[Presentation]
Good morning, and welcome to the 2026 Annual General Mee ting of Cochlear Limited. I'm Alison Deans, Chair, and our CEO and President and Managing Director, Dig Howitt. Also joining us on stage is our Group General Counsel and Company Secretary, Rob McGrory. Sir Michael Daniell, who is standing for reelection today. Professor Bruce Robinson, who is also standing for reelection today. Caroline Clarke, Michael del Prado, Richard Freudenstein, Christine McLoughlin, and Karen Penrose. In the front row is Rachel Gatt from our KPMG, our external auditor. Rachel will be available to answer questions about the audit later in the meeting. Rachel steps down as our lead audit partner this year, and I would like to thank Rachel for her valuable contribution to [audio distortion].
Please ensure that you follow the directions from a Cochlear team member in the event of an evacuation. This is a shareholders' meeting, and only shareholders or their appropriately appointed representatives are entitled to vote and to ask questions today. Questions submitted prior to the meeting will be addressed either as part of the Chair or CEO's addresses, or as part of the relevant items of business. For those in the room today holding a blue or yellow card, to ask a question, please approach the microphone in the center of the room when prompted at the relevant item of business. Wait to be introduced before asking your question. Anyone who requires assistance moving to the microphone, please let a member of our team know.
For shareholders attending the meeting online, you can submit a written question at any time via the online meeting platform by selecting the Q&A icon and then select the topic your question relates to. Simply type your question into the chat box and press send. You can also submit your questions verbally via the telephone line by following the instructions under the broadcast window. Your question will then be transcribed by the operator and submitted as a written question. All questions that are submitted online will be moderated to avoid repetition and may be summarized in the interest of time. All questions from shareholders online will be read by our Cochlear staff member. Our Chair, Alison Deans, will answer all questions initially or may refer to another person for a response if appropriate.
For each item of business, we will take questions from shareholders physically present at the meeting first, followed by questions from shareholders online. We want to give as many shareholders as possible the opportunity to ask questions at the AGM. To do this, we ask that you speak briefly, ask questions of the relevant item of business, and limit yourself to no more than two questions at a time, and then allow others to ask a question. Moving now to voting procedures. Polling is open now, and shareholders are encouraged to vote early. The poll will remain open. You can, however, change your vote up until the poll closes. If you experience any difficulties with the online meeting platform, please call the number on the screen behind me.
During the AGM, the Chair intends to display the number of direct votes and proxies currently held for and against each resolution on the screen. This will be done before any discussion on each resolution. The directors' voting recommendations are set out in the notice of meeting. I confirm that the Chair of the AGM intends to vote all available proxies in favor of each resolution. The final voting results will be released to the ASX after the meeting. I now welcome back our Chair, Alison Deans.
Thanks, Rob. I'd now like to move to my address. Ladies and gentlemen, we are all aware that FY 2026 brought challenges for Cochlear, but it also brought [audio distortion] and our strategy, and it sharpened our focus on execution. The strategy needed to capture the opportunity has not fundamentally changed. Our mission is simple, to help more people hear and be heard. In FY 2026, we helped more than 55,000 people hear with a hearing implant, generating an estimated net benefit to society over the lifetime of these recipients of more than AUD 9 billion. That impact is why we exist, and the scale of the opportunity ahead is even larger, particularly among adults in developed markets. Clinical need is high, yet penetration remains low at around 5%.
Too many people live with severe hearing loss for too long, and the consequences of not addressing it are [audio distortion] vast significant, including increased risk of falls and cognitive decline, as well as loss with severe to profound hearing loss. Today, the majority of children in developed markets who need a cochlear implant get one before they are 12 months old, providing them with a lifetime of hearing. We want to support the same evolution in adult care. The goal is not simply to compete for people already considering an implant, but to expand the market and, in doing so, help many more people to hear. FY 2026 reinforced the need to medicalize the treatment pathway for adults. Over the last year, in channels where we had greater visibility and involvement in the path to surgery, growth remained strong.
This included candidates who came through our direct-to-consumer programs, via established professional networks, or through targeted referral support. But where patients were left to navigate the system themselves, referrals and growth were less consistent and showed low to no growth. This reinforces the need for consistent, clinically led pathways that help patients receive the care they need more often. Over many years, we have built the foundations for this. Compelling and early results show stronger referral activity in Australian private hospitals and a significant increase in quality referrals in the U.K. The focus now is on scaling what works based on clear goals, more medical referrals, fewer patients lost along the way, and cochlear implantation becoming the standard of care for indicated adults. This has been our long-term strategy, and it remains the right strategy today. [Audio distortion] d irector.
Ian brings more than 30 years of experience in patient care, clinical research, medical technology, and commercialization, including nine years as Chief Medical Officer of Boston Scientific. He understands what it takes to move new therapies from innovation into clinical practice. That experience will be valuable as we advance our pipeline and establish cochlear implantation as a standard of care for more adults. Bruce Robinson stands for election today to support an orderly transition as Ian joins the board. On behalf of the board and the company, I thank Bruce for his continued contribution. The board is clear about what is needed ahead, d isciplined choices and operational execution, combined with consistent delivery against the long-term drivers of value. We're confident that the Cochlear executive and wider team are clear about the path forward and motivated to deliver on the growth opportunity of Cochlear.
I will now hand to Dig to explain how the actions we're taking in FY 2027 will turn that strategy.
Nexa is the world's first and only smart cochlear implant system. It has a programmable microprocessor, memory, and upgradeable firmware, both on the implant and the sound processor. Adoption has been strong. By June, the Nexa implant represented more than 95% of sales in developed markets, and we achieved an average 3% price increase. The system is already improving the experience today. People of all ages are spending more hours each day using their Nexa system compared to previous products. It gives us a platform for the future. The Nexa implant delivers better power efficiency, smaller external components, and Smart Sync. Right now, we're actively researching further improvements to support simpler activation, richer measures of neural health, and ultimately, more personalized stimulation. The Nexa system is also the foundation for two important pipeline opportunities, o ur drug-eluting electrode and our totally implantable cochlear implant or TICI.
Both are designed to improve care, and both can strengthen our leadership. TICI, in particular, can expand the market. This year, we completed pivotal studies for the drug-eluting electrode. This electrode slowly releases dexamethasone to reduce inflammation and fibrosis after surgery. Our goal is to better protect the cochlea and potentially improve hearing preservation. We're analyzing the results and planning the next regulatory study. We also completed the recruitment [audio distortion] five . TICI is now in its third generation. Collectively, our TICI recipients have over 1 million hours of experience with their implant. This experience has demonstrated that a successful TICI system must deliver very good hearing outcomes, provide access to 24/7 hearing, manage body noise, be reliable, be safe. Making it easier for people with conductive hearing loss, mixed hearing loss, or single-sided deafness to hear and connect in everyday life.
Our innovation and commitment to recipients have also received external recognition. Our Nucleus Nexa System was named one of Time's best inventions for 2026, recognizing its upgradable implant technology. Cochlear also ranked first in healthcare and life sciences in Newsweek's World's Most Trustworthy Companies for 2026. It is the second time in three years that we have received that award. Our global team supports customers, recipients, and clinical partners in more than 180 countries. In a year of change, Cochlear people stayed focused and continued to improve and develop the business. Employee engagement remained above 80%. Our people are committed to our mission and to delivering better results for shareholders [audio distortion]. In FY 2026, sales revenue increased 2% and revenue growth improved in the second half.
Performance was affected by slower market growth in several developed markets. These external pressures were more pronounced and persisted for longer than we expected. However, the opportunity remains compelling and the core of our strategy remains sound. Our focus is on executing with greater discipline in the areas we can control. We have lowered fixed costs as a share of revenue, we have sharpened investment priorities, and we have strengthened operating discipline, and we will keep building demand. We will keep strengthening referral pathways and the medical channel, and we will keep investing in innovation that improves outcomes and expands the market. For FY 2027, we continue to expect underlying net profit of between AUD 330 million to AUD 350 million, in line with the guidance we provided in August. We know FY 2026 was challenging. We also know what we need to do. Our strategy is clear.
