Annual Report 2018 – Roadshow presentation, February, 2019
Safe Harbor Statement The forward-looking statements in this report reflect the management's current expectations of certain future events and financial results. Statements regarding the future are, naturally, subject to risks and uncertainties, which may result in considerable deviations from the outlook set forth. Furthermore, some of these expectations are based on assumptions regarding future events, which may prove incorrect. Factors that may cause actual results to deviate materially from expectations include – but are not limited to – general economic developments and developments in the financial markets, technological developments, changes and amendments to legislation and regulations governing GN’s markets, changes in the demand for GN's products, competition, fluctuations in sub-contractor supplies and developments in ongoing litigation (including but not limited to class action and patent infringement litigation in the United States). This presentation should not be considered an offer to sell or buy securities in GN Store Nord. 2
Agenda Group highlights 2018 GN Hearing update GN Audio update Financial outlook 3
Delivering on promises GN Hearing GN Hearing EBITA margin GN Hearing revenue (DKKm) 5,833 5,615 +7% • Strong organic growth of 7% – delivered on 20.5% 20.5% 0.0%p guidance Organic growth • EBITA increased to DKK 1,194 million. EBITA margin of 20.5% – delivered on guidance 2017 2018 2017 2018 GN Audio EBITA margin GN Audio revenue (DKKm) GN Audio 19.0% +0.8%p 4,774 18.2% • Very strong organic growth of 21% – delivered on +21% 3,970 guidance Organic growth • EBITA increased to DKK 905 million. EBITA margin of 2017 2018 2017 2018 19.0% – delivered on guidance GN Store Nord effective tax rate (%) 1) GN Store Nord 25% 22% (3)%p • Effective tax rate of 22% – delivered on guidance 2017 2018 1) Including “Other” 4
Group financial highlights 2018 Double digit organic growth drives strong EBITA growth and 15% EPS growth DKK million FY 2018 FY 2017 Growth • Organic growth was 13%. Revenue growth was 11% including an impact of around (3)% from FX and 1% Revenue 10,607 9,585 +11% from M&A Organic growth 13% 8% • Continued solid gross profit increase driven by strong Gross profit 6,574 6,008 +9% business performance Gross margin 62.0% 62.7% (0.7)%p • EBITA increased by 12%, driven by strong execution EBITA 1,956 1,744 +12% across GN Hearing and GN Audio 18.4% 18.2% EBITA margin +0.2%p Profit before tax 1,606 1,504 +7% • Net profit reached DKK 1,247 million, a 11% increase Net profit 1,247 1,122 +11% compared to 2017 EPS 9.25 8.07 +15% • EPS growth of 15% ROIC * 24% 21% +3%p • 3 percentage point increase in ROIC, driven by Free cash flow excl. M&A 1,110 1,134 (2)% increased earnings level as well as strict focus on Cash conversion 57% 65% (8)%p balance sheet during the last years NIBD/EBITDA 1.5x 1.6x * EBITA (rolling four quarters) / avg. invested capital 5
Continued strong cash generation GN’s strong focus on cash conversion continues Free cash flow excl. M&A (DKK million) GN Hearing GN Audio GN Store Nord • GN Hearing’s free cash flow excl. M&A in 2018 -2% reflects the launch of ReSound LiNX Quattro -34% 66% impacting trade receivables and inventories 866 798 1,134 1,110 • 574 Continued very strong free cash flow excl. M&A in 481 GN Audio • Continued strong group cash conversion of 57% in 2018 FY 17 FY 18 FY 17 FY 18 FY 17 FY 18 Cash conversion (FCF ex. M&A / reported EBITA) • Focused and prudent management of net working capital continues GN Hearing GN Audio GN Store Nord • 3 year average cash conversion of 65% -27%p +21%p -8%p 75% 88% 65% 57% 67% 48% FY 17 FY 18 FY 17 FY 18 FY 17 FY 18 6
Creating shareholder value through efficient capital structure Earnings per share 9.25 DKK • During 2018, GN has distributed DKK 1.2 8.07 7.34 8.0 billion to shareholders 6.0 4.79 4.61 • 4.0 DKK 182 million dividend was paid out in 2014 2015 2016 2017 2018 March 2018 (DKK 1.25 per share) • DKK 986 million share buybacks Shareholder distribution DKKm • End 2018, the net interest bearing debt was 2,000 1,443 1,364 1,198 1,168 1.5x EBITDA 894 1,000 • 0 Annual General Meeting on March 21, 2019: 2014 2015 2016 2017 2018 Dividends Share buyback • GN will propose a dividend of DKK 1.35 per share in respect of the fiscal year 2018, total DKK 197 million NIBD / EBITDA development DKKm • New DKK 1 billion SBB program planned, to 3,377 3,234 4,000 3,035 4x 2,212 3x be concluded no later than the AGM 2020 1,631 2,000 2x 1.9x 1x 1.4x 1.5x 1.6x 1.1x 0 0x 2014 2015 2016 2017 2018 NIBD NIBD/EBITDA 7
