Annual Report 2005/06 THE WORLD OF SOUND - Sonova

FINANCIAL RESULTSThe estimated global hearing instrument market growth in2005/06 was 5%–7%.Phonak sales increased by 31.2% to CHF 866.7 million.Sales growth in local currencies and excluding acquisitionswas 23.8%.The operating profit (EBIT) increased by 68.3% to CHF211.7 million, and the EBIT margin of 24.4% clearlysurpassed the comparable previous year’s figure of 19.0%.Profitability improved due to the favorable product mix,enhanced efficiency, cost savings in materials procurement,and the operating leverage in general and administrationexpenses.Earnings per share on a diluted basis reached CHF 2.57(previous year CHF 1.43), which represents an improvementof 79.1%. This strong increase was supported byan improved net financial income and a lower tax rate.Net cash increased by CHF 84.1 million to CHF 177.9 million(previous year CHF 93.8 million), in spite of the acquisitionof sales companies.Equity reached CHF 627.0 million and the equity financingratio has increased to 67.3% (previous year 60.5%), reflectinga further substantial strengthening of the Group’sfinancial position.Free cash flow rose 21.5% to CHF 101.8 million (previousyear CHF 83.8 million).Outlook: The Phonak Group expects to outgrow the marketonce again in 2006/07.Adjustments to prior year 2004/05 financial figuresThe adoption of the new IFRS 2 standard “Share-based payment”,resulted in a change in the accounting policy for shareand option plans to employees. Prior-year figures have beenadjusted accordingly in order to facilitate comparison. Inaddition, we improved the presentation of the ConsolidatedIncome Statement which led to a reclassification of salesrelatedcosts. For further details, we refer to Note 2 and Note32 to the Consolidated Financial Statements (page 50 and80 of this report).Consolidated Income StatementSalesMeasured in local currencies and excluding acquisitions,sales grew by 23.8%. The weakening of the Swiss Franc, especiallyagainst the US Dollar, led to a positive currency effect of3.4%. In reported currency (CHF), sales increased by 31.2% toCHF 866.7 million, which includes a contribution of 4.0%from acquisitions.Sales growth was driven mainly by the dynamic performanceof our new premium product line Savia, which was complementedin January 2006 by microSavia, a micro hearing systemfor open fitting. Other significant sales drivers included miniValeoin the mid price segment, eXtra in the digital economysegment, the Unitron Hearing brand, and our wireless communicationsystems.The first class hearing systems segment accounted for 35%of total sales (previous year 31%). With Savia, we have succeededin establishing an industry benchmark. We expect Savia tocontinue to perform strongly in 2006/07. Other growth driversin this segment will be the recently launched Verve productline, which is targeted at our most discerning customers, andIndigo, the latest flagship product from Unitron Hearing.Business class hearing systems accounted for 18% of totalsales (previous year 21%). Eleva, our newest product line in thissegment, had a very successful launch at the start of March2006, which meant it only made a positive contribution to salesduring the final month of the financial year 2005/06. The keybusiness class product lines of the Phonak brand – Valeo, mini-Valeo, and Supero – as well as Unitron’s Conversa.NT, performedaccording to expectations. In 2006/07, the most important salesdrivers will be Eleva and the recently launched microPower,the first micro hearing system for people with severe hearing loss.The economy class hearing systems segment accounted for27% of total sales, unchanged from last year’s figure. However,the various strategic measures undertaken to strengthen ourmarket position resulted in a sharp increase in sales in this segment.The main contributor to this success was eXtra, the new6Financial Results