William Demant Holding A/S
Interim information, third quarter

William Demant Holding A/S 

07.11.2012 08:17
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Company announcement no 2012-10                                7 November 2012



Global launch of new, complete high-end hearing aid family from Oticon at turn
of year 

Third quarter marked by continuous mix shifts and difficult market conditions



  -- Unfavourable mix shifts and challenging conditions in certain markets have
     in the past part of the second half-year curbed corporate growth, which is
     also marked by the fact that the Group's hearing aid activities have moved
     into the last phase of their current product and platform cycles.
  -- The Group still expects overall revenue growth for 2012 of 5-9% - however
     with a contribution from acquisitions at the upper end of the previously
     announced range of 1-3 percentage points. We also still expect corporate
     revenue for 2012 to be favourably impacted by changes in exchange rates.
  -- The Group's policy to let losses and gains from hedging of foreign
     currencies have full effect on its operating profit is expected to
     negatively impact revenue and operating profit (EBIT) for 2012 by an
     estimated DKK 140 million compared to 2011. Overall, we now expect to
     realise an operating profit (EBIT) for 2012 on par with or just short of
     the level realised in 2011.
  -- If we disregard the negative effect of hedging of foreign currencies on our
     operating profit, we still expect corporate operating profit (EBIT) for
     2012 to exceed the 2011 level.
  -- The Group's hearing aid activities will see a broad spectrum of product
     launches next year: We thus expect 2013 to be a year of strong product
     launches. Already in January 2013, Oticon will launch a new, complete
     high-end hearing aid family that will generate additional sales momentum.
     Available in all the usual styles right from its introduction, the new
     product family will offer an array of completely new audiological user
     benefits based on the Group's third-generation wireless technology
     platform.



Market trends

In the third quarter, unit sales on the global hearing aid market saw weaker
development than in the first half-year and are thus below the range of 2-4%,
which is our expectation of market unit growth for the entire 2012. The average
selling price on the market is still hampered by a less favourable product mix
due to an attractive offering of hearing aids in the lower price segments.
Also, the general price level is affected by fiercer competition than
previously and uncertainty over the effect of announced changes in
reimbursement systems in a number of European countries. 



Based on available statistics, we believe that in overall terms, the major
European hearing aid markets saw slightly negative unit growth in the third
quarter as opposed to solid overall growth in the first two quarters of the
year. Generally speaking, the European markets are characterised by uncertainty
over future market conditions and reimbursement schemes - uncertainty that is
particularly prevalent in countries such as Germany, Holland, Switzerland and
Denmark. Unit sales in both the German and the French market developed flatly
in the third quarter, whereas the UK saw slightly negative unit growth compared
to the same period last year. Furthermore, the economic slowdown in Southern
Europe, in particular, has resulted in a less favourable development in demand. 



In the USA, the private market saw flat unit growth in the third quarter,
whereas overall demand by VA (Veterans Affairs) has gone up by 4%. In overall
terms, this means that unit growth in the USA has been 1% in the third quarter. 



The Japanese market has shown positive unit growth of approx. 2%.



We believe that the intensified competitive situation, which has prevailed
since the beginning of the year, has not changed notably, and it is still our
assumption that the product mix is deteriorating - a trend which has been
evident in the third quarter. With limited unit growth in the third quarter and
continued pressure on the average selling price, we estimate that in terms of
value, the hearing aid market saw slightly negative growth in the third
quarter. 



Several of the industry's major players used the recently held EUHA congress in
Germany to show off their coming products, and in combination with the planned
introduction of Oticon's new high-end family in January 2013, we expect the
hearing aid industry's strong offering of products, which are based on
different technological and audiological directions, to have a positive effect
on market growth in 2013. 



Hearing Devices

The Group's core business - wholesale of hearing aids - developed in the third
quarter on par with or just short of market trends and has in the period under
review generated negative organic growth in terms of value. In terms of growth,
the mid-priced and low-end segments have done better than the high-end segment,
which has had a negative impact on our average selling price in the period
under review. In Norway, this autumn's transition to consignment stock in the
public system has resulted in invoiced sales in the third quarter being
considerably under the normal level. For the entire year, the changes in Norway
alone are expected to have a negative operational one-off effect on the Group
to the tune of DKK 40 million. 



At the recently held EUHA congress in Frankfurt, the attendees took great
interest in gaining insight into Oticon's audiological intent, which will also
in the future ensure that we are able to deliver the right user benefits, so
that the hearing-impaired can, to a greater extent than previously, spend their
energy on participating actively in complex listening situations instead of
spending all their energy trying to decode what is being said. Also as far as
Oticon's future product launches are concerned, audiology and the individual
needs of the users will be the focal points, as it is our firm conviction that
the purpose of a hearing aid is to give the hearing-impaired the right support
and relief all day long and in everyday life - but such support and relief must
always match the different needs of the users. 



The Group's hearing aid activities will see a broad spectrum of product
launches next year: We thus expect 2013 to be a year of strong product
launches. Already in January 2013, Oticon will launch a new, complete high-end
hearing aid family that will generate additional sales momentum. Available in
all the usual styles right from its introduction, the new product family will
offer an array of completely new audiological user benefits based on the
Group's third-generation wireless technology platform. 



Driven by a competitive product portfolio led by the high-end products of the
Chronos family and also driven by an increasingly strong profile, Bernafon,
which is the Group's second hearing aid brand, saw favourable development in
the third quarter of the year. Our third hearing aid brand, Sonic, which we
acquired at the end of 2010, also succeeded in increasing its sales, and with
the introduction at the EUHA congress of its latest product, Sonic Bliss, which
will be released for sale towards the end of the year, Sonic has a solid
foundation for also generating growth in the future. 



