© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you for standing by, and welcome to the Cochlear Limited H1 '23 Results Analyst and Media Briefing. There will be a presentation followed by a question-and-answer session. [Operator Instructions]
I would now like to hand the conference over to Mr. Dig Howitt, CEO and President. Please 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 being particularly important over the last 3 years as we've navigated the various challenges that the world has trained up. But let's move into our results. I'm certainly quite pleased with the results that we've got in the last 6 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 6% in constant currencies, and there's really 2 factors driving that. One is the increase in cloud computing expenses, which we have 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 as 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 a 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 U.S., in 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. And the [indiscernible] processor has been important in that, albeit late in the -- coming out late in the half. We think that share has lifted slightly as a result of Nucleus.
But clearly, most of that growth in developed market is actually the market growing.
And then in emerging markets with 20%. And when we said going in COVID, one of the big impacts was that governments withdrew these funding for tenders in that market. The private pay markets continued reasonably well through COVID, but government withdrew the lower-priced tender funding. We've seen that come back over the last 12 months and particularly the last 6 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. And there's 3 points I want to make here. They are, first of all, is that our developed market pricing has been flat. So there's no change there. So what has happened is in part a mix issue.
And that is the great extra growth in emerging markets relative developed and that growth in emerging markets being the lower-priced tenders has had some impact. But actually, the most significant impact were the technology exchange programs that we ran in a few countries on the back of the Nucleus 8 launch. And what that means is that we ship an implant system and for, 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 recognize 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 why that gap between the 14% and the 9%.
Let's move on to services. So services were flat. That's -- 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 -- but 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 stronger for upgrades and particularly you're being late in the cycle for Nucleus 7, so to match that again this half.
I think it just shows that the important -- the thing we talk about most in services and upgrades is that this growing install base is the most critical element to driving growth over time. And certainly having Nucleus 8 now out there and very well received, and the features and functionality Nucleus 8 stand out, we're getting that feedback. We think that will continue to support those CI systems, but also services over the cycle.
And then on to Acoustics. So Acoustics, 70% gross 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 2 items, which are very important here, is Asia. The rollout of Asia continues. We continue to be -- make sure that we do the work country by country to get appropriate and suitable reimbursement for us here. As we do that and as we roll out into a country, we see pretty quickly a transition from passive Acoustics as Baha through to active Acoustics, which is of here. 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 the Baha implant, and they are upgrading from Baha 5 to Baha 6. So we've really got the COVID rebound, the rollout of Asia and Baha 6 Max to the existing recipient base driving acoustics. So we do expect, as we've talked about acoustics continuing 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.
With that, I'm going to hand over to Stu to talk through the P&L and the balance sheet.
Fantastic. Thanks, Dig. Good morning, everybody. Dig's already spoken about the strong sales line. So I won't add anything to that.
If I jump down to the next line, gross margin. I'm 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 0.5% 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 investment in growth. So that seems like standard of care, trying to drive people through the funnel or 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 1, so we're cycling a very low number.
If you look at it relative to half 2 of '22, we're only up about, I think, 3% or 4%. And there's also some 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 in admin expenses ex cloud, it's really 2 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 4- to 5-year journey, $100 million to $150 million in total. We think that spending is going to peak this year and into next year. And we're very much -- we would expect to be about $12 million up on last year and $17 million for the half.
If we go on to the balance sheet. Next slide. Biggest change here is the movement in working capital. And it's really all of those first 3 lines. Receivables are up.
We sold a lot more and actually quite a lot of that back ended in the half. NA looks 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 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 flowing 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 result down, but really a function of, as Dig has flagged, 2 things there. The increased cloud spend, so the $17 million, up $12 million last year half-on-half. And also, we were -- we had abnormally high EBIT results and an NPAT result in half 1 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 1, half 2 picture relative to last year, which was very heavily skewed. And the only 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 -- sorry, that's the investment going into precise.
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 1 NPAT last year, and that's why that payout ratio is different.
