The hearing industry received further evidence this week that the economic impact of the Covid-19 pandemic has been unprecedented. Recent publication of the first quarter (Q1) financial reports from Amplifon and GN Store Nord offer a glimpse of how much impact the pandemic has had on the industry.
Additionally, the Interim Management Statement issued by Demant on May 5, 2020, provides further insight into the substantial economic toll COVID-19 has had in such a short span of time.
Amplifon: Q1 2020 Report
After a strong performance in the first two months of the year, hearing care retailer Amplifon’s first quarter results were impacted by the measures adopted in March to contain the spread of virus.
The main results reported for the first quarter of 2020:
- Consolidated revenues of 363.5 million euros, down 7.2% at constant exchange rates and 7.3% at current exchange rates compared to the same period of 2019 due to the Covid-19 outbreak
- EBITDA amounted to 64.9 million euros, down 17.8% compared to the same period of 2019 due to lower revenues, with EBITDA margin at 17.8%
- Net profit came to 5.1 million euros, 72.7% lower than in the first quarter of 2019
- Net financial debt was 790.7 million euros, in line with the 786.7 million euros posted at December 31st, 2019, even after cash-out for acquisitions of 41.7 million euros and despite the negative impact from Covid-19 outbreak
- Free cash flow reached 44.2 million euros, around 2.7 times the cash flow generated in the first quarter of 2019
Given the negative impact on the demand in the hearing care retail market due to the restrictive or even general lockdown measures adopted by the governmental authorities in various countries for the Covid-19 emergence, the company “reacted promptly and decisively by implementing a series of actions aimed at mitigating its impact”.
The company adopted the following cost containment measures:
- Labor costs: activation of government social schemes and other employment support tools which were either already in place or have been implemented to address the current exceptional circumstances in the various countries where the Group operates, proportional reduction in variable compensation, voluntary pay cuts by management and hiring freeze
- Marketing costs: significant reduction of these costs
- Other costs: suspension of all discretionary costs and renegotiation of several supplier contracts and rent agreements
“Since the beginning of this challenging period, stemming from the Covid-19 outbreak, our priority has been protecting the health of our people while continuing to safely serve and support our customers. While the current circumstances are unparalleled, we are still managing our business thanks to our trademark qualities: speed and agility, on the one side, and focus, on the other. We have, in fact, immediately taken decisive actions to mitigate the financial impact of this unprecedented crisis. Looking beyond the immediate future, we are confident that our undisputed competitive positioning, coupled with the unchanged fundamentals of our market, will allow us to deliver renewed strong growth over the medium term”.
—Enrico Vita, Amplifon’s Chief Executive Officer
GN Interim Report Q1 2020
GN Hearing
- GN Hearing saw an accelerating impact from COVID-19 on the sale of hearing aids, particularly towards the end of the quarter. GN Hearing delivered an organic growth of -14% in Q1 2020. Revenue growth was -13% including 3% impact from the development in foreign exchange rates and -2% impact from M&A
- EBITA was DKK 55 million in Q1 2020, due to the development in revenue, more than offsetting short-term OPEX reductions
- Free cash flow excl. M&A was DKK -66 million in Q1 2020 compared to DKK -37 million in Q1 2019, which reflected the lower revenue and traditional seasonality
“The year initially was off to a good start, but recent developments related to the COVID-19 pose challenges on demand as people are restricted to stay at home, which significantly impacted our Q1 performance, and we now expect Q2 to be even more severely impacted by COVID-19. On this background, we have accelerated the launch of ReSound Assist Live, which was made available in key markets on April 2, 2020. This technology enables a new, groundbreaking way to access hearing care by reducing the need for in-office visits at a time when older, more vulnerable populations are advised to stay at home.”
