
Non-executive directors appointed prior to 2003 were entitled to retirement benefits of up to three times their annual remuneration over
the previous three years once they had more than five years’ service. The ongoing accrual of benefits under the directors’ retirement scheme
ceased from 30 June 2007. The benefits accrued to that date are indexed by reference to the bank bill rate. As at 30 June 2014, Prof E Byrne,
AC is the only non-executive director entitled to this benefit.
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+ 73
14. Share based payments
Prior to July 2013, the Company granted options and performance shares to certain employees under the Cochlear Executive Long Term
Incentive Plan (CELTIP).
From 1 July 2013, the Company grants options and performance rights to certain employees under the Cochlear Executive Incentive Plan (CEIP).
The fair value of options, performance shares and performance rights granted is recognised as an employee expense with a corresponding
increase in equity. The fair value is measured at the date the options, shares or rights are granted taking into account market based criteria
and expensed over the vesting period after which the employees become unconditionally entitled to the options, shares and rights.
The fair value of the options, performance shares and performance rights granted is measured using the Black-Scholes-Merton pricing
model, taking into account the terms and conditions attached to the instruments.
The amount recognised as an expense is adjusted to reflect the actual number of options, shares and rights that are expected to vest except
where forfeiture is due to market related conditions.
When the Company grants options over its shares to employees of controlled entities, the fair value at grant date is recognised as an
increase in the investment in subsidiaries, with a corresponding increase in equity over the vesting period of the grant.
The Company operates the Cochlear Executive Long Term Incentive Plan (Performance Shares) Trust (Trust). The main purpose of the Trust
is to hold unvested performance shares as part of the CELTIP and the CEIP. Under IFRS, the Trust qualifies as an equity compensation plan
special purpose entity and its results are included in those for the Company and the Consolidated Entity.
Any shares held by the Trust are accounted for as treasury shares and treated as a reduction in the share capital of the Company and the
Consolidated Entity.
Cochlear’s Employee Share Plan (Plan) was approved by special resolution at the AGM held on 19 October 1999. Under the Plan, the
directors can at their discretion, allocate at nil consideration up to a maximum of $2,000 worth of shares per eligible employee in any one
year. In practice, the directors issue shares worth up to the tax concessional limit, currently $1,000 per eligible employee each year. The fair
value of shares issued during the financial year is the market price of the Company’s shares on the ASX as at the start of trading on the issue
date. Shares under the Plan vest with the employee immediately but are non-transferable for a period of up to three years. For the year
ended 30 June 2014, the Company issued 21,088 shares under the Plan.
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 74
14. Share based payments (continued)
At 30 June 2014, unissued ordinary shares of the Company under option and rights, and issued shares held in the Trust and the terms and
conditions of the grants and issues are as follows:
Grant date
Option grant in August and
October 2011
Number of
instruments
Conditions for minimum vesting
Contractual life of options
242,443 Three years of service, a minimum compound annual
growth rate in EPS of 10%.
242,444 Three years of service, the Consolidated Entity’s TSR is
above the 50th percentile against the S&P/ASX 100
over three years.
Option grant in August 2012
353,563 Three years of service, a minimum compound annual
growth rate in EPS of 10%.
353,564 Three years of service, the Consolidated Entity’s TSR is
above the 50th percentile against the S&P/ASX 100
over three years.
Option grant in October 2013
112,157 Three years of service, a minimum compound annual
growth rate in EPS of 10%.
112,157 Three years of service, the Consolidated Entity’s TSR is
above the 50th percentile against the S&P/ASX 100
over three years.
Total options(1)
1,416,328
(1) No options granted in August 2010 were outstanding as at 30 June 2014.
5 years
5 years
5 years
5 years
4 years
4 years
Issue date
Performance shares issued in
August 2011
Performance shares issued in
August 2012
Number of
instruments
Conditions for minimum vesting
10,090 Three years of service, a minimum compound annual
growth rate in EPS of 10%.
10,090 Three years of service, the Consolidated Entity’s TSR is
above the 50th percentile against the S&P/ASX 100
over three years.
32,034 Three years of service, a minimum compound annual
growth rate in EPS of 10%.
32,033 Three years of service, the Consolidated Entity’s TSR is
above the 50th percentile against the S&P/ASX 100
over three years.
Contractual life of shares in
the Trust
5 years
5 years
5 years
5 years
Total performance shares
84,247
Issue date
Performance rights issued in
October 2013
Number of
instruments
Conditions for minimum vesting
Contractual life of rights
9,851 Three years of service, a minimum compound annual
growth rate in EPS of 10%.
9,852 Three years of service, the Consolidated Entity’s TSR is
above the 50th percentile against the S&P/ASX 100
over three years.
4 years
4 years
Total performance rights
19,703
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+
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The number and weighted average exercise prices of options are as follows:
Outstanding at 1 July
Forfeited
Exercised
Granted
Outstanding at 30 June
Exercisable at 30 June
Weighted average
exercise price
$
Number of options
Weighted average
exercise price
$
Number of options
2014
65.98
67.83
-
59.13
64.18
-
2014
1,738,000
(545,986)
-
224,314
1,416,328
-
2013
64.33
61.62
52.73
62.78
65.98
60.04
2013
1,635,440
(402,069)
(255,199)
759,828
1,738,000
85,674
No options were exercised in 2014. In 2013, the weighted average share price at the date of exercise was $69.77.
The estimated value of options for the current financial year is calculated at the date of grant using the Black-Scholes-Merton pricing model.
For options outstanding at 30 June 2014, 484,887 options have an exercise price of $68.56, 707,127 options have an exercise price of
$62.78 and 224,314 options have an exercise price of $59.13 (2013: 85,674 options had an exercise price of $60.04, 399,869 options had
an exercise price of $69.80, 517,065 options had an exercise price of $68.56 and 735,392 options had an exercise price of $62.78). The
weighted average remaining contractual life of options outstanding at the end of the year is three years (2013: three years).
Inputs for measurement of grant date fair values
The grant date fair value of options, performance rights and performance shares was measured based on the Black-Scholes-Merton pricing
model. Expected volatility is estimated by considering historic average share price volatility. The inputs used in the measurement of the fair
values at grant date are the following:
15 October 2013
13 August 2012
Fair value of options at grant date with:
– EPS performance based conditions
– TSR based conditions
Fair value of performance rights at grant date with:
– EPS performance based conditions
– TSR based conditions
Fair value of performance shares at grant date with:
– EPS performance based conditions
– TSR based conditions
Share price at grant date
Option exercise price
Expected volatility (weighted average volatility)
Option life
Expected dividends
Risk free interest rate (based on government bonds)
$11.38
$9.93
$53.22
$28.85
-
-
$58.42
$59.13
31.83%
3–4 years
3.20%
2.51%
$8.56
$5.70
-
-
$62.78
$39.55
$62.97
$62.78
23.99%
3–5 years
3.80%
2.71%
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+
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15. Key management personnel
The following were key management personnel of Cochlear at any time during the financial year and unless otherwise indicated were key
management personnel for the entire financial year:
Non-executive directors
Mr R Holliday-Smith (Chairman)
Mrs YA Allen
Mr PR Bell
Prof E Byrne, AC
Mr A Denver
Mr DP O’Dwyer
Executive director
Dr CG Roberts
Executives
Mr R Brook
Mr J Janssen
Mr NJ Mitchell
Mr MD Salmon
Mr CM Smith.
Key management personnel disclosures
The key management personnel compensation is included in employee expenses as follows:
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Directors’ retirement benefits
Share based payments
2014
$
7,207,457
388,273
100,918
10,902
1,821,874
9,529,424
2013
$
6,824,569
368,245
94,729
12,293
1,232,235
8,532,071
Information regarding individual directors’ and executives’ remuneration and some equity instruments disclosures as permitted by section
300A of the Corporations Act 2001 is provided in the Remuneration Report in the Directors’ Report on pages 31 to 53.
The key management personnel have not received any loans from Cochlear and there have been no other related party transactions with
any of Cochlear’s key management personnel.
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+
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Operating assets and liabilities
16. Trade and other receivables
Current
Trade receivables net of allowance for impairment losses
Other receivables
Forward exchange contracts
Total current trade and other receivables
Non-current
Other receivables
Forward exchange contracts
Total non-current trade and other receivables
2014
$000
201,295
9,099
4,559
2013
$000
187,593
12,691
3,464
214,953
203,748
55
5,450
5,505
46
898
944
Trade and other receivables are stated at amortised cost less impairment losses. Cochlear’s exposure to credit and currency risks and impairment
losses related to trade and other receivables is disclosed in Note 22.
17. Inventories
Raw materials and stores
Work in progress
Finished goods
Total inventories
2014
$000
40,593
19,214
68,806
2013
$000
48,653
15,333
67,588
128,613
131,574
Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary
course of business less estimated costs of completion and selling, marketing and distribution expenses.
Cost is based on the first-in-first-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their
existing condition and location. In the case of manufactured inventories and work in progress, cost includes an appropriate share of both
variable and fixed overhead costs. Fixed overhead costs are allocated on the basis of normal operating capacity.
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 78
18. Property, plant and equipment
Leasehold improvements
At cost
Accumulated amortisation
Plant and equipment
At cost
Accumulated depreciation and impairment
Total property, plant and equipment, at net book value
Reconciliations
Reconciliations of the carrying amounts of each class of property,
plant and equipment are set out below:
Leasehold improvements
Carrying amount at beginning of financial year
Additions
Depreciation
Effect of movements in foreign exchange
Carrying amount at end of financial year
Plant and equipment
Carrying amount at beginning of financial year
Additions
Disposals
Depreciation
Impairment reversal
Effect of movements in foreign exchange
Carrying amount at end of financial year
2014
$000
26,458
(18,511)
7,947
180,780
(112,951)
67,829
75,776
6,444
3,256
(1,868)
115
7,947
59,454
20,241
(2,611)
2013
$000
23,057
(16,613)
6,444
155,923
(96,469)
59,454
65,898
5,466
2,171
(1,525)
332
6,444
54,145
18,903
(1,028)
(15,580)
(13,876)
6,346
(21)
67,829
-
1,310
59,454
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+
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Owned assets
Items of property, plant and equipment are measured at cost less accumulated depreciation (see below) and impairment losses (see Note 19).
