Cochlear Limited (COH) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Cochlear Limited Announcement. [Operator Instructions] I would now like to hand the conference over to Mr. Dig Howitt, CEO and President of Cochlear. Please go ahead.

Thank you all -- thank you, everyone, for joining the call. I, certainly, didn't expect to be back on a call with you again today after yesterday. But we have had this appeal decision overnight. And I want to just run through that briefly and then open up for questions. So the Court of Appeals have affirmed the district court award so -- for the USD 268 million. We -- there is another step that we will take, which is an en banc review of the petition for rehearing. We anticipate that, that will take a few months. We had, as we have previously said, had bank loan facilities in place for this judgment. So we will now call on those facilities. There is still a decision pending on prejudgment interest and costs from this case and that is back in the district court. And we expect that, that will take a few months before there's any movement there, but that's out of their hands on the timing. Importantly, as we said many times, the patents that are the subject of this case have long expired. So this is an issue of cash rather than an issue of ongoing ability to sell any royalty on our future sales. And we do remain confident that we can continue to meet our cash requirements. So while we didn't expect -- I didn't expect that we would be on a call today, as we put our cash flows together in light of COVID-19, we did include this outcome in projecting the cash that we would need. So from the perspective of our cash requirement and outlook, nothing has changed from yesterday. So I think I will stop there. I think the announcement is pretty straightforward. I open it up to any questions that people have.

[Operator Instructions] Your first question comes from David Low from JPMorgan.

A couple of questions. One, the timing of any payment, so when do you expect that -- I mean, you talked about this process taking a few months in terms of asking for this petition. Would you have to wait until after that? Or are you required to pay it before?

Yes. So I'd say we've got -- this process, the en banc review, would take a few months. So we don't have to make a payment until after that review. And if we're successful with that review, then that would change things and we already got the committed facility.

Right. I see the comment here that the bond -- value of the bond will come back. What sort of value is that?

The bond is already on the balance sheet, the bond was for the full amount. It's there. We haven't talked about the cash or anything. The bond was provided based on our cash flows.

So -- yes, so there's a bond in place. And then we have to probably pay, that bond is retired, and we pay out the cash. That makes sense?

Okay. Okay. The other one is just on interest calculation. What are the variables at play there. So I mean, the $123 million that's been, is in dispute? What's the range of possibilities with that?

Look, I think the range there is $0 to $123 million. And we -- our argument is that the AMF missed -- didn't launch that appeal properly or at the right time. We think, secondly, the calculation method is flawed and that's what's in front of the court.

Right. If the method was chosen, I mean, let's put aside the timing one, if the method was flawed, I mean, I take it that comes down to the right that applies.

Yes.

So -- okay. All right. The final one I've got is that -- what's the implications with dividend payout?

In terms of -- we've got the dividend that we have already announced due in April, so that continues. And obviously, when we get around to August, we will review this with the Board, or ahead of that time, we will review it with the Board. But obviously, if we were to pay this out, then there are clearly implications for the dividend going forward. I'm not in a position to say what they are at this stage.

Your next question comes from John Deakin-Bell from Citigroup.

My question was just around the tax deductibility of this. In the event that you have to pay the $268 million, is that tax deductible? And then if the interest was paid, is that tax deductible?

So John, thanks. And I'm going to hand over to Brent Cubis, who's here obviously with us to talk about that one.

John, we've actually got a ruling on this from the tax office in anticipation of this and the interest part is, the willful part isn't. So -- I mean that the client part is, not the willful portion. So about half is tax deductible in simple terms. I guess the other good thing about this is any remaining cash payments we've made in tax this year, we might get back a bit because that will reduce our tax payable this year significantly.

Your next question comes from Saul Hadassin from UBS.

Brent, maybe for you, just can you sort of talk what's happening in credit markets generally? And what sort of all-in rate of interest are you looking at on this particular facility? And I guess on also potentially any drawdown that you might need to cover cash flow over the next sort of, like, 6 months?

Yes. I mean, as you know, the markets are moving quite a lot [indiscernible]. In all of our assumptions, we've been pretty conservative and the right that we have used. And I'm quite comfortable [ with this ]. Impact is not huge on the -- from the facility through this, and we can easily that in our covenants and so forth.

And maybe just a comment, are they -- is it a mixture of fixed and floating rates there? Or are they all [indiscernible]?

We've [ reducing ] floating at the moment. We'll look at that down the track, I mean, something...

Yes, we could -- obviously, we'll continue to review our facilities and the structure of those facilities to make sure they are most appropriate and we optimize the rights featuring now in the market.

And just last one. Are you in a position to potentially not pay out the interim dividend? Or is that -- now that is being announced, you actually have to pay that out?

Yes. That interim dividend is committed.

[Operator Instructions] The next question is from Sean Laaman from Morgan Stanley.

Brent, just a quick one for me. Is there anything that you can tell us overnight, I mean, updates probably pretty soon after. But any anecdotes or anything you can tell us with respect to the operating business overnight?

No, no. I've been a bit distracted this morning. So -- with this, I haven't checked in on that, but from a surgical perspective now that you know that France has closed schools and facilities overnight. So we're seeing a spread, which is sort of what we've anticipated in terms of governments directing people to stay at home.

There are no further questions at this time. I'll now hand back to Mr. Howitt for closing remarks.

Okay. We will finish up there. Thank you all for joining the call.