Diversified funding profile provides flexibility and de-risks balance sheet Maturity profile (DKKbn) • Euro Commercial Paper Program of ~5.3* 0.1 0.1 0.7 up to EUR 250 million launched in 0.1 Total debt January 2019. Attractive margin with 0.6 2.4 NIB new short-term, uncommitted, unsecured EIB 0.7 financing source CB RCF • Diversified funding profile with mid- 1.7 term maturity that provides flexibility based on very strong cash-generative business 2.0 • Sufficient flexibility to absorb acquisition of Altia Systems as well as the ongoing share buyback programs 2018 2019 2020 2021 2022 2023 2024 2025 * Note: Total debt of DKK 3.9bn plus undrawn RCF of DKK 1.4bn 8
IFRS changes are insignificant IFRS 16 estimated impact • IFRS 9 (Financial instruments) and IFRS 15 (Revenue Profit & loss impact from Contracts with Customers) have been implemented as of January 1, 2018 DKK million 2018 IFRS 16 2018 incl. IFRS 16 reported impact impact • IFRS 9 – review of the Group’s financial assets and EBITDA 2,148 +125 2,273 liabilities resulted in a minor impact on recognition and EBITA 1,956 1,959 +3 measurement (DKK +16 million in total assets) Financial items (203) (10) (213) • IFRS 15 – new standard already in line with previous Profit before tax 1,606 (7) 1,599 practice, resulting in no changes Balance sheet impact • IFRS 16 (Leases) will be implemented from January 1, DKK million 2018 IFRS 16 2018 incl. IFRS 16 2019 reported impact impact • Invested capital 8,467 +475 8,942 The effects are based on lease agreements as of December 31, 2018 and are subject to uncertainties NIBD 3,234 +475 3,709 Financial ratios impact • The table to the right shows estimated impacts on 2018 numbers 2018 IFRS 16 2018 incl. IFRS 16 reported impact impact • Overall limited impact on financials for GN NIBD/EBITDA 1.5x +0.1x 1.6x ROIC 24% 22% (2)%pts 9
Jakob Gudbrand – new CEO of GN Hearing • Born: 1971 • Nationality: Danish • Education: Bachelor’s degree in chemical engineering from the Technical University of Denmark • Professional experience: • Thermo Fisher Scientific, Chromatography and Mass Spectrometry, President (2016 – 2018) • Thermo Fisher Scientific, Vice President and General Manager (2011 – 2015) • Thermo Fisher Scientific, Integration, Vice President (2010 – 2011) • GN positions: • CEO, GN Hearing and member of GN Store Nord’s Executive Management 10
Agenda Group highlights 2018 GN Hearing update GN Audio update Financial outlook 11
GN Hearing financial highlights 2018 Continued strong growth driven by ReSound LiNX 3D and newly launched ReSound LiNX Quattro DKK million FY 2018 FY 2017 Growth • Organic growth of 7%, with 10% in Q4 2018. Revenue growth of 4%, including impact of around (3)% from FX Revenue 5,833 5,615 +4% and around 1% from M&A Organic growth 7% 6% • Gross margin in line with 2017 Gross profit 4,034 3,895 +4% 69.2% 69.4% Gross margin (0.2)%p • The EBITA margin reached 20.5%, in line with 2017 EBITA 1,194 1,153 +4% and financial guidance, reflecting strong underlying performance, but off-set with FX and ongoing EBITA margin 20.5% 20.5% - investments in future growth opportunities ROIC * 19% 18% +1%p Free cash flow excl. M&A 574 866 (34)% • ROIC increased to 19% compared to 18% in 2017 Cash conversion 48% 75% (27)%p • Cash conversion of 48%, with the successful launch of * EBITA (rolling four quarters) / avg. invested capital ReSound LiNX Quattro impacting trade receivables and inventories • Strong momentum continues into 2019 12
The strong organic growth of 7% was driven across regions and countries Leading technology and commercial excellence driving growth in 2018 North America Europe Rest of World Double digit organic growth with Solid growth in Europe with Continued double digit organic independents. Strong pick-up in particularly strong performance in growth with China as the main VA. Growth in Beltone below group France driver growth rate GN Hearing has taken market shares 8 years in a row 13
ReSound LiNX Quattro roll-out practically completed • ReSound LiNX Quattro, and corresponding Beltone Amaze, first shipped on August 31, following announcement on August 13 • Global roll-out practically completed • Available in almost 50 countries world- wide (incl. US, UK, Germany, France, Spain, Italy, Japan and Australia) • Strong customer feedback focusing on superior sound quality and a state-of-the- art rechargeable solution • Available in VA from November 1, 2018 14
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