Anna Maria Formiggini Holland and Susan Carol Holland

Transcription

1 Annual Report 2009

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3 We are proud to chair a company that is celebrating its 60 year of operations and which has become one of Italy s most significant multinationals. A company that has evolved with the times to become world leader in its industry while maintaining the same spirit in which A. Charles Holland founded in This success has been reached, of course, thanks to all the People, to whom our gratitude goes. In fact all of them, in their individual roles and through their daily commitment, contributed and contribute to face the present and future technical, scientific, commercial and social challenges, accomplishing, day by day, our company mission: taking care of those who need help with their hearing in order to lead a better life. Anna Maria Formiggini Holland and Susan Carol Holland

4 Bringing sound to life The Company s Mission is to give back to people with hearing loss full activity and joie de vivre by achieving total satisfaction in auditory communication in all the various situations of daily life.

5 traslation from the original italian text The Chief Executive Officer s Message 4 Report on Operations at 31 December Consolidated Financial Statements 126 Commentary on results 53 Consolidated Statement of Financial Position 128 Highlights Our Role in the World 12 Our Brands 14 Our Milestones 16 Revenues from sales and services 18 The Group Operating Structure 19 The Group Distribution Channels 20 Reconciliation of S.p.A. s Net Equity and Net Income at 31 December 2009 to those of the Group 90 Risk management 91 Shareholdings of Directors, Board of Auditors, General Managers and Key Managers 98 Treasury shares 98 Research and development 99 Transactions between group companies and with related parties 99 Consolidated Income Statement 130 Statement of Comprehensive Income 131 Statement of changes in Consolidated Net Equity 132 Consolidated Cash Flow Statement 134 Supplementary Information 135 Notes to the Financial Statements 136 Annexe I 200 The Group s Governing Bodies 24 Subsequent events 99 Outlook 100 Annexe II 202 Corporate Governance 101 Index Annual Report 2009 Business and Sustainability 30 The Operating Environment 31 Our Activity 34 Closeness to Medical Doctors 35 Closeness to our Customers 38 Employee Development and Value 44 Shareholder Information 48 Listing on the Italian Stock Exchange 48 Main Shareholders 48 The Share Price Trend, Trading Volumes and Market Capitalisation 49 Internal Dealing 49 Relations with the Financial Market 50 Share Coverage Financial Calendar 51 Commentary on the results of the Parent Company S.p.A. 113 Attestation in respect of the Consolidated Financial Statements under Article 154-bis of Legislative Decree 58/ Independent Auditor s Report 31 December

6 The Chief Executive Officer s Message To the Shareholders, In 2009 the severe effects of the crisis spread from financial markets into the real economy and caused a steady deterioration throughout the world economy and a deep recession in all economies and consumer markets, from which no industry was exempt. In the second half of the year the situation gradually improved and impacted favourably on the consumer confidence index. However, the timescale and the extent of economic recovery are still uncertain. The recovery of private consumption in particular is to a certain extent restrained by uncertainty in the labour market and the expected unemployment rate. Against this difficult economic background the hearing-aid business re-affirmed its defensive nature due to the fact that it offers goods and services that may only in part be deferred or done without, given their strong impact on the user s quality of life, and to the existence and receipt of government subsidies or insurance reimbursements, which is a further factor stabilising consumption. In this context the Group focused on profitability and cash flow generation, and not least thanks to the steps taken starting in 2008, achieved significant results in 2009, which showed notable growth over 2008: Turnover reached million (up by 2.4% over the 2008 figure of million), thanks to the positive contribution of Continental Europe, to a slight increase in dollar terms in the US and to containment of the decline in the UK, where however there was growth in the second half of the year. Profitability improved significantly in all geographies: EBITDA was 90.1 million ( 87.2million net of non-recurring operations), up by 15.8 million or 21.3% (or 17.4% in respect of recurring operations) over the 2008 figure of 74.3 million. The Group s net profit reached 29.2 million, an improvement of 43.7 million over the 14.5 million loss in 2008, and which was due to a write-down of the goodwill and deferred tax assets in the UK amounting to 32.3 million. Net debt fell further by 40.6 million to million from million at 31 December 2008, once again demonstrating our ability to generate substantial operating cash flow, with which acquisitions worth 17.4 million (the most significant has been Dialogue in Belgium) were made and capital expenditures of 29.2 million were undertaken, as well as contributing to a further strengthening of the Group s financial position. In 2009 the Group continued the effective implementation of important strategic projects including the strengthening of its retail positioning through the adoption of a more customeroriented model, the rool-out of the new concept-store in several countries with the concomitant renewal of its communications strategy wich - together with an intensified focus on operating excellence and the launch of processes of integration and restructuring - contributed substantially to these results and are the basis for the implementation of future strategies. The ratio of net debt to equity was 69% as against 104% in At the end of 2009 net debt was 1.70 times EBITDA as compared to 2.56 times at 31 December This strengthening of the financial position will enable the Group to seize possible future opportunities of external growth. In 2010, is foresean a slow improvement in the macroeconomic but with signs of weakness and instability still present in all the markets in which the Group operates, the strategy still focuses on continuing gains in operational efficiency, on cost control and on the attainment of optimal market share in all markets in order to maximise profitability. The hearing-aid industry still has enormous growth potential due not only to world demographic trends, increasing noise pollution and the rapid growth of emerging markets, but also and above all to limited market penetration, which is still as low as 20% in the industrialised economies. In order to benefit from future growth opportunities and consolidate its position as world leader, the Group - thanks not least to the substantial cash flow generated by its ordinary business - will continue to invest significant resources in projects designed to sustain and develop its business: (i) in marketing, by the continuous development and diffusion of the new image and market positioning which places the customer at the centre of its activity; (ii) in information technology, by developing new projects to support sales, to improve the back office activities and to have the appropriate control of the business; and (iii) by growing and training its people while promoting a culture of highly professional service and the greatest possible customer satisfaction. In 2010 the Group is celebrating the 60 th anniversary of its foundation: as the world leader in the distribution of hearing solutions, the Group owes the continuity and sustainability of its success not only to profit performance and the financial solidity of a Group operating in as many as 14 countries, but above all to its ability to satisfy a growing number of people over time by improving their quality of life and providing them with high value-added products and services. This achievement was attained not least thanks to the contribution of the over 7,800 people in all company functions, who - with their professionalism, dedication and motivation - have contributed and will contribute much more in the future to the realisation of the Group s ambitious plans. Milan, 10 March 2010 On behalf of the Board of Directors CEO Franco Moscetti 4 5

