Cochlear Plc Ord

to the Cochlear Limited H523 Result Analyst and Media Briefing. All participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the bizarre key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Mr. Dick Allen, CEO and President. You can go ahead.

Thank you, and good morning, everyone. Thank you for joining us for our results update. So let's get straight into the presentation and as always we start with our mission. Our mission as always guides what we do. It guides our strategy and has been particularly important over the last three years as we've navigated the various challenges that the world has thrown up. But let's move into our results. I'm certainly quite pleased with the results that we've got in the last six months. that the sales revenue up 9%, up 7% in constant currency and a pretty strong performance across each of the revenue lines, and we'll talk about that in a minute. The underlying net profit is obviously down 10%, 6% in constant currencies, and there's really two factors driving that. One is the increase in cloud computing expenses, which we... talked about and the second one that was the higher than expected profit in the first half of last year on the back of sales growth and then us not increasing our investment at that rate through the first half. But overall, we're in a strong financial position in terms of the balance sheet, able to maintain that dividend the same as last year and Stu will talk more to those as we go in and I will also finish up with the outlook with us maintaining the guidance we set at the start of the year. But now let's look into each of the revenue lines, starting with cochlear implants. So we saw good growth across developed markets and emerging markets in the last half, with 14% unit growth in total, with just more than 10% in developed markets and approximately 20% in emerging markets. Now, in developed markets, we saw strong growth in the US and Australia particularly, and that's very pleasing given the constraints we've seen in those markets and the investments that we've been making to drive growth. It's good to certainly see that growth come through. And also Western Europe, some good momentum in Western Europe coming out of COVID. The nucleoside processor has been important in that, albeit coming out late in the half. We think that share has lifted slightly as a result of nucleoside, but clearly most of that growth in developed markets is actually the market growing. And then in emerging markets with 20%, we said going in COVID that one of the big impacts was that governments withdrew their funding for tenders in that market. The private pay markets continued reasonably well through COVID, but governments withdrew the lower-priced tender funding. We've seen that come back over the last 12 months and particularly the last six months, and that has driven the increase in emerging markets. I want to talk now to the obvious gap between the 14% growth in units and the 9% growth in revenue in constant currencies. There's three points I want to make there. They are, first of all, is that our developed market pricing has been flat. So there's no change there. So what has happened, it's in part a mixed issue. And that is the great extra growth in emerging markets relative to developed and that growth in emerging markets being the lower price tenders has had some impact. But actually the most significant impact was the technology exchange programs that we ran in a few countries on the back of the Nucleus 8 launch. What that means is that we ship an implant system and in certain countries we allow people that might have shipped with a Nucleus 7 to swap the Nucleus 7 for a Nucleus 8. Now, in that case, we don't recognise the revenue on the sound processor until people have had that opportunity to swap. So if you look into the balance sheet and see deferred revenue, you'll see the deferred revenue grew in the half at a much faster rate than it's growing, would typically grow half on half. That's a result of the technology exchange program, and obviously that revenue comes through. We expect that deferred revenue to come through in this half. So that's that. That's why that gap between the 14% and the 9%. Let's move on to services. So services were flat. We expected services not to grow in the half with the announcement of Nucleus 8 in August and then availability later in the half. Obviously, some people held back on an upgrade until that was available, so we did see a strong lift in upgrades late in the half. But I think they're still very pleased with that performance, particularly given the strength of first half 22. And you can see that in the chart. The first half of 22 was also a strong performance for upgrades, and particularly being late in the cycle for Nucleus 7. So to match that again this half, I think just shows that the thing we talk about most in services and upgrades is that this growing installed base is the most critical element to... to driving growth over time and certainly having Nucleus 8 now out there and very well received and the features and functionality of Nucleus 8 stand out and we're getting that feedback and we think that will continue to support both CI systems but also services over the cycle. And then onto acoustics. So acoustics, 70% growth in constant currency, another strong half. We really got some tailwinds in acoustics. One of those is that acoustics was more impacted by COVID. So part of this is the ongoing bounce back. The other two items which are very important here is OSSEA. The rollout of OSSEA continues. We continue to make sure that we do the work country by country to get appropriate and suitable reimbursement for OSSEA. As we do that and as we roll out into a country, we see pretty quickly a transition from passive acoustics as Baja through to active acoustic, which is Austria. And we expect that transition from passive to active to continue country by country around the world. But also supporting the acoustic sales is the Baha 6 Max. There is a significant base of people with a Baha implant and they are upgrading from a Baha 5 to a Baha 6. So we've really got the COVID rebound, the rollout of Ossia and Baha 6 Max to the existing recipient base. driving acoustics. So we do expect, as we've talked about, acoustics to continue to grow well over time, albeit it may not be linear growth, just given timing of country rollouts and launches, but do have confidence in acoustics over time. Okay, so now I'm going to hand over to Stu to talk through the P&L, the balance sheet.

