1.11.2022 20:28:42 CET | Demant A/S |
Intern viden
Selskabsmeddelelse nr. 2022-13 1. november 2022
Tidlig annoncering af periodemeddelelse for Q3 2022 samt opdaterede forventninger
Omsætningsvækst for koncernen på 11 % (1% organisk) i Q3 som følge af øgede markedsandele i Hearing Aids og Diagnostics
I modsætning til vores forventninger påvirkes det amerikanske egenbetalingsmarked i stigende grad negativt af makroøkonomiske forhold
Forventningerne til 2022 er justeret for at afspejle vores opdaterede syn på markedet samt de lavere end forventede resultater for koncernen:
Organisk vækst på 2-4 % (tidl. 4-6 %) og EBIT på DKK 3.150-3.450 mio. (tidl. DKK 3.500-3.800 mio.)
Omkostningsreducerende tiltag gennemføres for at justere forretningen til den aktuelle markedsudvikling
“I årets tredje kvartal har Diagnostics-forretningen klaret sig godt, og den har fortsat vundet markedsandele. Som følge af negativ udvikling på vores markeder har vi set dårligere end forventede resultater i forretningsområderne Hearing Care, Hearing Aids og Communications. Vores reviderede forventninger indebærer, at markedet fortsat vil udvikle sig svagt, og at vi vil opleve makroøkonomisk usikkerhed, som vil medføre lav forbrugertillid, og vi anser ikke længere udviklingen som midlertidig. Vi gennemfører derfor omkostningsreducerende tiltag på nogle områder i koncernen, men holder samtidig skarpt fokus på at levere innovative produkter og løsninger, som letter livet for vores brugere og kunder,” siger Søren Nielsen, koncernchef og administrerende direktør.
Omsætning (DKK mio.)
Vækst
Forretningsområde
Q3 2022
Q3 2021
Organisk
Akkvisitiv
LCY
FX
Rapporteret
Hearing Aids
2.446
2.222
6 %
-2 %
4 %
6 %
10 %
Heraf salg til Hearing Care
-470
-381
10 %
7 %
17 %
7 %
24 %
Hearing Care
2.018
1.848
-5 %
8 %
3 %
7 %
9 %
Diagnostics
613
469
12 %
5 %
18 %
13 %
31 %
Hearing Healthcare
4.607
4.159
1 %
3 %
4 %
7 %
11 %
Communications
256
243
0 %
0 %
0 %
5 %
5 %
Koncern
4.863
4.402
1 %
2 %
4 %
7 %
11 %
Omsætning (DKK mio.)
Vækst
Forretningsområde
YTD 2022
YTD 2021
Organisk
Akkvisitiv
LCY
FX
Rapporteret
Hearing Aids
7.288
6.639
8 %
-2 %
6 %
4 %
10 %
Heraf salg til Hearing Care
-1.365
-1.252
0 %
5 %
5 %
4 %
9 %
Hearing Care
5.950
5.585
-4 %
5 %
2 %
5 %
7 %
Diagnostics
1.679
1.312
15 %
3 %
18 %
10 %
28 %
Hearing Healthcare
13.552
12.284
4 %
1 %
5 %
5 %
10 %
Communications
808
864
-10 %
0 %
-10 %
3 %
-7 %
Koncern
14.360
13.148
3 %
1 %
4 %
5 %
9 %
I Q3 genererede koncernen organisk vækst på 1 % samt yderligere vækst på 2 % fra akkvisitioner og på 7 % fra valutakurseffekter. Den samlede rapporterede omsætningsvækst for koncernen var 11 %.
Hearing Healthcare realiserede organisk vækst på 1 % som følge af solide resultater i Diagnostics, hvorimod Hearing Aids og Hearing Care ikke levede op til forventningerne i Q3.
I Hearing Aids fortsatte vi med at vinde markedsandele i Q3 trods øget makroøkonomisk modvind på høreapparatmarkedet. Væksten var drevet af solid stykvækst, hvorimod ASP-væksten var moderat negativ. ASP’en var positivt påvirket af de prisstigninger, der trådte i kraft fra begyndelsen af Q3, men geografiske og kanalmiksændringer påvirkede ASP’en mere negativt end forventet i perioden, især som følge af negativ vækst på det amerikanske egenbetalingsmarked.