The opportunity is significant, and our focus is execution to grow the market, improve performance, and deliver stronger long-term value for shareholders. Thank you, and I will pass back to Alison.
Thank you, Dig. I'd now like to move to consider the items of business for today's meeting. Item one deals with the receipt and consideration of Cochlear's financial report, the sustainability report, directors' report, and auditors' report for the financial year ended June 30, 2026. These are incorporated in the 2026 annual report, which has been made available to all shareholders. There is no requirement for a formal resolution on this item. However, this item provides shareholders as a whole with an opportunity to ask questions on the reports, as well as the company's financial and business performance. Any shareholder who has a question or comment on the financial and business performance or on the management of the company should raise them now. This is also the appropriate time to raise any questions you may have of the company's auditor.
Shareholders have already raised a number of questions in advance of the meeting today. We' ll start by answering those questions not addressed as part of my or the CEO's address. First, we received a question from shareholder Mr. Timothy Michael Clifton on why we do not offer a dividend reinvestment plan and if we intend to introduce a DRP in the future. We review our capital and cash requirements on a regular basis, but currently, we have sufficient cash to fund the business needs. As a result, we don't currently intend to implement a dividend reinvestment plan. The next question is also from Mr. Clifton about our FY 2026 final dividend and whether our dividends will be fully franked in the near or distant future. The dividend paid to shareholders earlier this month was franked at 85%. That's the same level as the FY 2025 final dividend.
We continue to monitor the availability of franking credits and anticipate that the level of franking will remain broadly consistent. Mr. Clifton also asks about the extent to which Cochlear intends to defend the class action. Mr. Clifton is referring to our ASX release on 29th of September 2026, where we announced that a class action had been filed against us in the Victorian Supreme Court. Cochlear denies the allegations and will defend the proceedings. As you will appreciate, we can't comment further on proceedings currently before the court. The next question is from Mr. Robin and Miss Yvonne [Amey], who ask, "Cochlear reported sales have shown a 5% increase and a 1% fall, yet net profit has fallen 22% and dividends 20% in the same year. Can you explain the disparity?" There are a few factors reflected in these differences.
While sales in constant currency increased by 2%, reported sales were lower due to foreign exchange impacts resulting from strengthening of the Australian dollar. Below the revenue line, profit was affected by a decline in gross margin from 74% to 71%. This was driven by lower manufacturing volumes and fixed cost recovery and an unfavorable shift in sales mix, including lower pricing in China. In addition, operating expenses were impacted by disruption in the Middle East and also by our decision to accelerate restructuring costs. The dividend broadly declined in line with the underlying earnings, consistent with Cochlear's dividend payout policy. Mr. Andrew Robinson submitted multiple questions which have been summarized for brevity as follows.
Can the board explain why the promised Bluetooth LE Audio and Auracast functionality for the Nucleus 8 has not yet been delivered, including whether there are any hardware compatibility or Bluetooth SIG issues preventing the upgrade? When it is expected to be released, and whether this will occur before the Nucleus 9, and finally, what exposure Cochlear may face if the functionality is not delivered. Cochlear continues to develop support for Bluetooth LE Audio technologies for the Nucleus 8 sound processor, and this includes Auracast. Currently, there are no known hardware constraints or Bluetooth SIG-related limitations preventing implementation on the Nucleus 8 platform. As with many emerging technologies, the value delivered to recipients depends not only on Cochlear's implementation, but also on the availability and maturity of the broader ecosystem, including compatible smartphones, operating systems, and third-party devices.
Cochlear is working to ensure that any implementation delivers a high-quality, reliable, and clinically appropriate user experience across this ecosystem. Release timing remains under consideration as part of Cochlear's normal product development, testing, and validation processes, and we will communicate availability through standard customer channels when it's appropriate. The next question is from Ms. Elizabeth [Cometto] on how the company intends to retain market share and develop further on the biotech area with the high cost of ROA and extreme difficulties of manufacturing in Australia due to cost and small population. We think that when referencing biotech and ROA, Ms. [Cometto] is referring to our tech innovation and to R&D.
We continue to invest and develop market-leading implant innovation across our R&D sites, not just within Australia, and there is an exciting pipeline of implant products like the drug-eluting electrode and the totally implantable cochlear implant coming to the market over the next few years. Similarly, we have a diverse manufacturing network which optimizes our supply chain economics while also leveraging the benefits of co-location with R&D in Australia in accelerating innovation. We also have a question from Ms. Julie Matheson, who asks if the board can disclose the annual cost to shareholders of measuring, managing, and reporting Cochlear's net zero ambition, including carbon accounting, supplier emissions data, and external assurance, and if the board believes net zero will change Australia's climate, and if so, by when.
We don't separately disclose an annual cost for climate measurement, management, and reporting because the work is integrated across our sustainability, finance, procurement, and risk management functions. External assurance is part of our broader reporting obligations. Most of this activity is required under Australia's mandatory climate reporting regime and aims to support better management of energy, supply chains, and regulatory risks. Cochlear doesn't suggest that its action alone will change Australia's climate. Our responsibility is to manage our own impacts and risks and meet our reporting requirements. The next pre-submitted question comes from Mr. John Lui, who has asked a number of questions, which again, we have summarized for brevity. Mr. Lui asks what Cochlear is doing to address the stigma around deafness and hearing loss in wider society, including promoting accessibility inside and outside of the workplace.
Reducing the stigma associated with hearing loss starts with greater awareness and understanding. Cochlear works globally to raise awareness of hearing health, support advocacy efforts, and promote earlier diagnosis and treatment of hearing loss. We work with healthcare professionals, researchers, governments, and organizations such as the WHO World Hearing Forum to encourage hearing to be recognized as an important public health issue. We also support initiatives that help people with hearing loss participate fully in education, employment, and community life, consistent with our purpose of helping people hear and be heard. Accessibility should be built in wherever possible, rather than leaving individuals to carry the burden of advocating for what they need. Within Cochlear, we're committed to listening to employees and recipients with lived experience and continuing to improve our workplace communication practices and facilities.
Mr. Lui also had constructive feedback on our facility tours, and we will review how we can make that experience more accessible while recognizing that different people may require different forms of support. Our final pre-submitted question is from Mr. Ronald West. He notes that the annual report states that the company is reducing fixed cost to invest in growth and margins. However, the financials do not reflect any reduction in fixed cost. The actions being taken are focused on changing the shape of our cost base, not simply reducing the expenditure. Also, many of these actions were implemented late in FY 2026, so the financial statements include only a limited in-year benefit. FY 2026 also includes significant restructuring costs. The reshaping is aimed at reducing fixed cost in order to increase the variable expenses, which can be focused on near-term growth initiatives.
The team are also focusing on improving the efficiency and effectiveness of this variable expense. Over time, this more flexible and scalable cost base is intended to create room to invest in growth while delivering improved margins as revenue strengthens. Are there any questions in the room on this item of business?
Chair, I would like to introduce shareholder Ray Tolleson.
Thanks, Alison. A couple of questions. Firstly, on what are Cochlear's plans for continued investment in Epiminder, which by the way I understand was one of the reasons for the downgrade, I should say, in profit because of the marked market. That' s not the concern. I'm just curious about whether Cochlear intends to retain its interest in Epiminder.
Right. If we think about the why we invested in Epiminder, it's part of our long-term strategy for investing in innovative technologies. Over the last 10 years, we've invested in a number of innovative technologies, and the idea there is to focus on technologies which will either provide value to our core product or will enable us to leverage our core technology into adjacent therapies. We think of our core capabilities as being implantable neurostimulation in the head. Epiminder is very much consistent with that focus. Should also say that the investment in Epiminder was made. We started investing in Epiminder nearly eight years ago when it was a very early-stage company. Consistent with our strategy, we made modest cash investments in the company, and alongside that, we provided in-kind technology support and input.
