Winning Report 2015 2.pdf


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BUSINESS DESCRIPTION

Fig. 5: Sales by product group 2013/14

The group positions itself as the leading manufacturer of innovative hearing care solutions. Driven by its
vision of a world in which everyone enjoys the delight of hearing, Sonova aims to provide a specific
solution for everyone suffering from hearing impairment.
The core of the company was founded in 1947 as “AG für Elektroakustik” by French-Belgian investors.
After the acquisition by Ernst Rihs and Beda Diethelm in 1965 they shaped the company pursuing their
vision of an integrated full service provider. In 2007 the group was renamed to its current name Sonova
Holding AG. Being present in over 95 countries worldwide and counting a workforce of over 9’500
employees, Sonova achieved sales of CHF 1.95 billion in 2013/14. The group is headquartered in
Staefa, Switzerland and is listed on the SIX Swiss Exchange since 1994.

Advanced HI 22%

13% Miscellaneous

4% Wireless

10% Cochlear

Premium HI 22%

Value creation within 4 brands & 2 segments: a fully-fledged solution provider

29% Standard HI

Sonova’s operations split into the segments hearing aids (hearing instruments – HI, 90% of sales in
2013/14) and cochlear implants (CI). The hearing aid segment comprises the globally recognized
manufacturing brands Phonak and Unitron, as well as the group’s retail operations brand Connect
Hearing.
Following the acquisition of Los Angeles-based Advanced Bionics in 2009/10, the manufacturing of
cochlear implant systems forms the second segment of the group. Though it recently accounted for only
10% of sales, this segment experiences the fastest growth (4-year CAGR of 66.8%). Due to past
acquisitions, specific HQs and research facilities of Advanced Bionics, Lyric (operating under Phonak
brand) and Unitron remain in Northern America (Appx. 5B). While administrative functions are located in
Western countries, Asia is the most important hub for manufacturing – accounting for ~70% of suppliers
in terms of volume and counting two operation centers in Vietnam and China. All brands within the group
are ultimately led by CEO Dr. Lukas Braunschweiler and his executive team (Appx. 8).

Source: Sonova
Note: See Appendix 1 for further information

Fig. 6: Sonova: Regional sales split 2013/14
37%
Northern
America

11%
Americas

11%
ASIAP

By means of its distinctive brand approach – Phonak as the most innovative brand in hearing aids and
Unitron with leading customer service – the group provides the broadest spectrum of products within the
industry, spreading across all performance levels (from basic to premium) and degrees of impairment.
Through its retail arm Connect Hearing, a growing international network, the group provides professional
services to end-users. As one of the early movers into the retail business, Sonova seeks to strengthen
both its positioning across the value chain and its relationship with end-users, while supporting its
manufacturing business (Fig. 5 & 7, Appx. 5H).

41%
EMEA

Source: Sonova
Note: See Appendix 6B for further information

Market strategy: 4 main growth vectors
Fig. 7: Corporate strategy

Penetrate
existing
markets

Expansion into accessible markets renders the second pillar of Sonova’s market strategy: the group
plans to enforce its position in emerging countries, which exhibit attractive growth opportunities. Through
establishing distribution channels in these markets, thus shaping the infrastructure, it aims to exploit the
promising perspectives of largely untapped user groups. Up until now, Americas and ASIAP were only
minor contributors to the sales total. (Fig. 6).

Develop
consumer
base

Market
strategy

Sonova aims to further integrate service channels – analysts’ estimated more than 2000 companyowned outlets in 2013. The initiative in the US serves as an example: over 300 healthcare centers are
now to be incorporated under the Connect Hearing brand. Moreover, Sonova announced expansion
plans in its retail business through further store openings and selected acquisitions.

Integrate
service
channels

Finally, Sonova seeks to develop the consumer base and to reach new client groups. By means of
interactive online platforms, the group sensitises potential end-users by providing first information and
professional advice. This targeted customer insight reveals customer needs and simultaneously
encourages face-to-face consultations – supporting present and future sales.

According to the World Health Organization, 360 million people worldwide suffer from hearing
impairment, representing 5.3% of global population. It is estimated that 6% of the highly populated
developing countries are concerned. Throughout the last 10 years, the demand for hearing aids grew at
a CAGR of around 4%, recently reaching 10-11 million units sold per year and a market value of CHF
15-16 billion. Industry experts expect an accelerated annual volume growth between 4.5-5% over the
next 5 years. However, we think that the optimistic future perspectives should be taken with a
pinch of salt considering the major factors driving the anticipated volume growth.

Source: Sonova
Note: See Appendix 5 for further information

Fig. 8: Developed countries – age structure
1'400

30%

1'200
172

199

247

297

327

342

1'000

million people

INDUSTRY OVERVIEW

Expand
accessible
markets

Demographics: dynamics of ageing

25%
20%

800
15%
600

805

834

817

795

775

753
10%

400

% of population

Sonova aims at a higher penetration of existing markets by levering its strong global presence. This
primarily focuses on mature markets such as North America and Western Europe. The action plan is to
increase market share of treated clients, as well as to penetrate new groups of end-users. Based on high
levels of customer satisfaction and consistent product introductions, Sonova seeks to overcome the
perception of high economic costs associated to wearing hearing aids (“stigmatisation”).

5%

200
217

203

207

199

194

195

The causes of hearing loss separate into three main categories: congenital, acquired and predominantly
0
0%
2000
2010
2020
2030
2040
2050
age-related impairment (avg. client is 68 years old). It is estimated that 35-40% of the population aged
15-64 (%)
65+ (%)
0-14 (abs.)
15-64 (abs.)
65+ (abs.)
65 and over are hearing impaired to varying extents. Driven by the global increase of life expectancy and0-14 (%)
Source: US census bureau, UN
the “baby boomers” generation, the age pyramids are progressively reversing (Fig. 8). In developed
Note: See Appendix 6H for further information
countries, this group is expected to account for more than 27% of the population by 2050. In our view,
the positive impact of demographics appears to be overestimated: on a year-to-year basis and in
contrast to the long horizon, the effect becomes marginal since the age structure of a population shifts
Fig. 9: Penetration rate by region
slowly over time. Annual growth between 2010 and 2030 amounts to 2% in the developed world and
3.9% in emerging countries. We therefore think that this low single digit growth rate can easily be offset
40%
by lower prices, upon which we elaborate in the following section.

EU

11 – 13%

USA

2- 4%

10%

21 – 23%

20%

23 – 25%

Global production output is estimated to cover less than 10% of the potential demand. This indicates low
penetration rates, especially in developing countries where rates fall below 2.5% (Fig. 9). Consequently,
one of the industry’s key issues is how manufacturers manage to expand the future pie and their
respective slice. This particularly refers to developed countries, where penetration remained stable
over the past decades – despite technological improvements and reimbursement schemes being in
place (Fig. 10). To understand this stagnation, the severity of hearing loss has to be taken into account:
market penetration increases with the degree of impairment (Fig. 11). The perception of inconvenience
and high economic costs relatively to gains of carrying a hearing aid is prevalent in cases of less severe
impairment – which represent ~95% of cases. This reluctance was confirmed by an audiologist we

30%

36 - 38%

Increasing the penetration rate: an arduous task

0%
Australia

Japan

China

Source: Sonova
Note: See Appendix 6 for further information

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