An asset’s cost is determined as the consideration provided plus incidental costs directly attributable to the acquisition.
The cost of self-constructed assets includes the cost of material and direct labour, an appropriate share of fixed and variable overheads, and
capitalised interest and any other costs directly attributable to bringing the asset to a working condition for its intended use.
Subsequent costs in relation to replacing a part of property, plant and equipment are recognised in the carrying amount of the item if it is probable
that future economic benefits embodied within the part will flow to Cochlear and its cost can be measured reliably. All other costs are recognised in
the income statement as incurred.
In respect of borrowing costs relating to qualifying assets, Cochlear capitalises borrowing costs directly attributable to the acquisition, construction
or production of a qualifying asset as part of the cost of that asset.
Leased assets
Operating leases
Payments made under operating leases are expensed on a straight-line basis over the term of the lease, except where an alternative basis is more
representative of the pattern of benefits to be derived from the leased property. Minimum lease payments include fixed rate increases.
Depreciation
Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value.
Depreciation is recognised in the income statement on a straight-line basis. Items of property, plant and equipment, including leasehold assets, are
depreciated using the straight-line method over their estimated useful lives, taking into account estimated residual values. Assets are depreciated
from the date of acquisition or, in respect of internally constructed assets, from the time an asset is completed and held ready for use. Leased assets
are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that Cochlear will obtain ownership by the end
of the lease term.
Depreciation rates and methods, useful lives and residual values are reviewed at each balance sheet date. When changes are made, adjustments are
reflected prospectively in current and future financial years only. The estimated useful lives in the current and comparative years are as follows:
Leasehold improvements
1 – 15 years
Plant and equipment
3 – 14 years.
Impairment reversal
During the year ended 30 June 2014, plant and equipment previously impaired due to the recall was reassessed. Of the $14.0 million impaired,
$6.3 million has been reversed as it can be used with the Nucleus Profile cochlear implant. Cochlear has increased the product recall provision
(refer Note 20) by this amount to cover the uncertain outcomes.
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 80
19. Intangible assets
Intangible assets with indefinite useful lives
Goodwill, at cost
Technology relationship, at cost
Total intangible assets with indefinite useful lives
Intangible assets with finite useful lives
Acquired technology, patents and licences
At cost
Accumulated amortisation and impairment
Enterprise resource planning system
At cost
Accumulated amortisation
Customer relationships
At cost
Accumulated amortisation
Capitalised development expenditure
At cost
Accumulated amortisation
Other intangible assets
At cost
Accumulated amortisation
Total intangible assets with finite useful lives
Total intangible assets
2014
$000
170,259
1,800
172,059
64,176
(31,678)
32,498
67,968
(39,725)
28,243
4,401
(4,401)
-
7,759
(7,759)
-
4,064
(2,749)
1,315
62,056
234,115
2013
$000
170,959
1,800
172,759
62,811
(28,733)
34,078
60,941
(33,614)
27,327
4,449
(4,449)
-
7,759
(7,759)
-
4,013
(2,403)
1,610
63,015
235,774
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+
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Reconciliations
Reconciliations of the carrying amounts of each class of intangible assets are set out below:
Note
2014
$000
2013
$000
Goodwill
Carrying amount at beginning of financial year
Effect of movements in foreign exchange
Carrying amount at end of financial year
Technology relationship
Carrying amount at beginning of financial year
Carrying amount at end of financial year
Acquired technology, patents and licences
Carrying amount at beginning of financial year
Acquisitions
Amortisation
Reclassification from other intangible assets
Effect of movements in foreign exchange
Carrying amount at end of financial year
Enterprise resource planning system
Carrying amount at beginning of financial year
Acquisitions
Amortisation
Disposals
Effect of movements in foreign exchange
Carrying amount at end of financial year
Other intangible assets
Carrying amount at beginning of financial year
Amortisation
(a)
Reclassification to acquired technology, patents and licences
(a)
Effect of movements in foreign exchange
Carrying amount at end of financial year
170,959
(700)
170,259
1,800
1,800
34,078
1,452
(3,030)
-
(2)
151,066
19,893
170,959
1,800
1,800
24,165
2,431
(2,770)
9,934
318
32,498
34,078
27,327
6,997
(6,086)
-
5
28,243
1,610
(291)
-
(4)
1,315
17,721
14,477
(4,432)
(454)
15
27,327
11,963
(401)
(9,934)
(18)
1,610
(a) Purchase of intellectual property from Otologics LLC
As at 30 June 2012, Cochlear recorded an asset being the “Right to acquire intellectual property” of United States dollars (USD) 10.0 million to reflect its security interest in the intellectual property assets of Otologics LLC
being the same value as its amount payable to Wells Fargo Bank as guarantor to Otologics LLC loan, following Otologics LLC’s declaration of bankruptcy.
During year ended 30 June 2013, Cochlear settled the loan and acquired intellectual property and certain other assets of Otologics LLC for a total consideration of USD 14.0 million.
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+
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19. Intangible assets (continued)
Goodwill
All business combinations are accounted for by applying the acquisition method. Goodwill represents the difference between the cost of the
acquisition and the fair value of the net identifiable assets acquired.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash generating units (CGUs) and is tested
annually for impairment (see below). Negative goodwill arising on an acquisition is recognised directly in the income statement.
Enterprise resource planning system
The expenditure incurred on hardware and software and the costs necessary for the implementation of the system are recognised as an
intangible asset, to the extent that Cochlear controls future economic benefits as a result of the costs incurred, and are stated at cost less
accumulated amortisation. Costs include expenditure that is directly attributable to the development and implementation of the system
and includes direct labour.
Research and development expenditure
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is
recognised in the income statement as an expense as incurred.
Development activities involve a plan or design for production of new or substantially improved products or processes before the start of
commercial production or use. Development expenditure is capitalised only if development costs can be measured reliably, the product or
process is technically and commercially feasible, future economic benefits are probable and Cochlear intends to and has sufficient resources
to complete development and use or sell the asset.
The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Other development
expenditure is recognised in the income statement as an expense as incurred. Capitalised development expenditure is stated at cost less
accumulated amortisation and impairment losses (see below).
Other intangible assets
Other intangible assets, comprising acquired technology, patents and licences, customer relationships and intellectual property, are
acquired individually or through business combinations and are stated at cost less accumulated amortisation and impairment losses (see
below). Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense as incurred.
Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the
specific asset to which it relates. All other expenditure is expensed as incurred.
Amortisation
Amortisation is calculated over the cost of the asset, or an other amount substituted for cost, less its residual value.
Amortisation is recognised in the income statement on a straight-line basis over the estimated useful lives of the intangible assets from
the date they are available for use unless such lives are indefinite, except for amortisation of capitalised development expenditure which is
recognised in the research and development expenses line. Goodwill and intangible assets with an indefinite useful life are systematically
tested for impairment annually. The estimated useful lives for the current and comparative years are as follows:
Acquired technology, patents and licences
4 – 15 years
Enterprise resource planning system
2.5 – 7 years
Customer relationships
4 years
Capitalised development expenditure
1 – 3 years.
Impairment
The carrying amounts of Cochlear’s non-financial assets, other than inventories (see Note 17) and deferred tax assets (see Note 11), are
reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s
recoverable amount is estimated (see below).
For goodwill and intangible assets that have indefinite useful lives, and intangible assets that are not yet available for use, the recoverable
amount is estimated at each balance sheet date.
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+
83
The recoverable amount of an asset or CGU is the greater of its value in use, and its fair value less costs to sell. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets are grouped together into
the smallest group of assets that generates cash inflows from continuing use that is largely independent of the cash inflows of other assets
or groups of assets (CGU). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to CGUs
that are expected to benefit from the processes, intellectual property acquired and synergies of the combination.
An impairment loss is recognised whenever the carrying amount of an asset or its CGU exceeds its recoverable amount. Impairment losses
are recognised in the income statement unless the asset has previously been revalued, in which case the impairment loss is recognised as a
reversal to the extent of that previous revaluation, with any excess recognised through the income statement.
Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU or
a group of units and then, to reduce the carrying amount of the other assets in the unit or a group of units on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior years are
assessed at each reporting date for indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has
been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the
asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
Impairment tests for CGUs
Impairment testing is performed over the carrying amounts of goodwill, other intangible assets and property, plant and equipment at
Cochlear’s CGUs.
For the purpose of impairment testing, goodwill is allocated to Cochlear’s operating divisions which represent the lowest level within
Cochlear at which the goodwill is monitored for internal management purposes, which is not higher than Cochlear’s operating segments as
reported in Note 3.
The aggregate carrying amounts of goodwill allocated to each CGU are as follows:
Americas
EMEA
Asia Pacific
2014
$000
85,808
74,553
9,898
170,259
2013
$000
86,438
74,709
9,812
170,959
The recoverable amount of each CGU is based on value-in-use calculations. Those calculations use cash flow projections based on actual
operating results, the next year’s budget and the three year business plan. Cash flows for subsequent years are extrapolated using a
conservative terminal growth rate of 3.0% (2013: 3.0%) per annum which is consistent with long-term economic growth rates. A pre-tax
discount rate of 13.4% (2013: 13.5%) per annum has been used in discounting the projected pre-tax cash flows.
The key assumptions and the approach to determining their value in the current year are:
Assumption
Discount rate
How determined
Based on weighted average cost of capital
Sales volume growth rate
Based on a three year forecast taking into account historical growth rates and product lifecycle
Terminal value growth rate Based on a three year forecast taking into account historical growth rates and product lifecycle.
The recoverable amount of each CGU including unallocated corporate assets is in excess of their carrying amount and therefore no
impairment charge was required. The excess of recoverable amount over carrying amount is such that a reasonably possible change in
assumptions is unlikely to reduce the recoverable amount below the carrying amount.
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+
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20. Provisions
Current
Employee benefit liabilities
Warranties
Legal and other
Product recall
Total current provisions
Non-current
Employee benefit liabilities
Defined benefit plan*
Warranties
Directors’ retirement scheme
Make good lease costs
Product recall
Patent dispute
Total non-current provisions
* Restated for change in accounting policy, refer Note 30.
