Commenting on excellent results for the fourth quarter and the financial year ended last Oct. 31, which showed increased profitability and market share gains, the management of CooperVision (CVI) indicated that it plans to invest about $5 million this year to develop its business in China.
In the latest quarter, CVI's sales increased by 15 percent to $304.0 million – a rise of 11 percent in constant currencies. The biggest currency-neutral gain – plus 29 percent – was recorded in the Asia-Pacific region, following the acquisition of a Japanese firm in the first quarter and the subsequent launch of new products in the big Japanese market. Sales went up by only 4 percent in local currencies in the Europe, Middle East and Africa (EMEA) region. They rose by 10 percent in the Americas.
The management pointed out that CVI's sales of soft contact lenses grew by 5 percent in constant currencies during the July-September period, whereas the global soft lens market rose by only 3 percent to $1.76 billion according to the quarterly estimates of the Contact Lens Institute. CVI's management predicts that the global market will overcome its recent weakness, particularly in Europe, and return to a more normal annual growth rate of between 4 and 6 percent
Anyhow, CVI performed better than the market in all the three main regions during the quarter: according to the Contact Lens Institute, the market rose by only 2 percent in the EMEA as well as the Americas, and by 4 percent in Asia-Pacific. Comparatively, CVI experienced gains of 5, 4 and 11 percent, respectively.
The expansion of CVI's product range and production capacity in silicon hydrogel lenses made the biggest contribution to its growth. Due in part to the launch of Biofinity Multifocal lenses in the U.S. and Biofinity Sphere lenses in Japan, this family of products generated sales of $103 million in the quarter, 39 percent more than in the same quarter a year ago. In constant currencies, it grew by 37 percent against a rise of 9 percent in the global market.
The strong progress in silicon hydrogel dwarfed a 6 percent currency-neutral rise in CVI's sales of Proclear lenses, which reached $79.5 million in the quarter. In terms of the destination of its products, CVI raised its sales of toric lenses and single-use spheres by 12 percent, while those of multifocal lenses went up by 10 percent.
For the 12 months ended last September, the Contact Lens Institute has calculated an increase of 4 percent to $6.8 billion for the global soft lens market, with gains of 5 percent in the EMEA and the Americas, and 2 percent in Asia-Pacific. Here again, CVI outperformed the market with an overall increase of 8 percent – up by 8 percent in the EMEA and Asia-Pacific and by 7 percent in the Americas.
For its full financial year through Oct. 31, CVI's revenues jumped by 16 percent to $1,121.1 million. Adding the Cooper Surgical operation, the Cooper Companies group achieved a 15 percent sales increase to $1,330.8 million for the year, with 4 percentage points stemming from currency exchange gains. The company is budgeting group turnover of $1,385 million to $1,440 million for the current financial year, including a range of between $1,170 to 1,210 million for CVI, provided currency exchange rates stay the same.
Cooper is thus projecting a decline in the annual growth rate for CVI to between 4 and 8 percent, largely because of temporary problems related to the distribution of its Avaira Toric silicon hydrogel lenses, which is being challenged by the U.S. Food and Drug Administration. After inspecting two of CVI's three factories, the FDA has found no product-specific irregularities, according to the management. Instead, after checking out CVI's distribution center in the U.S., it has discovered faulty packaging and labeling, and this should prevent the company from resuming shipments before April 2012. Similar problems have been found with respect to CVI's line of Avaira spheric lenses, but the company has been able to replace the products and the packaging quickly.
The FDA still has to visit CVI's plant in the U.K., but the company's management is confident that it will not run into any further problems. It played down the impact of the product recalls for its Avaira Toric and Avaira Sphere lens, pointing out that each of the two lines represented less than 1 percent of its turnover and that many customers have agreed to receive instead the corresponding products from CVI's Biofinity line of silicon hydrogel lenses.
CVI's gross margin improved to 61 percent in the latest quarter from 59 percent in last year's fourth quarter, and it would have reached 63 percent without the Avaira recall. The improvement was the result of better manufacturing efficiencies, after the closure of a plant in Norfolk, Virginia, and of a better product mix, thanks to higher prices being charged for silicon hydrogel and single-day lenses.
The group's operating margin declined to 18 percent from 20 percent in the same quarter a year ago, due in part to higher advertising expenses and to a 25 percent expansion of the sales force. R&D expenses were boosted by 24 percent and represented 3 percent of revenues. The operating margin would have risen to 23 percent without two exceptional items: a provision of $6 million for the Avaira recall and a $10 million settlement of a dispute related to the so-called Rembrandt patent.
Cooper Companies reported a net profit of $56.6 million for the latest quarter, up from $48.2 million in the year-ago period. For the full year, net income rose to $175.4 million or $3.63 per share, compared with from $112.8 million in the previous year.
The management's guidance for the present financial year calls for earnings per share of between $4.80 and $5.00, or a range of $235 million to $245 million based on the number of outstanding shares last Oct 31 (49,184). The forecast assumes a gross margin of around 62.5 percent, an operating margin of around 20.5 percent, interest charges of 10 to 11 percent, and a tax rate of 10 to 12 percent.
Strong cash flow allowed the company to trim its debt throughout the latest financial year, reducing it to $380 million, compared with a peak of $900 million in January 2009. The debt-equity ratio declined from 27 to only 16 percent in the course of the past year. The strong balance sheet has led Cooper's board of directors to authorize the company to repurchase up to $150 million worth of its own shares between now and the end of December 2012.
Gene Midlock, who has been chief financial officer of Cooper for many years, delivered his swan song at the company's recent meeting with financial analysts. Greg Matz, who has been vice president of finance since last July, will take over his role. Matz joined the group as vice president and chief financial officer of CVI in May 2010, after working for KPMG, Hewlett Packard and Agilent Technologies. Midlock will continue to head up the group's global tax strategy, however. With minimal manufacturing now in the U.S., the company's effective tax rate has been lowered to 10 percent under his financial management.