Annual Report 2010/11 - Sonova

2
an eventFul year
lieS beHind uS
Dear shareholders
The financial year 2010/11 was an eventful year for us –
both in a positive and negative way.
On the positive side, we achieved a number of successes.
The highlight was undoubtedly the successful launch
of our highest-performing generation of hearing instruments
under the Phonak brand, based on the new Spice
platform technology. We celebrated the opening of our
new high-tech production facility in Stäfa, attended by
Federal Councillor Doris Leuthard, marking the beginning
of a new era in production. With the launch of the revolutionary
Lyric product concept in key markets outside the
USA, we have taken a major step forward in tapping new
potential in the hearing instrument market. On the other
side, we had to take set-backs for the Advanced Bionics
hearing implants and saw ourselves confronted with insider
trading allegations in the context of the profit
warning in March 2011.
Overall, the Sonova Group achieved record sales of
CHF 1.617 billion in a solid market environment in the financial
year 2010/11. This corresponds to a 13.3% growth in
local currencies, or 7.8% in Swiss francs. Operating profit
(EBITA) was CHF 326.6 million, 22% below the previousyear
level. The EBITA margin fell to 20.2% (considering the
one-off costs resulting from the March 2011 events),
mainly a result of the strong Swiss franc as well as the recall
of and temporary selling freeze on Advanced Bionics
products.
Growth in the hearing instruments core business
Our core business, the hearing instruments segment,
again performed well, with growth of 10.1% on a currencyadjusted
basis. Sonova is in a strong position in this
segment thanks to its latest innovations. The launch of
the new Spice platform was a key milestone last year.
The chip generation unveiled in fall 2010 sets new standards
in terms of processing power and performance. Phonak
launched a comprehensive product portfolio in late fall
2010, enabling improved understanding in all sound
environments across all segments and degrees of hearing
loss. Unitron also launched its product range based on
the new platform technology in spring 2011, and will
contribute to growth under new management. With investments
in the market launch of Lyric, the only invisible
hearing instrument that can be worn for up to four
months at a time, under the Phonak brand in the financial
year 2010/11, we have put in place a platform to better
tap the potential of the mild to moderate hearing loss
market in key markets outside the USA.
Expansion of the hearing implants segment
The market for implants offers considerable potential with
anticipated annual growth of 10–15% and will become
more important for the Sonova Group going forward. The
appointment of a Group Vice President Medical reflects
the growing importance of this business as we consolidate
our medical competence at Group level. Through the next
product generation and the expansion of the international
presence of Advanced Bionics, we are creating the conditions
to achieve above-average growth over the next few
years, thereby returning this segment to profitability.
Unexpected set-backs and turbulences
Despite record sales Sonova faced some challenges last year.
Advanced Bionics’ voluntary cochlear implant recall in
November 2010 impacted sales and delayed the planned
expansion of the hearing implant segment. The recall led
to lost sales and profitability in the current financial year,
and a one-time non-cash goodwill impairment posted
in the 2009/10 financial year. The profit warning in March
2011, the preceding management transactions in shares
and options, plus the allegation of insider trading not only
triggered a major fall in share price, but also caused uncertainty
and a loss of confidence among our investors, partners
and employees. We would like to apologize unreservedly
for this.
The Board of Directors responded promptly to the turbulences.
It launched an independent investigation and
created a task force to establish and ensure compliance
with internal processes, so as to avoid a repetition of
these events. Sonova will give its full support to the ongoing
investigations by the SIX Exchange Regulation and the
District Attorney.
Management changes
As a consequence of the investigation CEO Valentin Chapero
and CFO Oliver Walker tendered their resignations. The
Chairman of the Board of Directors Andy Rihs also stepped
down, as he felt that he shared responsibility given his
position. The Board of Directors has appointed Alexander
Zschokke and Paul Thompson as interim CEO and CFO,
respectively. Both are longstanding members of management
at Sonova: Alexander Zschokke as Head of Marketing and
Channel Solutions since 2006, and Paul Thompson as CFO