As a result, the Epiminder technology is closely related to the Cochlear one. The Epiminder business has progressed over those years. It went through an IPO about 12 months ago, and then over the period following its IPO, it experienced significant decline in its value. The number that you-
In its value or the share price-
In its share price. Thank you. In its share price. Good point. The number that we reflect in our annual report is the decline in that share price while it's listed. Should also say that because our investment was made at a relatively early stage, starting eight years ago, the amount that we invested in Epiminder in a cash sense was relatively modest, which is consistent with the strategy. I think if we think about Epiminder, we're disappointed in the share price, but we're not surprised. You often see fluctuations in the valuation of early-stage technology companies, particularly when they're publicly listed. Consistent with our strategy, what we are focused on is adjacent therapies that may, over long periods of time, have strategic value to Cochlear. Epiminder remains consistent with that strategy, and so our involvement with them continues.
I do also want to be clear, it's relatively modest investments of cash. R&D in-kind collaboration, which then gets reflected in shares. We do it in a way which does not distract from our core focus on hearing.
Thanks for that very comprehensive response.
Of course.
I' ve forgotten the name of this company that a number of years ago we bought a part of a company, just the cochlear implant part. As I said, it is a bit embarrassing I've forgotten the name of it. How is that going? Because it was loss-making at the time, but it was increasing the number of actual patients, clients. I just haven't heard anything since.
Yeah. I think you are talking about the Oticon acquisition.
Yes.
At the time, Oticon had both an acoustic business and a CI business. We initially were interested in acquiring both of those, but the acquisition of the CI business was blocked. Excuse me. Did I say it the wrong way around? Sorry. The acoustic business. Acoustic business is blocked, the CI business was acquired. Our reason for doing that was to ensure that the CI recipients who had an Oticon implant would continue to receive good care, because that's important for them as individuals, but also for the therapy as a whole, and credibility in the market. We continue to support those CI recipients with an Oticon implant.
So-
We also have, I think I would say that through that, we also have a team of R&D people from that acquisition who have some interesting technologies that have also been brought into the broader R&D activity.
Can you tell yet whether that is now a profitable bit of the overall thing?
It' s very much integrated into the whole business, and the idea was about credibility and confidence in cochlear implantation as a therapy. It is a relatively small number of individuals who are involved, and so it's not significant on its own. It was important for credibility and confidence in CI implantation.
Thank you very much.
Okay.
Chair, I would like to introduce Steve Mabb.
Good morning, madam Chair. My son has a cochlear. He was one of the first children in Australia with single-sided deafness to get a cochlear, so very familiar with the technology and the patient journey. We have a wonderful product. I have just got a question around capital allocation here for you. The job of any good CEO is to allocate capital really well, in my view, and drive levels of performance higher than its industry. Dig has been with the company for a long time. He has been in the CEO role for eight years now. Effectively, he has been responsible for deploying all of the capital that we have at work today in the business collectively over that time. During his tenure, earnings per share and sales per share have grown at about 3% a year.
If I add back in the Epiminder impairment from last year, it is 6% or 7%. It is only just a little above inflation if we add that back in. During the COVID period, we sold shares in a capital raise at a really high discount, as was evidenced by the size of the oversubscription in the capital raise. The last couple of years we have been buying back shares between AUD 260 and AUD 300, close to all-time highs. During that entire tenure, shareholders have lost about 20% of their money. Today I have heard from both of you that we have got the right strategy. It is our long-term strategy, and we are sticking with it. My question is, what hard evidence does the board have that we do have the right strategy, given all of that?
Yeah.
What am I missing?
Yeah. It' s a good question. Over FY 2026, and particularly towards the end of FY 2026, I think we all went through a process of reviewing the assumptions underpinning the strategy and the way that we were executing that strategy. For the board, that included engaging with a variety of external shareholders to validate what we're hearing. That included engaging with clinicians, including surgeons and audiologists. It included engaging with operators in the healthcare system, so from hearing aid referrers through to hospital operators, payers, providers, et cetera, and government. We did that both face-to-face in the U.S. as well as in Europe. Based on that, we have taken that insight back to the boardroom and to challenge the assumptions that are underpinning it and to make sure that we do have the right strategy.
I think that's the basis on which we do think the underlying, I've said it before, but the underlying thesis remains. It is a valued therapeutic intervention, which is proven and has great health economics and reimbursement. What we saw during FY 2026 were some headwinds, but particularly in the case of the navigation of the care pathway for adults in developed markets, and that's where the focus of effort is going to be.
Okay. Thank you.
Cool. Sorry, Dan.
Chair, I'd like to introduce Vikram Malhotra.
Good morning, Chair. My name is Vikram, as I said. I'm interested in knowing whether Cochlear would like to diversify into bionic eye implants. I've been reading about it and wondering if it is a good fit into the strategy. Thank you.
Okay. The first thing I'd say is that we are very focused on realizing the opportunity in hearing. We have a great therapy, and it has a lot of growth opportunity in attractive markets. That is our number one focus, is doing that. Alongside, we do have modest investments and amount of time spent on adjacent therapies. What we focus on are things where we can use our technology. That really is about implantable neuromodulation, and at the moment that doesn't include any therapies in eyes.
Okay. All right. Thank you.
Thanks.
Chair, I would like to introduce Anton Yopp.
Good day. I have written this one down just to follow up. It is a great product, so good work on that. KPMG has audited Cochlear for decades without the firm itself ever being put to a competitive tender. In the past 12 months alone, KPMG's Australia CEO, Chairman, and Head of Audit have all resigned after an investigation confirmed KPMG staff misused confidential client board papers, including Lendlease's to win audit contracts. ASIC is investigating partners over it, and Dexus has already dumped them. That is not a foreign problem. It is KPMG's Australian audit practice. My question is simple, and I would ask the board to answer it directly. Will Cochlear commit to a competitive tender for the external audit? Yes or no?
If the answer is no, please explain specifically why decades of unbroken tenure with one firm, whose Australian leadership just collapsed over the exact type of integrity failure an auditor exists to prevent, is better governance than simply testing the market.
Okay. Thank you for the question. I might unpack a few things and then get to the yes/no.
Sure.
I will get to the yes/no answer. The first thing I would say is that we are confident in the audit quality that we currently have with KPMG, and that is a result of both the professional standards, audit partner rotation, as well as the quality control processes of KPMG and also the oversight by the board. We are comfortable with that, the audit quality. Oh, sorry. Then in light of the external events, we did meet with KPMG's leadership, both here and globally, and they have confirmed that Cochlear's information was not used for any purposes other than the intended purposes and under the right confidentiality protocols. Secondly, that none of the Cochlear team are being investigated with ASIC. That said, the question you ask around audit tenure is a different one.
First of all, in terms of independence with audit tenure, you are right. We go through auditor rotation and that is overseen by the Audit Committee. But we have said for some time that we recognize the long tenure of KPMG, and we also recognize the value of fresh eyes, but also recognize the challenge of transitions. While we were going through some transitions, we said it wasn't the right time to tender for the audit. That included the transitions in audit chair, transition in CFO, and also the transition of our finance platforms. Those transitions are completing in FY 2027, and that is the right time for a tender, and we have decided that we will go for a tender in 2027.
But I do really want to be clear that that is not a reflection of the quality of the audit services we have had from KPMG, and it is not a reflection of our confidence in the integrity of the audit process and also the value of the rotation that has happened so far. Hopefully that answers your question.
Yeah, it does. Thank you for that.
Okay.
It is a good thing.
Chair, I would like to introduce Dan Steiner.
Chair, thank you. To the CEO, thank you. Both very good quality presentations. However, I want to go back to Epiminder, and the answers I have received are good, but what I have read is that Cochlear are now a 39% shareholder in Epiminder. Is that correct?
It is around there. I can't remember the exact number, but that is about right.
With that high proportion of investment, is there an intention for Cochlear to have a member or a representative on the Epiminder Board because it is now a public company?
Okay. First thing I would say is that the investment made was over a period of years starting eight years ago, and that shareholding is also a reflection of the contribution made in terms of R&D. Not in any way the cash contribution. I think we currently don't have a member of the Cochlear executive on that board, and that's actually a conscious choice that we want our executives focused on the core business and on their roles inside Cochlear and providing support to Epiminder.
I want to find out whether the information I read is correct, and that is at the IPO, what was the amount of cash that Cochlear paid to receive the 39% or the 30+% shareholder? Was it AUD 100 million?
No. No, it was not. No.
Okay.
