William Demant Holding A/S
Interim information, first quarter

DGAP-News: William Demant Holding A/S /

08.05.2014 / 08:18

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Company announcement no 2014-04                                    8 May 2014

Interim information, first quarter





Significant unit growth in the Group's core business despite low market growth
in North America 



  -- Driven by acquisitions carried out in 2013 as well as organic growth, the
     Group realised fair revenue growth in local currencies in the first
     quarter. As expected, exchange rate fluctuations adversely affected both
     revenue and earnings.
  -- In the first quarter, the global market for hearing aids saw a unit growth
     rate somewhat above the expected interval of 2-4% unit growth for the full
     year. We estimate that the average selling price on the market went down in
     the first quarter, which is mainly due to the inter-country mix shifts we
     have seen between Germany and North America in particular. We thus estimate
     that in terms of value, the global market growth rate was slightly positive
     in the first quarter.
  -- Introduced with great success in all markets in February, Oticon Ria is the
     third complete product family based on Oticon's strong technological
     platform. Together with the sale of Oticon Nera and Oticon Alta, which
     continues to be satisfactory, this further strengthening of the product
     portfolios of our core business has contributed to securing significant
     unit growth. Our unit growth rate was high in Asia and Europe, and
     particularly in Germany, whereas sales in North America were hampered by
     very low market growth.
  -- Oticon's Made for iPhone (MFi) connectivity solution for hearing aids has
     significantly strengthened Oticon's total product offering since the end of
     the first quarter and was very well received by end-users and hearing care
     professionals alike.
  -- In the first quarter, our Group delivered strong cash flow and a modest
     level of acquisitions. This means that year-to-date we have bought back
     shares worth DKK 211 million and that for the 2014 full year, we maintain
     our expectation to buy back shares worth more than DKK 500 million.
  -- We maintain our previously announced outlook for 2014, including our
     expectation to generate growth in all 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. Foreign exchange rates are expected to negatively affect the
     Group's operating profit (EBIT) in 2014 by around DKK 100 million compared
     with 2013.



Market trends

In the first quarter, market growth in North America was very modest, and the
overall unit growth rate of 1% in the USA was somewhat below the historical
average market growth rate. The private sector of the US market saw flat unit
growth, and growth was thus solely driven by VA that grew by just over 4%. The
very low growth in North America can largely be attributed to the unusual
winter weather in the first months of the year. However, a positive change in
March in North America means that for the remaining part of the year, we expect
a higher growth level for the region. Unit growth in Europe developed
favourably on the comparative quarter, which was adversely impacted by changes
in the reimbursement schemes in countries such as the Netherlands and Denmark.
In Germany, unit growth was particularly high in the first quarter due to the
changed reimbursement regulations that became effective on 1 November last
year, and with a unit growth rate of just under 40%, Germany had a substantial
positive impact on overall European unit growth. The rise in unit sales on the
Japanese market was within our usual expectations of a 2-4% unit growth rate
compared with the first quarter of 2013. We estimate that in the first quarter,
global unit growth on the market was somewhat above the expected interval of
2-4% for the full year. This is, among other factors, due to weaker comparative
figures as a result of the timing of Easter and thus fewer sales days. 



The poor transparency in average selling price trends on the market and the
absence of official price statistics mean that as usual, the average selling
price on the market is largely based on our estimate. The first quarter of 2014
was characterised by country and channel mix shifts, which can particularly be
attributed to the fact that global market growth is mainly to be found outside
North America, e.g. in Germany, and also on the fact that we have seen zero
growth in the private sector of the US market. To the best of our belief, the
average selling price on the market thus decreased in the first quarter and
based on that, we estimate that in the first quarter, global market growth in
value was slightly positive. 



Hearing Devices

The Group's core business, wholesale of hearing aids, generated significant
unit growth in the first quarter. Our unit growth, which can partly be
attributed to strengthened product portfolios in all our three hearing aid
brands, was rather pronounced in Asia and Europe, and particularly in Germany,
whereas corporate sales in North America were hampered by low market growth.
The turning point in the market growth we saw in March in North America has
increased our sales momentum - a trend that has continued into the second
quarter. 



