Thank you for standing by, welcome to the Cochlear Limited FY 2023 results 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 would like to ask a question, you will need to press the star key followed by one on your telephone keypad. I would now like to hand the conference over to Mr. Dig Howitt, CEO and President. Please go ahead.
Thank you. Good morning, everyone. Thank you for joining us for our results update. Let's get straight into the presentation. As always, we start with our mission. Our mission as always guides what we do. It guides our strategy and been particularly important over the last three years as we've navigated the various challenges that the world has thrown up. Let's move into our results. I'm certainly quite pleased with the results that we've got in the last six months. 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's obviously down 10%, 6% in constant currency.
There's really two factors driving that. One is the increase in cloud computing expenses, which we had talked about. 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. Overall, we're in a strong financial position in terms of the balance sheet, able to maintain a dividend the same as last year. Stuart 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. Now let's look into each of the revenue lines, starting with cochlear implants.
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. In developed markets, we saw strong growth in the U.S. 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. Also Western Europe. Some good momentum in Western Europe coming out of COVID. The Nucleus 8 Processor has been important in that, albeit late in the coming out late in the half.
We think the share has lifted slightly as a result of Nucleus 8, clearly most of that growth in developed markets is actually the market growing. In emerging markets with the 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, governments withdrew the lower-priced tender funding. We've seen that come back over the last 12 months and particularly the last 6 months, 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 wanna make there. They are, first of all is that our developed market pricing is being flat. There's no change there. 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. 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 their Nucleus 7 for a Nucleus 8.
In that case, we don't recognize the revenue on the sound processor until people have had that opportunity to swap. 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. Obviously that revenue comes through. We expect that deferred revenue to come through in this half. That's why that gap between the 14% and the 9%. Let's move on to services. Services were flat. That's, you know, we expected services not to grow in the half with the announcement of Nucleus 8 in August. Then availability later in the half.
Obviously some people held back on an upgrade until that was available. We did see a strong lift in upgrades late in the half. Still very pleased with that performance, particularly given the strength of first half 2022. You can see that in the chart. First half of 2022 was also a strong performance for upgrades, and particularly it being late in the, in the cycle for Nucleus 7. 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 driving growth over time.
Certainly having Nucleus 8, now out there and very well received, the features and functionality of Nucleus 8, stand out and we're getting that feedback. We think that will continue to support both our CI systems but also, services over the cycle. Then on to Acoustics. Acoustics, 70% growth in constant currency, another strong half. You know, 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 Osia. The rollout of Osia continues. We continue to make sure that we do the work country by country to get appropriate and suitable reimbursement for Osia.
As we do that, and as we roll out into a country, we see pretty quickly a transition from passive acoustics, so it's Baha, through to active acoustic, which is Osia. We expect that transition from passive to active to continue, country by country around the world. 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. We've really got the COVID rebound, the rollout of Osia and Baha 6 Max, to the existing recipient base driving acoustics. 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. With that, I'm gonna hand over to Stu to talk through the P&L, the balance sheet.
Fantastic. Thanks, Dig. Morning, everybody. Dig's already spoken about the strong sales lines, 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. We expect to stay in that range for the full year. We do anticipate about a half a percent headwind in 2024 as Chengdu starts to go online. You'll see a pretty significant jump, 19% lift in that selling, marketing, and general expenses. Couple of comments on that.
First off, that's all investment 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 2022. In 2022, 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 2022, we're only up about, I think, 3% or 4%. There's also some N8 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. We're also starting to see some Oticon transaction costs flow through that line as well. 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, AUD 100 million-AUD 150 million in total. We think that spending is going to peak this year and into next year. We're very much where we'd expect to be, about AUD 12 million up on last year, and AUD 17 million for the half. If we go on to the balance sheet, next slide.
Biggest change here is the movement in working capital, it's really all in those first three lines. Receivables are up. We've sold a lot more, actually quite a lot of that back-ended in the half. N8 launched very late in the half, again, receivables up for the right reason. We're selling more. Inventory up a small amount to AUD 15.5 million. 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. 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. The EBIT result, down, but really a function of, as Dig has flagged, two things there. The increased cloud spend, so the AUD 17 million, up AUD 12 million on last year, half-on-half. Also we had an abnormally high EBIT result and an NPAT result in half one last year, where revenue came back faster than expenses. Very happy with the EBIT result and probably more of a normal, more balanced half one, half two picture relative to last year, which was very heavily skewed. The only other thing to call out there is just that net change in the investments line, the AUD 17.9 million down. That's a combination of us putting in. Oh, sorry.
