COVID-19 pandemic hits Cochlear and Suncorp

Cochlear Suncorp ASX COH SUN COVID-19 pandemic

The COVID-19 pandemic has continued to have a big impact on Australian companies, with the latest being Cochlear (ASX: COH) and Suncorp (ASX: SUN).

Cochlear chief executive officer Dig Howitt said it was still too early to predict the true impact of coronavirus on the hearing implant maker, which is in “unchartered territory” due to economic slowdowns and pauses on elective surgery.

“The reduction [in treatments] happened in line with our expectations — but it’s still very difficult to determine what the outcome will be,” Mr Howitt said.

JobKeeper will help cut costs

He told analysts the company would take advantage of JobKeeper subsidies and has slashed spending after a drop in revenue of 60% last month as the pandemic prevented elective surgeries.

In an ASX trading update Cochlear said while overall sales revenue dropped 60% in April compared to the previous year, sales of cochlear implants declined 80% in developed markets.

Mr Howitt said the potential for second waves of the virus was making it difficult to predict the long-term impacts on operations.

Virus second wave could hurt

“In Japan in particular and in Singapore, we’ve actually seen surgeries, after coming back, decline again,” he said.

Mr Howitt said it was difficult to predict what effect the US economic downturn would have on the number of Americans getting cochlear implants.

Cochlear has already raised $1.1 billion from investors in recent weeks to strengthen its liquidity position amid elective surgery shutdowns.

Mr Howitt said the gradual resumption of elective surgeries across the world was a positive, but the company would have to build operations back up slowly.

Market turmoil hits investments

Financial services company Suncorp also warned investors that its insurance division took a $205 million hit from the effect of market volatility on its investments in the March quarter, although the market recovery had made good some of that since then.

It also flagged higher provisions for bad loans and revealed that the company had underpaid some of its employees.

In a market update, Suncorp said its banking division would take a $133 million hit from provisions for the potential economic damage caused by the pandemic.

It was also revealed that Suncorp banking chief Lee Hatton is departing after only three months in the job, because she accepted a job with Afterpay.

Staff were underpaid

Suncorp said early analysis pointed to errors in its payment of overtime, shift penalties and public holiday loadings, which would cost between $40 million and $70 million to fix.

On the insurance side, the company said it expected higher and more frequent claims on its landlord insurance policies, which cover against loss of rental income but had been receiving fewer claims for motor cover in both Australia and New Zealand since movement restrictions were imposed.

Suncorp’s banking division took a $133 million provision for bad loans caused by the pandemic which was based on a projected 11% slump in house prices and a rise in unemployment to 11.5%.

The bank also took a $90 million non-cash impairment on its core banking platform, due to the expected contraction in loan growth in the fourth quarter.

Shares in both Cochlear and Suncorp traded higher after their market updates.

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