Switzerland-based Sonova Holding AG released its Annual Report and announced that Sonova Group delivered a solid performance in 2014/15, generating record sales of CHF 2,035.1 million (US$2.172 billion), an increase of 4.3% in Swiss francs or 6.2% in local currencies. According to the report, Sonova Group EBITA rose by 9.8% in local currencies to CHF 455.6 million (US$486.2 million), corresponding to a margin of 22.4%.
Highlights from the report include sales of CHF 1,841 million (US$1.965 billion) for the Group’s hearing instruments segment, up 6.9% in local currencies; and sales unchanged (at CHF 194 million, or US$207 million) for its cochlear implants segment. Also reported was a strong cash conversion that resulted in a 15.1% growth in the operating free cash flow. The Board of Directors has proposed a dividend of CHF 2.05 per share (US$2.19), up 8% from last year, according to the announcement.
“We again delivered very solid results overall, with a strong performance in hearing instruments and driven by double-digit growth of all our businesses in Europe and in parts of Asia,” said Sonova CEO Lukas Braunschweiler in the announcement. “I am particularly proud about our strong ability to continuously expand our margins and to effectively convert earnings into cash as demonstrated by the robust growth in operating free cash flow. This was achieved despite temporary challenges in the US market in the first half and headwind from the strong Swiss franc. We remained focused executing on our strategic plan by broadening our product and solution offering, significantly strengthening our global distribution capabilities, and further pursuing our global resource allocation strategy. Building on these achievements, I am confident that we continue to deliver on our strategy of customer-driven innovation and sustainable growth.”
Details of Sales Growth for Sonova Group’s Hearing Instruments Segment
Sonova Group announced that organic growth was 5.6% in local currencies, supplemented by 1.3% or CHF 22.1 million (US$23.6 million) from acquisitions in this financial year and the full year effect from prior year acquisitions. About a third of this contribution, the company says, came from the acquisition of Comfort Audio. Growth in the second half was supported by the positive market response to Phonak Audéo V, the popular Receiver-In-Canal (RIC) form factor, which takes advantage of the new Venture product platform.
In the United States, Sonova says, sales in the commercial business initially slowed after the strategic decision to supply Phonak products to the shop-in-shop concept at the retailer Costco, but then accelerated in the second half of the year to surpass the prior year’s level. Business with the VA was hampered by a temporary contractual value limit that ended in October 2014. In addition, Sonova reports, changes in the VA’s ordering routines and the consolidation of Unitron into the Phonak contract (effective November 2014) meant that both brands experienced a phase of slow order activity. Starting in 2015, the business regained market share by reducing order cycle times and implementing other measures to improve ease of ordering for VA audiologists.
Sales in Europe and Asia Pacific were reported to have developed strongly with both the wholesale and retail business accelerating over the prior year, measured in local currencies, and exceeding market growth in several countries. In the UK, the success of the Boots Hearingcare partnership further extended Sonova’s position in the private market. In Scandinavia, sales increased based on a strong presence in government tenders. Italy developed well both in the independent and key account customer groups. Business in Germany experienced positive development during the first 9 months, while business slowed towards the end of the financial year. The company says this was partly due to declining market volumes and partly due to customer reactions connected to the Group’s decision to have a presence in the German retail market. In China, the Group reports that it continued to execute its long term growth plans, delivering a double-digit sales increase. The strong position in the Australian market was further expanded. At the same time, the company reports, tightening government healthcare spending in Brazil and weak economic trends in Japan resulted in restrained growth in these markets.
Among the product categories, premium category hearing instruments (which includes Phonak’s Lyric) posted the strongest growth rate, reportedly achieving a sales increase of 12.3% in local currencies. This was followed by the standard category, which was up 8.0% in local currencies, helped by above-average growth in Germany and China. Sales in the advanced category fell by 3.2% in local currencies. Premium and advanced hearing instruments accounted for 24% and 20% of Group sales respectively, while standard accounted for 29%. Based on the continued strong sales of Phonak’s Roger products and supported by the addition of Comfort Audio, sales of wireless communication systems grew by 30.0% in local currencies. Sales in the “miscellaneous” product category grew by 6.2% in local currencies, accounting for 13% of Group sales, according to the company.
Sonova Reports a “Year of Consolidation” for Its Cochlear Implants Segment
According to Sonova, following a strong 2013/14 performance, the cochlear implants segment consolidated its overall position, albeit with differing trends between the US market and China versus other parts of the world. The company says total sales were CHF 194.2 million, on the same level as in the prior year. After strong growth in the first half of the year, the second half saw a partly expected decline due to the exceptional second-half growth in the prior year of 50.2% in local currencies. This performance had been driven by the approval of the Naída CI Q70 processor in the US in August 2013 and the fulfillment of a central government tender in China, says the company. There was an adverse operating development in the US market with increased competitive pressure, the company reports, further explaining that customers exercised some restraint during the period when the company undertook product optimizations to improve the performance of the Naída CI Q70 sound processor under intensive wear conditions. Sonova reports that positive data from several clinical studies continues to demonstrate the strong advantages of the processor and bodes well for future sales.
These factors were only partly offset by satisfactory sales growth in all other larger markets outside the US and China, where sales continued to grow throughout the year, further strengthening the company’s position in Europe and emerging markets. The strong value proposition of Naída CI Q70, representing a competitive advantage in key audiological and connectivity functionalities, drove sales, along with the balanced portfolio of electrodes and Advanced Bionics’ strong offering of waterproof solutions.
The report from Sonova states that cost management was a key priority, though research and development programs proceeded as planned. With sales at the prior year level, the normalized EBITA for the cochlear implants segment reached CHF 10.4 million (US$11.1 million), down slightly from the CHF 12.8 million (US$13.7 million) reported in 2013/14. This corresponds to an operating margin of 5.4%. Reported EBITA, including the non-recurring gains from the release of the product liability provision and non-recurring costs, amounted to CHF 20.9 million (US$22.3 million).
While the development of the cochlear implants segment did not fully meet management’s ambitious expectations in 2014/15, the business remains on its expected longterm growth trajectory, Sonova says, achieving a mid-teens compound annual growth rate over the past two financial years.
Outlook for 2015/16; Andy Rihs to Step Down
The outlook for FY 2015/16 is good, according to Sonova, with sales anticipated to grow by 7% to 9% and EBITA to rise by 9% to 13%, both measured in local currencies.
For a look at the complete report and additional details from Sonova Group, see the company’s Annual Report 2014/15, and the company’s Annual Report 2013/14. The presentation of the Full-Year Results 2013/14 can be downloaded at the Sonova website.
Also reported by Sonova were changes to the Board of Directors. Andy Rihs announced that, as planned, he will not stand for re-election at the 2015 Annual General Shareholders’ Meeting.
Additional information about Sonova’s business developments and activities can be found in The Hearing Review’s April 2015 interview with Martin Grieder and Thomas Lang, among other HR articles.
Source: Sonova Holding AG