No. The amount invested was significantly lower than that, and it was because we invested the cash at an early stage, and also that we provided in-kind contribution which was through our technology partnership, which was reflected into that number. It was very much lower than AUD 100 million.
If I could move to a second question.
Certainly.
Government support for implants and upgrades has changed. Because of my accent, you will recognize why I focused on this. The United States has a Secretary of Health, which is anything but responsible. But the Health Department also has influence over the amount of government investment in hearing and hearing devices. Has the U.S. support for hearing devices, whether they are implants or upgrades, had any significant change in the last year or two?
No. If we look at the U.S. in particular, there has been no change in the government support for Cochlear implants and upgrades in the current administration. The headwinds in the last year were really around the delays in insurer approvals and also friction in that self-managed pathway, not a change in government support.
Going back in history, Cochlear, and I'm certain Dig would understand this, there was a commitment by a Chinese individual, not in mainland China, but in Taiwan, to provide a very substantial amount of compensation for Cochlear implants, particularly in young people. Did that get concluded? Had all of that promise been fulfilled?
I'm actually going to ask Dig to answer that. It might predate me.
Yes, Dan, you do have good memories. That goes back, I think, to about, it might have been 2009 or 2010. But yes, there was a very significant donation from a business in Taiwan to provide implants into China. At that point in China, the only way to get implants was private pay. There was no government support. Implants were provided under that donation just about every year, up until about the last year. So, the donation continues. It has not finished yet, or had not been completely fulfilled. But at the same time, the local support in China, government support for implants, has increased significantly. So that need for that donation has declined, and we've seen the volume that goes through there.
The more recent increase in Chinese support for that, I'm assuming, was influenced by the decision of Cochlear to establish a significant facility in China, and that facility is involved in the manufacture of hardware and has limited impact on the formulation and installation of firmware. I hope I'm dancing around this carefully, Dig.
Let me answer where I think you're heading. China remains a strategically important market for us. Over the last 10 years, we've increased our presence in terms of direct marketing and sales, product availability, and we've also built the factory in Chengdu for about AUD 100 million. And now, I think over 60,000 people in China rely on Cochlear for their ongoing hearing. So it's an important market for us. We also see strong support from the government and their health officials in terms of the importance of hearing in a variety of ways. The changes in reimbursement in the special zone will affect the sales of high-tier products manufactured elsewhere to China. And we are conscious everywhere in the world of where we conduct our research, where we conduct our manufacturing, and where we invest in distribution.
Thank you.
Okay.
Chair, I'd like to introduce Raja Rajag opal from the ASA.
Thank you. Thank you. My question is a follow-up to the comment you made on the way you locate your R&D and manufacturing facilities. This is not to make a case for India, but I think I brought this up last year as well. There have been quite a few changes around the world, and one thing that's happened in India is the growth of what they call global capability centers. These are company-owned facilities or groups in India, which serve the global needs of their parent companies. It's not restricted to IT alone. I do believe that Cochlear has an opportunity to build one such center at very low cost because of the availability and the possibility of siting such places in India, where you already have some kind of operation.
That is one thing that I was hoping that the company would look carefully into. The other reason I'm saying it's worth doing that, given the pressure on your margins, if you notice someone like, this year, Apple announced a 31% increase in their sales in India. This is for the Apple phones. There were long queues. Even if the market is not very big, it's going to grow very rapidly, and it won't be a reimbursed market. I think for the long haul, it may be well worth the company revisiting this issue.
Lots of things in there. But I will start by saying that in all of these issues, we take a very long-term view. And you are right, we look at the long-term potential of, say, India, China, all these markets. And if I think about that in terms of R&D, we also take a very long-term view in terms of the technologies that we are bringing into a pipeline over many years. We have a concentration of R&D in Australia and in Belgium, but we have collaborations with universities, I think over 100 collaborations with universities. I do not know if you have met Jan Janssen, who is the Head of R&D, but I'm sure he would be happy to talk to you during the break about India specifically, and how he thinks about the R&D opportunities there.
Okay. Thank you. My second question relates not directly to Epiminder, but indirectly to the company's strategy regarding R&D. And you said you spend 12% and have been doing so consistently, and that's laudable. It's just that I feel that the risk and the way the company managed its investment in Epiminder gave the company a sudden need to write off a huge number, relative to its P&L of close to AUD 100 million. So my question is not the fact that it happened, but pharma companies, the ones I used to work in, or in Unilever, we used to manage this quite carefully. And when you accumulate what happened in Epiminder, that's why you had a loss.
Whether it was in kind or in cash, it really doesn't matter. It just built up till the IPO, and then you had to knock it down and take the write-off. So my question really is, what impact this will have in the way you manage your innovation fund and portfolio? There must be some, because you can't have this happen again, surely. Okay.
Let me try again at explaining with Epiminder. The total cash and in-kind contribution was significantly less than the number that was being held. The valuation that we record at the end of each year is based on an assessment of the value of the business, not our contribution to it. And so back to the, if you look at the total, the number we do talk about is the total amount spent on the innovation fund over a 10-year period is about AUD 200 million, and a significant amount of that was concentrated in one other investment. So it really is these relatively modest cash amounts, but the valuations going through our accounts each year reflect the increase in value of that company as seen by the auditors.
I think what it means is that consciously, we look at the underlying net profit, excluding the increases in those valuations and excluding the decreases in those valuations. We want to see it as long-term investments, small amounts of cash and in-kind in each one for long-term strategic value.
Yes.
Okay.
That is a good explanation, but still, when it happens, when you take a bath like you did this year.
Yeah.
It' s very hard on the investor or the community to understand that. It's just that I thought it might be worth reflecting on how you manage your investment fund, and your investments in R&D in the future. Maybe worth looking at, just so that y ou don't have these sudden surprises.
Okay. We will take that on notice. Thank you.
Thank you.
Chair, I would like to introduce Kerry Bible.
I've been a shareholder in Cochlear since the early days and have been very happy with it because it is a very good company and it is good quality and you are doing something good. However, I am a bit disappointed this year. Not only has the share price gone down, but your net profit has gone down 22%, yet your sales revenues was 1% higher, which means you seem to be working harder for less profit. You said in your report that the China reimbursement is down. The first part of the question is, are you doing anything to try and improve that? Have you made something to the government to try and do anything about it? Have you been given any positive feedback with it?
With the TICI expansion, which looks really good and I think that is going to be excellent for most people, is there a further reimbursement for that? Because I would imagine it's going to be more expensive and governments would need to increase their reimbursement, and that may be a negative for people adopting it.
Okay. I think there are three thoughts in there. Thank you. The first one around the growth in revenue and working harder for lower profit. I hope that I explained previously the impact on gross margin, which comes from the lower volume, and also the impact on operating expenses, which was primarily due to our choice to restructure the business. It is one-off choices around restructuring the business to set us up for that longer term, n ot even longer term, s et us up with a lower fixed cost and more scalable and efficient business. I hope that explains the gap between revenue and earnings growth. In terms of China, we have a team in China who are always in contact with the relevant authorities in China and regulators and putting forward the case for reimbursement.
We will see how that plays out in the special zone, but we've made our plans according to the current reimbursement for the special zone, which has now been taken away for the high-tier products. In terms of TICI, we do see TICI, as Dig said, as a real opportunity to grow the market. It addresses some of the barriers to adoption of TICI. We are also conscious that it will only be a valuable product in growing the market and reaching more people if we do have a number of characteristics to the product. Among them is having a cost-effective way of manufacturing that and being able to do it at scale. Greg and his team with Jan are working very hard on how to make sure that what we end up with is a cost-effective product.
Chair, I would like to introduce [Miklesh] Sharma.
Good morning, Chair and all the board. I've been a great fan of Cochlear for a very long time, when you were in Lane Cove. In fact, I missed a job. I was a preferred two candidates. I was one of them b ut I was working at Sydney Uni at that time. But the technology that you had in those days was quite basic. The way it grew, it set up my mind that, yes, this is going to grow. That' s why eventually I became a shareholder. It is going more than 40 years now. I think you used to be on Lane Cove.
That's right.