Fantastic. Thanks, Dick. Morning, everybody. Dick's already spoken about the strong sales lines. I won't add anything to that. If I jump down to the next line, gross margin, very happy to see that staying at 75%. That's a testament to the procurement and manufacturing guys continuing to do a great job, both buying well and manufacturing efficiently, and we expect to stay in that range for the full year. We do anticipate about a half a percent headwind in 24 as Chengdu starts to go online. You'll see a pretty significant jump, 19% lift in our selling, marketing and general expenses. A couple of comments on that. First off, that's all investments in growth. So that's things like standard of care, trying to drive people through the funnel, create a bigger pipeline in the future. It's also a function of coming off a very low base in 22. So in 22, we weren't confident that the market was really opening up and capacity was there, and so we held back on OPEX in half one, so we're cycling a very low number. If you look at it relative to half two of 22, we're only up about, I think, with 3% or 4%. And there's also some in-aid launch costs in there as well. On the R&D side, we always aim for about 12% of revenue. We're slightly under that for the first half. Again, on track to be at 12% for the full year. The growth and admin expenses ex-cloud, it's really two things. We expanded the STI program, the short-term incentive program, to lower-level employees in the company, and we're also starting to see some Oticon transaction costs flow through that line as well. And on the cloud investment, very much where we anticipated to be. As we've said numerous times, we're in a four to five year journey, 100 to 150 mil in total. We think that spending is going to peak this year and into next year. And we're very much where we'd expect to be, about 12 mil up on last year and 17 for that half. If we go on to the balance sheet, next slide. The biggest change here is the movement in working capital, and it's really on those first three lines. Receivables are up. We've sold a lot more and actually quite a lot of that back-ended in the half. N8 launched very late in the half, but again, receivables up for the right reason. We're selling more. Inventory up a small amount, the 15.5. That's really, again, a function of continuing to opportunistically take advantage of the the chance to buy more raw material and componentry to secure supply, and also holding slightly higher stocks ahead of N8 launch. And then payables, really just timing of major payments flying through at the end of the calendar year, really nothing to affect the underlying sort of structure of the P&L there at all. That's purely a timing impact. If we go on to cash flow, So the EBIT resolved down, but really a function of, as Diggis flagged, two things there. The increased cloud spend, so the 17 mil up 12 mil on last year, half on half. And also we had an abnormally high EBIT result and an impact result in half one last year where revenue came back faster than expenses. But very happy with the EBIT result and probably more of a normal, more balanced half one, half two picture relative to last year where it was very heavily skewed. And the only other thing to call out there is just that net change in the investments line, the 17.9 down. That's a combination of us putting in – I'm sorry, that's the investment going into Precisas. And then on to the dividend. So a couple of things here. First off, dividend, $1.55 flat on last year, with 72% of NPAT and on track for the long-term guidance of 70% payout for the full year. Again, when we think about the delta from last year, we had a much bigger half-one NPAT last year, and that's why that payout ratio is different. Of the $1.55, 35% is going to be franked. And again, we'd expect that amount to grow at the full year and into next year. And again, that's a function of those losses from air 20 flowing through and impacting our ability to pay the fully franked dividend. The other significant news is we will be doing an on-market share buyback. We've been looking at this for a couple of years now. We raised capital at the beginning of COVID to really secure the company in the face of significant uncertainty. We can see that uncertainty reducing. It's not zero. We don't want to reduce it all at once. And we also think doing that would not be in the best interests of long-term shareholders. So what we'll be doing is looking to aim at a set point of net cash of about plus $200,000. and to get to that point over time. And so certainly over a number of years, we will reaffirm that set point and the amount we intend to spend every year. And for the next 12 months, we'll be aiming to spend up to $75 million buying back shares with that long-term set point of, as I said, 200 net cash and maintain that 70% dividend payout ratio. So with that, I'll hand you back to Digg to talk through the outlook.