Reconciliations
Reconciliations of the carrying amounts of each class of provision, except for the employee benefit
liabilities provision, are set out below:
Warranties
Carrying amount at beginning of financial year
Provisions made
Provisions used
Effects of movements in foreign exchange
Carrying amount at end of financial year
Legal and other
Carrying amount at beginning of financial year
Provisions made
Provisions used
Effects of movements in foreign exchange
Carrying amount at end of financial year
Make good lease costs
Carrying amount at beginning of financial year
Provisions made
Provisions used
Provisions released
Effects of movements in foreign exchange
Carrying amount at end of financial year
Note
13
13
13
13
2014
$000
31,065
16,469
4,465
5,558
57,557
5,200
3,130
5,082
422
2,139
16,049
21,333
53,355
2013
$000
Restated*
30,450
13,231
7,487
12,056
63,224
3,589
3,161
4,683
411
2,143
24,530
-
38,517
17,914
30,036
13,991
29,152
(26,355)
(25,439)
(44)
21,551
7,487
2,634
(5,658)
2
4,465
2,143
-
-
-
(4)
2,139
210
17,914
7,523
5,218
(5,294)
40
7,487
4,024
400
(416)
(1,857)
(8)
2,143
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+ 85
Defined benefit plan*
Carrying amount at beginning of financial year
Provisions made
Effects of movements in foreign exchange
Carrying amount at end of financial year
Directors’ retirement scheme
Carrying amount at beginning of financial year
Provisions made
Carrying amount at end of financial year
Product recall
Carrying amount at beginning of financial year
Provisions made
Provisions used
Carrying amount at end of financial year
Patent dispute
Carrying amount at beginning of financial year
Provisions made
Effects of movements in foreign exchange
Carrying amount at end of financial year
2014
$000
3,161
306
(337)
3,130
411
11
422
36,586
6,346
(21,325)
21,607
-
22,545
(1,212)
21,333
2013
$000
Restated*
2,858
303
-
3,161
399
12
411
52,970
-
(16,384)
36,586
-
-
-
-
* Restated for change in accounting policy, refer Note 30.
A provision is recognised in the balance sheet when Cochlear has a present legal or constructive obligation as a result of a past event that
can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of
money and the risk specific to the liability. The unwinding of the discount rate is recognised as a finance expense.
Warranties
Provisions for warranty claims are made for claims in relation to sales made prior to the reporting date, based on historical claim rates and
respective product populations. Warranty periods on hardware products extend for three to 10 years.
Legal and other
Onerous contracts
A provision for onerous contracts is recognised when expected benefits to be derived by Cochlear from a contract are lower than the
unavoidable cost of meeting contractual obligations. The provision is measured at the lower of the expected cost of terminating the
contract and the expected net cost of continuing with the contract. Before a provision is established, Cochlear recognises any impairment
loss on the assets associated with the contract.
Self-insurance
Cochlear self-insures to manage certain risks associated with operating in its line of business. Claims are recognised when an incident occurs
that may give rise to a claim and are measured at the cost that Cochlear expects to incur in settling the claims, discounted using a rate that
reflects current market assessments of the time value of money and the risks specific to the liability.
Make good lease costs
Cochlear has a number of operating leases over its offices that require the premises to be returned to the lessor in their original condition.
The operating lease payments do not include an element for the repairs/overhauls.
A provision for make good lease costs is recognised at the time it is determined that it is probable that such costs will be incurred in a future
year, measured at the expected cost of returning the asset to the lessor in its original condition. An offsetting asset of the same value is also
recognised and is classified in property, plant and equipment. This asset is amortised to the income statement over the life of the lease.
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 86
20. Provisions (continued)
Product recall
On 11 September 2011, the Company initiated a worldwide voluntary recall of its unimplanted Nucleus CI500 cochlear implant range.
Management has made judgements, estimates and assumptions related to probable costs arising from the recall which affect the reported
amounts of assets, liabilities, income and expenses. Actual outcomes may differ from these estimates as further information is identified.
During the year ended 30 June 2014, plant and equipment previously impaired due to the recall was reassessed. Of the $14.0 million
impaired, $6.3 million has been reversed as it can be used with the Nucleus Profile cochlear implant. Cochlear has increased the recall
provision by this amount to cover the uncertain outcomes.
No further amount has been recognised as a charge or released as a credit in the year ended 30 June 2014.
Patent dispute
On 24 January 2014, a jury verdict in the patent infringement lawsuit by the Alfred E. Mann Foundation for Scientific Research and
Advanced Bionics LLC in the United States District Court in Los Angeles, California was reached. The jury found direct, contributory and
wilful, but not induced infringement against Cochlear Limited and its USA subsidiary Cochlear Americas and awarded damages of USD 131.2
million against Cochlear.
No Judgment has been entered based on the verdict as important issues still remain to be decided by the Judge. These decisions may negate
some of the findings of the jury and could alter the damages awarded by the jury. The directors have obtained external advice and are of the
opinion that the facts and the law do not support the jury’s findings and Cochlear has applied to overturn the verdict in post-trial motions
filed with the District Court.
A Judgment is pending and the timing for entry of the Judgment is uncertain. The directors will appeal any significant adverse Judgment to
the United States Court of Appeals for the Federal Circuit.
If an appeal is necessary, Cochlear will provide non-cash security to stay the execution of the Judgment against Cochlear. Providing this
security will avoid the requirement for Cochlear to pay the Judgment amount prior to the outcome of the appeal.
A provision of USD 20 million ($22.5 million) was expensed in the half year ended 31 December 2013 in relation to this dispute. No
additional amount has been provided since the half year accounts. For the purpose of determining this provision, Cochlear considered its
independent damages expert’s assessment prepared for the trial to estimate the liability that could result from the dispute.
The nature of the above legal process is such that final future outcomes are uncertain. The directors have made judgements and
assumptions relating to their best estimate of the outcome of this litigation and actual outcomes may differ from the estimated liability.
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+ 87
Financial and capital structure
21. Net debt and finance costs
(a) Net debt
Total loans and borrowings
Less: Cash and cash equivalents
Net debt
(b) Total cash and cash equivalents
Note
21(c)
9(a)
2014
$000
237,415
(56,127)
181,288
The operating cash account received an average interest rate of 0.58% (2013: 0.82%) per annum.
Cash held on deposit for periods not exceeding 90 days received an average interest rate of 1.77% (2013: 3.27%) per annum.
(c) Loans and borrowings
Current
Secured bank loans
Total current loans and borrowings
Non-current
Secured bank loans(i)
Total non-current loans and borrowings
Financing arrangements
Cochlear had access to the following lines of credit at the reporting date:
Multi-option credit facilities
Secured bank loan
Standby letters of credit
Bank guarantees
Other credit facilities
Unsecured bank overdrafts
Secured bank loan
Bank guarantees
Facilities utilised at the reporting date
Multi-option credit facilities
Secured bank loan
Standby letters of credit
Bank guarantees
Other credit facilities
Unsecured bank overdrafts
Secured bank loan
Bank guarantees
2013
$000
170,469
(52,689)
117,780
2013
$000
3,309
3,309
167,160
167,160
295,000
19,736
264
352
4,963
1,198
2014
$000
3,141
3,141
234,274
234,274
345,000
17,705
2,295
363
4,711
1,456
371,530
321,513
235,000
3,374
2,295
-
3,141
1,066
168,000
1,924
264
-
3,309
1,193
244,876
174,690
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 88
21. Net debt and finance costs (continued)
Facilities not utilised at the reporting date
Multi-option credit facilities
Secured bank loan
Standby letters of credit
Bank guarantees
Other credit facilities
Unsecured bank overdrafts
Secured bank loan
Bank guarantees
2014
$000
110,000
14,331
-
363
1,570
390
2013
$000
127,000
17,812
-
352
1,654
5
126,654
146,823
(i) Included within secured bank loans is an amount of $725,606 (2013: $840,028) in relation to unamortised loan establishment fees.
Loans and borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, loans and
borrowings are stated at amortised cost, with any difference between amortised cost and redemption value being recognised in the income
statement over the period of the borrowings on an effective interest rate basis.
Secured bank loan – multi-option credit facilities
Cochlear has two corporate loan facilities. The first was amended and extended in June 2013 for a period of three years and a total
commitment limit of AUD 200.0 million. In December 2013, the total commitment limit was increased to AUD 250.0 million. The facility
has an option to allocate a letter of credit sub-facility limit of up to AUD 30.0 million for the purpose of drawing either bank guarantees or
letters of credit. This letter of credit sub-limit currently sits at AUD 5.0 million.
In June 2013, Cochlear negotiated a second loan facility for a period of five years. The facility has a total commitment limit of AUD 115.0
million made up of an AUD 100.0 million loan sub-facility limit and incorporates an existing AUD 15.0 million letter of credit facility that
was negotiated in August 2011.
Both facilities are secured by interlocking guarantees provided by certain controlled entities. Interest on the facilities is variable and charged
at prevailing market rates.
Unsecured bank overdrafts
Certain unsecured bank overdrafts are payable on demand and are subject to annual review. Interest on unsecured bank facilities is variable
and is charged at prevailing market rates.
Secured bank loan
Cochlear has a Japanese yen (JPY) 450.0 million loan. It is secured by a letter of guarantee and reviewed annually. Interest is charged at
prevailing market rates.
Bank guarantees
As at 30 June 2014, Cochlear had additional contingent liability facilities denominated in USD, Euros (EUR), Sterling (GBP), Indian rupees
(INR) and New Zealand dollars (NZD) totalling AUD 1.5 million (2013: AUD 1.2 million).
(d) Net finance expense
Recognised in the income statement
Interest income
Finance income
Interest expense
Finance expense
Net finance expense recognised in the income statement
2014
$000
324
324
(10,301)
(10,301)
(9,977)
2013
$000
659
659
(6,882)
(6,882)
(6,223)
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+ 89
Interest income is recognised as it accrues in the income statement using the effective interest rate method. Borrowing costs are recognised
as they accrue in the income statement as a finance expense except to the extent that borrowing costs relate to the purchase of qualifying
assets in which case they are capitalised into the purchase cost of the qualifying asset. Debt establishment costs are capitalised and
recognised as a reduction in loans and borrowings. They are calculated based on the effective interest rate method and are amortised over
the period of the loan.
