Interim Report 2011

Company announcement no 2011-07                                    19 August 2011

Strong half-year with high growth rates in revenues and net profits of 17% and 28%, respectively

Unit growth of 16% – 12 percentage points over market growth

William Demant Holding A/S today published its Interim Report 2011 for the first half-year. Selected interim highlights are summarised below:

• In the first half of 2011, the Group realised revenues of DKK 3,900 million, or a rise of 17% on the first half-year of 2010, organic growth accounting for 8 percentage points. All three Group business activities have contributed fairly to this rise.
• The Group's core business, wholesale of hearing devices, has realised unit growth of well over 16% and has thus captured significant market shares in a global hearing device market that is thought to have grown by 4% measured in instruments sold.
• Operating profits (EBIT) totalled DKK 806 million, or a rise of 21% on the first half-year of 2010. The reported profit margin for the period under review is 20.7%, matching an increase of 0.7 percentage points compared with the same period last year. If adjusted for the acquisition of Otix Global, the consolidated profit margin for the first half-year is 22.1%.
• In the period under review, free cash flows (excluding acquisitions) totalled DKK 490 million against DKK 149 million last year and have thus more than tripled.
• For 2011, we expect corporate wholesale of hearing devices in terms of value to exceed market growth by 6-8 percentage points (against a previous forecast of 4-8 percentage points).
• With the launch of the world's smallest, fully wireless hearing aid, Oticon Intiga, the strongest product portfolio in the hearing aid industry will be further strengthened.
• With interest-bearing liabilities, net, of about DKK 1.5 billion at 30 June 2011, we expect to resume our share buyback programme quite soon. Going forward, we expect to use free cash flows (with the deduction of acquisitions) to buy treasury shares.

"We are pleased that in the first six months of the year, we have succeeded in maintaining the impressive momentum from 2010, resulting in unit growth that is four times higher than market growth. At the same time, the strong growth has boosted both our net profits and cash flows. And with the world's smallest, fully wireless hearing aid on the way, we also expect to be in the lead in the future," says Niels Jacobsen, President & CEO of William Demant Holding.

Principal key figures and financial ratios

Market conditions and business trends

In the global market for hearing devices, unit growth is estimated at around 4% in the first half-year, which is at the upper end of the Group's long-term forecasts of 2-4% unit growth. We estimate that in overall terms, the average selling price on the market developed negatively by about 2-3% in the first six months of 2011. This development is mainly caused by a shift in product mix due to an overall substantial supply of new mid-priced products in the market. In terms of value, the market for hearing aids is thus thought to have developed from flat to slightly positive in the first half-year.

In the first half-year, the Group's core business, comprising the development, manufacture and wholesale of hearing aids, generated unit growth in the sale of Group-manufactured instruments of well over 16%, which significantly exceeded market growth. Organic growth in revenues in our core business was just under 8% and as expected, the Group captured sizeable market shares. In the same period, our overall hearing device business, including retail activities, generated organic growth in revenues of well over 7%, which must be said to be satisfactory.

In early September, Oticon will make another big leap into the Design segment and will with the launch of Oticon Intiga further cement its leading position within RITE solutions (Receiver-In-The-Ear). Intiga is the world's tiniest, fully wireless hearing aid featuring binaural processing and connectivity as well as second-to-none sound quality. The beautiful design instrument uses a small 10 A battery and is an impressive 33% smaller than the popular miniRITE. Intiga is expected to support corporate growth for the remainder of 2011 and in 2012.

In the period under review, Bernafon saw fair growth in unit sales. However, the product mix developed unfavourably, mainly because the high-end product Chronos was introduced later than planned to some of the major customers.

In the first half-year, Diagnostic Instruments generated revenues of DKK 299 million, corresponding to a very satisfactory 21% rate of growth in revenues, organic growth accounting for well over 9 percentage points. In the first six months of 2011, Personal Communication generated revenues of DKK 143 million, or an organic growth rate of almost 12%.

Results for the first half of 2011

In the first six months of 2011, consolidated revenues amounted to DKK 3,900 million, or a rise of 17% on the first half-year of 2010. Movements in exchange rates in the period under review had a positive impact of almost 2%. The Group realised gross profits of DKK 2,787 million, or an increase of 17%. In the period under review, capacity costs totalled DKK 1,983 million, matching an increase of just below 15% in terms of local currency compared with the same period last year, with acquisitions accounting for more than two thirds of this increase.