Thanks, Hugh. So before I get into the outlook, I think the important thing is how coming through the last three years or so is our long-term strategy is absolutely intact. The demand or the need for our products is very clear. If anything, there is heightened awareness of hearing loss and the importance of treating hearing loss The work that we've been doing on our product portfolio to strengthen our competitive position is coming through and Eucleus 8 is another example of that, as is Ossia. The investments in market growth have continued through the last few years and that's certainly part underpinning the growth that we've seen over the last six months. So our strategy and tactic, we're committed to continue to invest as much as we can within the guidelines we set for our P&L to drive future growth and maintain technology leadership and use that technology to facilitate growth as well. So as we look into... Into the second half, we anticipate continued good sales, revenue, good growth, getting that underlying net profit margin back to 18% through this half from Sunday in the first half. We do expect the rollout of Nucleus 8 to continue to go well. We had very strong feedback from our recipients on all of the key dimensions. It's the smallest processor on the market by a long way. We were already there and now we have an even smaller one. It's got, with Bluetooth LE Audio, it has next-generation connectivity and the opportunity for that will grow over time as more connecting devices adopt this new standard. And with the signal processing being better adapted to suppressing background noise, to adapting to people's environment more seamlessly, making it easier to live with that. and get the best hearing outcomes for our recipients. So a very strong product. We do still see that we said at the start of the year that we thought the market would continue to improve. We thought that there would be an opening up in surgical capacity that we'd seen in the last half of 22. We certainly see that continue. However, I think there are still uncertainty and there's still clouds out there. While staffing has improved in hospitals, there are still backlogs of surgeries in most major markets. We've seen increased risk of nursing strikes through parts of Western Europe. So while it's great to see the reopening, we are still a little bit cautious on the outlook. Similarly on supply chain, things have improved definitely, but there is not the free flow of goods that we saw three years ago. It's better than it was 18 months ago, but still some supply chain constraints. And also in the labour market, again, the rate at which people are changing jobs, we've seen that come off around the world over the last six months particularly, but it's still elevated and therefore there's still some pressure on labourers on wages. So definitely some improvement but still some uncertainty out there and so we remain a little bit cautious, albeit the business is in a very strong position and we have underlying momentum in the sales. So we will keep investing in our strategy. We will continue, as Fu said, to invest in the cloud computing through this year and over the next few years. Kepex is broadly in line with normal and the dividend policy will stay at 70%. And we don't assume closing of the Oticon Medical acquisition in this half in our guidance. Okay, so with that, we'll open up for questions.

Thank you. To ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from David Lowe with JP Morgan.

Can I just start with the buyback and then go into the work progress here?

Yeah, David, good to hear you. Like we said, up to $75 million through this first year. And as you said, this will happen. Our intention is for this to span several years. And therefore, you'd think we'd keep buying with some variability in the share price, but obviously within reason.

Yes. That's a good interpretation.

Yeah, look, if the sales come in higher than we expect, we would look to invest. Yes. You know, the way we look at the investment we're making, particularly in growth, is there's a weight of money that is needed to raise awareness, to build the clinical evidence. And so sort of the faster we can get that in, the better we do. Again, you know, within the constraints of our ability to manage, the scope of what we take on, and the P&L of the business to stay broadly within the guidelines that we set.

Excited? Andrew, thanks for the question.

So in emerging markets, the pricing is down a bit because it's the lower price tenders where that volume has come back. So if you look at our AST in emerging markets, it's come off a bit. The point I was making in developed markets, pricing is flat. With Nuclear State, we do have some opportunity to increase the pricing in a few places. And so we'll take that. But it's really, you know, that gap is largely between the $14 and the 9% is deferred revenue. So I hope that answers your question. I think some people are having trouble answering the questions, so we'll repeat the questions just to make sure that they come through clearly.

Sorry, Andrew.

Yeah, expect most of that to come back. So there's probably 15, 20 million or something in there that is up on the last half that we'd expect to come through.