Hearing Care leverede negativ organisk vækst i Q3, hvilket skyldes dårligere end forventede resultater i USA, den negative udvikling på det amerikanske egenbetalingsmarked samt vores beslutning om at træde ud af udvalgte managed care-kontrakter. Justeret for udviklingen i USA var den organiske vækst i Hearing Care flad i Q3. Høje sammenligningstal i Frankrig som følge af den høresundhedsreform, der blev gennemført sidste år, påvirkede ligeledes væksten negativt, hvilket dog var som forventet. Akkvisitioner i Hearing Care bidrog betydeligt til væksten i Q3, delvist som følge af den finansielle konsolidering af ShengWang fra 1. juli 2022.
Diagnostics fortsatte sit meget flotte momentum i Q3, og derudover var væksten positivt påvirket af akkvisitionen af Inventis Srl. i Q2.
Communications realiserede organisk vækst på 0 % i Q3, hvilket er lavere end forventet. Mens Enterprise Solutions leverede vækst, som i det store og hele var på niveau med vores planer, var væksten i Q3 negativt påvirket af det fortsat svage marked for gaming-headset, hvor vi ikke har set de sædvanlige sæsonbestemte opsving.
Koncernens bruttomargin udviklede sig positivt sammenlignet med den bruttomargin på 74,6 %, som vi realiserede i H1, hvilket til dels skyldes medvind skabt af de tidligere udmeldte prisstigninger. Den dynamiske forsyningssituation har fortsat en negativ effekt på koncernens bruttomargin, og selvom situationen er blevet lidt bedre i løbet af Q3, så er vores bruttomargin negativt påvirket af den større end normale løninflation.
Til trods for at den øgede inflation påvirkede vores omkostningsbase, var OPEX i Q3 på niveau med vores planer, og OPEX er derfor stadig håndterbar og stort set på niveau med vores forventninger. Koncernens OPEX så lav tocifret vækst i lokal valuta, hvoraf hovedparten kan tilskrives akkvisitioner.
Koncernens EBIT var lavere end forventet i Q3 trods solide resultater i Diagnostics og moderat positive valutakurseffekter. Denne udvikling skyldes et afdæmpet høreapparatmarked og resulterede i lavere end forventet omsætning i Hearing Aids og Hearing Care, især i USA, og i en fortsat svagere end forventet udvikling på gaming-markedet, hvilket påvirkede Communications negativt.
Koncernens cashflow var solidt i Q3 trods lageropbygning, og vi tilbagekøbte aktier for DKK 493 mio. I lyset af det svagere end forventede EBIT, et højt opkøbsniveau igennem hele året og den forventede afslutning af frasalget af Hearing Implants i Q2 2023 i stedet for i H2 2022 (se nedenfor) har vi besluttet at sætte vores aktietilbagekøb i bero resten af året. Det samlede aktietilbagekøb beløber sig til DKK 1.840 mio. år til dato den 31. oktober.
Som annonceret den 27. april 2022 har vi besluttet at afvikle vores Hearing Implants-forretning, som derfor indregnes separat som en ophørende aktivitet. Betinget af regulatoriske godkendelser og opfyldelsen af andre sædvanlige vilkår forventer vi nu, at frasalget af forretningsområdet til Cochlear Limited gennemføres i Q2 2023. Det var tidligere forventet at gennemføre transaktionen i slutningen af 2022, men de spanske konkurrencemyndigheder har overdraget sagen til EU-kommissionen, hvilket vil forlænge processen for godkendelse af transaktionen.
