Annual Report - Sonova Holding AG

digital entry-level product line, which began generating sales as
of October 2005. Sales of eXtra’s predecessor MAXX and of
Unison remained buoyant, and also made a significant contribution
to the strong sales performance.
Wireless communication systems (FM systems) are important
additions to the hearing instrument product lines of the Phonak
Group. Sales of these products rose significantly and accounted
for 7% of total sales, nearly unchanged from last year’s figure
(8%).
Gross profit
The measures taken to further increase margins were very
successful. Gross profit increased 38.1% to CHF 577.2 million or
66.6% of sales, compared to CHF 417.8 million or 63.3% of
sales in the previous year. This improvement was mainly due to
a favorable product mix, enhanced efficiency through higher
production volumes, and cost savings in materials procurement.
Higher global prices for raw materials and energy had
no significant impact on overall production costs, because of
our very low material and energy requirements.
Since our production facility in China was still in the
early development stages during the first half of 2004/05, the
result in the first half of 2005/06 benefited from a baseline
effect of higher production volumes in China. This baseline
effect no longer applied in the second half of 2005/06.
Operating profit (EBIT)
The Phonak Group significantly increased its EBIT by
68.3% to CHF 211.7 million or 24.4% of sales, compared with
CHF 125.8 million or 19.0% of sales in the previous year.
As planned, research and development (R&D) spending rose
substantially during the financial year. However, R&D spending
as a percentage of sales came to 7.3%, roughly the same as last
year (7.4%), due to strong sales growth. In 2005/06, our R&D
activities concentrated mainly on the development of new products
and the further development of our modular hardware
and software platform PALIO. R&D spending for 2006/07 will
range between 7.0% and 7.5% of sales.
Spending for sales and marketing increased by 30.0% to
CHF 206.8 million or 23.9% of sales. The additional spending is
related to current sales organizations as well as the development
of new markets. In 2006/07, we will continue to pursue our
strategy for expanding our distribution network. Sales and marketing
costs should rise in line with sales growth in the coming
financial year, and will therefore be roughly on the same level as
2005/06 in terms of percentage of sales.
General and administration expenses increased to CHF
93.4 million or 10.8% of sales (previous year CHF 85.8 million or
13.0% of sales). The increase of 8.9% is attributable to the
Group’s growth and the further strengthening of the IT infrastructure
and systems.
Income after taxes
For the first time, interest earned on investments exceeded
the interest payable on financial liabilities in 2005/06. This was
due to the settlement in full of the outstanding acquisition
financing and a further reduction in mortgages, combined with
the effects of an increase in cash and cash equivalents and
“financial assets at fair value through profit or loss”.
Income taxes decreased to 20.1% (prior year 23.4%) as a
result of a change in the country mix of the taxable profit.
Consolidated income after taxes therefore reached CHF
172.5 million compared to CHF 95.9 million in the previous year,
which represents an increase of 79.9%. On a diluted basis,
earnings per share increased 79.1% over the previous year, to
CHF 2.57.
Financial Results
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