2019 COCHLEAR LIMITED
Annual Report
Contents
1
2
3
7
9
Financial history
Year in review
Chairman’s report
CEO & President’s report
25
28
44
49
Executive team
Remuneration report
Directors’ report
Financial statements
Operating and financial review
100 Shareholder information
22
Board of directors
101 Contact information
Shareholder reports
Cochlear publishes a number of online shareholder reports aimed at improving transparency and making information
easier to access. They are a great companion to the Annual Report and are all available at the Investor section of the
website, www.cochlear.com.
Strategy Overview
ESG Report
The Strategy Overview provides
an insight into Cochlear’s strategy
to retain market leadership, grow
the hearing implant market and
deliver consistent revenue and
earnings growth over the long
term.
Corporate Governance
Statement
The Corporate Governance
Statement summarises the
Company’s corporate governance
practices and incorporates the
disclosures required by the ASX
Corporate Governance Council’s
Corporate Governance Principles
and Recommendations (3rd
Edition).
The ESG (Environmental, Social
and Governance) Report outlines
how we aim to improve the
impact we have on our
communities, the environment
and our employees and reflects
our commitment to high
standards of corporate
governance.
Tax Contribution Report
The Tax Contribution Report
covers Cochlear’s taxes paid in
Australia and globally and details
the global tax strategy.
Cochlear Limited Annual Report 2019
Financial history
Cochlear has a long track record of delivering growing sales revenue, profits and
dividends
3%
in FY19
7%
in FY19
7%
in FY19
10%
in FY19
Cochlear implants
units
Sales revenue
$million
Net profit
$million – adjusted*
Dividends
per share
* FY12 excludes product recall costs of $101 million after tax, FY14 excludes patent dispute provision of $16 million after tax and FY19 excludes a net
$11 million gain after tax from the revaluation of innovation fund investments.
1
Year in review
Strategic priorities
FY19 achievements
Retain market leadership
Market-
leading
technology
World-class
customer
experience
Grow the hearing implant
market
Awareness
Market
access
Clinical
evidence
Deliver consistent revenue
and earnings growth
Invest to
grow
Operational
improvement
Strong
financial
position
2 Cochlear Limited Annual Report 2019
Increased investment in R&D by 10% to $184m (13%
of sales revenue)
Product launches include Nucleus® ProfileTM Plus
Series cochlear implant, ForwardFocus feature,
Nucleus 7 Android audio streaming capability,
CochlearTM Research Platform ECochG surgical tool
and Remote Check (pilot roll-out stage)
Increased organisational capability through skills and
leadership development
Commenced clinical feasibility study for the totally
implantable cochlear implant
Investments in customer experience and customer
engagement including rolling out website refresh in
the US and expansion of Cochlear Family
Strengthened the technology and commercial alliance
with GN Hearing
7% growth in sales revenue
Expansion of direct-to-consumer marketing and
hearing aid channel referral programs
Investment in activities to support cochlear implants
becoming the standard of care for adults and seniors
with severe to profound hearing loss
Expanded market access capabilities globally
Cost effectiveness data supporting continued funding
of cochlear implantation in adults
Positive results from clinical studies demonstrating
the effectiveness of cochlear implants over hearing
aids
Realised operational improvements and efficiencies in
supply chain, customer service, and transactional
areas
Cash flows reinvested into market growth activities,
construction of China manufacturing facility, IT
infrastructure, emerging market distributor
acquisitions and investment in Nyxoah
Operational improvements drive gross margin
expansion, providing additional funds for investment
Maintained strong balance sheet position with net
debt increasing modestly to $103m
Increased dividends by 10%, achieving a 69% payout
Delivered net profit of $266m (excluding innovation
fund revaluation gains), within guidance range
provided
Delivered net profit margin of 18%, in line with target
Chairman’s report
FY19 has been a busy year, with a focus on building
awareness and market access to cochlear implants,
expanding our marketing activities and customer
servicing capability while maintaining our commitment
to product innovation through our investment in
research and development (R&D).
Cochlear reported a net profit of $276.7 million, an increase
of 13% on the FY18 result. Reported net profit includes a
$10.8 million net gain from the revaluation of innovation
fund investments. Net profit excluding the revaluation was
$265.9 million, an increase of 7%.
Growing dividends
flow
Earnings growth, combined with strong cash
generation, supported a second half dividend of $1.75, with
full year dividends increasing by 10% to $3.30, fully franked.
The current dividend policy is maintained with the objective
being to pay out around 70% of net profit as dividends. This
policy is reviewed annually.
Building a consistent treatment pathway for adults
Over the past 30 years, cochlear implants have been
established as the standard of care for children born with a
severe to profound hearing loss, with high adoption rates
across most developed countries.
The challenge today is the lack of a consistent treatment
pathway for diagnosing and treating adults. For many adults
who are clear candidates, the pathway to cochlear implants
is often haphazard with the vast majority unaware of the
existence of cochlear implants.
Cochlear continues to work to build grass roots awareness
with candidates including through its successful direct-to-
consumer marketing activities. We have focused on
building referrals from the hearing aid channel in the US
the establishment of
through
the Cochlear Provider
Network, which links surgeons with hearing aid clinics,
while building professional awareness through improved
education.
We are also encouraging initiatives within the professional
community, including leading cochlear implant surgeons
and audiologists,
the
appropriate treatment pathway for adults with severe to
profound sensorineural hearing loss, with solid progress
made this year.
to develop a consensus on
In March, an independent steering committee and panel of
30 audiologists and ENT surgeons across 13 countries,
chaired by Professor Craig Buchman from Washington
University, reached a consensus that could lay the
foundations for the creation of international clinical practice
guidelines for cochlear implantation, including patient
identification, referral, implantation and rehabilitation.
The independent process has received funding support
from a cross-industry group, including Cochlear, none of
which had a voting role in the consensus.
Quality of life benefits of cochlear implants
Positive results were achieved in the recent ‘CI532 Multi-
Center Clinical Study (532)’*, a study designed to measure
the benefits of bimodal cochlear implantation – a cochlear
implant in one ear, and a hearing aid in the other – on a
large group of adults. The study
found significant
improvements in speech performance, self-perception of
abilities and quality of life for people for this group, who had
previously been hearing aid users.
We have been greatly encouraged by the results of the ‘532’
study which found that, on average, participants achieved
a 10-fold improvement in satisfaction with their hearing
performance with cochlear implants over hearing aids, with
dramatic
to understand
conversations, hear on the phone and listen to and
appreciate music.
improvements
the ability
in
We have long understood the hearing improvement
provided by cochlear implants. This study goes a step
further, demonstrating the impact the implant has on the
patient’s quality of life, an increasingly important component
of determining the value of funded interventions to payers.
As we increasingly work with the hearing aid channel, the
‘532’ study provides an important foundation for educating
hearing professionals of the benefits of cochlear implants
over hearing aids in this patient population.
* Clinical Evaluation of the Cochlear Nucleus CI532 Cochlear Implants in Adults. 2019 Jan; Data on file.
3
Chairman’s report
Expanding indications for cochlear implants
One of the drivers of market growth for cochlear implants is
the expansion of indications for funded implants. There are
restrictive clinical
that have either
many countries
indications or capped funding which limits access. We have
been building our market access capability globally to
advocate for the expansion of both indications and funding
for cochlear implants.
In March, the UK announced an expansion to the
reimbursement criteria for cochlear implants to include
candidates with severe hearing loss, doubling the total
addressable market. This change is a major milestone and
is expected to support growth in the UK over the coming
years. It follows recent changes in Japan and Taiwan
(Greater China) where the expansion of clinical indications
and/or reimbursement for cochlear implants has driven
growing demand for implants.
We have other applications being assessed by health
authorities and payers across the regions and hope to see
further extension of the reimbursement criteria for cochlear
implants in the coming years.
Cost effectiveness of cochlear implants in adults
The senior’s segment is the fastest growing segment
across the developed markets driven by the growing
awareness of the benefits of cochlear implants.
Cochlear implantation in older adults is an important
treatment option as we better understand how severe to
profound hearing loss reduces a person’s ability to
communicate and be socially engaged. Hearing loss is also
associated with an increase in anxiety and depression,
reduced quality of life, and can result in poor lifetime
economic outcomes1.
funding
At the same time, payers are increasingly demanding cost
effectiveness data
for health
to support
interventions. There are numerous studies demonstrating
the cost effectiveness of cochlear implants in children but
fewer adult studies. With the growing uptake of adult
implantation, we are seeing a growing number of studies
which support the value to payers of funding cochlear
implantation of adults.
In the UK, the recent extension of the reimbursement
criteria was supported by a health technology assessment
conducted on behalf of NICE which supported the cost
effectiveness of cochlear implantation in adults. In 2019,
Macquarie University’s Centre for the Health Economy also
evaluated the cost effectiveness of cochlear implantation in
4 Cochlear Limited Annual Report 2019
adults in the UK, finding that unilateral cochlear implants
continue to be a cost-effective intervention for adults.
Next phase in the development of a totally implantable
cochlear implant
In October, Cochlear entered the next phase in its long-term
R&D program towards a totally implantable cochlear
implant, with the start of a further clinical feasibility study.
The study has been initiated to evaluate the performance
and safety of our totally implantable cochlear implant
technology, which can be used with and without an
externally-worn sound processor, providing people with 24-
hour hearing.
The study is being conducted in Australia, led by Associate
Professor Robert Briggs (The Royal Victorian Eye and Ear
Hospital) and Professor Robert Cowan (The HEARing
CRC). This clinical feasibility study is expected to build on
the initial clinical research conducted in 2005 with the first-
generation investigational device and will inform further
technology development.
The development of totally implantable cochlear implant
technology is complex, with a commercially available
product not expected for years.
Cochlear and GN Hearing expand the Smart Hearing
Alliance collaboration
In November, Cochlear and GN Hearing agreed to further
strengthen their technology and commercial alliance to
develop best-in-class integrated hearing solutions. The
deepening of this relationship includes joint R&D, shared
technology and a strengthened global Smart Hearing
Alliance commercial collaboration between Cochlear and
GN Hearing, the hearing aid division of the GN Group.
By expanding our collaboration with GN Hearing, we bring
the latest in connectivity and wireless technology to our
implant recipients more quickly. We are also able to give
recipients unparalleled performance and a
bimodal
seamless experience with both devices. As two leaders in
our areas of hearing health, this collaboration demonstrates
our commitment to design and bring to market the best
hearing solutions available.
New addition to innovation fund
In November, Cochlear invested €13 million (A$21 million)
in Nyxoah S.A., a medical device company focused on the
development and commercialisation of a best-in-class
Chairman’s report
hypoglossal nerve stimulation therapy for the treatment of
obstructive sleep apnea.
The Nyxoah investment forms part of Cochlear’s innovation
fund, a fund established to invest in novel technologies and
implantable devices that over the long term could leverage
or enhance Cochlear’s core technology.
Patent dispute update
In November 2018, the US District Court awarded damages
of US$268 million against Cochlear in the long-running
patent dispute with Alfred E. Mann Foundation for Scientific
Research (AMF) and Advanced Bionics LLC (AB). Cochlear
has appealed the decision, including the damages award
and the finding of ‘wilfulness’ and has arranged an
insurance bond of US$335 million to stay the Judgment
pending the appeal.
AMF and AB have subsequently asked the District Court to
award US$123 million in prejudgment interest. Cochlear
has opposed both the application and the calculation
methodology. The Judge has reserved his decision until
further notice. Any interest award is contingent upon the
current damages being upheld in the Appeals Court.
The Board has obtained independent legal advice on
Cochlear’s appeal prospects. The Board is of the opinion it
is probable that Cochlear’s appeal will result in the lawsuit
being remanded to the District Court for a retrial on
damages.
Cochlear’s current product portfolio is not affected by this
litigation as the patent at issue has expired. The Company
maintains a very strong balance sheet with conservative
gearing levels. In the event the appeal is unsuccessful, the
Board is confident that Cochlear will be able to access debt
facilities to fund the existing decision and any award of
interest and costs.
Talent development and engagement
Training, development and engagement of our employees
is vital for Cochlear to continue to thrive into the future. We
are a fast-growing organisation, with over 900 people hired
or promoted in FY19, up 26% on FY18.
Training and development has been strengthened with the
implementation of globally consistent leadership programs,
with Cochlear recognised by the Association for Talent
Development as a ‘Best Learning Organisation’.
of a diverse and inclusive workplace, resulting in better
recruiting and promotion results. We are actively targeting
an improved gender balance with 58% of hires female while
45% of applicants were female.
We have continued to progress succession planning and
implement targeted development for our senior executives
and managers, with an increase in women identified as
successors for these roles.
Our employees continue to find Cochlear a rewarding place
to work. Overall employee engagement scores remain high
at 79%, up one percentage point on FY18.
Changes to long-term incentive plan
This year we are proposing changes to our long-term
incentive plan, extending the length of the plan from three
to four years, and recalibrating the EPS targets.
The EPS targets are shifting from 10% to 20% compound
annual growth over three years to 7.5% to 12.5% over four
years. The change is material and requires some context.
The current EPS targets have been in place for at least
fifteen years and are now considered inconsistent with our
expectations and strategic objectives for growth. The shift
will provide better alignment to our strategy, factoring in the
market conditions, and related growth rates, we believe are
realistic.
Fifteen years ago, our industry was at an earlier stage of
development with 15-20% unit growth more common as we
were quickly penetrating the newborn segment across our
developed markets.
Today, cochlear implantation for newborns is the standard
of care across most developed markets with most children
receiving cochlear implants at around 12 months of age, an
enormous achievement.
Future growth will be focused on the adults in developed
markets and children in emerging markets. Each poses its
challenges but provides a long-term opportunity.
The Board believes the components of our diversified
revenue base, including the growth in the Services
business, and our focus on delivering steady long-term
profit growth means the new EPS targets better aligns this
component of long-term incentives to the Company’s
strategy.
Our ‘Diversity and Inclusion Framework’, launched 15
months ago, is driving greater awareness of the importance
We want to deliver consistent growth in revenue over time,
with earnings expected to grow at a similar rate to revenue
5
Chairman’s report
as we invest to grow the business with an intention to hold
the net profit margin.
We believe the revised range reflects stretch performance
and will ensure executives are engaged and incentivised
appropriately to deliver results.
Appointment of Abbas Hussain to the Board
In November, Abbas Hussain was appointed to the Board.
Abbas worked in the pharmaceutical industry for over 30
years and has significant global experience in building
relationships with professionals within the healthcare
industry.
Abbas brings expertise to business development and
growth opportunities across a diverse range of markets. He
is well-equipped to provide valuable strategic insight and
has demonstrated strong values in customer focus which is
intrinsic to Cochlear’s strategic objectives.
Abbas’ appointment follows the retirement of long-serving
non-executive director Prof Edward Byrne, AC in October.
New shareholder reports
Our employees
Cochlear has a diverse global workforce focused on our
business and on transforming the lives of people with
hearing loss. We employ over 4,000 people and sell our
products in over 100 countries. The knowledge, expertise
and passion of our employees are key to our future and the
focus on delivering excellence for our customers is an
important part of our success and our market leadership
position.
Our employees understand the importance of Cochlear
being successful over the long-term so that we can continue
to support our recipients. There are few companies that
start a lifetime journey with each new customer every day.
On behalf of the Board, I congratulate and thank all
Cochlear employees for their outstanding efforts and
contributions this year.
This year we published our inaugural Strategy Overview
and ESG (Environmental, Social and Governance) reports
and improved the usability of our Corporate Governance
Statement.
Rick Holliday-Smith
Chairman
The Strategy Overview provides an insight into Cochlear’s
strategy to retain market leadership, grow the hearing
implant market and deliver consistent revenue and earnings
growth over the long term. The ESG Report outlines how
we aim to improve the impact we have on our communities,
the environment and our employees and reflects our
commitment to high standards of corporate governance.
These reports are available on the website and I encourage
you to read them.
Chairman’s last term
After discussion with the Board, I will present myself for re-
election at the upcoming AGM to serve my last term as
Chairman and a director of the Cochlear Board. I will be
working closely with the Board on the renewal process for
my role. It is highly likely I will retire from the Board during
this new term.
6 Cochlear Limited Annual Report 2019
CEO & President’s report
The business delivered a 7% increase in sales revenue
(2% in CC*) with underlying net profit growing by 7%
(6% in CC) in FY19. The highlight was the strong growth
of the Services business with a slower year for
cochlear implant system sales.
Services revenue grew by 20% (14% in CC), with sound
processor upgrade revenue increasing by 17% in CC. The
Services business continues to grow in importance as our
recipient base grows, now representing 30% of sales
revenue. In FY19, Services benefitted from the continued
strong uptake of the Nucleus® 7 Sound Processor.
The cochlear implant business grew revenue by 2% (down
3% in CC) with units declining by 3%. After four years of
strong growth driven by a combination of market growth and
share gains, our developed markets units were in line with
last year, while emerging markets units declined.
The US and Germany lost market share following a
competitor product launch. Sales however returned to
growth following the launch of the Nucleus ProfileTM Plus
Series cochlear implant in Europe in mid May and the US
in late June. The Nucleus Profile Plus Series cochlear
implant has been well-received by the market and has
driven an uplift in sales since its launch late in FY19.
Japan momentum continues with strong demand following
the expansion of indications and funding for cochlear
implants in late 2017.
Emerging markets units declined, with around 700 fewer
Chinese Central Government tender units than last year
and very significant declines in Argentina and Turkey driven
by recession and currency devaluation. Strong growth was
delivered across many regions including the Middle East
and Eastern Europe, with the shipment of a number of
tenders won in FY19 expected in FY20.
A key component of our strategy in emerging markets is to
build our direct presence, which improves our knowledge
and influence in these markets, providing a base for future
growth. In FY19 we acquired distributors in some key
emerging markets.
Strong financial position
Cochlear delivered net profit of $276.7 million, an increase
of 13% on FY18 (11% in CC), which includes $10.8 million
in non-cash net gains from the revaluation of innovation
fund investments. Net profit excluding the revaluation was
$265.9 million, an increase of 7% (6% in CC).
Operating cash flow increased by $37.9 million to $296.0
million and the Board has declared a final dividend of $1.75,
an increase of 9%. Full year dividends increased by 10% to
$3.30 in FY19, fully franked.
Cochlear continues to target the delivery of consistent
revenue and earnings growth over time. We have a strong
balance sheet and generate operating cash flows sufficient
to
investing activities, capital expenditure and
acquisitions whilst increasing dividends to shareholders
and maintaining conservative gearing levels.
fund
Commitment to technology leadership
Cochlear has been the global leader in implantable hearing
solutions for close to 40 years and continues to invest
around 12% of sales revenue each year on R&D. We
launched a number of new products this year including the
Nucleus Profile Plus Series cochlear implant, built on the
world’s thinnest implant platform, and designed for routine
1.5 and 3 Tesla magnetic resonance imaging (MRI) scans
without the need to remove the internal magnet.
The Nucleus 7 Sound Processor expanded its range of
connectivity features, enabling direct audio streaming from
compatible Android devices. The functionality will be
accessible to Android devices using Google’s Audio
Streaming for Hearing Aids (ASHA) protocol, which is
feature,
in early FY20. A new control
expected
ForwardFocus, was added to the Nucleus Smart App,
allowing Nucleus 7 Sound Processor users to better control
their listening environment by reducing distracting noise
coming from behind them so they can more easily enjoy a
face-to-face conversation.
We introduced the CochlearTM Research Platform ECochG,
which assists surgeons with the electrode insertion process
by providing real time feedback, and the Remote Check
pilot commenced in the UK. Remote Check is a convenient,
at-home testing tool that allows patients with a Nucleus 7
* Constant currency (CC) removes the impact of foreign exchange (FX) rate movements and FX contract gains/(losses) to facilitate comparability.
7
CEO & President’s report
Sound Processor to complete a routine review of their
cochlear implant at home using their mobile device,
reducing the need to visit their clinic in person.
Cochlear continues to advance its innovation agenda with
a number of new products in the pipeline. We have an
exciting portfolio of products to be launched over the next
18 months.
Revaluation of innovation fund
innovation
Cochlear’s
fund has made several small
investments in companies with novel technologies that
may, over the longer term, enhance or leverage the
Company’s core technology. The innovation fund includes
investments in Saluda, Nyxoah, Earlens, EpiMinder and
Sensorion. FY19 net profit includes $10.8 million in non-
cash net gains from the revaluation of the fair value of the
innovation fund to $50.9 million.
FY20 financial outlook
For FY20, Cochlear expects to deliver reported net profit of
$290-300 million, a 9-13% increase on underlying net profit
for FY19. We expect strong growth in cochlear implant units
in FY20, driven by a number of new products launched late
in FY19 and the continued investment in market awareness
and access activities. While still early in the year, we have
seen an uplift in sales since the launch of the Nucleus
Profile Plus Series cochlear implant which is currently being
rolled out across the developed markets as regulatory
approvals are received.
As the global leader in implantable hearing solutions, we
continue to be excited by the long-term opportunity to grow
the hearing implant market. Our strategy to retain market
leadership and grow the hearing implant market has clear
priorities that drive investment decisions and capital
allocation. And we have a strong financial position that
enables the business to fund its growth activities while
rewarding shareholders along the way with a growing
dividend stream.
Key guidance considerations for FY20:
Expect strong growth in cochlear implant units in
developed markets driven by the recent launch of the
Nucleus Profile Plus Series cochlear implant and
continued investment in market awareness and access
activities;
Emerging market growth rates over time continue to be
strong, however, annual growth rates can be variable
driven by the timing of tender based activity and macro-
economic conditions;
Expect to release the new osseointegrated steady-
state implant (OSIA) product later in FY20 to extend
the Acoustics product portfolio;
Capital expenditure to increase to around $180 million,
including the continued development of the China
manufacturing facility, fitout of the new, larger Denver
office as well as investment in IT platforms to
strengthen connected health, digital and cyber security
capabilities. Capital expenditure is expected to drop to
around $100 million in FY21;
Includes an estimated $2-3 million pre-tax earnings
impact from the introduction of the new Australian
leasing accounting standard (AASB 16);
Excludes any
revaluation of
innovation
fund
investments that may occur;
Targeting to maintain the net profit margin; and
Forecasting a weighted average AUD/USD exchange
rate of 70 cents for FY20 (72 cents in FY19) and
AUD/EUR of 0.62 EUR (0.63 EUR in FY19).
Dig Howitt
CEO & President
in
the coming years, underpinned by
We expect to continue to deliver growth in revenue and
earnings
the
investments made in product development and market
growth initiatives. The balance sheet and free cash flow
generation remain strong and we continue to target a
dividend payout ratio of around 70% of net profit.
8 Cochlear Limited Annual Report 2019
Operating and financial review
About Cochlear
For close to 40 years, Cochlear has been the global leader in implantable hearing solutions.
Cochlear commenced operations in 1981 as part of the Nucleus group and in 1995, listed on the Australian Securities
Exchange. Today, Cochlear is a Top 50 listed Australian company with a market capitalisation of over A$10 billion.
Cochlear aims to support cochlear implantation becoming the standard of care for people with severe to profound
hearing loss and provide bone conduction implants for people with conductive hearing loss, mixed hearing loss and
single-sided deafness. The Company has provided more than 550,000 implant devices to people who benefit from one –
or two – of the Company’s implantable solutions. Whether these hearing solutions were implanted today or many years
ago, Cochlear continues to bring innovative new products to market as well as sound processor upgrades for all
generations of recipients.
Cochlear invests more than $180 million each year in R&D and currently participates in over 100 collaborative research
programs worldwide. The global headquarters are on the campus of Macquarie University in Sydney, with regional
offices in Asia Pacific, Europe and the Americas. Cochlear has a deep geographical reach, selling in over 100 countries,
with a direct presence in over 30 countries and a global workforce of over 4,000 employees.
Cochlear’s mission
Cochlear’s mission is the passion that drives the organisation and, at a high level, focuses the strategy.
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.
9
Operating and financial review
Strategic priorities
To achieve its mission, Cochlear aims to support cochlear implantation becoming the standard of care for people with
severe to profound hearing loss and provide bone conduction implants for people with conductive hearing loss, mixed
hearing loss and single-sided deafness.
Cochlear is committed to maintaining its technology leadership position in the industry by investing in R&D to improve
hearing outcomes and expand the indications for implantable solutions. We aim to grow the hearing implant market by
growing awareness and access for implant candidates. And with a growing recipient base, Cochlear is actively
strengthening its servicing capability to provide products, programs and services to support the lifetime relationship with
recipients.
Cochlear’s strategic priorities
For an in-depth review of Cochlear’s strategy and financial history, please refer to the Strategy Overview which is
available at www.cochlear.com.