Som følge af lavere end forventet markedsvækst og for at tilpasse forretningen til den aktuelle udvikling på markedet gennemfører vi omkostningsreducerende tiltag i Hearing Care, Hearing Aids og Communications. I Hearing Care nedbringer vi antallet af vores butikker i USA med ca. 50 og justerer organisationen tilsvarende. I Hearing Aids vil vi gennemføre justeringer i udvalgte dele af vores centrale organisation, og vi har allerede igangsat lukningen af Bernafon-brandets hovedkvarter i Schweiz og påbegyndt overførslen af aktiviteterne til koncernens hovedkvarter i Danmark. I Communications vil vi ligeledes justere organisationen, således at den tilpasses de aktuelle forventninger til markedet. Vi forventer at gennemføre disse ændringer i løbet af de kommende måneder, hvilket vil medføre opsigelse af 150-200 medarbejdere globalt fordelt på Hearing Aids, Hearing Care og Communications. Vi forventer, at disse tiltag vil forbedre vores resultater allerede i H1 2023.
Forventninger til 2022
Vores forventninger til 2022, som er opsummeret i tabellen nedenfor, justeres for at afspejle dårligere end forventede resultater in Q3 samt lavere forventninger til resten af året.
Parameter
Forventninger til 2022
Organisk vækst
2-4 % (tidligere 4-6 %)
Akkvisitiv vækst
2 % baseret på omsætning fra virksomheder tilkøbt pr. 31. oktober 2022
Valutakursvækst
5 % baseret på valutakurser pr. 31. oktober 2022 og inkl. effekten af valutakurssikring
EBIT
DKK 3.150-3.450 mio. (tidligere DKK 3.500-3.800 mio.)
Effektiv skattesats
22-23 %
Gearing-multipel
Gearing-multiplen (NIBD i forhold til EBITDA) forventes ved udgangen af 2022 at ende på eller en anelse under 3,0 (tidligere lidt over 2,0-2,5)
Aktietilbagekøb
Sat i bero. År til dato den 31. oktober havde vi tilbagekøbt aktier for DKK 1.840 mio.
Resultat efter skat fra ophørende aktiviteter
Negativt med DKK 200-250 mio. (tidligere negativt med DKK 150-200 mio.)
Forventningerne er fortsat baseret på en række nøgleantagelser som beskrevet nedenfor (ændringer med fed skrift):
I Q3 var værditilvæksten på høreapparatmarkedet under vores justerede forventninger. Vi forventer nu en samlet stykvækst på markedet i 2022 i den lave ende af det strukturelle niveau på 4-6 %. Derudover forventer vi nu, at ASP-væksten på markedet i højere grad end tidligere vil være negativt påvirket af geografiske og kanalmiksændringer og derfor vil udvikle sig mere negativt end den normalt forventede årlige nedgang på 1-2%.
Væksten på det franske høreapparatmarked vil være negativ i 2022 efter den ekstraordinære efterspørgsel i 2021, som efter vores skøn havde en positiv effekt på koncernens omsætning på DKK 300 mio. og på EBIT på DKK 150 mio. Vi forventer ikke at se en gentagelse af denne effekt. Udviklingen år til dato var mindst på niveau med vores forventninger.
Markedet for enterprise- og gaming-headset samt videoløsninger vil vokse under det estimerede strukturelle vækstniveau på ca. 12 %. Svækkelsen af gaming-markedet i Q3 var mere udtalt end forventet, og vi ser fortsat nogle forsyningsudfordringer for visse produktfamilier i Enterprise Solutions.
I H2 forventer vi fortsat at se Hearing Healthcare vinde markedsandele. Hvad angår Communications, forventer vi nu at se negativ encifret organisk vækst i den høje ende af spektret i H2 sammenlignet med 2021.
Forsyningssituationen vil forblive dynamisk i hele 2022 og vil resultere i højere komponent- og fragtomkostninger end normalt, hvilket vil have nogenlunde samme effekt som i 2021, men ikke vil medføre en betydelig negativ påvirkning af vores salgsaktiviteter.
Koncernens OPEX-base vil ikke opleve nogen effekt af midlertidige omkostningsbesparelser i 2022, som efter vores skøn beløb sig til DKK 150-200 mio. i H1 2021.
