William Demant Holding A/S
Publication of Annual Report 2013

DGAP-News: William Demant Holding A/S /

27.02.2014 / 08:24

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Company announcement no 2014-01                               27 February 2014

Publication of Annual Report 2013





10 % sales growth and 14% growth in net profit in 2013

Operating cash flow of DKK 1,320 million, equivalent to a cash conversion ratio
of 74% 



Today, the Board of Directors of William Demant Holding A/S adopted the
Company's Annual Report 2013. This announcement includes the highlights of the
Annual Report: 



  -- In 2013, consolidated revenue totalled DKK 9,209 million, matching a growth
     rate of 10% in local currencies supported by all the Group's business
     activities. Organic growth was more than 3%.
  -- In our core business, wholesale of hearing aids, the organic growth rate
     exceeded 5%, when adjusting for the impact from the Danish and Dutch
     markets. Unadjusted, we realised 3% organic growth in a market estimated to
     have seen flat growth in terms of value.
  -- In 2013, our operating profit (EBIT) rose by 8% to DKK 1,784 million,
     corresponding to a profit margin of 19.4%. Net profit and earnings per
     share (EPS) went up by as much as 14% each for the full year 2013 and by
     23% for the second half-year 2013.
  -- In 2013, the Group once again generated a strong cash flow from operating
     activities, totalling DKK 1,320 million and equivalent to a cash conversion
     ratio of 74%.
  -- In spring 2014, Oticon will join Apple's Made for iPhone programme and
     launch its first Made for iPhone (MFi) connectivity solution for hearing
     instruments. Oticon's MFi solution will be available for all existing and
     future users of Oticon's ConnectLine instruments across the price spectrum,
     including an installed base of around two million current users of wireless
     Oticon hearing instruments.
  -- In 2014, we expect to continue to generate growth in all our business
     activities. 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. Based on a continued strong cash flow, we expect to be able to buy
     back Company shares worth more than DKK 500 million in 2014.



'I am very pleased that in 2013, we gained market shares in all three business
activities, resulting in 14% growth in net profits and earnings per share. With
Oticon's introduction of a new technological platform in early 2013 and also
the launch of a new Premium family called Oticon Alta, our largest hearing aid
brand embarked on a new journey that created renewed momentum for the Group,'
says Niels Jacobsen, President & CEO of William Demant Holding and continues: 



'2013 was another year of significant acquisition activity, and our entry into
the cochlear implant market is an important step towards further strengthening
our position as one of the world's strongest hearing healthcare companies. When
considering the dilutive effect of spending more than DKK 1 billion on
acquisitions in 2013, I actually find a stable profit margin very
satisfactory.' 



Market conditions and business trends

In 2013, the global demand for hearing aids again proved to be stable, and the
industry saw positive volume growth rates slightly exceeding our normal
expectations of 2-4% volume growth. In our estimation, the average selling
price on the market for hearing aids declined by approximately the same
percentage as volumes increased in 2013, primarily due to changes in channel
mix and reimbursement systems. The high demand by the NHS (National Health
Service) in the UK and the changes to hearing healthcare systems in Denmark and
the Netherlands clearly had a negative impact on average wholesale prices. In
terms of value, the overall market growth rate in 2013 was, in our estimation,
flat. 



Our core business - the development, manufacture and wholesale of hearing aids
- realised an organic growth rate of 3%, thereby exceeding the market growth
rate by approximately 3 percentage points. This development can be attributed
to a strong product offering. Due to our relatively strong positions in Denmark
and the Netherlands, the structural changes in these two markets had a
noticeably adverse effect on organic growth of DKK 120-140 million in total. If
we disregard these two markets, our organic growth rate in the wholesale of
hearing aids did in fact exceed 5%. Our market share with Veterans Affairs (VA)
dropped in 2013, and we have not managed to benefit from the high growth rates
in this channel in the reporting year. 



With the introduction of the Premium product Oticon Alta in January 2013,
Oticon launched its first hearing instrument based on the new Inium platform. A
few weeks after its launch, Alta was available in all styles on all the Group's
main markets. The substantial improvements in Alta compared with previous
Premium instruments, such as twice the working memory, a significantly improved
anti-feedback system and a unique customisation tool, resulted in very positive
responses from both end-users and dispensers. Alta became an important growth
driver in 2013, and we succeeded in substantially increasing our market share
in the Premium segment. 



Our practice of launching products in only one price category at a time meant
that for the first three quarters of the year, Oticon's product portfolio
consisted of ageing mid‐priced products. However, with the launch of the
mid-priced product Oticon Nera at the end of the third quarter of 2013, we have
strengthened our product portfolio significantly. The introduction of Oticon
Ria in the Essential category in February 2014 completes the roll-out of the
Inium platform in all three Performance categories. 