10 Cochlear Limited Annual Report 2019
Operating and financial review
Cochlear’s implantable hearing solution portfolio
Cochlear generates sales revenue from a range of implantable solutions for people with moderate to profound hearing
loss. Cochlear’s latest products include:
Cochlear implants (88% of sales revenue)
Cochlear™
Nucleus®
Profile™ Plus with Slim
Modiolar Electrode (CI632)
Cochlear™ Nucleus®
Kanso® Sound
Processor (CP950)
Cochlear™ Nucleus® 7
Sound Processor
(CP1000)
Cochlear™ Nucleus®
Smart App
Acoustics (12% of sales revenue)
Bone conduction implants
Acoustic implants
Cochlear™ Baha® 5, Baha 5
Power and Baha 5
SuperPower
Cochlear™
Baha® SoundArc
Cochlear™ Baha®
Smart App
Cochlear™ Carina®
System
11
Operating and financial review
Results of operations
Product and service highlights
2019
2018
Change %
Change %
Cochlear implants (units)
Sales revenue
Cochlear implants
Services (sound processor upgrades and other)
Acoustics (bone conduction and acoustic implants)
$m
$
34,083
845.1
427.2
173.8
$m
(reported)
(CC)1
35,260
3%
831.0
355.2
165.2
2%
20%
5%
7%
3%
14%
1%
2%
Total sales revenue
1,446.1
1,351.4
1 Constant currency (CC) removes the impact of exchange rate movements and foreign exchange (FX) contract gains/(losses) to
facilitate comparability. See Notes on page 17 for further detail.
Cochlear implants – 58% of sales revenue
Cochlear implant revenue grew 2% (down 3% in CC) with units declining by 3%. Cochlear’s developed markets business,
which represents around 80% of revenue, delivered units and CC revenue broadly in line with last year.
The US and Germany lost market share following a competitor product launch. Both markets have experienced an uplift in
sales since the launch of the Nucleus Profile Plus Series cochlear implant in Germany in mid May and the US in late June.
Japan momentum continues with strong demand following the expansion of indications and funding for cochlear implants
in late 2017.
The seniors segment continues to be the fastest growing segment across the developed markets as awareness increases.
Surgeries for seniors, in the US in particular, are increasingly being driven by the Company’s successful direct-to-
consumer marketing campaigns, with a small but growing number being referred from the hearing aid channel.
Emerging markets units declined, with around 700 fewer Chinese Central Government tender units than last year and very
significant declines in Argentina and Turkey driven by recession and currency devaluation. Strong growth was delivered
across many regions including the Middle East and Eastern Europe, with the shipment of a number of tenders won in FY19
expected in FY20.
Services (sound processor upgrades and other) – 30% of sales revenue
Services sales revenue increased by 20% (14% in CC). Sound processor upgrade revenue, which represents around
75% of Services revenue, increased by 17% in CC driven by strong uptake of the Nucleus 7 Sound Processor. The
growing recipient base, initiatives to strengthen connectivity with recipients as well as the product’s market-leading
functional and lifestyle features, have all contributed to the strong Services growth.
Cochlear continues to invest to provide its growing customer base with a world-class customer experience with increased
connectivity and engagement. Cochlear Family, the recipient membership program, provides Cochlear with the
opportunity to connect directly with recipients to provide service and support. Membership continues to grow rapidly,
increasing by 40% over the last 12 months, to now exceed 140,000 members with an acceleration in recruitment in
recent years driven by a combination of direct outreach programs and improvements in customer onboarding.
Acoustics (bone conduction and acoustic implants) – 12% of sales revenue
Acoustics revenue increased by 5% (down 1% in CC), with revenue impacted by lower upgrade sales. The business
expects to release the new osseointegrated steady-state implant (OSIA) product later in FY20 to extend the Acoustics
product portfolio.
12 Cochlear Limited Annual Report 2019
Operating and financial review
Regional review
Sales revenue
Americas
EMEA (Europe, Middle East and Africa)
Asia Pacific
Total sales revenue
2019
$m
688.6
519.2
238.3
2018
Change %
Change %
$m
648.5
478.9
224.0
(reported)
6%
8%
6%
(CC)
1%
6%
2%
2%
1,446.1
1,351.4
7%
Americas (US, Canada and Latin America) – 48% of sales revenue
Sales revenue increased by 6% (down 1% in CC). The US experienced a lower rate of growth for much of the year,
losing market share following a competitor product launch. The launch of the Nucleus Profile Plus Series cochlear
implant in late June has been well-received by the market, driving an uplift in sales since launch. Services revenue grew
driven by upgrades to the Nucleus 7 Sound Processor.
The business continues to invest in expanding direct-to-consumer marketing in the US with a growing emphasis on
working with the hearing aid channel to grow referrals. The Cochlear Provider Network is expanding rapidly and is
increasing education of the indications and benefits of cochlear implants to hearing aid audiologists and is starting to
provide a referral pathway to cochlear implant surgeons.
Units and revenue in Latin America declined primarily the result of significant declines in Argentina, following currency
devaluation and economic impacts.
EMEA (Europe, Middle East and Africa) – 36% of sales revenue
Sales revenue increased by 8% (6% in CC). Germany, the largest market in Europe, experienced a decline in system
sales revenue with a loss of market share following a competitor product launch. The launch of the Nucleus Profile Plus
cochlear implant in mid May has been well-received by the market, driving an uplift in sales since launch.
After a slower start to the year, cochlear implant system sales in Western Europe (excluding Germany) improved,
growing high single-digit in the second half. Services performed strongly driven by upgrade demand for the Nucleus 7
Sound Processor.
In March, the UK announced the expansion of indications for cochlear implantation to include candidates with severe
hearing loss, a major milestone that is expected to support growth in the UK over the coming years.
Units and sales revenue across EMEA’s emerging markets grew as a result of the timing of a number of tenders and is
underpinned by investments in the organisation in recent years. The solid result was partially offset by declines in
Turkey, following devaluation of the currency and recession.
Asia Pacific (Australasia and Asia) – 16% of sales revenue
Sales revenue increased by 6% (2% in CC). Japan experienced strong unit growth, with Australia delivering strong
growth in sound processor upgrades. Solid revenue growth was delivered across the developed markets and non-tender
emerging market portions of the region with expanded indications and Cochlear’s growing presence.
Growth for Asia Pacific overall was affected by the timing of emerging market tender ordering as well as around 700
fewer Chinese Central Government tender units than last year.
13
Operating and financial review
Financial review
Profit and loss
Sales revenue
Cost of sales
% gross margin
Selling, marketing and general expenses
Research and development expenses
% of sales revenue
Administration expenses
Total expenses
Other net income
Other net income (revaluation of investments)
FX contract gains / (losses)
Earnings before interest and tax (EBIT)
% of sales revenue
Net finance expense
Income tax expense
% effective tax rate
Net profit (reported)
Net profit (excl revaluation of investments)
% net profit margin
2018
Change %
Change %
2019
$m
$m
(reported)
1,446.1
1,351.4
351.1
76%
450.9
184.4
13%
94.8
361.2
73%
397.0
167.7
12%
97.4
1,081.2
1,023.3
7%
(3%)
3 pts
14%
10%
(3%)
6%
(CC)1
2%
(6%)
2 pts
9%
9%
(3%)
3%
13.8
10.8
(19.4)
370.1
26%
4.5
88.9
24%
276.7
265.9
18%
10.2
(2.2)
12.3
348.4
26%
7.9
94.7
28%
245.8
248.0
18%
6%
5%
(43%)
(6%)
13%
7%
11%
6%
1 Constant currency (CC) removes the impact of exchange rate movements and FX contract gains/(losses) to facilitate comparability.
See Notes on page 17 for further detail.
Reported sales revenue increased by 7% (2% in CC) to $1,446.1 million. Reported net profit increased by 13% (11% in
CC) to $276.7 million and includes $10.8 million in non-cash net gains from the revaluation of innovation fund
investments. Underlying net profit, which excludes the revaluation, increased by 7% (6% in CC), with the net profit
margin remaining stable at 18%.
Key points of note:
Cost of sales declined by 3% (6% in CC) to $351.1 million, reflecting manufacturing efficiencies, improved sound
processor reliability, lower warranty costs and lower repair expenses resulting from the centralisation of repairs. As a
result, gross margin improved by three percentage points to 76%;
Selling, marketing and general expenses increased by 14% (9% in CC) to $450.9 million. The increase reflects the
continued investment in the sales force and direct-to-consumer marketing, with a growing investment in longer-term
market growth activities including standard of care and market access initiatives;
Investment in R&D increased 10% (9% in CC) to $184.4 million, representing 13% of sales revenue;
Other net income of $13.8 million includes $10.8 million relating to a release in the contingent consideration value of
Sycle;
14 Cochlear Limited Annual Report 2019
Operating and financial review
Other net income (revaluation of innovation fund) of $10.8 million reflects non-cash net gains from the revaluation of
the innovation fund to $50.9 million; and
The effective tax rate reduced from 28% to 24%, primarily reflecting the full year impact of lower US federal
corporate tax rates and the impact of the innovation fund revaluation which is not tax affected. FY18 included a $6.3
million revaluation of the deferred tax assets which was directly related to the US tax changes.
Cash flow
EBIT
Depreciation and amortisation
Changes in working capital and other
Net interest paid
Income taxes paid
Operating cash flow
Capital expenditure
Acquisition of other intangible assets
Other net investments
Free cash flow
2019
$m
370.1
38.5
(17.4)
(4.5)
(90.7)
296.0
(86.6)
(28.0)
(23.2)
158.2
2018
$m
348.4
34.2
(15.3)
(7.9)
(101.3)
258.1
(44.6)
(5.1)
(5.7)
202.7
Change
$m
21.7
4.3
(2.1)
3.4
10.6
37.9
(42.0)
(22.9)
(17.5)
(44.5)
Operating cash flow increased by $37.9 million to $296.0 million, with free cash flow reducing by $44.5 million to $158.2
million driven by increases in capital expenditure and other investments.
Key points of note:
Operating cash flow increase was driven by improved earnings, with EBIT increasing by $21.7 million and lower tax
payments;
Capital expenditure (capex) increased by $42.0 million to $86.6 million, reflecting stay in business capex, IT platform
development to strengthen connected health, digital and cyber security capabilities as well as the partial construction
of the China manufacturing facility;
Acquisition of other intangible assets includes amounts relating to the expanded GN Hearing collaboration – license
fees for existing technology and contribution to the development of intellectual property. Cochlear moved to direct
distribution across a number of emerging markets during the year resulting in the acquisition of some distributors;
and
Other net investments primarily relates to the investment in Nyxoah, a medical device company focused on the
development and commercialisation of a best-in-class hypoglossal nerve stimulation therapy for the treatment of
obstructive sleep apnea.
15
Operating and financial review
Capital employed
Trade receivables
Inventories
2019
$m
299.5
195.4
2018
$m
299.1
167.4
Less: Trade and other payables
(160.8)
(140.5)
Working capital
Working capital / sales revenue
Debtor days
Inventory days
Property, plant and equipment
Intangible assets
Investments
Other net liabilities
Capital employed
334.1
23%
67
203
166.5
424.4
47.8
(143.9)
828.9
326.0
24%
69
171
128.4
345.3
15.8
(118.5)
697.0
Change
$m
0.4
28.0
(20.3)
8.1
(2) days
32 days
38.1
79.1
32.0
(25.4)
131.9
Capital employed increased by $131.9 million to $828.9 million since June 2018.
Key points of note:
Inventories increased by $28.0 million, primarily reflecting stock build ahead of the launch of the new Nucleus Profile
Plus Series cochlear implant;
Property, plant and equipment increased by $38.1 million and includes the partly-constructed China manufacturing
facility;
Intangible assets increased by $79.1 million to $424.4 million, reflecting investments in IT infrastructure and
contributions to the expanded GN Hearing collaboration. In addition, Cochlear moved to direct distribution across a
number of emerging markets during the year resulting in the acquisition of some distributors; and
Investments increased by $32.0 million, reflecting the investment in Nyxoah and the $10.8 million revaluation of the
innovation fund.
Net debt
Loans and borrowings:
Current
Non-current
Total loans and borrowings
Less: Cash and cash equivalents
Net debt
2019
$m
3.3
178.3
181.6
(78.6)
103.0
2018
$m
3.7
144.0
147.7
(61.5)
86.2
Change
$m
(0.4)
34.3
33.9
(17.1)
16.8
Net debt increased by $16.8 million to $103.0 million since June 2018, driven by higher capital investment levels
including the partial construction of the China manufacturing facility and IT infrastructure development.
16 Cochlear Limited Annual Report 2019
Operating and financial review
Dividends
Interim ordinary dividend (per share)
Final ordinary dividend (per share)
Total ordinary dividends (per share)
% payout ratio
% franking
2019
$1.55
$1.75
$3.30
69%
100%
2018
$1.40
$1.60
$3.00
70%
100%
Change %
11%
9%
10%
Strong free cash flow and the continued strength of the balance sheet have supported the declaration of a final dividend
of $1.75 per share, an increase of 9%, franked at 100%. Full year dividends increased by 10% to $3.30 per share,
franked at 100% and representing a payout of 69% of reported net profit.
The record date for determining dividend entitlements is 20 September 2019 and the final dividend will be paid on 14
October 2019.
Notes
Forward-looking statements
Cochlear advises that this document contains forward-looking statements which may be subject to significant
uncertainties outside of Cochlear’s control. No representation is made as to the accuracy or reliability of forward-looking
statements or the assumptions on which they are based. Actual future events may vary from these forward-looking
statements and it is cautioned that undue reliance not be placed on any forward-looking statement.
Non-International Financial Reporting Standards (IFRS) financial measures
Given the significance of foreign exchange rate movements, the directors believe the presentation of the non-IFRS
financial measure, constant currency, is useful for the users of this document as it reflects the underlying financial
performance of the business. This non-IFRS financial measure has 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 group.
Constant currency
Constant currency removes the impact of foreign exchange rate movements to facilitate comparability of operational
performance for Cochlear. This is done by converting the prior comparable period net profit of entities in the group that
use currencies other than Australian dollars at the rates that were applicable to the current period (translation currency
effect) and by adjusting for current year foreign currency gains and losses (foreign currency effect). The sum of the
translation currency effect and foreign currency effect is the amount by which reported EBIT and net profit is adjusted to
calculate the result at constant currency.
Reconciliation of constant currency net profit to reported net profit
Net profit (reported)
FX contract gains
Spot exchange rate effect to sales revenue and expenses1
Balance sheet revaluation1
Net profit (CC)
1 FY19 actual v FY18 at FY19 rates.
2019
$m
276.7
276.7
2018
$m
245.8
(31.7)
39.0
(4.5)
248.6
Change %
13%
11%
17
Operating and financial review
Business risks
Cochlear has a sound and robust Risk Management Framework to identify, assess and appropriately manage risks.
Details of Cochlear’s Risk Management Framework can be found in the 2019 Corporate Governance Statement, which is
available on the website.
Cochlear’s principal business risks are outlined below. These are significant risks that may materially 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 these risks cannot provide absolute assurance that a risk
will not materialise.
Risk
Description and potential consequences
Product innovation
and competition
Infringement
litigation
Misappropriation of
know-how and
intellectual property
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 for
future candidates. This could result in a loss of
new business.
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 of litigation for alleged infringement. This
could result in Cochlear paying royalties to be
able to continue to manufacture product, or
paying damages and/or receiving injunctions
preventing Cochlear selling products it had
developed.
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 third parties 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.
Strategies used by Cochlear to
mitigate the risk
In FY19, Cochlear invested 13% of sales
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 has plans to launch a series of
new products across all categories of the
business over the coming years, focused
on both market share and market growth.
Cochlear also has a practice of identifying
and assessing potential disruptive
technologies.
Cochlear has a comprehensive patent
portfolio across its technologies.
Cochlear conducts freedom to operate
searches as part of its internal processes
before launching new products.
Cochlear utilises internal and external
legal resources to manage any litigation
issues.
Cochlear monitors its key systems and
database, for inappropriate access form
both internal and external sources.
Confidentiality agreements are in place
with key employees and third parties that
are exposed to Cochlear’s know-how and
intellectual property.
18 Cochlear Limited Annual Report 2019
Operating and financial review
Risk
Description and potential consequences
Medical device
regulations
Reimbursement
Product liability
Interruption to
product supply
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. Regulatory bodies
periodically perform audits at Cochlear’s
manufacturing and distribution sites. If Cochlear
or a third-party supplier fails to satisfy regulatory
requirements or the regulations change and
modifications are not made, this could result in
the imposition of sanctions or Cochlear’s
products being subject to recall and/or the loss
of sales and reputational harm. Changes to
medical device regulations or delays in
achieving regulatory approval can impact
Cochlear’s ability to sell its products.
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 which may lead to
pressure on reimbursed prices. Cochlear may
also be subject to healthcare related taxes
imposed by government agencies and this could
negatively impact the ability of candidates to
access Cochlear’s products.
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 implanted.
Cochlear relies on third-party suppliers 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. Cochlear manufactures
its latest generation products across five sites
globally. 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 made at
this facility. This approval could take many
months or years.
Strategies used by Cochlear to
mitigate the risk
Cochlear has a worldwide quality
assurance system in place.
Regulatory requirements and changes in
the regulatory environment are actively
monitored and assessed.
Cochlear continues to work with
reimbursement and government agencies
throughout the world to emphasise the
health and economic benefits and cost
effectiveness of intervention to restore or
improve hearing.
Cochlear maintains product liability
insurance and operates a worldwide
quality assurance system related to the
design, testing,manufacture and post-
market monitoring of its products.
Cochlear monitors its suppliers and
identifies potential second-source supply.
Inventories are managed and purchased
in sufficient quantities for continued
product supply in the short term. Where
appropriate, lifetime buys, strategic raw
materials purchases and supply chain
interventions are made. Cochlear also
regularly reviews its disaster recovery
plans for its manufacturing sites and
maintains business interruption
insurance.
19
Operating and financial review
Risk
Description and potential consequences
Political, economic
or social instability
Foreign exchange
rates
Credit
Cochlear sells in over 100 countries. Several of
the emerging markets are heavily biased to
tender sales, including the Chinese Central
Government tenders. The future outcome of
tender sales is uncertain. Regional political,
economic or social instability could negatively
impact sales and the receipt of payment for
sales.
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 Australian dollars (AUD), US
dollars (USD), Euros (EUR), Japanese yen
(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.
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 significant
debtors are governments, government-
supported universities and clinics or major
hospital chains.
Strategies used by Cochlear to
mitigate the risk
Cochlear assesses the countries it sells
into and does not have a significant
concentration of sales in countries
impacted by material political, economic
or social instability.
Cochlear utilises global scanning software
to assess partners, distributors and
suppliers against sanctions checklists on
an ongoing basis.
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 cash flow.
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 level of
cover out to three years.
Policies and procedures for credit
management and administration of
receivables are established and executed
at a regional level. 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 potential
restrictions on future trading, including
suspending future shipments and
administering dispatches on a
prepayment basis. In addition, where
appropriate, 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.
20 Cochlear Limited Annual Report 2019
Operating and financial review
Risk
Description and potential consequences
Operations
Operational risk is the risk of direct and indirect
loss arising from a wide variety of causes
associated with Cochlear’s processes,
personnel (including executive transitions),
technology and infrastructure and generally
accepted standards of corporate behaviour.
Operational risks arise from all of Cochlear’s
operations. These risks could result in the loss
of sales and reputational harm.
Information security Cochlear handles and stores personal
information, including health information, for its
customers and employees. With expanding
information privacy and security regulations, and
an increasingly hostile cyber environment,
Cochlear recognises information privacy and
cyber security as an increasing risk.
Talent management Cochlear operates in a very competitive
environment, particularly in relation to attracting
scientific talent into the group.
Strategies used by Cochlear to
mitigate the risk
Standards for the management of
operational risk are in place in the
following key areas:
Requirements for appropriate
segregation of duties, including the
independent authorisation of
transactions;
Requirements for the reconciliation and
monitoring of transactions;
Appropriate insurance programs;
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;
Internal and external audit programs;
Development of contingency plans;
Succession planning for key
management personnel;
Training and professional
development;
Employee health and safety programs;
and
Ethical and business standards.
Cochlear regularly assesses its
information governance and cyber
security controls in light of emerging
technological threats and expanding
privacy laws. These assessments are
used to determine any appropriate
corrective actions. In addition to the
ongoing assessment and remediation of
operational privacy and security activities,
Cochlear maintains cyber insurance as
part of its overall risk mitigation strategy
for information privacy and security risk.
Talent management programs are in
place, both within Australia and in our key
international markets.
21
Board of directors
Rick Holliday-Smith
Chairman Age 69
Appointed to the Board 1 March 2005: Chairman of the Nomination Committee.
Member of the Audit and People & Culture Committees.
Background: Global executive and leadership experience in capital markets and
derivatives, and a background in venture capital activities. Former President of
NationsBank-CRT, Chicago and Managing Director of Hong Kong Bank Limited, London.
Other boards: Chairman, ASX Limited and Director, Servcorp Limited. Non-executive
Chairman, QBiotics and member of the Macquarie University Faculty of Business and
Economics Advisory Board.
Former directorships: Chairman, Snowy Hydro Limited and SFE Corporation Limited.
Director, St George Bank Limited, Exco Resources NL, DCA Group Limited and MIA
Group Limited.
Qualifications: BA (Hons), FAICD, CA
Dig Howitt
CEO & President and Managing Director Age 52
Appointed to the Board 14 November 2017 and as CEO & President 3 January 2018:
Member of the Medical Science and Technology & Innovation Committees.
Background: Joined Cochlear in 2000 and has a wealth of experience across the
Company in roles including Chief Operating Officer, SVP, Manufacturing and Logistics
and President, Asia Pacific. Prior to joining Cochlear, worked for Boral and Boston
Consulting Group. Dig is a member of the Male Champions of Change STEM group.
Appointed as President of Cochlear on 31 July 2017 and became CEO & President on 3
January 2018.
Qualifications: BE (Hons), MBA
Yasmin Allen
Non-executive Director Age 55
Appointed to the Board 2 August 2010: Chairman of the Audit Committee. Member of
the People & Culture, Nomination and Technology & Innovation Committees.
Background: Extensive career in investment banking with senior roles in strategic
analysis and corporate advice. Former Vice President of Deutsche Bank AG.
Other boards: Director, Santos Limited, ASX Limited and National Portrait Gallery.
Member of the George Institute for Global Health Board. Chairman, Advance (Global
Australian Network) and Acting President, Australian Government Takeovers Panel.
Former directorships: Director, Insurance Australia Group Limited. National director of
the Australian Institute of Company Directors. Member of The Salvation Army Advisory
Board. Chair of Macquarie Specialised Asset Management. Director, ANZ Investment
Bank and Associate Director, HSBC London.
Qualifications: BCom, FAICD
22 Cochlear Limited Annual Report 2019
Board of directors
Andrew Denver
Non-executive Director Age 70
Appointed to the Board 1 February 2007: Member of the Audit, Medical Science,
Technology & Innovation and Nomination Committees.
Background: Extensive experience in the life sciences industry. Former Managing
Director of Memtec Limited and President Asia for Pall Corporation.
Other boards: Chairman, SpeeDx and Director, Vaxxas and QBiotics.
Former directorships: Executive Chairman, Universal Biosensors.
Qualifications: BSc (Hons), MBA, FAICD
Donal O’Dwyer
Non-executive Director Age 66
Appointed to the Board 1 August 2005: Member of the Audit, Medical Science,
Nomination and Technology & Innovation Committees.
Background: Executive experience in global general management of healthcare
products and medical devices. Former worldwide President of Cordis Cardiology (a
Johnson & Johnson company) and President of Baxter’s Cardiovascular Group, Europe.
Other boards: Director, Mesoblast Limited, Fisher & Paykel Healthcare and NIB
Holdings Ltd. Chairman of Endoluminal Sciences.
Former directorships: Chairman, CardieX (formerly Atcor Medical).
Qualifications: BE Civil, MBA
Glen Boreham, AM
Non-executive Director Age 55
Appointed to the Board 1 January 2015: Chairman of the People & Culture Committee.
Member of the Audit, Nomination and Technology & Innovation Committees.
Background: Led organisations in information technology, new media and the creative
industries through periods of rapid change and innovation. Former Managing Director of
IBM Australia and New Zealand.
Other boards: Director, Southern Cross Media Group and Link Group. Chairman,
Advisory Board IXUP.
Former directorships: Director of Data#3. Chairman of Screen Australia, Advance
(Global Australian Network), Business School and Industry Advisory Board for the
University of Technology, Sydney.
Qualifications: BEc, FAICD
Alison Deans
Non-executive Director Age 51
Appointed to the Board 1 January 2015: Chairman of the Technology & Innovation
Committee. Member of the Audit, Nomination and People & Culture Committees.