7 highlights 2009 Highlights 2009 Sales by Region FY 2009 ( million) North America 1.4 Rest of the world Despite the generalised economic crisis, in 2009 the Group achieved important results and advanced over the previous financial year: TURNOVER Turnover reached million as against the 2008 figure of million (up by 2,4%) UK & Ireland Continental Europe EBITDA EBITDA increased by 15.8 million (or 21.3%) to 90.1 million ( 87.2 million net of the positive effect amounting to 2.9 million of a non-recurring revision of the premium reserve of the reinsurance company that operates on the Dutch market) as against the 2008 EBITDA of 74.3 million. EBITDA by Region FY 2009 ( million) North America Rest of the world UK & Ireland Continental Europe NET PROFIT Ugo Giorcelli (CFO) Group net profit was 29.2 million, up by 43.7 million over the 14.5 million loss recorded in 2008 which was due to a 32.3 million write-down of goodwill and deferred tax assets in the UK. Growth and Profitability ( million) NET DEBT Net debt fell by 40.6 million to million as against million at 31 December 2008, thanks to substantial operating cash flow and careful management of working capital. This was net of capital expenditures of 29.2 million and investment in acquisitions worth 17.4 million. Additionally, thanks to timely refinancing of debt as it fell due, the short-term component of financial indebtedness was positive by 34.3 million, while medium/long-term debt stood at million. REVEnUE CAGR : +15.3% EBITDA CAGR :+27.0% % 9.3% % % % 17.1% 17.1% % % CAGR: Compound Annual Growth Rate: the weighted growth rate for the period considered. 6 7

8 highlights 2009 Main Economic and Financial Data ( thousand) Fy 2009 Fy 2008 Change Economic data: Revenues from sales and services Gross operating margin (EBITDA) Operating result before the amortisation and impairment of customer lists, trademarks, non-competition agreements and goodwill arising from business combinations (EBITA) Operating income (EBIT) Profit (Loss) before Income Taxes Group net income (loss) Recurring nonrecurring Total % Recurring nonrecurring Total % % 657, , % 641, , % +2.4% 87,189 2,957 90, % 74,287 74, % +21.3% 65,445 2,957 68, % 53,229 53, % +28.5% 56,894 2,957 59, % 44,980 (29,396) 15, % % 43,308 2,957 46, % 27,295 (29,396) (2,101) -0.3% +2,302.0% 26,950 2,203 29, % 17,794 (32,330) (14,536) -2,3% % ( thousand) 31/12/ /12/2008 Change Financial data: Fixed assets 400, , % Net invested capital 369, , % Group Net Equity 218, , % Total Net Equity 219, , % Net Financial Indebtedness 149, , % Net Financial Indebtedness / Group Net Equity Net Financial Indebtedness /Net Equity Net Financial Indebtedness /EBITDA ( thousand) Fy 2009 Fy 2008 Free cash flow 57,918 62,747 Cash flow generated (absorbed) by acquisition activities (17,367) (6,730) (Purchase) sale of other investments and securities (530) 2,576 Cash flow provided by (used in) financing activities 929 (7,937) net cash flow from the period 40,950 50,656 Effect of the disposal of assets and of exchange rate fluctuations on the net financial position net cash flow from the period with changes for discontinued operations and exchange rate fluctuations (296) (488) 40,654 50,168 EBITDA is the operating result before amortisation, depreciation and impairment of tangible and intangible assets. EBITA is the operating result before the amortisation and impairment of customer lists, trademarks, non-competition agreements and goodwill arising from business combinations. EBIT represents the operating result before financial income and charges and taxes. Free cash flow represents the cash flow of operating activities and investment activities before the cash flows used in acquisitions and payment of dividends. The Net financial indebtedness / Group Net Equity indicator is the ratio of the net financial indebtedness to the Group s net equity. The Net financial indebtedness / Net Equity indicator is the ratio of net debt to total net equity. The Net Debt / EBITDA indicator is the ratio of net debt to EBITDA for the last four quarters (determined with reference only to recurring operations and on a pro-forma basis in case of significant changes in the Group Structure). 8 9

9 Solution Area Counseling hearing Test Protected/Discreet Education Wall Informations Reception Retail Area Accessories Displays Products Retail Wall Window Window Open/Visible YOU ARE HERE Our new store window gives a WARM WELCOME: designed to convey openness, transparency and high visual impact, balancing emotional and rational branded communication. It displays information, hearing aids and accessories that invite customers to enter into the store - going beyond the purely medical dimension to become a strong retail element to stimulate coming through the door GOOD DESIGN TM Award 10 11