That's the investment going into Precisis. And then on to the dividend. Couple of things here. First off, dividend, AUD 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 AUD 1.55, 35% is gonna 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 our 2020 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, as we don't want to reduce it all at once. We also think doing that would not be in the best interests of long-term shareholders. What we'll be doing is looking to aim at a set point of net cash of about + AUD 200 million and to get to that point over time. Certainly over a number of years. We will reaffirm that set point and the amount we intend to spend every year.
For the next 12 months, we'll be aiming to spend up to AUD 75 million buying back shares with that long-term set point of, as I said, AUD 200 million net cash. Maintain that 70% dividend payout ratio. With that, I'll hand you back to Dig to talk through the outlook.
Thanks, Stu. Before I get into the outlook, I think the important thing is our coming through the last three years or so is our long-term strategy is absolutely intact. The demand for 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 Nucleus 8 is another example of that, as is Osia. 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.
Our strategy intact, and we're committed to continue to invest as much as we can within the guidelines we set for our for our P&L to drive future growth and maintain technology leadership and use that technology to facilitate growth as well. As we look into the second half, we anticipate continued good sales revenue, strong, good growth, getting that underlying net profit margin back to 18% through this half from 17% 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're 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. With the signal processing, being better adapted to suppressing background noise, to adapting to people's environment more, more seamlessly, making it easier to live with, and get best hearing outcomes for our recipients. A very strong product. We do still see that, you know, 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 2022. 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 in certainly through parts of Western Europe. 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. Also in the labor market again, you know, 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.
Therefore, there's still some pressure on wages. Definitely some improvement, but still some uncertainty out there. We remain a little bit cautious, albeit the business is in a very strong position, and we have underlying momentum in the sales. We will keep investing in our strategy. We will continue, as Stu said, to invest in the cloud computing through this year and into over the next few years. CapEx is broadly in line with normal, and the dividend policy will stay at 30%. We're not, don't have anything. Don't assume closing of the Oticon Medical acquisition in this half in our guidance. With that, we'll open up for questions.
Thank you. If you'd like to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on speakerphone, please pick up the handset to ask your question. Your first question comes from David Low with JP Morgan.
[audio distortion]
David, good. Good to hear. Look, we've said up to AUD 75 million through this first year. You know, and as you said, this will happen. Our intention is for this to span several years and therefore, you know, you'd think we'd keep buying with some variability in the share price, but obviously with, you know, within reason. Yes. No, that's a good interpretation. Yeah, look, if the sales come in higher than we expect, we would look to invest. Yes. You know, we, I think we, you know, the way we look at this, 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.
Sort of the faster we can get that in, the better, 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 you know, stay broadly within the guidelines that we set. Thanks, David. Yeah.
Andrew, thanks for the question. Look, in emerging markets, the pricing is down a bit because it's the lower priced tenders where that volume has come back. If you looked at our ASP in emerging markets, it has come off a bit. The point I was making in developed markets, pricing is flat. With Nucleus, we do have some opportunity to increase the pricing in a few places, we, you know, we'll take that. It's really, you know, that gap is largely between the 14 and the 9% is deferred revenue. I hope that answers your question. I think some people are having trouble hearing questions. We'll repeat the question just to make sure that they come through clearly. Sorry, Andrew.
[audio distortion]. Expect most of that to come back. We've got, you know, probably AUD 15 million, AUD 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 come through in the second half. Across there. Thanks, Andrew. [audio distortion] It's hard to. Certainly we thought we're pleased with the growth we saw in the U.S., Steve.
There's always a number of factors that drive growth. The opening up of indications we're certainly hearing people talk about it in clinics and surgeons talk about it. 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 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 before they get to surgery. 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's, we're seeing more people come through there. You know, that change is a little bit older. The question was for our folks on the line 'cause we know there might be some technical issues. Will we quote what the U.S. growth rate is? I'm sorry, yeah, thanks to you, I said I'd do that, and then I didn't. I was too keen to answer the question or actually not answer the question. Look, yeah, one more than 10% in developed markets. You know, I think that's sort of sufficient information.