Background: Extensive experience leading technology-enabled businesses across e-
commerce, media and financial services. Former Chief Executive Officer of netus, Hoyts
Cinemas, ecorp and eBay Australia and New Zealand.
Other boards: Director, Westpac Banking Corporation, Ramsay Health Care and Deputy
Pty Ltd. Senior Advisor to McKinsey & Company. Member of Investment Committee,
CSIRO Innovation fund (Main Sequence Ventures) and Director of SCEGGS Darlinghurst
Limited.
Former directorships: Director of Insurance Australia Group Limited, Social Ventures
Australia and kikki.K Holdings Pty Ltd. Chairman of ninemsn, Allure Media and
Downstream Media.
Qualifications: BA, MBA, GAICD
23
Board of directors
Prof Bruce Robinson, AM
Non-executive Director Age 62
Appointed to the Board 13 December 2016: Chairman of Medical Science Committee.
Member of the Nomination, People & Culture and Technology & Innovation Committees.
Background: Over 20 years’ leadership experience as an academic physician/scientist
across research, healthcare and medicine, and tertiary education. Former Dean, The
University of Sydney’s Sydney Medical School, Head of Medicine at Sydney’s Royal
North Shore Hospital and Head of the Cancer Genetics Laboratory at the Kolling Institute
for Medical Research.
Other boards: Chairman, National Health and Medical Research Council and Medical
Benefits Schedule Review Taskforce. Director, MaynePharma and QBiotics.
Former directorships: Director of Firefly and Digital Health Agency CRC.
Qualifications: MD, MSc, FRACP, FAAHMS, FAICD
Abbas Hussain
Non-executive Director Age 54
Appointed to the Board 1 December 2018: Member of the Nomination, Medical
Science and Technology & Innovation Committees.
Background: Over 30 years’ global experience in the pharmaceutical industry with
significant experience in building relationships with professionals within the healthcare
industry. Former Global President, Pharmaceuticals at GlaxoSmithKline.
Other boards: Director, CSL Limited and Immunocore Limited. Senior Advisor,
CellResearch Corp and C-Bridge Group, Hikma PLC.
Qualifications: BSc (Hons)
Prof Edward Byrne, AC
Non-executive Director Age 66
Appointed to the Board 1 July 2002. Retired on 16 October 2018: Former member of
the Medical Science, Nomination and Technology & Innovation Committees.
Background: A neuroscientist with extensive experience in clinical neurology and basic
neurological research. Vice Chancellor of Monash University (2009-2014). Former
Executive Dean of the Faculty of Biomedical Sciences, Vice Provost and Head of the
Medical School at University College London. Former Dean of Faculty of Medicine,
Nursing and Health Sciences at Monash University, Melbourne (2003-2006).
Other boards: President and Principal, King’s College London. Chairman, King’s Health
Partners, and Director, Russell Group UK.
Former directorships: Deputy Chairman, Group of Eight Vice Chancellors, Australia and
Chairman, Global Foundation. Director, Bupa Group Board, London and Bupa Australia
Pty Ltd.
Qualifications: DSc, MD, MBA, FRCP, FRACP, FTSE
24 Cochlear Limited Annual Report 2019
Executive team
Dig Howitt
CEO & President
Dig joined Cochlear in 2000 and has a wealth of experience across the Company in roles
including Chief Operating Officer, SVP, Manufacturing and Logistics and President, Asia
Pacific. Prior to joining Cochlear, Dig worked for Boral and Boston Consulting Group. Dig is
a member of the Male Champions of Change STEM group. He was appointed as President
of Cochlear on 31 July 2017 and became CEO & President on 3 January 2018.
Qualifications: BE (Hons), MBA
Brent Cubis
Chief Financial Officer
Brent is responsible for accounting, corporate finance, treasury, audit, and investor relations.
He joined Cochlear in February 2017 and has over 30 years’ experience working in senior
finance roles across a broad range of global industries and companies, including health,
media (PBL Media) and property (Westfield, Bankers Trust and Sheraton). Brent qualified as
a Chartered Accountant at Deloitte, which included a transfer to the US. Brent has also been
a director for various charities and is an Alumni Leader for UNSW Business School.
Qualifications: BComm, CA
Jan Janssen
Chief Technology Officer
Jan leads a team of over 350 highly qualified engineers and scientists who implement the
R&D strategy. This includes responsibility for identifying and developing cutting-edge
technologies and bringing these innovations through to commercial products. Since 2017, he
is also responsible for the business development strategy of Cochlear.
Jan started his career at Philips Electronics in 1990 and joined Cochlear in 2000 as Head of
the Cochlear Technology Centre based in Belgium. After relocation to Sydney in 2003, Jan
was promoted to SVP, Design and Development in 2005. In 2017, he was appointed Chief
Technology Officer.
Qualifications: MScEE
Tony Manna
President, Americas Region
Tony is responsible for the development and execution of the strategic direction for our North
America operations.
Tony joined Cochlear in 2005 and has over 30 years’ medical device experience, including
senior commercial management roles at BEI Medical and Gyrus Medical. Prior roles in
Cochlear include VP, Sales USA, General Manager, Cochlear Bone Anchored Solutions,
USA and President, Cochlear Bone Anchored Solutions, Sweden.
Qualifications: BS EET
25
Executive team
Richard Brook
President, EMEA & Latin American Region
Richard is responsible for the development and execution of the strategic direction for all our
operations in Europe, Middle East and Africa (EMEA) and Latin America. This includes sales
in over 60 countries.
Before joining Cochlear in 2003, Richard held senior roles in Guidant Corporation and Alaris
Medical Systems. He has over 20 years’ experience in the medical device industry.
Qualifications: BSc Management, MBA
Anthony Bishop
President, Asia Pacific Region
Anthony was appointed President, Asia Pacific in July 2016. Anthony is responsible for the
development and execution of the strategic direction for all our operations in Australia, Asia
and the South Pacific.
Anthony joined Cochlear in July 2015 as Director of Marketing and Business Development,
Asia Pacific. Prior to Cochlear, Anthony spent 21 years at Johnson & Johnson Medical in
various roles including marketing, sales and general management around the world including
being Managing Director, Johnson & Johnson Medical, Australia/New Zealand prior to joining
Cochlear.
Qualifications: BBus (Hons), MManagement, GAICD
Rom Mendel
President, Acoustics
Rom is responsible for the development and execution of the strategic direction for our
Acoustics Division and is the General Manager for Cochlear Bone Anchored Solutions,
Sweden.
Rom joined Cochlear in 2007. He has over 20 years’ experience in various commercial roles
within hearing care and other high-tech industries in Denmark, the US and Sweden including
senior commercial management roles at Oticon and Eicon Networks. Prior roles in Cochlear
include Director of Marketing Cochlear Bone Anchored Solutions, Sweden and General
Manager, Cochlear Bone Anchored Solutions, USA.
Qualifications: MSc International Business, BSc
Stu Sayers
President, Services
Stu was appointed as Cochlear’s inaugural President, Services in May 2016. The Services
business provides aftercare services for Cochlear recipients and professionals, generating
revenue from post-implant products and other offerings.
Stu comes with a wealth of experience in establishing and building customer-focused
business-to-customer and business-to-business service businesses, online and at scale.
Most recently, Stu led the Amazon subsidiary Audible in Asia Pacific. Prior to Amazon, Stu
ran E*TRADE and then Yahoo!7 in Australia and New Zealand. Prior to that, he worked for
Procter & Gamble and McKinsey & Company.
Qualifications: BEc (Hons), MBA
26 Cochlear Limited Annual Report 2019
Executive team
Dean Phizacklea
Senior Vice President, Global Marketing
Dean joined Cochlear in June 2016. Dean has responsibility for product marketing and
commercialisation, consumer marketing, innovation, market access, market insights and
corporate communications.
Dean has more than 20 years' experience in medical devices and pharmaceuticals, covering
a range of senior commercial roles in the US, Japan, Europe and Australia. Prior to joining
Cochlear, Dean led Global Strategic Marketing for Abbott Diabetes Care. Other roles include
General Manager for Abbott's pharmaceutical and diabetes care businesses in Australia/New
Zealand and commercial roles in Asia with AstraZeneca.
Qualifications: BSc Microbiology, MBA
David Hackshall
Chief Information Officer
David joined Cochlear in July 2015 as Cochlear’s first Chief Information Officer and has
global responsibility for the Company’s information technology strategy and management.
David’s focus is to ensure Cochlear has the platforms in place to deliver and drive growth.
This capability is critical in connecting Cochlear with both professionals and recipients and
evolving Cochlear into both a business-to-business as well as business-to-customer
organisation.
Prior to Cochlear, David was Chief Information Officer at Wesfarmers Insurance Ltd and
brings over 15 years of executive experience across the communications, logistics and
finance sectors.
Qualifications: DipFN, MIT, MBA
Greg Bodkin
Senior Vice President, Supply Chain & Operational Excellence
functional responsibility
Greg has
industrialisation, procurement,
manufacturing, logistics and warranty & repair. These functions enable the technologies
developed in design and development to be supplied as commercial products in Cochlear’s
global markets. In addition, he leads the Cochlear Program Office and management of the
Global Property portfolio.
for new product
Greg joined Cochlear in 2007 as Head of Supply with 20 years’ prior experience in supply
chain management and operations consulting positions, including appointments at Taylor
Ceramic Engineering, Warman International Ltd, Weir Minerals PLC and National Australia
Bank. In August 2014, he was promoted to the position of SVP Manufacturing and Logistics.
In January 2018, he was promoted to the position of SVP, Supply Chain & Operational
Excellence.
Qualifications: BE (Hons), MComm (UNSW)
Jennifer Hornery
Senior Vice President, People & Culture
Jennifer joined Cochlear in 2008 as Senior HR Business Partner with responsibility for
manufacturing and logistics and safety and wellness before taking on responsibility for
People & Culture Business Partnering for Cochlear's global functions in 2016. Jennifer was
appointed SVP, People & Culture in 2017.
Prior to Cochlear, Jennifer worked in commercial, strategy and HR leadership roles across a
number of industries within Australia and the US, including senior positions at Campbell
Arnott’s and Booz & Company.
Qualifications: BComm, MBA
27
Remuneration report
Letter from the People & Culture Committee (P&CC) Chairman
Dear Shareholders
On behalf of the Cochlear Board, I am pleased to share with you the FY19 Remuneration report where we outline
Cochlear’s remuneration strategy, summarise the performance outcomes for FY19, and detail the associated
remuneration outcomes for Cochlear’s key management personnel.
The Board is committed to a strong growth focus and believes that our approach to executive remuneration supports
behaviours that will achieve sustainable revenue and earnings growth over the longer term. Our executive remuneration
framework enables Cochlear to attract, motivate and retain high performing executives across many locations in a
dynamic and highly competitive market.
In FY19, the P&CC reviewed Cochlear’s executive remuneration framework to ensure it aligns with our business
objectives, performance and shareholder expectations. Following this review, we are proposing changes to Cochlear’s
long-term incentive (LTI) plan for FY20. These changes, made following extensive consultation, include extending the
performance period from three to four years and recalibrating target and maximum earnings per share (EPS) measures.
As noted in the Chairman’s report, the current EPS targets have been in place for at least 15 years and are
now considered inconsistent with our expectations and strategic objectives for growth.
We are also making changes to the short-term incentive (STI) plan for all eligible employees, including executives. We
are retaining the key financial performance measures of profitability and revenue. However, we are changing the balance
of these measures by introducing a minimum net profit gateway to first determine if STI is achieved or not. If the profit
gateway is met, the STI pool will be determined by revenue growth, in addition to the achievement of company strategic
objectives. This provides clarity and focus around our growth objectives. The net impact of this change will reduce STI
payments for low-to-moderate performance but increase payments for strong-to-exceptional achievement.
For FY19, the Board is satisfied that key performance targets were met. Overall sales revenue grew by 7% and
underlying net profit after tax was within guidance. Relative total shareholder return against the ASX 100 was at the 81st
percentile and Cochlear achieved a growth in basic EPS representing a 11.7% compound annual growth rate (CAGR)
over the last three years. Because of these results, incentives were awarded to the CEO & President and executives
under the FY19 STI and the FY17-19 LTI plans. Further detail on this year’s remuneration outcomes are provided in this
report.
Cochlear has a long history of growth, navigating a complex and geographically diverse business, subject to rapidly
changing competitive forces, and technical innovation. The Board believes Cochlear’s approach to Board and
executive remuneration remains balanced, fair and equitable and rewards and motivates a successful and experienced
executive team to deliver ongoing business growth and manage the risks of the business, which meets the
expectations of shareholders over the long term.
Glen Boreham, AM
Chairman, People & Culture Committee
28 Cochlear Limited Annual Report 2019
Remuneration report
CONTENTS
This report covers:
1. Key management personnel;
2. Executive KMP remuneration received in FY19 (unaudited);
3. Our remuneration strategy and framework;
4. Executive KMP remuneration and link to performance;
5. Executive KMP statutory remuneration disclosure;
6. Executive service agreements;
7. Remuneration governance;
8. Executive KMP equity disclosures; and
9. Non-executive director fees.
1. KEY MANAGEMENT PERSONNEL
This report covers key management personnel (KMP) who have authority for planning, directing and controlling the
activities of Cochlear and comprise non-executive directors (NEDs) and executive KMP as outlined in the table below.
Name
Non-executive directors
Rick Holliday-Smith
Position
Chairman
Yasmin Allen
Non-executive director
Glen Boreham, AM
Non-executive director
Alison Deans
Andrew Denver
Abbas Hussain
Donal O'Dwyer
Non-executive director
Non-executive director
Non-executive director
Non-executive director
Bruce Robinson, AM
Non-executive director
Former non-executive director
Term as KMP
Full year
Full year
Full year
Full year
Full year
Part year appointed 1 December 2018
Full year
Full year
Edward Byrne, AC
Non-executive director
Part year until 16 October 2018
Executive KMP
Dig Howitt
Anthony Bishop
Richard Brook
Brent Cubis
Jan Janssen
Tony Manna
CEO & President (CEO&P)
President, Asia Pacific Region
President, EMEA & Latin American Region
Chief Financial Officer
Chief Technology Officer
President, Americas Region
Full year
Full year
Full year
Full year
Full year
Full year
There were no changes to KMP after the reporting date and before the date the Directors’ report was authorised for
issue. The information provided in this Remuneration report has been audited as required by section 308(3C) of the
Corporations Act 2001.
29
Remuneration report
2. EXECUTIVE KMP REMUNERATION RECEIVED IN FY19 (UNAUDITED)
The table below presents the remuneration paid to, received by or vested to each executive KMP during the year. Fixed
remuneration and cash STI relate to amounts earned during the year, and vested deferred STI and vested LTI represent
equity vesting from prior years.
The figures presented below are different to the statutory disclosures in section 5 which are prepared in accordance with
the accounting standards and therefore include the accounting value for all unvested deferred STI and LTI awards
expensed in the year. The table below has been provided voluntarily to ensure shareholders are able to clearly
understand the remuneration outcomes and actual ‘take-home pay’ of executive KMP for FY19.
Amounts $
Executive KMP
Dig Howitt
Anthony Bishop
Richard Brook
Brent Cubis
Jan Janssen
Tony Manna
Year
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
Fixed
remuneration1
Cash STI2
Vested
deferred STI3
Vested LTI4
Total
1,725,969
1,547,833
524,528
496,754
1,182,003
1,077,831
633,522
605,656
783,783
672,817
838,581
767,602
1,105,225
1,135,893
244,481
222,571
360,020
374,457
284,927
304,304
422,605
370,955
353,068
379,388
155,430
167,895
148,896
-
164,934
228,060
-
-
153,450
185,378
147,114
242,865
2,075,203
1,084,544
-
-
1,858,388
981,182
-
-
1,436,076
1,100,132
1,293,946
-
5,061,827
3,936,165
917,905
719,325
3,565,345
2,661,530
918,449
909,960
2,795,914
2,329,282
2,632,709
1,389,855
1. Fixed remuneration earned in the year (base salary, superannuation and non-monetary benefits which may include insurances and car allowances).
2. Cash STI earned and relating to performance during the financial year. For example, FY19 is reported as STI payments which are accrued at year end,
and received in August 2019, after the reporting year end.
3. Vested deferred STI is the value of the deferred STI from prior years that vested in August of the reported financial year (calculated as the number of
rights that vested multiplied by the share price on the vesting date). For example, FY19 is reported as the FY16 deferred STI grant which vested in
August 2018.
4. Vested LTI is the value of performance rights and options that vested in August of the reported financial year (rights are calculated as the number of
rights that vested multiplied by the share price on the vesting date and options are calculated as the number of options multiplied by the share price on
the date of vesting/exercise less the exercise price). For example, FY19 is reported as the FY16 LTI grant which vested in August 2018.
30 Cochlear Limited Annual Report 2019
Remuneration report
3. OUR REMUNERATION STRATEGY AND FRAMEWORK
Cochlear’s executive remuneration strategy is designed to attract, motivate and retain a highly qualified and experienced
group of executives employed across diverse geographies. The following diagram links each of the executive team
remuneration components to Cochlear’s mission and strategy.
3.1 Target remuneration mix
The remuneration mix for executive KMP is weighted towards at-risk performance based remuneration to ensure a
strong focus on short, medium and long-term performance. A portion of executive remuneration is paid in equity
(approximately, 44% for the CEO&P and 33% for other executive KMP) to align our executives with shareholder
interests.
The Board believes this approach aligns executive KMP remuneration to shareholder interests and expectations.
Performance based
31
Remuneration report
3.2 Fixed remuneration
Fixed remuneration comprises base salary, superannuation and non-monetary benefits. Non-monetary benefits may
include health insurance, car allowances and insurances. It is set at a level to attract and retain executive talent with the
appropriate capabilities to deliver Cochlear’s objectives.
Fixed remuneration is generally positioned at the median of the relevant market and is reviewed annually to ensure
alignment with local market benchmarks, and it is reflective of the executives’ expertise and performance in the role.
Market benchmarks are typically set with reference to market capitalisation and include organisations within Cochlear’s
industry sector and/or similar in global operations and complexity as determined by the P&CC each year.
3.3 Short-term incentive
Purpose
To reward executives for the achievement of group (for group executives) and regional (for regional executives)
sales revenue, EBIT and strategic performance targets set by the Board at the beginning of the performance
period.
Performance
measures
STI is dependent on meeting financial and strategic performance measures:
Performance
measure and
weighting
Sales revenue
and EBIT (60%)
FY19 description
Changes for FY20 and rationale
Sales revenue
EBIT
Financial targets are set by the Board, having
regard to prior year performance, global market
conditions, competitive environment, future
prospects and the Board approved budgets.
The specific targets are not disclosed to the
market due to their commercial sensitivity.
The weighting between Cochlear group and
regional financial goals depends on the
responsibilities and scope of influence of the
individual.
Introduction of a Group Performance
Gateway (minimum net profit after tax
threshold)
Removal of EBIT as a performance
measure
Reward determined only on revenue
provided profit gateway is met
Rationale:
Introduction of a Group Performance
Gateway will further drive global alignment
Removal of EBIT will focus performance
on revenue growth.
Revenue growth is critical to long-term
shareholder returns.
Strategic
measures (40%)
Strategic measures recognise that in addition
to short-term financial results, a number of
strategic initiatives are required to enable
sustained growth over time.
No change
Individual
contribution
Each executive’s contribution against the
No change
strategic measures is assessed at an individual
level at the end of the performance period. This
assessment determines the level at which
awards are made.
Refer to section 4 for further detail on measures for FY19.
Opportunity
CEO&P: target opportunity is 100% of base salary, and maximum is up to 180% of base salary.
Other executive KMP: target opportunity is 75% of base salary, and maximum is up to 135% of base salary.
Delivery
Two thirds of the award is paid in cash annually, with one third deferred into service rights for a period of two years
(subject to a service condition) to reinforce alignment to longer-term shareholder interests and for retention
purposes. No dividends are attached to service rights.
The number of rights to be allocated is calculated using the ‘gross contract value’, which refers to a Black-Scholes-
Merton pricing model without discounting for service or performance hurdles. The model uses Cochlear’s five-day
volume-weighted average share price following the announcement of full year results in August each year.
Cessation of
employment
Prior to STI payment date: if an executive ceases employment with Cochlear prior to any cash being paid, or
rights being granted, the executive will forfeit any awards to be paid for the performance period, unless the Board
determines otherwise.
Post STI payment date: if an executive is dismissed for serious misconduct or resigns from their position after
service rights have been granted, but prior to the relevant vesting date, any unvested rights will generally be
forfeited, unless the Board determines otherwise.
32 Cochlear Limited Annual Report 2019
Remuneration report
3.4 Long-term incentive
Purpose
To align the remuneration opportunity for the executive team with shareholder value and provide a stimulus for the
retention of executives within the Company.
Element
FY19 description
Changes for FY20 and rationale
Award
vehicle
LTI is delivered in the form of options and performance rights.
Executives are given choice of electing between rights and
options (with a minimum 30% in options).
Standardise mix to 50% rights and 50%
options
Rationale: Standardising the election of rights
and options provides greater simplicity and
clarity for the executive team. Retaining a
portion of equity delivered via options will also
ensure the executive team is engaged and
incentivised to deliver shareholder value.
Opportunity
CEO&P: maximum opportunity is 100% of base salary.
Other executive KMP: maximum opportunity ranges from 40% to
50% of base salary.
No change
Allocation
method
The LTI opportunity is calculated using the ‘gross contract value’,
which refers to a Black-Scholes-Merton pricing model without
discounting for service or performance hurdles.
No change
Gross contract value discounts for dividends not paid, share price
volatility and the risk free rate of return. There is no discount for
the likelihood of service or performance conditions. The model
uses Cochlear’s five-day volume-weighted average price following
the announcement of full year results in August each year.
Performance
period
Performance is measured over a three-year performance period.
Post vesting, options expire seven months after the vesting date if
they have not been exercised. There is no retesting of
performance hurdles under the LTI plan.
Performance will be measured over a four-
year performance period.
Performance
measures
and hurdles
Awards are subject to:
50% weighting on relative TSR against the constituents of
the ASX 100 index; and
50% weighting on CAGR in EPS.
No change to weightings of relative TSR
and EPS
No change to relative TSR measure
Recalibration of target and maximum
The proportion of awards that vest for performance are:
measures for EPS
Relative TSR
EPS
% of
instruments
that vest
Performance
(CAGR)
% of
instruments
that vest
EPS
Performance (CAGR) % of instruments that
0%
Less than 10%
0%
Less than 7.5%
40%
10%
50%
7.5%
vest
0%
50%
Performance
Less than 50th
percentile
At the 50th
percentile
50th percentile to
75th percentile
40% to 100%
(pro-rata)
10% to 20%
50% to 100%
(pro-rata)
7.5% to 12.5%
50% to 100%
(pro-rata)
Above 75th
percentile
100%
Above 20%
100%
Above 12.5%
100%
These measures have been selected to incentivise the executive
team towards long-term sustainable growth of the business and
are generally accepted proxies for the creation of shareholder
value.
Rationale:
Recalibration of the EPS measure will ensure
it remains aligned to the Company’s growth
targets and current market conditions. The
revised measure is reflective of stretch
performance and will ensure the executive
team is engaged and incentivised to deliver
shareholder value.
33
Remuneration report
Dividends
No dividends are attached to options or performance rights.
No change
Cessation of
employment
If a member of the executive team ceases employment before the
end of the performance period, unvested LTI awards will be
forfeited.
No change
In exceptional circumstances such as in the case of redundancy
and retirement, the Board may in its discretion, determine that all
or a portion of the award will vest in line with the original
performance criteria and vesting date.
Transitional arrangements for FY20 LTI
Increasing the performance period of the Cochlear LTI plan from three to four years, will result in a gap year of LTI
vesting in FY22 for executives. To address this issue, for FY20 only, two grants will be provided to the executive team
(excluding the CEO&P):
Grant 1: 50% of the annual LTI grant opportunity with a three-year performance period; and
Grant 2: 75% of the annual LTI grant opportunity with a four-year performance period.
No transitional arrangement will be provided to the CEO&P. The CEO&P’s FY20 LTI grant opportunity will be 100% of
base salary and will have a four-year performance period.
Further detail on the remuneration framework is provided in Cochlear’s Remuneration Policy, available in ‘Investors’ or
‘Investor Centre’ section of the Company’s website. https://www.cochlear.com/intl/about/investor/corporate-
governance/company-policies
4. EXECUTIVE KMP REMUNERATION AND LINK TO PERFORMANCE
4.1 FY19 STI outcomes
STI is based on performance against financial measures (60%) and strategic measures (40%).
When reviewing financial performance, the Board excludes revaluation gains and losses from non-core investments (the
innovation fund) from the calculation of STI. For FY19, this resulted in a reduced incentive outcome. In FY19, Cochlear’s
sales revenue grew by 7% and EBIT grew by 2% (excluding revaluation of innovation fund).
