- ISIN DK0010268440
William Demant Holding A/S
Interim Report 2014
DGAP-News: William Demant Holding A/S
14.08.2014 / 08:24
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Company announcement no 2014-06 14 August 2014
8% revenue increase in local currencies in first half-year and maintaining 2014
outlook
First half-year characterised by spending to drive future growth and
profitability
Three-year share buy-back programme of DKK 2.5-3.0 billion to be executed in
2014-2016
William Demant Holding A/S today published its Interim Report 2014. Selected
highlights from the Interim Report are summarised below:
-- In the first half-year, the Group realised a growth rate of 8% in local
currencies, corresponding to revenue of DKK 4,539 million. The Group's core
business, wholesale of hearing aids, realised unit growth, clearly
exceeding unit growth in the market. A continued roll-out of new products
is planned for the third quarter.
-- The period under review was characterised by a high level of spending and
investments in relation to the establishment of a new distribution centre,
the transfer of ITE production to Poland, the roll-out of global IT
projects and the expansion of Oticon Medical, all of which will secure
future growth and profitability for the Group.
-- In the first half-year, Oticon Medical continued to deliver double-digit
sales growth, both in bone-anchored hearing systems (BAHS) and in cochlear
implants (CI). The feedback provided on our CI products at the recently
held CI conference in Munich was very encouraging - strongly supported by
an independent study, demonstrating in three out of four tests the superior
performance of our Saphyr Neo speech processor compared to speech
processors from our competitors.
-- In addition to the adverse effects of current spending on operating profit
(EBIT) in the first half-year, foreign exchange rates negatively impacted
EBIT by DKK 60-70 million. EBIT reached DKK 834 million, and the EBIT
margin was realised at 18.4%. Earnings per share (EPS) were realised at DKK
11.2, matching last year's level.
-- The expected continued strong cash flow generation combined with a limited
pipeline of acquisition opportunities leaves room for channelling the
Group's substantial excess cash flow back to the shareholders going
forward. Therefore, we plan to buy back Company shares worth a total of DKK
2.5-3.0 billion in the period 2014-2016 of which amount we have
year-to-date already bought back shares worth DKK 493 million.
-- We maintain our full-year outlook for 2014, including our expectation to
generate growth in both our business activities and to deliver a rise in
earnings per share of 5-10%. Acquisitions are expected to contribute by
3-4% to Group revenue in 2014, even though we expect more than half of this
impact to be offset by the Group's weakened invoicing currencies.
'In the light of a first half-year affected by delivery problems in Diagnostic
Instruments and a relatively low exposure to the fastest growing channels in
the hearing aid market, we are satisfied that we managed to grow revenue by 8%
in local currencies. Based on this, we maintain our full-year expectations,'
says Niels Jacobsen, President & CEO of William Demant Holding.
'We are in the process of strengthening our long-term position in global
hearing healthcare by expanding our implant business and by optimising our
supply chain - among other important initiatives - and this naturally increases
our costs in the short term, but is expected to deliver long-term growth. We
will continue to generate strong cash flows, and we are pleased to announce a
substantial share buy-back programme over a three-year period,' adds Niels
Jacobsen.
1st half 2014 1st half 2013 Change
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Key figures, DKK million
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Revenue 4,539 4,403 3%
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Gross profit 3,320 3,207 4%
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Operating profit (EBIT) 834 869 -4%
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Net financial items -30 -38 -21%
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Profit before tax 804 831 -3%
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Profit for the period 627 637 -2%
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Assets 10,728 9,803 9%
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Equity 5,352 4,645 15%
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Cash flow from operating activities (CFFO) 706 723 -2%
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Financial ratios
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Earnings per share (EPS), DKK 11.2 11.2 0%
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Gross profit ratio 73.1% 72.8%
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Profit margin (EBIT margin) 18.4% 19.7%
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Return on equity 23.9% 29.3%
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Market trends
In the global market for hearing aids, unit growth in the first half-year is
estimated to have exceeded the Group's general assumption of 2-4% unit growth
in the market. After a soft start to the year, market growth in North America
improved towards the end of the period. The growth rate in the North American
market was 3% in the first half-year with growth rates in the private sector
and VA of 2% and 7%, respectively. We believe that unit growth in the major
European markets for hearing aids has developed favourably and that total unit
sales in Europe in the first half-year grew at a faster pace than usual.
It is estimated that the average selling price (ASP) on the global hearing aid
market is still under pressure, mainly due to mix shifts in channels, fiercer
competition for major tenders and changes to public subsidy schemes. However,
the unavailability of official statistics on market selling prices means that
estimating trends in average selling prices is rather uncertain. We do,
however, estimate that in terms of value, the global market for hearing aids
has seen flat to slightly positive growth in the first half-year.
Hearing Devices
In the first half of 2014, total growth in Hearing Devices, including Retail
and Oticon Medical, was 8% in local currencies and 3% organically.