Vi forventer nu EBIT i Communications på ca. DKK -225 mio. i 2022 som følge af den fortsat negative udvikling på markedet samt udfordringer i forsyningskæden. Vi regner stadig med, at de grundlæggende vækstdrivere i markedet vil forblive intakte på mellemlang til lang sigt.
Det planlagte frasalg af Hearing Implants antages nu at blive gennemført i Q2 2023. Det samlede resultat efter skat fra ophørte aktiviteter i 2022 forventes nu at blive negativt med DKK 200-250 mio., hvilket afspejler den forsinkede indregning af positive engangseffekter som følge af justeringen af dagsværdien af aktiver og passiver i forbindelse med transaktionen. Ved gennemførelse af transaktionen vil DKK 700 mio. af den samlede sum på DKK 850 mio. blive betalt.
Demant afholder en telekonference den 2. november 2022 kl. 13.00. For deltagelse i konferencen anvendes et af følgende telefonnumre: +45 7877 4197 (DK), +44 808 101 1183 (UK) eller +1 (785) 424 1634 (USA). Pinkoden er 70355#. Præsentationen, som vil blive gennemgået på telekonferencen, vil blive uploadet på www.demant.com, kort før konferencen starter.
Yderligere information:
Søren Nielsen, koncernchef og adm. direktør
Telefon +45 3917 7300
www.demant.com
Øvrige kontaktpersoner:
René Schneider, CFO
Peter Pudselykke, Investor Relations Officer
Trine Kromann-Mikkelsen, VP Corporate Communications and Relations
Om 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.
Vedhæftninger
2022-13 Periodemeddelelse.pdf
2022-13 Interim Management Statement.pdf
1.11.2022 20:28:42 CET | Demant A/S |
Inside information
Company announcement no 2022-13 1 November 2022
Pre-announcement of Interim Management Statement for Q3 2022 and updated outlook
Group revenue growth of 11% (1% organic) in Q3 due to market share gains in Hearing Aids and Diagnostics
Contrary to expectations, US private pay market is increasingly negatively impacted by macroeconomic conditions
Outlook for 2022 adjusted to reflect updated market views and lower-than-expected performance for the Group:
Organic growth of 2-4% (prev. 4-6%) and EBIT of DKK 3,150-3,450 million (prev. DKK 3,500-3,800 million)
Implementation of cost reduction initiatives to align the business to the current market development
“In the third quarter of the year, our Diagnostics business has performed well and it continued to gain market share. Following recent negative development in our markets, we have seen lower-than-expected performance in our Hearing Care, Hearing Aids and Communications businesses. Our revised outlook implies continued weak market developments as well as macroeconomic uncertainties, causing low consumer confidence, and we no longer see this development as a temporary event. Therefore, we implement cost adjustment initiatives in some areas of the Group, while keeping sharp focus on delivering life-changing innovative products and solutions to our users and customers,” says Søren Nielsen, President & CEO of Demant.
Revenue (DKK million)
Growth
Business area
Q3 2022
Q3 2021
Organic
Acquisitive
LCY
FX
Reported
Hearing Aids
2,446
2,222
6%
-2%
4%
6%
10%
Hereof sales to Hearing Care
-470
-381
10%
7%
17%
7%
24%
Hearing Care
2,018
1,848
-5%
8%
3%
7%
9%
Diagnostics
613
469
12%
5%
18%
13%
31%
Hearing Healthcare
4,607
4,159
1%
3%
4%
7%
11%
Communications
256
243
0%
0%
0%
5%
5%
Group
4,863
4,402
1%
2%
4%
7%
11%
Revenue (DKK million)
Growth
Business area
YTD 2022
YTD 2021
Organic
Acquisitive
LCY
FX
Reported
Hearing Aids
7,288
6,639
8%
-2%
6%
4%
10%
Hereof sales to Hearing Care
-1,365
-1,252
0%
5%
5%
4%
9%
Hearing Care
5,950
5,585
-4%
5%
2%
5%
7%
Diagnostics
1,679
1,312
15%
3%
18%
10%
28%
Hearing Healthcare
13,552
12,284
4%
1%
5%
5%
10%
Communications
808
864
-10%
0%
-10%
3%
-7%
Group
14,360
13,148
3%
1%
4%
5%
9%
In Q3, the Group generated organic growth of 1% with additional growth of 2% from acquisitions and of 7% from exchange rate effects. Total reported revenue growth for the Group was 11%.