We'd expect that, I think to answer your question, we'd expect that revenue to come through in the second half, across the half. Thanks, Adrienne.

Yeah, it's hard to – certainly we're pleased with the growth we saw in the U.S. today. And there's always a number of factors that drive growth. The opening up of indications is we're certainly hearing people talk about it in clinics and surgeons talk about it. So there's definitely an awareness. It's probably helping some people come through. The thing we've said in the past and stick by is this is something that will have an impact over time. because people do need to move through, you know, it's really back at the early referral stage that gets people into the channel and then there's assessment times and so on before they get to surgery. So it's certainly part of the growth and we'd expect a bigger impact over time from that, you know, the CMS change. Certainly what we're seeing on the single-sided deafness is that we're seeing more people come through there, you know, and that change is a little bit older.

No.

So we, yeah, the answer to the question was for all the folks on the line, because we know there might be some technical issues. Will we quote what the US growth rate is?

So, yeah, thanks to you, I said I'd do that, and I didn't. I was too keen to answer the question, or actually not answer the question. No, more than 10% in developed markets. I think that's sort of sufficient information. There's always a line here of our competitors would like some of this information more valuable to our competitors than it is to investors in granular detail. Yeah, so the question is, will we return to our target 18% margin pre-cloud in the half or over the year?

It will be over the year.

Yes, sure. The question was on the Chengdu expenses and it was regarding the COGS, the gross margin percentage. So we're at 75 for the half that's in line with long-term target. We anticipate staying there for the second half of the year and obviously then being there for the full year. Into 24, we can see about a half a percent potential headwind from Chengdu costs as that plant comes online.

Thanks, Dave.

How much text work is driven by OCR? Can you split that out a little? I'm just wondering with OCR, where are you going to roll that into different countries? Like how many of the target countries have you placed at the table?

Yeah, Gretel, thanks. So the question is on acoustics growth and what that is driven by Baja and what's driven by Ossier and where are we up to in the Ossier rollout. So no, we don't split that out, but obviously to get the 20% growth, both Baja and Ossier are growing strongly. So both of those continue to grow strongly. Looking forward, we expect Ossier to continue to grow strongly. Given that in Baja there are upgrades driving that, obviously over time we'd expect that upgrade growth to moderate a bit just as people in the installed base get access. In terms of Ossia, the rollout now, we've been in the US for a few years now and continue to see strong performance. We've launched in the UK and seen quite a rapid shift in many clinics from Baja to Ossia, launched in Australia and seeing a lift in acoustics revenue there. We've also launched in Germany, which has never been a particularly strong acoustics market. And so we're seeing some growth there, but we know it will take time because we're actually developing the market as we go. and strong growth in Latin America for Ossia, where we've been able to get approval and get access relatively early on, and that's growing strongly. So they're the major parts of the world. We have other countries, but they're the ones where we're up and running. Obviously, that's still quite a bit of Western Europe where we're seeking appropriate reimbursement, and that will take some time. some time and some work to do, and then outside Australia across the major markets through Asia-Pacific region, again, big potential, but will take us some time to get the approvals and the reimbursement in place. Yeah, thanks, Gretel. So questions on Oticon Medical and where are we up to and how is that progressing with the regulatory authorities? So we remain confident that we'll get the acquisition through. The key thing here is that competition authorities understandably don't have knowledge and background in the hearing implant market, so we need to explain the market and Fundamentally, if you look at how low the penetration is for cochlear implants for people in indications and the same for acoustic implants, I think the main issue here is these markets actually don't work in the sense of people are not directed to the best solution for them given their hearing loss. That's why we're investing in growth is to make this market work. The benefit of the acquisition for us is really the uh in on the acoustic side is to have more scale and be able to invest in that greater awareness and clinical evidence so that we can see acoustic implants compete with reconstructive surgery and hearing aids at the level at a much greater level rather than having just two percent of the potential market so that takes a bit to to explain and to take the the regulators through i think the other important piece of this on the acoustic side is this rapid shift from passive to active, from Baha to Ossia. And that, you know, given the performance improvement, the technology improvement is an important shift in the market which really does open up the opportunity for more growth. So we're working with the competition regulators in the UK, in Europe and in Australia to work through their questions and the detailed understanding of the markets and we remain confident that we think the approval should come through late in half.

