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Company Announcement no 2007-13 8 November 2007
Quarterly review, third quarter 2007 8:30am CET
Very promising Epoq sales after prolonged introduction phase
?? Driven by growth in unit sales of own-manufactured hearing aids, the Group generated substantial
double-digit growth rates in the third quarter, which significantly exceed market
growth rates. Add to this solid growth in the Group’s other business activities.
?? In the third quarter, the sale of the Group’s newest high-end hearing aid Oticon Epoq developed
at the lower end of the plans made due to a prolonged introduction. However, preliminary
trends in the fourth quarter bear witness to strengthened momentum in Epoq sales.
?? Feedback from hearing aid fitters and end-users on Epoq is extremely positive, and the Group’s
expectations for Epoq sales continue to be high.
?? In the third quarter, the Group was favoured by substantial growth in sales to the NHS and a
number of international retail chains and also by continued progress in the Group’s own retail
activities. Conversely, Oticon Tego has gradually moved into the later stages of its lifecycle.
?? For 2007, the Group maintains its expectation of revenue growth of 9-12% in local currencies
and a negative exchange rate effect of approx. 3%. Based on this, the Group maintains its expectation
of revenues of DKK 5,400-5,550 million in 2007.
?? Due to changes in the Group’s product and customer mix, the Group now expects an operating
profit (EBIT) of DKK 1,375-1,425 million in 2007 against previously DKK 1,425-1,500 million. This
includes non-recurring additional cost in the production of hearing aids of an estimated DKK
25-40 million in consequence of the transition to new technological and mechanical platforms.
?? Based on the ongoing budget process, it is expected that in 2008 the Group will continue to
generate high revenue growth, which ? calculated in local currencies ? will exceed market
growth. This growth is expected to be driven by Oticon Epoq, Brite from Bernafon and by a
number of promising product introductions in 2008.
Side 2 af 5
Market conditions and business development
Growth in the global hearing aid market is still within the range of the Group’s long-term expectations
of 2-4% unit growth. Throughout 2007, the demand for instruments by the National Health
Service (NHS) in the UK and by Veterans Affais (VA) in the USA has been above the level in the
commercial part of the market.
Recent years’ significant trend towards open and cosmetically attractive mini-instruments is continuing.
Extensively dominated by Oticon Delta since its launch in spring 2006, this segment is at
the moment characterised by increased competition ? a trend manifested among other factors in a
considerable number of product launches from the competition, which reflects growing acceptance
of the concept. The fact that the overall share of behind-the-ear instruments on the US market
exceeded 50% in 2007 also reflects this trend. It is obvious that the Oticon Delta products
have been drivers of this market development and the success of Oticon Delta seems to continue
with unabated strength.
In the third quarter, the Group’s core business ? the development, manufacture and wholesale of
hearing aids ? generated double-digit growth rates. This growth was driven by increased unit sales
of Group-manufactured hearing aids and significantly exceeded market growth. Both the Oticon
business and the Bernafon business grew considerably in the third quarter ? especially in terms of
volume. Unit growth in the Oticon business was in particular driven by Epoq, Delta and Go Pro,
while Prio and Neo were the main unit growth drivers in the Bernafon business. Generally speaking,
the Group’s hearing aid businesses were favoured by handsome growth in sales to the NHS
and a number of international retail chains in the third quarter.
As far as Oticon is concerned, the third quarter was to a wide extent dominated by the introduction
of the high-end product Oticon Epoq, which offers the hearing impaired the world’s hitherto only,
truly wireless, binaural hearing aid solution with notably improved sound processing. We continue
to receive positive feedback on Epoq from hearing aid fitters and end-users, who emphasise, in
particular, the sound reproduction of the product, including the recreation of the user’s sense of
space and ability to localise a sound source. Oticon took the opportunity to present Epoq at the
European hearing aid congress, EUHA, held in mid-October in Nuremberg, Germany. The interest
in Epoq was considerable and centrered particularly on new clinical results, which were presented
at the congress. These results show very high user satisfaction with Epoq both in typical listening
situations and in connection with the user’s ability to localise and separate sound sources. On a
10-point scale, the leap in satisfaction when using two Epoq instruments with binaural sound
processing is significant on all parameters compared to using two conventional hearing aids. This
improvement is so significant that it compares to the leap from using one to using two conventional
Side 3 af 5
However, in the third quarter Oticon Epoq sales developed at the low end of the plans made, as
sales did not get off the ground until early autumn in many countries, despite the fact that the
product was released for sale as early as May/June. Moreover, the first few months after Epoq’s
release were characterised by keen interest in the innovative possibility of wirelessly connecting
Epoq with for instance a mobile phone via a Bluetooth-based Streamer. This possibility represents
a big technological breakthrough that the industry has waited for in years, but the breakthrough
will not really materialise commercially, until the demand by end-users increases. The possibility
0f Bluetooth connectivity has to a great extent cast a shadow over Epoq’s obvious audiological
features and the breakthrough that genuine binaural sound processing based on wireless broadband
communication between the two instruments offer all hearing impaired. In overall terms, this
resulted in a more gradual penetration in the first few months after its launch, which put a damper
on Epoq sales in the third quarter.