Hearing Healthcare saw organic growth of 1% due to solid performance in Diagnostics, whereas Hearing Aids and Hearing Care delivered below expectations in Q3.
In Hearing Aids, we continued to gain market share in Q3 despite the increasing impact of macroeconomic headwinds on the hearing aid market. Growth was driven by solid unit growth, whereas the ASP growth was slightly negative. The ASP was positively impacted by price increases from the beginning of Q3, but geography and channel mix changes impacted the ASP more negatively than expected in the period, especially due to negative growth in the US private pay market.
Hearing Care delivered negative organic growth in Q3, which can be attributed to weaker-than-expected performance in the US, to negative developments in the US private pay market and to our decision to exit selected managed care plans. Adjusted for the development in the US, organic growth in Hearing Care was flat in Q3. High comparative figures in France due to the hearing healthcare reform implemented last year also had a negative impact on growth, which was in line with our expectations. Acquisitions in Hearing Care contributed considerably to growth in Q3, in part due to the financial consolidation of ShengWang from 1 July 2022.
Diagnostics continued its very strong momentum in Q3, and growth was also positively impacted by the acquisition of Inventis Srl. in Q2.
Communications saw organic growth of 0% in Q3, which is lower than expected. While Enterprise Solutions delivered growth, which was largely in line with our plans, growth in Q3 was negatively impacted by a continuously weak market for gaming headsets, where we have not seen the expected normal seasonality.
The Group’s gross margin improved compared to the gross margin of 74.6% realised in H1, partly supported by tailwind from previously announced price increases. The dynamic supply chain situation continues to impact the Group’s gross margin negatively, and while the situation has improved slightly during Q3, our gross margin is negatively impacted by higher-than-normal wage inflation.
In Q3, OPEX was in line with our plans, despite an impact on our cost base from increasing inflation, that, however, still remains manageable and broadly in line with expectations. The Group’s OPEX saw low double-digit growth in local currencies, most of which is attributable to acquisitions.
The Group’s EBIT was below expectations in Q3 despite solid performance in Diagnostics and slightly positive exchange rate effects. This development is due to a soft hearing aid market and resulted in lower-than-expected revenue in Hearing Aids and Hearing Care, especially in the US, and continuously weaker-than-expected developments in the gaming market, which impacted Communications negatively.
The Group’s operating cash flow was solid in Q3 despite higher inventories, and we bought back shares worth DKK 493 million. In the light of the weaker-than-expected EBIT, a high M&A activity level throughout the year and the expected closing of the divestment of Hearing Implants in Q2 2023 instead of H2 2022 (please see below), we have decided to pause our share buy-backs for the remainder of the year. Total share buy-backs amount to DKK 1,840 million year-to-date 31 October.
As announced on 27 April 2022, we have decided to discontinue our Hearing Implants business, which is therefore recognised separately as a discontinued operation. Subject to regulatory approvals and other customary closing conditions, the divestment of the business to Cochlear Limited is now expected to close in Q2 2023. Previously, closing was expected to take place at the end of 2022, but the Spanish competition authorities have handed over the case to the European Commission, which will prolong the approval process for the transaction.
Following lower-than-expected market growth and to align the business to current market developments, we are implementing cost reduction initiatives in Hearing Care, Hearing Aids and Communications. In Hearing Care, we rationalise our US store footprint by approx. 50 stores and align the size of our organisation. In Hearing Aids, we will make adjustments to selected parts of our central organisation, and we have already initiated a closing and transfer of the Bernafon brand headquarter in Switzerland to the Group’s headquarters in Denmark. In Communications, we also adjust the organisation to reflect the current market outlook. We expect these changes to be implemented over the coming months and to result in 150-200 redundancies globally across Hearing Aids, Hearing Care and Communications. We expect these initiatives to lead to improvements in our performance already in H1 2023.