Thanks, Greta.

A couple of things. One, the gross margin across different product. So the question is on gross margin and why it hasn't changed given the mix change. And it's really a function of two things. One, well, three actually. One, the gross margin across different product lines is pretty similar. Two, to the extent there's been a negative mix shift, it's offset by increases in volume. And three, some continued genuinely impressive work by the procurement team and the manufacturing team to buy efficiently and manufacture even more efficiently. Look, if I could confidently predict rates, I wouldn't be sitting here. Sorry, the question was, do we have a guidance for other income line for the second half? I think no is the short answer. There's a bunch of factors in there, FX being a significant one, and it's one of many things that we're trying to juggle to land. uh the result for the full year and and so we stay focused on that headline guidance you know going the top line of 10 12 into r d 25 into cogs and dropping 18 post cloud out the bottom

I was hoping you could get a bit of a snapshot on Hsing Du and what you think that can get to in terms of overall stock market capacity to supply the market, the sorts of products and AFCs that might come out of that facility and whether you think it's the key to unlocking the true potential of the Chinese market. Thanks, Tim.

Yeah, Sean. First of all, we're both well, thank you. And so the question is on Chengdu and how do we see the future of that factory in terms of the products and pricing and its importance in the China market. So let me start with, yeah, the factory is strategically important for us in China. That's why we've put the investment in. There's obviously very significant long-run growth potential in China. It's already the second largest market by volume in the world for cochlear implants and that's with the market being largely children, so enormous potential for adults over time. We built this factory with really at least a 30-year forward view of what the market could be. So we built it with significant capacity. to supply China and potentially supply some other markets. We'll start in a small way. So over the next 12 and 18 months, as we get approval for our products and it will be, so we have now approval for the CP802, which is an older generation product. sound process so we'll start there which we're aiming to get in plant approvals in about the next 18 over the next 18 months so we'll start carefully you know maintaining quality is the most critical thing as we as we ramp up this factory so we will be very vigilant and as we do that we do think by having a stronger presence in china by manufacturing in china we will be well positioned to continue to hold a good share and also to grow in line with that market. So I'm not going to go beyond detail. I'm not going to go further at this stage into exactly which products. We expect the pricing will be at the market for the tier of products that we're producing. It's certainly not our intention to try to do anything other than meet the market from a pricing perspective at this stage. So, yeah, N8 has rolled out in a range of countries. That's more than normal for this stage of a launch. So we're available through the US, through Western Europe, in Australia, and that's very pleasing. We got a faster approval in Australia than we have had for a number of years, and that's using some new regulation to speed up some approvals for the low-risk products. And parts of Asia Pacific now also getting access to nucleosite. So still early days, but available in a lot of countries. But centre penetration looks still... We've only been going a couple of months, so lots of opportunity and a long way to go to... grow the adoption of Euclid's 8 obviously with new systems in those countries. It's available and then in terms of upgrades, we think we'll continue to drive upgrades as our recipient base grows.

Are we thinking that or is it simply higher than that going forward?

So, Dave, thanks for the question. The question is what do we expect on the penetration of nucleoside and we used to talk about 50% in developed markets and should we expect more from nucleoside? I think the short answer to that is it's too early. You know, we're at a couple of percent probably at the moment. As we talked about, we sort of shifted our thinking since we've launched the Kanso product range and the off-the-year process. So we've shifted our thinking to what proportion of people upgrade over a cycle to of the people eligible for an upgrade each year, how many of those upgrade? Because it's harder to measure a cycle when we've actually got two overlapping cycles. cycles with an off the ear and the BTE. What we talked about at the last result was there were some signs that that penetration within the year had lifted slightly. And at that stage, we weren't sure if that was because of catch up from COVID or the the work that we're doing to raise awareness on upgrades. And I think we haven't got more clarity on that over the last six months, just given the the timing of the Nucleus 8 launch and people holding back, certainly very pleased with where we ended up. But we hope to learn more over the next 12 months as to is our work making a difference in terms of upgrade penetration versus just the increase in the base driving the lift in upgrades

in terms of, you know, the losses expected given, you know, what we're seeing in terms of those losses from demand reporting and simply the investments required. Thank you very much.