10 Our Role in the World We are global leaders in the distribution, application and customization of hearing aids. The Group s competitive positioning in its operating markets Country Market Share Position Italy 41% #1 The Netherlands 37% #1 Switzerland 22% #1 Belgium 20% #2 UK 13%(*) #2 Hungary 13% #1 Portugal 12% #3 Spain 12% #2 France 12% #2 USA 10% #1 Germany 5% #3 Canada 1% - Over 1 million people have placed their trust in to regain their joy of hearing. Markets of Operation ** 13% #1 Global Market ** 8% #1 (*) Refers solely to the private sector, excluding public sector provision. (**) Source: National Trade Associations and insurance brokers. Notes: Market Shares (MS) refer to volumes sold. Our MS are estimated by local Management based on information received from the suppliers. There is no official certified data source for the volumes sold. Being our Average Selling Price in the top high on the Market, it is reasonable to expect that MS based on Revenues ( ) will exceed that based on volumes

11 Our Role in the World Our Brands Our Milestones We are a multinational group distributing high-tech hearing aids manufactured by the main producers in the world and customizing them to the needs of hearing impaired customers with the help of a range of personalised services. Our business is mainly focused on the hearing aids sector (87%), then on other products such as batteries, consumables, repairs, accessories, spare parts and services (12%) and on biomedical products (1%). Is a historic Dutch brand, in consideration of its recognition value in the market and its wide diffusion, it has been retained and integrated into s new logo. This is the brand of a chain of clinics acquired in the US. Given the wide diffusion and the excellent awareness of the brand - focused on high-level solutions and perceived as strongly medical - it has been retained. In order to exploit this brand to the full, certain chains of independent distributors in the wholesale channel have been permitted to use it. This is our US brand used by a network of franchisees; this network, originally acquired at the end of the 1990s, was subsequently strengthened. The brand was retained given extensive awareness and strong identity. Dialogue is a well known Belgian brand, with almost 60 years of history Charles holland founds, a company specialising in the commercialisation of hearing aids, in Milan. The 1960s and 70s Growth in the Italian market was consolidated with the opening of stores in all regions of the country. The CRS (Centre for Research and Studies) was set up as reference point for the scientific community dedicated to increasing knowledge by means of research, development and training in the audiological, audioprosthetic, phoniatric and logopaedic fields, and Amplaid, a biomedical line providing the ear-nose-and-throat specialist with advanced audiological diagnostic and rehabilitation tools, was created. The 1990s By developing and renewing management, we aimed to be increasingly a service company developing and distributing exclusive services to provide custom-made hearing-aids and after-sale service with the aim of maximising customer satisfaction. Expansion to other countries began, starting with the Iberian Peninsula in Always in the vanguard of technological research, we introduced - an absolute first for Italy - the first completely digital hearing aid which combined reduced size with highdefinition sound quality These were fundamental years in which we developed a clear strategy of internationalisation through significant acquisitions of the main competitors in Switzerland, France, the US and The Netherlands On 27 June, 2001 was listed on the Italian Stock Exchange. We also entered into Africa and Middle East by establishing a business channel in Egypt. We continued our international expansion by strengthening our position in key markets like the US and The Netherlands and entering Germany and the UK In the years we realised a complete renewal of our communication strategy, starting with the brand, to further strengthen our customer-oriented positioning to face the new challenges in the world market and the society of the future By means of a significant acquisition we enter the Belgian market. Today we are a multinational heading a Group operating in 14 countries, in Europe, North America and the Middle East through five brands and with staff of over 7,800 people. Our distribution network consists of 3,000 specialist stores, more than 1,500 affiliated stores 3,700 authorised stockists and over 3,600 audio-prosthesists

12 Our Role in the World Revenues from sales and services ( thousand) Change % Italy 194, , % France 93,079 90, % The Netherland 85,949 85, % Germany 40,492 41, % Iberian peninsula 31,282 30, % Switzerland 30,686 27, % Belgium 8, Hungary 3,091 3, % Intercompany Eliminations (258) (825) -68.7% Total Continental Europe 486, , % United Kingdom & Ireland 36,431 44, % United Kingdom & Ireland 36,431 44, % USA - Canada 132, , % Total America 132, , % Egypt 1,408 1, % Total Africa 1,408 1, % Intercompany Eliminations (8) (38) -78.9% Total 657, , % The Business Segments Our Group focuses on a single business segment, i.e. the distribution of hearing aids and related products and services (batteries, consumables, accessories, repairs, spare parts), which generate most of our turnover. Revenues Breakdown Other Related Product and Services 12% 1% Biomedical The Group Operating Structure Is divided into four Regions: Continental Europe, United Kingdom, North America and Rest of the World. The Regions are responsible for the full and correct implementation of the Group s strategic guidelines and coordination of the activities performed at Country level. The Management of each country is responsible for developing the Group s business with a specific focus on sales and marketing. Belgium Germany France Switzerland The Netherlands Spain hungary Portugal Continental Europe Italy A Leadership Team at Group hq level, based in Milan, provides international direction and control, in the following areas: global strategy, marketing and institutional communication, investor relations, information technology, relations with suppliers and the main partners, promotion of research, quality control, funding, currency risk management, coordination of human resources. U.K. Great Britain Ireland north America USA Canada Rest of World Egypt 87% Hearing Aids From the left: Gilbert Ferraroli (Market Director Europe), Enrico Bortesi (Chief Supply Chain and Purchasing Executive), Franco Moscetti (Chief Executive Officer), Ugo Giorcelli (Chief Financial Officier), Heinz Ruch (Market Director North America), Giovanni Caruso (Chief HR Executive), Haluk Terzioglu (Chief Marketing Executive)