In spring 2014, Oticon will join Apple's Made for iPhone programme with
Oticon's first Made for iPhone (MFi) connectivity solution for hearing aids. In
order to ensure that as many end-users as possible will be able to benefit from
Oticon's MFi solution, availability will not be restricted to specific price
segments. In fact, Oticon's MFi solution will be available to all existing and
future users of Oticon's ConnectLine instruments across the price spectrum,
including an installed base of around two million current users of wireless
Oticon hearing instruments. Based on 2.4 GHz wireless technology, our new MFi
solution enables iPhone remote control of Oticon's ConnectLine hearing
instruments, without compromising the audiological benefits and low power
consumption that are indeed the hallmarks of Oticon's hearing instruments. The
controllable functions include program choice, volume control etc. and this is
a clear signal that we are further exploiting the potential benefits to be
derived from the new wireless technologies. 





For Bernafon, growth in 2013 was driven by important product introductions of
particularly the high-end instruments called Acriva 9/7 in April and the
mid-priced instruments called Carista 5/3 in September. Bernafon's now very
strong product offering must in 2014 be used to attract, among others, new
large-volume customers in more markets, such as retail chains and purchase
groups, and also for government tenders. 



In 2013, Sonic continued the positive trend of re-establishing itself as a
viable brand with new interesting product concepts based on new technology. A
completely reshaped business, today's Sonic is in stark contrast to the
business that joined the William Demant Group at the end of 2010. Sonic saw
fair growth in 2013 and is expected to continue its growth path in 2014. 



In the period under review, development in our corporate retail activities was
in line with development on the markets where we operate. A few markets, such
as Australia and the Netherlands, saw negative growth rates, which of course
impacted our ability to grow. However, in overall terms 2013 was a fairly
satisfactory year for our retail activities. 



With the acquisition of the French manufacturer of cochlear implants (CI),
Neurelec SA, the William Demant Group has taken a crucial step towards becoming
a full-line hearing implant manufacturer and thus a true hearing healthcare
company, offering a full range of hearing solutions. Since the acquisition in
April 2013, sales have been in tune with the initial plans made. The BAHS
(bone-anchored hearing systems) business of Oticon Medical saw satisfactory
growth in 2013 and once again captured market shares. We saw the rapid
penetration of the introduced tissue preservation surgical techniques, and
surgeons have been quick to adapt to these new methods. On 1 November, the new
wireless Ponto Plus sound processor family based on the Oticon Inium platform
was released for sale. 



Diagnostic Instruments, a global market leader in diagnostic equipment, grew
satisfactorily in 2013 by 8% in local currencies. Half of this growth was
driven by the acquisition of mainly SIDs (Special Instrument Distributors) in
the USA. The total global market for diagnostic equipment is estimated to have
grown by 3-4% in 2013, and Diagnostic Instruments has increased its market
share due to a combination of organic and acquisitive growth. We will continue
to look for new acquisition opportunities, but we will first and foremost focus
on integrating and developing the companies already acquired. The multiple
product introductions by Maico, Grason-Stadler and Interacoustics in autumn
2013 have further strengthened our competitiveness and will be among the
drivers of continued growth in 2014. 



In 2013, Personal Communication realised a satisfactory 28% growth rate in
local currencies. This growth was to a large extent driven by strong organic
growth in Sennheiser Communications, especially in the CC&O segment driven by
Unified Communication (UC). 



Financial review

In 2013, consolidated revenue totalled DKK 9,209 million, matching a growth
rate of 10% in local currencies, with organic growth accounting for more than 3
percentage points. The effect of changes in exchange rates on revenue was -2%. 



In 2013, consolidated gross profit rose by 9% to DKK 6,672 million. The
consolidated gross profit margin of 72.5% represents a rise of 0.9 percentage
point compared with 2012. Consolidated operating profit (EBIT) rose by 8% to
DKK 1,784 million. This improvement was first and foremost due to solid growth
in our gross profit, even if this growth was dampened by deteriorating sales in
Denmark and the Netherlands. Our profit margin was 19.4%, corresponding to an
increase of 0.1 percentage point. When considering the significant dilutive
effect of acquisitions, such as Neurelec and various distribution networks, and
also the changes to reimbursement systems in Denmark and the Netherlands, we
find our profit margin satisfactory. For the first time ever, our EBITDA
exceeded DKK 2 billion, and our net profit and earnings per share (EPS) went up
by as much as 14% each for the full year 2013 and by 23% for the second
half-year 2013. 



Consolidated cash flow from operating activities (CFFO) increased by 4% to DKK
1,320 million in 2013, equivalent to a high cash conversion ratio of 74%, or
the ratio of cash flow from operating activities to operating profit
(CFFO/EBIT). The free cash flow grew by 9%, amounting to DKK 851 million, an
increase of DKK 69 million compared with 2012. 