22. Financial risk management
Cochlear has exposure to the following risks from the use of financial instruments:
• Credit risk;
• Liquidity risk;
• Market risk; and
• Operational risk.
(a) Risk management framework
This note presents Cochlear’s exposure to each of the above risks, its objectives, policies and processes for measuring and managing risk,
and the management of capital.
The Board of directors has overall responsibility for the establishment and oversight of the risk management framework. The fundamentals
of risk management are set by the risk policy. Under instruction of the Board, management has established a Risk Management Committee
which is responsible for monitoring operational and financial risk management throughout Cochlear. Monitoring risk management
includes ensuring appropriate policies and procedures are published and adhered to. The Risk Management Committee reports to the Audit
Committee on a regular basis.
A Treasury Management Committee has been established to administer aspects of risk management involving currency exposure and cash
and funding management in accordance with the treasury risk policy. The treasury risk policy aims to manage the impact of short-term
fluctuations on Cochlear’s earnings. Over the longer term, permanent changes in market rates will have an impact on earnings.
Cochlear is exposed to risks from movements in exchange rates and interest rates that affect revenues, expenses, assets, liabilities and
forecast transactions. Financial risk management aims to limit these market risks through ongoing operational and finance activities.
Selected derivative and non-derivative hedging instruments are used for this purpose.
Exposure to credit, foreign exchange and interest rate risks arises in the normal course of Cochlear’s business. Derivative financial
instruments are used to hedge exposure to fluctuations in foreign exchange rates and interest rates.
The Company only hedges the risks that affect the cash flows between the parent entity and the controlled entities. Cochlear does not
enter, hold or issue derivative financial instruments for trading purposes. Hedging transactions are only concluded with leading financial
institutions whose credit rating is at least A on the Standard & Poor’s rating index.
The Audit Committee oversees how management monitors compliance with Cochlear’s risk management policies and procedures and
reviews the adequacy of the risk management framework in relation to the risks faced by Cochlear. The Audit Committee is assisted in its
oversight by Internal Audit. Internal Audit undertakes regular reviews of risk management controls and procedures, the results of which are
reported to the Audit Committee.
(b) Credit risk
Credit risk is the risk of financial loss to Cochlear if a customer or counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from Cochlear’s receivables from customers.
Cochlear’s exposure to credit risk is influenced mainly by the geographical location and characteristics of individual customers. Cochlear
does not have a significant concentration of credit risk with a single customer.
Policies and procedures of credit management and administration of receivables are established and executed at a regional level. Individual
regions deliver reports to management and the Board on debtor ageing and collection activities on a monthly basis.
In monitoring customer credit risk, the ageing profile of total receivables balances and individually significant debtors is reported by
geographic region to the Board of directors on a monthly basis. Regional management is responsible for identifying high risk customers and
placing restrictions on future trading, including suspending future shipments and administering dispatches on a prepayment basis. These
actions are also reported to the Board on a monthly basis.
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 90
22. Financial risk management (continued)
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
Cash and cash equivalents
Trade receivables and other receivables
Forward exchange contracts
The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
Americas
EMEA
Asia Pacific
2014
$000
56,127
210,449
10,009
276,585
2014
$000
56,979
91,991
52,325
2013
$000
52,689
200,330
4,362
257,381
2013
$000
59,110
84,173
44,310
201,295
187,593
Impairment losses
Cochlear’s financial assets (cash and cash equivalents and trade and other receivables) are assessed at each reporting date to determine
whether there is any objective evidence of impairment. A financial asset is considered impaired if objective evidence indicates that one or
more events have had a negative effect on the estimated future cash flows of that asset.
The recoverable amount of financial assets is calculated as the present value of estimated future cash flows, discounted at the original
effective interest rate (i.e. the effective interest rate computed at initial recognition of these financial assets). Financial assets with a short
duration are not discounted. An impairment loss of a financial asset is measured as the difference between the asset’s carrying amount and
its recoverable amount.
Impairment of financial assets is not recognised until objective evidence is available that a loss event has occurred. Individual significant
financial assets are individually assessed for impairment. Impairment testing of financial assets not assessed individually is performed by
placing them into portfolios of similar risk profiles and undertaking a collective assessment of impairment based on objective evidence from
historical experience adjusted for any effects of conditions existing at the balance date.
All impairment losses are recognised in the income statement. An impairment loss is reversed if the reversal can be related objectively to an event
occurring after the impairment loss was recognised. The reversal of impairment losses on financial assets is recognised in the income statement.
In assessing collective impairment, Cochlear uses historical trends of the probability of default, timing of recoveries and the amount of loss
incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are
likely to be greater or less than suggested by historical trends.
The ageing of Cochlear’s trade receivables at the reporting date was:
Gross receivables
Not past due
Past due 0 – 30 days
Past due 31 – 120 days
Past due 121 – 270 days
Past due 271 days and over
Impairment losses
Trade receivables net of allowance for impairment losses
2014
$000
152,076
18,373
19,102
6,805
8,464
204,820
(3,525)
201,295
2013
$000
138,570
18,651
15,680
5,877
12,379
191,157
(3,564)
187,593
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+
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There are certain jurisdictions in which Cochlear operates where it is customary practice for customers to make payment beyond 270 days.
As such, Cochlear discloses the balance as overdue; however, it is not indicative of a higher than normal credit risk as payments are typically
received by Cochlear within the extended timeframes.
The movement in the allowance for impairment losses in respect of trade receivables during the year was as follows:
Balance at 1 July
Net impairment losses utilised/(recognised)
Effect of movements in foreign exchange
Balance at 30 June
2014
$000
(3,564)
153
(114)
(3,525)
2013
$000
(2,770)
(562)
(232)
(3,564)
Cochlear has established an allowance for impairment that represents its estimate of incurred losses in respect of trade and other
receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures and a
collective loss component established for groups of assets meeting certain ageing profiles and customer types which have been assessed as
impaired under Cochlear’s accounting policy as detailed above.
Based upon past experience, Cochlear believes that no impairment allowance is necessary in respect of trade receivables not past due.
The allowance accounts used in respect of trade receivables are used to record impairment losses unless Cochlear is satisfied that no recovery
of the amount owing is possible; at that point, the amount considered non-recoverable is written off against the financial asset directly.
(c) Liquidity risk
Liquidity risk is the risk that Cochlear will not be able to meet its financial obligations as they fall due. Cochlear’s approach to managing
liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and
stressed conditions, without incurring unacceptable losses or risking damage to Cochlear’s reputation.
Cochlear monitors cash flow requirements and produces cash flow projections for the short and long term with a view to optimising return
on investments. Typically, Cochlear ensures that it has sufficient funds on demand to meet expected operational net cash flows for a period
of at least 30 days, including the servicing of financial obligations. This excludes the potential impact of extreme circumstances that cannot
reasonably be predicted, such as natural disasters. In addition, Cochlear maintains lines of credit which are set out in Note 21(c).
Non-derivative assets and liabilities
The following are the contractual maturities of non-derivative financial liabilities, including estimated interest payments and excluding the
impact of netting agreements:
Effective
interest rate
Per annum
Carrying
amount
$000
Contractual
cash flows
$000
6 months
or less
$000
6 – 12
months
$000
1 – 2 years
2 – 5 years
$000
$000
More than
5 years
$000
Non-derivative financial liabilities
30 June 2014
AUD floating rate loan
JPY floating rate loan
4.04%
0.65%
234,274
256,496
3,141
3,154
4,791
10
Trade and other payables
-
78,644
78,644
78,644
4,713
3,144
-
209,176
37,816
-
-
-
-
Total
316,059
338,294
83,445
7,857
209,176
37,816
-
-
-
-
Effective
interest rate
Per annum
Carrying
amount
$000
Contractual
cash flows
$000
6 months
or less
$000
6 – 12
months
$000
1 – 2 years
2 – 5 years
$000
$000
More than
5 years
$000
Non-derivative financial liabilities
30 June 2013
AUD floating rate loan
JPY floating rate loan
Trade and other payables
Total
4.63%
0.67%
-
167,160
190,151
3,309
81,874
3,324
81,874
3,917
12
81,874
3,853
3,312
-
7,770
174,611
-
-
-
-
252,343
275,349
85,803
7,165
7,770
174,611
-
-
-
-
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+
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22. Financial risk management (continued)
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.
Derivative assets and liabilities
The following table indicates the periods in which the cash flows associated with Cochlear’s derivatives that are cash flow hedges are
expected to occur:
30 June 2014
Amounts $000
Forward exchange contracts
Assets
Liabilities
Total
30 June 2013
Amounts $000
Forward exchange contracts
Assets
Liabilities
Total
Carrying
amount
$000
Expected cash
flows
$000
6 months
or less
$000
6 – 12 months
$000
10,009
(9,244)
765
10,358
(9,456)
902
2,444
(3,202)
(758)
2,183
(3,519)
(1,336)
1 – 2
years
$000
4,118
(1,670)
2,448
2 – 5
years
$000
1,613
(1,065)
548
Carrying
amount
$000
Expected cash
flows
$000
6 months
or less
$000
4,362
4,454
(28,134)
(29,081)
1,821
(7,097)
6 – 12 months
$000
1,697
(7,999)
(23,772)
(24,627)
(5,276)
(6,302)
1 – 2
years
$000
2 – 5
years
$000
936
(9,980)
(9,044)
-
(4,005)
(4,005)
The expected impact on the income statement is not considered to be significantly different to the cash flow impact noted above.
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+
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(d) Market risk
Market risk is the risk that changes in market prices such as foreign exchange rates, interest rates and equity prices will affect Cochlear’s net
profit or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk
exposures within acceptable parameters, while optimising the return.
Cochlear buys and sells derivatives in accordance with the treasury risk policy, and also incurs financial liabilities, in order to manage market
risks. All such transactions are carried out within the guidelines set out by the treasury risk policy. Generally, Cochlear seeks to apply hedge
accounting in order to manage volatility in earnings.
Currency risk
Cochlear is exposed to currencies other than the respective functional currencies of the controlled entities, primarily AUD, USD, EUR, GBP,
Swedish kroner (SEK), JPY and Swiss francs (CHF). The currencies in which these transactions primarily are denominated are AUD, USD, EUR,
GBP, SEK and JPY.