13 Our Role in the World The Group distribution channels operates through two main distribution channels. 1) Corporate business Direct Point of Sales This is the direct channel, in which the sales relationship is between and its customers. Market activity of three types is performed through our stores and clinics: a) sales conducted by staff; b) sales conducted by self-employed staff, who sell hearing aids on behalf of and in its name; c) Service locations that are the first contact and they direct customers to the shops. 2) non-corporate Business Indirect Point of Sales The indirect channel through which sells to independent firms, which then distribute hearing aids and accessories and complementary services to the end-users. According to the degree of predominance of the Group s brands in stores, they break down as follows: a) Franchisees: These operate under a franchise agreement and bear the enterprise risk, taking at the same time advantages from the possibility to use advanced marketing tools and a brand leader in the market (e.g. or Miracle Ear) and other value added services as training, accounting and IT services, retirement plans etc. They purchase product exclusively from the Group and may benefit from service centres as the first contact with customers. b) Wholesale (a channel which operates mainly in the US): This channel is comparable to wholesale in that these firms can purchase products and services from suppliers other than. They can be categorised according to their operating model: Business owners enjoying special terms and conditions, e.g., members of a buying association coordinated by, which receives a commission on each sale. Independent buying groups to which the Group supplies hearing aids under a minimum quantity agreement. Membership groups and insurance companies which recommend a hearing-aid store, whether direct or indirect, to their clients. The following tables detail the number of the point of sales, divided by Corporate Shops and non Corporate Shops. December 2009 Direct Point of Sales Indirect Point of Sales Total by Country: Direct / Agents Franchisee/ Service Centre Wholesale Italy Switzerland France The Netherlands Belgium Hungary Spain Portugal Germany Total Continental Europe 1, ,381 United Kingdom and Ireland North America 177 1,276 1,651 3,104 Egypt Total by Type 1,677 1,419 1,651 4,747 December 2008 Direct Point of Sales Indirect Point of Sales Total by Country: Direct / Agents Franchisee/ Service Centre Wholesale Italy Switzerland France The Netherlands Hungary Spain Portugal Germany Total Continental Europe 1, ,264 United Kingdom and Ireland North America 263 1,402 1,634 (*) 3,299 Egypt Total by Type 1,652 1,510 1,634 4,796 (*) restated value excluding the marginal shops that in 2009 were no longer part of the wholesales business 20 21

14 Solution Area Counseling hearing Test Protected/Discreet Education Wall Informations YOU ARE HERE Reception Retail Area Accessories Displays Products Retail Wall Window Window Open/Visible Inside our new store, each space has a specific function: on the left is the area dedicated to EDUCATIOn of the customer - it provides accessible but detailed information combined with hearing aid displays able to stimulate customer s interest and facilitate an easier interaction and build reassurance that he or she will be treated as an valuable individual person

15 The Group s Governing Bodies The basis of all the Group s activities is our Code of Conduct approved by the Board of Directors. We firmly believe that the primary actors in corporate governance are our people and the way they go about their daily work. All functions must therefore be carried out in compliance with the law, in a framework of fair competition and respect for the legitimate interests of our customers, employees, shareholders, lenders business partners and the communities in which we operate. The Code of Conduct lays down the general principles to be followed, the reciprocal responsibilities of the employer and the employees, diligence in relations with stakeholders, fostering the skills and ability of each employee by enabling full professional self-realisation, and thus ensuring that working conditions are fair and free of any form of discrimination. The Corporate Governance structure, which is described in detail in the Report on Corporate Governance and the Ownership Structure fully included in the Reports on Operation section, is based on the Listed Companies Corporate Governance Code issued by the Listed Companies Corporate Governance Committee which signed up to in its original 2001 version and now follows the code issued in March 2006 by the same Committee. From the left: G. Pesaresi, M. Coazzoli, G. Levi, G. Bracchi, M. Costa, S.C. Holland, F. Moscetti, A.M. Formiggini Holland, V.E. Treves, U. Rosa, L. Colombo Board of Statutory Auditors The Board of Statutory Auditors was appointed by the Shareholders Meeting held on 22 April 2009 and remains in office for the three financial years Its membership is as follows: Chairman Giuseppe Levi Standing Auditor Mauro Coazzoli Standing Auditor Gabriele Pesaresi Alternate Auditor Gianluca De Vecchi Alternate Auditor Nicola Maria Frangi External Auditors Reconta Ernst & Young S.p.A. Governing Bodies and Committees The Board of Directors The Board of Directors is appointed by the Shareholders Meeting held on 24 April 2007 and remains in office for the three financial years Its membership is as follows: Chairman Deputy Chairman Chief Executive Officer Director* Director* Director* Director Anna Maria Formiggini Susan Carol Holland Franco Moscetti Giampio Bracchi Maurizio Costa Umberto Rosa Vanni Emanuele Treves * Denotes an Independent Director as defined in the Listed Companies Corporate Governance Code issued by the Listed Companies Corporate Governance Committee sponsored by Borsa Italiana S.p.A. Internal Control Committee Chairman Member Member Remuneration Committee Chairman Member Member Supervisory Body Chairman Member Group Compliance Officer Secretary of the Board of Directors Lead Independent Director Executive Responsible for Corporate Financial Information Group Compliance Officer Umberto Rosa Giampio Bracchi Susan Carol Holland Maurizio Costa Anna Maria Formiggini Holland Umberto Rosa Umberto Rosa Giampio Bracchi Paolo Tacciaria Luigi Colombo Umberto Rosa Ugo Giorcelli Paolo Tacciaria 24 25

