November 13, 2012 / 7:25 AM / in 5 years

UPDATE 2-Sonova's high-tech hearing aids offset price pressures

* Half-year sales rise 14.3 pct to 872 mln Sfr vs 853 mln forecast

* Net profit 149 mln Sfr, beats expectations

* Confirms targets for FY 2012/2013

* Shares jump to 7-month high (Adds shares, CEO, analyst)

By Caroline Copley and Oliver Hirt

ZURICH, Nov 13 (Reuters) - Swiss hearing aid maker Sonova’s focus on new products helped counter margin pressures in its industry as the group reported stronger first-half profits on Tuesday, sending its shares to a seven-month high.

Demand from the growing ranks of the elderly has helped expand the market for hearing aids, but some of Sonova’s competitors have warned of margin and pricing pressures partly from cutbacks in government healthcare budgets.

Danish rival William Demant, struggling with an ageing product line, has just cut its profit forecast and said the hearing aid market had shrunk in value in the third quarter.

Sonova, in contrast, predicted the market for its products would grow by a low single-digit percentage this year and next. Chief Executive Lukas Braunschweiler told Reuters Sonova had not experienced strong margin pressure and was confident of winning more market share. “We don’t believe the market is shrinking at the moment,” he said. “We’re setting ourself goals which are greater than market growth.”

The world’s biggest hearing aid maker is pinning its hopes on product innovation to offset the margin pressures which a lso come from consumers trading down to cheaper products.

Its new Lyric hearing aid, for example, is the size of a grain of rice and can be worn deep inside the ear for up to four months at a time.

Braunschweiler said the launch of Lyric in the United States had exceeded expectations and Sonova plans to launch it in Canada, Britain, Australia, Switzerland and France.

The company has compared the launch of Lyric to the introduction of contact lenses in the optical industry and hopes it can achieve equally attractive sales volumes.

The industry’s pricing pressures are unlikely to spur a wave of mergers.

Braunschweiler said he did not expect to see consolidation among the top six hearing aid manufacturers, as this was likely to be blocked by regulators.

STRONG PIPELINE

“Sonova is well positioned thanks to the strong pipeline and continuous margin improvements,” said Vontobel analyst Carla Baenziger, who rates the stock ‘buy’.

Shares in Sonova jumped 7.7 percent to 100.2 francs by 0908 GMT, compared to a slightly weaker European healthcare sector index.

The company aims to increase annual sales to China - where it currently lags Siemens - by five times to 100 million francs in five years and said emerging markets would keep driving growth.

Sonova said growth in the period in the United States, South America and Asia was dynamic while markets in Italy and France were challenging.

Net profit was 149 million Swiss francs ($157 million) surpassing the average analyst forecast for 143 million francs.

Profits were boosted by a strong U.S. dollar and solid performance of its cochlear implant, which returned to the market in the half-year period following a recall due to malfunctions.

Sales in the six months to end September rose 14.3 percent to 872 million Swiss francs ($920 million), beating the average analyst forecast of 853 million francs in a Reuters poll.

The Swiss company said 80 percent of the revenues generated in its hearing instruments business - which accounts for roughly 90 percent of sales - had come from products on the market for less than two years.

Sonova still expects sales growth for the 2012/13 financial year of 7-9 percent in local currencies while operating margin should grow in the 15-20 percent range.

$1 = 0.9482 Swiss francs Reporting by Caroline Copley and Oliver Hirt; Editing by Mark Potter and Jane Merriman

Our Standards:The Thomson Reuters Trust Principles.
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