Yeah. So that's where I went for the interview. Now I'm just a shareholder, not following the technology, but, as some of the investors have said, that this impact we have had recently, how long will it take the company to recover from that? Whether it was investment in Epiminder or are there other competitors who are also working in parallel that you are aware of, who can actually challenge us with the new technology that Nexa or the TICI are going to offer in the marketplace?
Yeah.
That's my question.
Great. There's a lot in that one too. I would start by saying, repeating the thought that we are still confident in that long-term opportunity. The 5% current penetration of adults in developed markets means that there is significant opportunity just in those developed markets. We're also confident in the market leadership in terms of the technology. We still have around 70% market share in developed markets. And the launch of Nexa has had 95% adoption of the new technology, as well as a price increase and retained market share in most markets. So those fundamentals of the business are still strong, and we're also confident in the product pipeline that Dig has been talking about around TICI and DE, as well as the adoption of Nexa. So those fundamentals are there.
That said, the return to those growth paths depends on building more consistent pathways for adults in developed markets to reach a Cochlear implant, where I think we are quite clear that that is the biggest challenge ahead. The two ways we do that, one is around the mechanisms we already have for engaging with potential recipients to help them on that pathway to receiving the right care. We're clearer about the need to double down on those, and at the same time, we're clear about the need to move towards the medicalization because that is the one which will have the biggest long-term driver on growth in the market. How long it will take to return to those growth paths is harder to determine. We are also conscious that we need to deliver on the forecasts that we set for the year.
We have been very thoughtful about the fluctuations that we see in demand and not assuming any strong rebound in that self-navigated pathway, and instead thinking about what we see in the supported pathways. It's interesting that when we talk to most shareholders, it is that growth in developed markets which they see as the biggest driver of long-term growth. I think Epiminder is seen in the context of those small investments for long-term value and the fluctuations in value that'll happen along the way. The main focus is about restoring growth in developed markets.
Are there any other players or-
Oh, yeah.
Competitors who are working on that? I just wanted to comment on one anecdote. I went to another show, Techno, some other show, and there are small companies like Nuheara. You must have heard about that. These people say, "Oh, Cochlear is not required anymore. They are so expensive," and this and that. We are offering very competitive products. Although they are only working on partial hearing rather than the total hearing products or devices that we provide. But there are so many other companies, which I'm not sure why they think that they are sort of trying to compete with Cochlear. But when you hear these things, as an investor or even shareholder, or even in technology from technical perspective, it shakes you that, oh, what's the reason? And how this technology is unique and implemented for total loss of hearing.
Yeah.
What other competitors are coming up?
How do we look at competitors?
Yes.
Can I summarize how we think about the competitive landscape? We have two strong competitors. We have 70% market share in developed markets, but 30% belongs to those other two. We treat those competitors seriously. We look carefully at what they do, and we make sure that we are going to have more competitive products over time, and also that we build the relationships in the market and with the clinicians that lead to long-term trust and sustainable growth. That' s in the traditional. The other thing, we do look at emerging technologies, and Jan has a team that focuses specifically on what are the emerging technologies that will either create a threat to the existing Cochlear environment or equally might be an opportunity for us to bring in. As a board, we review that once a year.
We look through that lens of the broader landscape of technologies, as well as more specific near-side technologies. We take all of those competitors seriously. We look at the long-term threats and opportunities, but we are comfortable with the current products and the pipeline, and I think that is best demonstrated by the current market share as well as the couple of awards that were granted recently.
Great. Thank you.
Okay.
Chair, I would like to introduce Antoinette Emmanuel.
Good morning. My question relates very closely to the previous question that was just asked. But as TICI has already been launched in Europe by a competitor, what is the expected impact on Cochlear's global market share now that TICI is already available in Europe?
Yeah, so if I talk about the competitor MED-EL's approach to TICI is quite different to ours. We're focused on developing a product which will grow the market. To do that, we're conscious of having a product which has a familiar surgery, which means that it doesn't increase surgery time. We're also conscious of having one which does have noise canceling, and we're also conscious of making sure that the product's scalable and cost-effective. So that's the product that we are focused on bringing to market. In the meantime, MED-EL have announced their product in Europe, and there are two different countervailing factors that will go on. One is that it raises awareness of the therapy, but the other is that it might shift towards MED-EL's product, noting that the MED-EL product has limited availability and a high price and a long theater time. We'll be monitoring that carefully.
Could I just add to that a little bit? I have heard about the MED-EL product, and I've heard people speaking about it, and are our health professionals in Australia up to date with how to answer a question about TICI?
Yes.
Yeah.
Yes, we have communicated carefully with all our clinicians to understand what we think makes a successful, a good TICI implant, and what we are focused on delivering. And they will make their own choices, but we have definitely communicated with them our approach. Yep.
Thank you.
Chair, I would like to introduce Ray Trenerry .
Good morning. It has been answered, I guess, just previously to when I came up here about the TICI product. I think it's a tremendous idea. Now I was going to ask, I just heard in passing that there was a competitor doing similar sort of things, which has come to light as being MED-EL. Since it is fully internal, like a pacemaker or something, when you come to do upgrades and replacements and that means you have got to go in for surgery again.
Um-
Whereas, if it was the external one, just plug in, plug out.
It's a great question, and the answer is no. Because the idea of our internals and Nexa is that it is upgradable.
Well, how do you upgrade if it's already stuck in there?
What I don't know how much we want to get into the specifics, but it will be upgradable.
Okay.
If you think, we will need to have a way of charging that device.
Yeah.
Along with that charging comes an opportunity for upgrading as well.
Oh, okay. Yeah, because it has come to light, in Europe especially, elective surgeries, waiting times have gone through the roof. This is like an elective surgery, as is all Cochlear implant type stuff. So it is okay identifying people who need the product and also cases of upgrades and that, but the doctors just are not there to do it anymore because it has been put on the back burner in terms of priorities.
What I would say is that as we work on increasing the consistency of referral, we are also conscious of working with the clinicians in terms of their capacity, and that includes audiologists as well as surgeons. So ensuring that they have capacity, and that also relates to the priority that Cochlear has in terms of surgical capacity. So we're very conscious of working on all of those.
Okay. Another question. We've got a great product, and we have got an obvious market, and it is growing, and it is a big market. Most of it has not been served yet. Then we say, the service chain here of people identifying themselves as being necessary, then going to a practitioner who then says, "Oh, yeah, you need a Cochlear implant" or something like that. Yeah, so that whole going through the steps to actually acquiring a Cochlear implant or something similar. I was thinking, and I guess you have already thought about it, too, but say with macular degeneration, have a simple test. You put up a grid, and you put that on your fridge. If that grid looks like it is all mishmash, well, then you better go get yourself checked out for macular, right?
Can we have one or two simple tests that the public can do themselves and say, "Hmm." Like, I do not know, if a bomb went off next to you, would you hear it?
Yep.
They are very simple, straightforward tests.
Yep.
Even if the recipient, even the person who could be a recipient is not aware of it, my member in their family might say, "Well, that's you. Go and get yourself checked out." When we get to the practitioner, who may not be a specialist in audiology or whatever, he also has a couple of maybe more nuanced tests, which again, will pick up the worst cases. It will not pick up everybody, but it will pick up the worst cases.
Yeah.
You grow your market, and at least that way you progress the steps up. Just simple tests, which-
Yep.
Yes or no.
Yep.
Then you get there because, well, you follow the worst-case-scenario type tests.
We like the way you think. It is also the way we think. Dean, our Head of Global Marketing, is sitting in the front row and smiling and nodding, and that is very much part of the approach to creating this standard of care is having simple tests that people can use for their own self-referral. Then particularly when people get to a clinician, what's the simple test that indicates you should do a referral to a CI clinic? It's not a diagnosis. It's a referral trigger, and it's exactly that. The work that is going on in direct to professionals, so working with professionals, particularly in the U.S., is around exactly that idea of what are the referral triggers and where do you send that person?
You do not have to pick up everybody.
No.
If you pick up 10% of the people you want to pick up.
You don't.
That is the market.
It's not a diagnosis. They might not all need a CI.
Yeah.
But making sure that they go on for further assessment. Yep.
Yeah. To me, it is a sales job, okay? Between having people who need the product and having a product-
Yep.
How do you sell it to the people in between-
Yep.