Over 90% of Cochlear’s revenues and over 50% of costs are denominated in currencies other than AUD. Currency risk is hedged in
accordance with the treasury risk policy. Risk resulting from the translation of assets and liabilities of foreign operations into Cochlear’s
reporting currency is generally not hedged.
Exposure to currency risk
Cochlear’s exposure to foreign currency risk was as follows, based upon notional amounts:
Amounts local currency thousands
USD
EUR
GBP
SEK
JPY
30 June 2014
Trade receivables
Secured bank loan
Trade payables
Gross balance sheet exposure
65,453
35,167
-
(10,572)
54,881
-
(4,299)
30,868
5,955
-
(5,919)
36
5,662
765,565
-
(300,000)
(33,040)
(27,378)
(60,776)
404,789
Amounts local currency thousands
USD
EUR
GBP
SEK
JPY
30 June 2013
Trade receivables
Secured bank loan
Trade payables
Gross balance sheet exposure
62,627
38,978
-
(14,820)
47,807
-
(4,931)
34,047
3,211
-
(6,844)
(3,633)
6,100
669,529
-
(300,000)
(47,429)
(65,556)
(41,329)
303,973
Cochlear enters into forward exchange contracts to hedge anticipated sales and purchases in USD, EUR and JPY.
The amounts of forward cover taken are in accordance with approved policy and internal forecasts.
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 94
22. Financial risk management (continued)
The following table sets out the gross value to be received (sell) under forward exchange contracts and the weighted average contracted
exchange rates of outstanding contracts:
Foreign exchange rates
Gross value
Sell USD
Not later than one year
Later than one year but not later than two years
Later than two years but not later than five years
Weighted average exchange rates contracted
Sell EUR
Not later than one year
Later than one year but not later than two years
Later than two years but not later than five years
Weighted average exchange rates contracted
Sell JPY
Not later than one year
Later than one year but not later than two years
Later than two years but not later than five years
2014
2013
0.91
0.97
0.68
0.72
2014
$000
137,518
70,077
20,014
102,714
67,665
18,320
9,724
4,626
1,220
Weighted average exchange rates contracted
87.27
83.72
The following significant exchange rates applied to Cochlear during the year:
AUD1 =
USD
EUR
GBP
SEK
JPY
Average rate
Reporting date spot rate
2014
0.922
0.679
0.567
6.022
2013
1.022
0.794
0.654
6.796
2014
0.937
0.689
0.552
6.311
92.916
89.349
95.514
90.666
2013
$000
142,467
71,113
20,256
113,740
59,473
15,111
9,246
4,960
1,259
2013
0.928
0.711
0.603
6.239
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+
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Interest rate risk
Cochlear is exposed to interest rate risks in Australia and Japan. See Note 22(c) for effective interest rates, repayment and repricing analysis
of outstanding debt.
Interest rate risk is hedged on a case-by-case basis by assessing the term of borrowings and the purpose for which the funds are obtained.
Hedging against interest rate risk is achieved by entering into interest rate swaps.
Profile
At the reporting date, the interest rate profile of Cochlear’s interest-bearing financial instruments was as follows:
Carrying amount
Variable rate instruments
Financial assets
Financial liabilities
2014
$000
2013
$000
56,127
237,415
52,689
170,469
At 30 June 2014, no interest rate hedging had been entered into.
Sensitivity analysis
In managing interest rate and currency risks, Cochlear aims to reduce the impact of short-term fluctuations on Cochlear’s earnings.
However, over the longer term, permanent changes in interest rates and foreign exchange rates will have an impact on profit.
For the year ended 30 June 2014, it is estimated that a general increase of one percent in interest rates would have decreased Cochlear’s
profit after income tax and equity by approximately $1.3 million (2013: $0.6 million). A one percent general decrease in interest rates would
have had the equal but opposite effect on Cochlear’s profit and equity.
It is estimated that a general increase of 10 percent in the value of the AUD against other foreign currencies would have decreased
Cochlear’s profit for the year ended 30 June 2014, including hedging results and after income tax, by approximately $4.7 million (2013:
$6.1 million) and decreased Cochlear’s equity by $12.9 million (2013: $14.5 million). A 10 percent general decrease in the value of the AUD
against other foreign currencies would have increased Cochlear’s profit by $5.8 million (2013: $7.2 million) and increased equity by $14.1
million (2013: $14.2 million).
(e) Operational risk
Operational risk is the risk of direct and indirect loss arising from a wide variety of causes associated with Cochlear’s processes, personnel,
technology and infrastructure, and from external factors other than credit, liquidity and market risks such as those arising from legal and
regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of Cochlear’s operations.
Cochlear’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to Cochlear’s reputation
with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.
The primary responsibility for the development and implementation of controls to address operational risk is assigned to the Risk
Management Committee. This responsibility is supported by the development of standards for the management of operational risk in the
following areas:
• requirements for appropriate segregation of duties, including the independent authorisation of transactions;
• requirements for the reconciliation and monitoring of transactions;
• compliance with regulatory and other legal requirements;
• documentation of controls and procedures;
• requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the
risks identified;
• development of contingency plans;
• training and professional development;
• ethical and business standards; and
• risk mitigation, including insurance where this is effective.
Compliance with standards is supported by a program of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews
are discussed with the management of the business unit to which they relate, with summaries submitted to the Audit Committee and
senior management of Cochlear.
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+
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22. Financial risk management (continued)
(f) Fair values
The fair values of financial assets and liabilities, together with carrying amounts shown in the balance sheet, are as follows:
Cash and cash equivalents
Trade and other receivables – current
Trade and other receivables – non-current
Trade and other payables – current
Forward exchange contracts – liabilities current
Forward exchange contracts – liabilities non-current
Secured bank loans – current
Secured bank loans – non-current(i)
Total
2014
2013
Carrying amount
Fair value Carrying amount
Fair value
Note
9(a)
16
16
21(c)
21(c)
$000
56,127
214,953
5,505
(78,644)
(6,643)
(2,624)
(3,141)
$000
56,127
214,953
5,505
(78,644)
(6,643)
(2,624)
(3,141)
(234,274)
(235,000)
(48,741)
(49,467)
$000
52,689
203,748
944
(81,874)
(14,915)
(13,242)
(3,309)
(167,160)
(23,119)
$000
52,689
203,748
944
(81,874)
(14,915)
(13,242)
(3,309)
(168,000)
(23,959)
(i) Included within the carrying amount of secured bank loans is an amount of $725,606 (2013: $840,028) in relation to unamortised loan establishment fees.
Basis for determining fair values
The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments reflected in
the table above.
Forward exchange contracts
The fair value of forward exchange contracts is based upon the listed market price, if available. If a listed market price is not available, the fair
value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity
of the contract using a risk free interest rate based upon government bonds. These fair values are provided by independent third parties.
Non-derivative financial assets and liabilities
The fair value of cash, receivables, payables and short-term borrowings is considered to approximate their carrying amount because of their
short maturity.
The directors consider the carrying amount of long-term borrowings recorded in the financial statements approximates their fair value as
interest rates on loans and borrowings are variable.
Other
Other non-derivative financial instruments are measured at amortised cost using the effective interest rate method, less any
impairment losses.
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+
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Fair value hierarchy
The table below analyses financial instruments carried at fair value, by the levels in the value hierarchy. The different levels have been
defined as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
30 June 2014
Derivative financial assets
Forward exchange contracts used for hedging
Total assets
Derivative financial liabilities
Forward exchange contracts used for hedging
Other forward exchange contracts
Total liabilities
30 June 2013
Derivative financial assets
Forward exchange contracts used for hedging
Total assets
Derivative financial liabilities
Forward exchange contracts used for hedging
Other forward exchange contracts
Total liabilities
Level 2
$000
10,009
10,009
(9,244)
(23)
(9,267)
4,362
4,362
(28,134)
(23)
(28,157)
Total
$000
10,009
10,009
(9,244)
(23)
(9,267)
4,362
4,362
(28,134)
(23)
(28,157)
There have been no transfers between levels during the year. There are no other financial instruments carried at fair value or valued using a Level 1
or Level 3 valuation method.
(g) Accounting policy for financial instruments
Non-derivative financial assets
Cochlear initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including
assets designated at fair value through profit or loss) are recognised initially on the trade date at which Cochlear becomes a party to the
contractual provisions of the instrument.
Cochlear derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to
receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the
financial asset are transferred. Any interest in transferred financial assets that is created or retained by Cochlear is recognised as a separate
asset or liability.
Financial assets and liabilities are offset and the net amount presented in the balance sheet when, and only when, Cochlear has a legal right
to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
Cochlear has the following non-derivative financial assets: financial assets at fair value through profit or loss and loans and receivables.
Financial assets at fair value through profit or loss
A financial asset is classified as at fair value through profit or loss if it is classified as held for trading or is designated as such upon
initial recognition. Financial assets are designated at fair value through profit or loss if Cochlear manages such investments and makes
purchase and sale decisions based on their fair value in accordance with Cochlear’s documented risk management or investment strategy.
Attributable transaction costs are recognised in profit or loss when incurred. Financial assets at fair value through profit or loss are measured
at fair value, and changes therein are recognised in profit or loss.
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 98
22. Financial risk management (continued)
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are
recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are
measured at amortised cost using the effective interest rate method, less any impairment losses.
Loans and receivables comprise cash and cash equivalents, and trade and other receivables.
Non-derivative financial liabilities
Cochlear initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial
liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which Cochlear
becomes a party to the contractual provisions of the instrument.
Cochlear derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.
Financial assets and liabilities are offset and the net amount presented in the balance sheet when, and only when, Cochlear has a legal right
to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
Cochlear classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognised
initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured
at amortised cost using the effective interest rate method.
Other financial liabilities comprise bank overdrafts, other loans and borrowings and trade and other payables.
Bank overdrafts that are repayable on demand and form an integral part of Cochlear’s cash management are included as a component of
cash and cash equivalents for the purpose of the statement of cash flows.
Accounting for finance income and expense is discussed in Note 21(d).
Derivative assets and liabilities
Cochlear holds derivative financial instruments to hedge its exposure to foreign exchange risk and interest rate risk arising from operating,
investing and financing activities. In accordance with its treasury policy, Cochlear does not hold or issue derivative financial instruments for
trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.
