Demant A/S
Annual Financial Report

Demant A/S: Annual Report 2021

8.2.2022 07:08:23 CET | Demant A/S | Annual Financial Report

Company announcement no 2022-03                             8 February 2022

Annual Report 2021

Very strong performance in 2021 with 27% organic growth and market share gains in Hearing Healthcare

Strong profitability with EBIT of DKK 3,386 million before one-off items, corresponding to EBIT margin of 18.4%

High cash generation in 2021 with CFFO of DKK 3,275 million, supporting share buy-backs of DKK 3.2 billion

Outlook for 2022: Organic growth of 5-9% and EBIT of DKK 3,450-3,750 million

“2021 was a great year for Demant. To our satisfaction, we significantly exceeded our original, ambitious expectations and met our most recent outlook for the year by delivering high organic growth – above the market growth rate in our core segment, Hearing Healthcare – and an all-time high operating profit. Thanks to a great effort made by our employees and our customers’ commitment, our solutions and services have reached even more people, especially through the great success of our flagship hearing aids Oticon More and Philips HearLink and the individual counselling provided to users in thousands of hearing care clinics. Our purpose to create life-changing differences through hearing health has once again proved meaningful, and we have made good progress in our sustainability focus areas, diversity and climate action, which we will continue to work on in the future,” says Søren Nielsen, President & CEO of Demant, and concludes:

“The positive development and further normalisation we saw on the hearing aid and diagnostics markets in the second half-year will carry over into 2022. We thus expect to see strong growth in our core business areas, Hearing Care, Hearing Aids and Diagnostics, which also performed well in 2021, and in 2022, we will resume sales of our cochlear implants, and we expect to see growth in Communications. All of this leads us to present ambitious targets for 2022.”

Unless otherwise indicated, all commentary is based on figures adjusted for net positive one-off items.

• In H2, revenue for the Group grew by 11% in local currencies, consisting of 10% organic growth and 1% acquisitive growth. Exchange rate effects were 1%. For FY 2021, growth was 28% in local currencies, consisting of 27% organic growth and 1% acquisitive growth, which is in line with our most recent outlook. Exchange rate effects were -1%. Comparisons are not made to 2019 as our financial performance in 2019 was severely impacted by the IT incident.
• Our Hearing Healthcare segment grew by 15% in local currencies in H2, consisting of 14% organic growth and 1% acquisitive growth. Hearing Aids delivered strong growth thanks to the continued success of our flagship products, Oticon More and Philips HearLink, which drove market share gains, particularly in the US. Aided by further tailwind from the hearing healthcare reform in France, Hearing Care also delivered strong performance, and Diagnostics continued to deliver strong results and further cemented its position as market leader. Hearing Implants was significantly impacted by the voluntary field corrective action announced by our cochlear implants business in October.
• In Communications, growth in H2 was -27% in local currencies, all of which was organic growth. This was due to high comparative figures and a slowdown in sales that began in Q2 and continued into Q3, but momentum improved in the remainder of H2, particularly in Enterprise Solutions. Compared to H1, sequential growth was
  -10%, which is in line with our most recent expectations.
• The Group realised a gross margin of 75.8% in H2, corresponding to growth of 3.3 percentage points, despite having incurred additional costs related to the dynamic supply chain situation, which impacted the gross margin negatively by an estimated 0.5 percentage point in H2.
• The Group’s OPEX grew by 15% in local currencies in H2, consisting of 14% organic growth and 1% acquisitive growth, reflecting a normalisation of the cost base, substantial sales growth and temporary cost savings realised in the comparative period, including support from government schemes related to coronavirus.
• For H2, EBIT for the Group amounted to DKK 1,748 million before net positive one-off items, corresponding to an EBIT margin of 18.6% driven by increased profitability in Hearing Healthcare, which delivered an EBIT margin of 20.6%, whereas Communications realised EBIT of DKK -78 million, which was on par with our most recently announced expectations. The Group’s EBIT for FY 2021 thus amounted to DKK 3,386 million before one-off items, which is also in line with our most recent outlook.
• The previously announced one-off items had a net positive impact on the Group’s EBIT of DKK 59 million in H2 and in FY 2021. The one-off items had no impact on CFFO and FCF, but the divestment of FrontRow Calypso LLC had a positive impact of DKK 161 million on the Group’s net cash flow.
• Cash flow remained strong in H2, with CFFO of DKK 1,764 million and FCF of DKK 1,291 million before net cash spent on acquisitions and divestments, totalling DKK 141 million.
• In line with our most recent outlook, share buy-backs amounted to DKK 3.2 billion. The Group’s gearing (NIBD/EBITDA) was 2.0 at the end of the year, which is at the low end of our medium- to long-term target of 2.0-2.5.

Outlook for 2022

Our outlook for 2022 is summarised in the table below:

The outlook is based on the following key expectations:

• The hearing healthcare market to normalise, resulting in unit growth in the hearing aid market of 4-6% and additional growth due to the release of some pent-up demand, albeit with significant differences between individual markets and channels. Such differences will not least be driven by different comparative bases going into 2022. Due to changes in geography and channel mixes, we expect ASP growth in the hearing aid market to be slightly more negative in 2022 than the normal 1-2% annual decline.
• Growth in the French hearing aid market to be negative in 2022 following the extraordinary demand in 2021, which we estimate benefitted the Group’s revenue by DKK 300 million and EBIT by DKK 150 million. We do not expect this benefit to recur.
• The market for enterprise and gaming headsets and video solutions to grow in line with the estimated structural growth level of around 12%.
• Both segments, Hearing Healthcare and Communications, to gain market share in 2022, but Communications to realise double-digit negative organic revenue growth in Q1 2022 due to very high comparative figures.
• Supply chain situation to remain dynamic throughout the year and to result in higher-than-normal component costs and freight charges with an impact that is roughly similar to the impact in 2021, but with no material disruption to sales activities.
• The Group’s OPEX base to see no benefit from temporary cost savings in 2022, which we estimate amounted to DKK 150-200 million in H1 2021.
• Sales of new cochlear implants to be resumed in Q3 2022 and to be gradually ramped up.
• Communications to realise a slightly negative EBIT in 2022.

Changes to reporting structure

Starting with our next Interim Management Statement to be published on 3 May, we will going forward report revenue and growth rates by business area, by segment and for the Group as a whole in our interim management statements. Growth rates will be reported for Q1 and Q3, respectively, and split by organic, acquisitive and exchange rate growth. As a consequence, our next interim reports and annual reports will include growth rates for Q2 and Q4, respectively. The purpose of these changes is to further enhance transparency in the Group’s financial performance and enable easier comparison to peers.

Demant will host a conference call on 8 February 2022 at 14:00 CET. To attend this call, please use one of the following dial-ins: +45 3544 5577 (DK), +44 3333 000 804 (UK) or +1 6319 131 422 (US). The pin code is 89626182#. A presentation for the call will be uploaded to www.demant.com shortly before the call.

* Adjusted for one-off items in 2020 and 2021.
** Shareholder-elected members.

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.