Stock Exchange Announcement No 2007-07 9 May 2007
Quarterly review - first quarter 2007
Oticon Delta continues to win market shares
In the first quarter, the William Demant Holding Group developed in line with
the plans made.
The Group maintains its previously announced expectations for 2007 to grow in
terms of both revenues and operating profit (EBIT). However, as a consequence of
the prospect of a lowering of the Danish corporate tax rate the Company now
expects growth in earnings per share (EPS) of 19-23% against previously 16-20%.
The introduction of the extended Oticon Delta product concept towards the end of
2006 has accelerated the sales pace and thus contributed to the continued
strengthening of the Group's market position in the segment for cosmetically
attractive Behind-The-Ear instruments.
At the recently held US hearing aid convention, AudiologyNOW! (AAA), Oticon
introduced its high-end instrument Oticon Epoq. The novelty was received with
great interest and is expected to be released for sale at the end of May 2007.
Group cash flow is still high. The buy-back of shares amounted to DKK 298
million in the first quarter of the year.
In connection with a restructuring of production, the main part of the Group's
Australian
production of Behind-The-Ear instruments will be transferred to
newly acquired facilities in Poland.
Market conditions and business development
The global hearing aid market is estimated to have developed in the first
quarter of the year within the scope of the Group's long-term expectations for
unit growth of 2-4%.
Group hearing aid activities have seen growth that significantly exceeds market
growth. The Group's main business activity - the development, manufacture and
wholesale of hearing aids - has continued to win market shares. Released for
sale in mid-March 2006, Oticon Delta accounted for a substantial part of the
Group's growth in revenues in the first quarter of 2007 - a growth that was
supported by the extension of the audiological fitting area of Oticon Delta at
the end of 2006. Today, it is thus possible to fit four out of five hearing
losses with Oticon Delta. At the same time, the existing product portfolio was
supplemented by Oticon Delta 4000 positioned in the mid-priced segment, i.e. in
the price segment below Delta 8000 and Delta 6000.
The Group's largest development project ever has just resulted in the
introduction of a number
of ground-breaking technologies and products. The
starting point for this is Oticon's proprietary wireless broadband architecture,
RISE, which forms the basis for the high-end product, Oticon Epoq, which was
recently introduced at the US hearing aid convention, AAA.
With Oticon Epoq, hearing impaired people are now offered the world's first,
completely wireless, binaural hearing aid solution with improved stereophonic
reproduction of sound. By means of a wireless Streamer, Oticon Epoq can
furthermore be connected with Bluetooth applications, e.g. the hearing aid
user's mobile phone. Expectations for Oticon Epoq are high, but since the
product will not be released for sale until the end of May 2007, the positive
effect on revenues and profits will not materialise until the second half-year
2007. Due to Oticon Epoq's many new, state-of-the-art functionalities, which
require considerable training and education of the hearing aid dispensers,
initial sales are expected to follow a more moderate pattern than has been the
case in connection with launches of previous high-end products.
Also at AAA, Bernafon introduced micro-BTE versions of both its high-end
instrument, ICOS, and its mid-priced product, Prio. In addition to that,
Bernafon introduced its new Super Power instrument, Xtreme.
In the first quarter of the year, the Group's retail activities generated growth
that considerably
exceeds market growth.
Compared with the same period last year, the Group's other activities -
Diagnostic Instruments and Personal Communication - have seen a flat trend of
revenues.
Restructuring of production
In connection with the expiry of a long-term lease, the Group bought in autumn
2006 a production plant in Brisbane, Australia, on favourable terms. The plant
was acquired with a view to subsequent disposal and as part of the Group's plans
for a restructuring of its overall production capacity.
The property in Brisbane, which was sold off in the first quarter with a gain of
just under DKK 60 million, is expected to be vacated at the end of 2007. The
main part of the BTE (Behind-The-Ear) production carried out in Australia up to
now will be transferred to a new production facility in Poland, partly in order
to reduce the Group's production costs and partly to get closer to the Group's
development function in Copenhagen and its global distribution centre at
Thisted, Denmark. Also domiciled at the premises in Brisbane, which have now
been sold off, Bernafon's Australian subsidiary and local ITE (In-The-Ear)
production facility will at the same time move to new and more modern facilities
in the Brisbane area.
In addition to its facilities in Australia, the Group also has hearing aid
production facilities in Denmark (Thisted and Ballerup), Scotland (Glasgow) and
Poland (Krakow). Furthermore, as a consequence of the ongoing restructuring of
its production facilities the Group has agreed with its sub-supplier, Sonion,
that it will during 2007 and 2008 take over some of Sonion's production
facilities in Mierzyn (Stettin), Poland, as Sonion will move its production to
Vietnam. The take-over implies a gradual increase of the Group's overall
production capacity.
It is expected that the gain from the sale of the Brisbane property will cover
the non-recurring costs for the overall, planned restructuring of the Group's
production. The earnings impact of the overall restructuring of production is
thus expected to be neutral in 2007. Starting in 2009, the positive EBIT effect
of the restructuring is expected to be on the order of DKK 30-40 million each
year.
Tax
The Danish Government has proposed a major reorganisation of the Danish
corporate tax system. For the Group, this proposal, which is expected to be
adopted before the end of the first half-year 2007, will result in a lowering of
the effective tax rate by two percentage points. On first reading, the
reorganisation of the tax system will not have consequences of a non-recurring
nature, as the deferred tax relating to the Danish joint taxation is
balance-sheet neutral.
Treasury shares
In the first quarter, the Company has acquired a total of 619,450 treasury
shares with a total value of DKK 298 million.
At the Company's general meeting on 29 March 2007, it was decided to write down
the share capital to DKK 60,986,527 through the cancellation of the Company's
holding of treasury shares as at the date of the general meeting. The share
capital will officially be written down at the beginning of July after the
expiry of the mandatory three-month statutory notice.
After the general meeting, the Company acquired an additional 56,600 treasury
shares corresponding to 0.1% of the share capital. These shares were acquired
at an average price of DKK 504.
Expectations
For the underlying business, the Group maintains its growth expectations for
2007 as stated in the Annual Report 2006. Thus, the Group expects to see
continued growth of 9-12% computed in local currencies. With the continued
weakening of the US dollar, the year's negative currency impact is now expected
at around 3% against previously 2%. The operating profit (EBIT) is still
expected to total DKK 1,425-1,500 million, or a 12-18% increase.
As a consequence of the prospect of a general reorganisation of the Danish
corporate taxation, the Group's effective tax rate is in 2007 expected to be
approx. 24% against previously 26%, as a result of which the Group now expects
growth in earnings per share (EPS) in 2007 of 19-23% against previously 16-20%.
Further information:
Phone +45 3917 7100
Contact:
Niels Jacobsen, President & CEO
Other contacts:
Kenneth Sachse, VP, Finance
Stefan Ingildsen, VP, Investor Relations
www.demant.com
