Company announcementno 2023-13
Interim Management Statement for Q3 2023
Group organic growth of 13% in Q3 driven by sustained market share gains in
Strong profitability and cash flow generation for the Group despite negative effect of Gaming wind-down
Outlook for 2023 narrowed: Organic growth of 12-13% (prev. 11-14%) and EBIT of
“Our
| Revenue(DKK million) |
| Growth | |||||
Business area | Q3 2023 | Q3 2022 |
| Organic | Acquisitive | LCY | FX | Reported |
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Hearing Aids, total revenue | 2,924 | 2,446 |
| 21% | 0% | 21% | -1% | 20% |
Hearing Aids, internal revenue | -494 | -470 |
| 4% | 5% | 9% | -4% | 5% |
Hearing Aids, external revenue | 2,430 | 1,976 |
| 25% | -1% | 24% | -1% | 23% |
Hearing Care | 2,152 | 2,018 |
| 6% | 6% | 12% | -5% | 7% |
Diagnostics | 625 | 613 |
| 6% | 2% | 8% | -6% | 2% |
Hearing Healthcare | 5,207 | 4,607 |
| 14% | 2% | 17% | -4% | 13% |
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Communications | 196 | 256 |
| -20% | 0% | -20% | -4% | -23% |
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Group | 5,403 | 4,863 |
| 13% | 2% | 15% | -4% | 11% |
| Revenue(DKK million) |
| Growth | |||||
Business area | YTD 2023 | YTD 2022 |
| Organic | Acquisitive | LCY | FX | Reported |
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Hearing Aids, total revenue | 9,012 | 7,288 |
| 22% | 0% | 22% | 1% | 24% |
Hearing Aids, internal revenue | -1,594 | -1,365 |
| 13% | 6% | 19% | -2% | 17% |
Hearing Aids, external revenue | 7,418 | 5,923 |
| 24% | -1% | 23% | 2% | 25% |
Hearing Care | 6,660 | 5,950 |
| 7% | 7% | 15% | -3% | 12% |
Diagnostics | 1,823 | 1,679 |
| 6% | 5% | 11% | -3% | 9% |
Hearing Healthcare | 15,901 | 13,552 |
| 15% | 3% | 18% | -1% | 17% |
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Communications | 657 | 808 |
| -17% | 0% | -17% | -2% | -19% |
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Group | 16,558 | 14,360 |
| 13% | 3% | 16% | -1% | 15% |
Unless otherwise indicated, the commentary below relates to Q3 2023.
- The Group generated organic growth of 13%, driven entirely by
Hearing Healthcare . Acquisitive growth was 2% and exchange rate effects were -4%. Reported revenue growth was 11%. - Hearing Healthcare saw organic growth of 14%, fuelled by strong growth in Hearing Aids, with additional growth of 2% related to acquisitions in Hearing Care and Diagnostics.
- Performance in Hearing Aids continued at a very high level with sustained market share gains across markets and channels, driven by the success of new premium hearing aids launched in Q1, including our flagship product, Oticon Real. Growth was primarily driven by unit growth, while the ASP development was slightly positive.
- Hearing Care delivered solid performance, driven by good momentum in most medium-sized markets. This offset slightlynegative growth in
France , which saw adverse market developments, and weaker-than-expected growth inChina due to weak market dynamics. Acquisitions in several markets also contributed to growth in the period, primarily inGermany . -
In Diagnostics, organic growth was solid, albeit with a slightly negative impact of weak market dynamics in
China . Growth continued to be supported by minor acquisitions.