Outlook for 2022
Our outlook for 2022, which is summarised in the table below, is adjusted to reflect weaker-than-expected performance in Q3 and lower expectations for the remainder of the year.
Metric
Outlook for 2022
Organic growth
2-4% (prev. 4-6%)
Acquisitive growth
2% based on revenue from acquisitions completed as of 31 October 2022
FX growth
5% based on exchange rates as of 31 October 2022 and including the impact of hedging
EBIT
DKK 3,150-3,450 million (prev. DKK 3,500-3,800 million)
Effective tax rate
22-23%
Gearing multiple
Gearing (NIBD relative to EBITDA) at the end of 2022 to end at or slightly below 3.0 (prev. to slightly exceed 2.0-2.5)
Share buy-backs
Currently paused. Year-to-date 31 October, share buy-backs amount to DKK 1,840 million
Profit after tax from discontinued operations
Negative by DKK 200-250 million (prev. negative by DKK 150-200 million)
The outlook continues to be based on a number of key assumptions as described below (changes in bold):
In Q3, value growth in the hearing aid market was below our updated expectations. We now expect total market unit growth in 2022 at the low end of the structural level of 4-6%. In addition, we now expect ASP growth in the market to be more negatively impacted by channel and geography mix changes than previously and to end below 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. Developments year-to-date were at least in line with our expectations.
The market for enterprise and gaming headsets and video solutions to grow below the estimated structural growth level of around 12%. The weakening of the gaming market in Q3 was more pronounced than expected and we continue to see some supply chain challenges on certain product families in Enterprise Solutions.
In H2, we expect to continue to see market share gains in Hearing Healthcare. For Communications, we now expect to see negative high single-digit organic growth in H2 compared to 2021.
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.
For Communications, we now expect EBIT of around DKK -225 million in 2022 due to continued negative market trends and supply chain challenges. In the medium- to long term, we still consider the fundamental growth drivers of the market to be fully intact.
The planned divestment of Hearing Implants is now presumed to close in Q2 2023. Total profit after tax from discontinued operations in 2022 is now expected to be negative by around DKK 200-250 million, reflecting the delayed recognition of the positive one-off gain from the fair value adjustment of assets and liabilities in connection with the transaction. At closing, DKK 700 million of the total DKK 850 million consideration will be paid.
Demant will host a conference call on 2 November 2022 at 13:00 CET. To attend this call, please use one of the following dial-ins: +45 7877 4197 (DK), +44 0 808 101 1183 (UK) or +1 (785) 424 1634 (US). The pin code is 70355#. A presentation for the call will be uploaded on www.demant.com shortly before the call.
Further information:
Søren Nielsen, President & CEO
Phone +45 3917 7300
www.demant.com
Other contacts:
René Schneider, CFO
Peter Pudselykke, Investor Relations Officer
Trine Kromann-Mikkelsen, VP Corporate Communications and Relations
Hearing Healthcare
Market trends
Overall, the hearing healthcare market that we address, which comprises the markets for hearing aids and diagnostic instruments and services, saw slight negative growth in Q3.
Hearing aid market
Based on available market statistics, covering slightly less than 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 1% in Q3 compared to the same period in 2021. Growth was more positive in the public channels, such as the NHS and Veterans Affairs (VA), none of which have, however, normalised compared to pre-pandemic growth rates. We estimate that emerging markets saw solid growth in the period. In Q3, we saw increasing impacts of general consumer uncertainty, not least in markets dominated by private pay, especially the US. We estimate that geography and channel mix changes in the market resulted in a more negative ASP development than expected. Consequently, value growth in the hearing aid market was below expectations and negative in Q3.
