Recall costs drag down Cochlear FY12 profit

Cochlear Limited (ASX:COH) has reported a 68% slump in FY12 profit to $56.8 million due to hefty costs associated with the voluntary recall of its Nucleus Cl500 implants.

The company has also posted updated statistics indicating that the total percentage of Cl500 implants that have been reported as failed has amounted to 4.2% of registered devices.

Cochlear initiated a voluntary recall of unimplanted Cl500 products in September last year, swapping the devices out with the similar Cl24RE model, following reports of the devices failing.

The cause has been narrowed down to loss of hermeticity in the unit, which typically results in the malfunction of one of four diodes that are components of the model.

The latest statistics also support Cochlear's previous assertions that the majority of failed devices were manufactured in the first quarter of 2011, and that newly reported failures have been continuing to decline each month.

Cochlear added that it has been notified by “a number of regulatory authorities including FDA and European Competent Authorities that all necessary actions associated with the return of unimplanted Cl500 series devices have been completed.”

But the recall has been costly for Cochlear, with total costs associated with the process totalling $101.3 million in FY12.

Exclusive of these expenses, Cochlear's net profit fell 12% to $158.1 million, from 4% lower revenue of 779 million. Cochlear implant sales fell 3% to $626.7 million. In constant currency, revenue increased a slim 1%.

The brunt of the recall's impact was felt in the first half of the financial year. Cochlear swung to a $20.4 million loss for the period, after taking a charge on the recall.

Cochlear CEO Chris Roberts acknowledged that the recall had made FY12 “a challenging year” for the company. But added that “the global organisation responded well, and market share losses have been minimal.”

Cochlear (ASX:COH) shares were trading 5.24% lower at $62.920 as of around 3pm on Tuesday. The company had been trading at around $73-$75 in the days leading up to last year's recall notice.