16 The Group s Governing Bodies Board Members Anna Maria Formiggini Holland (born in 1924, Italian citizen) Her professional career began in 1945 when she was Marketing Director in Elizabeth Arden S.p.A., where she stayed until In 1950 she married Algernon Charles Holland, a former Major in the British Special Forces, who moved to Italy and set up a business to import modern hearing aids, founding S.r.l. in the same year. In 1959 she joined in Marketing, promoting and supporting direct marketing, which was crucial to the growth of the company in the following years. In 1980 she was appointed to the Board of Directors of S.p.A. In 1990 she was appointed Chairman of the Board of Directors, the office she still holds, together with that of Chairman of Ampliter N.V., Chairman of the Board of Directors of Amplifin S.p.A. and Chairman of the A. Charles Holland Foundation. In the past she was also Vice Chairman of the Managing Council of the Alzheimer Federation Italy and Deputy Chairman of the Board of Ager, an Association for geriatric research and the study of longevity. Susan Carol Holland (born in 1956, Italian citizen) She graduated in Psychology and Sociology at Keele University in the UK. She then took a diploma in Logopaedia at the Università degli Studi, Milan, and in 1982 began her professional career as a logopaedist in Milan s Policlinico. In 1988 she was appointed to the Board of Directors of S.p.A. and in 1993 elected Deputy Chairman of the Board of Directors, a position she still holds, together with that of Deputy Chairman of the Board of Directors of Amplifin S.p.A. and Chairman of the Board of Directors of Ampliare S.r.l., the Amplifin Group s real estate company. Franco Moscetti (born in 1951, Italian citizen) He began his career in the Air Liquide Group in In 1989 after gaining varied experience he was appointed General Manager of Vitalaire Italia, a company specialising in home care. In 1995 he was appointed General Manager and Managing Director of Air Liquide Sanità, a sub-holding controlling all the Group s health operations in Italy. In 1999 he was also made Managing Director of the parent company, Air Liquide Italia. In 2001, he moved to Paris, where he became head of the International Hospitals Division and at the same time Président-Directeur Général of Air Liquide Santé France. Since December 2004 he has been General Manager and Managing Director of the Group. He is also currently a member of the Executive Committee of Touring Club Italiano and an Independent Director of Diasorin S.p.A. and Fideuram Investimenti SGR S.p.A. (IntesaSanpaolo Group). Giampio Bracchi (born in 1944, Italian citizen) Professor of Engineering at the Politecnico, Milan and Chairman of the Politecnico Foundation, Milan. Author of 20 books and 200 scientific publications in Italy and abroad on corporate and financial innovation, he has been a member of the strategic committee in a number of the larger Italian industries, banks and public-sector organisations as an overseer of innovation. He is also Member of the Boards of Directors of Banca Intesa Private Banking S.p.A., RDB S.p.A., Milano-Serravalle-Milano Tangenziali S.p.A., AIFI - Italian Association for Private Equity and Venture Capital (of which he is Chairman), and CIR S.p.A.. He is a Member of the Consultative Committee of Borsa Italiana S.p.A. He has been an advisor to the Presidenza del Consiglio dei Ministri (the Italian Prime Minister s office), a member of the Technical and Scientific Committee of the Fondo Nazionale per la Ricerca Applicata (Italian fund for applied research), Deputy Chairman of Banca Intesa S.p.A. He is an Emeritus Trustee of the Very Large Data Base Foundation, Los Angeles and was for a long period world Chairman of the Information Systems Committee of the International Federation for Information Processing. Maurizio Costa (born in 1948, Italian citizen) He graduated in Mechanical Engineering at the Università degli Studi in Genoa. He was General Manager of the Standa Group from 1989 to He joined Mondadori in 1992 to manage Group subsidiaries and acquisitions, divestments and development of new businesses, until he became Managing Director of Elemond in In 1997 he has been appointed Managing Director of the Mondadori Group becoming also Deputy Chairman in He is also Deputy Chairman of Mondadori France and member of several board of directors in the companies belonging to the Mondadori Group. He is a member of the Councils of Confindustria and also participates in the Chairman s Committee of F.I.E.G. Umberto Rosa (born in 1933, Italian citizen) He graduated in Industrial Chemistry from Turin University. In 1959 he joined FIAT s Nuclear Division and worked in various research groups at several centres and Italy and abroad. In 1967 he became a lecturer in Radiochimica depositata at the Scuola Normale in Pisa. In1973 he took over the management of the SORIN Nuclear Research Centre (FIAT) which he converted into an industrial producer of biomedical technology (artificial organs and diagnostic reagents) of which he became General Manager in 1975 and then Managing Director in Following the acquisition of Sorin by the SNIA Group in 1986, he was appointed Member of the Management Committee and then Managing Director in 1991 and Chairman in Up to 31 December 2008 he was Chairman of SORIN S.p.A., which is listed on the Milan Stock Exchange. Since 2004 he has been Executive Chairman of Nerviano Medical Sciences, the largest oncological research centre in Europe. He is also Chairman of Telbios S.p.A. and NewCortec S.p.A. (NCT), Deputy Chairman of the Istituto Europeo di Oncologia and a Director of Finlombarda SGR and Actelios S.p.A.. From 1995 to 1999 he was Deputy Chairman of Confindustria, responsible for research, innovation and the environment and Chairman of the Istituto per l Ambiente (IPA). Vanni Treves (born in 1940, British citizen) He is a lawyer (Solicitor of the Supreme Court). For thirty years he was a Partner at Macfarlanes, a major City of London law firm, specializing in corporate law and international transactions. He is now Chairman of Korn/Ferry International, The Equitable Life Assurance Society and Intertek Group Plc, and has in the past been Chairman of three other public companies (BBA Group Plc, McKechnie Plc and Trinity Holdings Plc), and of Channel 4 Television Corporation and London Business School. He is Chairman of the National College of School Leadership, a Trustee of the J. Paul Getty Charitable Trust, Solicitor to The Royal Academy and Senior Advisor to Oliver Wyman. He holds an MA in Jurisprudence, an LLM in International Law and is an Honorary Fellow of London Business School

