Interim Report Q2 2019 – Conference call presentation, August 22, 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 Q2 2019 GN Hearing update GN Audio update Financial outlook 3
Group financial highlights Q2 2019 Strong group performance with 16% organic growth DKK million Q2 2019 Q2 2018 Growth • Organic growth was 16%. Revenue growth was 19% including an impact of around 3% from FX and insignificant impact from M&A Revenue 3,051 2,564 +19% • Continued solid gross profit increase driven by strong Organic grow th 16% 11% business performance Gross profit 1,835 1,597 +15% Gross margin 60.1% 62.3% (2.2)%p • EBITA increased by 16%, driven by strong execution EBITA 523 452 +16% across GN Hearing and GN Audio EBITA margin 17.1% 17.6% (0.5)%p • Net profit reached DKK 305 million, a 7% increase Profit before tax 398 366 +9% compared to Q2 2018 Net profit 305 284 +7% • EPS growth of 9% – H1 2019 growth of 15% EPS 2.29 2.11 +9% ROIC * 23% 22% +1%p • Cash conversion of 90% in Q2 2019 Free cash flow excl. M&A 472 338 +40% • NIBD/EBITDA at 2.3x – slightly higher than long term Cash conversion 90% 75% +15%p target due to timing effects, but is expected to decrease NIBD/EBITDA 2.3x 1.7x during the year due to strong business performance * EBITA (rolling four quarters) / avg. invested capital 4
Strong cash flow generation • Continued strong development in operating DKKm GN Hearing cash flow based on the strong top-line growth 427 379 290 • Strong development in net working capital in GN 106 23 Hearing, whereas GN Audio is negatively -27 -22 -51 impacted by strong growth momentum -109 -224 Operating cash flow Change in working Investing activities* Tax and financial Free cash flow excl before working capital items M&A • Investing activities* less cash intensive than in capital DKKm Q2 2018, primarily driven by lower FSA activity in GN Audio 340 GN Hearing 289 271 232 77 • Significant increase in free cash flow , leading to a cash conversion of 90% compared to 75% in -1 -58 -16 -20 -72 Operating cash flow Change in working Investing activities* Tax and financial Free cash flow excl Q2 2018 before working capital items M&A capital DKKm GN Store Nord 740 628 472 338 49 -1 -37 -61 -206 -302 Operating cash flow Change in working Investing activities* Tax and financial Free cash flow excl before working capital capital items M&A Q2 18 Q2 19 *Excluding M&A 5
Exploiting attractive market conditions and de-risking the balance sheet Maturity profile (DKKm) • Refinancing of Convertible Bond ~7,300* resulted in extended debt profile, locked 955 in zero coupons, raised strike price to 112 112 250 DKK 474 and reduced equity dilution 112 559 with roughly 1 million shares 745 • Diversified funding profile with mid- 2,000 2,549 term maturity that provides flexibility based on strong cash-generative businesses • Sufficient flexibility achieved allowing June 2019 2020 2021 2022 2023 2024 for ongoing investments and the ongoing 2019 shareholder distributions Total debt Commercial papers Term loan NIB EIB RCF CB * Note: Total debt of DKK 5.3bn plus undrawn RCF of DKK 2bn 6
Agenda Group highlights Q2 2019 GN Hearing update GN Audio update Financial outlook 7
GN Hearing financial highlights Q2 2019 Strong performance across regions DKK million Q2 2019 Q2 2018 Growth • Organic growth of 8% driven by continued strong performance of ReSound LiNX Quattro across regions. Revenue growth of 11%, including impact of around Revenue 1,585 1,433 +11% 2% from FX and an insignificant impact from M&A Organic grow th 8% 6% • Gross margin at same level as in Q2 2018 Gross profit 1,090 988 +10% Gross margin 68.8% 68.9% (0.1)%p • The EBITA margin reached at 18.9% – slightly down EBITA 299 278 +8% compared to Q2 2018 driven by an adverse development in foreign exchange rates and ongoing EBITA margin 18.9% 19.4% (0.5)%p infrastructure investments ROIC * 18% 19% (1)%p • Free cash flow excl. M&A 290 106 +174% Free cash flow excl. M&A grew to DKK 290 million in Q2 2019, primarily driven by relatively lower FSA Cash conversion 97% 38% +59%p activity and a strong development in the net working * EBITA (rolling four quarters) / avg. invested capital capital as expected 8
The strong organic growth of 8% was driven across regions and countries Leading technology and commercial excellence driving growth in 2019 Europe North America Rest of World Strong performance across the Strong performance across region with particular strong Continued strong growth with channels, partly off-set by the loss performance in Germany, Spain China and Japan as the main of one larger customer. Significant and UK drivers organic growth in the VA Strongly positioned for the rest of the year 9
Case study – Japan ( 日本 ) Market characteristics* World’s 3rd largest High ASP market Market growth in GN market share ~ 600k annual units units (CAGR) of ~20% ~ 4% of global units ~1% 2015-2018 ~ 7% of global value ~3% H1 2019 Share gains driven by structured commercial execution • Organization driving a data-driven commercial excellence implementation with a clear focus on increasing effectiveness and efficiency of the sales force • Market leading technology supporting customer satisfaction • GN delivered strong double-digit organic growth in Q2 2019 *Rough numbers based on market statistics from JHIMA 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 more than 50 countries world-wide (incl. Australia, France, Germany, Italy, Japan, UK, US, Spain) • Strong customer feedback focusing on superior sound quality and a state-of-the-art rechargeable solution • In the VA, ReSound LiNX Quattro has a market share of 23% in the rechargeable category as of July 2019; underpinning the strong product offering 11
”This is better than anything I’ve heard in a long time. What I’ve got is a more complete auditory environment. This is pretty impressive.” Andrew Hugill on ReSound LiNX Quattro Composer and musicologist 12
Leader in Connectivity: Google continues to push the importance of connectivity 13
Agenda Group highlights Q2 2019 GN Hearing update GN Audio update Financial outlook 14
GN Audio financial highlights Q2 2019 GN Audio delivered 26% organic growth in Q2 2019, DKK million Q2 2019 Q2 2018 Growth driven by exceptionally strong performance in both the CC&O business and the consumer business Revenue 1,466 1,131 +30% • Organic growth of 26%. Revenue growth of 30%, Organic grow th 26% 19% including impact of around 3% from FX and around 1% Gross profit 745 609 +22% from M&A Gross margin 50.8% 53.8% (3.0)%p EBITA (reported) 268 207 +29% • Strong performance across CC&O and consumer EBITA margin (reported) 18.3% 18.3% - • Gross margin down driven by mix effects and FX Transaction related costs (7) 0 EBITA (before transaction related costs) 275 207 +33% • EBITA increased 29% after transaction related costs EBITA margin (before transaction related costs) 18.8% 18.3% +0.5%p reflecting strong revenue growth and operational ROIC * 51% 51% - leverage. Strong underlying development despite Free cash flow excl. M&A 232 289 (20)% continued investments in future growth opportunities Cash conversion 87% 140% (53)%p • In Q2 2019, the free cash flow excl. M&A was DKK 232 * EBITA (rolling four quarters) / avg. invested capital million, compared to DKK 289 million in Q2 2018 15
Strong and broad-based organic growth in CC&O continues Leading technology and commercial excellence drives growth across geographies in Q2 2019 North America Europe Rest of World Solid organic growth driven by GN Continued strong organic growth Strong organic growth across Audio’s strong professional across the region. Fastest growing countries product portfolio region in Q2 2019 GN Audio’s professional business continues its strong momentum 16
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