In the first half-year of 2011, operating profits (EBIT) amounted to DKK 806 million and represent a rise of 21% on the same period in 2010. This is due to the fact that the increase in costs in the underlying business was lower than organic growth in consolidated revenues. The reported profit margin for the period under review is 20.7%, matching an increase of 0.7 percentage points compared with the same period last year. In relative terms, however, the acquisition of Otix Global had a diluting effect on the profit margin, and if adjusted for such effect, the consolidated profit margin for the first half-year was 22.1%. Free cash flows (exclusive of acquisitions) amounted to DKK 490 million against DKK 149 million last year. Acquisitions aggregated DKK 205 million, which is below the level reported for the same period last year.

Outlook

For 2011, we expect to generate substantial growth in both revenues and earnings and to see the continued strengthening of the corporate profitability obtained in 2010. If we exclude the acquisition of Otix Global and the associated non-recurring costs, we forecast a continued rise in our profit margin in 2011 compared with 2010, and we also expect to generate a handsome double-digit growth rate in operating profits (EBIT).

In our Annual Report 2010, we announced that we expected volume growth in the global market for hearing aids to be 2-4%. We maintain this forecast. In the first half-year, trends in average selling prices in the market seem to have been less favourable than we anticipated earlier. This can mainly be attributed to a periodic shift in the market product mix due to increased sales of mid-priced products. We originally expected that the average selling price on the market would contribute neutrally or slightly negatively to market growth, and we therefore revise our forecast so that we now expect a slightly negative trend in the average selling price in 2011. 

For 2011, we expect organic growth in corporate wholesale of hearing devices to exceed market growth by 6-8 percentage points (against a previous forecast of 4-8 percentage points). If we exclude acquisitions, we still expect our retail activities in 2011 to show growth matching the level of market development.

We maintain our expectations for our two other business activities, Diagnostic Instruments and Personal Communication. We thus expect Diagnostic Instruments to continue to capture further market shares in a market which is expected to show a low single-digit growth rate. Moreover, acquisitions will also have an impact. For Personal Communication, we maintain our forecast of a high single-digit growth rate in 2011.

In 2011, consolidated revenues will be favourably affected by acquisitions. Based on the transactions carried through since early 2010, including the acquisition of Otix Global, we expect revenues for 2011 to be impacted by acquisitions by about 8%. Add to this, the effect of potential acquisitions made in the remaining part of 2011.

Viewed in isolation, the acquisition of Otix Global on 30 November 2010 is expected to contribute to consolidated revenues by more than DKK 350 million in 2011 against DKK 33 million in 2010. The integration of Otix Global is proceeding better than anticipated, and the operational impact on consolidated operating profits (EBIT) before non-recurring costs is now expected to be neutral to slightly positive in 2011 (against a previous expectation of a slightly negative impact). Non-recurring costs for the restructuring and integration of Otix Global are estimated at DKK 15-25 million in 2011 (against a previous forecast of DKK 30-50 million). In step with the completion of the ongoing integration process, we still expect that the profitability of the acquired activities will improve considerably and that in the 2012 financial year, these activities will reach a profit margin almost at corporate level (excluding Otix Global).

Based on realised exchange rates and exchange rates at the end of July 2011, we expect exchange rate movements for revenues as well as operating profits (EBIT) to have a neutral translation effect in 2011 compared with 2010.

Current corporate investments in property, plant and equipment are estimated at DKK 225-250 million in 2011. In addition, we will make investments to the tune of DKK 100 million in 2011 in connection with the ongoing establishment of a new head office for Oticon in the USA.

For the Group, the effective tax rate for 2011 is estimated at 25%, matching the tax rate for corporations in Denmark.

As mentioned earlier, we seek to have interest-bearing liabilities, net, of DKK 1.5-2.0 billion. With interest-bearing liabilities, net, of about DKK 1.5 billion at 30 June 2011, we expect to resume our share buyback programme quite soon. Going forward, we expect to use free cash flows (with the deduction of acquisitions) to buy treasury shares.

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Further information:                                                           Other contacts:

Niels Jacobsen, President & CEO                                   Stefan Ingildsen, SVP Finance

Phone +45 3917 7100                                                          Søren B. Andersson, VP IR

www.demant.com                                                              Morten Lehmann Nielsen, IR Manager

The full Interim Report 2011 for William Demant Holding A/S totalling 15 pages will be published in continuation of this announcement.

Please be advised that we will host a teleconference for analysts and investors today at 1.00 p.m. CEST. The teleconference will be conducted in English and broadcast via our website, www.demant.com.