Estimated hearing aid market unit growth by region
2022
Region
Q1
Q2
Q3
YTD
Europe
20%
9%
0%
10%
North America
8%
1%
0%
3%
Hereof US (commercial)
6%
-1%
-3%
1%
Hereof US (VA)
19%
2%
9%
9%
Rest of world
4%
4%
4%
4%
Global
12%
5%
1%
6%
CAGR vs. 2019
4%
6%
4%
5%
Compared to the same period in 2021, we estimate that in Q3, market unit growth in Europe was flat. In the UK, market growth was driven by the NHS, whereas the commercial market declined slightly. Germany delivered growth in the period, and France saw slightly negative growth despite the extraordinary positive impact of the hearing healthcare reform implemented last year.
Unit growth in North America was also flat in Q3. Growth was predominantly driven by VA, which grew by 9%. The commercial part of the market declined in the period, in part driven by high comparative figures, as we saw the release of pent-up demand in Q3 2021, and in the US, managed care continues to grow more than the general market, while the private pay market is declining. Unit growth in Canada continued the solid trend in Q3, and the market growth rate was in line with the normal level.
Looking beyond Europe and North America, we estimate that market unit growth in China was slightly positive in Q3, which is an improvement following the impacts of lockdowns and coronavirus-related restrictions in Q2. Also, unit growth in Australia was solid compared to the same period last year, but in Japan, the market saw negative growth in the period, and it remains below the pre-pandemic level.
In August 2022, the long-awaited regulation of the over-the-counter (OTC) category of hearing aids was finalised by the US Food and Drug Administration (FDA), and the rule took effect on 17 October 2022. As previously communicated, the content of the final rule does not change our fundamental belief in the importance of providing a combination of personal counselling, individual fitting, life-long service and highly advanced technology, but the new category may supplement the existing hearing aid categories well.
Diagnostics market
The market for diagnostic instruments and services remains resilient. We estimate that, compared to the same period last year, the market growth rate in Q3 was above the estimated structural annual growth rate of 3-5%.
Hearing Aids
Despite adverse market conditions, especially in the latter part of Q3, our Hearing Aids business delivered good performance relative to the market in Q3 with organic growth of 6%. Acquisitive growth was -2% due to the divestment in October 2021 of FrontRow Calypso LLC, and exchange rate effects were 6%.
Revenue (DKK million)
Growth
Revenue
Q3 2022
Q3 2021
Organic
Acquisitive
LCY
FX
Reported
Total revenue
2,446
2,222
6%
-2%
4%
6%
10%
Internal sales to Hearing Care
470
381
10%
7%
17%
7%
24%
Sales to external customers
1,976
1,841
5%
-3%
2%
6%
7%
Revenue (DKK million)
Growth
Revenue
YTD 2022
YTD 2021
Organic
Acquisitive
LCY
FX
Reported
Total revenue
7,288
6,639
8%
-2%
6%
4%
10%
Internal sales to Hearing Care
1,365
1,252
0%
5%
5%
4%
9%
Sales to external customers
5,923
5,387
10%
-3%
6%
4%
10%
Organic growth was driven by solid sales to external customers, which grew organically by 5% due to strong sales in Europe and market share gain in the US. We also saw good momentum in Asia and in the Pacific region. Internal sales to Hearing Care accounted for 19% of total revenue in Hearing Aids. Growth in Hearing Aids was driven entirely by an increase in unit sales, whereas the ASP, despite being positively impacted by price increases from the beginning of Q3, declined slightly due to geography and channel mix changes.
Hearing Aids continued to gain market share driven by good performance in many markets and supported by the expansion of our portfolio of industry-leading hearing aids with new custom form factors built on our ground-breaking Polaris technology.
In Europe, we saw growth in Q3. France saw solid growth in the period in spite of strong comparative figures, and other countries, such as Germany, Poland and Spain, also saw good growth in the period. After a strong H1, growth in the UK slowed down but remained positive driven by sales to the NHS. The impact of the halt of sales to Russia, Belarus and the provinces of Donetsk and Luhansk continued to have a slightly negative impact on growth in Q3.
North America delivered flat organic revenue growth. In the US, we continue to gain market share, but the market grew less than expected, especially due to negative growth in the private pay market. Sales to VA, where our unit market share increased from 14.7% in September 2021 to 15.9% in September 2022, contributed positively to growth and in Canada, we delivered solid growth in Q3. In a generally competitive environment, our Hearing Aids business in North America continues to see good traction thanks to Oticon More and Philips HearLink.