Yeah, so the question is, if Oticon acquisition goes ahead, what do we expect to see, given it's a loss-making, significant loss-making business, what will be the impact on us?

So I'll hand over to Stu just to talk about our thinking there. Yeah, no change in thinking at this stage, Dave. We're still looking at the purchase price of $170 and then the restructuring cost that we'd flagged last time around. No news on that. And that restructuring was $30 to $60 billion, you said.

So quite a wide range because until we actually get the acquisition goes through, we only get certain visibility.

Can I start with some of this COVID recovery volume? There was no mention of the announcement with acoustics and also with the emerging market. Do you have a sense of how much backlog is left? And also, you didn't mention in the developed market discussion. So does that mean that the backlog from COVID is largely cleared in the developer?

Yeah, Leanne, thanks. So the question is, To what extent are backlogs from COVID both still there and driving sales? Because we certainly did mention it on acoustics and on emerging markets. And then what about developed markets? So let's start with emerging markets and cochlear implants. There wasn't so much a backlog as the government withdrew funding and now they're putting that funding back in place. So I suppose to some degree, yes, there have been children born over the last few years who didn't get access to those tenders because the tenders weren't there or the volume from those tenders who are now getting access. But I wouldn't think of that in terms of a backlog because the rate limiting factor there is the government funding. So in a sense, yes, there are more children out there, as there always are in emerging countries who would benefit from an implant who don't get access. What limits access is how much government's money put in. So the rate at which we'll see growth there will depend on the rate at which governments, at least in that tender part, increase their funding. In acoustics, yeah, in acoustics there, I think we don't... It was an explanation of, you know, we look at that growth over the last 18 months, it's pretty impressive. And what I was saying there is part of that growth is because the acoustics volume fell so much as a result of COVID. So, again, it's not so much backlogs now other than if you look back over 18 months, it was a very depressed period. which, you know, we had a 40% growth and now we're at 20%. We expect those sort of growth rates to moderate a little bit, but it's not really caused by backlog now, more by how depressed it was earlier on. And then in developed markets, yeah, the issue is not COVID now. It is just hospital... capacity and healthcare systems. In Australia, as an example, there's a buildup of elective surgeries. People know in the UK, in the NHS, there's a buildup. So it isn't so much that this is demand from COVID. It's more just the demand being generated now in places having to wait longer for surgery than was the case pre-COVID. That sort of makes sense. It's hard to separate these things. But we're not so worried about COVID, albeit countries like Japan are still impacted, more about what is actually underlying audiological capacity or hospital surgical capacity country by country.

5 million this year by progressive. Can you assume that the quantum will be larger as the year progresses?

Yes, our question was, will the quantum of the buyback change as the years progress? We're going to commit to the amount each year, and that's partly in line with ASIC guidelines, and we think it's a prudent thing to do as well. And at this stage, we're comfortable saying we want to get there over a period of multiple years. At this stage, we're looking at relatively consistent, but we'll reconfirm that amount each year. We will absolutely be doing it over numerous years to get there.

Certainly at least three to five, yes. Thanks, Leanne.

Your next question comes from Natho Severo with City Group.

Good morning. Thank you for taking my questions up. The question was on... Thanks for the question.

So questions on China and the more recent impact of COVID cases on our sales. And the answer is actually we've seen a relatively limited impact. The COVID cases certainly surged very significantly. We saw that with our employees. But in terms of surgeries, they continued pretty strongly most of the way through. And that's what we continue to see. There's clearly still some uncertainty as we look forward. But the performance in China has been pretty strong. And again, remember, this is surgeries mostly in children. and that children do tend to get priority access because time is so critical. So the question's on patent dispute between Advanced Bionics and Medell, and did that have an impact on our first half results? So I think two parts to that one is we don't want to comment on a dispute between them, but in terms of our result, no, there's no impact on our result of that dispute that we could determine.

Thank you. Okay. Yeah, David, great question.

