Annual Report 2010/11 - Sonova

ABoVE MARkET GRoWTH IN HEARING INSTRUMENTS
SEGMENT
Sonova’s core business, the hearing instruments seg ment,
has performed well with an exchange rate-adjusted growth
of 10.1% (organic growth: 5.8%). overall, the hearing
instrument segment achieved an increase in sales of 11%
in first class, 12% in business class and 7% in economy
class. First class hearing instruments accounted for 25% of
Sonova’s total sales in financial year 2010/11, while business
class and economy class accounted for 23% and 30%
respectively.
Sales of wireless communication systems grew by 5% in
local currencies in 2010/11. The recently established
dynamic FM technology and the development of the new
dynamic SoundField set new standards and confirmed
Phonak’s leading role within this field. This market segment
accounted for 5% of Sonova’s sales in financial year
2010/11.
The increase in sales of hearing instruments also reflects an
increase in sales of miscellaneous products and services,
where sales growth was 7% in local currencies in 2010/11.
This component accounted for 13% of Group sales.
BEloW ExPECTATIoNS FoR HEARING IMPlANTS
SEGMENT
With the acquisition of Advanced Bionics at the end of
december 2009, Sonova took the strategic step to expand
into the market segment of cochlear implants, thus leveraging
its leading position as a global provider of hearing
systems. Advanced Bionics is one of the world’s leading
companies in the development and manufacture of cochlear
implants. The full purchase price of USd 496 million
(in cluding acquisition-related costs) was paid with CHF 40
million of existing cash and an acquisition loan in the
amount of CHF 470 million.
FINANCIAl REVIEW
The acquisition accounting of Advanced Bionics was
finalized in financial year 2010/11 according to IFRS. As
a result, the 2009/10 financial results were restated to
reflect the various balance sheet and income statement
adjustments (see Note 3.7 of the consolidated financial
statements 2010/11 for details).
In November 2010, Advanced Bionics initiated a voluntary
recall of the HiRes 90k cochlear implant device. This was
a precautionary measure based on two instances in which
the product was removed for safety reasons due to a very
rare malfunction. The temporary product recall resulted in
lost sales of around CHF 60 million in the current financial
year, leaving a total of CHF 70.8 million for sales in financial
year 2010/11, well behind the original expectations for
this segment. Even though Sonova immediately took measures
to address the problem and to receive permission
to return to the market, the temporary recall had a significant
ly negative impact on the profitability of the segment
and reduced the Group’s operating profit by approximately
CHF 45 million. Based on this event, and the resulting
updated business plan prepared by management, the goodwill
originally recorded on the acquisition was reviewed,
and an impairment of CHF 156.6 million was reported in the
restated financial results for 2009/10.
Also in the financial year 2010/11, Advanced Bionics and
Phonak Acoustic Implants have been consolidated into
a single division, led by the new Group Vice President Me dical,
with the objective of leveraging technology and
business processes. A preliminary assessment of the potential
opportunities between the two businesses, and their
respective product roadmaps, indicates that a number of
past development projects no longer fit into the combined
development plan. As a consequence, CHF 35.5 million of
previously capitalized development costs were impaired.
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