Company announcement no 2009-10 16 November 2009
Interim information, third quarter 2009
Strengthened momentum in all Group activity areas
In the third quarter of 2009, the Group's hearing aid business has developed
satisfactorily with realised revenue growth significantly exceeding trends in
the first half-year.
Compared with the same period last year, growth in the hearing aid business in
the third quarter was driven by increased volume sales as well as a rise in
average selling prices in our wholesale activities. This is, among other
factors, due to a solid rise in sales to the independent retailers.
In the third quarter, all the Group's other activities, i.e. retail, Diagnostic
Instruments and Personal Communication, also showed improved growth rates
compared with the first half-year. Thus, all Group activities have continued to
gain momentum in the third quarter.
On 1 October 2009, the Group acquired the Grason-Stadler brand, including the
company's operating assets. Grason-Stadler is a high-end product line within
diagnostic instruments, and with this acquisition, the Group has further
cemented its position as the world's largest supplier of diagnostic instruments.
Grason-Stadler generates annual revenues of USD 16-18 million.
The Group maintains its expectation of increased revenues from its wholesale
activities, which exceed market growth by 2-4%; one of the factors supporting
this expectation being that the average wholesale price in the Group's hearing
aid business is currently developing more favourably than prices in the
underlying market.
As a consequence of trends in the third quarter, the Group now expects revenues
and operating profits (EBIT) in the second half-year of 2009 to exceed the
levels realised in the first half-year. Thus, we expect to see significant
growth rates in revenues and operating profits compared with the second half of
2008. Previously, we expected revenues and operating profits in the second
half-year to match those realised in the first half-year.
Market trends
In the hearing aid market, trends prevailing in the first half-year have
continued into the third quarter. The impression of more stable market
conditions has thus been confirmed. At the same time, there are some indications
that market conditions have gradually improved, even if in the third quarter,
the market was - in terms of growth - driven by considerable growth in the
demand by Veterans Affairs (VA) in the USA. Furthermore, market growth rates are
positively impacted by weak comparative figures - a trend caused by the
difficult situation on the global hearing aid market prevailing in the second
half of 2008.
Accounting for just under 20% of the US market, VA increased its purchases by
more than 30% in the third quarter and thus continues its development from the
first half-year. The fact that VA has in this way been a major driver in an
otherwise soft global hearing aid market has not had a beneficial impact on the
Group's hearing aid businesses, since neither Oticon nor Bernafon have been
among VA's regular suppliers during this period. However, starting on 1 November
2009, both Group hearing aid businesses will be regular suppliers to VA, and
this is expected to contribute positively to the Group's growth in 2010 and
2011, in particular.
Demand by the National Health Service (NHS) in the UK, which is - in terms of
volume - the world's largest single buyer of hearing aids, is now stabilising.
Since mid-2008, when NHS waiting lists reached the desired level, NHS has
contributed negatively to market growth, but now everything points towards a
normalisation of growth in the overall demand by the NHS. For the entire period,
NHS has been - and still is - an important customer to William Demant Holding,
but since a growing number of hospitals in the UK have purchased hearing aids
outside the NHS contract, the Group's market share with the NHS has decreased
during the second and third quarters of 2009, in particular.
In the commercial part of the market, growth rates have increased throughout
2009, which was also the case in the third quarter. In the private sector of the
US market, unit growth in the third quarter exceeded 4% on the same period last
year. However, this corresponds to the absolute level of the second quarter
2009. Similar trends may be observed in several European markets. With weak
negative market growth in Japan in the third quarter, nothing points towards an
improvement here.
The total number of instruments sold on the global hearing aid market in the
past quarter is estimated to be at the same level as in the second quarter, but
it is still too soon to draw the conclusion that we are seeing significantly
improved demand on the global hearing aid market.
Hearing Aids
Driven by volume, mix and prices, the Group's hearing aid business gained market
share in the commercial part of the market in the third quarter. Growing sales
in the commercial part of the market, including sales to the independent
retailers, have thus more than compensated for the Group's declining sales to
the NHS. This development should, among other factors, be viewed in light of
Oticon's strong product portfolio and Oticon's Modern Hearing Care campaign
(www.modernhearingcare.com), which is probably the biggest training and
promotional effort ever levelled at the dispensers. The Modern Hearing Care
campaign takes a more holistic view on hearing aid fitting as its starting
point, and in addition to focusing on the hearing aid proper, the campaign
focuses on improving the possibilities of the hearing impaired in difficult
listening environments, including especially telephone and TV scenarios.
Launched in summer, the campaign was one of Oticon's main themes at the German
hearing aid congress, EUHA, that took place in October.
The fact that Group sales to the NHS have been replaced by sales to the
independent retailers has also contributed to the average selling price in the
Group's hearing aid business having gone up compared with the same period last
year. This development is in contrast to the general development in the hearing
aid market, where wholesale prices and product mix are estimated to have been
under pressure, since the financial crisis and the general recession set in in
the first half of 2008. In the German market, which has for some time now been
characterised by fierce competition, prices seem to be under particular
pressure.
In terms of products, the third quarter was to a great extent a continuation of
the first half-year with focus on products based on the RISE platform. In
Oticon, Hit, Dual, Epoq and Vigo, in particular, contributed to the Group's unit
growth, whereas Tego, Delta and a number of older products, which are no longer
marketed actively, are pulling in the opposite direction. The launch of Hit is
progressing extremely satisfactorily, and the development in Dual and Epoq sales
is similar to that of the first half-year.