The question is, background to the question is that there is low awareness of cochlear implants and acoustic implants among general audiologists. That's absolutely true. And what are we doing to change that? So this is absolutely core to our strategy. There is... For adults, no clear and consistent clinical path from a hearing aid through to an implanting clinic for both cochlear implants and acoustic implants. If a path can be created, creating that path is the key to our long-run growth. So we're doing several things to invest in that. We are working directly with consumers. So that's our direct consumer promotion and awareness to raise consumers' awareness of alternatives other than hearing aid for people for whom a hearing aid doesn't give them a very good outcome. And in several countries, Germany, Australia, US, three standout examples where we're working directly with the hearing aid channel to educate hearing aid audiologists on particularly cochlear implants, the indications, the benefits, getting them to see how significant the improvement is for someone who's been on a high-powered hearing aid and then switches to a cochlear implant. And I think there's some indications that that work on getting referrals from the hearing aid channel is bearing results. You know, this is, we talked about before, this is a very long-term program. It's not something you can just go walk in once and say, here's what a cochlear implant does, and immediately the audiologist just refers all the people with the indications. It takes repeated follow-up. It takes them to see results. It also requires evidence, and that's why we have... commissioned a study in the UK to do a head-to-head cochlear implant and high-powered hearing aid study, randomised sample of people, half get hearing aids, half get cochlear implants. They're all between 70 and 80 decibel hearing loss. What we hope that study shows is that cochlear implants give a clearly much better hearing outcome than do hearing aids. And the other part of this is showing that hearing loss is a serious medical condition, medicalising hearing loss, because it's not seen as a medical condition, a credible medical condition that has consequences beyond hearing loss in many, many places. The work that Frank Lynn is doing, Johns Hopkins leads the world in this, but many others are doing similar work that show that Hearing loss, untreated hearing loss is correlated with an even causal of other significant medical conditions and that treating hearing loss reduces those conditions. I think the most highest profile of the studies that Franklin is doing is a study called ACHIEVE. which is taking people, large numbers of people with hearing loss. One gets hearing aids, the other gets lifestyle counselling and tracking their cognition over three years and the That study is there to determine actually if treating hearing loss slows the rate of cognitive decline in older people. The first report out of that study should come through this calendar year. So these are all elements of our strategy. We've got to build the clinical evidence. We've got to build the awareness at the professional level. We've got to build links between hearing aid clinics and cochlear implant clinics so there is a clear path. We've got to close the loop on feedback. so that people see, not only just see clinical results, but see real people hearing much better as a result of the implants, and we've got to raise consumer awareness. All of those come under the umbrella of creating standard of care over the long run for adults and seniors in developed markets, and this is core to our strategy. And it's the reason why we want to continue to invest as much as we can within the guidelines that are set for the P&L, because we do believe it's really weight of money over time that will allow us to build this evidence and awareness and get more consistent and higher volumes of referrals. Yes, so the question is where do we think industry growth is now and as these you know, what do we expect to happen given these are longer-run programs. So certainly, you know, if you look at the last half and our 14% growth in CI or, you know, where we focus these is on developed markets where we've seen over 10%, we'd say a small part of that, a couple of points of that is market share, the rest is market growth. You know, that's a six-month growth number, so it's pleasing to see, but, you know, we will wait to see... if that sort of growth rate sustains. The thing about these programs is they are incremental. So, you know, what we hope to see, and I think are seeing, is that the number of referrals just increases, you know, year on year because of the work that we're doing. I think there's some evidence that that's happening, but we want to see a longer run trend of that. So I was going to say... you know, we do all this investment and then at some point everyone just switches over. It will be step by step and, you know, that's what we're seeing and we expect to see that continue over the very long run. That sort of step by step growth, step by step increase in referrals that, you know, underpin our long run growth So, David, questions on what's our market share? Look, we think we've got about 60% of the total market in the cochlear implant side then that's just looking narrowly at implants you know if you look at that against actually potential we've got about four or five percent you know so the main competition here is hearing aids high powered hearing aids that that's really where what we're competing against um and it's the same in acoustics and acoustics we're competing with reconstructive surgery and uh and various forms of um air conduction and bone conduction um hearing aids

I'm excited.