In the third quarter, our retail activities followed the general trend in the
markets where we are active, which has secured stable development compared with
the same period last year. We are working continuously to optimise our retail
operations and to adjust our business to the changes in market conditions and
reimbursement schemes. This has also been the case in the third quarter. 



Oticon Medical continues to generate excellent growth rates with increasing
sales in both existing and new markets and is expected to be active in a total
of 24 markets by the end of the year. The positive development we have seen in
the period under review is not least a result of the successful launch of
Oticon Medical's new implant system that ensures faster and better fitting of
the users. The benefits of the new implant have just been documented in a
clinical study with exceedingly positive results. 



Other business activities

Diagnostic Instruments

Diagnostic Instruments saw positive development in the third quarter and
generated significant acquired growth. The comparative period in 2011 was
characterised by substantial tender sales, which is why realised growth
compared with last year does not convey an accurate picture of underlying
growth trends. The integration of the acquired SIDs (Special Instrument
Distributors) in the USA and the acquired manufacturers, including
MicroMedical, is progressing according to plan and will help ensure that
Diagnostic Instruments will continue to capture market shares. 



Personal Communication

Driven by solid development in Sennheiser Communications, our business activity
Personal Communication generated healthy growth in the third quarter compared
with the same period last year. Phonic Ear and FrontRow are still impacted by
difficult market conditions, but as mentioned earlier, costs in these units are
adjusted on a current basis to the actual level of activity. As far as Phonic
Ear is concerned, it is worth mentioning that up until now, the majority of
functionalities included in accessory products for hearing-impaired are now
increasingly being integrated in hearing aids, which means that accessories are
only to a less extent than previously sold as independent solutions. 



Other matters

Capital structure

In the past part of the second half-year, the Company has repurchased a total
of 90,868 shares worth DKK 48 million in total, which means that today we hold
1,582,071 treasury shares, or 2.7% of the share capital. Our relatively
moderate share buy-back since mid-2012 should be viewed in light of the fact
that presently, the Group commands an attractive pipeline of acquisition
candidates. We will continue to use the share buy-back programme to direct
corporate excess cash flow back to the shareholders, while ensuring that we
keep our net interest-bearing debt at DKK 1.5-2.0 billion. 



The ETG case

Since 2005, the Group has been party to a patent infringement case filed by the
New York-based Energy Transportation Group (ETG). Charges were originally
brought against the entire hearing aid industry based on two expired patents,
which - according to the ETG - include certain aspects of the anti-feedback
technology normally used in hearing aids. In the pending case against our
Company, an appellate court (the Court of Appeals for the Federal Circuit)
indicated in October 2012 that the jury had been presented with the correct
particulars of the case, but the appellate court had not reconsidered the
infringement. We have subsequently petitioned the appellate court to reconsider
its position, which means that the case against us is still pending. In 2007,
the Group made a provision to cover any damages as well as legal costs in this
respect, of which a residual provision in the amount of DKK 94 million is
recognised in the balance sheet. Add to this an additional contingent provision
for accrued interests of DKK 35-40 million. If, when all comes to all, the
court decides in favour of William Demant Holding, this provision will be
reversed. 



Impacts of hurricane Sandy

Last week, the Group's US headquarters in Somerset, New Jersey, were impacted
by hurricane Sandy, which hit the east coast of the USA on 29 October.
Fortunately, our employees and facilities, including buildings, equipment and
ITE production, were only impacted by power outages and breakdown of
communication lines in the region. However, our US head office manages a
considerable part of the Group's total IT server capacity in North America,
which means that several business systems, including phone, IT and order
processing systems, have periodically been out of operation. Furthermore, a
significant part of our North American ITE production is located in Somerset.
Due to these interruptions, our North American activities have not worked for
3-4 days. We believe that the main part of any operating losses due to
hurricane Sandy will be covered by our corporate insurance programme. 



Expectations

Growth expectations of the global hearing aid market remain unchanged: Based on
unit growth of 2-4% in the global hearing aid market in 2012 and a negative
development in the average selling price of the same magnitude, we expect the
global hearing aid market in 2012 to show zero growth in terms of value.
However, we expect new high-end products to result in a more positive
development in the average selling price on the market, but so far, there are
not visible signs to this effect. 



We expect to continue to increase our market share in 2012 and to generate
overall revenue growth in 2012 of 5-9% - however with a contribution from
acquisitions at the upper end of the previously announced range of 1-3
percentage points. Based on average exchange rates in the past part of the
year, we expect corporate revenue in 2012 to be favourably impacted by changes
in exchange rates. The full effect of this will, however, be postponed due to
hedging. 



The Group's policy to let losses and gains from hedging of foreign currencies
have full effect on its operating profit is expected to negatively impact
revenue and operating profit (EBIT) for 2012 by an estimated DKK 140 million
compared to 2011. 



With continuous mix shifts and challenging market conditions, we now expect to
realise an operating profit (EBIT) for 2012 on par with or just short of the
level realised in 2011. On publication of our interim report, we announced that
the Group's operating profit (EBIT) for 2012 would exceed the level of 2011. If
we disregard the negative effect of hedging of foreign currencies on our
operating profit, we still expect corporate operating profit (EBIT) for 2012 to
exceed the 2011 level. 



For 2012, we expect the Group's effective tax rate to remain 25-26%.





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Other information:                                                            
Other contacts: 

Niels Jacobsen, President & CEO                                   Stefan
Ingildsen, SVP Finance 

Phone +45 3917 7100                                                       Søren
B. Andersson, VP IR 

www.demant.com                                                            
Morten Lehmann Nielsen, IR Manager
News Source: NASDAQ OMX



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Language:     English
Company:      William Demant Holding A/S
              
               
              Denmark
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ISIN:         DK0010268440
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