To push that product at them? But, yeah.
Very much that. Thank you.
Just one comment.
Of course.
I shouldn't say anything because it's China, but did we get caught in a bait-and-switch game here where we build our factory, and they say, "We'll subsidize your products," and then once you've got the factory, "Well, okay, we're pulling back on our subsidies"?
No, I don't think we did. China remains an attractive market and a big strategic opportunity. It has changed.
Yeah, but there's always strings. There's always strings with China, you know?
It's still an attractive market, big strategic opportunity. It has shifted somewhat because of the special zone, but it's still an attractive place for us to operate.
Okay. Thank you for your time.
Okay. Thank you.
There are no further questions in the room, Chair.
Thank you. Do we have any questions online?
Chair, we have received the following question online from Mr. Peter [Cariero]. With artificial intelligence as part of the way businesses operate, what are we doing to improve the AI skills and knowledge of our board and staff?
Thank you. I think as we all know, AI is moving at pace on many dimensions. And we are, in the organization, looking at ways to use AI in many of our processes across the organization. It' s an area that both executives and the board are conscious of developing their skills and knowledge and understanding. I think one of the things we've seen in the last year, and in fact we were talking about it on Friday, is that there has been a real increase in the demand and curiosity from our staff to know more about AI. And when they have more confidence in AI, both in terms of using it safely and also in what it can do, that's when we see the implementation really take root.
We are investing in training and education in the organization of all the staff because that helps them adapt to the change as well as bring those benefits to the organization. I think all of the board are conscious of the importance of AI, and I know that we all engage in different forms of education and ongoing knowledge development around the area of AI.
Chair, we have received the following question online from Mr. Stephen Mayne. Just a small follow-up to that excellent earlier floor exchange on the audit situation. Have you determined as yet whether KPMG will be invited to tender in 2027? Market practice is mixed on this question with long-serving auditors. Where have we landed?
I would say we have not yet made a decision on whether KPMG will be invited to join that tender. The tender process will be overseen by the Audit and Risk Committee, led by Karen Penrose, who is an experienced Audit Chair.
Question from shareholder Mr. Stephen Mayne. After our shares traded above AUD 300 for much of 2024, it was a shock to see the share price crash below AUD 100 in May 2026. But at least it has since recovered to AUD 144 today, albeit after dropping almost 2% this morning. No other ASX-listed stock has ever dropped by more than AUD 200. If we had our time again, what would we have done differently, both in terms of market announcements and strategic decisions? Surely a 40% drop in one day is simply unacceptable. Who has been held to account for that, and what procedures have we changed to ensure this never happens again?
Look, I think we've covered quite a lot of that in the course of the addresses and the questions so far. I think what we have done is reflect diligently on what do we do now. We're clear that there were a number of external headwinds that emerged or developed simultaneously over a short period of time, and what we're looking at is how do we respond to those changes. I think the team have looked at how do we. One of the main changes was around bringing forward the accelerating that reshaping of the cost base, understanding where the softness in the growth was really happening and why, and in reshaping the cost base, making sure that we can take resources and put them to use in that near-term growth opportunity.
I think we understand how that emerged, and I think we understand the management response, and we have stress-tested that in a number of ways.
Chair, there are no further questions online.
Okay. Thank you. The next item of business is the adoption of the remuneration report set out in pages 104 to 127 of our 2026 annual report. This resolution is advisory only and does not bind the company or the directors. The report contains information on the company's remuneration framework and outcomes for the financial year ended 30 June 2026 for the CEO and President and other key management personnel. I now ask that the direct votes and proxies be displayed on the screen. Thank you. Before we take questions from the floor, we have one pre-submitted question on this item. The shareholder asks, how is the payment of bonuses justified when substantial executive salaries are paid, particularly when the share price remains low and has not increased over the past year?
Our remuneration framework is designed to attract and motivate a world-class team of executives and to align them with long-term shareholder value. Their remuneration includes fixed pay as well as short-term and long-term variable incentives. We recognize that the earnings and share price performance for FY 2026 have been disappointing. We note that this outcome is reflected in the long-term incentives. LTI outcomes are linked to earnings growth and relative shareholder returns. As such, the long-term incentive did not vest. The short-term incentives are only awarded when predetermined financial and strategic performance measures for the year are achieved. These measures are set out in a scorecard for the year, which is disclosed in the remuneration report. For FY 2026, the scorecard produced an outcome of 37% of target. This reflected limited achievement of financial goals, but good delivery in year against some important strategic priorities.
The board then applied discretion to this scorecard outcome. As a result, the CEO received no short-term incentive, reflecting ultimate accountability for the earnings downgrade and shareholder experience. Other executives received the scorecard outcome, adjusted for their respective responsibilities and contributions. We did this as we think it's important to reward the executive team for delivering on priority strategic initiatives that lay the foundation for long-term value. Are there any questions in the room on this item of business?
Chair, I'd like to reintroduce Ray Tolleson.
Thank you.
Hi.
The use of relative total shareholder return is a bit of a complicated beast in that it does include the share price. In this case, the share price went down, and it all looks bad, and the executives don't get their bonus. But maybe the market had figured out it's been a very high PE for a long time, for starters, and maybe reality's kicked in. In this case, there was also another reason in that the profits were not what was expected. But just say the alternative was there, and executives end up, "Well, we've just got our bonus. Nothing we can do about the share price in the long term." So really, to me, it's a demonstration of the case why relative total shareholder return should not be used.
In fact, my attention's been drawn to annual report from Monadelphous, totally different company, that sets out, in very clear terms, why EPS growth is the preferred measure over something out of the control of the individuals who are supposedly being incentivized something. So I doubt that you will be able to change that because the various institutions love it, but it's really not an incentive if it's something you can't control.
I completely hear your point. It is definitely one where different shareholders have different views and opinion. As you say, executives have far less control over the share price than they do over certainly EPS. Again, back to the scorecard is largely controllable. As far as possible, controllable results.
Chair, I'd like to reintroduce Dan Steiner.
I notice in reading the report and the particulars about the remuneration report, there's reference to changes in the STI framework. One thing that was highlighted was underlying net profit is now one weighted component, and the scorecard is worth 15%. What was it previously?
Yep. Prior to FY 2026, we had a gateway, an NPAT gateway across the STI. The team had to achieve a minimum level of NPAT in order to get any STI. In FY 2025, that gateway wasn't met, and as a result, the STI did not vest. When we reflected on that outcome, we realized that a better way to do it was to put the NPAT alongside the other STI metrics. What that means is that in a year where the financials may not be vesting, there is still the opportunity for the executive team to have a short-term reward based on delivering those long-term strategic foundations.
The reason we think that is better is because we do want the team to take those long-term foundations very seriously and continue to focus on those, and not have undue impact due to the NPAT and also not have a temptation to short-change those.
If I can respond to your repeated reference to longer term outcomes. We have a long-term incentive program. I'm talking about the short-term incentive program.
Yeah.
I've been invested and watching Cochlear for well over a decade, almost two. I certainly appreciate that this technology company, with its extraordinary collection of world expertise, has many different objectives to achieve that don't directly impact on what shareholders will get each year or each day, et cetera. I probably need my memory refreshed, but the KMPs is less than six?
Yes, less than six. I think it's three.
It is only the KMPs that face an STI?
No, the whole of the executive team have an STI.
Okay.
It is just disclosed for KMPs. That is just an accounting rule.
Well, I will be interested to see how we go next year when that particular threshold has now been shifted a bit.
On your point on short-term and long-term, I want to be really clear that the STI scorecard reflects very specific metrics and milestones delivered in the year but t hey are ones that will relate to long-term outcomes. That' s why we think it is important to maintain that focus on achieving those milestones that will drive long-term value.
In terms of incentives, there are two sources, STI and LTI. Has the relationship or the ratio of STI to LTI changed at all? Is the STI incentive, and I am putting them in terms of the fixed remuneration. Ha s the proportion that is STI changed to equal to, less than the LTI?
I know that a few years ago, we had an increase in the LTI to reflect market practice. So that would have been an increase in the longer-term incentive. There was no change in this year's balance of STI, LTI opportunity.
Thank you.
Chair, I would like to reintroduce Steve Mabb.