You know, there's always a line here of our competitors would like, Some of this information is more valuable to our competitors than it is to investors in granular detail. Yes. 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. 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 2024, we can see about a half a percent potential headwind from Chengdu costs as that plant comes online. Thanks, Steve.
[audio distortion] Can you split that out at all? Just wondering with Osia, where are you in terms of the rollout, into different countries? Like, how many other target countries have you placed at this stage?
Yeah. Gretel, thanks. The question is on Acoustics growth and what of that is driven by Baha and what's driven by Osia and where are we up to in the Osia rollout. No, we don't split that out, but obviously we get a 20% growth. Both Baha and Osia are growing strongly. Both of those continue to grow strongly. You know, looking forward, we expect Osia to continue to grow strongly, given that in Baha 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 Osia, the rollout now 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 a quite a rapid shift in many clinics from Baha to Osia. 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. We're seeing some growth there, but we know it will take time because we're actually developing the market as we go. Strong growth in Latin America for Osia, where we've able to get approval and get access relatively early on. That's growing strongly. They're the major parts of the world. We have other countries, but they're the ones where we've 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 and some work to do. 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. Thanks, Gretel. Question's on Oticon Medical and where are we up to and, you know, how is that progressing with the regulatory authorities. We remain confident that we'll get the acquisition through. You know, 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.
You know, fundamentally, this, 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. You know, the benefit of the acquisition for us is really 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 a much greater level rather than having just 2% of the potential market.
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 Osia. 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. We're working with the competition regulators in the U.K. and Europe and in Australia to, you know, work through their questions and the detailed understanding of the markets. We remain confident that we think the approval should come through late in this in half. Thanks, Gretel. [audio distortion] One, the gross margin across different product.
Question was on gross margin and why it hasn't changed given the mix change. It's really a function of two things. 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. 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, 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. It's one of many things that we're trying to juggle to land the result for the full year. That's why we stay focused on that headline guidance. You know, growing the top line of 10%-12% into R&D, 25% into COGS, and dropping 18% post cloud out the bottom.
[audio distortion] on Chengdu and what you think that can get to in terms of overall, cochlear's capacity to supply the market, the sorts of products and ASBs 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, Dig.
Yeah, Sean. First of all, we're both well, thank you. 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. 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. That's with the market being largely children, so enormous potential for adults over time. You know, we built this factory with a, you know, really, at least a 30-year forward view of what the market could be.
We built it with significant capacity to supply China and potentially supply some other markets. We'll start in a small way. Over the next 12 and 18 months, as we get approval for our products. We have now approval for the CP802, which is a older generation sound processor. We'll start there. We're aiming to get implant approvals in about the next 18 months. We'll start carefully. You know, maintaining quality is the most critical thing as we ramp up this factory. We'll be very vigilant.
As we do that, we do think by having a stronger presence in China and by manufacturing in China, we'll be well positioned to continue to hold a good share, but and also to grow in line with that market. I'm not gonna go beyond detail view. I'm not gonna 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, you know, not our intention to try to do anything other than meet the market from a pricing perspective this stage. Yeah, N8 has rolled out in range of country, perhaps more than normal for this stage of a launch.
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 low-risk products. And parts of Asia-Pacific now also getting access to Nucleus 8. Still early days, but available in a lot of countries. But in terms of penetration, look, still, you know, 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 8, obviously, in new systems in those countries it's available. In terms of upgrades, we think we'll, you know, continue to drive upgrades as that, as our recipient base grows.
[audio distortion] Were you thinking that, or is it simply higher than that going forward?
Dave, thanks for the question. The question is, what do we expect on the penetration of Nucleus 8? You know, we talk about 50 % in developed markets and should we expect more from Nucleus 8? 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've talked about, we sort of shifted our thinking since we've launched the Kanso product range and the off-the-ear processor. 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 with an off-the-ear and the BTE.
What we, you know, what we talked about at the last result was there were some signs that penetration within the year had lifted slightly, and at that stage we weren't sure if that was because it was catch up from COVID or the work that we're doing to raise awareness on upgrades. I think we haven't got more clarity on that over the last six months, just given the timing of the Nucleus 8 launch and people holding back. Certainly, very pleased with where we ended up. We, you know, hope to learn more over the next 12 months as to are we, is our work making a difference in terms of upgrade penetration versus just the increase in the base driving the lift in upgrades.