After a period with much enthusiasm amongst customers for the possibility of Bluetooth connectivity,
our marketing materials and the ongoing dialogue with the customers now focus much more
on Epoq’s fundamental audiological features, which undoutedly make the product the best hearing
aid on the market at the moment. Thus, the development in the past part of the fourth quarter
also points towards a considerably improved pace in the sale of Epoq, as an increasing number of
hearing aid fitters offer Epoq primarily due to its unique audiological features ? with or without a
Streamer and mobile phone. Due to the positive sales momentum in the past part of the fourth
quarter combined with unusually high satisfaction among fitters and end-users, the Group continues
to have high expectations for Epoq sales.
Based on the so-called RITE technology (Receiver-In-The-Ear), the cosmetically attractive product
concept Oticon Delta still contributes significantly to corporate growth. Despite increased competition
in the area for designed mini-instruments, it is obvious that also in the past quarter Oticon
succeeded in maintaining and in some cases even expanding Delta’s position as a benchmark
product in the fastest growing segment on the hearing aid market.
Since their launch in spring 2005, Oticon Tego and Oticon Tego Pro have generated substantial
growth for the Group in the mid-priced segment. It has, however, now been more than two and a
half years since the products were introduced, and it is becoming increasingly clear that the Tego
instruments have moved into the later stages of their lifecycle.
In autumn, Bernafon launched the product concept Brite (Bernafon Receiver-In-The-Ear), which
marks Bernafon’s entry into the market for cosmetically attractive mini-instruments. Based on an
innovative design and state-of-the-art technology, Brite was very well received by the customers,
not least at the EUHA congress in October. The reactions are full of promise for Brite sales during
the coming quarters. Bernafon also used EUHA to present its new Super Power instrument Xtreme.
Side 4 af 5
The outlined changes in the product and customer mix in the hearing aid business will have a
negative impact on the Group’s expected operating profit (EBIT) in 2007. Moreover, Epoq is a fundamentally
new product concept in all respects ? both technologically and mechanically. From a
production point of view, the transition to the new platforms has presented greater technical challenges
than foreseen. The necessary adjustments of the hearing aid production, which have now
been fully implemented, were rather cost-intensive and temporarily resulted in reduced production
efficiency. The negative one-off effect will amount to an estimated total of DKK 25-40 million
in 2007, or approx. 0.5-0.7 percentage point on the corporate gross margin.
In the third quarter, the Group’s retail activities generated sales growth significantly above growth
on the markets where the Group is involved in retailing.
In the third quarter, Diagnostic Instruments generated revenue growth exceeding growth in the
first half-year. Growth in the third quarter was well-founded in the different product categories ?
however with particularly high growth rates within brainstem audiometry (ABR).
In the third quarter, Personal Communication saw considerable revenue growth. In Phonic Ear,
growth was satisfactory with FrontRow as the main growth driver.
In the past quarter, Sennheiser Communications ? the Group’s joint venture within high-end headsets
? continued its very positive development from the first half-year. A major part of this growth
was driven by the new wireless headsets for offices (BW-900) and mobile telephony (VMX 100).
After write-down of the share capital to nominally DKK 60,986,527 at the general meeting on 29
March 2007, the Company continued its buy-back of shares. In the third quarter, the Company
bought back 604,645 shares for a total amount of DKK 300 million. At 8 November 2007, the Company
holds a total of 961,320 treasury shares, or 1.58% of the share capital. Since 1 January 2007
and up until today, the Company has acquired a total of 1,578,770 shares at a total value of DKK
784 million. The Group expects to continue to buy back shares in 2007 at a total value of approx.
DKK 1 billion.
In 2007, the Group expects to see continued revenue growth rates of 9-12% in local currencies and
a negative exchange rate effect of approx. 3%. Based on this, we still expect to see revenues in
2007 in the DKK 5,400-5,550 million interval.
Side 5 af 5
As a result of changes in the Group’s product and customer mix, the Group now expects an operating
profit (EBIT) of DKK 1,375-1,425 million for 2007, including additional cost in the production of
hearing aids of an estimated DKK 25-40 million as a consequence of the transition to new technological
and mechanical platforms.
Based on the ongoing budget process, it is expected that in 2008 the Group will be able to continue
to generate high revenue growth, which ? calculated in local currencies ? will exceed market
growth. This growth is expected to be driven by Oticon Epoq, Brite from Bernafon and by an number
of promising product introductions in 2008. The Group’s success with the sale of hearing aids
to international retail chains is expected to continue in 2008. Based on current exchange rates, the
operating profit (EBIT) is expected to be negatively impacted in 2008 by movements in foreign currencies
by an estimated DKK 30-50 million compared to 2007. The previously announced restructuring
of the Group’s production facilities and the establishment of production facilities in Poland
are proceeding successfully and at a quicker pace than originally planned, which means that the
announced saving will be realised earlier than assumed.
Financial calendar 2008
6 March 2008 Annual Report 2007
31 Marts 2008 Annual general meeting
7 May 2008 Quarterly review, first quarter 2008
14 August 2008 Interim Report 2008
5 November 2008 Quarterly review, third quarter 2008
? ? ? ? ? ? ?
Niels Jacobsen, President & CEO
Stefan Ingildsen, VP, Finance & Investor Relations
Phone +45 39 17 71 00
www.demant.comNiels Jacobsen, President & CEO
Stefan Ingildsen, VP, Finance & Investor Relations
Phone +45 39 17 71 00