In addition to financial measures, the Board also considered progress against strategic measures which are critical to the
achievement of Cochlear’s longer-term goals.
Validation of performance against the measures set for:
the CEO&P involves an independent review and endorsement by the Chief Financial Officer (CFO), reviewed and
approved by the P&CC and Board; and
other executive KMP involves a review by the CEO&P based on inputs from the CFO. Final review is undertaken
by the P&CC.
Any anomalies or discretionary elements are validated and approved by the Board.
The table below provides a summary, and achievement against each, of the financial measures and strategic measures
of the STI plan. Measures are agreed with the P&CC at the commencement of each financial year and are aligned to the
delivery of initiatives that support Cochlear’s strategic priorities.
34 Cochlear Limited Annual Report 2019
Remuneration report
Key performance targets were met for FY19.These performance outcomes resulted in an average actual STI of 98% of
target for executive KMP.
The FY19 STI earned is outlined in the table below:
Executive KMP
Dig Howitt
Anthony Bishop
Richard Brook
Brent Cubis
Jan Janssen
Tony Manna
STI target as a %
of base salary
STI maximum as a
% of base salary
Actual STI as a
% of target
Actual STI as a
% of maximum
STI forfeited as a
% of maximum
100%
75%
75%
75%
75%
75%
180%
135%
135%
135%
135%
135%
99%
98%
97%
94%
108%
94%
54.8%
54.5%
53.9%
52.2%
60.0%
52.0%
45.2%
45.5%
46.1%
47.8%
40.0%
48.0%
Actual
STI(total) $
1,657,754
366,721
540,031
427,390
633,908
529,602
Two thirds of the actual STI will be delivered in cash in August 2019, and one third will be deferred into service rights,
and subject to service conditions until August 2021.
35
Remuneration report
4.2 FY17-19 LTI vesting outcomes
LTI is based on performance against relative TSR (50%) and EPS growth (50%) over a three-year performance period.
The graphs below illustrate Cochlear’s TSR and EPS performance over the past eight years, relative to the target and
stretch performance targets set.
For FY19, Cochlear’s TSR performance was 76.28%, which
was ranked at the 81st percentile of the ASX 100 comparator
group. As a result, 100% of the TSR portion of the LTI
vested.
Cochlear’s adjusted EPS1 in FY19 was 460.9 cents, which is
a 11.7% CAGR over the three-year performance period. This
resulted in performance between target and stretch and as a
result, 56.7% of the EPS portion of the LTI vested.
R
S
T
r
a
e
y
-
3
200%
150%
100%
50%
0%
-50%
Cochlear TSR performance against targets
174.0%
157.0%
127.2%
76.3%
24.1%
FY12
41.7%
FY13
-14.5%
FY14
-6.6%
FY15
FY16
FY17
FY18
FY19
Cochlear TSR performance
Median TSR (target)
75th percentile TSR (stretch)
For the FY17-19 LTI, 79.3% vests based on performance over the three-year period
from 1 July 2016 to 30 June 2019.
1. Adjusted EPS excludes revaluation of innovation fund
4.3 Financial performance history (FY15 to FY19)
Sales revenue ($million)
Earnings before interest and tax (EBIT) ($million)
EBIT (excl. revaluation of innovation fund) ($million)
Net profit after tax (NPAT) ($million)
NPAT (excl. revaluation of innovation fund) ($million)
Basic earnings per share (EPS) (cents)
EPS growth (3-yr CAGR)
EPS growth (excl. revaluation of innovation fund) (3-yr
CAGR)
Total dividend per share ($)
Share price as at 30 June ($)
Relative total shareholder return (TSR) (3 years)
TSR percentile ranking1
FY15
941.9
206.4
n/a
145.8
n/a
256.1
36.8%
n/a
1.90
80.15
41.7%
38th
FY16
1,158.1
262.6
n/a
188.9
n/a
330.6
12.4%
n/a
2.30
121.25
127.2%
94th
FY17
1,239.7
315.6
n/a
223.6
n/a
389.7
33.3%
n/a
2.70
155.45
174.0%
96th
FY18
1,351.4
348.4
350.6
245.8
248.0
427.3
18.6%
n/a
3.00
200.17
157.0%
97th
FY19
1,446.1
370.1
359.3
276.7
265.9
479.6
13.2%
11.7%
3.30
206.84
76.3%
81st
1. TSR ranking is shown over three financial years to 30 June. For LTI, performance is compared to the TSR of the constituents of the ASX 100.
For further explanation of details on Cochlear performance, see the Operating and financial review section on pages 9 to
21 of this Annual Report.
36 Cochlear Limited Annual Report 2019
Remuneration report
5. EXECUTIVE KMP STATUTORY REMUNERATION DISCLOSURE
The table below presents the total remuneration for executive KMP in accordance with the accounting standards.
Amounts $
Year
Short-term benefits
Salary
Cash STI
Post-
employment
Super-
annuation
contributions
Other long-
term benefits
Long service
leave
Non-
monetary
benefits1
Share based payments
Total
Deferred
STI2
LTI
performance
rights3
LTI
options3
% of
performance
related
remuneration
Executive KMP
Dig Howitt
FY19
FY18
Anthony Bishop FY19
1,704,308
1,105,225
1,526,654
1,135,893
503,356
244,481
FY18
476,065
222,571
1,130
1,130
640
640
20,531
20,049
20,531
20,049
(19,078)
344,269
124,402
413,778
208,620
193,952
86,856
289,019
3,694,565
3,462,173
2,583
3,509
99,369
92,901
45,172
29,221
24,710
15,030
940,842
859,986
Richard Brook FY19
Brent Cubis
FY18
FY19
FY18
Jan Janssen FY19
Tony Manna
Total
FY18
FY19
FY18
FY19
FY18
753,728
360,020
275,439
152,836
-
150,706
89,567
75,067
1,857,363
686,850
374,457
252,578
138,403
126,234
113,054
98,182
1,789,758
-
612,350
284,927
584,967
304,304
762,121
422,605
651,638
370,955
640
640
1,130
1,130
743,718
353,068
75,508
669,798
379,388
79,195
20,531
20,049
20,531
20,049
19,355
18,609
2,472
2,039
96,139
50,323
34,503
19,745
35,415
13,444
1,086,977
995,511
22,880
29,297
157,525
120,001
69,669
82,666
88,896
95,900
1,545,357
1,371,636
-
150,682
30,346
120,337
1,493,014
-
121,813
37,666
116,044
1,422,513
5,079,581
2,770,326
354,487
4,595,972
2,787,568
335,313
254,315
237,208
8,857
998,690
393,659
758,203
10,618,118
243,465
705,224
369,208
627,619
9,901,577
53.80%
49.27%
43.97%
41.83%
36.36%
39.78%
41.49%
38.96%
47.80%
48.81%
43.83%
46.04%
46.34%
45.34%
The total remuneration for FY18 of $9,901,577 in this table is less than the total for FY18 in the 2018 Remuneration report of $14,814,340 as it does not
include $4,912,763 for the former CEO&P, Chris Smith.
1. Non-monetary benefits include insurances for all KMP and car and housing allowances for overseas based KMP which are market based payments. For
Richard Brook, the amount also includes compulsory social security contributions of approximately $173,000.
2. Deferred STI is granted in service rights and deferred for a further two years. The cost of the plan is expensed across three years. The FY19 amount
represents the portion of the FY17, FY18 and FY19 deferred STI expensed in FY19. The FY18 amount represents the portion of the FY16, FY17 and
FY18 deferred STI expensed in FY18.
3. LTI granted in performance rights and options are expensed evenly over the period from grant date to vesting date. The value is calculated at the date of
grant using the Black-Scholes-Merton pricing model discounted for vesting probabilities of non-market performance criteria. 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 of performance rights and options. The value disclosed above is the portion of
the value of the performance rights and options recognised as an expense in the financial year. The ability to exercise the performance rights and options
is conditional on Cochlear achieving certain performance hurdles. Further details of performance rights and options granted during the financial year are
set out in this report.
6. EXECUTIVE SERVICE AGREEMENTS
Summary table of service contract details for executives
Cochlear does not enter into (limited) service contracts for executive KMP. The terms of employment for executive KMP
meet local employment law requirements. Key provisions are similar but do, on occasion, vary to suit different needs.
The following sets out details of the employment agreements relating to executive KMP.
Length of contract
Permanent contract until notice is given by either party.
Notice periods
Post-employment
restraints
Other arrangements
CEO&P: 12 months’ written notice by either party.
Other executive KMP: between 60 days to six months’ written notice by either party (exact period specified
in each contract).
All executive KMP are subject to post-employment restraints for up to 12 months.
Richard Brook will receive a maximum of CHF 30,000 for repatriation costs in the case of termination or
resignation.
37
Remuneration report
7. REMUNERATION GOVERNANCE
7.1 Governance framework for remuneration at Cochlear
The Board is responsible for all areas of Cochlear’s strategy and policy related to its people. Consistent with this
responsibility, the Board has established the P&CC which comprises solely of independent NEDs.
Management
People & Culture Committee
Board
• Reviews, applies judgement
and, as appropriate,
approves recommendations
from the P&CC
• Makes recommendations to
the P&CC with respect to
individual remuneration
arrangements for executive
KMP and implements talent
management and
remuneration policies and
practices
• The P&CC is empowered to
source any internal resources
and obtain external
independent professional
advice it considers necessary
to enable it to review
management proposals and
make decisions on behalf of
the Board on:
• remuneration policy,
composition, quantum and
performance targets for
executive KMP;
• remuneration policy in
respect of NEDs;
• talent management policies
and practices; and
• design features of employee
and executive STI and LTI
awards.
7.2 Advice from external advisors
To inform decisions, the P&CC sought advice and, at times, recommendations from the CEO&P and other management
throughout the year.
During FY19, the P&CC engaged Godfrey Remuneration Group (GRG) and received remuneration and market practice
advice and information in relation to STI, LTI, remuneration of executive KMP and remuneration of NEDs. GRG was paid
$158,532 (excluding GST) for these services.
The P&CC is satisfied that the advice received from GRG is free from undue influence of the KMP to whom the
remuneration recommendations relate as GRG confirmed in writing that the remuneration recommendations were made
free from undue influence by management, in accordance with the Corporations Act 2001.
7.3 Share ownership requirements
Executive KMP are required to retain vested equity until they hold and maintain a holding of Cochlear shares equivalent
to their annual salary in the previous year. The Board considers the minimum shareholding guidelines to be best practice
to strengthen the alignment of executives’ interests to those of shareholders. The table in section 8.2 details the current
holdings of executive KMP.
7.4 Clawback Policy
All participants of the deferred STI and LTI plan are subject to the Clawback Policy, available in the ‘Investors’ or
‘Investor Centre’ section of the Company’s website. The policy enables the Board to claw back remuneration outcomes
in the event of a material non-compliance with any financial reporting requirement, misconduct, or following inappropriate
behaviour post-employment in cases where the Board has exercised its discretion to allow retention of equity following
termination of employment. The policy is designed to further align the interests of participants with the long-term interests
of Cochlear and shareholders, and to ensure that excessive risk taking is not rewarded.
38 Cochlear Limited Annual Report 2019
Remuneration report
8. EXECUTIVE KMP EQUITY DISCLOSURES
Executive KMP participate in the deferred STI and LTI plan which offers equity under the Cochlear Executive Incentive
Plan (CEIP). The purpose of the CEIP is to encourage employees and executives to hold Cochlear shares and to align
their interests to shareholders’ interests.
Under the LTI plan, vesting of options or performance rights only occurs if Cochlear achieves challenging and market
competitive hurdles related to EPS growth and relative TSR. Under the deferred STI plan, grants are based on
performance in the first year, and are then deferred for a further two years.
8.1 Equity granted as remuneration
The table below presents the number of options and performance rights granted to executive KMP as well as the number
of instruments that vested or were forfeited during the year.
No options or rights vest if the conditions are not satisfied, hence the minimum value is nil. The maximum value of the
grants has been determined as the fair value of awards at grant date that is yet to be expensed.
Plan
Grant date
Options
Number
Maximum
value to be
expensed ($)1
Performance rights
Number Maximum value to
be expensed ($)1
Vesting
date2
Vested
Forfeited
Executive KMP
Dig Howitt
Anthony Bishop
Richard Brook
Brent Cubis
Jan Janssen
Tony Manna
FY16 LTI
FY16 deferred STI
FY17 LTI
FY17 deferred STI
FY18 LTI
FY18 deferred STI
FY19 LTI
Total
FY16 deferred STI
FY17 LTI
FY17 deferred STI
FY18 LTI
FY18 deferred STI
FY19 LTI
Total
FY16 LTI
FY16 deferred STI
FY17 LTI
FY17 deferred STI
FY18 LTI
FY18 deferred STI
FY19 LTI
Total
FY17 deferred STI
FY18 LTI
FY18 deferred STI
FY19 LTI
Total
FY16 LTI
FY16 deferred STI
FY17 LTI
FY17 deferred STI
FY18 LTI
FY18 deferred STI
FY19 LTI
Total
FY16 LTI
FY16 deferred STI
FY17 LTI
FY17 deferred STI
FY18 LTI
FY18 deferred STI
FY19 LTI
Total
20-Oct-15
16-Aug-16
19-Oct-16
24-Aug-17
18-Oct-17
24-Aug-18
17-Oct-18
16-Aug-16
19-Oct-16
24-Aug-17
18-Oct-17
24-Aug-18
17-Oct-18
20-Oct-15
16-Aug-16
19-Oct-16
24-Aug-17
18-Oct-17
24-Aug-18
17-Oct-18
24-Aug-17
18-Oct-17
24-Aug-18
17-Oct-18
20-Oct-15
16-Aug-16
19-Oct-16
24-Aug-17
18-Oct-17
24-Aug-18
17-Oct-18
20-Oct-15
16-Aug-16
19-Oct-16
24-Aug-17
18-Oct-17
24-Aug-18
17-Oct-18
18,682
-
10,375
-
46,842
-
35,907
111,806
-
2,171
-
1,778
-
1,598
5,547
12,601
-
5,622
-
6,965
-
4,565
29,753
-
3,622
-
4,050
7,672
9,736
-
7,900
-
7,060
-
5,223
29,919
10,216
-
9,414
-
10,385
-
7,530
37,545
-
785
1,537
949
3,372
1,692
1,685
10,020
752
751
596
697
440
700
3,936
2,402
833
1,944
944
1,170
665
857
8,815
243
1,420
547
760
2,970
1,856
775
1,171
867
1,186
667
981
7,503
834
743
598
995
436
645
353
4,604
173,862
389,591
563,453
6,599
17,338
23,937
25,852
49,530
75,382
13,444
43,943
57,387
26,204
56,670
82,874
38,546
81,701
120,247
96.5%
100%
3.5%
0%
100%
0%
96.5%
100%
3.5%
0%
96.5%
100%
3.5%
0%
96.5%
100%
3.5%
0%
17-Aug-18
17-Aug-18
19-Aug-19
19-Aug-19
19-Aug-20
19-Aug-20
16-Aug-21
17-Aug-18
19-Aug-19
19-Aug-19
19-Aug-20
19-Aug-20
16-Aug-21
17-Aug-18
17-Aug-18
19-Aug-19
19-Aug-19
19-Aug-20
19-Aug-20
16-Aug-21
19-Aug-19
19-Aug-20
19-Aug-20
16-Aug-21
17-Aug-18
17-Aug-18
19-Aug-19
19-Aug-19
19-Aug-20
19-Aug-20
16-Aug-21
17-Aug-18
17-Aug-18
19-Aug-19
19-Aug-19
19-Aug-20
19-Aug-20
16-Aug-21
46,888
113,922
65,438
226,248
9,692
29,625
27,185
66,502
16,269
44,774
33,282
94,325
19,745
36,830
29,515
86,090
16,491
44,909
38,097
99,497
6,063
43,428
13,709
63,200
1. The options granted in FY19 have an exercise price of $202.84 and an expiry date of 18 March 2022. Fair values (IFRS-2) of FY19 options and
performance rights under the LTI plan as at the date of grant are as follows: options (EPS growth: $37.43; relative TSR: $32.55) and performance rights
(EPS growth: $199.29; relative TSR: $116.51). This valuation is for accounting purposes only and forms the basis of the expense in future years. Further
detail on the allocation methodology is provided in section 3.4.
2. To ensure plans vest as close to the end of the performance period as possible, from FY18, vesting will be aligned to the day following the full year
results announcement in August each year.
39
Remuneration report
8.2 Executive KMP equity holdings and minimum shareholding
This section details the movement in equity holdings during the financial year.
Shares held during the year
During the year, the FY16 LTI plan and FY16 deferred STI plan vested and executives’ options/rights converted into
shares under these plans.
Balance
1 July 2018
Received on exercise of
options/rights1
Purchases and sales
Balance
30 June 2019
Executive KMP
Dig Howitt
Anthony Bishop
Richard Brook
Brent Cubis
Jan Janssen
Tony Manna
Total
31,281
-
5,000
-
11,786
1,056
49,123
18,813
752
15,309
-
11,961
11,405
58,240
(10,000)
-
(13,493)
-
(16,961)
(10,279)
(50,733)
40,094
752
6,816
-
6,786
2,182
56,630
1. For options exercised, the amount paid per option was the exercise price of $82.89.
Rights held during the year
Rights are acquired by executive KMP under the deferred STI and LTI plan. During the year, the FY18 STI deferral grant
was made in August 2018 (based on the FY18 performance year), the FY19 LTI grant was made in October 2018 and
96.5% of the FY16 LTI grant and 100% of the FY16 deferred STI grant vested in August 2018.
Balance
1 July 2018
6,643
2,796
7,293
1,663
5,855
3,606
Executive KMP
Dig Howitt
Anthony Bishop
Richard Brook
Brent Cubis
Jan Janssen
Tony Manna
Total
Deferred STI service rights
Granted
Vested
Forfeited
LTI performance rights
Vested
Granted
Forfeited
1,692
440
665
547
667
645
(785)
(752)
(833)
-
(775)
(743)
-
-
-
-
-
-
-
1,685
700
857
760
981
353
-
-
(2,317)
-
(1,791)
(804)
-
-
(85)
-
(65)
(30)
5,336
(4,912)
(180)
27,856
4,656
(3,888)
Balance
30 June 2019
9,235
3,184
5,580
2,970
4,872
3,027
28,868
Options held during the year
Options over ordinary shares are acquired by executive KMP under the LTI plan. During the year, the FY19 LTI grant
was made in October 2018 and 96.5% of the FY16 LTI grant vested in August 2018.
All options held at the end of the year are unvested.
Balance
1 July 2018
LTI options
Granted
Vested and exercised1
Forfeited
Balance
30 June 2019
Executive KMP
Dig Howitt
Anthony Bishop
Richard Brook
Brent Cubis
Jan Janssen
Tony Manna
75,899
3,949
25,188
3,622
24,696
30,015
35,907
1,598
4,565
4,050
5,223
7,530
(18,028)
-
(12,159)
-
(9,395)
(9,858)
(654)
-
(442)
-
(341)
(358)
93,124
5,547
17,152
7,672
20,183
27,329
Total
171,007
1. The value of exercised options at the date of exercise is $115.11 (closing share price at the vesting date 15 August 2018 $198.00 less the exercise price
(49,440)
163,369
(1,795)
58,873
of $82.89).
40 Cochlear Limited Annual Report 2019
Remuneration report
Executive minimum shareholding
As at 30 June 2019, all executive KMP are compliant with the Share Ownership Policy (minimum shareholding
requirements). For new KMP, it is expected that executives will achieve the minimum shareholding requirement over
time. The table below presents a summary of executive KMP holdings and compliance with minimum shareholding
requirements.
Ordinary shares held Policy value of Cochlear shares at year end ($)1
% of base salary2
Executive KMP
Dig Howitt
Anthony Bishop
Richard Brook
Brent Cubis
Jan Janssen
Tony Manna
Total
40,094
752
6,816
-
6,786
2,182
56,630
7,572,554
142,030
1,287,338
-
1,281,672
412,114
10,695,708
444%
28%
171%
0%
168%
55%
1. In line with the Share Ownership Policy, the value has been calculated as the average daily share price over the previous 12 months ($188.87), as at
closing on the ASX up to 30 June 2019, times the number of shares.
2. The % of base salary is calculated as the value of shares divided by the actual base salary for the preceding 12 months to 30 June 2019.
8.3 Potential dilution if options vest and ordinary shares issued (unaudited)
The Board encourages employee ownership of Cochlear shares. To restrict dilution of shareholders’ interests, the total
employee interests in unvested equity cannot exceed 5% of share capital.
At the date of this report, the number of ordinary shares that would be issued if all options were vested, having met the
service and performance conditions, and exercised and assuming ordinary shares were issued, is as follows:
Grant date
Number of options
FY17 LTI
FY18 LTI
FY19 LTI
Total
19-Oct-16
18-Oct-17
17-Oct-18
Issued
95,586
106,713
80,231
282,530
Forfeited/
lapsed1
16,580
2,337
-
At report
date
79,006
104,376
80,231
18,917
263,613
Exercise
price per
share ($)
135.84
154.73
202.84
Exercise period
Aug-19 to Mar-20
Aug-20 to Mar-21
Aug-21 to Mar-22
Current net value of
outstanding options as at
30 June 2019 ($)2
5,609,426
5,439,033
320,924
11,369,383
1. Forfeited/lapsed options from unvested grants relate to plan participants who have departed Cochlear.
2. Closing share price as at 30 June 2019 was $206.84.
Total unvested equity currently accounts for approximately 0.65% of the total number of issued shares, as set out below:
Instrument
Unvested LTI options
Unvested LTI rights
Unvested deferred STI rights
Service rights under the APAC Employee Equity Plan1
Total
as % of total shares
Number of issued shares
Number of equivalent shares at 30 June 2019
263,613
41,841
64,355
4,034
373,843
0.65%
57,715,821
1. Refer to Note 4.3 in the Notes to the financial statements for further information on the APAC Employee Equity Plan.
8.4 Transactions and loans with KMP
No transactions or loans involving directors or executive KMP, their close family members or entities they control or have
significant influence over, were made during the year.
41
Remuneration report
9. NON-EXECUTIVE DIRECTOR FEES
NEDs are paid from an aggregate annual fee pool for FY19 of $3,500,0001. Total remuneration paid during the year was
$2,753,336 (including payments made in relation to the directors’ retirement scheme2) which is within the fee pool limit
(represented 78.7% of fee pool). NEDs do not receive any performance-related remuneration, options or performance
rights. NEDs receive reimbursement for costs directly related to Cochlear business.
9.1 Fee policy and changes during the year
Board fees must recognise the effort required to fulfil the responsibilities of a director. Reflecting the increasing
governance requirements and the work of the Board, the Board considered it appropriate to increase annual base fees
by 3%, effective 1 July 2018. This decision was made with reference to external remuneration benchmarking of
companies of a similar market capitalisation to that of Cochlear.
1. The directors’ fee pool was temporarily increased from $3,000,000 to $3,500,000 for FY19 based on shareholder approval obtained at the 2014 annual
general meeting (AGM).
2. As at 23 October 2006, the directors’ retirement scheme no longer forms a part of the Company’s remuneration strategy. Under the scheme, non-
executive directors may be paid a retirement allowance of an amount equivalent to the aggregate of fees received over the three years prior to retirement
following five years of service as a director of the Company, In compliance with the terms of its employment agreement obligations with Professor Byrne,
the Company paid a retirement allowance to Professor Byrne following his retirement on 16 October 2018, for which shareholder approval had been
obtained at the 2018 AGM.
The table below outlines the base and committee fees for FY18 and FY19.
Amounts $
Cochlear Board
Committees
Audit
People & Culture
Medical Science
Technology & Innovation
Nomination
Chair2
491,165
50,000
40,000
30,000
40,000
No fee
FY181
FY191
Member
160,950
25,000
20,000
15,000
20,000
No fee
Chair2
505,900
50,000
40,000
30,000
40,000
No fee
Member
165,779
25,000
20,000
15,000
20,000
No fee
1. Superannuation contributions have been made in accordance with Australian superannuation legislation at a rate of 9.5% up to the Australian
Government’s prescribed maximum contributions limit. Fees are presented exclusive of superannuation.
2. Committee fees are not paid to the Chairman of the Board.
9.2 NED statutory remuneration
The table below presents the total remuneration for NEDs.