On initial designation of the hedge, Cochlear formally documents the relationship between the hedging instrument and hedged item,
including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used
to assess the effectiveness of the hedging relationship. Cochlear makes an assessment, both at inception of the hedge relationship as well
as on an ongoing basis, whether the hedging instruments are expected to be highly effective in offsetting the changes in the fair value or
cash flows of the respective hedged items during the year for which the hedge is designated, and whether the actual results of each hedge
are within a range of 80% to 125%. For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and
should present an exposure to variations in cash flows that could ultimately occur.
Derivative financial instruments are recognised initially at fair value. Attributable transaction costs are recognised in the income statement
when incurred. Subsequent to initial recognition, derivative financial instruments are measured at fair value with changes in fair value
accounted for as described below.
In the year ended 30 June 2014, Cochlear designated some sales and purchases of various currencies as cash flow hedges to hedge the
amount converted into AUD for forecast future transactions. These are hedges of forecast future transactions to manage the currency risk
arising from exchange rate fluctuations. The hedged items were highly probable foreign currency transactions.
The effectiveness of the hedging relationship is calculated prospectively using regression analysis on market values. An effectiveness test
is carried out retrospectively using the cumulative dollar offset method. For this, the changes in the fair values of the hedged item and the
hedging instrument attributable to spot rate changes are calculated and a ratio is created. If this ratio is between 80% and 125%, the hedge
is effective.
All material hedges were effective at the reporting date.
Changes in the fair value of a derivative financial instrument designated as a cash flow hedge are recognised directly in equity to the extent
that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in the income statement.
If the derivative financial instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then
hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the forecast
transaction occurs or when cash flows arising from the transaction are received.
When the forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, the associated
cumulative gain or loss is removed from equity and transferred to the carrying amount of the non-financial asset or liability. If a hedge of a
forecast transaction subsequently results in the recognition of a financial asset or a financial liability, then the associated gains and losses
that were previously recognised directly in equity are reclassified into the income statement in the same year or years during which the
asset acquired or liability assumed affects the income statement.
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+ 99
For cash flow hedges, other than those covered by the preceding statement, the associated cumulative gain or loss is removed from
equity and recognised in the income statement in the same year or years during which the hedged forecast transaction affects the income
statement and on the same line item as that hedged forecast transaction. The ineffective part of any gain or loss is recognised immediately
in the income statement.
23. Capital and reserves
Share capital
Number of issued shares in market
circulation
Number of shares held in Trust
under CELTIP
Total number of issued shares
2014
2013
On issue 1 July – fully paid
56,915,289
56,865,878
Issued for nil consideration under Employee
Share Plan
Shares purchased from the market
Issued from the exercise of options
Performance shares issued from Trust
21,088
16,302
-
-
1,142
(68,872)
95,198
6,783
2014
125,643
2013
2014
2013
63,554
57,040,932
56,929,432
-
21,088
16,302
-
-
-
68,872
-
(1,142)
(6,783)
-
-
-
-
95,198
-
On issue 30 June – fully paid
56,937,519
56,915,289
124,501
125,643
57,062,020
57,040,932
Cochlear has also issued options (see Note 14).
The Company does not have authorised capital or par value in respect of its issued shares.
Ordinary shares
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at
shareholders’ meetings.
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of
any income tax benefit.
Repurchase of share capital (treasury shares)
When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is
recognised as a deduction from equity, net of any tax effects. Repurchased shares are classified as treasury shares and are presented as a
deduction from total equity. When treasury shares are subsequently sold or reissued, the amount received is recognised as an increase in
equity, and the surplus or deficit on the transaction is transferred to or from the share based payments reserve.
Treasury reserve
The treasury reserve comprises the cost of shares acquired by the Trust at the date of purchase.
Translation reserve
The translation reserve records the foreign currency differences arising from the translation of the financial statements of foreign operations
as well as from the translation of liabilities that hedge the Company’s net investment in a foreign subsidiary, where their functional currency
is different to the presentation currency of the reporting entity. See Note 2(d) for further details.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related
to underlying transactions that have not yet occurred.
Share based payment reserve
The share based payment reserve comprises the cost of shares, options and rights granted to eligible executives under the CELTIP and CEIP,
as detailed in Note 14 less any payments made to meet its obligations through the acquisition of shares on market, together with any
deferred tax asset/liability on such payments.
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24. Capital management
Cochlear’s objectives when managing capital are to safeguard its ability to continue as a going concern, to provide returns to shareholders,
to provide benefits to other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
The Board aims to maintain and develop a capital base appropriate to Cochlear’s objectives and monitors a number of qualitative metrics
as follows:
• net gearing ratio – defined as net debt as a proportion of net debt plus total equity;
• dividend payout ratio – defined as dividends as a proportion of net profit after tax for a given period;
• growth in EPS – defined as the compound annual growth percentage in EPS over a three year period; and
• TSR – defined as the percentage growth in share price over a three year period plus the cumulative three year dividend return calculated
against the opening share price in the same three year period.
In order to maintain or adjust the capital structure, Cochlear may adjust the amount of dividends paid to shareholders, return capital to
shareholders, issue new shares or sell assets to reduce debt.
Senior management tracks, manages and reports against these capital management metrics periodically as part of broader corporate
governance responsibilities. In addition, the Board of directors undertakes periodic reviews of Cochlear’s capital management position to
assess whether the metrics continue to be appropriate and whether the capital management structure is appropriate to meet Cochlear’s
medium and long-term strategic requirements.
Neither the Company nor any of its subsidiaries is subject to externally imposed capital requirements.
There were no significant changes in Cochlear’s approach to capital management during the year.
Cochlear’s net gearing ratio was as follows:
Net debt
Total equity*
Net gearing ratio at 30 June
* Restated for change in accounting policy, refer Note 30.
Note
21(a)
2014
$000
181,288
329,205
36%
2013
$000
Restated*
117,780
354,511
25%
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+ 101
Other notes
25. Auditors’ remuneration
Audit services
Auditors of the Company:
KPMG:
– audit and review of financial reports
– other regulatory compliance services
Total audit services
Non-audit services
Auditors of the Company:
KPMG:
– taxation compliance services
Total non-audit services
26. Commitments
Operating lease commitments
Future non-cancellable operating lease rentals not provided for in the financial statements are payable as follows:
Not later than one year
Later than one year but not later than five years
Later than five years
Total operating lease commitments
Capital expenditure commitments
Contracted but not provided for and payable:
Not later than one year
Total capital expenditure commitments
2014
$
2013
$
1,422,391
1,336,981
42,875
58,925
1,465,266
1,395,906
818,282
818,282
1,211,162
1,211,162
2014
$000
2013
$000
20,716
74,934
97,163
192,813
21,763
62,709
100,059
184,531
1,972
1,972
1,553
1,553
Cochlear leases property under non-cancellable operating leases expiring from one to 15 years. Leases generally provide Cochlear with a
right of renewal at which time all terms are renegotiated. Lease payments comprise a base amount plus an incremental contingent rental.
Contingent rentals are based on movements in the Consumer Price Index.
27. Contingent liabilities
The details of contingent liabilities are set out below. The directors are of the opinion that provisions are either adequate or are not required
in respect of these matters, as it is either not probable that a future sacrifice of economic benefits will be required, or the amount is not
capable of reliable measurement.
Product liability claims
Cochlear is currently and is likely from time to time to be involved in claims and lawsuits incidental to the ordinary course of business,
including claims for damages relating to its products and services.
In addition, Cochlear has received legal claims in various countries and lawsuits in the United States by recipients who have had Cochlear
implant CI500 series devices stop functioning for the reason that led to the September 2011 voluntary recall of unimplanted CI500 series
devices. The claims are being negotiated and the lawsuits defended by Cochlear.
Cochlear carries product liability insurance and has made claims under the policies. The insurers have agreed to indemnify Cochlear in
accordance with the terms and conditions of the policies including deductibles and exclusions. In the opinion of the directors, the details of the
product liability insurance policies are commercially sensitive and any disclosure of these details may be prejudicial to the interests of Cochlear.
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 102
28. Controlled entities
Interest held
Country of incorporation/formation
2014
%
2013
%
Particulars in relation to controlled entities
Company
Cochlear Limited
Controlled entities
Acoustic Implants Limited
Cochlear AG
Cochlear Americas
Cochlear Benelux NV
Cochlear Bone Anchored Solutions AB
Cochlear Boulder LLC
Cochlear Canada Inc
Cochlear Clinical Services LLC
Cochlear Deutschland GmbH & Co KG
Cochlear Employee Share Trust
Cochlear Europe Finance GmbH
Cochlear Europe Limited
Cochlear Executive Long Term Incentive Plan (Performance Shares) Trust
Cochlear Finance Pty Limited
Cochlear France SAS
Cochlear German Holdings Pty Limited
Cochlear Holdings NV
Cochlear Incentive Plan Pty Limited
Cochlear Investments Pty Ltd
Cochlear Italia SRL
Cochlear Korea Limited
Cochlear Latinoamerica S.A.
Cochlear Malaysia Sdn. Bhd.
Cochlear Manufacturing Corporation
Cochlear Medical Device (Beijing) Co., Ltd
Cochlear Medical Device Company India Private Limited
Cochlear Middle East FZ-LLC
Cochlear Nordic AB
Cochlear NZ Limited
Cochlear Research and Development Limited
Cochlear Sweden Holdings AB
Cochlear Technologies Pty Limited
Cochlear Tibbi Cihazlar ve Saglik Hizmetleri Limited Sirketi
Cochlear Verwaltungs GmbH
Cochlear (HK) Limited
Cochlear (UK) Limited
Isitme Implantlari Tibbi Cihazlar ve Saglik Hizmetleri Ltd Sti
Lachlan Project Development Pty Ltd
Lachlan Project Holdings Pty Ltd
(i)
(i)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
100
100
100
100
100
Australia
UK
Switzerland
USA
Belgium
Sweden
USA
Canada
USA
Germany
Australia
Germany
UK
Australia
Australia
France
Australia
Belgium
Australia
Australia
Italy
Korea
Panama
Malaysia
USA
China
India
UAE
Sweden
New Zealand
UK
Sweden
Australia
Turkey
Germany
Hong Kong
UK
Turkey
Australia
Australia
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+ 103
Interest held
Country of incorporation/formation
Lachlan Project Security Holdings Pty Ltd
Medical Insurance Pte Limited
Miaki NV
Neopraxis Pty Limited
Nihon Cochlear Co Limited
Percutis AB
(i) Dormant.