–Gitte Aabo, CEO of GN Hearing
GN Audio
- GN Audio saw very strong Enterprise demand for home office products as enterprises of all sizes, and across various industries, prepared their employees for working from home due to COVID-19. Towards the end of Q1, GN Audio saw reduced demand for Consumer headsets due to the impact from COVID-19. GN Audio delivered an organic growth of 22% in Q1 2020. Revenue growth was 24%, including 1% impact from the development in foreign exchange rates and 1% impact from M&A
- EBITA increased by 49% to DKK 288 million in Q1 2020, driven by the strong revenue growth, on top of a negative gross margin impact from increased freight and production costs as a result of COVID-19 as well as tariffs
- Free cash flow excl. M&A was DKK -67 million in Q1 2020 compared to DKK 78 million in Q1 2019, which reflected the strong revenue growth impacting net working capital negatively
“Based on GN Audio’s swift response to the growing demand in the second half of Q1 2020, as companies prepare for employees working from home, GN Audio delivered 22% organic growth in Q1 2020. At the same time, the production output has gradually recovered. GN Audio expects the current high demand to continue into Q2 2020, as companies establish new ways of working. Beyond this current exceptional demand, the global uncertainties allow GN Audio very limited visibility beyond Q2 on both the supply and demand side.”
–René Svendsen-Tune, CEO of GN Audio
“We face the current adverse market conditions with a very sound balance sheet and ample sources of liquidity. As such, we have a solid foundation to face the financial challenges ahead of us,” commented Marcus Desimoni, CFO of GN Store Nord.
Demant A/S: Interim Management Statement covering the period year-to-date
According to the most recent Interim Management Statement from the Demant Group, performance has been “extraordinarily mixed as a result of the global coronavirus pandemic”.
Until mid-March, the Group (excluding EPOS) saw double-digit organic growth “significantly above the estimated growth rate of the hearing healthcare market”. However, the lockdowns of virtually all of the company’s key markets in Europe and North America in response to the spreading of coronavirus almost completely eliminated the ability to service patients and “have had an unprecedented negative impact on the hearing healthcare market since mid-March”.
“We estimate that the global hearing aid market is currently seeing a sales run rate of around 20% of what we would normally expect.”
The negative impact on the Group accelerated in most major markets in mid-March, and since then revenue has been approximately 30% of original expectations (including EPOS). Consequently, revenue and profits have year-to-date been significantly below the levels in the same period last year.
To support the business and the company’s employees in this challenging situation, the Executive Board announced that they have voluntarily decided to reduce their salaries by 10% for the remaining part of 2020, and the Board of Directors have decided to reduce their fees by 20% in the same period.
“The Demant Group entered 2020 on a very positive note with high growth rates and market share gains in all hearing healthcare business activities. However, our good momentum came to a sudden halt when the hearing healthcare market almost completely stalled with the outbreak of coronavirus. Governments’ restrictions to prevent the spreading of the virus have particularly affected the elderly, who are staying at home. We make a huge effort every day to serve customers and users in the best possible way with remote services, and in countries that are open, we meet people with safety procedures as well as innovative solutions for delivering our services and products. But the situation for the Group is very challenging as we are facing a long road towards normalisation. It is difficult to estimate the time horizon, but it could carry over into 2021, and we are dedicated to doing what we can to get through this as fast as possible – with very high concern for people’s well-being”
–Søren Nielsen, President & CEO of Demant
“We believe that the negative impact of coronavirus will be temporary, and we see no changes to the fundamental drivers of demand for hearing healthcare products and services. However, we believe that the hearing healthcare market will only see a gradual recovery that will likely spill over into 2021. The duration of the market recovery will depend not only on the timing of the re-opening of society, but also on how quickly people – particularly the elderly population – will start to feel comfortable leaving their homes to buy hearing healthcare services. Uncertainty as to whether any pent-up demand will start materialising in 2020 has increased over the last couple of weeks due to the fact that it has taken longer than initially expected to re-open society after the lockdown.”
I am sure that part of this situation was exacerbated by hearing health professionals closing their offices in response to the pandemic. Except where mandated by government, closing an office sends the wrong signal to patients that depend upon quality audiological care. Our office that remained open has seen an increase in prospective patients calling to schedule an appointment. The mass closure (and subsequent layoffs) was not helped by professional societies that called our services “unessential”.