William Demant Holding A/S: Interim Report 2018

Hearing aid wholesale delivered strong organic growth of 11% and expands industry-leading product portfolio
Growth in local currencies was 9% for the Group with 7% organic growth
Adjusted EBIT grew by 11% (reported 16%) with EBIT margin expansion of 1.2 pp (reported 1.8 pp)
Outlook adjusted to EBIT of DKK 2.65-2.85bn (prev. 2.55-2.85bn) before restr. costs of DKK 120m (prev. 150m)

• The Group has seen a very satisfactory development in the first half-year of 2018 with substantial organic growth rates across all business activities. Revenue amounted to DKK 6,777 million and grew by 9% in local currencies of which organic growth accounted for 7 percentage points and acquisitive growth for 2 percentage points. Exchange rates impacted growth negatively by 5% and reported growth was 4%.
• In Hearing Devices, organic growth amounted to 7% driven by very strong performance by our hearing aid wholesale business, which saw organic growth of 11%, with mix effects driving a significant increase in the average selling price (ASP), but a negative unit growth rate. In a few weeks, we will expand our leading product portfolio even further when we launch new custom products across all brands and at all price points, including the first custom version of Oticon Opn. In addition to this, we will introduce our latest technology platform in more price points and in multiple styles across all brands. With material differences between our markets, our hearing aid retail business delivered growth of 8% in local currencies, with acquisitions contributing by more than 6 percentage points and organic growth by 1 percentage point.
• Hearing Implants saw organic growth of 9%, as our cochlear implants (CI) business generated a double-digit organic growth rate, while dedicating significant resources to executing on an upgrade programme started in 2017 under which new Neuro One users are eligible for an upgrade to the Neuro 2 external sound processor launched in late February this year at no additional cost. In our bone anchored hearing systems (BAHS) business, the organic growth rate was more modest, albeit above the market growth rate, which saw a temporary slowdown in the first half-year due to a limited number of new product introductions.
• Our Diagnostic Instruments business activity continued its positive momentum and realised an organic growth rate above 11% driven by our two largest regions, North America and Europe. Growth was broadly based across brands and product categories.
• As a leading hearing healthcare Group, we remain very committed to driving innovation forward, and all our business activities currently have leading product portfolios. In the first half year, we have increased our R&D spend by as much as 16% in local currencies in order to further expand this leading position and also in light of the increasing innovation pace in global hearing healthcare.
• Operating profit (EBIT) for the reporting period amounted to DKK 1,272 million before restructuring costs of DKK 46 million, corresponding to a growth rate of 11% on the same period last year. Restructuring costs were DKK 30 million lower than originally expected. The EBIT margin expanded by 1.2 percentage points to 18.8% driven by the strong growth in our wholesale business, however with some dilutive effects from Hearing Implants and an increase in production costs due to higher sales of value-added products and accessories. Reported EBIT increased by 16% to DKK 1,226 million, and reported profit for the period amounted to DKK 894 million, corresponding to earnings per share (EPS) of DKK 3.55, or an increase of 15% for both. Cash flow from operating activities (CFFO) grew by 8% to DKK 1,051 million before cash flow from restructuring costs of DKK -55 million.
• We have seen strong performance in the first half-year, and we maintain our expectation to generate substantial organic sales growth in 2018. We now expect exchange rate effects on total revenue for 2018 to be slightly less negative at around -3%, including the impact of exchange rate hedging (previously -4%), as we have seen a strengthening of our major invoicing currencies since the beginning of the year. We raise the lower end of our outlook range and now guide for an EBIT of DKK 2.65-2.85 billion (previously DKK 2.55-2.85 billion) before restructuring costs of DKK 120 million (previously DKK 150 million). Expectations of cost savings related to strategic initiatives remain unchanged. We still expect to buy back shares worth DKK 1.5-2.0 billion, while aiming at a gearing multiple of 1.5-2.0 (net interest-bearing debt relative to EBITDA).

“I’m very pleased with the overall result and that the strong performance by our Group in the first half-year has allowed us to raise the lower end of our full-year outlook range. Our results once again show how the hearing healthcare industry is driven by innovation and new strong product concepts that raise the bar for how much we can do with dedicated hearing care. Customer focus across the entire Group is one of our top priorities, and we will soon be ready with a vast range of new products for the benefit of end-users all over the world. This makes me confident that we can maintain our positive development,” says Søren Nielsen, President & CEO.

Attachment

• 2018-08 Interim Report 2018