2014
%
100
100
100
100
100
-
2013
%
100
100
100
100
100
100
(i)
29. Parent entity disclosures
At, and throughout the financial year ended, 30 June 2014, the parent company of Cochlear was Cochlear Limited.
Result of the parent entity
Net profit
Other comprehensive income/(loss)
Total comprehensive income
Financial position of the parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent entity comprising of:
Issued capital
Treasury reserve
Translation reserve
Hedging reserve
Share based payment reserve
Retained earnings
Total equity
Company
2014
$000
136,541
17,155
153,696
209,772
683,453
85,981
412,679
152,599
(8,463)
13
476
19,963
106,186
270,774
Dividend income from subsidiaries is recognised by the parent entity when the dividends are declared by the subsidiary.
Parent entity contingencies
The details of all contingent liabilities in respect to Cochlear Limited are disclosed in Note 27.
Australia
Singapore
Belgium
Australia
Japan
Sweden
2013
$000
158,414
(47,449)
110,965
197,014
636,642
110,457
382,022
128,196
(9,408)
123
(16,680)
39,221
113,168
254,620
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 104
29. Parent entity disclosures (continued)
Parent entity capital commitments for acquisition of plant and equipment
Plant and equipment
Contracted but not yet provided for and payable:
Within one year
Total parent entity capital commitments for acquisition of plant and equipment
Company
2014
$000
1,972
1,972
2013
$000
1,553
1,553
30. Changes in accounting policies
Cochlear has adopted the following new standards and amendments to standards, including any consequential amendments to other
standards, with a date of initial application of 1 July 2013:
AASB 10 Consolidated Financial Statements (2011)
In accordance with the transitional provisions of AASB 10 (2011), the Consolidated Entity reassessed the control conclusion for its investees
at 1 July 2013 and there have been no changes.
AASB 13 Fair Value Measurement
In accordance with the transitional provisions of AASB 13, the Consolidated Entity has applied the new fair value measurement guidance
prospectively, and has not provided any comparative information for new disclosures (refer Note 22). Notwithstanding the above, the
change had no significant impact on the measurements of the Consolidated Entity’s assets and liabilities.
AASB 119 Employee Benefits (2011)
As a result of AASB 119 (2011), the Consolidated Entity has changed its accounting policy with respect to the basis for determining the
income or expense related to defined benefit plans.
Under AASB 119 (2011), the Consolidated Entity determines the net interest expense/(income) for the period on the net defined benefit
liability/(asset) by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to
the net defined benefit liability/(asset) at the beginning of the annual period, taking into account any changes in the net defined benefit
liability/(asset) during the period as a result of contributions and benefit payments. Consequently, the net interest on the net defined
benefit liability/(asset) now comprises:
• interest cost on the defined benefit obligation;
• interest income on plan assets; and
• interest on the effect on the asset ceiling.
Previously, the Consolidated Entity determined interest income on plan assets based on their long-term rate of expected return.
Under AASB 119 (2011), the Consolidated Entity changed its accounting policy for recognition of actuarial gains and losses arising from its
defined benefit plan from the corridor method to the direct to equity method. Previously unrecognised actuarial gains and losses under the
corridor method have been recognised on the balance sheet as part of the net defined benefit obligation.
Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014AR 14InvestorCentreContentsNextPrevious-– – –+ 105
The overall impact to the financial statements is considered immaterial. The following table summarises the adjustments made to the
balance sheet on implementation of the new accounting policy:
Balance at 1 July 2012, as previously reported
Impact of the change in accounting policy at 1 July 2012
Restated balance at 1 July 2012
Balance at 30 June 2013, as previously reported
Impact of the change in accounting policy at 1 July 2012
Impact of the change in accounting policy during the year ended 30 June 2013
Restated balance at 30 June 2013
The effect on the statement of comprehensive income was as follows:
Increase in other comprehensive loss for the year ended June 2013 by $230,000.
Provisions – non-
current
Deferred tax
assets
Retained earnings
$000
35,056
2,858
37,914
35,356
2,858
303
38,517
$000
50,495
686
51,181
56,663
686
73
57,422
$000
280,506
(2,172)
278,334
270,558
(2,172)
(230)
268,156
The change in accounting policy had an immaterial impact on EPS for the comparative period.
31. New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are effective for financial years beginning after 1 July 2013, and
have not been applied in preparing these consolidated financial statements. Of the new standards, only the following is expected to have an
effect on the consolidated financial statements of Cochlear:
• AASB 9 Financial Instruments, which becomes mandatory for Cochlear’s 2018 consolidated financial statements.
Cochlear is currently assessing the impact of the changes in the above standard and it is not expected that the changes will have a
significant impact on Cochlear. As such, Cochlear does not plan to adopt this standard early.
32. Events subsequent to the reporting date
Other than the matters noted below, there has not arisen in the interval between the reporting date and the date of this Financial Report,
any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to significantly affect
the operations of Cochlear, the results of those operations, or the state of affairs of Cochlear in future financial years:
Dividends
For dividends declared after 30 June 2014, see Note 8.
AR 14Notes to the Financial Statements Cochlear Limited and its controlled entities for the year ended 30 June 2014InvestorCentreInvestorCentreContentsNextPrevious-– – –+ 106
Directors’ Declaration Cochlear Limited and its controlled entities for the year ended 30 June 2014
1.
In the opinion of the directors of Cochlear Limited (the Company):
(a) the consolidated financial statements and notes and the Remuneration Report in the Directors’ Report set out on pages
31 to 105, are in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the Consolidated Entity’s financial position as at 30 June 2014 and of its performance for
the financial year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due
and payable.
2. The directors have been given the declarations required by section 295A of the Corporations Act 2001 from the CEO/President
and Chief Financial Officer for the financial year ended 30 June 2014.
3. The directors draw attention to Note 2(a) to the consolidated financial statements, which includes a statement of compliance
with International Financial Reporting Standards.
Signed in accordance with a resolution of the directors:
Dated at Sydney this 5th day of August 2014.
Director
Director
AR 14InvestorCentreContentsNextPrevious-– – –+
107
Independent Audit Report to the Members of Cochlear Limited.
Report on the financial report
We have audited the accompanying financial report of Cochlear Limited (the company), which comprises the consolidated balance sheet
as at 30 June 2014, and consolidated income statement, consolidated statement of comprehensive income, consolidated statement
of changes in equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 32 comprising a summary of
significant accounting policies and other explanatory information and the directors’ declaration of the Consolidated Entity comprising the
company and the entities it controlled at the year’s end or from time to time during the financial year.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with
Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to
enable the preparation of the financial report that is free from material misstatement whether due to fraud or error. In note 2(a), the
directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial
statements of the Consolidated Entity comply with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian
Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and
plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures
selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the
financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall
presentation of the financial report.
We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the
Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the
Consolidated Entity’s financial position and of its performance.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Auditor’s opinion
In our opinion:
(a) the financial report of the Consolidated Entity is in accordance with the Corporations Act 2001, including:
(i)
giving a true and fair view of the Consolidated Entity’s financial position as at 30 June 2014 and of its performance for the year
ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001.
(b) the financial report also complies with International Financial Reporting Standards as disclosed in note 2(a).
Emphasis of matter
We draw attention to note 20 to the financial statements which describes the uncertainty related to the outcome of the lawsuit filed
against the Consolidated Entity for alleged patent infringement. Our audit report is not modified in respect of this matter.
Report on the remuneration report
We have audited the remuneration report included in pages 31 to 53 of the directors’ report for the year ended 30 June 2014. The directors
of the company are responsible for the preparation and presentation of the remuneration report in accordance with Section 300A of the
Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance
with auditing standards.
Auditor’s opinion
In our opinion, the remuneration report of Cochlear Limited for the year ended 30 June 2014, complies with Section 300A of the
Corporations Act 2001.
KPMG
Sydney, 5 August 2014
Cameron Slapp, Partner
AR 14InvestorCentreInvestorCentreContentsNextPrevious-– – –+
108
Additional information
Additional information required by Australian Securities Exchange Listing Rules and not disclosed elsewhere in this report – the information
presented is as at 30 July 2014:
Number of ordinary shares held
6,733,235
4,176,928
3,501,751
3,396,738
3,394,696
2,857,097
24,060,445
%
11.80
7.32
6.14
5.95
5.95
5.01
42.17
Number of ordinary shareholders
Shareholdings
Substantial shareholders
Shareholder
Baillie Gifford & Co
Schroders PLC
Generation Investment Management LLP
Veritas Asset Management (UK) Ltd
Harding Loevner LP
Hyperion Asset Management Limited
Total
Distribution of shareholders
Number of shares held
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Non-marketable parcels – 196 shareholders held less than a marketable parcel of ordinary shares
Twenty largest shareholders
Shareholder
HSBC Custody Nominees (Australia) Limited
JP Morgan Nominees Australia Limited
National Nominees Limited
Citicorp Nominees Pty Limited
BNP Paribas Noms Pty Ltd (DRP)
Dr Christopher Graham Roberts
HSBC Custody Nominees (Australia) Limited (NT-Comnwlth Super Corp a/c)
UBS Nominees Pty Limited
RBC Investor Services Australia Nominees Pty Limited (Bkcust a/c)
Citicorp Nominees Pty Limited (BHP Billiton ADR Holders a/c)
Citicorp Nominees Pty Limited (Colonial First State Inv a/c)
BNP Paribas Nominees Pty Ltd (Agency Lending DRP a/c)
National Nominees Limited (DB a/c)
Cochlear Incentive Plan Pty Ltd
AMP Life Limited
PGA (Investments) Pty Ltd
ECapital Nominees Pty Limited (Settlement a/c)
Netwealth Investments Limited (Wrap services a/c)
BNP Paribas Noms (NZ) Ltd (DRP)
USB Wealth Management Australia Nominees Pty Ltd
The 20 largest shareholders held 69.54% of the ordinary shares of the Company.
On market buy-back
There is no current on market buy-back.