Other matters

In 2013, the Company bought back 201,525 shares at a total price of DKK 101
million. In addition, we have year-to-date bought back 235,435 shares at a
total price of DKK 120 million. Our total holding of treasury shares at 27
February 2014 is 436,960. 



In 2013, our Board of Directors decided to raise the target for the Group's net
interest-bearing debt to a range of DKK 2.0-2.5 billion from previously DKK
1.5-2.0 billion. The consolidated net interest-bearing debt rose by DKK 445
million, amounting to DKK 2,249 million at the end of 2013. This rise can be
attributed to acquisitions. 



Member of the Board of Directors, Thomas Hofman-Bang, has taken up the position
as CEO and Senior Partner of KPMG in Denmark and has chosen not to stand for
re-election. The Board of Directors therefore proposes that Benedikte Leroy, VP
and EMEA General Counsel of Dell Computer Corporation, be elected at the coming
annual general meeting on 9 April 2014. 



The Group's implementation of new IFRS accounting standards eliminates the
option of proportionate consolidation of joint ventures from 1 January 2014,
which in particular will affect the consolidation of the Group's 50% investment
in Sennheiser Communications. If these changes had been implemented already in
the previous year, we would in 2013 have seen a reduction in consolidated
revenue of DKK 250 million and a decrease in gross profit and operating profit
(EBIT) of DKK 128 million and DKK 17 million, respectively. However, there
would have been no impact on the Group's net result. 



Outlook for 2014

In the global hearing healthcare market, the Group holds a unique and very
strong position, which we believe can be further strengthened in the years to
come. At the same time, we as a Group are exposed to obvious uncertainties and
challenges, including channel mix changes, price competition, short- to
mid-term margin dilution from acquired distribution activities and the
establishment of future growth platforms like our investment in cochlear
implants. The structure and contents of the Group's outlook for 2014 are in
essence a reflection of this balance. 



In 2014, we expect to continue to deliver growth in all of our business
activities. As far as wholesale of hearing instruments is concerned, our growth
will mainly be driven by fully updated and very competitive product portfolios
combined with the ongoing conversion to Group-manufactured products in acquired
distribution activities. For Oticon, growth will be backed by the Inium
platform and further supported by Oticon joining Apple's Made for iPhone
programme in spring 2014, resulting in Oticon's first Made for iPhone
connectivity solution for wireless hearing instruments. 



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. 





Lars Nørby Johansen                                                        
Niels Jacobsen 

Chairman of the Board                                                      
President & CEO 





The full Annual Report 2013 for William Demant Holding A/S totalling 88 pages
will be published immediately after this announcement. 





                                  ¨ ¨ ¨ ¨ ¨ ¨ ¨





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 










                                     2013   2012   2011   2010   2009  Developme
                                                                              nt
                                                                       2012-2013
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Key figures, DKK million                                                        
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----------------------------------        -------                     ----------
Revenue                             9,209  8,555  8,041  6,892  5,701       7.6%
                                  --------       ---------------------          
Gross profit                        6,672  6,127  5,777  4,959  4,035       8.9%
                                  --------       ---------------------          
Operating profit (EBIT)             1,784  1,653  1,709  1,430  1,149       7.9%
                                  --------       ---------------------          
Net financial items                   -72   -132   -103   -116    -94          -
                                  --------       ---------------------          
Profit before tax                   1,712  1,521  1,606  1,314  1,055      12.6%
                                  --------       ---------------------          
Profit for the year                 1,311  1,151  1,199    988    795      13.9%
                                  --------       ---------------------          
Assets                             10,357  8,777  7,646  6,786  4,626      18.0%
                                  --------       ---------------------          
Equity                              5,080  4,059  3,304  2,443  1,302      25.2%
                                  --------       ---------------------          
Cash flow from operating            1,320  1,272  1,381    826    950       3.8%
 activities (CFFO)                                                              
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Financial ratios                                                                
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----------------------------------        -------                     ----------
Gross margin                        72,5%  71.6%  71.8%  71.9%  70.8%          -
                                  --------       ---------------------          
Profit margin (EBIT margin)         19.4%  19.3%  21.3%  20.7%  20.2%          -
                                  --------       ---------------------          
Earnings per share (EPS), DKK        23.1   20.2   20.6   16.9   13.6      14.4%
                                  --------       ---------------------          
Return on equity                    28.5%  31.8%  41.7%  49.5%  87.2%          -
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News Source: NASDAQ OMX


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Language:    English                     
Company:     William Demant Holding A/S  
 
 
             Denmark                     
ISIN:        DK0010268440                
 
 
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254653 27.02.2014