Of the $1.55, 75% 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 '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 0, as we don't want to reduce it all at once. And we also think doing that would not be in the best interest long-term shareholders. So what we'll be doing is looking to aim at a set point of net cash of about plus 200 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 million net cash and maintain a 70% dividend payout ratio.
So with that, I'll hand you back to Dig to talk through the outlook.
Thanks, Stu. And before I get to the outlook, I think the important thing coming through the last 3 years or so is our long-term strategy is absolutely intact. The demand or the need for our products is very clear. Anything there is heightened awareness of hearing loss and the importance of trading hearing loss, the work that we've been doing on our product portfolio to strengthen our competitive position is coming through. Nucleus 8 is another example of that, as is ASHA.
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 6 months. So our strategy team, we're committed to continue to invest as much as we can within the guidelines we set through 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 the second half, we anticipate continued good sales revenue, good growth, getting that underlying net profit margin back to 18% through this half from 7% 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. But on all of the key dimensions, it's the smallest processor on the market by a long way. 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 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 will be an opening up in surgical capacity that we've seen in the last half of '22. We certainly see that continue.
However, I think there are still uncertainty in there, still clouds out there. While starting as improved in hospitals, there are still backlogs of surgeries in most major markets. We've seen increased risk of nursing strikes in -- certainly 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 3 years ago. It's better than it was 18 months ago. But still some supply chain constraints and also in the labor market in the rate at which people are changing jobs. We've seen that come off around the world over the last 6 months, particularly, but it's still elevated.
And therefore, there's still some pressure 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 Stu said, to invest in the cloud computing through this year and over the next few years, CapEx is broadly in line with normal and the dividend policy will stay at 70%. And we're not -- don't have anything -- 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.
[Operator Instructions] Your first question comes from David Low with JPMorgan.
With terms of buyback and then go into the work program [indiscernible].
David, good to hear. So up to $75 million through this first year. And as Stu said, this will happen. Our intention is for this to span several years. And therefore, we think we keep buying with some variability in the share price.
But obviously, within a region.
[indiscernible]
No, that's a good interpretation. Yes, look, if the sales come in higher than we expect, we would look to invest Yes. Yes, we -- the way we look at the investment we're making, particularly in growth, is there's a way 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, within the constraints of our ability to manage the scope of what we take on and P&L of the business to stay broadly within the guidelines that we set. Thanks, David.
Andrew, thanks for the questions. So emerging markets, the pricing is down a bit because it's the lower-priced tenders where the volume has come back. So if you look at our ASP and emerging markets, it's come off a bit.
Pros making in developed markets, pricing is flat. With Nucleus 8, we do have some opportunity to increase the pricing in a few places. And so we'll take that. But it's really, that gap is largely between the 14% and the 9% is deferred revenue. So I hope that answers your question.
And I think some people having couple hard questions, so we'll repeat the question just to make sure that they come through clearly.
Yes, expect most of that to come back to probably $15 million, $20 million or something in there that it 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 that. Thanks, Andrew.
[indiscernible]
Yes, it's hard to. Certainly, we're pleased with the growth we saw in the U.S. And there's always a number of factors that drive growth. The opening up of indications is we're certainly hearing people talk about in clinics and surgeons talk about it. So there's definitely an awareness.
It's probably helping some people come through.
I think the thing we 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. It's really back at the early referral stage that gets people to -- 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, the CMS change.
Certainly, what we're seeing on the single-sided [indiscernible] is that we're seeing more people come through there. And that changes a little bit over. And I think -- and sorry, the question was for a on the line because we know there might be some technical issues, will be quite what the U.S. growth rate is. So yes, thanks I said I do that and I didn't.
I was too keen to answer the question. No, actually, not answer the question. And is one more than 10% in the developed markets. I think that's sort of sufficient information. There's always a line here of our competitors would like some of these information more value with our competitors than it is to investors in granular detail.
Yes. 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 targets. We anticipate staying there for the second half of the year and obviously being there for the full year. Into '24, we can see about 0.5% potential headwind from Chengdu costs as that plant comes online.
Thanks, Dave.
[indiscernible] how growth is driven by [indiscernible]. Yes. I can put that out at all. And just wondering if where rollout into different countries on many of the [indiscernible] had placed.
