OREANDA-NEWS. Sonova Announces Full Year Results 2015/16.

Highlights

  • Group sales of CHF 2,071.9 million – up 5.8% in local currencies and 1.8% in Swiss francs
  • EBITA of CHF 430.6 million – up 1.4% in local currencies but down 5.5% in Swiss francs
  • Hearing instruments segment – sales of CHF 1,885.0 million, up 6.6% in local currencies
  • Cochlear implants segment – sales of CHF 187 million, down 2.4% in local currencies, returning to growth in the second half
  • Proposed dividend of CHF 2.10 per share – increase of 2.4%, payout ratio up to 41%
  • Significant free cash flow of CHF 252.6 million – supporting healthy balance sheet
  • Outlook for FY 2016/17 – sales anticipated to grow by 4% to 6% and EBITA to rise by 3% to 7%, both measured in local currencies
  • Global retail strategy further implemented – announced acquisition of AudioNova

Lukas Braunschweiler, CEO of Sonova, says: “Our results today demonstrate solid progress in our hearing instrument business despite a number of challenges encountered in the last fiscal year. After a slow start, our cochlear implant business returned to growth across all regions in the second half. Supported by our strong cash flow and balance sheet, we continue to shape the industry by getting closer to our customers. Through key strategic moves we continued to consistently implement our go-to-market strategy in a dynamic global environment. With the announced acquisition of AudioNova, we have taken a further significant step to advance our sales and service network. Combined with our rich technology and product pipeline, this lays the foundation for continued growth in sales and earnings.”

Continuous organic growth

Sonova Group sales in 2015/16 grew by 5.8% in local currencies to CHF 2,071.9 million. A less favorable currency environment reduced sales by CHF 80.5 million, resulting in growth of 1.8% in reported Swiss francs. Organic growth was 2.2%, driven by the hearing instruments segment. Acquisitions made in the reporting period and the annualization of prior year acquisitions added another 3.5% to growth, which includes the acquisition of the Hansaton brand, effective April 2015, and the further expansion of the Group’s retail network.

Strong growth in the EMEA and APAC regions

The Europe, Middle East, and Africa region (EMEA), which accounted for 43% of Group sales, reported a 7.2% sales increase in local currencies. This was achieved despite a decline in our German hearing instruments wholesale business, due to an expected headwind in the independent channel after the Group’s announcement of its new German retail strategy in March 2015. The increase also reflects the acquisition of Hansaton, the expansion of our German retail network, and the disposal of our Italian retail business at the end of 2015. On an organic basis, the hearing instruments segment achieved pronounced market share increases in France and the UK. The cochlear implants business was stable compared to the prior year, with an acceleration in the second half.

The Group’s business in the United States, representing 37% of total sales, showed a modest increase of 1.8% in local currency. Positive development in the private market was partly offset by Costco’s shift from branded to private-label products, and by unchanged sales volume with the US Department of Veterans Affairs (VA). Market share with the VA improved in the second half of the financial year. The cochlear implants segment could not increase sales volume, but returned to growth towards the end of the year. The rest of the Americas (excluding the US), which represented 9% of total sales, reported sales growth of 6.1% in local currencies, with strong contributions from Canada partly offset by Brazil.

The Asia/Pacific region represented 11% of Group sales and achieved exceptional sales growth of 13.3% in local currencies. This acceleration reflects the continued successful execution of Sonova’s China growth strategy as well as a strong performance across all key geographies in the hearing instruments business. Australia in particular was a bright spot in both our wholesale and retail businesses. The cochlear implants segment achieved double-digit growth in the region, despite the absence of Chinese central government tender business.

Margin affected by currency environment and cochlear implants business

Reported gross profit reached CHF 1,375.5 million (gross margin of 66.4%), an increase of 3.7% in local currencies but down 0.9% in reported Swiss francs. Normalized for non-recurring items for both the 2014/15 and 2015/16 financial years, gross profit in local currencies rose 4.6% over the prior year to CHF 1,449.3 million (2014/15: CHF 1,385.3 million), corresponding to a gross margin of 67.3% compared to 68.1% in the previous year. The normalized gross profit for the 2014/15 financial year excludes currency gains on working capital of CHF 9.3 million and CHF 7.1 million in non-recurring costs, mainly related to the move of certain manufacturing activities out of Switzerland. For the 2015/16 financial year, the gross profit has been normalized to exclude currency losses on working capital of CHF 2.3 million and the establishment of a specific warranty provision for our cochlear implant business, booked in the first half, of CHF 8.6 million.

Excluding acquisitions, normalized gross margin was stable in the hearing instruments business, reflecting a positive trend in average selling price, partly offset by lower efficiency related to the ramp up of our UK-based shared service operation for custom product manufacturing and repairs, which was significantly expanded. Margin was temporarily further diluted by the acquisition of Hansaton, which originally sourced its products from a third party. Hansaton’s product portfolio was converted to Sonova technology during the year. The cochlear implants segment’s normalized gross margin declined due to a shift in its geographic and product sales mix.

Reported operating expenses reached CHF 944.8 million, an increase of 4.8% in local currencies and 1.4% in reported Swiss francs. Normalized operating expenses in local currencies rose by 5.6% to CHF 993.5 million (2014/15: CHF 940.7 million). Normalized operating expenses for the 2014/15 financial year exclude a non-recurring net benefit of CHF 8.8 million, mainly related to the release of a provision for cochlear implant product liabilities. For the 2015/16 financial year, normalized operating expenses exclude the benefit from a capital gain of CHF 8.7 million from the divestment of the Italian retail and South African wholesale business, and a CHF 8.8 million provision release for cochlear implant product liabilities.

Normalized R&D expenses in local currencies remained stable year-over-year. Sales and marketing costs, normalized for non-recurring items, increased by 8.6% in local currencies. The increase was mainly driven by retail acquisitions, as well as by continued investments in the operating business. Normalized general and administrative expenses increased 0.4% in local currencies, well below local currency sales growth. Normalized other income was negligible as the reported values almost entirely related to normalization items, i.e. from gain from disposals and provision releases for cochlear implant product liabilities.

Reported operating profit before acquisition-related amortization (EBITA) was CHF 430.6 million (2014/15: CHF 455.6 million), an increase of 1.4% in local currencies or a decline of 5.5% in Swiss francs from the prior year. Reported EBITA margin reached 20.8% (2014/15: 22.4%). Unfavorable exchange rate development reduced reported EBITA by CHF 31.5 million and the EBITA margin by 70 basis points. Normalized for non-recurring items for both the 2014/15 and 2015/16 financial years, the EBITA in local currencies increased by 2.5% to CHF 455.8 million (2014/15: CHF 444.6 million). Reported operating profit (EBIT) reached CHF 403.4 million, compared to CHF 429.1 million for the prior year, down by 6.0%, in line with the development of the reported EBITA.

Earnings per share

Net financial expenses, including the result from associates, fell from CHF 8.7 million to CHF 6.4 million, reflecting higher net interest income and other financial income, partly offset by higher currency hedging cost. Income taxes for the financial year totaled CHF 51.2 million, down from CHF 52.0 million in 2014/15, and representing an effective tax rate of 12.9%. Reported income after taxes was CHF 345.8 million, down 6.1% from the previous year. Basic earnings per share (EPS) therefore reached CHF 5.11 (2014/15: CHF 5.37), a decline of 4.8% from the previous year.