Company Announcement No 2008-10 14 August 2008
First half-year impacted by weak market trends
and negative exchange rate effects
Today, the Board of Directors of William Demant Holding A/S approved the
Company's Interim Report 2008, the highlights of which may be summarised as
follows:
In first half-year 2008, the Group realised revenues totalling DKK 2,689
million, corresponding to 6% growth measured in local currencies (0% measured
in Danish kroner). Volume growth of 6% in hearing aid sales through the
wholesale business means that the Group has once again won market share.
Sales trends in the period under review have not lived up to the plans made,
which is mainly attributable to the slow-down on the global hearing aid market,
where unit growth in the private market is estimated to account for 0-1%.
Operating profits (EBIT) in the period under review amounted to DKK 577
million, matching
a profit margin of 21.4%.
Compared with 2007, consolidated profits were negatively impacted by exchange
rate movements and lower average sales prices as well as failing market growth
in the private sector of the hearing aid market.
Consequently, the Group now expects revenues of DKK 5,450-5,550 million
against forecast revenues of DKK 5,550-5,700 million. In 2008, operating
profits (EBIT) are expected to total DKK 1,150-1,250 million against the
forecast DKK 1,340-1,440 million.
"The development in the first half-year was not satisfactory. We have realised
that the hearing aid business too seems to be affected by the economic
recession and declining private consumption, especially in countries with only
limited or no public subsidies for hearing aids. In the private sector of the
US market, we have in the first half-year seen zero market growth and similar
weak market trends in a number of other countries, and this development has of
course affected us," says Niels Jacobsen, President & CEO of William Demant
Holding.
Our estimate that in the first half of 2008 overall unit growth was nonetheless
2-4% is based on significant demand from the National Health Service (NHS) in
the UK and Veterans Affairs (VA) in the USA, both of which buy in bulk at low
prices.
We estimate that at the moment prices and product mix contribute neutrally or
negatively to market growth in terms of value, partly because unit growth is at
present primarily driven by the NHS and VA, and partly because of general
re¬luctance on the part of consumers, making some customers in the commercial
markets choose a less expensive solution. There are also certain signs of more
aggressive competition on prices between manufacturers in the design segment.
We expect the next few quarters to give a more precise picture of the
development.
In our long-term forecasts, we still expect growth in the global hearing aid
market to be 3-5% in terms of value, of which prices and product mix are
estimated to contribute by 1-2 percentage points. At the moment, the estimates
of short-term growth contributions from prices and product mix are, however,
slightly more uncertain than they would normally be.
In addition to the lower market growth, the Group's hearing aid business was
negatively affected in the first six months by the tougher competition in the
segment for cosmetically attractive mini-instruments. As described in the
Company's Interim Information in May 2008, this segment has seen many product
launches by our competitors since the beginning of this year, resulting in
substantial pressure on Oticon Delta. Competition in this segment has become
even more critical in the summer months.
As announced earlier, Oticon is planning a decisive improvement and expansion
of its product range with a number of conspicuous product novelties,
particularly in the high-end segment, to
be launched in the autumn of 2008. The fundamental principle of the new product
concept, Oticon Dual, is that users no longer have to choose between design on
the one hand and technology on the other. With Oticon Dual, Oticon has created
uncompromising and hitherto unseen product synergy, combining the most
attractive design and the most sophisticated technologies on the market. By
combining in just one product the best of Oticon Delta with the best of Oticon
Epoq, including all the wireless features, we are setting new standards for
fitters' and users' expectations in respect of the most attractive and
sophisticated products in the market. By virtue of a great number of product
variants - both in terms of prices and user benefits - Oticon Dual will appeal
to a very wide target group and is thus expected to contribute to a significant
strengthening of Oticon's market position.
In the first half-year, the sale of Oticon Epoq developed satisfactorily given
the market situation. The spring introduction of the mid-priced products Vigo
and Vigo Pro was also satisfactory, which promises well for Vigo sales in the
coming quarters. In the Bernafon business, unit growth was primarily driven by
the design product Brite launched in autumn 2007.
Operating profits (EBIT) were DKK 577 million in the first half-year, matching
a profit margin of 21.4%. Compared with the first half of 2007, we are seeing a
fall, which is - apart from the failure to realise economies of scale caused by
lower-than-estimated sales - due to changes in corporate product and customer
mixes. The consolidated gross profit ratio was also impaired by the transition
to hearing aids with wireless features, which contain more components than
conventional hearing aids and are consequently more expensive to produce. Also
in the first half-year, corporate retail activities were impacted by the
difficult market conditions, particularly in the UK market.
In the period under review, the Group bought back 867,100 shares worth DKK 319
million. Since
30 June 2008, we have bought back another 43,450 shares worth a total of DKK 12
million, i.e. the total buy-back of shares since the beginning of 2008 amounts
to DKK 331 million.
Outlook for the future
The prospect of lower-than-anticipated market growth on the short term and
continuously intense competition in certain segments of the hearing aid market
result in a forecast for 2008 of 5-7% growth in revenues measured in local
currencies. 2008 is expected to see a continued negative exchange rate effect
of 5-6%. Consequently, we forecast revenues for 2008 at DKK 5,450-5,550 million
against pre¬viously DKK 5,550-5,700 million.
The expectation of lower revenues in 2008 combined with continuous changes in
the product and customer mixes in the wholesale business results in lower
profitability for 2008 than previously anticipated. In addition, we expect
difficult market conditions for the retail business throughout the remaining
part of 2008.
The impact of exchange rate movements on operating profits (EBIT) is only in
part counterbalanced by forward exchange contracts. The overall negative
exchange rate effect on consolidated operating profits (EBIT) for 2008 is still
expected to be at approx. DKK 120 million. We therefore forecast consolidated
operating profits (EBIT) in 2008 of DKK 1,150-1,250 million against our
previous forecast of 1,340-1,440 million.
The effective tax rate for 2008 is estimated at 24-25%.
Aggregate investments for the year in property, plant and equipment are
estimated at DKK 200 million.
We continue to pursue our strategy of channelling any surplus liquidity back to
the shareholders, duly considering consolidated cash flows and acquisitions. We
are convinced that the buy-back
of shares enables more dynamic planning of dividend policies. Bearing the
pursuit of this strategy and any current acquisition opportunities in mind, we
expect to buy back shares in 2008 at an amount of DKK 450-750 million against
our previous forecast of DKK 900 million.
• • • • • • •
Further information:
Phone +45 3917 7100
www.demant.com
Contact person:
Niels Jacobsen, President & CEO
Other contact persons:
Stefan Ingildsen, Vice President, Finance & IR
Søren B. Andersson, IR Officer
• • • • • • •
The full Interim Report 2008 for William Demant Holding A/S totalling 14 pages
will be published in continuation of this announcement.
Please be advised that we will host a teleconference for analysts and investors
today at 4.30 p.m. CEST. The teleconference will be conducted in English and
broadcast via our website, www.demant.com.
