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OUTLOOK<br />
Sales – outgrow the market once again<br />
We are confident that Phonak’s sales will continue to develop<br />
positively thanks to our ongoing investment of human and<br />
financial resources in product innovation and the expansion of<br />
the distribution network. We expect the current growth trend in<br />
the hearing instrument industry to continue during 2006/07. We<br />
anticipate being able to once again outgrow the market, based<br />
on our recent and planned product launches.<br />
Further enhance gross profit margin<br />
In 2006/07, we expect a further increase in the gross profit<br />
margin. After years of exceptionally strong growth, however,<br />
the rise will be more moderate, i.e. less than in previous financial<br />
years. The most important drivers will be the growing quota of<br />
products based on the PALIO platform and economies of scale<br />
achieved through higher production volumes. Continuous measures<br />
to improve productivity and optimize production processes<br />
will also help to increase the gross profit margin. These<br />
forecasts assume no significant change will occur in the product<br />
mix – the percentage of total sales contributed by first class,<br />
business class, and economy class hearing systems.<br />
Increase spending on research and development<br />
Spending on research and development is expected to increase<br />
again significantly in 2006/07. Major projects include<br />
new product developments, hardware and software platform<br />
development, and new technology research.<br />
Further improve EBIT margin<br />
Management expects a further improvement in the EBIT<br />
margin as a result of the expected gross margin increase as well<br />
as a reduction in operating expenses as a percentage of sales.<br />
Slightly increase capital expenditures<br />
To provide the additional infrastructure needed to boost<br />
our sales, we plan to slightly increase our capital expenditures<br />
in 2006/07. Major investment projects will include tooling for<br />
new products, production equipment, and IT infrastructure and<br />
systems.<br />
Use of financial resources<br />
The financial resources of the Group are used primarily to<br />
finance capital expenditures and for the repayment of debt<br />
according to existing terms. In addition, the Phonak Group will<br />
invest a portion of its financial resources to further expand its<br />
distribution channels. We believe these investments will lead to<br />
further sales growth, increased market share, and an attractive<br />
return in profits.<br />
Outlook<br />
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