Our core business - the development, manufacture and wholesale of hearing aids
- achieved unit growth, clearly exceeding market development. Our updated
hearing aid offering in the mid-priced and low-end product categories was the
main growth driver, and growth was especially pronounced in Europe. The Group's
sales in the beginning of the year in North America were adversely impacted by
low market growth caused by unusual winter weather. However, renewed market
growth in March in North America combined with market share gains in our
business marked a turning point and increased our sales momentum gradually
during the first half-year - a trend that has continued into the second
half-year. The expected mix changes relating to products, channels and
countries have resulted in a decline in the Group's average selling price. The
organic growth rate in the core business was 1%.
Oticon's Made for iPhone (MFi) connectivity solution for hearing aids launched
at the AudiologyNOW! convention this year has significantly strengthened
Oticon's total product offering. Available to all present and future users of
Oticon's wireless hearing aids using a Streamer and available in the entire
price spectrum, our solution was very well received by hearing care
professionals and end-users. However, it is important to stress that the launch
of a number of different MFi solutions has, in our opinion, so far not expanded
the market, despite the high level of enthusiasm created in the dispensing
community.
In the third quarter, Oticon plans to bring several new interesting products to
market, all of which will further strengthen Oticon's current product
portfolio. Oticon will thus launch Oticon designRITE, which is a cosmetically
highly attractive design hearing aid based on our Inium platform, combining the
better of two worlds - cosmetics and speech understanding in noise. It will be
launched as a new style in the Alta, Nera and Ria families and will be based on
a small 10A battery. In addition, we will launch wireless
Invisible-In-the-Canal (IIC) and Completely-In-the-Canal (CIC) instruments,
which will meet the demand for discreetness by first-time users. To support the
dispenser in the fitting process, we will also update and expand our fitting
solutions with the connectLINK wireless programmer. Bernafon will introduce an
exciting new high-end product family at the EUHA congress to take place in
Germany in the fourth quarter.
In the period under review, our retail activities delivered a satisfactory
improvement in revenue driven by a combination of organic growth and
acquisitions made in 2013.
Oticon Medical continued to deliver double-digit sales growth, both in
bone-anchored hearing systems (BAHS) and in cochlear implants (CI). The
feedback provided on our CI products at the recently held CI conference in
Munich was very encouraging - strongly supported by an independent study,
demonstrating in three out of four tests the superior performance of our Saphyr
Neo speech processor compared to speech processors from our competitors. In the
first half-year, we continued the hiring of key personnel, particularly in R&D
and distribution, which will obviously increase the cost level, but on the
other hand enable Oticon Medical to achieve its future ambition of becoming one
of the leading global implant companies.
Diagnostic Instruments
In the first six months of 2014, Diagnostic Instruments realised 6% growth in
local currencies of which organic growth accounted for two thirds. Further
growth was, however, impeded by delivery problems due to the upgrade of our ERP
system and the transfer of production to a new manufacturing facility. We
expect to handle most of the pent-up orders in the second half of 2014. With a
strong sales momentum going into the third quarter, we believe that we are back
on track and well-positioned to gain further market shares in 2014.
Results for the first half of 2014
In the reporting period, the Group realised 8% growth in local currencies,
corresponding to revenue of DKK 4,539 million. This improvement in revenue is
attributable to organic and acquired growth of 3 and 5 percentage points,
respectively. Exchange rates had a negative impact of 5 percentage points on
revenue.
The Group realised gross profit of DKK 3,320 million, or an increase of 4% over
the same period last year. The gross profit ratio was 73.1%, or an improvement
of 0.3 percentage point compared with the same period last year. The improved
gross profit ratio can be attributed to lower unit costs, which more than
outweighed the negative effects of a lower realised ASP.
Capacity costs totalled DKK 2,504 million, or a 5% increase compared with the
same period last year (9% in local currencies), with acquisitions accounting
for more than two thirds of this growth. Operating profit (EBIT) was negatively
impacted by foreign exchange rates of DKK 60-70 million. The establishment of
our new distribution centre, the transfer of ITE production to Poland, the
roll-out of global IT projects and the expansion of Oticon Medical carried
additional operational costs in the period under review. As previously
communicated, Sennheiser Communications furthermore disposed of its inventory
to Sennheiser KG in the first half of 2013, which increased our EBIT in the
comparative period. Operating profit (EBIT) amounted to DKK 834 million, which
is DKK 35 million below the level realised in the same period of 2013, and the
EBIT margin was 18.4% (19.7% in the first half of 2013).
In the past six months, the Group generated cash flow from operating activities
(CFFO) of DKK 706 million against DKK 723 million in the same period last year
and delivered a high cash conversion ratio (CFFO/EBIT) of 85%.