17 Solution Area Counseling hearing Test Protected/Discreet Education Wall Informations Reception Retail Area Accessories Displays YOU ARE HERE Products Retail Wall Window Window Open/Visible On the right side is the area dedicated to TECHnOLOGICAL InnOVATIOn - it is accessible and displays all the latest accessories. The products on display are always within reach of the customer and each one of the products are functioning, customers can try them freely

18 Business and Sustainability Business and Sustainability For 60 years we have been helping those in need of help with their hearing to have a better life. This is the ultimate result of our mission, in brief. is therefore a company with important social aims relating to the issues of integration, equal opportunity and the right to the quality of life. By offering solutions that enable people to use 100% of their hearing, we contribute to sustainable development: we give present and future generations the possibility to remain part of economic growth in line with the most widely accepted canons of social equity. Ensuring the greatest satisfaction in daily aural communication is a goal we realise indirectly as well by adopting a holistic approach, concerned not only with end-users, but also the medical fraternity and the scientific and academic world. Our position as world leader in our industry and our unflagging commitment to the pursuit of our mission has meant that the Group acts responsibly on all fronts, realising many different activities over recent years. These have included: constant study of the relationship between the current business environment and that of the foreseeable future, consolidation of doctors pro-active role and increasing contributions to the growth and diffusion of ENT culture and science worldwide, moving from a purely medical business model to a mixed retail formula, benefiting the quality of the service provided to customers, technical innovation and an emphasis on the value of people as the key factor in achieving results. The Operating Environment In several countries the hearing loss due to noise is the most common irreversible professional pathology. Hearing Loss The importance of the sense of hearing is recognised throughout the international scientific community: it is the first to be developed in the foetus together with the sense of sight and it is fundamental for interaction with the world. Being able to hear is essential for the development of verbal communication, for the comprehension of speech and thus for relationships with other people and the feeling of belonging to a community, for the enjoyment of sound making living more pleasant and safer and in any case enabling the individual to adapt to all kinds of communication. Reduced hearing or hearing loss thus relate strongly to the issues of integration, equal opportunity and the right to the quality of life. The medical definition of hypacusia is damage to the ciliate cells in the cochlea, part of the inner ear, leading to a hearing deficiency. The main causes are: age, i.e. the process of human ageing; damage caused by an accident; infections such as scarlet fever, rubella or meningitis; untreated otitis; otosclerosis, reducing the mobility of the ossicles (stapes) of the middle ear; heredity, due to the connexina 26 gene; use of substances like drugs, alcohol and cigarette smoke; noise or noise pollution in its various forms; about a third of hearing-loss cases are due to prolonged exposure to high-volume sounds, be they social noise (traffic, concerts, discos, the use of electronic devices like Mp3 players, cell-phones or headphones) as is the case in the developed countries, or professional and environmental noise (factories or the natural world) as occurs in other countries. Auditory dysfunction gives rise to extremely complex problems, especially in children: the implications are not only physiological or medical, but also and above all affecting relationships and communication, since they are deeply connected with the development of speech and language, codification and understanding and consequently the overall development of the personality

19 Business and Sustainability Socio-Economic Aspects World population expected growth rate Statistically over 80% of hypacusia cases are neurosensory (i.e. relating to sensory components of the nervous system): this figure tells us that the use of a hearing aid can remove most of these defects, above all due to the continuing improvements in diagnostic techniques and the technology applied to the product. 3.5% 3.0% 2.5% 2.0% Total Some 300 million people in the world are affected by hearing problems, but only 10% use a hearing-aid. (Source: Word Health Organization) The reasons for this state of affairs are manifold: they include psychological inhibitions, social stigmatisation and preconceptions regarding the simplicity of hearing-aid use. In the coming years our mission will be to serve the ever-growing population, for three basic reasons: 1) Increased life expectancy and thus higher average age - together with growing noise pollution - will cause cases of hearing loss or deficiency to rise. 2) The culture demanding ever-increasing well-being and health will motivate more people to seek solutions to their hearing problems. 3) Technical and scientific progress is already reducing or eradicating the problems of appearance and functionality which in the past kept those with hearing loss away from hearing-aids and additionally the foreseeable expansion of health authorities efforts to increase public awareness will steadily improve the acceptance of hearing loss and the medical remedies for it. On the basis of these assumptions s business will target mainly active senior citizens, aiming to improve and diversify the product range, thanks to developments in digital technology - in particular the miniaturisation of the devices - as well as growing awareness on the part of users of the importance of personalised service. 1.5% 1.0% 0.5% 0.0% Increase in life expectancy in the world AGE Source: US Census Bureau International database World Population by Age and Sex. Increase in life expectancy in the more developed countries AGE , , ,2 81,3 82,4 In addition, developing countries economic growth will gradually begin to offer openings to our industry: increased per capita income and industrialisation, urbanisation and a narrowing of the technology gap in these markets will favour the creation of the factors that lead to hypacusia Source:: U.S. Census Bureau, International Data Base Source:: U.S. Census Bureau, International Data Base

