Interim Report Q1 2019 – Conference call presentation, May 1, 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 Q1 2019 GN Hearing update GN Audio update Financial outlook 3
Group financial highlights Q1 2019 Continued strong momentum with 19% organic growth and 25% EPS increase DKK million Q1 2019 Q1 2018 Growth • Organic growth was 19%. Revenue growth was 24% including an impact of around 3% from FX and around 1% from M&A +24% Revenue 2,840 2,296 Organic growth 19% 10% • Continued solid gross profit increase driven by strong Gross profit 1,754 1,425 +23% business performance Gross margin 61.8% 62.1% (0.3)%p • EBITA increased by 24%, driven by strong execution EBITA 439 354 +24% across GN Hearing and GN Audio EBITA margin 15.5% 15.4% +0.1%p • Net profit reached DKK 262 million, a 23% increase Profit before tax 342 274 +25% compared to Q1 2018 Net profit 262 213 +23% • EPS growth of 25% EPS 1.96 1.57 +25% ROIC * 22% 22% - • Flat development in ROIC, driven by increased Free cash flow excl. M&A (13) 177 (190) earnings level as well as strict focus on balance sheet NIBD/EBITDA 2.3x 1.8x items during the last years, but off-set primarily by the Altia acquisition and to some extent the implementation of IFRS 16 * EBITA (rolling four quarters) / avg. invested capital 4
Cash flow impacted by seasonality and current growth momentum • Strong development in operating cash flow DKKm GN Hearing based on the strong top-line growth 400 300 • Change in working capital negatively impacted 200 100 by strong growth momentum across GN Hearing 0 -100 and GN Audio -200 Operating cash flow Change in working Investing activities* Tax and financial Free cash flow excl before working capital items M&A • capital Cash flow from investing activities* at same DKKm levels as in Q1 2018 GN Audio 250 • Cash flow from tax negatively impacted by timing 150 50 in GN Hearing -50 -150 • Operating cash flow Change in working Investing activities* Tax and financial Free cash flow excl Free cash flow levels weaker than Q1 2018, before working capital items M&A primarily driven by timing effects – will improve capital during the year. The first quarter of the year is DKKm GN Store Nord traditionally impacted by payment of corporate 700 500 tax as well as bonus payouts 300 100 • -100 Three year average cash conversion of 65% -300 Operating cash flow Change in working Investing activities* Tax and financial Free cash flow excl before working capital items M&A capital Q1 18 Q1 19 *Excluding M&A 5
Creating shareholder value through efficient capital structure • End Q1 2019, the net interest-bearing debt was 2.3x NIBD / EBITDA development EBITDA DKKm • DKK 641 million cash outflow related to the Altia 6,000 7x 5,162 6x 5,000 acquisition 5x 4,000 3,377 3,035 3,234 4x • DKK 197 million dividend was paid out in March 2019 3,000 2,212 3x 1,631 2,000 (DKK 1.35 per share) 2x 2.3x 1,000 1.9x 1x 1.6x 1.5x 1.4x • 1.1x DKK 345 million share buybacks 0 0x 2014 2015 2016 2017 2018 Q1 2019 • NIBD IFRS 16 NIBD/EBITDA As of January 1, 2019 IFRS 16 (Leasing) has been implemented, which has an impact of DKK 496 million on net interest-bearing debt end March 2019 • Excluding the changes from the IFRS implementation the NIBD / EBITDA would have been 2.05x • New DKK 1 billion share buyback initiated this morning 6
Agenda Group highlights Q1 2019 GN Hearing update GN Audio update Financial outlook 7
GN Hearing financial highlights Q1 2019 Strong performance across regions: • DKK million Q1 2019 Q1 2018 Growth Organic growth of 8% driven by strong performance of ReSound LiNX Quattro and ReSound LiNX 3D. Revenue growth of 10%, including impact of around Revenue 1,507 1,365 +10% 2% from FX and an insignificant impact from M&A Organic growth 8% 5% • Gross margin increased 1.4 percentage points Gross profit 1,047 929 +13% reflecting mix effects Gross margin 69.5% 68.1% +1.4%p • The EBITA margin reached at 18.7% – slightly down EBITA 282 262 +8% compared to Q1 2018 driven by the strong gross EBITA margin 18.7% 19.2% (0.5)%p margin increase, but more than off-set by the ROIC * 18% 18% - development in foreign exchange rates Free cash flow excl. M&A (37) 103 (140) • Free cash flow excl. M&A was DKK (37) million in Q1 2019, impacted by traditional seasonality and higher * EBITA (rolling four quarters) / avg. invested capital level of trade receivables and inventories due to the successful ReSound LiNX Quattro 8
The strong organic growth of 8% was driven across regions and countries Leading technology and commercial excellence driving growth in 2019 North America Europe Rest of World Continued strong growth within Strong momentum from Q4 2018 independents – partly off-set by Continued strong growth with continued in Q1 2019 – particular the loss of one larger customer. China and Japan as the main strong performance in Italy, Spain Strong pick-up in VA. Normalized drivers and the Nordic countries growth in Beltone Strongly positioned for the rest of the year 9
GN Hearing now #1 in VA GN Hearing is now the preferred supplier in VA marked share development (value) VA for the first time ever • In Q1 2019, VA accounted for roughly 20% of 50% the total US market in volumes 45% 40% • Since the introduction of ReSound LiNX 35% Quattro in VA in November 2018, GN #1 30% Hearing’s market share has more than 25% doubled from 13% to 28% 20% • 15% Strong development driven by unique 10% product features of ReSound LiNX Quattro 5% and focused customer centric approach from 0% sales and marketing teams Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 GN Hearing Competitor 1 Competitor 2 Competitor 3 Competitor 4 Competitor 5 10
ReSound LiNX Quattro roll-out practically completed • ReSound LiNX Quattro, and corresponding Beltone Amaze, first shipped in August 2018 • Global roll-out practically completed • Available in slightly more than 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 2018 11
Leader in Connectivity: Apple Cooperation/Google Partnership 12
Deliver with purpose 13
Agenda Group highlights Q1 2019 GN Hearing update GN Audio update Financial outlook 14
GN Audio financial highlights Q1 2019 GN Audio delivered 36% organic growth in Q1 2019, driven by exceptionally strong performance in both the DKK million Q1 2019 Q1 2018 Growth CC&O business and the consumer business • Revenue 1,333 931 +43% Organic growth of 36%. Revenue growth of 43%, Organic growth 36% 17% including impact of around 5% from FX and around 2% Gross profit 707 496 +43% from M&A Gross margin 53.0% 53.3% (0.3)%p • Strong performance across CC&O and consumer EBITA 193 126 +53% EBITA margin 14.5% 13.5% +1.0%p • Gross margin slightly down driven by mix effects Transaction related costs (45) 0 EBITA before transaction related costs 238 126 +89% • EBITA increased 53% after transaction related costs EBITA margin before transaction related costs 17.9% 13.5% +4.4%p reflecting strong revenue growth and operational ROIC * 48% 49% (1)%p leverage, partly off-set by continued investment into the Free cash flow excl. M&A 78 99 (21) business and the development in FX. EBITA margin of 14.5% compared to 13.5% in Q1 2018 (17.9% before * EBITA (rolling four quarters) / avg. invested capital transaction related costs) • In Q1 2019, the free cash flow excl. M&A was DKK 78 million, compared to DKK 99 million in Q1 2018 15
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