- Communications continued to see weak momentum and negative growth, as the markets for both enterprise solutions and for gaming headsets remained challenging. Our Enterprise Solutions business saw organic growth of
-24%. The gradual wind-down of our Gaming activities announced on29 August 2023 entails the clearing of Gaming-related inventories, which has been realised at lower prices than anticipated. Together with other minor one-off costs, this is expected to impact EBIT negatively by an additionalDKK 50-100 million in H2. Along with other cost savings, the wind-down will shorten the path back to profitability in Communications. -
The Group’s gross margin was in line with expectations and improved sequentially relative to H1. This was driven by positive developments in
Hearing Healthcare , which offset a significant sequential gross margin decline in Communications due to the clearing of Gaming-related inventories. - OPEX was in line with expectations with high single-digit growth in local currencies of which roughly half was organic, reflecting a combination of continued investments in
Hearing Healthcare and cost savings in Communications with a view to improving profitability. -
The Group’s EBIT was in line with expectations, as material operating leverage in
Hearing Healthcare offset larger-than-anticipated negative one-off effects related to the wind-down of our Gaming activities and softening market dynamics inChina . - The Group’s CFFO and FCF continued at a high level driven by improved profitability. Despite a high level of acquisitions in Q3, the Group slightly reduced its net interest-bearing debt. Combined with an increased EBITDA, the Group’s gearing multiple was thus reduced slightly in Q3. No shares were bought back in Q3, but the Group may resume share buy-backs, however subject to cash generation and the level of acquisitions that will be closed in Q4.
-
The divestment of our cochlear implants business to
Cochlear Limited continues to progress, but the work is taking longer than expected. We now expect the transaction to close in H1 2024 (previously before the end of 2023). There are no changes to the outlook for profit after tax from discontinued operations, and in Q3, the operational performance of Hearing Implants was in line with expectations.
Outlook for 2023
The Group’s outlook for 2023, which is summarised in the table below, has been narrowed with respect to organic growth and EBIT to reflect reduced overall uncertainty. The narrowed outlook reflects material operating leverage in
Metric | Outlook for 2023 |
Organic growth | 12-13% (previously 11-14%) |
Acquisitive growth | 3% based on revenue from acquisitions completed as of |
FX growth | -1% based on exchange rates as of |
EBIT | |
Net financials | Negative by around |
Effective tax rate | 24-25% |
Gearing multiple | Gearing multiple (NIBD/EBITDA) at the end of 2023 within our medium- to long-term |
Share buy-backs | May be resumed, subject to cash generation and the level of acquisitions completed |
Profit after tax from discontinued operations | Negative by |
The outlook is based on a number of key assumptions as described below (changes versus most recent outlook in bold):
- Following a stabilisation of the global hearing aid market in H1, we expect the market unit growth rate in 2023 to be slightly above the structural growth rate of 4-6%. We expect a negative contribution from ASP declines around the normal level of 1-2% due to mix effects.
-
We expect the weak momentum in the markets for enterprise solutions and gaming headsets to continue throughout 2023. In 2023, we expect our Communications segment to see negative organic growth and to generate EBIT that is more negative than the level in 2022, as lower revenue and gross margin are only partly offset by cost savings already implemented. The wind-down of our Gaming activities is expected to have an additional negative one-off impact on the Group’s EBIT in H2 of
DKK 50-100 million , which is included in the Group’s outlook. - We expect the level of bolt-on acquisitions in 2023 to be slightly higher than normal, but a number of acquisitions that we had planned for completion in 2023 are now expected to close in 2024.
- Despite higher-than-normal cost inflation, we plan to grow OPEX less than revenue through focused cost control in order to support margin improvement.
- The divestment of our cochlear implants business is expected to close in H1 2024. Our bone anchored hearing systems business will remain with the Group for now, pending a review of our strategic options.
Demant will host a conference call on
Further information: Søren Nielsen, President & CEO Phone +45 3917 7300 www.demant.com | Other contacts: Peter Pudselykke, Investor Relations Officer |
Hearing Healthcare
Market trends
Overall, the hearing healthcare market we address, which comprises the markets for hearing aids and diagnostic instruments and services, saw positive growth in Q3. Compared to Q2, growth accelerated primarily as a reflection of soft comparative figures, and if we compare to pre-pandemic levels, growth in the global hearing aid market developed in line with the structural growth rate.
Hearing aid market
Based on available market statistics, covering around two-thirds of the hearing aid market, and on our own assumptions, we estimate that the global hearing aid market saw unit growth of around 8% in Q3 compared to the same period in 2022. Growth was positive across regions, and we estimate that geography and channel mix changes resulted in a slightly negative ASP development. Consequently, value growth in the hearing aid market in Q3 was in line with our expectations.