This the question on Acoustics growth and what that is driven by Baha, what's driven by ASHA and where are we up to in the ASHA rollout. So no, we don't split that out. But obviously, we get the 20% growth, both Baha and ASHA are growing strongly. So both of those continue to go strongly.
Looking forward, we expect ASHA 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 ASHA, the rollout now we're in -- we've been in the U.S. for a few years now and continue to see strong performance. We've launched in the U.K. and seen quite a rapid shift in many clinics from Baha to ASHA, 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 Asia, where we're 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 are the ones where we've up and running. Obviously, that's still quite a bit of Western Europe, where we are seeking appropriate reimbursement, and that will take some time and some work to do. And then outside Australia across the major markets through Asia Pacific region. Again, big potential, but it will take us some time to get the approvals and the reimbursement in place.
Yes. 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 we'll get the acquisition through.
The key thing here is that competition of studies understandably don't have knowledge and background in the hearing implant market. So we need to explain the market. And fundamentally, this -- if we look at how low the penetration is for Cochlear implants for people 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. So that's why we're investing in growth is to make this market work.
The benefit of the acquisitions for us is really the on the acoustics 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 is at the level at a much greater level rather than having just 2% of the potential market. So that takes a bit to explain and to take 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 ASHA. And that given the performance improvement, the technology improvement and 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 U.K., in Europe and in Australia to work through their questions and the detailed understanding of the markets, and we remain confident that we hope that we think the approval should come through later in this half. Thanks, Chip.
Look, a couple of things. One, the gross margin across different products. So a question was on gross margin and why it hasn't changed given the mix change, and it's really a function of 2 things: 1 -- well, 3 actually. One, the gross margin across different product lines is pretty similar to. 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 by efficiently and manufacture even more efficiently.
Look, if I can confidently predict rates, I wouldn't be sitting here Sorry. So question was, do we have a guidance for other income line for the second half I think not always the short answer. There's a bunch of factors in there. FX being a significant one, and it's 1 of many things that we're trying to juggle to land the result for the full year. And so as a we stay focused on that headline guidance growing the top line at 10, 12 into R&D, 25 into COGS and dropping 18 price cloud out at the bottom.
[indiscernible] on Chengdu and what you think that was too in terms of overall ops capacity to supply the market, the sort of product and ASPs that might come out of that facility and whether you think it's the key to unlocking the true potential of the Chinese market.
Yes, Sean. First of all, we're both well. Thank you. And so the question is on Chengdu, and so 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, yes, the factory is strategically important for us in China. That's why we put the investment in. We -- there's obviously very significant long-run growth potential in China. It's already the second largest market by volume for -- 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 this -- what the market could be. So we've built up with significant capacity to supply China and potentially supply some other markets. We'll start in a small [indiscernible]. So over the next 12 or 18 months as we get approval for our products. And it will be -- so we've got -- we have now approval for the CP-802, which is all the generation process.
So we'll start there. We're aiming to get implant approvals over the next 18 months.
So we'll start carefully. Maintaining quality is the most critical thing as we ramp up this factory. So we'll 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 details, I'm not going to go further 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. has rolled out in country, perhaps more than normal for this stage of a launch. So we're available through the U.S. 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.
So -- and parts of Asia Pacific now also getting access to Nucleus sites. So it's still early days, but evolving a lot of countries. And -- but in terms of 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 Nucleus, obviously, in new systems in those countries, it's available.
And then in terms of upgrades, we think we'll continue to drive upgrades as that -- as our recipient base grows.
[indiscernible] eventually getting your thinking that? Or is it in higher than that going forward?
Thanks for the question. The question is what do we expect on the penetration of Nucleus 8 and we talk about 50-odd percent in developed markets. And should we expect more from Nucleus 8?
I think the short answer to that is it's too early. 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 off the year process. So we shifted our thinking to how -- 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 2 overlapping cycles with an off year in the BTE.
