Continued strong momentum in all business activities ensures high growth in first quarter
- The William Demant Holding Group has in the first quarter delivered very satisfactory organic growth within all business activities and has thus captured significant market shares.
- The Company's latest product launches based on Oticon's second-generation wireless technology have been highly successful and growth is broadly founded on our entire product portfolio and on all product segments.
- Economies of scale and focus on costs have – as planned – resulted in the underlying costs growing at a slower pace than revenues.
- We maintain our previously announced expectations for 2011, including our expectation that the Group's wholesale of hearing aids will exceed market growth by 4-8 percentage points.
Market trends
In the first quarter, the global hearing aid market saw handsome unit growth at the high end of our full-year expectations, but part of this growth is attributable to the harsh weather conditions in the same period last year. However, this picture of growth supports our general perception of a stable, global hearing aid market with steadily growing demand that is mainly due to an increasing elderly population.
In the first three months of the year, the US hearing aid market saw rather positive development with overall growth of approx. 5%, which is higher than average growth in the last couple of decades. After a 2010 with low growth, it seems that growth in the private sector of the US market is once again on the increase and on par with historic growth. Demand by Veterans Affairs (VA) accounts for approx. 20% of the total US market and is still higher than growth in the private-sector market. As is the case in other hearing aid markets, it seems that Behind-The-Ear (BTE) instruments are becoming increasingly popular in the US where sales of In-The-Ear (ITE) instruments have historically been higher. We therefore estimate that more than two thirds of all instruments sold in the USA are BTE instruments and that more than one third of these instruments are so-called Receiver-In-The-Ear (RITE) instruments. Since the launch of Oticon Delta back in 2006, the William Demant Group has to a high degree been instrumental in developing the market for RITE solutions, and there is not doubt that this position has substantially contributed to the Group's capture of important market shares in the USA in recent years.
The major European hearing aid markets have generally speaking done quite well in the first quarter, and even if growth rates vary substantially from country to country, and even if statistics are only available and reliable to a limited degree, we estimate that unit growth has been at the higher end of our full-year expectations of 2-4% unit growth. Japan has as expected suffered under – and still suffers under – the tragic earthquake in March and its effects, which we consider to be the main cause of the slightly negative growth in the first quarter.
Transparency in average selling price trends is usually quite poor, and the lack of official statistics is therefore the reason why our evaluation is very much based on estimates. Generally speaking, increases in the average selling price partly hinge on the manufacturers' ability to deliver further benefits to the end-user and thus the extent of innovation in new products. Based on impressions from the recently held AudiologyNOW! convention in Chicago, we estimate that product-wise, the competitive picture has not changed and we have therefore not found any cause to change our assessment of the development in the average selling price. We still believe that the average selling price in the market has developed flatly or slightly negatively in the first quarter and that this trend will continue for the remainder of 2011.
Hearing Devices
The Group's core business – the wholesale of hearing devices – has delivered highly satisfactory growth in the first quarter and thus captured significant market shares.
Since the launch of Oticon Agil at the beginning of March 2010, we have been very successful with our second-generation wireless technology and with our latest product launches, Oticon's RISE 2 platform is now available in all price categories from the upper end of the low-end segment to the high-end segment. The platform is now also available in the Super Power and paediatric segments. The unique RISE 2 technology offers the end-user significant audiological benefits, a claim that is supported by various end-user surveys. Apart from the fact that we have set new audiological standards with our new product families, we have also succeeded in carrying out some highly effective product launches where – in a manner of weeks – we have launched the new product families in all major markets and in all styles.
Also in the first quarter, the sale of Oticon Agil has been relatively high and has contributed positively to unit growth. Oticon Agil has been able to keep momentum in sales and the reason for this success should be found in a combination of the unique audiological improvements in the product and the fact that so far, no competing high-end instruments have been able to offer further significant user benefits. As expected, the product families Oticon Acto and Oticon Ino have contributed substantially to unit growth in the period under review, and it is expected that these product families positioned in the mid-priced segment and the upper end of the low-end segment, respectively, will also for the remainder of the year contribute considerably to unit growth. Last, but not least, both the Super Power instrument Oticon Chili and the paediatric instrument Oticon Safari have contributed positively to unit growth. It is evident that Oticon's present strong momentum cannot only be attributed to one single product, but is rather the result of an almost complete and updated product portfolio.
In the first quarter, Bernafon generated good unit growth driven especially by the volume product Inizia. Bernafon has just recently introduced its high-end product Bernafon Chronos, marking the beginning of a new product cycle.
The operation and integration of the activities acquired with the purchase of Otix Global at 30 November 2010 are proceeding satisfactorily. With the launch of Groove (micro-CIC instrument) and Varicom offering wireless functionalities, we have taken a big leap towards the planned revitalisation of Sonic's product portfolio.
Our sales to VA continue to grow steadily and the Group's overall market share has now reached almost 10%. Sales to the National Health Service (NHS) in the UK have developed satisfactorily and we estimate that we have maintained our previous high market share with the NHS.
The Group's retail activities have in the first quarter seen satisfactory organic growth and are developing in step with the underlying market. We have – as planned – succeeded in finding solutions to some of the challenges that impacted parts of our retail business in 2010, including the adaptation of the business model in Hidden Hearing in the UK to the changed market conditions.
Oticon Medical has continued its expansion into new markets and combined with a general update, reinforcement and extension of the product programme, we expect that Oticon Medical will for the entire 2011 contribute positively to the Group's results.
Other business activities
In the first quarter, Diagnostic Instruments has generated very satisfactory organic revenue growth, which is estimated to exceed the underlying market growth. This growth has mainly been seen in the US and in Europe and in addition, we have acquired diagnostic distribution activities in Australia in connection with the takeover of Otix Global. In the same period, Personal Communication also generated handsome organic growth, even if there are big differences in the levels of success experienced by the various sub-activities in Personal Communication. For instance, Sennheiser Communications has generated high, double-digit, organic growth rates due to a strong product programme, whereas Phonic Ear and FrontRow have suffered under difficult market conditions and budget cuts in the US educational sector, respectively.
Expectations
We maintain our expectations for 2011 as announced in our Annual Report 2010, including our expectation that growth in the Group's wholesale of hearing aids will exceed market growth by 4-8 percentage points.
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Further information:
Niels Jacobsen, President & CEO
Phone +45 39 17 71 00
www.demant.com
Other contacts:
Stefan Ingildsen, SVP Finance
Søren B. Andersson, VP IR
Morten Lehmann Nielsen, IR Officer