Thank you. I have got some of the same concerns about removing the short-term profit gateway, given we did not hit the number this year. It's convenient to be able to remove it. You've also introduced retention payments this year for some of the key management. I assume because we didn't hit some of the incentive targets they were looking for, but there is no disclosure of what is required for them to achieve those payments beyond staying employed. Very difficult to vote intelligently on a REM report without disclosure of those metrics. We have got to take it on trust that there is good metrics there. Then finally, you are using Black-Scholes options for the LTI. The way that they're calculated this year, they are worth about three times to the management team what they would be if we were just issuing share rights.
My question there is where can I buy some of those options at AUD 46?
Sorry, let me unpack some of those. If I miss some of those questions, let me know.
Sure.
If I focus first on the, actually, first shifting the NPAT from a gateway to a component. That was decided at the beginning of the financial year. That was not a retrospective choice.
Okay.
And we wouldn't do that. The second part is that the additional LTI. Here's the logic to that. The LTI does perform an important role in the total remuneration mix, particularly around rewarding long-term value, and alignment with shareholders. Not only did it not vest in FY 2026, it is unlikely to vest for the next three years. Looking ahead at the gap of four years to the next time it vests, because we're on a four-year cycle, what we wanted to do is introduce a level of alignment and motivation around that long-term shareholder value into year two and three. To be clear about that, the CEO does not receive the additional LTI.
That award is entirely performance-based, and it will be aligned to long-term measures, but adapted for that two to three-year period, and to the idea of it being a closer line of sight for executives to achieving those. Also, this is an FY 2027 remuneration, and that's why it will be built more substantively into the FY 2027 remuneration report. Yeah. I think that was all I was going to say. Did I miss any?
Options? Do we really need to use options?
We've consistently used options for certainly the time that I've been here on the board. It's 50% of the LTI comes in options, and 50% effectively in shares. The role of options is to encourage greater growth. It just rewards greater growth, and that's why we've enjoyed having that mix, but it's something we continue to review.
Okay. Thank you.
Chair, there are no further questions in the room.
Thank you. Do we have any questions online?
Chair, we have received the following question online from Mr. Stephen Mayne. Did any of the proxy advisors recommend against any of today's remuneration related items, and have there been any protest votes against them? If so, please detail which firms recommended against, and why. Also, please disclose the proxies earlier next year, along with the formal addresses in order to provide more timely market disclosure and to allow for a more fully informed AGM. Many companies, including our own share registry provider, Computershare, do this. Why can't you?
First, in terms of the proxy advisor recommendations, all five of the major proxy advisor firms recommended voting in favor of the remuneration report. I don't believe there are any protest votes that we are aware of. In terms of when we disclose the proxy and direct votes received prior to the meeting, we do that before the discussion related to that topic, and we find that that actually is a better place to do it in terms of the natural flow, but we will continue to look at that practice.
Chair, there are no further questions online.
Thank you. Can you please cast your vote now on this item? The next item of business is the election and reelection of directors. in accordance with Cochlear's constitution, Sir Michael Daniell and Professor Bruce Robinson are retiring at this AGM and standing for reelection. The board has determined that both of the directors standing for reelection today are independent and bring impartial judgment to bear on board decisions. Michael Daniell is the first director standing for relection. Michael's background has been set out in the notice of meeting, and I'll now ask him to speak to his reelection.
Thank you, Alison, and good morning, everyone, and thank you for the opportunity to speak with you today and to seek your support for reelection. My involvement in medical technology spans more than four decades. Throughout that time, I have had the opportunity to contribute to innovations that improve the lives of millions of patients and to support the clinicians who care for them. I was Managing Director and CEO of Fisher & Paykel Healthcare for 15 years and continue to serve on that board as a non-executive director. I'm also currently a director of the Medical Research Commercialisation Fund and of digital radio communications company, Tait International. My experience extends from early-stage research and development, clinical evidence generation, regulatory approval, quality systems and manufacturing, through to global marketing, international sales, and the widespread adoption of new technologies by clinicians and patients.
Alongside that operational experience, I bring many years of governance leadership and shareholder engagement. It has been a privilege to serve on the Cochlear Board for almost seven years. I' m a member of the Product and Services Innovation Committee, which I chaired for five years until July, as well as the Audit and Risk, Medical Science, and Nomination Committees. As Dig mentioned in his address, FY 2026 was challenging. I have worked through such periods before, and I believe that experience, together with that of my fellow directors, strengthens the board's ability to provide considered strategic guidance, effective oversight, and constructive support for Cochlear's highly capable team. Our shared focus is on creating long-term value by enabling more people to benefit from our technology and by addressing the significant health and social impacts of untreated hearing loss.
I believe I can continue to make a meaningful contribution to achieving that. Helping people to hear and be heard is a remarkable mission. Integrity, strong governance, and a relentless commitment to innovation and improved outcomes remain at the heart of our success. I would be grateful for your support and the opportunity to continue contributing to the future of this exceptional company. Thank you.
Thanks, Mike. I now ask that the direct votes and proxies be displayed on the screen. Are there any questions in the room on this item of business?
Chair, I'd like to reintroduce Dan Steiner.
Right.
Madam Chair, my question is not related either to the qualifications or my intention to vote in favor of both Sir Michael and Professor Robinson, but my question relates to the board. It is a question to you, but you can postpone the answer until after the elections if you wish. Skills matrix is something that a number of companies introduced recently, and some of them do it better than others. I think that what Cochlear does is a very good achievement, but in reviewing the skills matrix, and it's not identifying individual directors' skills, it's the board. I notice that very high expertise in areas like technology risk management, great. It includes or doesn't include cybersecurity, and when I go to the other end, there are highlighted squares is how you present this. The fewest highlighted squares relate to sustainability and research.
This is a company that spends more than 10% of its money on research, so I'm wondering why that is so low. But the question really relates to when you bring people onto the board, they bring enormous expertise, knowledge, context, networks, all of that. But from time to time, and right now you mentioned AI, are there measures in place that will enable non-executive directors to obtain, education is the wrong word, but to obtain access to knowledge that will help them exercise their responsibility as directors of this company more effectively in the areas that have emerged since many of them have been appointed directors, technology grows all the time.
I'm sure you get a lot of presentations from within the company on technology relevant to that. AI is something that I just learned how to spell it recently. So it's an emerging thing that we're all struggling with. And what I'm wondering is, does the board go through a process where it offers or expects non-executive directors to extend their knowledge, their understanding of a number of issues that will then raise the overall level of expertise in areas where that is medium or low? Again, my vote is in favor of the directors. My question relates to the chairman.
Great. Thanks, Dan. What I would say is that we have an ongoing program of director, we do use the word education, and I can talk a little bit. And that includes areas related to understanding of Cochlear and its environment, as well as these topics that are more emerging themes within businesses and within the director community. So we review that education program every year. We actually were looking at it on Friday, and that is one of the things that we do bake into a forward education program internally. At the same time, most directors are conscious of their need to stay current in terms of these emerging issues, and they will themselves find opportunities to increase their understanding and fluency in these issues. We need people to be fluent enough to oversee. We don't need them to be the practitioners of.
I do know that a number of my colleagues are actively engaged in developing their knowledge and understanding of AI in particular. I think the other one you mentioned is sustainability. We're comfortable at the moment that we have the appropriate level of understanding to oversee those sustainability issues for Cochlear and in a Cochlear context, but we continue to invest in the education around those. I think the other thing I would point out is that most directors, if not all directors, work across multiple organizations, and these are common themes across the organizations that we work with. So we end up developing a richer context by having that experience across companies as well.
Chair, I'd like to reintroduce Steve Mabb.
Yeah.
Just a quick question on chair succession. I think in 2024, Alison, you mentioned this was going to be your last term. Assuming that is still the case, have we got any candidates in mind for potential chair succession? For Michael particularly, given Michael's wonderful track record running Fisher & Paykel and compounding over many years, if your fellow directors felt you were the best person, are you open to chairing our company in the future?
If I talk first to the I don't think we have made any announcement about chair succession dates to be-
You mentioned it in 2024.
Did I? Okay.
Yeah.