What we talked about at the last result was there were some signs that the 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 work that we're doing to raise awareness on upgrades. And I think we haven't got more clarity on that over the last 6 months, just given 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 is to we see work making a difference in terms of upgrade penetration versus just the increase in the base driving the lift in upgrades.
In terms of the loss is expected given what we're saying in terms of the [indiscernible] some of the market sup porting and impose investment required.
So the question is if Adocim acquisition goes ahead, what do we expect to see given a lot is loss making significant loss-making business, what will be the impact on us. So I hand over to Stuart to talk about our thinking there. No change in thinking at this stage, Dave. We're still looking at the purchase price of $170 million, and then the restructuring cost that we'd flagged last time around. No news on that.
And that restructuring was $30 million to $60 million you set. So quite a wide range. Because until we actually get the acquisition goes through, we don't get -- we only get certain visibility.
[indiscernible] COVID recovery value. There was no mention of intent with the Costa and also 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 mostly cleared in the developer?
Yes, thanks. So the Question is, to what extent backlogs from COVID so it's still there and driving sales because. We certainly did mention it on acoustics and on emerging markets. And what about developed markets?
So let's start with the emerging markets and Cochlear implants. There, it wasn't that much a backlog as the government with refunding, and now they're putting that funding back in place. So I suppose to some degree, yes, we've 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 limiting 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 benefit from implant who don't get access.
What limits access is how much governments 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, yes. And acoustics, I think we don't -- was an explanation of we look at that growth over the last 18 months is pretty impressive. And what I was saying there is part of that growth is because that 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 figure, which we had a 40% growth and now we're at 20%. We expect that sort of those sort of growth rates to moderate a little bit.
That is not really caused by backlog now more by how depressed it was earlier on.
And then in developed markets, yes, the issue is not COVID now. It is just hospital capacity and health care systems say, look, in Australia, as an example, there's a buildup of elective surgeries, people know in the U.K. In the NHS, there was a buildup. So it isn't so much that this is demand from Covet. It's more just the demand being generated now in places having to wait longer for surgery and was the case pre-coat sort of makes sense.
It's hard to separate these things.
But we're not so worried about COVID, albeit countries like Japan still -- are still impacted. More about what is that the underlying audiological capacity or hospital surgical capacity country by country.
[indiscernible] million this year, a progressive can you assume that the long term will be larger as the year progress?
Yes. So question was, will the quantum of the buyback change as the years progress. Look, we're going to commit to the amount each year, and it's partly in line with ASIC guidelines and we think it's a prudent thing to do as well. And I think 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 3 to 5 years. Thanks, Dan.
Your next question comes from Nate Death with Citi Group.
So question was on China [indiscernible].
Thanks for the questions. So question was on China and the more recent impact of COVID cases on the -- 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, that 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 critical. So questions on patent dispute between Advanced Bionics and Model and did that have an impact on our first half results.
So 2 parts to that 1 is we don't want to comment on a dispute between them. But in terms of our result, no, we -- there's no impact on our result of that dispute that we could determine. Thank you.
Yes, David, great question. So questions. background, the question is that there is low awareness of copter 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 no clear and consistent clinical path from a hearing aid through to an implant in clinic for both contra implants and acoustic implants.
If a path can be created, that will be -- 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-to-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, U.S. 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 has 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. This is what we talked about before. It's 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 body others just refers to all of the people within indications. It takes repeated follow-up.
It takes them to see results. It also requires evidence, and that's why we commissioned a study in the U.K. to do a head-to-head cochlear implant and high-powered hearing aid study, randomized sample of people, half get hearing aids, half get Cochlear implants. They're all with between 70 and 80 decibel hearing loss.
What we hope that study shows is that Cochlear implants are clearly give a clearly a much better hearing outcome than to hearing agents. And the other part of this is showing that hearing loss is a serious medical condition, medicalizing hearing loss because it's not seen as a medical condition, a treatable medical condition that has a consequences beyond hearing loss in many, many places.
The way that Franklin 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 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 counseling and tracking their cognition over 3 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 to see clinical results, but see real people hearing much better of the implants.
And we 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 we 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.