20 Business and Sustainability Our Activity We distribute high-tech hearing aids manufactured by the largest specialised producers in the world, always being able to offer the highest quality and best possible technology, and we fit them to the needs of hearing-impaired patients. Innovation wave G = Generation Analogue hearing aids G Digital sound processing G Adaptive directional sound G Open fitting & feedback cacellation Since 2007 we have been increasingly oriented to the satisfaction of our customers expectations, having developed our business model from a purely medical service to a mixed medical-retail concept, closer to the needs of existing and potential customers. This is most evident and tangible in our recent progressive transformation and renovation of our stores - the primary contact point with our customers - so that now they are a place where the customer may feel that she or he is being treated as a person and not just as a case affected by a pathology G Speech & noise detection 5G Wireless Source: SEB ENSKILDA Equity Research Report, We interact with our customers through a network of stores located throughout the area and over 3,600 audio-prosthesists and hearing-aid specialists, who are trained to use all the available technology in the best possible way and to properly inform, assist and support our customers. Like all employees, the audio-prosthesists and all store staff act in accordance with the Group s Code of Conduct, which lays down our commitment to promote the ability and skills of all employees in order to facilitate professional advancement on the basis of merit, our rejection of all discriminatory behaviour, the need to comply with the rules designed to protect the workplace and guarantee safety while safeguarding the health of all staff, regulates supplier relationships and, more generally, those with our stakeholders, and enjoins the highest sense of responsibility in all business activity. In order to be ever closer to our customers and as part of the aim of maximising the satisfaction of their needs and expectations, we contribute to the development of research and rehabilitation, giving doctors the tools, the support and the know-how that are indispensable for otological diagnosis and computerised integrated management of audiological systems. Closeness to Medical Doctors For many years the Group has been a reference point in the audiological and ENT field, offering itself as a specialised partner of the medical fraternity and the scientific community by means of the activity of CRS, support for scientific research and teaching, cooperation with the A. Charles Holland Foundation, and its biomedical products. At our centres we offer hearing tests which give the patient a precise picture of her or his hearing and, if there is a hearing deficiency, we fit made-to-measure hearing aids, regulated according to personalised parameters thanks to digital technology together with a range of exclusive high valueadded services which guarantee that the customer receives total personalisation and long-term service, these being the distinctive features of an offer which is unique in our business in the entire world. We also address potential customers or users who normally fail to perceive their deficiency and are reluctant to admit that they have a hearing problem, since a deficit is seen as a handicap. In this area our message is also directed at influencers, such as the family or friends of the potential customer (who can help her or him to recognise the problem and do something about it), her or his family doctor, (who can guide the patient to be examined by a specialist) and the specialist himself, (since the rules in most of our countries of operation require a medical prescription for the fitting of a hearing-aid)

21 Business and Sustainability s Research Centre (CRS - Centro Ricerche e Studi) National Courses The CRS was founded in 1971 to promote clinical research and diffuse progress and new developments in audiology and otology. It is managed by an independent Scientific Committee made up of high-profile experts from the scientific community, who provide scientific and technical advice and every year choose the initiatives to be undertaken. CRS s work with doctors covers various areas: cooperation with universities and audiology and ENT institutes to organise training courses and conferences accredited by the ECM* which give participants an up-to-date picture of the most recent scientific developments in the field. involvement in European basis research projects such as AHEAD (Advancement of Hearing Assessment methods and Devices), HEAR 1 and 2 (Hereditary deafness Epidemiology And clinical Research) and GENDEAF (Genetic Deafness) as coordinator of the agreement on behalf of the European Commission and in cooperation with renowned research departments in European universities. cooperation with the A. Charles Holland Foundation, which offers five annual scholarships to young doctors and audiologists of all nationalities giving them the opportunity to train at highly specialised entities all round the world. carry on intensive publishing of monographs, manuals and scientific conference proceedings. A bibliographical review, entitled INDEX, which gathers the most important articles that have appeared in medical literature on audiology, otology, vestibology, hearing aids and implants, rhinology and phoniatry, is also published on-line ( four times a year. There is a journal published halfyearly, Logopaedia - Italian journal of logopaedia, and the official papers of AOOI (Associazionie Otorinolaringologi Ospedalieri Italiani the association of Italian ENT hospital doctors). it has one of the best-stocked private libraries in the audiological and ENT field, which receives the most important international journals in this field and offers a free-of-charge book search service to doctors, sending abstracts and complete articles on request. Scientific Activity in 2009 In 2009 the CRS sponsored 17 events, including courses in Italy and abroad and events for specialising students, attended by almost 1,500 people (doctors, audio-prosthesists / audiologists and students) and with the participation of more than 200 speakers and tutors. (*) continuing education in medicine. Date Title Participants Speakers and Tutors February Diagnosis and treatment of vertigo and dizziness March Industrial Audiovestibology March The Eustachian Tube: up-date on diagnostic and therapeutic management March Auditory function and auditory processing disorders March 30 The effects of hearing loss in the child and current prosthetic trends 81 6 June Hearing aids June Deafness in the first year of life. From screening to diagnosis September L. CIPPARRONE Vestibology October Otology October Malignant nasosinusal tumours with extension to the basicranium. Diagnostics and therapeutic options: recent results INTERNATIONAL COURSES May Oto-surgery September Psychoacoustics, electro-physiology and functional imaging of the auditory system On-line Courses Continuing integrated training for ENT and audiology/phoniatry specialists Surgery for roncopathy October Treatment of transmissive hypacusia November Vestibolary Re-education November Audiological and genetic diagnosis of hypacusia in infants December Ménière s Disease: diagnostic and therapeutic trends EVENTS FOR GRADUATES 1, November Medical and legal issues in professional deafness and prosthesic remedies Scholarships 3 Scholarships of 5,000 for newly specialised doctors in ENT and audiology/phoniatry for the three further-degree theses presented in the previous year. 3 Scholarships of 1,000 for logopaedists per for the three best degree theses presented in the previous year. SIO Conference Single subject meeting at SIO (Società Italiana di Otorinolaringologia Italian ENT Society) in Rimini, with the attendance of over 400 ENT specialists. SIAF Conference Attendance of the 32nd SIAF (Società Italiana di Audiologia e Foniatria Italian audiology and phoniatry society) conference held in Florence. Other National Conferences Attendance at the 33 rd AOOI (Associazionie Otorinolaringologi Ospedalieri Italiani- Italian hospital ENT doctors) refresher conference of held in Acireale; at the SIFEL (Società Italiana di Foniatria e Logopedia -Italian society of phoniatry and logopaedia) conference held in Lecce; at the AUORL (Associazione Universitari Otorinolarigoiatri - Association of University ENT Specialists) conference held in Pesaro; at the SIOP (Società Italiana Otorino Pediatrica - Italian Paediatric ENT society) conference held in Ariccia; and at the AIAC (Associazione Italiana Audiologia Clinica - Italian Clinical Audiology Association) biennial conference to be held in Naples in

