Company announcement No 2010-18 16 November 2010
Interim information, third quarter 2010
Continued strong momentum driven by Oticon Agil
Significant strengthening of product portfolio at EUHA
In the third quarter, the William Demant Holding Group generated satisfactory
growth and despite intensified competition, positioned itself strongly to win
significant market share in 2010.
Also in the third quarter, Oticon Agil secured the Group substantial volume
growth in the Premium segment and also improved the product mix and thus the
average wholesale prices in Hearing Aids.
Hearing Aids (retail), Diagnostic Instruments and Personal Communication have
all met the expectations previously communicated.
The takeover of Otix Global, Inc. is proceeding as expected and we are now
awaiting the shareholders' decision regarding the merger agreement. Closing is
expected in late November 2010, so the effect on the Group's revenues and profit
in 2010 will be modest.
The Group is still aiming to keep its interest-bearing debt at DKK 1.0-1.5
billion, so with the expected conclusion of the merger agreement with Otix
Global, Inc., a share buyback programme will not be possible until publication
of our Annual Report 2010 at the earliest.
We maintain our expectation that in 2010, the Group will generate revenue growth
from the wholesale of hearing aids that exceeds market growth by 8-10% in terms
of value and that the Group's profit margin for the second half-year will exceed
the profit margin realised in the first half-year.
Market trends
In the third quarter, the global hearing aid market seems to have developed as
the first half-year and for the year as a whole, unit growth is estimated to be
within the Group's expectation of global unit growth of 2-4%. The US hearing aid
market has in the past quarter seen unit growth of just over 3% and once again,
growth in the demand by Veterans Affairs (VA) has been higher than growth in the
commercial part of the US hearing aid market. Thus, VA now accounts for around
20% of unit sales in the US market. In the third quarter, most major European
hearing aid markets too have seen volume growth corresponding to global market
growth.
It is estimated that average selling prices have developed slightly negatively
in the past quarter. The competitive situation has intensified further in the
third quarter - not least in the low-end and mid-priced segments - resulting in
increasing price pressure. Furthermore, some expected launches of high-end
instruments have been delayed, resulting in the market's average selling prices
sloping downward in the third quarter.
Hearing Aids
The Group's wholesale of hearing aids has in the third quarter shown healthy,
organic revenue growth driven by both increased volume and higher average
selling prices. Year-to-date, the Group has won significant market shares and
this growth has mainly been driven by the successful launch of Oticon Agil.
Oticon Agil is Oticon's second-generation, wireless high-end hearing aid and
features a number of technological achievements such as Speech Guard that
enhances the end-user's possibility to understand speech in noisy surroundings
while actually using less energy in such demanding listening situations.
The European hearing aid congress, EUHA, in October in Hannover, Germany, was
the perfect opportunity for Oticon to introduce a number of significant new
products. Oticon thus introduced two new product families, Oticon Acto and
Oticon Chili, which - as is the case with Oticon Agil - are based on the new
wireless RISE II platform. The mid-priced product Acto contains functionalities
not previously seen in the mid-priced segment and we therefore expect Acto to
become a highly competitive product and even to be able to compete against
several of the competitors' high-end products. The Acto family comprises a
number of elegant, modern models including an unusually small and light miniRITE
instrument. Despite its modest size, the organically shaped Acto miniRITE offers
the most sophisticated, wireless features in the hearing aid industry and with
its flexible RITE earphone system with three performance levels, the instrument
can be fitted to hearing losses of up to 110 dB.
The Group's long awaited Super Power instrument, Oticon Chili, is aimed at
end-users with severe hearing losses and combines an attractive and discreet
design with high performance and reliability. With Chili's built-in wireless
features, Oticon offers a unique and intuitive hearing solution that makes it
possible for the user to effortlessly shift between entertainment and
communication devices.
From mid-November, Acto and Chili have been available in all major markets, even
if their launches took place a couple of weeks later than originally planned.
Corporate sales to US Veterans Affairs (VA) have increased steadily since the
end of 2009 when the Group was chosen as supplier to VA. This trend has
continued into the third quarter of 2010 and towards the end of the third
quarter, the Group has thus obtained a market share of approx. 8%. Going
forward, the Group also expects to increase its market share with VA. To that
end, Oticon has thus already from the beginning of November 2010 strengthened
its VA product portfolio in that now both Oticon Acto and Oticon Chili have been
included in the product portfolio offered to VA.
In the third quarter, Bernafon has shown good momentum and year-to-date, revenue
growth has been satisfactory. With the launch of two low-end products, Bernafon
has enhanced its product portfolio further and is now in a good position to
compete for the more price-conscious customers.
Corporate retail activities have year-to-date seen lower growth than the global
hearing aid market. However, we have seen some signs of improvement in the third
quarter and with a couple of exceptions, our retail activities have managed
quite well and at the same level as the underlying market.
Other business activities
In the third quarter, Diagnostic Instruments has also seen healthy revenue
growth, which is partly attributable to acquired growth in the form of the
acquisition of Grason-Stadler. In the same quarter, Personal Communication has
seen minor revenue growth, which is due to handsome sales growth in Sennheiser
Communications. In contrast, Phonic Ear's (FrontRow's) activities in North
America continue to be negatively affected by the low propensity to invest in
the educational sector.
Other matters
The Group is still aiming to keep its interest-bearing debt at DKK 1.0-1.5
billion, so with the expected conclusion of the merger agreement with Otix
Global, Inc., a share buyback programme will not be possible until publication
of our Annual Report 2010 at the earliest.
Expectations
The Company maintains its expectations of global volume growth for 2010 of 2-4%
as communicated earlier. Thus, we maintain our expectations that the average
selling prices on the market will contribute neutrally to slightly negatively to
growth in 2010, even if the late introductions of high-end products by the
competition as well as a generally intensified competitive situation have
somewhat dampened the price development.
The Group expects its wholesale of hearing aids in 2010 to remain the same,
which means that we still expect the wholesale of hearing aids to exceed market
growth by 8-10% in terms of value. We also still expect organic growth within
corporate retail activities to be lower than the underlying global market
growth, but this trend should be viewed in light of a positive growth
contribution due to acquisitions in the retail area.
The Group maintains its previous announcement regarding expectations for our
other two business activities: "For Diagnostic Instruments, we foresee
continuous, moderate organic growth in 2010 with a positive effect on revenues
of about DKK 60-70 million from the Grason-Stadler acquisition. For Personal
Communication, we anticipate organic growth at the level of 10% in 2010."
The Group maintains its previously communicated profit margin expectations:
"The profit margin in the second half-year is expected to be higher than that
realised in the period under review since the forecast improvement in revenues
will not be accompanied by a matching rise in capacity costs".
In the third quarter, we have seen a weakening of a few trading currencies,
including US dollars; the effect of which is partly postponed due to previously
concluded forward exchange contracts. Based on exchange rates in October, we
thus maintain our previous announcement of a positive exchange rate effect of
3-4% on revenues and 1-2% on operating profit (EBIT).
Further information:
Phone +45 3917 7100
www.demant.com
Contact:
Niels Jacobsen, President & CEO
Other contacts:
Stefan Ingildsen, Senior Vice President, Finance
Søren B. Andersson, Vice President, IR