Growth in Asia and the Pacific region was strong, in part driven by low comparative figures. In China, we have seen good growth, partly driven by a partial market rebound following lockdowns in Q2, and in Japan and Australia, growth was solid in the period despite the fact that some coronavirus-related restrictions were still in force at the beginning of Q3. Sales to our Other countries region, which mostly comprises emerging markets, saw strong growth in Q3 driven by continuously good commercial momentum.
Hearing Care
Sales in Hearing Care saw organic growth of -5% in Q3, which is below expectations. Adjusted for the development in the US, organic growth in Hearing Care was roughly flat in Q3. Acquisitive growth was 8% and exchange rate effects added 7%. Despite strong comparative figures in France, the weak development in Hearing Care is mainly attributable to performance in the US and in Q3, we saw many smaller countries deliver growth.
In Europe, growth was negative in Q3. We saw positive developments in several markets, such as Poland and Switzerland, but in France, we continue to annualise tailwinds from the hearing healthcare reform in 2021, which, as expected, negatively impacted growth in Q3.
North America delivered organic growth below expectations in Q3 due to slow momentum in the private pay market in the US. Our strategic decision to reduce the share of sales related to managed care continues to have a more negative impact than expected on growth and profitability, and it has proven more difficult than expected to generate new leads to replace the managed care activities that we have exited. In Canada, we saw growth in the period, and acquisitions continue to contribute to growth in both countries.
Impacted by coronavirus-related restrictions in the comparative period, Australia saw good growth in Q3 despite being impacted by some restrictions in the early part of Q3.
Diagnostics
Diagnostics delivered strong organic growth of 12% in Q3 and continued to gain market share. In addition, the business area realised growth of 5% from acquisitions and 13% from exchange rate effects. Growth was broadly based across most regions, and the order intake continues to be strong. All our geographical regions performed well, with Asia and the US as the biggest contributors to growth in the period.
Diagnostics generated growth in all product categories, with instruments for tympanometry, hearing aid fitting and balance testing contributing the most to growth.
Communications
Market trends
We estimate that the market growth rate for enterprise solutions and gaming was mixed in Q3. The market for enterprise solutions saw growth in Q3, but the market has seen some softening recently. The gaming market continues to see negative growth, and the impact of the weakening of consumer spending in Q3 has been more negative than previously expected.
The market for enterprise and gaming headsets and video solutions is expected to see growth in 2022 below the estimated structural level of around 12%, primarily due to the development in the market for gaming headsets. However, we still believe that the fundamental growth drivers of the market remain fully intact in the medium to long term, and we still expect the structural market growth rate to be around 12%.
Communications (EPOS)
The Communications business area, which operates under the EPOS brand, saw organic growth of 0% in Q3, which is below expectations. Exchange rate effects were 5%. Compared to last year, we saw growth in Asia and Europe, negative growth in the Pacific region and flat growth in the US.
Growth in our Gaming segment was negative and continued to be impacted by high inventories in the sales channels, which remains a drag on growth. In Q3, our Enterprise Solutions segment saw good growth, which was broadly based across geographies, but with Asia as the most prominent growth driver.
Cost reduction initiatives
Following lower-than-expected market growth and to align the business to current market developments, we are implementing cost reduction initiatives in Hearing Care, Hearing Aids and Communications. In Hearing Care, we rationalise our US store footprint by approx. 50 stores and align the size of our organisation. In Hearing Aids, we will make adjustments to selected parts of our central organisation, and we have already initiated a closing and transfer of the Bernafon brand headquarter in Switzerland to the group headquarter in Denmark. In Communications, we also adjust the organisation to reflect the current market outlook. We expect these changes to be implemented over the coming months and to result in 150-200 redundancies globally across Hearing Aids, Hearing Care and Communications. We expect these initiatives to lead to improvements in our performance already in H1 2023.
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
2022-13 Interim Management Statement.pdf