Estimated hearing aid market unit growth by region
| 2023 | |||
Region | Q1 | Q2 | Q3 | YTD |
4% | -4% | 7% | 2% | |
9% | 5% | 11% | 8% | |
Hereof US (commercial) | 9% | 5% | 12% | 9% |
Hereof US (VA) | 9% | 4% | 4% | 6% |
Rest of world | 9% | 10% | 7% | 9% |
Global | 7% | 3% | 8% | 6% |
CAGR vs 2019 | 5% | 5% | 5% | 5% |
Compared to the same period in 2022, we estimate that in Q3, market unit growth in
Growth in
Looking beyond
Diagnostics market
We estimate that, compared to the same period last year, the market growth rate in Q3 was in line with the estimated structural growth rate of 3-5% per year, albeit likely at the low end of the range due to weak market momentum in
Hearing Aids
Our total Hearing Aids business delivered strong organic growth of 21% in Q3 thanks to 25% organic growth in sales to external customers. This was the result of broad-based commercial momentum and was boosted by the successful launches of new premium hearing aids in Q1, which has led to market share gains across markets and channels. Growth was primarily driven by unit growth, and the ASP development was slightly positive.
In
In
Hearing Care
Hearing Care delivered solid performance in Q3 with organic growth of 6%. Acquisitive growth was also 6%, driven in particular by
Regionally,
Organic growth in
In our other geographies,
Diagnostics
Organic growth in Diagnostics was 6%, which is above the estimated market growth rate. In addition, the business area saw acquisitive growth of 2%, mainly related to minor acquisitions in previous quarters. Overall, growth in Q3 was solid despite a slightly negative impact of weak market dynamics in
In terms of geographies, organic growth was driven by
Communications
Market trends
After a weak H1 2023, we estimate that the market growth rate for enterprise solutions and gaming headsets continued to be negative in Q3. Both market segments continued to see tough market conditions with lower spending by both corporates and consumers, and visibility remains limited.
Communications (EPOS)
Our Communications business saw organic growth of -20% in Q3 because of weak market development and significant pressure on our realised sales prices due to promotional activities and to sales of legacy, co-branded products at discounted prices. Compared to last year, we continued to see negative organic growth in all regions.
As announced on 29 August, Demant has decided to gradually wind down its Gaming business following a review of the future growth potential and competitiveness of the business. Following this decision, we have focused on reducing our inventory of gaming products, and while revenue in Gaming grew slightly in Q3, sales prices were lower than anticipated due to very significant promotional activities. This negatively impacted profitability in Communications in Q3 and is expected to have an additional negative one-off EBIT impact of
In Q3, Enterprise Solutions accounted for approx. 85% of Communications revenue, and organic growth was -24%, as we continued to be impacted by material hesitation to buy among end-customers, a factor that we expect will continue throughout H2. Looking ahead, we will in Enterprise Solutions focus on solidifying our position in a number of target markets, on further strengthening our product portfolio of premium audio and video solutions for enterprises and on expanding our distribution partnerships.
As a step in this direction, EPOS is today announcing a strategic agreement with Lenovo to provide high-quality audio solutions for business professionals. Through the agreement, EPOS will be Lenovo’s global audio partner for PC audio accessories, which entails the inclusion of the EPOS portfolio in Lenovo’s third-party reseller programme and the co-development of future hardware, software and services to create professional audio solutions. The agreement will have limited impact in 2023, but we expect a positive contribution to growth in 2024.
Contacts
Henrik Axel Lynge Buchter , External Communication Manager, Corporate Communication & Sustainability, +45 2264 9982, heey@demant.com
About Demant A/S
Demant is a world-leading hearing healthcare group that offers solutions and services to help people with hearing loss connect with the world around them. In every aspect, from hearing devices, hearing implants, diagnostics to audio and video solutions and hearing care all over the world, Demant is active and engaged. Our innovative technologies and know-how help improve people’s health and hear-ing. We create life-changing differences through hearing health.
Attachments
- 2023-13 Interim Management Statement for Q3 2023.pdf
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