Other matters
As previously announced, the Group's implementation of new IFRS accounting
standards, which took effect on 1 January 2014, has eliminated the possibility
of proportionate consolidation of the Group's joint ventures, including
Sennheiser Communications. Instead, joint ventures are now recognised using the
equity method. Consequently, results after tax are recognised as a net amount
in Share of profit after tax, associates and joint ventures. As the remaining
revenue in the business activity Personal Communication now only makes up an
insignificant part of consolidated revenue, we no longer show Personal
Communication as a separate business activity, but now include revenue from
Phonic Ear and FrontRow in the business activity Hearing Devices. For
additional information on the effect of this IFRS change, please see Note 2 in
the Interim Report 2014. Neither net earnings nor earnings per share are
affected by this change in accounting policies.
As of today, the Company has bought back a total of 999,058 shares worth DKK
493 million, bringing the total number of treasury shares to 1,200,583,
corresponding to 2.1% of the share capital.
Over the years, we have continuously used our share buy-back programme to
channel the Group's surplus cash flow back to the shareholders, while ensuring
that we have a capital structure that provides the Company with sufficient
financial flexibility to fund investments and acquisitions.
On an ongoing basis, the Board of Directors evaluates the Group's capital
structure. Based on the expectation of continued strong cash flow from
operating activities and rather limited acquisition and investment
opportunities in the near future, the Board of Directors has concluded that a
somewhat higher net interest-bearing debt than the current level can be
targeted in the years to come. In the period 2014-2016, the Company
consequently plans to buy back shares worth DKK 2.5-3.0 billion of which DKK
0.8-1.0 billion is expected to be spent already in 2014, including the shares
worth DKK 493 million repurchased year-to-date. In the period 2014-2016, we
thus expect to see a modest and gradual increase in the Group's gearing
multiple towards a level of 1.5, measured as net interest-bearing debt relative
to EBITDA. Should attractive acquisition or investment opportunities arise
during this period, the Company will reconsider the targeted gearing level and
the announced buy-back programme with a view to ensuring a high level of
financial flexibility and value creation in the Group.
Outlook for the 2014 financial year
Based on the assumptions of market and business trends described in our Annual
Report 2013 and confirmed in our interim information in May 2014, the Group
maintains its full-year expectations for 2014.
In 2014, we expect to continue to deliver growth in both our business
activities. Acquisitions are expected to contribute by 3-4% to Group revenue in
2014, mainly driven by acquisitions made in 2013. Based on foreign exchange
levels in late February, more than half of the positive impact of acquisitions
will be offset by changes in exchange rates.
In consideration of a weakened set of invoicing currencies compared to 2013 as
well as gains from our hedging activities, exchange rates are expected to
negatively affect the Group's operating profit (EBIT) in 2014 by around DKK 100
million, based on February currency assumptions. Of this amount, DKK 60-70
million were realised in the first six months. Since the end of the first
half-year, several of the Group's invoicing currencies have gained some
strength, and if these higher levels remain for the rest of the year, the
negative impact of exchange rates on EBIT in the second half of 2014 will be
somewhat lower than DKK 30-40 million.
In 2013, the Group once again generated a strong cash flow, reflected in a cash
conversion ratio (CFFO/EBIT) of 73%. Also in 2014, we expect to deliver a high
cash conversion ratio. Keeping in mind that our near-term acquisition
opportunities are rather limited, we expect to be able to buy back Company
shares worth DKK 0.8-1.0 billion in 2014, which supports our initial
expectation of 'more than DKK 500 million'. In order to maintain a high level
of flexibility, this level of share buy-back is subject to change, should
additional attractive acquisition opportunities present themselves.
All in all, the Group will continue to deliver growth in earnings in 2014.
Following a 14% growth rate in the Group's net profit and earnings per share
(EPS) in 2013, we expect to see growth in EPS of 5-10% in 2014.
In the second half of 2014, Group revenue and earnings will be supported by a
sequential improvement compared to the first-half year on a number of
parameters, including continued sales momentum in the US, which was adversely
impacted by unusual weather conditions in the beginning of the year.
Furthermore, the second half-year will benefit from the usual seasonality in
Oticon Medical with revenue bias towards year-end and also from the expected
further improvement in Diagnostic Instruments, as the delivery issues are in
the process of being resolved. In addition, the staff reduction in Thisted,
affecting 85 employees who will leave their positions in the second half-year,
will reduce our cost base.
¨ ¨ ¨ ¨ ¨ ¨ ¨
Further information:
Other contacts:
Niels Jacobsen, President & CEO Stefan
Ingildsen, SVP Finance
Phone +45 3917 7300 Søren B.
Andersson, VP IR
www.demant.com
Rasmus Sørensen, IR Officer
News Source: NASDAQ OMX
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14.08.2014 Dissemination of a Corporate News, transmitted by DGAP - a
service of EQS Group AG.
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Language: English
Company: William Demant Holding A/S
Denmark
ISIN: DK0010268440
End of News DGAP News-Service
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