Interim Report Q1 2020 – Conference call presentation April 29, 2020 1
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 GN Hearing update GN Audio update Financial outlook 3
Group financial highlights Q1 2020 Accelerating impact from COVID-19 • GN was affected at three levels from COVID-19 during Q1 DKK million Q1 2020 Q1 2019 Growth 2020: (i) production, (ii) supply of components from subcontractors, and (iii) various impacts on demand Revenue 2,967 2,840 +4% Organic growth 3% 19% 3% organic growth Gross profit 1,668 1,754 -5% • Organic growth of 3% delivered in a challenging quarter Gross margin -5.6%p 56.2% 61.8% with very volatile end-markets -32% EBITA 300 439 EBITA margin -5.4%p 10.1% 15.5% • Strong product launches across both GN Audio (with Jabra -59% Profit before tax 139 342 Evolve2) and GN Hearing (with ReSound Assist Live and -60% Net profit 106 262 completion of the ReSound LiNX Quattro family) -60% EPS 0.78 1.96 • Cost variability limited in the quarter, leading to reduced ROIC * 21% 22% -1%p margins compared to Q1 2019 Free cash flow excl. M&A -160 -13 NA Cash conversion -53% -3% -50%p Sound balance sheet NIBD/EBITDA 2.3x 2.3x • Number of employees** 6,400 6,175 +4% Balance sheet remains sound with ample sources of liquidity *EBITA (rolling four quarters) / avg. invested capital ** Number of employees, end of period 4
Continued strong focus on cash flow DKKm GN Hearing 397 • GN Hearing’s free cash flow excl. M&A in Q1 2020 176 reflects lower revenue – Cost and working capital adjustments ongoing -27 -37 -66 -89 -125 -126 -134 -175 – Investing activities not impacted in the quarter Operating cash Change in Investing Tax and Free cash flow • GN Audio’s free cash flow excl. M&A in Q1 2020 flow before working capital activities* financial items excl M&A working capital reflects the strong revenue growth, especially Q1 19 Q1 20 towards the end of the quarter GN Audio – DKKm Working capital impacted by revenue being 356 skewed towards latter part of quarter 281 78 – Investing activities ongoing -15 -48 -63 -67 -78 -140 • Focused and prudent management of cash flow -282 continues Operating cash Change in Investing Tax and Free cash flow flow before working capital activities* financial items excl M&A working capital Q1 19 Q1 20 *Excluding M&A activities 5
Healthy balance sheet preserved Free cash flow excl. M&A GN Store Nord DKKm 655 517 -13 -160 -198 -190 -210 -241 -260 -246 Operating cash flow before Change in working capital Investing activities* Tax and financial items Free cash flow excl M&A working capital Q1 19 Q1 20 *Excluding M&A activities NIBD/EBITDA Equity ratio 49% 43% 38% 2.3x 2.3x 35% 1.9x 1.8x 1.7x 2.0x 30% 1.0x Q1’16 Q2’16 Q3’16 Q4’16 Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 Q1’19 Q2’19 Q3’19 Q4’19 Q1’20 Q1’16 Q2’16 Q3’16 Q4’16 Q1’17 Q2’17 Q3’17 Q4’17 Q1’18 Q2’18 Q3’18 Q4’18 Q1’19 Q2’19 Q3’19 Q4’19 Q1’20 6
Strong balance sheet with ample sources of liquidity to face challenges ahead • Diversified funding profile with the current Maturity profile (DKKbn) mid-term maturity profile means that GN has 2.5 flexibility with access to multiple sources of financing 2.0 – Convertible bond market 1.5 – Traditional bonds (EMTN program) 2.5 1.0 – Euro Commercial Paper program 1.6 0.1 – Bilateral loans from EIB and NIB 0.5 0.7 0.2 0.6 0.2 0.2 – Uncommitted bank facilities 0.1 0.0 Q2 2020 Q3 2020 Q4 2020 2021 2022 2023 2024 – Undrawn revolving credit facility • Commercial Papers NIB loan Bond To preserve the strong balance sheet, GN Bank loan EIB loan Convertible Bond has postponed new share buybacks and will sustain further flexibility by not cancelling shares for the time being 7
Short term and structural cost and cash flow initiatives across GN to mitigate impact from COVID-19 • Cost reduction program initiated across GN globally – implemented with respect for specific market needs • Focus on driving variability into cost base • Executing initiatives to maintain liquidity and cash, and to position GN for a strong rebound • Compensation reduction of 10% by – Executive Management and Board of Directors – Leadership teams of GN Hearing and GN Audio 8
Scenario-based planning approach for GN Hearing with identified triggers FY 2020 revenue (for illustration purposes only) • Reduced salaries – with and without reduced work weeks • Furloughs with local government reimbursements • ERP implementation paused • Ceasing external consultants and temps • Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Country-specific restructuring • Footprint optimization Normalized level Actual Trigger based scenario planning 9
Agenda Group highlights GN Hearing update GN Audio update Financial outlook 10
GN Hearing financial highlights Q1 2020 In Q1 2020, GN Hearing delivered -14% organic growth due to an accelerating impact from COVID-19 DKK million Q1 2020 Q1 2019 Growth • Organic growth of -14% in Q1 2020. Revenue growth of -13%, including impact of around 3% from FX and around -2% impact from M&A Revenue 1,314 1,507 -13% Organic growth -14% 8% • Gross margin lower due to extraordinary costs related to Gross profit 841 1,047 -20% reactive prudent measures in order to swiftly minimize supply Gross margin -5.5%p 64.0% 69.5% issues EBITA 55 282 -80% • The EBITA margin was 4.2% as a result of lower revenue level EBITA margin 4.2% 18.7% -14.5%p more than offsetting the OPEX reductions initiated by the end ROIC * 15% 18% -3%p of the quarter Free cash flow excl. M&A -66 -37 NA • Cash conversion -120% -13% -107%p Free cash flow excl. M&A of DKK -66 million, which reflects the lower revenue and traditional seasonality Number of employees** 4,450 4,575 -3% • COVID-19 setting the agenda *EBITA (rolling four quarters) / avg. invested capital ** Number of employees, end of period 11
Strong start to the year across all regions before they were impacted by the COVID-19 outbreak North America Europe Rest of World Strong start to the year on top of Strong start to the year observed Negatively impacted by COVID-19 the development in the VA. in Germany, Italy, Spain and the early in the quarter. COVID-19 outbreak significantly UK. COVID-19 impact was severe Signs of improvements observed impacted growth in March towards the end of the quarter GN Hearing taking actions to sustain its strong position in the market 12
Getting through COVID-19 Position GN Hearing to recover 1 stronger than ever post COVID-19 2 Business continuity 3 Structural changes 13
Position GN Hearing to recover stronger than ever post COVID-19 Example: ReSound Assist Live Return to the HCP Return to the to purchase and First HCP visit HCP for Daily First Fit Product for an evaluation adjusting the use onboarding fitting Via ReSound Assist Live: Current • Adjustments Expanding • Counseling customers • Troubleshooting routes to • Pre-programed hearing aids from current audiogram at home customers... Customers delivery • with ReSound Assist Live fine-tuning and counseling session and follow-up audiogram • In-office follow-up for full diagnostic testing when safe • HearX (US only) mobile testing curbside or in-home - program hearing aids in the office if curbside • In-office follow-up for full diagnostic testing when safe New customers with • In-situ hearing test in-home with pre-programmed hearing aids and program via ReSound Assist Live no audiogram • In-office follow-up for full diagnostic testing when safe 14
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