Other question is, where do we think industry growth is now. And as these what do we expect to happen given these are longer run programs. So certainly, if you look at the last half, 14% growth in CI or where we focus these is on developed markets, where we've seen over 10%. We say a small part of that -- a couple of points of that might -- is market share. The rest is market growth.
That's a 6-month growth number.
So it's pleasing to see. But we will wait to see that sort of growth rate sustains. The thing about these programs is they are incremental. So what we hope to see and I think are seeing is that the number of referrals just increases 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'm going to say we do all this investment. In some point everyone, just switches over. It will be step by step. And that's what we're seeing and expect to -- we expect to see that continue over the very long run. That's sort of step-by-step growth step by step increase in referrals underpinning our long-run growth.
So a question on what's our market share. Look, we think we've got about 60% of the total market in the Cochlear implant side, and that's just looking narrowly at implants. If you look at that against actually potential, we've got about 4% or 5%. So the main competition here is hearing aids, our hearing aids. That's really where -- what we're competing against.
And it's the same in Acoustics.
In Acoustics, we're competing with reconstructive surgery and various forms of air conduction and bone conduction hearing aids.
So Craig, thank you. The question is have all emerging markets put their tender funding back in or some not? And the answer is no. No, 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, it could be political, it could be economic.
And we just to call 2 obvious ones out at the moment, both Freelancer and Pakistan, haven't got fundings at the levels that they have had previously.
So there are many factors that go in. But the bigger markets, India, Brazil, through parts of the Middle East there, we've seen fund income come back in, and that's what's helped lead to about 20% growth in implants in emerging markets in the half.
So your question is what's the opportunity for us to put price increases through given where inflation is, and Craig does a very bond market. So with Nucleus 8, we've put price increases through in markets where we can. So in some markets, the price is just set by the government. It's set usually, there's a process based on what's the technology if you 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 was trying.
I mean others, the market is a bit more less rigidly controlled by government. And therefore, there's some opportunity in sort of hospital contract negotiations to put price increasing through on the base 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 at the time our developed market pricing has been relatively stable. And we do, and we said this before, we expect pricing pressure in Western Europe, and we've seen some of that over time. So we know what we do see pricing hold. We're pleased about that, and we get increased, we will.
And as Stuart 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.
Impact or you could quantify what that benefit might have been?
So the question is just on the rates we're using in the guidance are a bit different to where we started the year. . So we're trying to use spot rate. 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 constant currency results for the half. Who knows what the impact will be in the second half. It depends whether where the rates actually go.
It's been more complicated in the last half because sort of U.S. dollar has gone one way and the euro has gone the other way. So it had sort of a mixed impact. Thanks, Greg.
Yes. And sorry to come back on [indiscernible]. Just wondering if you've quantified the amount of transaction associated the [indiscernible] that you've taken above the line?
Yes, Steve, a question on, do we quantify the cost with Otacon? And the answer is no we didn't. It is a single digit -- light single-digit millions.
[indiscernible] 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 turns 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 2 things. One, very strong sales.
And two, very good collections.
I think one of the unsung heroes through sort of 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 those. The cash for the sales we're making and then 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 pickup late in the half on the N8 launch.
Question comes from Shane Ponraj with Morningstar.
Just with the tech exchange program, I want to clarify that you've recorded the implant units and the result of the revenue is deferred. Is that righty?
Yes. So Shane, your question is on the Technology exchange, what do we record in terms of the implant unit revenue. So we include the -- yes, we do include the implant unit in that 14% gross. 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 of that attaches to the processor is deferred, and that goes under that deferred revenue account.
So as to being a reason for the discrepancy between the revenue growth and the unit growth.
It's the main reason.
[indiscernible] the implants.
Yes, normal time, we will 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 a some percentage, which is less than half, which is the process.
Normal time, we include all of X in revenue. When we have a technology exchange, we include the implant component in revenue and the process of 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.
Yes. Got it. And what's that program has been developed or emerging markets?
Only in developed and only in a subset of our markets.
As there's no questions at this time, I'll now hand back to Mr. Howitt 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 in 6 months' time. Thank you.