William Demant Holding A/S
Interim information, third quarter

William Demant Holding A/S 

05.11.2013 08:07
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Company announcement no 2013-10                                5 November 2013

Interim information, third quarter



Organic growth in the core business exceeds market growth in third quarter

Successful roll-out of Oticon Nera increases competitiveness





  -- In tune with the plans made, the Group's core business - wholesale of
     hearing aids - delivered an organic growth rate in the third quarter that
     exceeds the market growth rate. In overall terms, we thus took market
     shares in the first three quarters of the year.
  -- Having obtained a strong position in the segment for cutting-edge hearing
     solutions, our high-end product Oticon Alta was a substantial growth driver
     in the third quarter. Growth was achieved despite continuously weak
     conditions on our three important high-end markets Denmark, Holland and
     Norway.
  -- September's launch of competitive mid-priced products from all our three
     hearing aid brands has strengthened the Group's competitiveness, so that we
     are now able to offer the latest hearing aids on the market in both the
     mid-priced and the high-end segment and are thus in a strong position to
     capture further market shares in the next quarters.
  -- In the third quarter, our retail activities generated revenue growth and
     earnings that are slightly below our expectations at the end of the first
     half-year. This is to a great extent due to a few markets developing less
     favourably than expected.
  -- Our business activities Diagnostic Instruments and Personal Communication
     both generated satisfactory organic growth in the past quarter.
  -- We maintain our previously announced expectations of 2013, including our
     expectation that our organic growth rate in the wholesale of hearing aids
     will exceed the market growth rate by 3-5 percentage points. For 2013, we
     maintain our expectation that the Group's operating profit (EBIT) will
     exceed the level realised in 2012. The substantial weakening of the Group's
     trading currencies is expected to adversely affect our revenue by approx.
     4% on translation to Danish kroner. We thus expect our total revenue and
     earnings in 2013 to be negatively impacted by currencies, even if the full
     effect is postponed as a result of foreign exchange hedging.



Market trends

In the third quarter, the global market for hearing aids saw fair unit growth,
which is estimated to be above the 2-4% range that is our expectation of the
market unit growth rate for the full year. 



The US market reported a high single-digit unit growth rate in the past
quarter. Some extraordinary orders and one sales day less in the comparative
quarter may have contributed to this development. The underlying market growth
rate seems to have been somewhat lower than the reported growth rate and is
therefore more in tune with the historical unit growth rate. The increase in
the demand by VA (Veterans Affairs) exceeded growth in the private market in
the past quarter. 




We believe that in overall terms, unit growth in the large European markets for
hearing aids developed favourably in the third quarter and even increased at a
faster pace than usual. As was the case in the second quarter, it is however
distinctive of unit growth in Europe in the third quarter that it was driven by
considerable demand by the NHS. Unit growth in the German market was relatively
weak, which is partly due to some reluctance to buy prior to the introduction
of new subsidy rules that came into force on 1 November 2013. We have seen high
unit growth in Switzerland, whereas the difficult situation in Holland remains
unchanged. The implemented changes to the subsidy scheme in Holland resulted in
a considerable, negative double-digit unit growth rate again in the third
quarter. 



It is estimated that the average selling price on the global hearing aid market
dropped in the third quarter, particularly because the significant increase in
the demand by the NHS pulled the average selling price on the market down.
Fiercer competition in connection with major tenders, changes to public subsidy
schemes and increasing sales to channels that address more price-conscious
end-users also contributed to this development. However, the unavailability of
official statistics on market selling prices means that estimating trends in
average selling prices on the market for hearing aids is rather uncertain. We
estimate that in terms of value, the global market for hearing aids has seen
modest growth in the third quarter. 



Hearing Devices

The Group's core business - wholesale of hearing aids - delivered an organic
growth rate in the third quarter that exceeds the market growth rate. Having
obtained a strong position among cutting-edge hearing solutions after just over
six months on the market, our high-end product Oticon Alta was the primary
growth driver in the third quarter. Overall, we have thus captured market
shares in the first three quarters of the year. As mentioned on publication of
our Interim Report 2013, the positive development in our hearing aid sales was
achieved despite continuously difficult market conditions in Denmark, Holland
and Norway - all of them markets where high-end instruments' share of total
sales is traditionally large and Oticon has a substantial market share. Sales
on these three markets did not improve sequentially in the third quarter, and
there are no visible signs of this trend changing in the fourth quarter.
However, since Norway was already affected by these adverse conditions in the
second half-year 2012, the negative growth impact from Norway will be limited
in the second half of 2013. We expect sales conditions on these three markets
to have an overall negative effect on our organic growth in revenue to the tune
of DKK 170-200 million for 2013. 



September saw major product launches in the mid-priced segment: All the Group's
three hearing aid brands thus introduced new competitive solutions in this
important price segment. Up until the introduction of these products, i.e. for
the main part of the third quarter, the Group's product portfolio mainly
consisted of ageing mid-priced products, which dampened growth, but with the
significant launches in September, sales picked up again towards the end of the
quarter. Built on the Inium platform, Oticon Nera offers features that have not
previously been available in the mid-priced segment, including binaural
processing and YouMatic. Nera was well received by hearing aid dispensers and
end-users alike and is expected to contribute considerably to growth in the
next quarters. The launches of Bernafon Carista and Sonic Charm also proceeded
according to plan, and with the strengthening of Bernafon's and Sonic's
respective product portfolios, both brands are now in a favourable position to
capture further market shares. 