The global launch in February of Oticon Ria in all styles was successful.
Preliminary feedback from customers has been very positive, and the general
sentiment is that performance is better in Oticon Ria than in its predecessor
Oticon Ino. Positioned in the lower price categories, Ria is the third complete
product family based on Oticon's strong technological platform. Oticon Nera and
Oticon Alta, which belong to the mid-priced and high-end segments,
respectively, also saw satisfactory unit growth in the first quarter. Oticon's
first Made for iPhone (MFi) connectivity solution for hearing aids attracted
positive attention at the recent AudiologyNOW! convention held at the end of
March in Orlando, Florida, and has significantly strengthened Oticon's total
product offering. Available to all present and future users of Oticon's
ConnectLine hearing aids in the entire price spectrum, this solution was very
well received by both end-users and hearing care professionals. In addition,
the Group's two other hearing aid brands, Bernafon and Sonic, were off to a
good start and have delivered satisfactory unit growth. At the end of 2013,
Bernafon launched their mid-priced products Carista 3 and Carista 5 to
complement Acriva, and Sonic continues the launch of their successful hearing
aid Bliss and have most recently launched Bliss 40. 



In the first quarter, Oticon Medical saw satisfactory business trends with
increased sales both in bone-anchored hearing systems (BAHS) and in cochlear
implants (CI). The revenue increase in the BAHS business was driven by the
launch of Ponto Plus at the end of 2013 and also by the fact that sales are
beginning to pick up in several new markets. With the recently formed
partnership with Professor Bo Håkansson on the development of an active,
transcutaneous product concept, our BAHS business is well equipped for a future
with a larger product offering to patients with conductive hearing loss and
single-sided deafness. Also the CI business showed positive trends in the first
quarter, which was characterised by extensive focus on the launch of the Saphyr
NEO Collection processor whose improved signal processing features were well
received by the market. As far as renewing and strengthening the product range
is concerned, the integration of the CI business is in general progressing
according to the plans made and is cause for optimism in terms of sales
potential. In addition, we continuously strengthen our distribution, as
agreements with new distributors fall into place. 



In the first quarter, the growth rate in our retail business was in pace with
the market growth rate in those countries where the Group operates retail
businesses. The unusual weather conditions in North America in January and
February had a considerably adverse effect on the retail business, but we saw a
significant improvement in growth in March. In Europe and Australia, we have
seen positive trends with growth rates exceeding market growth rates. 



Other business activities

Diagnostic Instruments generated satisfactory growth in local currencies in the
first quarter of which almost half was organic growth. All major markets
contributed fairly to growth with the exception of North America where bad
weather hampered growth. Especially Interacoustics generated strong sales in
the first quarter and has just begun the building of a new domicile in
Middelfart, Denmark. Interacoustics expects to move into the new premises at
the beginning of the second quarter of 2015. 



The Group's implementation of new IFRS accounting standards, which took effect
on 1 January 2014, has eliminated the possibility of proportionate
consolidation of joint ventures, including Sennheiser Communications. Thus, the
remaining revenue in the business activity Personal Communication only makes up
an insignificant part of consolidated revenue, which means that in our interim
report for 2014 and going forward, we will no longer show Personal
Communication as a separate business activity, but instead include revenue from
Phonic Ear and FrontRow in the business activity Hearing Devices. As far as
comparative figures for 2013 are concerned, this means that revenue in Personal
Communication will decrease by DKK 248 million, since Sennheiser Communications
will no longer be proportionately consolidated, and that the remaining revenue
of DKK 131 million from Phonic Ear and FrontRow will be transferred to Hearing
Devices. 



Other matters

As expected, the acquisition level in the first quarter was relatively low, and
since we have in this period - as usual - generated significant cash flows, we
have continued our share buy-back programme. Year-to-date, the Company has thus
bought back a total of 426,315 shares worth DKK 211 million. The Group's
overall portfolio of treasury shares corresponds to 1.1% of the share capital.
We will continue to use the share buy-back programme to channel our surplus
cash flow back to the shareholders. 



Outlook

Based on the market and business trends described in our annual report for
2013, the Group maintains its expectations of 2014. 



In 2014, we expect to continue to deliver growth in all of 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 from
acquisitions will be offset by changes in exchange rates. 



In consideration of a weakened set of invoicing currencies 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 compared
with 2013. In 2013, the Group once again generated a strong cash flow,
reflected in a cash conversion ratio (CFFO/EBIT) of 74%. Also in 2014, we
expect to deliver a high cash conversion ratio. Keeping in mind that our
near-term acquisition opportunities are rather limited and that our net
interest-bearing debt target is DKK 2.0-2.5 billion, we expect to be able to
buy back Company shares worth more than DKK 500 million in 2014. 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. 





                                  ¨ ¨ ¨ ¨ ¨ ¨ ¨





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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Language:    English                     
Company:     William Demant Holding A/S  
 
 
             Denmark                     
ISIN:        DK0010268440                
 
 
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267179 08.05.2014