Morning Note: Market news and an update from hearing aid company Sonova.
Market News
US equity markets were little changed last night – S&P 500 (flat), Nasdaq (+0.3%) – as the focus turns to upcoming US inflation reports. This morning in Asia, markets were mixed: Nikkei 225 (+0.5%); Hang Seng (flat); Shanghai Composite (-0.1%), with Chinese tech shares among the notable gainers. Japan’s benchmark bond yield was just shy of a decade high as traders bet the BOJ would cut bond purchases to ease pressure on the yen.
The FTSE 100 is currently unchanged at 8,419. Anglo American has rejected a second, higher BHP takeover offer. Instead, the mining group is planning to break itself up to focus on its copper, iron ore, and crop nutrients businesses. It says shareholders will benefit from cost savings and increased operational performance. Shares of Anglo American are down 1% in early trading this morning.
The Fed’s Philip Jefferson said he finds the lack of inflation progress last quarter concerning. He favours keeping rates steady. The 10-year Treasury yield held pat at 4.48%, while gold nudged up to $2,339 an ounce. Brent rose to $83.20 a barrel ahead of the OPEC+ monthly report, while copper climbed to a 2-year high.
UK weekly earnings excluding bonuses rose by 5.9% year on year, slightly below the 6.0% expected. Sterling trades at $1.2550 and €1.1633.
Emmanuel Macron said he’d be open to seeing a major French bank being taken over by an EU rival to spur deeper integration. He told Bloomberg the region’s only chance to go toe-to-toe with China and the US is to better protect its interests and reduce regulation.
Source: Bloomberg
Company News
Sonova has this morning has released its results for the financial year to 31 March 2024. As expected, both sales and earnings growth picked up in the second half. In response, the shares have been marked up by 6% in early trading.
Sonova is a leading global provider of hearing care solutions, with brands including Phonak, Unitron, Advanced Bionics, Sennhesier (under licence) and AudioNova. The Switzerland-based company operates a vertically integrated strategy, operating through four core businesses – hearing instruments, audiological care, consumer hearing, and cochlear implants – along the entire value chain of the hearing care market. The group’s sales and distribution network, the widest in the industry, comprises over 50 owned wholesale companies and more than 100 independent distributors. This is complemented by Sonova’s audiological care business, which offers professional audiological services through a global network.
The group operates in an attractive market, which is poised for further growth. Penetration rates in the mild to moderate category are still low, developed countries are seeing increasing demand from the baby boomer generation and developing countries are beginning to bridge the gap in hearing care provision. The cochlear implants market is expanding from mostly children born with hearing loss to adults whose hearing loss has become too severe to be treated only with hearing aids. The group’s increased emphasis on connectivity and digital applications provides an additional source of growth. The aim is to generate above-market growth – which the group assumes will be 4%-6% p.a. – and long-term margin expansion.
During the year, group sales rose by 3.2% at constant currency to CHF 3.6bn, below the group’s aspiration, albeit in line with market expectations. A strong Swiss franc meant that sales fell by 3.0% in actual currency terms. In organic terms, sales rose by 1.6%. After a slow start to the year, the hearing care market gradually improved, in part helped by an easing comparison base.
By division, the group enjoyed an acceleration in the Hearing Instruments (+0.7%) and Cochlear Implants (+3.6%) businesses in the second half and a continued good performance of the Audiological Care business (+9.2%). Consumer hearing fell by 9.3% driven by continued weak demand in consumer electronics market.
The group expanded its Phonak Lumity platform with new solutions for children and for adults with severe-to-profound hearing loss and launched a battery-powered Audéo Lumity hearing aid, for those who prefer multi-day power to daily recharging.
The APAC region was the strongest performer, up 7.1%. The EMEA region, the group’s largest, grew by 3.8%, supported by the continued expansion of the audiological care network. The US grew by 0.7%, while Americas (ex US) rose 3.6%.
The business generates a very high gross margin, up 2.1 percentage points to 72.3%. Growth was supported by prior-year price increases implemented to offset inflationary pressures as well as a shift in the business mix due to the strong growth in the audiological care business. The development was further supported by continued efficiency gains, lower costs for repairs as a result of improvements in product reliability as well as the gradual easing of headwinds from transport and component costs. Adjusted operating profit (EBITA) grew by 4.4% to CHF 771.4m, with the margin up 30 basis points in constant currency to 2.1%.
Operating free cash flow rose a touch to CHF 539m. Net debt reduced from CHF 1.50bn to CHF 1.36bn, with the net debt/EBITDA ratio falling to 1.5x and back into the target range of 1.0-1.5x. The company will propose dividend of CHF 4.30, a yield of 1.5%.
Although the group is part-way through a three-year share buyback programme of up to CHF 1.5bn from April 2022 until April 2025, no shares bought back in the current period. The programme is expected to recommence in the second half of the financial year.
Looking forward, after a slower year, the group expects to return to above-market growth and continue margin expansion. For the financial year to end March 2025, the company expects consolidated sales to grow by 6%-9% and adjusted operating profit to increase by 7%-11%, both at constant exchange rates. Due to timing of product launches and associated costs, growth of both sales and profitability is expected to be higher in the second half of the year.
Source: Bloomberg