22 Business and Sustainability Closeness to our Customers The first step to helping the customer to hear better is to listen to her or him. Attentively. Over 3,600 audio-prosthesists are at work in our stores every day with the aim of being close to our customers, providing immediate advice and professional service, identifying the best solution for each of them and guaranteeing their satisfaction over time. We have reached a new state of awareness of our customers. Our aim is to reduce their anxiety and thus overcome the psychological obstacle to dealing with hearing problems and hearing aids. At the same time we aim to satisfy their expectations as to what a company that distributes the means to resolve hearing loss can offer. Our customers will presumably be using the hearing aids and accessories for the first time. This is why we have to give them our best care and attention, making them aware of the progress made during the fitting. We want them to come back to us with pleasure. Thanks to s audio-prosthesists and professionals ability to listen, they are able to build a relationship of trust, which makes it easier to understand and meet the physiological and psychological needs of the customer, to help her or him to overcome her or his hearing loss step by step, including from a psychological point of view. Our specialist staff is select and highly qualified, constantly up-dated by advanced training courses, classes and e-learning courses. The integrated programmes for our audio-prosthesists focus on the attainment of a basic objective: to give the best quality and most innovative service to our customers. Moreover, our professional protocols guide all our audio-prosthesists in their daily work and are an essential tool for diffusing best practice internationally. Our industry is regulated by health authorities and in the various countries the rules differ on the basis of the following factors: the professional qualification required of audio-prosthesists and hearing-aid specialists; whether or not a medical examination and a prescription for hearing-aid use are required; the prevalence of the public or private sector; whether or not the national health service provides a subsidy or reimbursement. For this reason we choose our staff in each country according to the specific qualifications required by current regulations and we give training and organise training courses where necessary to complete the programmes required by the ministry of health with those already shared across the whole Group. Regulatory Environment Country Sales force qualifications / Years to obtain title Italy Audiologists / 3 years France Audiologists / 3 years The Netherlands Audiologists / 0-1 year Germany Audiologists / 3 years Switzerland Audiologists/ 3 years Hungary Audiologists / 2.5 years Spain Audiologists / 2 years Portugal Audiologists / 0-1 year Belgium Audiologist / 3-5 years UK Audiologists / 2 years Ireland Audiologists / 0-1 year USA Audiologists / 4 years Dispensers / 0-2 years Canada Audiologists / 0-2 years NHS- National Health Service. Medical prescription Mandatory medical prescription for all types of hearing aids Mandatory medical prescription & verification that hearing aid has actually been fitted Medical prescription only below 16 years Service Providers: Public vs. Private Private only with approx. 1,480 specialized stores, 3,000 acousticians and more than 3,500 service centers Mainly Private, some 2,500 stores with 2,100 acousticians Private, with 800 stores (including optician chains) Mainly Private, some 4,100 stores with 9,000 acousticians Private with 430 stores, approx. 400 acousticians Private with stores and public with hospitals Mainly Private, some 650 specialised stores. In some cases, hearing aids are also distributed by opticians. 1,000 qualified audiologists Medical prescription Mainly Private with 120 stores, 300 acousticians System of reimbursement Full cover by the national health service for standard hearing aids, which on average cost around e 600. Partial reimbursement by the state of around e 600 for any type of hearing aid Full or partial reimbursement by private health insurance and / or government Full reimbursement by state for certain patients up to 16 years of age Reimboursement only from some private insurances for e 350 on average Medical prescription Mainly private Hearing aids reimbursed with lump sum of 621 for monaural fittings and 1,229 for bineural fittings. Hearing aids can be renewed every 5 years None ISHAA - Irish Society of Hearing Aid Audiologists. Mainly Public (NHS) with some 300 specialized stores, 3,500 acousticians employed (1,200 in private sector). NHS covers some 80% of HA volumes applied in UK Medical prescription Mainly private with around 30 stores and 70 ISHAA qualified dispensers. National Rehab Board (Medical Card) offers free hearing aids from 6 hospitals (means- tested) None Mainly Private. 11,000-13,000 estimated locations. 11,000 estimated audiologists. 10,000 estimated hearing aid dispensers None Mainly Private. 1,000 to 2,000 estimated locations Free of charge in case of national health service. Private market with no reumbursment e 830 per hearing aid, dependent on ratification from ISHAA-registered acousticians and customer having paid sufficiently into National Health scheme and signed by GP. Approx. 60% of all hearing aids are provided with this subsidy Free market with no reimbursement except for a small portion of the market run by the War Veterans Association and private insurances Private Insurance for about 5%. A few Provinces give contributions to the purchase of hearing aids % of revenues from reimbursement 30% 30% 50% 40% 65% 70% 1% 5% 45% 0% 50% 5% (Miracle-Ear) 25% (Sonus) 5% 38 39