Annual Report 2010/11 - Sonova

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hearing loss can benefit from the resulting clear intelligibility.
Teachers can save their voice, as they no longer have to
speak loudly to be understood by all the children.
DISTRIBUTION CHANNELS
Hearing instruments are generally distributed through
specialized retailers and institutions such as hospitals,
hearing clinics and other primary care facilities. The retail
channel includes players that range in size from small
shops with one or two locations to international chains with
more than 100 outlets. More than 80% of hearing instruments
are sold through private retailers, mainly through
hearing care professionals with special training in fitting
hearing instruments. New private distribution channels for
hearing instruments aimed at people with mild hearing
loss have evolved in recent years. However, fitting hearing
instruments for severe hearing loss is highly complex
and remains the purview of specialists.
Some manufacturers operate their own retail stores. Wholesale
of hearing instruments is Sonova’s core business.
However, the Group owns retail outlets in selected countries
such as, for example, Hansaton in Austria and Lapperre
in Belgium. By operating these stores, Sonova gains direct
access to end customers, allowing it to learn more about
their preferences.
Government-controlled subsidized distribution happens
through hospitals, public institutions or similar channels.
The key public contracts at the international level are with
the National Health Service (NHS) in the UK, the Australian
Health Services (AHS), and the Department of Veterans Affairs
(VA) in the USA. Government-controlled distribution makes
up somewhat less than 20% of the total global market, though
the exact figure varies considerably between countries.
In the USA about 20% of unit sales are accounted for by
the VA contract, while the NHS contract in Great Britain
covers around 80% of the market. Sonova is one of the main
suppliers to the VA, whereas sales to the AHS and NHS
are limited and in both cases include pediatric solutions
and niche products.
LYRIC – A REVOLUTIONARY PRODUCT CONCEPT
OVERCOMES ENTRY BARRIERS
Sonova added a promising new product category to its
range from the previous financial year through the acquisition
of InSound Medical Inc., a manufacturer of medical equipment
based in Newark, California. Lyric is the first hearing
instrument system in the world that sits invisibly deep in the
ear canal and can be worn continuously for up to four months
without interruption. The total transaction price comprised
an up-front cash consideration, which mainly covers past
R&D expenses incurred by InSound Medical, and earn-out
payments which depended on InSound Medical’s financial
performance going forward and respective products. In
February 2011, all earn-out obligations to date were settled
with a one-time payment. Thanks to this change to the
agreement, it is possible to integrate InSound Medical, which
had been operated separately due to the variable purchaseprice
share, into Phonak’s US sales strategy, allowing the
company to tap the potential of the US market more effectively
in the future.
Capturing untapped market potential
The mild-to-moderate-hearing-loss segment, in which Lyric
features as a premium solution, accounts for the largest
share of the overall market: 95% of all people with hearing
loss fall into this group. At the same time, this segment
has the lowest penetration rate: only 10% of people in this
group wear a hearing instrument. With Lyric, Sonova is
now targeting people with mild to moderate hearing loss
who had previously rejected wearing a hearing instrument,
largely for esthetic reasons, allowing it to tap enormous market
potential. In the USA alone there are around 36 million
people with mild to moderate hearing loss who still do not
wear a hearing instrument; some 14 million of them are
potential Lyric wearers.
Introduction in other markets
There are excellent growth opportunities for Lyric in markets
outside the USA. In financial year 2010/11, Sonova introduced
Lyric in Germany, France, the UK, Canada, and Austria,
and the market launch of Lyric is imminent in Switzerland
and Belgium.