KONGEBAKKEN, DENMARK — Demant A/S announced the release of its 2021 Interim Report this week. The company reported organic growth of 51% in the first half (H1) of the year, and market share gains in Hearing Healthcare.
The recovery in the global hearing healthcare market for H1 was in line with expectations. EBIT of DKK 1,638 million (~$259M USD) in H1, corresponding to an EBIT margin of 18.2%, which exceeded expectations.
The company expects the positive trends to continue into H2, with 2021 organic growth outlook upgraded to 26-30% and EBIT guidance for 2021 upgraded to DKK 3,150-3,450 million (~$487M to $545M).
Please note that there are no comparative figures for Communications in 2019, as EPOS was not consolidated until 2020. Unless otherwise indicated, 2020 figures are adjusted for one-offs related to the consolidation of EPOS with financial effect from 1 January 2020.
- In H1, Group revenue amounted to DKK 9,012 million (~$1.42B USD, corresponding to growth of 53% in local currencies compared to H1 2020, with 51% organic growth and 2% acquisitive growth. Exchange rate effects were -5%. Compared to pre-pandemic levels in H1 2019, the Group saw growth of 26% in local currencies, with 15% organic growth and 11% acquisitive growth. The latter can mainly be attributed to the consolidation of EPOS in 2020. Exchange rate effects were -3%.
- The Hearing Healthcare segment saw growth of 57% in local currencies compared to H1 2020, reflecting both strong business performance and the severe negative impact of coronavirus on comparative figures. Hearing Aids and Hearing Care benefitted from the strong recovery of the hearing aid market, particularly in the US where we saw the release of some pent-up demand in Q2. A significant positive impact of the hearing healthcare reform in France was also observed, which the company estimates added around DKK 200 million (~$31.6M USD) to revenue in H1 that will not recur to the same extent in H2. Furthermore, Hearing Aids gained market share thanks to the highly successful launch of new flagship hearing aids, including Oticon More and Philips HearLink. Diagnostics delivered very strong performance and gained market share and exited H1 with an all-time high number of orders in the order book. Hearing Implants continued to see a significant negative impact of the slow recovery in a number of our key cochlear implants markets. Relative to H1 2019, Hearing Healthcare grew by 17% in local currencies, with 14% organic growth and 3% acquisitive growth, which is significantly above the market growth rate.
- In Communications, growth was 16% in local currencies compared to H1 2020, all of which was organic growth. Following the very high double-digit organic growth rate realised in the first months of the year – also aided by extraordinarily low comparative figures – growth decelerated significantly. Besides higher comparative figures, the deceleration was driven by a softening in the number of new orders, particularly for low-priced wired headsets. While we view this as a temporary slowdown, it will also impact growth in H2 negatively.
- The Group realised a gross margin of 74.5% in H1, corresponding to growth of 4.5 percentage points compared to H1 2020 and to sequential growth of 2.0 percentage points compared to H2 2020. The improvement was mainly driven by higher production volumes and by strong growth in Hearing Healthcare, which has a structurally higher gross margin than the Communications segment.
- The Group’s OPEX grew by 18% in local currencies compared to H1 2020, with organic growth of 16% and acquisitive growth of 2%. This reflects both the substantial sales growth and the very significant, temporary cost savings realised in the comparative period, including support from government schemes related to coronavirus. We continued to see material temporary savings in OPEX, although these, as expected, gradually diminished during the reporting period. While we will continue to benefit from the structural savings announced in October 2020, we only expect a limited impact of further temporary savings in H2.
- EBIT for the Group was better than expected and amounted to DKK 1,638 million (~$258.6M USD) in H1, corresponding to an EBIT margin of 18.2%. Hearing Healthcare delivered very strong profitability with an EBIT margin of 20.0% driven by a combination of strong revenue and temporary cost savings. Profitability was strongly supported by the success of the new flagship hearing aids, and the company estimates that the reform in France added around DKK 100 million (~$15.8M USD) to EBIT in H1 that will not recur to the same extent in H2. Conversely, the slowdown in Communications resulted in an EBIT of DKK -44 million (~$7M USD), as the company continued to invest in R&D and distribution that will support medium- to long-term growth.
- Reflecting the Group’s improved profitability, cash flow was very strong, and both CFFO and FCF more than doubled to DKK 1,511 million (~$238M USD) and DKK 1,234 million (~$195M US), respectively. M&A activities have largely found their normal level with cash spent on acquisitions amounting to DKK 406 million (~$64M USD), predominantly relating to Hearing Care.
- Share buy-backs amounted to DKK 1,813 million (~$286M USD), while the Group’s gearing multiple (NIBD/EBITDA) was 2.1 at the end of H1, which is in line with the company’s medium- to long-term target of 2.0-2.5.
Outlook for 2021
According to the company, based on expectations that the strong business momentum and market share gains in Hearing Healthcare will continue in H2 – despite tailwind from the French reform not recurring to the same extent as in H1 – the company offers upgraded guidance for the Group’s organic growth rate for 2021 to 26-30% (previously 24-28%).
Due to the slowdown in Communications, they now expect this segment to see negative organic growth in H2. As a result of the upgraded outlook for revenue growth, Demant also upgrades its guidance for Group EBIT for 2021 to DKK 3,150-3,450 million (~$497-$544M USD). In Communications, it expects to realize a negative EBIT for H2, as we will continue to invest in the business as originally planned to support its future growth and market position. Due to higher expectations in respect of its cash flow in H2, the company now expects to buy back shares worth more than DKK 3.0 billion (~$474M USD).
“Overall, we look at the first half-year with great satisfaction, we perform extremely well and win market share. We have once again been let into many people’s lives with our innovative technologies and services, and based on trustful collaboration, we continue to make life-changing differences for our customers and users around the world. With the launch of our flagship hearing aids Oticon More and Philips HearLink standing out, we have generally succeeded with our sales activities, leading to market share gains and sales above our original expectations. Our Hearing Aids, Hearing Care and Diagnostics businesses have performed particularly well, resulting in strong profitability for the period. Based on our expectations of continued strong performance in the second half-year, we now upgrade our guidance for growth and profit for the year”
–Søren Nielsen, President & CEO of Demant.
The full report can be viewed here.
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.
Source: Demant A/S