Number of ordinary shares held
13,518,047
10,392,855
9,141,537
2,014,156
1,045,771
703,803
668,761
381,948
269,177
266,567
235,999
190,864
166,432
124,501
111,635
100,000
93,268
88,572
88,039
85,151
29,954
3,146
184
77
16
33,377
%
23.69
18.21
16.02
3.53
1.83
1.23
1.17
0.67
0.47
0.47
0.41
0.33
0.29
0.22
0.20
0.18
0.16
0.16
0.15
0.15
69.54
AR 14InvestorCentreContentsNextPrevious-– – –+ 109
109 AR14
Glossary, Company ASX Announcement Record and Company Information
Glossary
AGM Annual General Meeting.
ASIC Australian Securities and Investments Commission.
ASX Australian Securities Exchange.
EBIT Earnings before interest and tax.
EBITDA Earnings before interest, tax, depreciation
and amortisation.
EMEA Europe, Middle East and Africa.
EPS Earnings per share.
F12 Financial year 2012: 1 July 2011 to 30 June 2012.
F13 Financial year 2013: 1 July 2012 to 30 June 2013.
F14 Financial year 2014: 1 July 2013 to 30 June 2014.
F15 Financial year 2015: 1 July 2014 to 30 June 2015.
FDA United States Food and Drug Administration.
FX Foreign exchange.
IFRS International Financial Reporting Standards.
KMP Key management personnel.
NPAT Net profit after tax.
Previous GAAP Previous Australian Generally Accepted
Accounting Principles.
Processor/sound processor
The externally worn part of the cochlear implant.
R&D Research and development.
TSR Total shareholder return.
Company ASX Announcement Record
2 June 2014
Cochlear to launch Nucleus Profile
Implant Series
Cochlear Limited announced it would be
launching the Cochlear Nucleus Profile Series
across Europe in June 2014. The first implant
in the series, the Cochlear Nucleus Profile
implant with Contour Advance electrode, has
the thinnest implant body on the market.
27 March 2014
Half year report 2014
Cochlear Limited provided an F14 half
year report to shareholders listing half year
revenues and sales.
21 March 2014
FDA approves Cochlear Nucleus Hybrid
for sale in USA
Cochlear Limited announced that the US
FDA had approved the Cochlear Nucleus
Hybrid L24 Cochlear Implant System for
commercial release.
11 February 2014
Half year results announced
Cochlear Limited announced revenue down
5% to $371.1 million, with cochlear implant
sales down by 14% for the six months ended
31 December 2013. The interim dividend of
$1.27 per share was up 2%.
24 January 2014
Jury trial verdict on USA Patent
Infringement Case
Cochlear Limited announced that a jury
verdict in the patent infringement lawsuit
by the Alfred E. Mann Foundation for
Scientific Research and Advanced Bionics
had been reached.
Non-IFRS financial measures
Given the significance of the patent dispute, product recall and FX movements the directors believe
the presentation of non-IFRS financial measures is useful for the users of this document as they
reflect the underlying financial performance of the business.
The non-IFRS financial measures included in this document have been calculated on the following basis:
• excluding patent dispute provision: IFRS measures adjusted for the expense of the patent
dispute provision;
• excluding recall costs: IFRS measures adjusted for the costs of the product recall;
• constant currency: restatement of IFRS financial measures in comparative years using F14 FX
rates; and
• free cash flow: IFRS cash flow from operating and investing activities excluding interest and tax
paid related to non-operating activities.
The above non-IFRS financial measures have not been subject to review or audit. However, KPMG
has separately undertaken a set of procedures to agree the non-IFRS financial measures disclosed
to the books and records of the Consolidated Entity.
Company Information
Stock exchange listing
Australian Securities Exchange
ASX code COH
Solicitors
Clayton Utz
Share registrar
Computershare Investor Services Pty Limited
Level 4, 60 Carrington Street
Sydney NSW 2000, Australia
Tel: 61 3 9415 4000
Auditor
KPMG
Bankers
Australia Westpac Banking Corporation
and HSBC Bank Australia Limited
Japan The Bank of Tokyo-Mitsubishi UFJ, Limited
Sweden Skandinaviska Enskilda Banken AB (publ)
United Kingdom HSBC Bank plc
United States Wells Fargo Bank West, NA
Annual General Meeting
The Annual General Meeting will be held at 10am
on Tuesday 14 October 2014 at the Australian
Securities Exchange, Exchange Square Auditorium,
20 Bridge Street, Sydney. A Notice of Annual
General Meeting and Proxy Form are enclosed
with this Annual Report.
Financial calendar
2014
Dividend record date 4 September
Payment of final dividend 25 September
Annual General Meeting 14 October
2015
Interim profit announcement 10 February*
Interim dividend record date 5 March*
Payment of interim dividend 26 March*
Final profit announcement 11 August*
Annual General Meeting 20 October*
* Indicative dates only.
ACE, Advance Off-Stylet, AOS, AutoNRT, Autosensitivity, Beam,
Button, Carina, Cochlear, コクレア, Codacs, Contour, Contour
Advance, Custom Sound, ESPrit, Freedom, Hear now. And always,
Hybrid, inHear, Invisible Hearing, MET, MP3000, myCochlear,
NRT, Nucleus, Nucleus in Chinese characters, Off-Stylet,
SmartSound, Softip, SPrint, the elliptical logo and Whisper are
either trademarks or registered trademarks of Cochlear Limited.
Ardium, Baha, Baha Divino, Baha Intenso, Baha PureSound,
Baha SoftWear, DermaLock, Vistafix and WindShield are either
trademarks or registered trademarks of Cochlear Bone Anchored
Solutions AB.
Design
Cross Media Communications Pty Ltd
AR 14InvestorCentreInvestorCentreContentsNextPrevious-– – –+
110
Cochlear Ltd (ABN 96 002 618 073) 1 University Avenue, Macquarie University, NSW 2109, Australia Tel: +61 2 9428 6555 Fax: +61 2 9428 6352
Cochlear Ltd (ABN 96 002 618 073) 14 Mars Road, Lane Cove, NSW 2066, Australia Tel: +61 2 9428 6555 Fax: +61 2 9428 6352
Cochlear Bone Anchored Solutions AB Konstruktionsvägen 14, SE - 435 33 Mölnlycke, Sweden Tel: 46 31 792 44 00 Fax: 46 31 792 46 95
Cochlear Americas 13059 E Peakview Avenue, Centennial, CO 80111, USA Tel: +1 303 790 9010 Fax: +1 303 792 9025
Cochlear Canada Inc 2500-120 Adelaide Street West, Toronto, ON M5H 1T1, Canada Tel: +1 416 972 5082 Fax: +1 416 972 5083
Cochlear AG EMEA Headquarters, Peter Merian-Weg 4, 4052 Basel, Switzerland Tel: +41 61 205 0404 Fax: +41 61 205 0405
Cochlear Deutschland GmbH & Co. KG Karl-Wiechert-Allee 76A, 30625 Hannover, Germany Tel: +49 511 542 770 Fax: +49 511 542 7770
Cochlear Europe Ltd 6 Dashwood Lang Road, Bourne Business Park, Addlestone, Surrey KT15 2HJ, United Kingdom Tel: +44 1932 26 3400 Fax: +44 1932 26 3426
Cochlear Benelux NV Schaliënhoevedreef 20 i, B-2800 Mechelen, Belgium Tel: +32 15 79 55 11 Fax: +32 15 79 55 70
Cochlear France S.A.S. Route de l’Orme aux Merisiers, Z.I. Les Algorithmes – Bât. Homère, 91190 Saint-Aubin, France Tel: +33 805 200 016 Fax: +33 160 196 499
Cochlear Italia S.r.l. Via Larga 33, 40138 Bologna, Italy Tel: +39 051 601 53 11 Fax: +39 051 39 20 62
Cochlear Nordic AB Konstruktionsvägen 14, 435 33 Mölnlycke, Sweden Tel +46 31 335 14 61 Fax +46 31 335 14 60
Cochlear Tıbbi Cihazlar ve Sağlık Hizmetleri Ltd. Şti. Çubuklu Mah. Boğaziçi Cad., Boğaziçi Plaza No: 6/1, Kavacık, TR-34805 Beykoz-Istanbul, Turkey
Tel: +90 216 538 5900 Fax: +90 216 538 5919
Cochlear (HK) Limited Room 1204, 12/F, CRE Building, No 303 Hennessy Road, Wanchai, Hong Kong SAR Tel: +852 2530 5773 Fax: +852 2530 5183
Cochlear Korea Ltd 1st floor, Cheongwon building, 828-5, Yuksam dong, Kangnam gu, Seoul, Korea Tel: +82 2 533 4663 Fax: +82 2 533 8408
Cochlear Limited (Singapore Branch) 6 Sin Ming Road, #01-16 Sin Ming Plaza Tower 2, Singapore 575585 Tel: +65 6553 3814 Fax: +65 6451 4105
Cochlear Medical Device (Beijing) Co., Ltd Unit 2208 Gemdale Tower B, 91 Jianguo Road, Chaoyang District, Beijing 100022, P.R. China Tel: +86 10 5909 7800
Fax: +86 10 5909 7900
Cochlear Medical Device Company India Pvt. Ltd. Ground Floor, Platina Building, Plot No C-59, G-Block, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051,
India Tel: +91 22 6112 1111 Fax: +91 22 6112 1100
株式会社日本コクレア（Nihon Cochlear Co Ltd）〒113-0033 東京都文京区本郷2-3-7 お茶の水元町ビル Tel: +81 3 3817 0241 Fax: +81 3 3817 0245
Cochlear Middle East FZ-LLC Dubai Healthcare City, Al Razi Building 64, Block A, Ground Floor, Offices IR1 and IR2, Dubai, United Arab Emirates Tel: +971 4 818 4400 Fax: +971 4 361 8925
Cochlear Latinoamérica S.A. International Business Park, Building 3835, Office 103, Panama Pacifico, Panama Tel: +507 830 6220 Fax: +507 830 6218
Cochlear NZ Limited Level 4, Takapuna Towers, 19-21 Como St, Takapuna, Auckland 0622, New Zealand Tel: + 64 9 914 1983 Fax: +61 2 8002 2800
www.cochlear.com
© Cochlear Limited 2014
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