Amounts $
Year
Short-term benefits
Post-employment benefits
Total
Rick Holliday-Smith
Yasmin Allen
Glen Boreham
Alison Deans
Andrew Denver
Abbas Hussain3
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
Fees
505,617
490,802
255,686
250,735
250,686
245,639
230,686
225,735
245,686
240,831
111,973
-
Accrued
interest1
-
Directors’
retirement scheme2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Superannuation
20,531
20,049
20,531
20,049
20,531
20,049
20,384
19,931
20,531
20,049
10,635
-
526,148
510,851
276,217
270,784
271,217
265,688
251,070
245,666
266,217
260,880
122,608
-
42 Cochlear Limited Annual Report 2019
Remuneration report
Amounts $
Year
Short-term benefits
Post-employment benefits
Total
Donal O'Dwyer
Bruce Robinson
Former non-executive
director
Edward Byrne4
Total5
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
Accrued
interest1
-
Directors’
retirement scheme2
-
Fees
225,686
220,831
235,686
220,985
62,460
202,754
2,124,166
-
-
-
-
8,366
-
Superannuation
20,165
19,712
20,531
19,826
6,007
18,890
245,851
240,543
256,217
240,811
529,603
230,010
-
-
-
461,136
-
461,136
159,846
2,745,148
2,098,312
8,366
-
158,555
2,265,233
1. Amounts accrued for interest during the financial year relating to the directors’ retirement scheme. Prior to 2003, Cochlear operated a directors’
retirement scheme which provided retirement benefits of three times a NED’s average annual remuneration over the previous three years. In 2006, the
Board resolved to discontinue the ongoing accrual of benefits subject to a transition period to 2011. The benefits accrued are indexed by reference to the
bank bill rate. At 30 June 2019, no directors are entitled to this benefit.
2. Edward Byrne was paid his accrued entitlement under the Cochlear directors’ retirement scheme of $461,136 on 24 October 2018. The directors’
retirement scheme no longer forms a part of the Company’s remuneration strategy.
3. Abbas Hussain was appointed to the Board on 1 December 2018.
4. Edward Byrne retired from the Board on 16 October 2018.
5. The year-on-year changes in Board fees reflect the increases to Board NED base fees.
9.3 Minimum shareholding requirement for NEDs
NEDs are requested to hold shares equivalent to the fees (including both Board and committee fees) received in the
previous 12 months. The share ownership requirement must be satisfied within three years of appointment to the Board.
As at 30 June 2019, all NEDs are compliant with the Share Ownership Policy which allows three years to build their
shareholdings. The table below presents Cochlear Limited shareholdings for each NED.
Balance 1
July 2018
Purchases
Sales
Balance 30
June 2019
Rick Holliday-Smith
Yasmin Allen
Glen Boreham
Alison Deans
Andrew Denver
Abbas Hussain2
Donal O’Dwyer
Bruce Robinson
Former non-executive director
Edward Byrne
Total
10,000
3,500
2,800
3,000
4,000
-
6,000
322
3,250
32,872
-
-
-
-
-
-
-
1,330
-
1,330
-
-
-
-
-
-
-
-
-
-
10,000
3,500
2,800
3,000
4,000
-
6,000
1,652
N/A
30,952
Policy value of
shares as at 30
June 2019 ($)1
1,888,702
661,046
528,837
566,611
755,481
--
1,133,221
312,014
% of fees
359%
239%
195%
226%
284%
0%
461%
118%
1. In line with the Share Ownership Policy, available in the ‘Investors’ or ‘Investor Centre’ section of the Company’s website, the value of Cochlear Limited
ordinary shares is calculated using the average daily share price over the previous 12 months ($188.87), as at closing on the ASX up to 30 June 2019,
times the number of shares.
2. Abbas Hussain was appointed to the Board on 1 December 2018, and in accordance with the policy has until 1 December 2021 to build his shareholding.
43
Directors’ report
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 2019, 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
(Chairman), Mrs YA Allen, Mr G Boreham, AM, Prof E Byrne, AC, Ms A Deans, Mr A Denver, Mr D Howitt, Mr A Hussain,
Mr DP O’Dwyer and Prof B Robinson, AM.
Information on the current 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.
COMPANY SECRETARY
The Company Secretarial function is responsible for ensuring that the Company complies with its statutory duties and
maintains proper documentation, registers and records. It also provides advice to directors and officers about corporate
governance and gives practical effect to any decisions made by the Board.
Mr R Jarman was the Company Secretary during and since the end of the financial year. He has qualifications in law and
science from The University of New South Wales and is an admitted solicitor in New South Wales. Mr Jarman joined
Cochlear in 2008 as the inaugural Group General Counsel. He has over 30 years’ experience in corporate and
commercial law, litigation and dispute resolution, legal compliance and corporate governance across medical device,
steel, mining and consumer goods industries.
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
People &
Culture
Committee
Medical Science
Committee
Nomination
Committee
Technology &
Innovation
Committee
Mr R Holliday-Smith
Mrs YA Allen
Mr G Boreham, AM
Prof E Byrne, AC1
Ms A Deans2
Mr A Denver3
Mr D Howitt
Mr A Hussain4
Mr DP O’Dwyer
Prof B Robinson, AM
Held
9
9
9
4
9
9
9
4
9
9
Attended Held Attended Held Attended Held
-
5
9
4
5
4
9
9
3
9
9
9
4
9
9
5
5
-
5
5
-
-
5
-
5
5
-
5
5
-
-
5
-
4
4
-
4
-
-
-
-
4
4
4
-
4
-
-
-
-
4
-
-
1
-
2
2
1
2
2
Attended Held
4
-
Attended Held
-
4
Attended
-
-
-
1
-
2
2
1
2
2
4
4
3
4
4
-
1
4
4
4
4
1
3
4
-
1
3
4
2
2
-
2
2
2
1
2
2
2
2
-
2
2
2
1
2
2
1. Prof E Byrne retired on 16 October 2018 and ceased being a member of the Medical Science, Technology & Innovation and Nomination Committees.
2. Ms Deans was appointed as the Chair of the Technology & Innovation Committee commencing from 23 July 2019.
3. Mr Denver ceased being the Chair of the Technology & Innovation Committee commencing from 23 July 2019.
4. Mr Hussain was appointed to the Board on 1 December 2018 and became a member of the Medical Science, Technology & Innovation and Nomination
Committees.
44 Cochlear Limited Annual Report 2019
Directors’ report
PRINCIPAL ACTIVITIES
Information on the principal activities, operations and financial position of Cochlear Limited and its business strategies
and prospects is set out in the Operating and financial review on pages 9 to 21 of this Annual Report.
DIVIDENDS
Dividends paid or declared by the Company to members since the end of the previous financial year are:
Dollars per
share
Total amount
$m
Franked/
unfranked
Date of payment
Interim 2019 ordinary
Final 2018 ordinary
Total amount
Subsequent event
Since the end of the financial year, the
directors declared the following dividends:
Final 2019 ordinary
Total amount
1.55
1.60
3.15
1.75
1.75
89.5
100% Franked
16 April 2019
92.3
100% Franked
10 October 2018
181.8
101.0
100% Franked
14 October 2019
101.0
The financial effect of the 2019 final dividend will be recognised in the subsequent financial year as it was declared after
30 June 2019. Franked dividends paid or declared during the financial year were franked at the tax rate of 30% (2018:
30%).
ENVIRONMENTAL REGULATIONS
Cochlear’s operations are subject to 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, 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.
45
Directors’ report
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
Audit and review of financial reports
Other regulatory compliance services
Total audit services
Non-audit services
Taxation compliance and advisory services
IT advisory
Other
Total non-audit services
STATE OF AFFAIRS
Consolidated
2019
$
2018
$
1,795,339
1,780,268
147,161
100,866
1,942,500
1,881,134
1,764,533
1,031,640
643,260
357,650
673,000
147,973
2,765,443
1,852,613
There were no significant changes to the state of affairs of Cochlear during the financial year.
REMUNERATION REPORT
Information on Cochlear’s remuneration framework and the outcomes for the financial year ended 30 June 2019 for the
Cochlear Limited Board, the Chief Executive Officer & President and other key management personnel, and changes for
the financial year ending 30 June 2020, is included in the Remuneration report on pages 28 to 43 of this Annual Report.
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 R Jarman, 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. 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.
46 Cochlear Limited Annual Report 2019
Directors’ report
EVENTS SUBSEQUENT TO THE REPORTING DATE
Other than the matter 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 2019, see Note 2.6 to the financial statements.
LEAD AUDITOR’S INDEPENDENCE DECLARATION
The lead auditor’s independence declaration is set out on page 48 and forms part of the Directors’ report for the financial
year ended 30 June 2019.
ROUNDING OFF
The Company is of a kind referred to in Australian Securities and Investments Commission (ASIC) (Rounding in
Financial/Directors’ Reports) Instrument 2016/191 dated 24 March 2016 and in accordance with that Instrument,
amounts in the Directors’ report and Financial report have been rounded off to the nearest one hundred thousand dollars
unless otherwise stated.
Dated at Sydney this 16th day of August 2019.
Signed in accordance with a resolution of the directors:
Director
Director
47
Auditor’s independence declaration
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 2019 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
Julian McPherson, Partner
Sydney, 16 August 2019
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation.
48 Cochlear Limited Annual Report 2019
Income statement
Revenue
Cost of sales
Gross profit
Selling, marketing and general expenses
Research and development expenses
Administration expenses
Other income
Other expenses
Results from operating activities
Finance income - interest
Finance expense - interest
Net finance expense
Profit before income tax
Income tax expense
Net profit
Basic earnings per share (cents)
Diluted earnings per share (cents)
Note
2.2
2.3
2.4
2.3
3.1
2.5
2.5
2019
$m
1,426.7
(351.1)
1,075.6
(450.9)
(184.4)
(94.8)
29.0
(4.4)
370.1
0.7
(5.2)
(4.5)
365.6
(88.9)
276.7
479.6
479.5
2018
$m
1,363.7
(361.2)
1,002.5
(397.0)
(167.7)
(97.4)
10.2
(2.2)
348.4
0.6
(8.5)
(7.9)
340.5
(94.7)
245.8
427.3
426.7
The Consolidated Entity has initially applied AASB 9 and AASB 15 at 1 July 2018. Under the transition methods chosen,
comparative information is not restated. See Note 7.6.
The notes on pages 54 to 91 are an integral part of these consolidated financial statements.
49
Statement of comprehensive income
Net profit
Other comprehensive (loss)/income
Items that will not be reclassified subsequently to the income statement:
Defined benefit plan actuarial losses
Financial investments measured at fair value through other comprehensive
income, net of tax
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
Net change in fair value of available for sale financial assets, net of tax
Total items that may be reclassified subsequently to the income statement
Other comprehensive income/(loss), net of tax
Total comprehensive income
2019
$m
276.7
(0.2)
(1.3)
(1.5)
12.6
(17.8)
13.6
-
8.4
6.9
283.6
2018
$m
245.8
(0.2)
-
(0.2)
3.7
(19.4)
(8.6)
0.1
(24.2)
(24.4)
221.4
The Consolidated Entity has initially applied AASB 9 and AASB 15 at 1 July 2018. Under the transition methods chosen,
comparative information is not restated. See Note 7.6.
The notes on pages 54 to 91 are an integral part of these consolidated financial statements.
50 Cochlear Limited Annual Report 2019
Balance sheet
Assets
Cash and cash equivalents
Trade and other receivables
Forward exchange contracts
Inventories
Current tax assets
Prepayments
Total current assets
Other receivables
Forward exchange contracts
Property, plant and equipment
Intangible assets
Investments
Deferred tax assets
Total non-current assets
Total assets
Liabilities
Trade and other payables
Forward exchange contracts
Loans and borrowings
Current tax liabilities
Employee benefit liabilities
Provisions
Deferred revenue
Total current liabilities
Trade and other payables
Forward exchange contracts
Loans and borrowings
Employee benefit liabilities
Provisions
Deferred tax liabilities
Deferred revenue
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained earnings
Total equity
Note
6.4(b)
5.1
3.2
5.2
5.3
5.4
3.2
6.3(a)
3.2
4.2
5.5
6.3(a)
4.2
5.5
3.2
2019
$m
78.6
319.7
2.2
195.4
12.2
26.9
635.0
3.3
2.1
166.5
424.4
47.8
100.1
744.2
1,379.2
2018
$m
61.5
316.7
3.7
167.4
9.6
25.3
584.2
2.1
0.4
128.4
345.3
15.8
80.7
572.7
1,156.9
160.8
140.5
20.9
3.3
34.8
69.5
27.3
42.9
359.5
42.4
7.6
178.3
13.1
44.2
5.5
2.7
293.8
653.3
725.9
182.3
(15.3)
558.9
725.9
13.1
3.7
22.1
57.3
24.5
26.5
287.7
28.1
9.2
144.0
12.0
54.4
8.1
2.6
258.4
546.1
610.8
173.0
(33.8)
471.6
610.8
The Consolidated Entity has initially applied AASB 9 and AASB 15 at 1 July 2018. Under the transition methods chosen,
comparative information is not restated. See Note 7.6.
The notes on pages 54 to 91 are an integral part of these consolidated financial statements.
51
Statement of changes in equity
Amounts $m
2018
Balance at 1 July 2017
Total comprehensive income/(loss)
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
transferred to the income statement, net of tax
Net change in fair value of available for sale financial
assets, net of tax
Total other comprehensive income/(loss)
Total comprehensive income/(loss)
Transactions with owners, recorded directly in
equity
Share options exercised
Performance rights vested
Share based payment transactions
Deferred tax recognised in equity
Dividends to shareholders
Balance at 30 June 2018
2019
Balance at 1 July 2018 (as reported)
Change on initial application of AASB 9, net of tax
Change on initial application of AASB 15, net of tax
Balance at 1 July 2018 (restated)
Total comprehensive income/(loss)
Net profit
Other comprehensive (loss)/income
Defined benefit plan actuarial losses
Financial investments measured at fair value through
other comprehensive income, net of tax
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 other comprehensive income/(loss)
Total comprehensive income/(loss)
Transactions with owners, recorded directly in
equity
Share options exercised
Performance rights vested
Share based payment transactions
Deferred tax recognised in equity
Dividends to shareholders
Issued
capital
Translation
reserve
Hedging
reserve
Fair
value
reserve
Share
based
payment
reserve
Retained
earnings
Total equity
169.4
(63.5)
15.2
(0.3)
35.7
387.1
543.6
-
-
-
-
-
-
-
-
3.6
-
-
-
-
173.0
173.0
-
-
173.0
-
-
-
-
-
-
-
-
9.3
-
-
-
-
-
-
3.7
-
-
-
3.7
3.7
-
-
-
-
-
(59.8)
(59.8)
-
-
(59.8)
-
-
-
12.6
-
-
-
(19.4)
(8.6)
-
(28.0)
(28.0)
-
-
-
-
-
(12.8)
(12.8)
-
-
(12.8)
-
-
-
-
-
-
-
-
-
0.1
0.1
0.1
-
-
-
-
-
(0.2)
(0.2)
0.4
-
0.2
-
-
(1.3)
-
-
(17.8)
-
-
12.6
12.6
13.6
(4.2)
(4.2)
-
(1.3)
(1.3)
-
-
-
-
-
-
-
-
(2.5)
(1.5)
8.5
(1.2)
-
39.0
39.0
-
-
39.0
-
-
-
-
-
-
-
-
245.8
245.8
(0.2)
-
(0.2)
3.7
-
-
-
(0.2)
245.6
(19.4)
(8.6)
0.1
(24.4)
221.4
-
-
-
1.1
(1.5)
8.5
-
(161.1)
471.6
(1.2)
(161.1)
610.8
471.6
(2.3)
(5.1)
464.2
610.8
(1.9)
(5.1)
603.8
276.7
276.7
(0.2)
(0.2)
-
-
-
-
(0.2)
276.5
(1.3)
12.6
(17.8)
13.6
6.9
283.6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1.8)
(0.1)
8.5
4.4
-
-
-
-
7.5
(0.1)
8.5
-
(181.8)
4.4
(181.8)
Balance at 30 June 2019
182.3
(47.2)
(17.0)
(1.1)
50.0
558.9
725.9
The Consolidated Entity has initially applied AASB 9 and AASB 15 at 1 July 2018. Under the transition methods chosen,
comparative information is not restated. See Note 7.6.
The notes on pages 54 to 91 are an integral part of these consolidated financial statements.
52 Cochlear Limited Annual Report 2019
Statement of cash flows
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 land and buildings
Acquisition of leasehold improvements and plant and equipment
Proceeds from sale of non-current assets
Acquisition of IT system costs
Acquisition of other intangible assets
Acquisition of investments
Net cash used in investing activities
Cash flows from financing activities
Repayments of borrowings
Proceeds from borrowings
Net proceeds/(outlay) from exercise of share options and performance rights
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
Note
2019
$m
2018
$m
3.1
2.7(b)
5.2
5.2
5.3
5.3
2.6
1,448.5
(1,064.7)
7.4
0.7
(5.2)
(90.7)
296.0
-
(59.9)
-
(26.7)
(28.0)
(23.2)
(137.8)
1,350.3
(987.8)
4.8
0.6
(8.5)
(101.3)
258.1
(2.6)
(25.8)
0.3
(16.2)
(5.1)
(6.0)
(55.4)
(405.6)
(321.2)
439.1
7.4
(181.8)
(140.9)
17.3
61.5
(0.2)
78.6
250.0
(0.4)
(161.1)
(232.7)
(30.0)
89.5
2.0
61.5
The notes on pages 54 to 91 are an integral part of these consolidated financial statements.
53
Notes to the financial statements
1. BASIS OF PREPARATION
This section 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.
1.1 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 2019 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.
1.2 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 Board approved the consolidated financial statements on 16 August 2019.
(b) Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for derivative financial
instruments and financial investments measured at fair value. The fair value measurement method of derivative
instruments and financial investments measured at fair value through other comprehensive income is discussed further
in Note 6.4(d).
(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 Corporations (Rounding in Financial/Directors’ Reports) Instrument
2016/191 dated 24 March 2016 and in accordance with that Instrument, all financial information presented in AUD has
been rounded to the nearest one hundred thousand dollars unless otherwise stated.
(d) Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of 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 within other income and
other expenses.
Financial statements of foreign operations
The assets and liabilities of foreign operations are translated to the Company’s functional currency at foreign exchange
rates ruling at the reporting date. The revenues and expenses of foreign operations are translated to the Company’s
functional currency at rates approximating the foreign exchange rates ruling at the dates of transactions.
54 Cochlear Limited Annual Report 2019
Notes to the financial statements
Foreign currency differences arising from translation of controlled entities are recognised in the foreign currency
translation reserve (translation reserve) in equity. 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.
(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.
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 4.2 – Employee benefit liabilities
Note 4.3 – Share based payments
Note 5.3 – Intangible assets
Note 5.5 – Provisions
Note 5.6 – Contingent liabilities
Note 6.4 – Financial risk management.
(f) Basis of consolidation
Controlled entities
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 investment purposes. A SPE is consolidated if 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) Goods and services tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST. Where the amount of GST incurred is not
recoverable from the taxation authority, the GST is recognised as part of the cost of acquisition of the asset or as part of
the expense.
55
Notes to the financial statements
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.
2. PERFORMANCE FOR THE YEAR
2.1 Operating segments
Cochlear’s three reportable segments, determined on a geographical basis, 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.
Performance is measured based on segment earnings before interest and income tax (EBIT) as included in the internal
management reports that are reviewed by Cochlear’s Chief Executive Officer & President, who is also the chief operating
decision-maker.
Information about reportable segments
Americas
EMEA1
Asia Pacific
Total
2019
2018
2019
2018
2019
2018
$m
$m
$m
$m
$m
$m
2019
$m
2018
$m
Reportable segment revenue
688.6
648.5
519.2
478.9
238.3
224.0
1,446.1
1,351.4
Reportable segment EBIT
374.6
349.4
238.9
213.7
79.2
71.3
692.7
634.4
Reportable segment assets
257.7
215.2
261.4
245.2
143.5
125.0
662.6
585.4
Reportable segment liabilities
93.7
81.2
57.8
54.2
43.1
37.0
194.6
172.4
Other material items
Depreciation and amortisation
2.2
1.4
1.7
1.0
1.4
1.0
5.3
3.4
Write-down in value of
inventories
Acquisition of non-current
assets
1. Europe, Middle East and Africa.
0.6
0.7
0.7
1.6
0.3
0.4
1.6
2.7
5.4
6.0
2.4
1.9
3.2
0.7
11.0
8.6
Reconciliations of reportable segment revenues, profit or loss, assets and liabilities and other material items
Revenues
Cochlear
implants
2019
2018
$m
845.1
831.0
Services
(sound
processor
upgrades
and other)
$m
427.2
355.2
Total
Cochlear
implants
$m
1,272.3
1,186.2
Acoustics
(bone
conduction
and acoustic
implants)
$m
173.8
165.2
Reportable
segment
revenue
Foreign
exchange
(loss)/gain on
hedged sales
Consolidated
revenue
$m
1,446.1
1,351.4
$m
(19.4)
12.3
$m
1,426.7
1,363.7
56 Cochlear Limited Annual Report 2019
Notes to the financial statements
Profit or loss
2019
2018
Assets and liabilities
Reportable
segment assets
Reportable
segment EBIT
$m
692.7
634.4
Corporate
and
manufacturing
assets
Corporate
and other
net
expenses
$m
(303.2)
(298.3)
Foreign
exchange
(loss)/gain on
hedged sales
$m
(19.4)
12.3
Net finance
expense
Consolidated
profit before
income tax
$m
(4.5)
(7.9)
$m
365.6
340.5
Consolidated
total assets
Reportable
segment
liabilities
Corporate and
manufacturing
liabilities
Consolidated
total liabilities
2019
2018
$m
662.6
585.4
$m
716.6
571.5
$m
1,379.2
1,156.9
$m
194.6
172.4
$m
458.7
373.7
Other material items
Reportable segment total
Corporate and
manufacturing total
Consolidated total
2019
$m
5.3
1.6
11.0
2018
$m
3.4
2.7
8.6
2019
$m
33.2
5.0
162.5
2018
$m
30.8
0.1
47.1
2019
$m
38.5
6.6
173.5
Depreciation and
amortisation
Write-down in value of
inventories
Acquisition of non-
current assets
2.2 Revenue
$m
653.3
546.1
2018
$m
34.2
2.8
55.7
Revenue from the sale of cochlear and acoustic implants and associated sound processors and accessories to
customers is based on the contracted sales price. Revenue is recognised at the point in time when control passes to the
customer with the exact timing dependent on the agreed sales terms for each contract. Revenue from product sales is
also deferred based on the historical rates of product returns.
Revenue from the rendering of services, including ongoing customer support and software licensing are provided to
customers over time. Where payments are received in advance, the agreed transaction price is initially deferred and
progressively recognised over the life of the agreement as the service is provided. The value of unfulfilled performance
obligations under these contracts is reflected in the consolidated entity’s deferred revenue balance.
Customers include implant recipients, medical practitioners and governments. Contracts are short-term with the
exemption of software licences which are recognised over multiple years. The accounting policy for foreign exchange
gains/losses arising from hedges of forecast sales transactions is set out in Note 6.4(a).
Sale of goods before hedging
Foreign exchange (loss)/gain on hedged sales
Revenue from sale of goods
Rendering of services
Total revenue
2019
$m
1,415.3
(19.4)
1,395.9
30.8
1,426.7
2018
$m
1,324.9
12.3
1,337.2
26.5
1,363.7
57
Notes to the financial statements
2.3 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) Profit before income tax has been arrived at after charging the following
item:
Operating lease rental expense
Other expenses
Fair value change in investments measured at fair value through profit or loss
Foreign exchange loss
Total other expenses
2.4 Other income
2019
$m
337.8
6.7
6.6
351.1
2018
$m
352.7
5.7
2.8
361.2
29.4
27.0
2019
2018
$m
-
4.4
4.4
$m
2.2
-
2.2
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. If the costs have already been incurred, the amount is
recognised in the year the entitlement is confirmed. Foreign exchange gains/losses are recognised in accordance with
the accounting policy at Note 1.2(d).
Changes to the contingent consideration value recognised for the Sycle, LLC business acquisition were considered at 30
June 2019. Based on FY19 revenue growth relative to the performance hurdle, $10.8 million (2018: $5.3 million) has
been released to the income statement and $19.4 million remains as contingent consideration (2018: $28.4 million).
Grant received or due and receivable
Release of contingent consideration
Foreign exchange gain
Fair value change in investments measured at fair value through profit or loss
Other income
Total other income
2019
$m
1.9
10.8
-
10.8
5.5
29.0
2018
$m
2.3
5.3
0.1
-
2.5
10.2
58 Cochlear Limited Annual Report 2019
Notes to the financial statements
2.5 Earnings per share
Cochlear presents basic and diluted earnings per share (EPS) for its ordinary shares.