[audio distortion] You know, the losses expected, given, you know, what we're seeing in terms of those losses from the market supporting and including the investment required. Thank you very much.
Yeah. The question is what if Oticon acquisition goes ahead, what do we expect to see, given it's a significant loss-making business, what will be the impact on us? I'll hand over to Stu just to talk about our thinking there.
Yeah, look, no change in thinking, at this stage, Dave. We're still looking at the purchase price of AUD 170 million and then the restructuring cost that we'd flagged last time around. No, no news on that.
That restructure was AUD 30 million-AUD 60 million we said. Quite a wide range. Until we actually get, the acquisition goes through, we don't get, you know, we only get certain visibility.
[audio distortion] Can I start with some of the COVID recovery volumes? It was made mention of the announcement with acoustics and also with the emerging market. Do you have a sense of how much backlog is left? Also, you didn't mention in the developed market discussion, does that mean that the backlog from COVID is largely cleared in the developer?
Yeah. Leanne, thanks, the question is, to what extent are backlogs from COVID sort of both still there and driving sales? 'Cause we certainly did mention it on acoustics and on emerging markets. What about developed markets? Let's start with emerging markets and cochlear implants. There it wasn't so much a backlog as the government withdrew funding and now they're putting that funding back in place. I suppose to some degree, yes, there were the 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. I wouldn't think of that in terms of a backlog, because the rate limiting factor there is the government funding.
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. 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, and acoustics there, I think it was an explanation of, you know, we look at that growth over the last 18 months as pretty impressive. What I was saying there is, part of that growth is because the acoustics volume fell so much as a result of COVID.
Again, it's not so much backlogs now other than if you look back over 18 months, it was a very depressed figure. 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 system. Look in, you know, in Australia as an example, there's a buildup of elective surgeries. People know in the U.K., you know, in the NHS, there is a buildup.
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. Does that sort of make sense? It's hard to separate these things. We're not so worried about COVID, albeit, you know, countries like Japan still impacted. More about what is actually underlying audiological capacity or hospital surgical capacity country by country.
[audio distortion] AUD 5 million this year as progressive. You, can you assume that the quantum will be larger as the years progress?
Yes. The question was, will the quantum of the buyback change as the years progress? We're gonna commit to the amount each year, and that's partly in line with ethics guidelines, and we think it's a prudent thing to do as well. And at this stage, we're comfortable saying we wanna get there over a period of multiple years. At this stage, we're looking at, you know, 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 years. Thanks, Leanne.
Your next question comes from Mathieu Chevrier with Citigroup.
Good morning, Dig and crew. Thanks for taking my questions. [audio distortion] .
The question. Thanks for the question. Question's on China and the more recent impact of COVID cases on our sales. What the answer is. Actually, we've seen a relatively limited impact. The COVID cases certainly surged, you know, very significantly. We saw that with our employees. 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. The performance in China, you know, has been pretty strong. Again, remember, this is surgeries mostly in children, that, you know, children do tend to get priority access because time is so critical.
The question's on patent dispute between Advanced Bionics and MED-EL and did that have an impact on our first half results? Two parts to that one is, we don't wanna 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 can determine. Thank you.
Okay. [audio distortion]
Yeah, David, great question. Thanks. 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. What are we doing to change that? This is absolutely core to our strategy. There is for adults, no clear and consistent clinical path from a hearing aid through to an implanted 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. We're doing several things to invest in that. We are working directly with consumers.
So that's the, our direct consumer promotion and awareness to raise consumers' awareness of alternatives other than hearing aids for people for whom a hearing aid doesn't give them a very good outcome. In several countries, Germany, Australia, U.S., 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. 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 any 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 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 sort of between 70 and 80 decibel hearing loss. What we hope that study shows is that cochlear implants are clearly give a much better hearing outcome than do hearing aids. The other part of this is showing that hearing loss is a serious medical condition.
Medicalizing hearing loss, 'cause it's not seen as a medical condition, a treatable medical condition, that has consequences beyond hearing loss in many, many places. The work that Frank Lin 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, and even causal of other significant medical conditions, and that treating hearing loss reduces those conditions. I think, most highest profile of the studies that Frank Lin's 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 three years.
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. You know, 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. 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.