In the Bernafon business, Verité and Avanti generated significant growth in the
third quarter. The introduction of Verité, which was launched as Bernafon's new
wireless RITE hearing aid in spring, is progressing very satisfactorily.
Launched in autumn 2008 in the low end of the mid-priced segment, Avanti is
living up to the plans made.
At EUHA, the German hearing aid congress held at the end of October, the Group
presented a number of new products, including Oticon Vigo Connect positioned in
the upper part of the mid-priced segment. With Vigo Connect, more
price-conscious end-users are now offered the market's most attractive solution
with wireless connection to for instance TV and telephone. At the same time,
hearing aid fitters have got an instrument that gives those more price-conscious
end-users an obvious incentive to choose a higher-priced instrument.
Also at EUHA, Oticon presented Safari, which is Oticon's first hearing aid
family specifically developed and designed for children. Oticon Safari offers
functionalities never before seen in the paediatric area, including binaural
signal processing (spatial sound), 10 kHz bandwidth, wireless connection to for
instance mobile phone and TV as well as wireless programming. Expected to be
released for sale in December 2009, Oticon Safari is fully compatible with
Oticon's FM system Amigo, which was specifically developed for use in learning
environments, e.g. class teaching in schools.
Bernafon used EUHA to present Veras, a brand-new, complete product family that
will be available in six different styles, including a so-called Nano BTE
version, which is the world's smallest wireless thin-tube product. Veras will
among other functionalities offer 8-10 kHz bandwidth, binaural communication,
wireless connectivity via SoundGate as well as remote control, if desired, will
be launched in three different price variants and will thus cover a very broad
section of the market. Veras is expected to be released for sale in December
2009.
In the third quarter, the Group's retail activities continued the first
half-year's handsome development with growth rates considerably above market
growth rates in those countries, where the Group is active within retail.
Diagnostic Instruments has in the third quarter generated satisfactory growth
rates exceeding growth rates in the first half-year.
Other business activities
On 1 October 2009, William Demant Holding acquired production, product and name
rights to the Grason-Stadler brand, which is a high-end product line within
diagnostic instruments. The products will form part of the Group's portfolio of
audiometers and diagnostic instruments. The acquisition is expected to
significantly strengthen William Demant Holding's Diagnostic Instruments
division, not only through the extension of the existing product range, but also
through the addition of a new high-end brand. With the acquisition of
Grason-Stadler, the Group has further cemented its position as the world's
largest supplier of diagnostic instruments. As a result of the transaction, the
previous owner, CareFusion, will withdraw completely from the audiometer market.
In connection with the acquisition of Grason-Stadler, the Group has taken over
neither buildings nor leases, but some 20 employees from Grason-Stadler's sales
organisation have been offered jobs in the new organisation. Grason-Stadler
generates annual revenues of USD 16-18 million.
Personal Communication is to a greater extent than the Group's other business
areas affected by the financial crisis and general recession. The effect of the
crisis is most obvious in Sennheiser Communications, which has also in the third
quarter generated lower sales than in the same period last year. By virtue of
cost adjustments, Sennheiser Communications has, however, been able to maintain
its profitability. In the third quarter, the other activities in Personal
Communication, i.e. FrontRow and Phonic Ear, realised minor revenue growth.
Expectations
The Group expects volume growth in the global hearing aid market to be 2-4% in
2009, whereas we expect average selling prices to contribute slightly negatively
to market growth. In overall terms, we expect to see positive, but modest,
market growth in terms of value in 2009.
As a result of the Group's development in the third quarter, we now expect
revenues and operating profits (EBIT) in the second half-year to exceed the
levels realised in the first half-year. Revenues and operating profits will thus
show significant growth compared with the second half of 2008. Most recently,
the Group announced in its Interim Report 2009 that it expected to generate
revenues and operating profits of the same magnitude as in the first half-year.
The positive development is mainly driven by the Group's hearing aid business,
which is favoured by solid growth in sales to the independent retailers. This
development is underpinned by Oticon's successful Modern Hearing Care campaign
and by a strong product range, including the successful launches of Oticon Hit
and Oticon Vigo Connect. For 2009, the Group maintains its expectations of
revenue growth in the wholesale activities of the hearing aid business that will
exceed market growth by 2-4%. This assumption is, among other factors, supported
by the fact that the average wholesale price in our hearing aid business is
currently developing more favourably than prices in the underlying market.
In our updated expectations of 2009, we have incorporated a minor weakening of
the Group's trading currencies, mainly the US dollar. The strengthening of other
currencies will, however, partly compensate for the weakening of the US dollar.
Based on average exchange rates in October, we expect a negative exchange effect
of up to 1% on both revenues and operating profits (EBIT) in 2009. We previously
announced that we expected a neutral exchange effect for 2009. On this basis, we
expect a negative exchange effect on revenues of 1-2% in 2010.
The effect of our acquisition of Grason-Stadler on 1 October 2009 has also been
incorporated into the Group's expectations of 2009, and this is expected to
impact Group revenues positively by DKK 15-20 million in 2009. However, as a
consequence of the additional cost incurred by the integration of Grason-Stadler
into the other activities in Diagnostic Instruments, we expect the earnings
impact to be neutral in 2009.
Further information:
Phone +45 3917 7100
www.demant.com
Contact:
Niels Jacobsen, President & CEO
Other contacts:
Stefan Ingildsen, VP Finance and IR
Søren B. Andersson, IR Manager