But we do consider chair succession actively on the board, and we ensure that we have enough options to be able to manage chair succession. There are two non-independent directors who are managing that process from a succession perspective, and that is not me. And they are two people who are not going to be considered for the chair role but have the confidence of their colleagues to manage that process, and we will make an announcement when we are ready to.
Okay. Thank you.
Cool.
There are no further questions in the room.
Do we have any questions online?
We have received the following question online from Mr. Stephen Mayne. In relation to director elections, could you please explain what caused the 9.5% protest vote against the reelection of Independent Director Karen Penrose last year, and the 12.6% vote against vote she received in 2022? What is the issue, and have there been any material protest votes against the two directors up for reelection today, Sir Michael and Professor Robinson?
Look, I think we covered the votes on related to Karen at the time of her election. I think the people for election today are Sir Michael and Professor Robinson, and there is no protest vote against those two directors.
There are no further questions online.
Thank you. Please cast your vote now on this item. Bruce Robinson is the next Director standing for reelection today. Bruce's background has been set out in the notice of meeting, and I'll now ask him to speak to his reelection.
Thank you, Alison. Ladies and gentlemen, fellow shareholders, I thank you for the opportunity to speak with you today regarding seeking support for my reelection to the board of Cochlear. I' m currently a practicing clinician and a medical researcher at the Royal North Shore Hospital in Sydney. My practice is predominantly in endocrine tumors, and my research focuses on clinical trials of new drugs to treat these cancers. I also serve as Chair of Mayne Pharma Group Limited and as a non-executive director of Healius Limited, both ASX-listed healthcare and life sciences companies. Healthcare is being transformed by advances in medical science, technology, and clinical research. My experience across clinical medicine, research, and healthcare innovation helps me to contribute to the board's oversight of Cochlear's clinical and research activities, and its commitment to delivering improved hearing outcomes for recipients.
Cochlear continues to invest strongly in clinical evidence and innovation, including studies to expand access to treatment and next-generation technologies. As Dig has outlined in his address, this includes important programs such as the Nucleus Nexa System, as well as drug-eluting electrodes and totally implantable cochlear implants. I'm pleased to contribute to the board's oversight of these initiatives as we work to help more people hear and be heard. I also have a role in overseeing Cochlear's clinical strategy and management's implementation of the quality and regulatory frameworks that support our implantable devices program through the Medical Science Committee, which I chair. In addition, I serve on the Product and Services Innovation Committee, which focuses on Cochlear's innovation strategy and research and development activities as we continue to advance technologies that improve outcomes for recipients.
I do hope that you will agree that my skills and experience in understanding how innovation is funded by governments and health insurers, how clinical medicine is practiced, and how clinical trials and basic science advances occur all equip me to contribute to this amazing company. Finally, following his appointment to the board in December, I will work closely with Professor Ian Meredith to support an orderly transition of relevant board and committee responsibilities. Professor Meredith will join the Medical Science and Product and Services Innovation Committee, and I look forward to sharing my knowledge and experience with him as part of that transition. I look forward to and hope for your support. Thank you.
Thank you, Bruce. I now ask that the direct votes and proxies be displayed on the screen. Are there any questions in the room on this item of business?
Chair, there are no questions in the room.
Thank you. Do we have any questions online? Do we have any questions online?
No, there are no further questions online.
Thank you. Please cast your vote now on this item. We now move to the next item of business, the approval of the long-term incentives to be granted to the CEO and President. As stated in the notice of meeting, the terms of Cochlear Equity Incentive Plan mean that an exception to ASX listing rule 10.14 applies. Nevertheless, the company is seeking approval for the grant of long-term incentives awards to the CEO and President, Dig Howitt, as it is the company's practice to do so and reflects good corporate governance. I now ask that the direct votes and proxies be displayed on the screen. Are there any questions in the room on this item of business?
Chair, there are no questions in the room.
Thank you. Do we have any questions online?
Chair, we have received the following question online from Mr. Stephen Mayne. In 2023, CEO Dig Howitt gave a reasonable answer to the standard AGM questions on historical LTI vesting and share trading, but didn't really address the share trading element. How many shares in the company, if any, has he held since becoming CEO in 2018, and what was his average selling price? Also, what proportion of his potential LTI performance rights have lapsed over the past three years? Please don't say look it up in the annual report or through ASX announcements. It's complicated, and the CEO could answer the question in 60 seconds.
Look, I might have a go at answering that question first and then see if Dig wants to add anything. Since being appointed the CEO, Dig has increased his shareholding from approximately 25,000 shares to over 64,000 shares, and that is about 1.8x his minimum shareholding requirement. In terms of the vested or lapsed, the average vesting across the three awards was 45%, and therefore 55% have lapsed. Do you want to add? Is that correct? Do you want to add anything?
I think the annual report is the best source for all this.
I would go for that, too. I hope that answers the question.
There are no further questions online.
Thank you. Please cast your vote now on this item. The final item of business is to vote on the special resolution to reinsert the proportional takeover approval provisions contained in the company's constitution. I now ask that the direct votes and proxies be displayed on the screen. Thank you. Are there any questions in the room on this item of business?
Chair, there are no questions in the room.
Thank you. Do we have any questions online?
Chair, there are no questions online.
Thank you. Please cast your vote now on this item. Are there any shareholder questions that haven't been addressed today at the meeting?
Chair, I'd like to reintroduce Ray Tolleson.
Thank you. Just to add one more on the TICI thing, which we've heard lots about. Once there's a reasonable uptake of TICI, how do you expect that'll affect the services revenue and hardware upgrade cycles, which are quite frequent at the moment, and provide a reasonably predictable level of revenue? If the TICI is implanted for years, what will be the level of hardware upgrades do you expect? Presumably none physical for quite a few years. Is that likely to affect the revenue on that side of things?
Did we talk about this?
Yeah.
Yeah, we did. Good. I should probably point I am just checking that we do disclose this. The TICI is totally implantable and you can hear with just the TICI. Our product will have an external, which will allow improved hearing in noisy environments, and because of the microphones implanted under the skin, that you will get an improved hearing outcome with an external. There will continue to be sales of externals.
Oh, that is nice.
Okay.
From a shareholder point of view. Thank you.
Okay. I think it is nice from a customer perspective, too.
Chair, I'd like to reintroduce Steve Mabb.
Sure.
I started with a capital allocation question. I'm going to finish with one as well, if that is okay. Really good to get some more clarity around Epiminder today and how that has worked. There is a looming capital allocation question coming for you then, based on what you shared today, and that is that it is a loss-making business, and they have enough cash to get them into 2028 according to their current financial report. Given we own 1/3 of the company, based on what we know today, are we going to be tipping some cash in when they capital raise, or are we going to be diluted?
I' m very conscious we've had a lot of conversation on Epiminder. It's a publicly listed company and there are questions to address to them. We have not made any decisions about our future role there.
Okay. Well, you have about 12 months probably to figure that out because it's coming at you one way or another. Thanks.
There are no further questions, Chair.
Thank you. Do we have any remaining questions online?
Chair, we received the following question online from Mr. Stephen Mayne. Who are the two directors managing the chair succession process? Are they being supported by an external party such as recruitment firm? Are we considering any candidates who are not currently on the board?
I think what I'd say is that the two people managing that process have the confidence of the rest of the directors, and they're managing that process. I have given input to that process, but it's for them to manage that and to work through the appropriate announcements. My understanding is that they have engaged with external advice on that as well.
Chair, there are no further questions online.
Thank you. That concludes the discussion on the items of business. Voting will close five minutes after the conclusion of the meeting. If you have not already done so, please ensure that you cast your vote on all resolutions now. The voting results will be released to the ASX as soon as they are available. We will also post the results and a recording of the AGM webcast on the AGM webpage of the Cochlear website. This brings us to the end of the 2026 AGM. I now declare the meeting closed, subject to the finalization of the poll. For those of you who have joined us here at Cochlear's headquarters in Sydney, please join us for some light refreshments in the room outside.
In addition, management have organized a tour of our on-site manufacturing facility, and this is a great opportunity to see firsthand how our innovation is translated into solutions that help deliver life-changing hearing outcomes for recipients. Have a good day, and thank you for your participation today.