This is core to our strategy. It's the reason why we wanna continue to invest as much as we can within the guidelines we've 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. So yeah, so Dave, the question is where do we think industry growth is now? As these, you know, what do we expect to happen given these are longer run programs?
Certainly if, 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, two points of that might, is market share, the rest is market growth. You know, that's a six-month growth number, so that, it's pleasing to see. You know, we will wait to see if that sort of growth rate sustains. The thing about these programs is they are incremental. 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. It's not as though, you know, we do all this investment and then at some point everyone just switches over. It will be step by step. 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. Dave, the question is on what's our market share. Look, you know, we think we've got about 60% of the total market in the cochlear implant side, and that's just looking narrowly at implants. You know, if you look at that against actually potential, we've got about 4% or 5%.
You know, the main competition here is hearing aids, high-powered hearing aids. That's really where, what we're competing against. 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. Next slide. Craig, thank you. The question is, have all emerging markets put their tender funding back in or are some not? The answer is no, not they haven't all put it in. 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, you know, haven't got fundings at the levels that they have had previously. There are many factors that go in. 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 that about 20% growth in implants in emerging markets in the half. Yeah, the question is, you know, what's the opportunity for us to put price increases through given where inflation is? Craig, it does vary by market. You know, with Nucleus 8, we've put price increases through in markets where we can. In some markets, the price is just set by the government.
It's set, you know, 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 it's worth trying. In others, the market's 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 basis of better, you know, better technology and better patient experience. Where we do have the opportunity, we are pushing for price increases, but also cognizant that, you know, in many of our markets there is limited capacity. You know, if you look over the times, again, our developed markets 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. When we do see our pricing hold, we're pleased about that. If we can get increase, we will. As Stu was talking earlier, the work on driving efficiency through the business to maintain that gross margin is very important for us. We've been successful so far. Obviously we intend to continue to maintain that success of holding the gross margin.
[audio distortion] What is the impact or if you could quantify what that benefit might have been?
The question is just on the rates we're using in the guidance are a bit different to where we started the year. We try 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 where, you know, where the rates actually go. It's been more complicated in the last half because sort of U.S. dollar's gone one way and the euro's gone the other way. It had a sort of a mixed impact. Thanks, Craig.
Thanks, Dig, sorry to come back on, just wondering if you've quantified the amount of transaction associated with Oticon that you've taken above the line in this half?
Yes, Steve. Question on did we quantify the cost with Oticon? The answer is no, we didn't. It's a single digit, low single digit millions.
[audio distortion] 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 to governments and therefore the credit terms are much longer anyway?
Sorry, question on the receivables growing, but as we said, grew sort of more strongly late in the half on the back of an N8 launch. Is it to do with payment terms for governments? Look, certainly, you know, different customers have different payment terms. Depends on a lot of factors. We're not seeing that be a significant driver of that number. I guess, you know, if we look at the underlying components of it's really two things. One, very strong sales, and two, very good collections.
I think the 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 those the cash for the sales we're making, and they are doing that at an unprecedentedly good level. If we look at the receivables, sort of the health of the book, it's very strong. So it's much more a function of just selling more. As I said, we did see a kick up late in the half on the N8 launch.
Thanks, Stu.
Question comes from Shane Ponraj, Morningstar.
The implant units in the result, but the revenue is deferred. Is that right?
Yeah, Shane. The question is on the technology exchange, what do we record in terms of the implant unit and revenue? Yes, we do include the implant unit in that 14% growth. We include the revenue from the implant, but not the revenue from the processor. 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.
As to being a reason for the discrepancy between the revenue growth and the unit growth.
It's the main reason. Yes, the main reason.
[crosstalk] -revenues for the implants?
Yes. 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. As people do the exchange, it comes from deferred revenue into revenue. In this half, we will see that deferred revenue come back through the revenue line. Over the year, I'd expect that you won't see that difference.
Yeah, got it. Thanks. Was that program is in developed or emerging markets?
Only in developed and only in a subset of our markets.
Okay. That's all I had. Thanks very much.
All right. Thanks, Shane.
There are no further questions at this time. I'll now hand back to Mr. Howitt for closing remarks.
Okay. Just to close off, thank you all for joining and, I look forward to, seeing you all or talking to you all in six months' time. Thank you.
Thanks, everyone. Thank you.