Sonova - increasing the volume
December 2023
Sonova, a Swiss company founded in 1947, claims the industry’s broadest portfolio of products, applications, and services for better hearing performance. It is vertically integrated – designing, manufacturing, and selling hearing devices through its global retail network – and has a leading global position with large market share. It has been owned by Dundas Global Investors since 2018.
It was purchased following a sift into the global hearing market which highlighted a large market of $20bn growing at between 4-5% per annum underpinned by demographics and aging populations and resilience to economic cycles. Industry data highlighted that there are approximately 1.5bn people across the world with impaired hearing. However, the penetration of hearing devices is low – 70% penetration of people with profound loss, 50% moderate loss and 10% mild loss. According to the industry body EHIMA, the global market for hearing devices is around 17m per annum.
Sonova has been able to significantly outperform the hearing aid market through the “secret sauce of sustainable dividend growth investing” namely internal compounding from re-investing today’s profits into building for the future. Sonova has spent around 30% of its cash generated on M&A, building a global store network of around 3,200 stores and has plans to increase this amount spent annually. As of 2023, further re-investment in the form of capital expenditure as a % of sales has been around 4% per annum over the past five years.
The final part of the investment for the future has been on research & development for new product. This has steadily been around 7% of annual sales on R&D. The outcome of this investment witnessed in recent years with the highly successful launch of the Phonak Audeo Paradise in August 2020 – a new sound processing chip with a motion sensor for better hearing and allows for multiple simultaneous Bluetooth connections.
The firm has increased its dividend by 10% per annum from 2010 to 2020 (with an average pay-out ratio of around 35%) which leaves 65% of the annual profits to be re-invested to drive future growth.
Drivers for future growth
- Ageing populations & underdiagnosed - the number of people with hearing loss is rising. Best technology and pricing is in the consumer pays market.
- International expansion - increasing penetration of hearing devices in emerging markets.
- Product development – continued potential to innovate 'better hearing'.
- Replacement cycle – hearing aids tend to be replaced every four to five years.
FOR PROFESSIONAL INVESTORS ONLY
Dundas Partners LLP is authorised and regulated by the UK Financial Conduct Authority, registered as an Investment Adviser with the US Securities and Exchange Commission and holds a Foreign Financial Service Providers License with The Australian Securities and Investment Commission. It operates as Dundas Global Investors.
You should be aware of the risks associated with investments in interests of any investment product. Past performance is not necessarily a guide to future performance. The information contained herein is distributed without warranty of any kind, either expressed or implied, and should not be interpreted as investment or financial advice. This document and its contents are for information purposes only and are not an offer to sell or solicitation to buy interests in any investment product. This article has been produced for professional investors only. If you are unsure about any of the information contained within this document, please contact Dundas Partners.
This article may not be reproduced, distributed or published in whole or in part without the prior approval of Dundas Partners LLP. The contents are based on sources of information believed to be reliable; however, no guarantee, warranty or representation is given as to its accuracy or completeness. If it prompts an interest in Dundas Global Investors, please contact us for information on our funds. This article is not a substitute for a fund’s prospectus or disclosure document. The commentary expressed addresses general investment matters only, not Dundas’ specific strategies.