Basic earnings per share
The calculation of basic EPS has been based on the following net profit attributable to equity holders of the parent entity
and weighted average number of ordinary shares of the Company:
2019
2018
Net profit attributable to equity holders of the parent entity
$276,697,000 $245,792,000
Weighted average number of ordinary shares (basic):
Issued ordinary shares at 1 July (number)
Effect of options, performance shares and performance rights exercised (number)
Effect of shares issued under Employee Share Plan (number)
57,547,820
57,426,649
134,937
5,448
94,306
6,710
Weighted average number of ordinary shares (basic) at 30 June
57,688,205
57,527,665
Basic earnings per share (cents)
479.6
427.3
Diluted earnings per share
The calculation of diluted EPS has been based on the following net profit attributable to equity holders of the parent entity
and weighted average number of shares outstanding after adjustments for the effects of all dilutive potential ordinary
shares:
Net profit attributable to equity holders of the parent entity
$276,697,000
$245,792,000
Weighted average number of ordinary shares (diluted):
Weighted average number of shares (basic) (number)
57,688,205
57,527,665
Effect of options, performance shares and performance rights unvested (number)
21,948
73,803
Weighted average number of ordinary shares (diluted) at 30 June
57,710,153
57,601,468
Diluted earnings per share (cents)
479.5
426.7
2019
2018
2.6 Dividends
A liability for dividends payable is recognised in the financial year in which the dividends are declared.
Dividends recognised in the current financial year by the Company are:
Dollars per share
Total amount $m
Franked/unfranked
Date of payment
2019
Interim 2019 ordinary
Final 2018 ordinary
Total amount
2018
Interim 2018 ordinary
Final 2017 ordinary
Total amount
1.55
1.60
3.15
1.40
1.40
2.80
89.5
92.3
181.8
80.6
80.5
161.1
100% Franked
16 April 2019
100% Franked
10 October 2018
100% Franked
12 April 2018
100% Franked
11 October 2017
59
Notes to the financial statements
Dollars per share
Total amount $m
Franked/unfranked Date of payment
Subsequent event
Since the end of the financial year, the directors declared the following dividends:
Final 2019 ordinary
Total amount
1.75
1.75
101.0
101.0
100% Franked
14 October 2019
The financial effect of the 2019 final dividend will be recognised in the subsequent financial year as it was declared after
30 June 2019.
Dividend franking account
Franked dividends paid during the financial year were franked at the tax rate of 30% (2018: 30%). There are no further
tax consequences as a result of paying dividends other than a reduction in the franking account.
At 30 June 2019, there are $39.2 million of franking credits (2018: $39.2 million) available to shareholders of Cochlear
Limited for subsequent financial years.
The dividend franking account at year end is 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.
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 $43.3 million (2018: $39.5 million).
Dividends in excess of the dividend franking account balance will be unfranked.
60 Cochlear Limited Annual Report 2019
Notes to the financial statements
2.7 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.
The operating cash account received an average interest rate of 0.79% (2018: 0.73%) per annum.
(b) Reconciliation of net profit to net cash provided by operating activities
Net profit
Add item classified as investing activities:
Loss on disposal of property, plant and equipment
Add/(less) non-cash items:
Depreciation and amortisation
Release of contingent consideration
Change in fair value measurement of investments through profit or loss
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/liabilities
Change in trade and other payables
Change in current tax assets/liabilities
Change in employee benefit liabilities
Change in provisions
Change in deferred revenue
Effect of movements in foreign exchange
Net cash provided by operating activities
2019
$m
276.7
0.5
38.5
(10.8)
(10.8)
8.5
2018
$m
245.8
0.6
34.2
(5.3)
2.2
8.5
302.6
286.0
(4.2)
(28.0)
(1.6)
(22.0)
34.6
10.1
13.3
(7.4)
16.5
(17.9)
296.0
(25.9)
(7.4)
(6.7)
(11.8)
3.8
(6.5)
5.9
(0.8)
0.5
21.0
258.1
61
Notes to the financial statements
3.
INCOME TAXES
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.
3.1 Income tax expense
Income tax expense includes current and deferred tax. Current and deferred tax is recognised in the income statement
except to the extent that they relate to items recognised directly in other comprehensive income or equity.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to
tax payable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting
date.
Income tax expense recognised in the income statement
Current year
Adjustment
for prior
years
Total
current tax
expense
Origination
and reversal
of temporary
differences
Total
deferred
tax benefit
Total
income tax
expense
2019
2018
$m
105.0
103.1
$m
(1.4)
(1.6)
$m
103.6
101.5
$m
(14.7)
(6.8)
$m
(14.7)
(6.8)
$m
88.9
94.7
Consolidated Entity - Numerical reconciliation between income tax expense and profit before income tax
Profit before income tax
Tax at the Australian tax rate of 30% (2018: 30%)
Increase in income tax expense due to:
Non-deductible expenses, net
Restatement of US deferred tax asset1
Decrease in income tax expense due to:
Non-assessable income
Research and development allowances
Effect of tax rates in foreign jurisdictions
Adjustment for prior years
2019
$m
365.6
109.7
-
-
(3.4)
(9.7)
(6.3)
90.3
(1.4)
2018
$m
340.5
102.1
0.1
6.3
-
(9.8)
(2.4)
96.3
(1.6)
Income tax expense on profit before income tax
94.7
1. Restatement of US deferred tax balances as at 31 December 2017 resulting from the enactment of H.R. 1 (US tax reform legislation) on 22 December
2017.
88.9
62 Cochlear Limited Annual Report 2019
Notes to the financial statements
Tax expense for items relating to other comprehensive loss or equity
Total deferred tax recognised in other comprehensive loss relating to
derivative financial instruments
Total deferred tax recognised directly in equity relating to share based
payments
Note
3.2
3.2
2019
$m
2018
$m
(1.8)
(12.0)
(4.4)
1.2
Consolidated Entity - Numerical reconciliation between income tax expense and cash taxes paid
Income tax expense on profit before income tax
Timing differences recognised in deferred tax
Effect of tax rates in foreign jurisdictions
Current year tax instalments payable next year
Prior year tax instalments paid this year
Cash taxes paid per statement of cash flows
2019
$m
88.9
12.5
0.3
(26.0)
15.0
90.7
2018
$m
94.7
0.4
0.1
(15.0)
21.1
101.3
Cochlear Limited’s Australian tax consolidated group - Numerical reconciliation between income tax expense
and profit before income tax
Profit before income tax (excluding dividends from wholly owned foreign
subsidiaries)
Add: Dividends from wholly owned foreign subsidiaries
Profit before income tax
Tax at the Australian tax rate of 30% (2018: 30%)
Increase in income tax expense due to:
Controlled foreign company income
Other non-deductible expenses
Decrease in income tax expense due to:
Research and development allowances
Exempt foreign sourced dividends from wholly owned subsidiaries
Adjustment for prior years
Income tax expense on profit before income tax
2019
$m
300.5
6.9
307.4
92.2
0.7
0.6
(8.5)
(2.1)
82.9
(1.6)
81.3
2018
$m
274.2
47.1
321.3
96.4
1.0
2.1
(8.5)
(14.1)
76.9
(1.0)
75.9
63
Notes to the financial statements
3.2 Current and deferred tax assets and liabilities
Deferred tax is recognised on all temporary differences between the carrying amounts of assets and liabilities for
financial reporting and taxation purposes.
The measurement of deferred tax mirrors the tax consequences that the Consolidated Entity expects to recover or settle
from 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.
A deferred tax asset is recognised 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 if it is no longer
probable that the related tax benefit will be realised.
Recognised deferred tax assets and liabilities
Property, plant and equipment
Intangible assets
Inventories
Provisions
Deferred revenue
Forward exchange contracts
Other
Deferred tax assets/(liabilities)
Set off tax
Deferred tax assets/(liabilities)
Assets
Liabilities
Net
2019
$m
0.4
0.8
40.8
33.0
5.3
7.4
20.4
108.1
(8.0)
100.1
2018
$m
0.3
0.4
25.7
32.8
1.6
5.6
19.9
86.3
(5.6)
80.7
2019
$m
(2.2)
(6.5)
-
-
(2.5)
-
(2.3)
(13.5)
8.0
(5.5)
2018
$m
(2.6)
(6.2)
-
-
-
-
(4.9)
(13.7)
5.6
(8.1)
2019
$m
(1.8)
(5.7)
40.8
33.0
2.8
7.4
18.1
94.6
-
94.6
2018
$m
(2.3)
(5.8)
25.7
32.8
1.6
5.6
15.0
72.6
-
72.6
Unrecognised deferred tax liabilities
At 30 June 2019, a deferred tax liability of $12.0 million (2018: $32.5 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.
Movement in temporary differences during the year
Carrying amount at beginning of financial year
Recognised in the income statement
Recognised in other comprehensive loss
Recognised directly in equity
Restatement of US deferred tax asset
Effect of movements in foreign exchange
Carrying amount at end of financial year
64 Cochlear Limited Annual Report 2019
Note
3.1
3.1
3.1
3.1
2019
$m
72.6
14.7
1.8
4.4
-
1.1
94.6
2018
$m
60.8
6.8
12.0
(1.2)
(6.3)
0.5
72.6
Notes to the financial statements
Current tax assets and liabilities
The current tax assets for the Consolidated Entity of $12.2 million (2018: $9.6 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 $34.8 million (2018: $22.1 million)
represent the amount of income taxes payable in respect of current and prior financial years.
4. EMPLOYEE BENEFITS
4.1 Employee expenses
Wages and salaries
Contributions to superannuation plans
Increase in leave liabilities
Equity settled share based payment transactions
Total employee expenses
4.2 Employee benefit liabilities
Wages, salaries and annual leave
2019
$m
378.1
31.6
6.9
8.5
425.1
2018
$m
338.0
25.3
4.7
8.5
376.5
Liabilities for employee benefits for wages, salaries and annual leave are recognised in other payables and provisions if
Cochlear has a present obligation to pay an amount as a result of past services provided by the employee. The liability is
calculated on remuneration rates as at the reporting date including related on-costs, such as workers’ compensation
insurance and payroll tax.
Long service leave
The provision for long service leave is the present value of the estimated future cash outflows as a result of services
provided by the employee 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 corporate bond rates which most
closely match the terms to maturity of the related liabilities.
Defined benefit plans
The consolidated entity has defined benefit plans that cover, in aggregate, 87 employees in two countries (2018: 80
employees). Cochlear contributed cash of $1.3 million (2018: $1.2 million) to defined benefit plans in the year ended 30
June 2019 and expects to contribute $1.6 million in the year ending 30 June 2020.
The defined benefit obligations are calculated annually by a qualified actuary using the projected unit credit method.
Remeasurements of the net defined benefit liability (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 period to the opening
net defined benefit liability (asset), adjusted for any changes in the net defined benefit liability (asset) during the period
resulting from contributions and benefit payments. Net interest expense related to defined benefit plans is recognised in
the income statement.
65
Notes to the financial statements
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 2019, Prof E Byrne, AC was the only non-executive director entitled to this
benefit. Prof E Byrne received the accrual retirement benefit upon his retirement on 16 October 2018.
Current
Provision for long service leave
Provision for annual leave
Provision for short-term incentives
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
4.3 Share based payments
2019
$m
12.9
31.0
25.6
69.5
6.4
6.7
-
13.1
82.6
2018
$m
11.0
26.5
19.8
57.3
5.9
5.6
0.5
12.0
69.3
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 expense is adjusted by the actual number of options, shares and rights that
are expected to vest except where forfeiture is due to market related conditions.
The fair value is measured using the Black-Scholes-Merton pricing model at the date the options, performance shares or
performance rights are granted, taking into account market based criteria and the terms and conditions attached to the
instruments. The options, performance shares or performance rights are expensed over the vesting period after which
the employees become unconditionally entitled to them.
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 in the Company’s accounts.
66 Cochlear Limited Annual Report 2019
Notes to the financial statements
At 30 June 2019, the unissued ordinary shares of the Company under option and rights and the terms and conditions of
the grants and issues are as follows:
Grant date
October 20161
August 20172
October 20171
August 20182
October 20181
Total
Exercise price of
options
Number of
options
Number of
performance
rights
Contractual life
$135.84
N/A
79,006
-
$154.73
104,376
N/A
$202.84
-
80,231
263,613
20,726
37,038
11,835
27,317
9,280
106,196
4 years
2 years
4 years
2 years
4 years
1. Options and performance rights offered under long-term incentives.
2. Performance rights offered under deferred short-term incentives.
Grants are split between deferred short-term incentives (STI) and long-term incentives (LTI).
For deferred STI, certain employees under the CEIP are granted performance rights based on achievement of a
mandatory portion of their STI. The number of performance rights under the deferred STI grants is calculated at the end
of each year and then held for two years until vesting.
Grants under LTI are in two equal tranches assigned to compound annual growth in EPS and ranking of total
shareholder return (TSR) against the ASX 100. The conditions for minimum vesting are three years of service and:
• a minimum compound annual growth rate in EPS of 10% assigned to 50% of grant; or
•
the Consolidated Entity’s TSR is above the 50th percentile against the ASX 100 over three years assigned to 50% of
grant.
The grant date fair value of options and performance rights 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 the grant date are the following:
17 October 2018
24 August 2018
18 October 2017
24 August 2017
TSR based
conditions
EPS
performance
based
conditions
Deferred STI
service based
conditions
TSR based
conditions
EPS
performance
based
conditions
Deferred STI
service
based
conditions
$32.55
$37.43
N/A
$22.27
$23.91
N/A
$116.51
$199.29
$201.99
$83.43
$142.31
$145.96
Fair value of options at grant
date
Fair value of performance
rights at grant date
Share price at valuation date
$207.50
$207.50
$207.50
$155.18
$155.18
$155.18
Option exercise price
$202.84
$202.84
N/A
$154.73
$154.73
N/A
Expected volatility (weighted
average volatility)
22.59%
22.59%
22.59%
24.91%
24.91%
24.91%
Option life
3 - 4 years
3 - 4 years
2 years
3 - 4 years
3 - 4 years
2 years
Expected dividend yield
1.35%
1.35%
1.35%
2.95%
2.95%
2.95%
Risk free interest rate (based
on government bonds)
2.04%
2.04%
2.04%
2.00%
2.00%
2.00%
67
Notes to the financial statements
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
2019
$119.60
$82.89
$82.89
$202.84
$163.71
$135.84
2019
318,227
(4,724)
(130,121)
80,231
263,613
79,006
2018
$93.51
$149.52
$68.56
$154.73
$119.60
$82.89
2018
292,934
(3,228)
(78,192)
106,713
318,227
134,845
130,121 options were exercised in 2019 (2018: 78,192 options were exercised). The weighted average market share
price on the Australian Securities Exchange (ASX) at date of exercise was $196.26 (2018: $160.23). The weighted
average remaining contractual life of options outstanding at the end of the year is two years (2018: two years).
Employee Share Plan
Cochlear’s Employee Share Plan (Plan) was approved by special resolution at the Annual General Meeting 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 2019, the Company issued 7,590 shares (2018: 8,874 shares) under the Plan; see Note 6.2.
APAC Employee Equity Plan
The APAC Employee Equity Plan, established in 2016, aligns with the Cochlear Employee Share Plan and provides up
to $1,000 of service rights annually per eligible employee in selected Asian countries. Upon vesting, each service right
converts to one share. For the year ended 30 June 2019, the Company issued 1,092 shares under the plan (2018: nil).
4.4 Key management personnel
The following were key management personnel (KMP) of Cochlear at any time during the financial year and unless
otherwise indicated were KMP for the entire financial year:
Non-executive directors
Mr R Holliday-Smith (Chairman), Mrs YA Allen, Mr G Boreham, AM, Prof E Byrne1, AC, Ms A Deans, Mr A Denver, Mr A
Hussain2 , Mr DP O’Dwyer and Prof B Robinson, AM
Executive KMP
Mr D Howitt, Mr A Bishop, Mr R Brook, Mr B Cubis, Mr J Janssen and Mr T Manna.
1. Retired on 16 October 2018.
2. Appointed on 1 December 2018.
68 Cochlear Limited Annual Report 2019
Notes to the financial statements
Key management personnel disclosures
The KMP compensation is included in employee expenses as follows:
Short-term
employee
benefits
$
10,328,560
Post-
employment
benefits
$
414,161
Other long-
term
benefits
$
8,857
Directors’
retirement
benefits
$
461,136
Share
based
payments
$
2,150,552
End of
service
Total
$
-
$
13,363,266
11,706,507
412,566
243,465
8,366
3,256,080
1,452,589
17,079,573
2019
2018
Information regarding individual KMP remuneration and some equity instruments disclosures as permitted by section
300A of the Corporations Act 2001 is provided in the Remuneration report of this Annual Report on pages 28 to 43.
The KMP have not received any loans from Cochlear and there have been no other related party transactions with any of
Cochlear’s KMP.
5.
OPERATING ASSETS AND LIABILITIES
5.1 Inventories
Inventories are measured at the lower of cost and net realisable value.
Cost is based on the first-in-first-out principle including 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 production overheads based on normal operating capacity.
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.
Raw
materials
$m
70.3
68.3
Work in
progress
$m
26.2
22.1
Finished
goods
$m
98.9
77.0
Total
inventories
$m
195.4
167.4
2019
2018
5.2 Property, plant and equipment
Owned assets
The value of property, plant and equipment is measured as the cost of the asset, minus accumulated depreciation and
impairment losses (see Note 5.3). The cost of the asset is the consideration provided plus incidental costs directly
attributable to the acquisition.
The value of internally-constructed assets includes the cost of material and direct labour 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 capitalised in the carrying amount of
the item if it is probable that future economic benefits will flow to Cochlear and its cost can be measured reliably. All other
costs are recognised in the income statement as incurred.
69
Notes to the financial statements
Leased assets
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 to expense the cost of items of property, plant and equipment less their estimated residual
values on a straight-line basis over their estimated useful lives. The estimated useful lives in the current and comparative
years are as follows: leasehold improvements between one to 15 years, plant and equipment between three to 14 years
and buildings between 10 to 30 years.
Depreciation is recognised in the income statement from the date of acquisition or, in respect of internally-constructed
assets, from the time an asset is completed and held ready for use.
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.
Leasehold
improvements
Plant and equipment
Land and
buildings
Total net book value
At cost
Accumulated
depreciation
2019
$m
42.0
2018
$m
38.6
2019
$m
277.5
2018
$m
2019
$m
221.8
30.1
(28.2)
(25.3)
(154.4)
(136.5)
(0.5)
Net book value
13.8
13.3
123.1
85.3
29.6
2018
$m
30.1
(0.3)
29.8
27.3
2.6
-
2019
$m
349.6
2018
$m
290.5
(183.1)
(162.1)
166.5
128.4
128.4
120.1
59.9
(0.5)
28.4
(0.6)
13.3
3.3
-
12.8
3.0
-
85.3
56.6
(0.5)
80.0
22.8
(0.6)
29.8
-
-
(3.2)
(2.7)
(19.5)
(17.7)
(0.2)
(0.1)
(22.9)
(20.5)
0.4
13.8
0.2
13.3
1.2
123.1
0.8
-
-
1.6
1.0
85.3
29.6
29.8
166.5
128.4
Reconciliations of the
carrying amounts are:
Opening balance
Additions
Disposals
Depreciation
Effect of movements in
foreign exchange
Net book value
5.3 Intangible assets
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 tested annually for impairment.
IT system costs
IT system costs are recognised as an intangible asset where Cochlear controls future economic benefits as a result of
the costs incurred, and are stated at cost less accumulated amortisation. Costs include expenditure directly related to the
development and implementation (hardware and software costs) of IT systems including direct labour.
70 Cochlear Limited Annual Report 2019
Notes to the financial statements
Other intangible assets
Other intangible assets, comprising acquired technology, patents and licences, customer relationships, capitalised
development expenditure and intellectual property, are acquired individually or through business combinations and are
stated at cost less accumulated amortisation and impairment losses (see below).
Amortisation
Amortisation is calculated to expense the cost of intangible assets less their estimated residual values on a straight-line
basis over their estimated useful lives. The estimated useful lives for the current and comparative years are as follows: IT
system costs between two to seven years, acquired technology, patents and licences between four to 15 years,
customer relationships up to 31 years and capitalised development expenditure between four to 10 years.
Amortisation is recognised in the income statement from the date the assets are available for use unless their lives are
indefinite.
Goodwill and intangible assets with an indefinite useful life are systematically tested for impairment annually.
Intangible assets
with indefinite
useful
life
Goodwill
Intangible assets with finite useful life
Intangible
assets
IT system
costs
Acquired
technology,
patents and
licences
$m
Other intangible
assets
Total
$m
$m
$m
$m
2019
At cost
Accumulated amortisation
Net book value
268.8
-
268.8
Reconciliations of the carrying amounts are:
Opening balance
Additions
Amortisation
Effect of movements in
foreign exchange
Net book value
2018
At cost
Accumulated amortisation
Net book value
265.4
-
-
3.4
268.8
265.4
-
265.4
Reconciliations of the carrying amounts are:
Opening balance
268.9
Additions
Amortisation
Effect of movements in
foreign exchange
Net book value
-
-
(3.5)
265.4
109.2
(58.8)
50.4
32.9
26.7
(9.2)
-
50.4
82.3
(49.4)
32.9
24.1
16.2
(7.6)
0.2
32.9
122.9
(50.4)
72.5
29.0
48.4
(4.9)
-
72.5
74.3
(45.3)
29.0
32.1
1.5
(4.6)
-
29.0
56.3
(23.6)
32.7
18.0
15.3
(1.5)
0.9
32.7
37.9
(19.9)
18.0
14.9
3.6
(1.5)
1.0
18.0
557.2
(132.8)
424.4
345.3
90.4
(15.6)
4.3
424.4
459.9
(114.6)
345.3
340.0
21.3
(13.7)
(2.3)
345.3
71
Notes to the financial statements
Impairment
Cochlear annually tests goodwill and other intangible assets with indefinite useful life for impairment. Other non-financial
assets, other than inventories (see Note 5.1) and deferred tax assets (see Note 3.2), are tested if there is any indication
of impairment or if there is any indication that an impairment loss recognised in a prior period may no longer exist or may
have decreased.
Assets are impaired if their carrying value exceeds their recoverable amount. The asset’s recoverable amount is
estimated based on its value in use.
An asset that does not generate independent cash flows and its individual value in use cannot be estimated is tested for
impairment as part of a cash generating unit (CGU).
An impairment loss is recognised in the income statement when the carrying amount of an asset or CGU exceeds its
recoverable amount. 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. An impairment loss in respect of goodwill is not reversed.
Impairment tests for CGUs
Cochlear allocates goodwill and other intangible assets to CGUs based on the expected benefits that each CGU will
receive from use of those assets.
The aggregate carrying amounts of goodwill allocated to each CGU are:
2019
2018
Americas
EMEA
Asia Pacific
$m
184.2
182.5
$m
74.6
73.0
$m
10.0
9.9
Total
$m
268.8
265.4
The recoverable amount of each CGU is based on value-in-use calculations. Those calculations use five year cash flow
projections based on actual operating results, the next year’s budget and the mid-term business plan. Cash flows for
year 6 onwards are extrapolated using a conservative terminal growth rate of 3.0% (2018: 3.0%) per annum which is
consistent with long-term economic growth rates. The pre-tax discount rate for each CGU is as follows: Americas 10.6%
(2018: 10.4%), EMEA 10.3% (2018: 9.4%) and Asia Pacific 11.2% (2018: 10.5%).
The key assumptions and the approach to determining their value in the current year are:
Assumption
Discount rate
EBIT growth rate
How determined
Based on weighted average cost of capital reflecting current market assessments of
the time value of money and risks specific to the CGU.
Based on a five year cash flow projection taking into account historical growth rates
and product lifecycle.
Terminal value growth rate
Based on long-term economic growth rates.
The recoverable amount of each CGU including unallocated corporate assets is in excess of the 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.
72 Cochlear Limited Annual Report 2019
Notes to the financial statements
5.4 Investments
Cochlear’s investments are valued individually using quoted prices or unobservable market inputs. Unobservable inputs
are those not readily available in an active market. These inputs are generally derived from other observable inputs that
match the risk profile of the financial instruments and validated against current market assumptions and historical
transactions where available. Refer to Note 6.4(d) for further details on the valuation of financial assets.
Equity investments at fair value through other comprehensive income are ordinary shares. Investments measured at fair
value through profit or loss are interests in entities that do not meet the definition of equity, such as instruments
convertible into ordinary shares.
Opening balance
Additions
Fair value gain/(loss) through profit or loss
Fair value loss through other comprehensive income
Effect of movements in foreign exchange
Total investments
2019
$m
15.8
22.1
10.8
(1.3)
0.4
47.8
2018
$m
15.1
2.8
(2.2)
-
0.1
15.8
At 30 June 2019 $46.4 million of investments is measured at fair valued through profit or loss with the remaining $1.4
million measured at fair valued through other comprehensive income.
