OREANDA-NEWS. Sonova continues to deliver solid sales growth, margin expansion and strong cash flow performance.

Highlights

  • Group sales of CHF 2,035 million – up 4.3% in Swiss francs and 6.2% in local currencies
  • EBITA of CHF 455.6 million – up 5.9% in Swiss francs and 9.8% in local currencies
  • Operating free cash flow of CHF 366 million – up 15.1% from last year
  • Hearing instruments segment – sales of CHF 1,841 million, up 6.9% in local currencies
  • Cochlear implants segment – sales unchanged at CHF 194 million
  • The Board of Directors proposes a dividend increase of 8% to CHF 2.05 per share
  • Changes to the Board of Directors – Andy Rihs announces that as planned he will not stand for re-election at the 2015 Annual General Shareholders’ Meeting
  • Outlook – for FY 2015/16, sales are anticipated to grow by 7% to 9% and EBITA to rise by 9% to 13%, both measured in local currencies

Commenting on the results, Lukas Braunschweiler, CEO of Sonova said: “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. 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.”

Continued solid organic growth

Sonova Group sales in 2014/15 grew by 4.3% in reported Swiss francs or 6.2% in local currencies, reaching CHF 2,035.1 million. Reported sales and EBITA were adversely impacted by exchange rate fluctuations, which included the strong appreciation of the Swiss franc following the decision by the Swiss National Bank in January 2015 to discontinue its minimum exchange rate policy vis-?-vis the euro. Organic growth represented 5.1% of sales growth, with acquisitions adding another 1.1%. About a third of this arose from the acquisition of Comfort Audio, effective October 2014; the remainder represented the addition of various smaller retail distribution businesses, including the full-year effect of such acquisitions made in the previous financial year.

Strong growth in the EMEA region

The Europe, Middle East, and Africa region (EMEA), which accounted for 44% of Group sales, reported a strong 15.1% sales increase in local currencies, building on the region’s double digit growth in the prior year. Both the hearing instruments and the cochlear implants segment showed further acceleration, based broadly across Europe. The hearing instruments segment achieved pronounced market share increases in Scandinavia, Italy, and the UK. In Germany, a sales increase was achieved due to strong market growth and market share gains achieved in the first nine months of the financial year, despite a slower pace of business towards the end of the period.

After a strong prior year, the Group’s business in the United States, representing 35% of total sales, showed a modest decrease of 2.1% in local currency. This is the result of largely-expected factors: private-market customer reaction to the adoption of a new commercial distribution channel, along with contractual and supply chain limitations in business with the US Department of Veterans Affairs (VA). These effects abated in the second half of the financial year. In addition, the cochlear implants segment in the US could not increase sales volume over its exceptionally strong prior year. Sales in the rest of the Americas reported only modest sales growth of 2.4% in local currencies. This mostly reflects stagnant government spending on health care in Brazil and the expected temporary adverse effect of an IT system change on the Group’s Canadian retail business.

The Asia/Pacific region represented 10% of Group sales and achieved sales growth of 5.2% in local currencies. This reflects the continued successful execution of Sonova’s China growth strategy as well as strong market development in Australia, partly offset by restrained growth in Japan due to weak economic trends and the fact that there were no larger orders for cochlear implant systems from government tenders in China this year.

Positive operating margin development

Gross profit reached CHF 1,394.7 million for the year under review (2013/14: CHF 1,340.4 million). This figure is normalized for non-recurring costs of CHF 7.1 million, including CHF 6.0 million booked for a restructuring provision related to the transfer of approximately 100 hearing aid assembly staff positions from Switzerland to the UK and China and a one-off charge of CHF 1.1 million related to a move from Group-owned to third-party wholesale hearing aid distribution in non-core emerging markets. These measures should serve to further reduce the Group’s exposure to foreign exchange fluctuations. Normalized gross profit rose 4.0% in Swiss francs or 6.3% in local currencies over the prior year, corresponding to a gross margin of 68.5%. Including the non-recurring items, reported gross profit reached CHF 1,387.5 million (margin: 68.2%).

Total operating expenses rose by 3.3% in Swiss francs or 4.8% in local currencies to CHF 940.7 million, normalized for three non-recurring items that resulted in a combined net benefit of CHF 8.8 million. These items include a one-time cost of CHF 2.4 million for personnel restructuring, as well as working capital provisioning related mainly to the above-mentioned move to third-party distribution in non-core emerging markets, and a provision of CHF 2.0 million to address risks related to prior years’ indirect taxes in one particular market. On the other hand, operating expenses were reduced by CHF 13.2 million (reported under “other income”) because of the release of a provision for cochlear implant product liabilities related to Advanced Bionics’ Vendor B product recall in 2006, due to better-than-expected development in the number of claims. Reported operating expenses amounted to CHF 932.0 million.

Keeping up its commitment to rapid innovation, the Group maintained a high level of investment in research and development. R?&?D expenses grew in 2014/15 by 4.4% in local currencies to CHF 130.9 million or 6.4% of sales. Gross R?&?D spending (including the net increase in capitalized development costs) amounted to CHF 150.3 million, corresponding to 7.4% of sales. Sales and marketing costs, normalized for non-recurring items, increased by 3.8% in Swiss francs or 5.7% in local currencies to reach CHF 612.2 million or 30.1% of sales. Normalized general and administrative expenses rose by 1.2% in Swiss francs or 2.1% in local currencies, well below reported sales growth; together, they represent 9.7% of sales.

As a result, the Group’s reported operating profit before acquisition-related amortization (EBITA) was CHF 455.6 million, an increase of 5.9% in Swiss francs or 9.8% in local currencies over the prior year. This reflects the fact that non-recurring restructuring costs included in the cost of sales (CHF 7.1 million) were offset by a non-recurring net gain in total operating expenses (CHF 8.8 million). The reported EBITA margin rose to 22.4% from 22.0% last year. Excluding the unfavorable exchange rate development, which reduced reported EBITA by CHF 16.5 million, EBITA margin improved by solid 80 basis points. Operating profit (EBIT) reached CHF 429.1 million, an increase of 6.2% in Swiss francs over the prior year.

Solid growth in EPS

Net financial expenses, including the result from associates, fell from CHF 9.5 million to CHF 8.7 million, reflecting lower interest expenses and a higher profit from associates. Income taxes for the financial year totaled CHF 52.0 million, up from CHF 47.2 million in 2013/14, and representing an effective tax rate of 12.4%. Reported income after taxes was CHF 368.3 million, up 6.0% from the previous year. Basic earnings per share (EPS) therefore reached CHF 5.37 (2013/14: CHF 5.08), a solid rise of 5.7% over the previous year.

Workforce increases to 10,184

At the end of the 2014/15 financial year, the Group’s total workforce stood at 10,184 full time equivalents – an increase of 655 over the previous year. This growth is broadly based across our sales and distribution organization and also includes additions from acquisitions. Our manufacturing work force also increased at the China and Vietnam operation centers, which continue to gradually absorb some manufacturing functions that were previously hosted in the distribution companies.