September also saw the introduction of Oticon Sensei, which is Oticon's most
advanced paediatric hearing aid family so far. This milestone in audiology for
children is the result of extensive cooperation with a string of leading
experts in this area. Some of the areas in which Sensei excels are speech
understanding and ease of fitting, and the product family thus supports our
efforts to strengthen our position in this niche segment. 



At the recently held EUHA congress in Nuremberg, Germany, our many product
launches aroused a lot of interest, confirming our impression that in terms of
products, we will be in a strong position in the next quarters compared to our
competitors. 



Our retail activities generated revenue growth and earnings that were slightly
below our expectations at the end of the first half-year. The Dutch market, in
particular, is still impeded by new, stricter rules in terms of hearing aid
subsidies, and despite the fact that we continually adapt our activities, our
earnings in Holland are still significantly below last year's earnings.
Moreover, we have had additional expenses in connection with the reorganisation
of our retail business in North America. Our acquisition of the remaining
shares in Avada at the end of 2012 is the main reason for these expenses, which
also included expenses in connection with the move of activities to our
headquarters in New Jersey. We expect that our continued efforts to optimise
our retail operations will result in improved earnings in the rest of the year
and in the years to come. 



Again in the third quarter, the original part of Oticon Medical, which engages
in the development, manufacture and sale of bone-anchored hearing solutions
(BAHS), delivered fair growth in revenue. On 1 November 2013, Oticon Medical
launched a new family of sound processors based on the Inium platform. The new
product family offers a number of innovative features, such as integrated
telecoil and connectivity options, both of which are already known from the
Group's hearing aids. The development and integration of the cochlear implant
business Neurelec is proceeding according to plan, and we are endeavouring to
exploit the potential synergies with existing activities in the rest of the
William Demant Group. In the fourth quarter, Neurelec will launch a number of
new products to substantially enhance their product offering. The new sound
processor Neo has been improved in respect of important parameters, such as
speech understanding in noisy surroundings, design and reliability. The new
electrode EVO is atraumatic and ensures a safer and more efficient surgical
procedure. 



Other business activities



Diagnostic Instruments

In the third quarter, Diagnostic Instruments generated fair growth, the main
part of which was organic growth. The third quarter also saw numerous product
launches by the many brands incorporated in this business activity. The many
new products were all received well and are thus expected to contribute to
increased sales momentum going forward. 



Personal Communication

Personal Communication continued the positive trends from the first half-year
and once again achieved a double-digit organic growth rate in the third
quarter. Growth was mainly driven by strong sales in Sennheiser Communications
in the Mobile as well as the CC&O segment. The two small business units, Phonic
Ear and FrontRow, both saw flat revenue growth. 



Other matters



Capital structure

The Company resumed its share buyback programme in the third quarter after a
first half-year where the Company refrained from repurchasing shares due to
substantial acquisitions. In the past part of the second half-year, the Company
thus purchased a total of 97,741 own shares at a total price of DKK 47.5
million. As at today, these shares make up the Group's total holdings of own
shares, corresponding to 0.2% of the share capital. We will continue to use the
buyback programme to channel the Group's excess cash flow back to the
shareholders, while ensuring that we maintain our net interest-bearing debt at
DKK 2.0-2.5 billion. 



Outlook

The Group maintains its expectations of 2013.



We thus still expect the global market for hearing aids to show modest positive
growth in value for the year as a whole. As far as the wholesale of hearing
aids is concerned, we expect our organic revenue growth rate for 2013 to exceed
the market growth rate by 3-5 percentage points in local currencies, our retail
business to generate an organic growth rate on a par with the growth rate in
the underlying market and Diagnostic Instruments to capture market shares
organically in a market that is expected to show a low single-digit growth
rate. To this should be added exchange rate effects, which - based on actual
exchange rates in the first nine months of the year in combination with an
estimate of exchange rate trends in the fourth quarter - we expect to have an
adverse effect on revenue for 2013 by approx. 4% on translation to Danish
kroner. We thus expect our total revenue and earnings for 2013 to be adversely
affected by currencies, even if the full effect is postponed as a result of
foreign currency hedging. We maintain our expectation that revenue and earnings
realised in the second half-year will exceed the levels realised in the first
half-year and that corporate operating profit (EBIT) for the full year will
exceed the level realised in 2012. 



We maintain our expectation of a corporate effective tax rate of 24-25% in 2013.





                                  ¨ ¨ ¨ ¨ ¨ ¨ ¨





Further information:                                                       
Other contacts: 

Niels Jacobsen, President & CEO                                  Stefan
Ingildsen, SVP Finance 

Phone +45 3917 7300                                                 Søren B.
Andersson, VP IR 

www.demant.com
News Source: NASDAQ OMX



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