5.5 Provisions
A provision is recognised in the balance sheet when:
• Cochlear has a present obligation (legal or constructive) as a result of a past event;
•
•
a reliable estimate can be made of the amount of the obligation; 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.
2019
Opening balance
Provision made
Provision used
Provision released
Effect of movements in foreign exchange
Total provisions
Represented by:
Current
Non-current
Total provisions
Warranties
Legal and
insurance
Product
recall
Make
good lease
costs
$m
39.8
12.5
(16.1)
-
1.6
37.8
15.5
22.3
37.8
$m
4.9
22.3
(5.2)
-
-
$m
11.1
-
(0.6)
-
-
22.0
10.5
10.0
12.0
22.0
1.8
8.7
10.5
$m
1.8
0.1
(0.7)
-
-
1.2
-
1.2
1.2
Patent
dispute
$m
21.3
-
-
(21.3)
-
-
-
-
-
Total
$m
78.9
34.9
(22.6)
(21.3)
1.6
71.5
27.3
44.2
71.5
73
Notes to the financial statements
Warranties
A provision for warranty claims is recognised 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 insurance
During the year ended 30 June 2019 a provision for estimated future costs related to the AMF patent dispute, including
legal fees, bond costs and other costs associated with defending this matter was made. As at 30 June 2019, AUD 17.9
million of the provision remains. A contingent liability is held in relation to this matter as outlined in Note 5.6 below.
Cochlear self-insures certain risks associated with operating in its line of business. Claims are recognised when an
incident occurs that may give rise to a claim. They are measured at the cost that Cochlear expects to incur in defending
or 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.
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.
No amount has been recognised as a charge or released as a credit in the year ended 30 June 2019.
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 and overhauls.
5.6 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.
Patent dispute
In November 2018, the US District Court awarded damages of USD 268 million against Cochlear Limited and its US
subsidiary Cochlear Americas (the Defendants) in the long-running patent dispute with Alfred E. Mann Foundation for
Scientific Research (AMF) and Advanced Bionics LLC (AB). The Defendants have appealed the damages award and the
finding of “willfulness”. An insurance bond of USD 335 million has been arranged to stay the Judgment pending the
appeal.
AMF and AB have subsequently asked the District Court to award USD 123 million in prejudgment interest. The
Defendants have opposed both the application and the calculation methodology. The Judge has reserved his decision
until further notice. The Defendants have arranged a facility to enable the procurement of another insurance bond, if
necessary to stay any prejudgment interest award pending the outcome of the appeal against damages. Any interest
award will be contingent on the appeal against damages.
The Board of directors has obtained independent legal advice on the Defendants’ appeal prospects. The Board is of the
opinion it is probable that the Defendants’ appeal will result in the lawsuit being remanded to the District Court for a retrial
on damages.
There is significant uncertainty on the final damages award following a retrial. Given the inherent uncertainties in
assessing the likely damages amount of this case following the appeal, the Board is unable to make a reliable estimate
of the amount that will ultimately be paid to AMF and AB. As a result, the provision for damages held at 30 June 2018 of
AUD 21.3 million has been released and a contingent liability is disclosed.
74 Cochlear Limited Annual Report 2019
Notes to the financial statements
Cochlear’s current product portfolio is not affected by this litigation as the patent at issue has expired.
In the event the appeal is unsuccessful, the Board is confident that Cochlear will be able to access debt facilities to fund
the existing Judgment and any award of interest and costs.
Product liability claims
Cochlear is currently, and/or 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 and lawsuits in various countries including 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.
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.
6. CAPITAL AND FINANCIAL STRUCTURE
6.1 Capital management
Cochlear’s capital management objectives are to safeguard its ability to continue as a going concern, provide returns to
shareholders, provide benefits to other stakeholders and 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.
Senior management tracks, manages and reports against these capital management metrics periodically as part of
broader corporate governance responsibilities. The Board undertakes periodic reviews 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.
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.
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 - reported
Net gearing ratio at 30 June
Note
6.3(a)
2019
$m
103.0
725.9
12%
2018
$m
86.2
610.8
12%
75
Notes to the financial statements
6.2 Capital and reserves
Share capital
The Company does not have authorised capital or par value in respect of its issued shares.
Total number of issued shares
2019
2018
On issue 1 July – fully paid
57,547,820
57,426,649
Issued for nil consideration under Employee Share Plan
Issued from exercise of APAC Equity Plan
Issued from the exercise of options
Issued from the exercise of performance rights
7,590
1,092
112,093
47,226
8,874
-
52,046
60,251
On issue 30 June – fully paid
57,715,821
57,547,820
During the 2019 financial year, Cochlear purchased 18,813 shares (2018: 35,706 shares) on market to satisfy exercise of
options and performance rights.
Cochlear has also issued shares to employees under the Employee Share Plan (see Note 4.3).
Ordinary shares are classified as equity and 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.
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.
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 1.2(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.
Fair value reserve
The fair value reserve comprises the cumulative net change in the fair value of investments revalued through other
comprehensive income (2018: available for sale) until the assets are derecognised or impaired.
Share based payment reserve
The share based payment reserve comprises the cost of shares, options, performance shares and performance rights
granted to eligible executives under the CEIP, as detailed in Note 4.3 less any payments made to meet Cochlear’s
obligations through the acquisition of shares on market, together with any deferred tax asset/liability on such payments.
76 Cochlear Limited Annual Report 2019
Notes to the financial statements
6.3 Net debt and finance costs
(a) Net debt
Loans and borrowings are recognised initially at fair value less attributable transaction costs. Subsequently, 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.
Debt establishment costs are capitalised and recognised as a reduction in loans and borrowings. They are recorded
initially at cost and are amortised over the period of the loan. Included within loans and borrowings is an amount of $0.8
million (2018: $1.0 million) in relation to unamortised loan establishment fees.
Loans and borrowings
Current
Non-current
Total loans and borrowings
Less: Cash and cash equivalents
Net debt
(b) Financing arrangements
2019
$m
3.3
178.3
181.6
(78.6)
103.0
2018
$m
3.7
144.0
147.7
(61.5)
86.2
Multi-option bank facilities
Other credit facilities
Unsecured
non-current
bank loan
$m
179.1
229.4
408.5
145.0
205.0
350.0
2019
Utilised at reporting date
Not utilised at reporting date
Total facilities
2018
Utilised at reporting date
Not utilised at reporting date
Total facilities
1. Bank guarantees include standby letters of credit.
Bank
guarantees1
Unsecured
bank
overdrafts
Unsecured
current bank
loan
Bank
guarantees
$m
5.3
9.7
15.0
6.5
8.5
15.0
$m
-
2.9
2.9
-
2.7
2.7
$m
3.3
2.7
6.0
3.7
1.8
5.5
$m
4.6
5.1
9.7
2.9
1.5
4.4
77
Notes to the financial statements
Multi-option bank facilities - Unsecured bank loan
During the year ended 30 June 2019, Cochlear restructured its bank loan facilities as follows:
Facility type
1 - 2 year term
2 - 3 year term
3 - 4 year term
> 4 year term
Total facilities
$m
$m
$m
$m
$m
Committed debt including
guarantees
46.2
100.0
100.0
177.3
423.5
All facilities are unsecured and have interlocking guarantees provided by certain controlled entities. Interest on the
facilities is variable and charged at prevailing market rates.
Other credit facilities
Unsecured bank overdrafts
Certain unsecured bank overdrafts are payable on demand and are subject to annual review. Interest on unsecured bank
overdrafts is variable and is charged at prevailing market rates.
Unsecured bank loan
Cochlear has a Japanese yen (JPY) 450.0 million loan facility, a Swedish kroner (SEK) 300.0 million loan facility and a
Chinese yuan (CNY) 300.0 million loan facility. The facilities are unsecured bank loans. Interest on unsecured bank loans
is variable and is charged at prevailing market rates.
Bank guarantees/Standby letters of credit
As at 30 June 2019, Cochlear had additional contingent liability facilities denominated in United States dollars (USD),
Euros (EUR), Sterling (GBP), Indian rupees and New Zealand dollars totalling AUD 9.7 million (2018: AUD 4.4 million).
(c) Finance costs
Interest income is recognised as it accrues in the income statement. Borrowing costs are recognised as they accrue in
the income statement as a finance expense.
6.4 Financial risk management
The activities of Cochlear are exposed to a variety of risks, including market risk (comprising currency and interest rate
risk), credit risk and liquidity risk. Cochlear’s overall risk management program considers the unpredictability of financial
markets and seeks to appropriately manage the potential adverse effects on financial performance.
The Board has overall responsibility for the establishment and oversight of the Risk Management Framework. Under
instruction of the Board, management has established a Risk Management Committee which is responsible for
identifying, assessing and appropriately managing risk throughout Cochlear. Key risks are reported to the Audit
Committee on a regular basis.
The Audit Committee oversees how management monitors compliance with Cochlear’s Risk Management Framework,
policies and procedures and is assisted by Group Risk and Assurance which undertakes reviews of key management
controls and procedures.
78 Cochlear Limited Annual Report 2019
Notes to the financial statements
(a) 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 by buying and selling forward
exchange contracts and incurring financial liabilities, within acceptable parameters, while optimising the return, all in
accordance with the treasury risk policy.
Currency risk
Cochlear is exposed to currencies other than the respective functional currencies of the controlled entities, primarily
AUD, Swiss francs (CHF), CNY, EUR, GBP, JPY, SEK and USD.
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 not hedged.
Cochlear’s exposure to foreign currency risk in relation to non-derivative financial instruments at 30 June 2019 was as
follows, based upon notional amounts:
Amounts local currency/millions
CHF
CNY
EUR
GBP
JPY
SEK
USD
2019
Trade receivables
0.5
12.2
59.4
5.7
1,139.7
7.5
78.0
Unsecured bank loan
Trade payables
-
(14.1)
(0.9)
(20.8)
Balance sheet exposure
(0.4)
(22.7)
-
(8.4)
51.0
-
(250.0)
(300.0)
-
(4.8)
(122.1)
(44.2)
(17.4)
0.9
767.6
(336.7)
60.6
2018
Trade receivables
Unsecured bank loan
0.4
-
2.4
-
Trade payables
(1.8)
(18.7)
Balance sheet exposure
(1.4)
(16.3)
Derivative assets and liabilities
58.3
5.3
928.1
-
(300.0)
7.2
-
82.7
-
(7.3)
(104.5)
(61.2)
(22.0)
(2.0)
523.6
(54.0)
60.7
-
(7.7)
50.6
In order to reduce the impact of short-term fluctuations on Cochlear’s earnings, Cochlear enters into forward exchange
contracts to hedge anticipated sales and purchases in CHF, EUR, GBP, JPY, SEK and USD. The amounts of forward
cover taken are in accordance with approved policy and internal forecasts.
In the year ended 30 June 2019, Cochlear designated the majority of forward exchange contracts as cash flow hedges.
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.
At the start of a hedge relationship, Cochlear designates and documents the relationship between the hedging
instrument and hedged item. This includes identification of the hedging instrument, the hedged item or transaction, the
nature of the risk being hedged and how Cochlear will assess the effectiveness of the hedging relationship. Cochlear
regularly assesses whether the hedging instruments are expected to be highly effective in offsetting the changes in the
cash flows of the respective hedged items.
79
Notes to the financial statements
Forward exchange contracts are recognised initially at fair value. Subsequently, forward exchange contracts are
measured at fair value. Changes in the fair value are recognised directly in equity to the extent that the hedge is
effective. The ineffective part of any hedging instrument is recognised immediately in the income statement.
If the forward exchange contract 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.
For cash flow hedges, the associated cumulative gain or loss is removed from equity and recognised in the income
statement in the same period the hedged forecast transaction affects the income statement and on the same line item as
that hedged forecast transaction.
For the year ended 30 June 2019, all cash flow hedges were effective at the reporting date.
The following table sets out the gross value to be received or paid under forward exchange contracts and the weighted
average contracted exchange rates of outstanding contracts:
Weighted
average rate
< 1 year
$m
1 - 2 years
$m
2 - 5 years
$m
2019
Buy CHF
Sell EUR
Sell GBP
Sell JPY
Buy SEK
Sell USD
2018
Buy CHF
Sell EUR
Sell GBP
Sell JPY
Buy SEK
Sell USD
0.697
0.606
0.541
76.902
6.391
0.746
0.742
0.633
0.554
80.510
6.367
0.761
(19.9)
141.2
20.2
17.7
(43.0)
266.0
(17.8)
125.7
19.3
14.7
(41.7)
305.6
-
84.7
14.9
9.5
-
-
7.6
1.9
1.6
-
135.0
21.0
-
77.5
12.7
10.6
(1.5)
184.9
-
13.4
1.9
2.7
-
32.5
Currency risk - Sensitivity analysis
An analysis based on a 10% strengthening of foreign currencies would have decreased Cochlear’s profit for the year
ended 30 June 2019 after tax by approximately AUD 2.5 million (2018: AUD 6.5 million) and increased Cochlear’s equity
by AUD 25.8 million (2018: increase by AUD 33.9 million). A 10% weakening of the foreign currencies would have
increased Cochlear’s profit after tax by AUD 3.5 million (2018: AUD 7.6 million) and decreased equity by AUD 67.2
million (2018: decrease by AUD 69.5 million).
This analysis assumes that all other variables remain constant and ignores any impact from the translation of foreign
operations.
80 Cochlear Limited Annual Report 2019
Notes to the financial statements
The following significant exchange rates applied to Cochlear during the year:
AUD 1 =
CHF
CNY
EUR
GBP
JPY
SEK
USD
Interest rate risk
Average rate
Reporting date spot rate
2019
0.712
4.877
0.627
0.553
79.582
6.557
0.716
2018
0.749
5.046
0.649
0.575
85.288
6.453
0.772
2019
0.683
4.814
0.616
0.552
75.355
6.494
0.700
2018
0.735
4.888
0.635
0.564
81.765
6.629
0.739
Cochlear is exposed to interest rate risks in Australia, China, Sweden and Japan. See Note 6.4(c) for effective interest
rates, repayment and repricing analysis of outstanding debt.
In order to reduce the impact of fluctuations in market interest rates, Cochlear has entered into interest rate swaps to
manage the interest rate risk by using a floating verses fixed rate debt framework. The notional principal amount of these
interest rate swaps is $50.0 million. These interest rate swaps are recognised at fair value.
At the reporting date, the interest rate profile of Cochlear’s interest-bearing financial instruments is financial assets of
$78.6 million (2018: $61.5 million) and financial liabilities of $181.6 million (2018: $147.7 million).
Interest rate risk - Sensitivity analysis
For the year ended 30 June 2019, 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 $0.7 million (2018: $1.0 million). A one percent
general decrease in interest rates would have had the equal but opposite effect on Cochlear’s profit and equity.
(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. Cochlear is exposed to credit risk from its operating activities (primarily from trade and other
receivables) and from financing activities, including deposits with financial institutions and foreign exchange contracts.
The carrying amounts of these financial assets at year end represent Cochlear’s maximum exposure to credit risk.
Credit risk management - Trade and other receivables
Customer credit risk is managed at a regional level, subject to Board approved policies and procedures. The ageing
profile of total receivables balances, individually significant debtors by geographic region, high risk customers and
collection activities are reported to management and the Board on a monthly basis. Where high risk customers are
identified, regional management is responsible for placing restrictions on future trading, including suspending future
shipments and administering dispatches on a prepayment basis.
Cochlear’s exposure to credit risk is influenced mainly by the political and geographical location and characteristics of
individual customers. Cochlear does not have a significant concentration of credit risk with a single customer.
81
Notes to the financial statements
The maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
2019
2018
Americas
EMEA
Asia Pacific
$m
96.0
95.1
$m
140.1
131.5
$m
63.4
72.5
Total
$m
299.5
299.1
Depending on the region, Cochlear’s credit terms are generally 30 days; however, there are certain jurisdictions where it
is customary practice for customers to make payment beyond 270 days. Although Cochlear discloses the balance as
overdue, it is not indicative of a higher than normal credit risk as payments are typically received by Cochlear within the
extended timeframes.
Cochlear has established an allowance for impairment that represents its estimate of the expected credit losses in
respect of trade receivables. The expected credit losses are assessed by reference to historical collection trends and
timing of recoveries of each customer type within a region.
Trade and other receivables are stated at amortised cost less impairment losses. The ageing of Cochlear’s trade
receivables at the reporting date was:
Trade receivables
Not past due
Past due 1 - 60 days
Past due 61 - 180 days
Past due 181 - 360 days
Past due 361 days and over
Allowance for impairment losses
Trade receivables net of allowance for impairment losses
Other receivables - current
Trade and other receivables
2019
$m
239.3
42.4
16.7
6.6
8.4
313.4
(13.9)
299.5
20.2
319.7
2018
$m
247.3
34.8
18.0
2.6
6.3
309.0
(9.9)
299.1
17.6
316.7
Credit risk management - Cash deposits and forward exchange contracts
The majority of Cochlear’s cash deposits and all forward exchange contracts are only executed with leading financial
institutions whose credit rating is at least A on the Standard & Poor’s rating index.
(c) Liquidity risk
Liquidity risk is the risk that Cochlear will not be able to meet its financial obligations as they fall due. Cochlear manages
liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due.
82 Cochlear Limited Annual Report 2019
Notes to the financial statements
Non-derivative liabilities
Contractual maturities of non-derivative financial liabilities, including estimated interest payments and excluding the
impact of netting agreements, are as follows:
Effective
interest rate
Carrying
amount
Contractual
cash flows
< 1
year
1 - 2
years
2 - 5
years
Per annum
$m
$m
$m
$m
$m
2019
AUD floating rate loan
CNY floating rate loan
JPY floating rate loan
SEK floating rate loan
Trade and other payables
Total
2018
AUD floating rate loan
JPY floating rate loan
Trade and other payables
Total
2.42%
4.11%
0.53%
0.57%
-
2.99%
0.55%
-
129.2
138.0
2.9
3.3
46.2
203.2
384.8
144.0
3.7
168.6
316.3
3.5
3.3
46.5
203.2
394.5
159.3
3.7
168.6
331.6
3.1
0.1
3.3
0.3
160.8
167.6
4.3
3.7
140.5
148.5
More
than 5
years
$m
-
-
-
-
-
-
63.1
0.1
-
46.2
30.3
139.7
71.8
3.3
-
-
12.1
87.2
4.3
109.3
41.4
-
12.0
16.3
-
16.1
125.4
-
-
41.4
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 are expected to
occur:
2019
Assets
Liabilities
Total
2018
Assets
Liabilities
Total
Carrying
amount
$m
Contractual
cash flows
$m
4.3
(28.5)
(24.2)
4.1
(22.3)
(18.2)
4.4
(27.7)
(23.3)
4.3
(22.9)
(18.6)
< 1 year
$m
2.2
(22.6)
(20.4)
3.8
(13.3)
(9.5)
1 - 2
years
$m
2 - 5
years
$m
2.1
(5.0)
(2.9)
0.4
(8.2)
(7.8)
0.1
(0.1)
-
0.1
(1.4)
(1.3)
The expected impact on the income statement is not considered to be significantly different to the cash flow impact noted
above.
83
Notes to the financial statements
(d) Fair value
The carrying amounts and estimated fair values of Cochlear’s financial assets and liabilities are materially the same.
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 benchmark bill futures and swap rates. These fair
values are provided by independent third parties.
Valuation of financial assets and liabilities
For financial asset and liabilities measured and carried at fair value, Cochlear uses the following levels to categorise the
valuation methods used:
•
•
•
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).
All of Cochlear’s forward exchange contracts were valued using observable market inputs (Level 2) and there were no
transfers between levels during the year.
7. OTHER NOTES
7.1 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 and advisory services
- IT advisory
- other
Total non-audit services
7.2 Commitments
Operating lease commitments
2019
$
2018
$
1,795,339
1,780,268
147,161
100,866
1,942,500
1,881,134
1,764,533
1,031,640
643,260
357,650
673,000
147,973
2,765,443
1,852,613
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.
84 Cochlear Limited Annual Report 2019
Notes to the financial statements
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
2019
$m
30.0
107.5
83.3
220.8
2018
$m
30.3
77.9
63.6
171.8
As at 30 June 2019, Cochlear entered into contracts to purchase property, plant and equipment for $44.0 million (2018:
$40.2 million).
7.3 Controlled entities
Subsidiaries conduct business transactions with various controlled entities. Such transactions include purchases and
sales of certain products, dividends, interest and loans.
Interest held
2019
%
2018
%
Country of
incorporation/formation
(i)
Company
Cochlear Limited
Controlled entities
Acoustic Implants Limited
Cochlear AG
Cochlear Americas
Cochlear Austria GmbH
Cochlear Benelux NV
Cochlear Bone Anchored Solutions AB
Cochlear Boulder LLC
Cochlear Canada Inc
Cochlear Clinical Services LLC
Cochlear Colombia SAS
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 (ii)
Cochlear Finance Pty Limited
Cochlear France SAS
Cochlear German Holdings Pty Limited
Cochlear Holdings NV
Cochlear Incentive Plan Pty Ltd
Cochlear Investments Pty Ltd
Cochlear Investments (No. 2) Pty Ltd
Cochlear Italia SRL
Cochlear Korea Limited
(iii)
-
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
Austria
Belgium
Sweden
USA
Canada
USA
Colombia
Germany
Australia
Germany
UK
Australia
Australia
France
Australia
Belgium
Australia
Australia
Australia
Italy
Korea
85
Notes to the financial statements
Cochlear Labs Pty Limited
Cochlear Latinoamerica S.A.
Cochlear Malaysia Sdn. Bhd.
Cochlear Manufacturing Corporation
Cochlear Medical Device (Beijing) Co., Ltd
Cochlear Medical Device (Chengdu) Co Ltd
Cochlear Medical Device Company India Private Limited
Cochlear Mexico SA de CV
Cochlear Middle East FZ-LLC
Cochlear Nordic AB
Cochlear Norway AS
Cochlear NZ Limited
Cochlear Research and Development Limited
Cochlear Shared Services S.A.
Cochlear Sweden Holdings AB
Cochlear Technology Innovation Fund LP
Cochlear Thailand Limited
Cochlear Tibbi Cihazlar ve Saglik Hizmetleri Limited Sirketi
Cochlear Verwaltungs GmbH
Cochlear (HK) Limited
Cochlear (UK) Limited
Medical Insurance Pte Limited
Nihon Cochlear Co Limited
Sichuan Keli ShuangChuang Technology Co Ltd
Sycle, LLC
Sycle.Net Technologies (Canada) Ltd
(iv)
(v)
(vi)
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
51
100
100
100
100
100
100
100
100
100
-
100
100
100
100
100
100
100
99
-
100
100
100
100
100
100
51
100
100
(i) Deregistered.
(ii) Wound up during the year ended 30 June 2019.
(iii) Merged with Cochlear Benelux NV (CBNV), with CBNV absorbing Cochlear Holdings NV during the year ended 2019.
(iv) Name changed during the year ended 2019, previously Cochlear Technology Innovation Fund Pty Limited.
(v) Wound up and cancelled during the year ended 2019.
(vi) Dormant.
Australia
Panama
Malaysia
USA
China
China
India
Mexico
UAE
Sweden
Norway
New Zealand
UK
Panama
Sweden
Australia
Thailand
Turkey
Germany
Hong Kong
UK
Singapore
Japan
China
USA
Canada
7.4 Parent entity disclosure
At, and throughout the financial year ended, 30 June 2019, the parent company of Cochlear was Cochlear Limited.
Result of the parent entity
Net profit
Other comprehensive loss
Total comprehensive income
Financial position of the parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
86 Cochlear Limited Annual Report 2019
2019
$m
225.0
(4.0)
221.0
456.0
1,015.7
211.7
502.4
2018
$m
244.0
(28.3)
215.7
451.0
935.0
158.0
481.0
Notes to the financial statements
Total equity of the parent entity comprising:
Share capital
Hedging reserve
Share based payment reserve
Retained earnings
Total equity
2019
$m
182.3
(17.0)
50.0
298.0
513.3
2018
$m
173.0
(13.0)
39.0
255.0
454.0
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 5.6.
Parent entity capital commitments for acquisition of plant and equipment
As at 30 June 2019, the parent entity entered into contracts but had not provided for or paid to purchase plant and
equipment for $17.0 million (2018: $10.2 million).
7.5 Deed of Cross Guarantee
Cochlear Limited (the holding entity) together with wholly owned subsidiaries set out below (together referred to as the
‘Closed Group’) have entered a Deed of Cross Guarantee on 17 April 2019 in accordance with ASIC Corporations
(Wholly-owned Companies) Instrument 2016/785 and are relieved from the Corporations Act 2001 requirement to
prepare and lodge an audited financial report and directors’ report. The effect of the deed is that Cochlear Limited has
guaranteed to pay any outstanding liabilities upon the winding up of any wholly owned subsidiary that is party to the
Deed. Wholly owned subsidiaries that are party to the Deed have also been given a similar guarantee in the event that
Cochlear Limited or another party to the Deed is wound up.