So Craig, thank you. The question is, have all emerging markets put their tender funding back in or have some not? And the answer is no, not they haven't all put it in. And remember, in emerging markets, Pre-COVID, we would see significant variability year on year in tender volumes to do with a whole range of issues. Could be political, could be economic. I mean, just to call two obvious ones out at the moment, both Sri Lanka and Pakistan haven't got fundings at the levels that they have had So there are many factors that go in but the bigger markets, India, Brazil, through parts of the Middle East, there we've seen funding come back in and that's what's helped lead to about 20% growth in plants in emerging markets in the half. So the question is, what's the opportunity for us to put price increases through given where inflation is? And Craig, it does vary by market. So with Nuclear's sake, we put price increases through in markets where we can. So in some markets, the price is just set by the government. Usually there's a process based on what's the technology. If you've got better technology, you can apply for a higher price. We are exercising that in some places. You may or may not be successful, but we're trying. In others, the market's a bit more less rigidly controlled by a government and therefore there's some opportunity in sort of hospital contract negotiations to put price increasing through on the basis of better technology and better patient experience. So where we do have the opportunity, we are pushing for price increases but also cognizant that many of our markets, there is limited capacity. But if you look over time, our developed market pricing has been relatively stable We do, and we've said this before, we expect pricing pressure in Western Europe and we've seen some of that over time. So we do see our pricing hold. We're pleased about that and if we can get increased, we will. And as Stu was talking earlier, the work on driving efficiency through the business to maintain that gross margin is very important for us and we've been successful so far and obviously we intend to continue to maintain that success of holding the gross margin.

quantify what that benefit might have been.

So the question is just on the rates we're using in the guidance and a bit different to where we started the year. So we try to use spot rates. We do use spot rates when we put our guidance out. That's why they're different. In terms of quantifying the impact, I think the best way to look at that is just look at our costs and currency results for the half. Who knows what the impact will be in the second half. It depends where the rates actually go. It's been more complicated in the last half because the US dollar has gone one way and the euro has gone the other way. So it's had a sort of a mixed impact.

Thanks, Greg. Yes, thanks, Dick. And sorry to come back on, but just wondering if you've quantified the amount of transactions

Yes, Steve, question on, did we quantify the cost with Oticon? And the answer is no, we didn't. It's a single digit, low single digit millions.

You mentioned that that was sales in the latter part of the half.

Just to sort of clarify that a bit further, is it also due to those sales being done for governments and therefore the credit terms are much longer anyway?

Sorry, a question on the receivables growing and, as we said, grew sort of more strongly late in the half on the back of N8 launch. And is it to do with payment terms for governments? Look, certainly different customers have different payment terms. It depends on a lot of factors. We're not seeing that be a significant driver of that number. I guess if we look at the underlying components of it, it's really two things. One, very strong sales and two, very good collections. I think one of the unsung heroes through COVID and through the last couple of years, there's a small number of people in each of the regions who are doing a stellar job making sure that we are collecting data the cash for the sales we're making, and they are doing that at an unprecedentedly good level. So if we look at the receivables, sort of the health of the book, it's very strong. And so it's much more a function of just selling more. And as I said, we did see a kick up late in the half on the innate launch.

Thanks, Stu. Question comes from Shane Conrad's Morningstar.

Thanks. Just with the tech exchange program, I want to clarify that you've recorded the implant units in the result, but the revenue is deferred. Is that right?

Yes. So the question is on the technology exchange, what do we record in terms of the implant unit and revenue? So we include the – yes, we do include the implant unit in that 14%. Grace, we include the revenue from the implant but not the revenue from the processor. So in a system there's an implant and a processor. We have a split of that allocation and the component that attaches to the processor is deferred and that goes under that deferred revenue account. to being a reason for the discrepancy between the revenue growth and the unit growth.

It's the main reason. Yes, the main reason.

Yes, so in a normal time, we'll sell a system for X. Within that price X there is some percentage which is more than half that is the implant and there is some percentage which is less than half which is the processor. Normal time we include all of X in revenue. When we have a technology exchange, we include the implant component in revenue and the processor component goes into deferred revenue. And as people do the exchange, it comes from deferred revenue into revenue. So in this half, we will see that deferred revenue come back through the revenue line. So over the year, I'd expect that you won't see that difference.

Yeah, got it. program has been developed or emerging?

Only in developed and only in a subset of our markets.

Okay, that's all I have. Thanks very much.

Thanks, Glenn.

I'll now hand back to Mr Howard for closing remarks.

Okay, just to close up, thank you all for joining and I look forward to seeing you all or talking to you all in six months' time. Thank you.