The subsidiaries party to the deed are:
Cochlear Finance Pty Limited;
Cochlear German Holdings Pty Limited;
Cochlear Investments Pty Ltd; and
Cochlear Investments (No. 2) Pty Ltd.
87
Notes to the financial statements
Set out below is the income statement, statement of comprehensive income, balance sheet and a summary of
movements in retained earnings of the entities party to the Deed of Cross Guarantee for the year ended 30 June 2019
and 30 June 2018:
Income statement
Revenue
Cost of sales
Gross profit
Selling, marketing and general expenses
Research and development expenses
Administration expenses
Other income
Other expenses
Results from operating activities
Finance income - interest
Finance expense - interest
Net finance expense
Profit before income tax
Income tax expense
Net profit
Statement of comprehensive income
Financial investments measured at fair value through other comprehensive
income, net of tax
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 comprehensive income
Retained earnings at beginning of year
Transfers to and from reserves
Dividends recognised
Retained earnings at end of year
2019
$m
972.9
(310.4)
662.5
(65.4)
(122.6)
(92.8)
34.3
(102.6)
313.4
10.7
(16.6)
(5.9)
307.5
(81.3)
226.2
(1.3)
18.7
(17.8)
13.6
239.4
232.3
49.6
(6.9)
275.0
2018
$m
909.6
(300.9)
608.7
(59.4)
(109.1)
(93.0)
50.1
(70.3)
327.0
11.8
(20.5)
(8.7)
318.3
(75.0)
243.3
-
7.1
(19.4)
(8.8)
222.2
151.2
128.3
(47.2)
232.3
88 Cochlear Limited Annual Report 2019
Notes to the financial statements
Balance sheet
Assets
Cash and cash equivalents
Trade and other receivables
Forward exchange contracts
Inventories
Current tax assets
Prepayments
Total current assets
Other receivables
Forward exchange contracts
Loans and borrowings - internal
Investments in subsidiaries
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 - internal
Current tax liabilities
Employee benefit liabilities
Provisions
Deferred revenue
Total current liabilities
Trade and other payables
Forward exchange contracts
Loans and borrowings - external
Loans and borrowings - internal
Employee benefit liabilities
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Reserves
Retained earnings
Total equity
2019
$m
21.8
306.6
2.0
111.9
5.0
14.4
461.7
3.1
2.1
60.0
462.6
110.6
121.3
42.8
802.5
1,264.2
114.7
20.9
60.5
23.2
38.7
17.0
2.3
277.3
81.8
7.6
175.4
188.2
4.7
40.3
4.6
502.6
779.9
484.3
182.3
27.0
275.0
484.3
2018
$m
8.2
328.1
3.5
102.4
2.5
9.8
454.5
2.0
0.4
4.5
567.4
100.6
39.1
40.0
754.0
1,208.5
89.3
13.1
23.0
12.9
30.9
18.9
2.2
190.3
146.9
9.2
144.1
256.5
4.9
45.5
4.2
611.3
801.6
406.9
173.0
1.6
232.3
406.9
89
Notes to the financial statements
7.6 Changes in accounting policies
AASB 9 Financial Instruments has replaced the previous financial instruments guidance including AASB 139 Financial
Instruments: Recognition and Measurement.
The Consolidated Entity performed a review of its classification and measurement of financial assets and liabilities, as
well as hedge accounting, for compliance with AASB 9. The new standard has had the following impacts on Cochlear’s
consolidated financial statements:
•
•
•
investments held in the form of ordinary shares previously classified as available for sale investments are now
classified as fair value through other comprehensive income under AASB 9, having elected to make this designation
for investments held at 1 July 2018. Under AASB 139, fair value gains or losses were recognised in other
comprehensive income whilst impairment losses were recognised in the income statement. Under AASB 9, all gains
or losses from these investments, including impairment losses, will be recognised in other comprehensive income. In
addition, any realised gains or losses on disposal will no longer be recycled through the income statement;
other investments, which include instruments convertible into ordinary shares, were previously classified as available
for sale investments and are now classified as fair value through profit or loss under AASB 9. Under AASB 9, all
gains or losses from these investments, including impairment losses, will be recognised in the income statement.
Previously recognised fair value losses in the fair value reserve of $0.4 million (net of tax) have been transferred to
retained earnings as at 1 July 2018; and
impairment losses on financial assets, including trade receivables, are now required to be measured using an
expected credit loss model rather than the incurred credit loss model. Under the new model, Cochlear is required to
recognise the expected credit loss from possible future default events rather than only the credit losses arising from
counterparties with indicators of impairment. This resulted in a decrease in retained earnings of $1.9 million (net of
tax) at 1 July 2018, with a corresponding impact on the carrying value of trade receivables and deferred tax assets.
Other financial assets held by Cochlear are not expected to be impacted by the new standard.
AASB 15 Revenue from Contracts with Customers has replaced the previous revenue recognition guidance including
AASB 118 Revenue.
The Consolidated Entity performed a review of its revenue recognition policies for compliance with AASB 15. The new
standard has had the following impacts on Cochlear’s consolidated financial statements:
•
•
the core principle of AASB 15 is that an entity recognises revenue related to the transfer of goods or services when
control of the goods or services passes to the customer. AASB 15 requires the identification of discrete performance
obligations within a transaction and an allocation of a portion of the transaction price to each of these obligations.
Under AASB 15, revenue is recognised to the extent that it is highly probable that a significant reversal in the
amount of cumulative revenue recognised will not occur; and
as at 1 July 2018, an adjustment to opening retained earnings of $5.1 million (net of tax) has been made to defer
revenue related to supplemental warranties and to reflect changes in the timing of revenue for certain customer
pricing arrangements and expected product returns.
7.7 New standards and interpretations not yet adopted
AASB 16 Leases will replace the current AASB 117 Leases standard for Cochlear’s 2020 consolidated financial
statements.
Under AASB 117, leases are classified as either operating leases or finance leases based on their nature. The adoption
of AASB 16 will primarily impact Cochlear’s accounting for leases which are currently classified as operating leases,
being mainly leases over premises, office equipment and motor vehicles. Under AASB 117, operating leases were not
recognised on the balance sheet, with payments instead recognised in profit or loss on a straight-line basis over the term
of the lease.
90 Cochlear Limited Annual Report 2019
Notes to the financial statements
The adoption of AASB 16 will result in agreements that were previously classified as operating leases now being
recognised on the balance sheet. For these agreements, this will result in the recognition of a right-of-use asset and
a corresponding lease liability, being the present value of future lease payments. Over the life of the lease, the lease
liability will incur interest expense and is reduced as lease payments are made. The right-of-use asset is amortised on a
straight-line basis over its useful life. As compared to AASB 117, the pattern of expense recognition changes with a
higher expense at lease commencement due to a higher lease liability at that time.
Cochlear plans to adopt AASB 16 using the modified retrospective approach. Under this approach, the cumulative impact
of adoption on 1 July 2019, will be recognised as an adjustment to opening retained earnings with no restatement of
comparative periods. Cochlear has elected to apply practical expedients allowed under the modified retrospective
approach and not to recognise short-term or low-value leases on the balance sheet.
Based on work completed to date, it is expected that a right-of-use asset in the range of $175 to $190 million and lease
liability in the range of $215 to $230 million will be recognised as of 1 July 2019. The net effect of the new right-of-use
asset and lease liability adjusted for deferred tax will be recognised in retained earnings. It is further expected that the
new standard will result in additional expenses for the year ending 30 June 2020 of between $2 to $3 million (before tax).
7.8 Events subsequent to the reporting date
Other than the matter 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 2019, see Note 2.6.
91
Directors’ declaration
1. In the opinion of the directors of Cochlear Limited (the Company):
(a) the consolidated financial statements and notes and the Remuneration report 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 2019 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; and
(c) at the date of this declaration, there are reasonable grounds to believe that that Company and each of
the Closed Group entities identified in Note 7.5 will be able to meet any liabilities to which they are or
may become subject to, because of the Deed of Cross Guarantee between the Company and those
group entities pursuant to ASIC Corporations (Wholly-owned Companies) Instrument 2016/785.
2. The directors have been given the declarations required by section 295A of the Corporations Act 2001
from the Chief Executive Officer & President and Chief Financial Officer for the financial year ended 30
June 2019.
3. The directors draw attention to Note 1.2(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 16th day of August 2019.
Director
Director
92 Cochlear Limited Annual Report 2019
Independent audit report to the shareholders of Cochlear Limited
Report on the audit of the Financial Report
Opinion
We have audited the Financial Report of Cochlear Limited
(the Company).
The Financial Report comprises:
Balance sheet as at 30 June 2019;
In our opinion, the accompanying Financial Report of the
Company is in accordance with the Corporations Act 2001,
including:
giving a true and fair view of the Consolidated Entity’s
financial position as at 30 June 2019 and of its financial
performance for the year ended on that date; and
complying with Australian Accounting Standards and
the Corporations Regulations 2001.
Income statement, Statement of comprehensive
income, Statement of changes in equity, and Statement
of cash flows for the year then ended;
Notes including a summary of significant accounting
policies; and
Directors’ Declaration.
The Consolidated Entity consists of the Company and the
entities it controlled at the year-end or from time to time
during the financial year.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the
Financial Report section of our report.
We are independent of the Consolidated Entity in accordance with the Corporations Act 2001 and the ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional
Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other
ethical responsibilities in accordance with the Code.
Emphasis of matter – Patent dispute
We draw attention to Note 5.6 in the Financial Report which describes the inherent uncertainty in the final future outcome
related to the patent infringement lawsuit filed against Cochlear Limited and its US subsidiary Cochlear Americas (the
lawsuit).
The uncertainty relates to the Consolidated Entity’s litigation process in the US Court system regarding the issue of
damages and wilfulness of infringement of two claims. The range of possible outcomes and associated estimation of
financial outflows of the likely loss cannot be reliably estimated by the Board, the resolution of which may significantly
impact the Consolidated Entity.
In our judgement, this issue is fundamental to the users’ understanding of the Financial Report, and the financial position
and performance of the Consolidated Entity. Our opinion is not modified in respect of this matter.
In concluding the possible financial outflow of likely loss cannot be reliably estimated, we evaluated the extent of
uncertainty regarding the outcome of the Consolidated Entity’s litigation process in the Court system and its potential
impact on the Financial Report. Our procedures included:
enquiring of management and the Directors for updates regarding the lawsuit, the range of possible outcomes and
associated estimation of financial outflows;
reading the November 2018 District Court Judgment;
interviewing the Consolidated Entity’s external lawyers regarding the lawsuit, the range of possible outcomes and
the degree of accuracy in estimating any financial outflows;
reading the independent legal advice obtained by the board of directors on the Consolidated Entity’s appeal
prospects;
assessing the consistency to facts and conditions gathered across our work; and
considering the Consolidated Entity’s disclosures in relation to the patent dispute contingent liability, against the
requirements of the accounting standards.
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation.
93
Independent audit report to the shareholders of Cochlear Limited
Key Audit Matters
The key audit matters we identified are:
Recoverability of trade receivables;
and
Warranty provision.
Key audit matters are those matters that, in our
professional judgment, were of most significance in our
audit of the Financial Report of the current period.
These matters were addressed in the context of our audit of
the Financial Report as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
Recoverability of trade receivables $299.5 million
Refer to note 6.4(b) Financial risk management, credit risk
The key audit matter
How the matter was addressed in our audit
Recoverability of trade receivables was considered a key
audit matter due to:
The varying characteristics of customers which include
governments, government-supported universities,
clinics and major hospital chains;
The different geographical locations of customers and
the political and economic environments they are
subject to, which may affect the timely recovery of
certain receivables;
Trade receivables past due at the reporting date which
have certain risk characteristics and therefore have a
greater inherent risk of not being recovered;
The inherent subjectivity involved in the Consolidated
Entity making forward-looking judgements in relation to
the recovery of credit risk exposures; and
The Consolidated Entity’s adoption of AASB 9
Financial Instruments requiring the use of an expected
credit loss model.
These conditions gave rise to additional audit effort,
including:
Greater involvement by our senior team members to
gather evidence across the various customer profiles
and their trade receivables; and
To challenge the forward-looking judgements made by
the Consolidated Entity.
We involved IT specialists to supplement our senior team
members in assessing this key audit matter.
Our procedures included:
With the assistance of our IT specialists, testing key
controls within the credit control process including:
- management review and approval of new
customer credit limits within the Consolidated
Entity’s credit limit policies;
-
the system configuration of credit limits; and
- management’s evaluation of trade receivables
ageing and trade receivables past due;
Assessing the Consolidated Entity’s expected credit
loss model in significant geographies against the
requirements of the accounting standards;
Challenging the Consolidated Entity’s view of credit
risk and recoverability in certain locations by selecting
a sample of significant overdue customer balances
with indicators of credit deterioration. We:
‐
noted the historical patterns for long outstanding
trade receivables in those locations for those
customer types, to form an understanding of the
normal pattern of recovery and compared this to
the age of the customer balances sampled;
‐
‐
‐
assessed cash received subsequent to year-end
from the Consolidated Entity’s bank statements for
its effect in reducing amounts outstanding at year-
end;
evaluated other evidence including customer
correspondence; and
questioned the Consolidated Entity’s knowledge of
future conditions which may impact expected
customer receipts based on consistency with the
results of the procedures performed above; and
Assessing the Consolidated Entity’s disclosures of the
quantitative and qualitative considerations in relation to
trade receivable credit risk, by comparing these
disclosures to our understanding of the matter and the
requirements of the accounting standards.
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation.
94 Cochlear Limited Annual Report 2019
Independent audit report to the shareholders of Cochlear Limited
Warranty provision $37.8 million
Refer to note 5.5 Provisions
The key audit matter
How the matter was addressed in our audit
The warranty provision was considered a key audit matter
due to:
Our procedures included:
Obtaining an understanding of the evolving product
The estimation uncertainty inherent in the key
assumptions applied by the Consolidated Entity to
determine the warranty provision;
The Consolidated Entity’s evolving product portfolio,
through the introduction of new generations, where
each product’s design and quality attributes can impact
the key assumptions;
portfolio, each product’s warrantable period and history
of claim rates, and the different attributes which impact
the key assumptions used in the Consolidated Entity’s
warranty provision;
Testing the sensitivity of the warranty provision by
varying key assumptions, within a reasonably possible
range, to focus our further procedures;
The increased use of the Global Repair Centre
intended to reduce forecast repair cost;
The inherent unpredictability of future failures resulting
in claims under warranty; and
The calculation is largely manually developed and
therefore is at greater risk of error.
The key assumptions used in the Consolidated Entity’s
determination of the warranty provision are:
The forecast claim rates of the multiple products in the
portfolio;
The ratio of repairing to replacing failed products;
The forecast repair cost; and
The forecast replacement cost which is based on
standard forecasts of manufacturing costs.
Challenging these key assumptions required greater
involvement by our senior team members.
Challenging the Consolidated Entity’s ability to reliably
estimate the key assumptions by comparing previous
estimates to actual outcomes;
Assessing the integrity of the model for the warranty
provision. This included checking the accuracy of the
formulas within the model;
Comparing the forecast claim rates of a sample of
products to the historical warranty claims for that
product or the historical warranty claims of previous
generations of similar products;
Comparing the forecast proportion of claims that can
be repaired and associated repair costs to historical
performance of the Global Repair Centre;
Comparing the forecast replacement cost to:
‐
‐
the standard manufacturing cost used in board
approved budgets; and
actual manufacturing costs to identify variances
and their impact on the warranty provision;
Enquiring of management responsible for product
design and quality attributes and the Global Repair
Centre to challenge the forward-looking assumptions
used in the model; and
Assessing the disclosures of the quantitative and
qualitative considerations in relation to the warranty
provision, by comparing these disclosures to our
understanding of the matter and the requirements of
the accounting standards.
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation.
95
Independent audit report to the shareholders of Cochlear Limited
Other Information
Other Information is financial and non-financial information in Cochlear Limited’s annual reporting which is provided in
addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit
opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related
assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we
consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in
the audit, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the
work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have
nothing to report.
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards
and the Corporations Act 2001; and
implementing necessary internal controls to enable the preparation of a Financial Report that gives a true and fair
view and is free from material misstatement, whether due to fraud or error; and
assessing the Consolidated Entity’s ability to continue as a going concern and whether the use of the going concern
basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless they either intend to liquidate the Consolidated Entity or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the Financial Report
Our objective is:
to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement,
whether due to fraud or error; and
to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance
Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our
Auditor’s Report.
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation.
96 Cochlear Limited Annual Report 2019
Independent audit report to the shareholders of Cochlear Limited
Report on the Remuneration Report
Opinion
In our opinion, the Remuneration Report of Cochlear Limited for the year ended 30 June 2019, complies with Section
300A of the Corporations Act 2001.
Directors’ responsibilities
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 responsibilities
We have audited the Remuneration Report included in pages 28 to 43 of the Annual Report for the year ended 30 June
2019.
Our responsibility is to express an opinion on the Remuneration Report, based on our Audit conducted in accordance
with Australian Auditing Standards.
Julian McPherson, Partner
KPMG
Sydney, 16 August 2019
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation.
97
Notes
98 Cochlear Limited Annual Report 2019
References
1. Hoppe U, Hocke T, Hast A, Hornung J. [Longterm Results of a Screening Procedure for Adult Cochlear Implant
Candidates]. Laryngo- Rhino- Otologie [serial on the Internet]. (2017, Apr), [cited July 4, 2018]; 96(4): 234-238.
Livingston G, Sommerlad A, Orgeta V, Costafreda S, Huntley J, Mukadam N, et al. The Lancet Commissions:
Dementia prevention, intervention, and care. The Lancet [serial on the Internet]. (2017, Dec 16), [cited July 2, 2018];
3902673-2734.
Hsu W, Hsu C, Wen M, Lin H, Tsai H, Hsu Y, et al. Increased risk of depression in patients with acquired sensory
hearing loss: A 12-year follow-up study. Medicine [serial on the Internet]. (2016, Nov), [cited July 3, 2018]; 95(44):
e5312.
Stam M, Kostense P, Lemke U, Merkus P, Smit J, Kramer S, et al. Comorbidity in adults with hearing difficulties:
which chronic medical conditions are related to hearing impairment? International Journal Of Audiology [serial on the
Internet]. (2014, June), [cited July 3, 2018]; 53(6): 392-401.
Barnett S. A hearing problem. American Family Physician [serial on the Internet]. (2002, Sep 1), [cited July 3, 2018];
66(5): 911.
Mick P, Kawachi I, Lin F. The Association between Hearing Loss and Social Isolation in Older Adults.
Otolaryngology And Head And Neck Surgery [serial on the Internet]. (2014), [cited July 3, 2018]; (3): 378.
Tomaka J, Thompson S, Palacios R. The Relation of Social Isolation, Loneliness, and Social Support to Disease
Outcomes Among the Elderly. Journal Of Aging And Health [serial on the Internet]. (2006), [cited July 3, 2018]; (3):
359.
Kramer S, Kapteyn T, Houtgast T. Occupational performance: comparing normally-hearing and hearing-impaired
employees using the Amsterdam Checklist for Hearing and Work. International Journal Of Audiology [serial on the
Internet]. (2006, Sep), [cited July 3, 2018]; 45(9): 503-512.
Nachtegaal J, Festen J, Kramer S. Hearing ability in working life and its relationship with sick leave and self-reported
work productivity. Ear And Hearing [serial on the Internet]. (2012, Jan), [cited July 3, 2018]; 33(1): 94-103.
Nachtegaal J, Kuik D, Anema J, Goverts S, Festen J, Kramer S. Hearing status, need for recovery after work, and
psychosocial work characteristics: Results from an internet-based national survey on hearing. International Journal
Of Audiology [serial on the Internet]. (2009, Oct), [cited July 3, 2018]; 48(10): 684-691.
99
Shareholder information
Additional information required by Australian Securities Exchange Listing Rules and not disclosed elsewhere in this
report – the information presented is as at 31 July 2019.
Substantial shareholders
Investor
Baillie Gifford & Co
BlackRock Group
The Vanguard Group, Inc
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 – 142 shareholders held less than a marketable parcel of ordinary shares.
Twenty largest shareholders
Shareholder
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
HSBC Custody Nominees (Australia) Limited - A/C 2
Citicorp Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
HSBC Custody Nominees (Australia) Limited-GSCO ECA
Mr Christopher Graham Roberts
AMP Life Limited
Netwealth Investments Limited
National Nominees Limited
Australian Foundation Investment Company Limited
National Nominees Limited
HSBC Custody Nominees (Australia) Limited
PGA (Investments) Pty Ltd
BNP Paribas Nominees Pty Ltd HUB24 Custodial Serv Ltd DRP
Navigator Australia Ltd
The 20 largest shareholders held 77.42% of the ordinary shares of the Company.
On market buy-back
There is no current on market buy-back.
100 Cochlear Limited Annual Report 2019
Number of ordinary shares
4,385,019
3,933,933
3,058,075
2,882,756
14,259,783
%
7.6
6.8
5.3
5.0
24.7
Number of ordinary shareholders
31,563
2,285
124
57
17
34,046
%
43.60
17.48
6.41
2.53
1.63
1.52
1.16
0.44
0.31
0.31
0.28
0.28
0.24
0.24
0.24
0.23
0.18
0.17
0.09
0.08
77.42
Number of ordinary
shares
25,166,425
10,087,644
3,698,455
1,457,411
940,076
880,118
672,257
255,957
179,956
179,428
161,745
159,864
140,043
138,905
137,000
132,062
104,102
100,000
49,682
45,856
44,686,986
Contact information
Cochlear headquarters
1 University Avenue
Macquarie University NSW 2109
Australia
Telephone: +612 9428 6555
Fax: +612 9428 6353
Website: www.cochlear.com
Shareholder enquiries
Access to shareholding information is available to investors through Computershare.
Computershare Investor Services Pty Limited
GPO Box 2975
Melbourne VIC 3001
Australia
Telephone: 1300 850 505
Email: web.queries@computershare.com.au
Website: www.computershare.com.au
Calendar of events
16 August 2019
FY19 results announced
20 September 2019
Dividend record date (final dividend)
14 October 2019
Payment date (final dividend)
22 October 2019
Annual general meeting
18 February 2020
HY20 results announced*
18 August 2020
FY20 results announced*
* Indicative dates only.
Annual general meeting
The annual general meeting of Cochlear Limited will be held on 22 October 2019 at 10.00am at the Australian Securities
Exchange, Exchange Square Auditorium, 20 Bridge Street, Sydney.
101
As the global leader in implantable hearing solutions, Cochlear is dedicated to helping
people with moderate to profound hearing loss experience a life full of hearing. We have
provided more than 550,000 implantable devices, helping people of all ages to hear and
connect with life’s opportunities.
We aim to give people the best lifelong hearing experience and access to innovative
future technologies. We have the industry’s best clinical, research and support networks.
That’s why more people choose Cochlear than any other hearing implant company.
www.cochlear.com
Please seek advice from your health professional about treatments for hearing loss. Outcomes may vary, and your health professional will
advise you about the factors which could affect your outcome. Always read the instructions for use. Not all products are available in all
countries. Please contact your local Cochlear representative for product information.
The Cochlear Nucleus Smart App is available on App Store and Google Play. The Cochlear Nucleus 7 Sound Processor is compatible with Apple
and Android devices. For compatibility information visit www.cochlear.com/compatibility.
Apple, the Apple logo, FaceTime, Made for iPad logo, Made for iPhone logo, Made for iPod logo, iPhone, iPad Pro, iPad Air, iPad mini, iPad and
iPod touch are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc., registered in the
U.S. and other countries.
Android, Google Play and the Google Play logo are trademarks of Google LLC. The Android robot is reproduced or modified from work created
and shared by Google and used according to terms described in the Creative Commons 3.0 Attribution License.
ACE, Advance Off-Stylet, AOS, AutoNRT, Autosensitivity, Beam, Bring Back the Beat, Button, Carina, Cochlear,
SoftWear, Codacs, Contour, Contour Advance, Custom Sound, ESPrit, Freedom, Hear now. And always, Hugfit, Hybrid, Invisible Hearing, Kanso,
MET, MicroDrive, MP3000, myCochlear, mySmartSound, NRT, Nucleus, Outcome Focused Fitting, Off-Stylet, Slimline, SmartSound, Softip,
SPrint, True Wireless, the elliptical logo, and Whisper are either trademarks or registered trademarks of Cochlear Limited. Ardium, Baha, Baha
SoftWear, BCDrive, DermaLock, EveryWear, SoundArc, Vistafix, and WindShield are either trademarks or registered trademarks of Cochlear Bone
Anchored Solutions AB.
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© Cochlear Limited 2019.