Demant

Annual Report (ESEF) • Feb 6, 2024

Untitled Annual Report 2023 Demant A/S Kongebakken 9 2765 Smørum Denmark CVR no. 71186911 1 January – 31 December 2023 Louise, Clinical specialist, mountain climber and Oticon hearing aid user Insights and highlights Our business Corporate information Financial report Back to content Key figures and financial ratios Demant – Annual Report 2023 1 Insights and highlights CEO letter 4 This is Demant 6 Purpose and strategy 7 Highlights in 2023 10 2023 in brief 11 Sustainability 13 Group financial review 16 Financial outlook 24 Our business Hearing Healthcare 27 Hearing Aids 30 Hearing Care 33 Diagnostics 35 Communications 37 EPOS 38 Corporate information Shareholder information 42 William Demant Foundation 45 Risk management activities 46 Corporate governance 50 Executive Board 53 Board of Directors 54 Financial report Management statement 57 Independent auditor’s report 58 Consolidated financial statements 62 Notes to consolidated financial statements 68 Parent financial statements 125 Contents Click the images to read more https://www.demant.com/reports- 2023/sustainability-report-2023 https://www.demant.com/reports- 2023/corporate-governance-report-2023 https://www.demant.com/reports- 2023/remuneration-report-2023 Insights and highlights Our business Corporate information Financial report Back to content CEO Letter Demant – Annual Report 2023 2 (DKK million) 2023 2022 2021 2020 2019 Cash flow statement Adjusted cash flow from operating activities (CFFO) 4,335 2,622 3,593 2,710 2,149 Cash flow from operating activities (CFFO) 4,335 2,622 3,593 2,621 2,149 Investment in property, plant and equipment, net 633 630 547 493 561 Free cash flow 3,483 1,617 2,838 2,023 1,338 Share buy-backs 846 1,840 3,200 197 946 Other key figures Gearing multiple (NIBD/EBITDA) 2.2 2.9 1.9 2.8 2.6 Earnings per share (EPS), DKK – continuing operations 11.44 10.06 11.48 4.68 6.00 Earnings per share (EPS) 8.04 9.21 10.70 4.68 6.00 Free cash flow per share (FCFPS) 15.61 7.15 12.09 8.44 5.49 Share price, end of period 296.00 192.55 335.10 240.60 209.80 Average number of shares outstanding 223.13 226.01 234.82 239.78 243.55 Average number of employees 21,168 19,239 16,866 16,155 15,352 Scope 1 and 2 CO2e emissions (tonnes)² 30,469 35,862 31,721 27,335 28,433 Group renewable electricity share (%) 21 - - - - CEO remuneration ratio 48 39 38 35 34 Gender diversity, Board of Directors (women/men) 40/60% 40/60% 40/60% 40/60% 20/80% Gender diversity, all managers (women/men) 47/53% 44/56% 43/57% 42/58% 41/59% Gender diversity, top-level management (women/men) 27/73% 23/77% 22/78% - - Gender diversity, top-level management teams (on/off target) 79/21% 71/29% 63/35% - - 1 EBIT for Communications in 2019 relates to the Group’s share of profit after tax from our former joint venture Sennheiser Commu- nications. 2 2019-2022 were restated in order to recognise new acquisitions. We refer to section 9.1 for a description of the accounting policies for key figures and financial ratios. (DKK million) 2023 2022 2021 2020 2019 Cash flow statement Key figures and financial ratios – year (DKK million) 2023 2022 2021 2020 2019 Hearing Healthcare Revenue 21,601 18,645 16,722 13,163 14,946 Organic growth 14% 5% 31% -13% 4% Gross margin 75.6% 76.1% 77.1% 73.6% 75.8% Operating profit (EBIT) 4,506 3,443 3,626 1,211 2,085 EBIT margin 20.9% 18.5% 21.7% 9.2% 14.0% Communications Revenue 842 1,060 1,183 1,306 - Organic growth -19% -13% -9.0% - - Gross margin 26.6% 45.0% 48.3% 50.3% - Operating profit (EBIT)¹ -358 -236 -122 102 66 EBIT margin -42.5% -22.3% -10.3% 7.8% - Group Income statement Revenue 22,443 19,705 17,905 14,469 14,946 Organic growth 12% 4% 27% -13% 4% Gross margin 73.7% 74.4% 75.2% 70.4% 75.8% EBITDA 5,482 4,383 4,730 2,578 3,110 EBITDA margin 24.4% 22.2% 26.4% 17.8% 20.8% Adjusted EBIT 4,148 3,207 3,504 1,313 2,151 Adjusted EBIT margin 18.5% 16.3% 19.6% 9.1% 14.4% Operating profit (EBIT) 4,148 3,207 3,663 1,530 2,151 EBIT margin 18.5% 16.3% 20.5% 10.6% 14.4% Net financial items -754 -280 -202 -194 -240 Profit after tax - continuing operations 2,555 2,276 2,711 1,134 1,467 Profit after tax - discontinued operations -757 -192 -183 - - Profit for the year 1,798 2,084 2,528 1,134 1,467 Balance sheet Total assets 30,546 29,857 24,860 21,927 21,798 Net interest-bearing debt (NIBD) 12,280 12,711 9,150 7,135 8,185 Equity 9,338 8,562 7,981 8,279 7,645 The Hearing Implants business was recognised as a discontinued operation in 2022 and 2023, and comparative figures for 2021 in the income statement and cash flow statement as well as related key figures and financial ratios excluding organic growth were restated. Insights and highlights Our business Corporate information Financial report Back to content CEO Letter Demant – Annual Report 2023 3 H2 2023 H1 2023 H2 2022 H1 2022 H2 2021 H1 2021 Balance sheet Total assets 30,546 29,833 29,857 27,335 24,860 23,579 Net interest-bearing debt (NIBD) 12,280 12,197 12,711 10,986 9,150 8,573 Equity 9,338 8,990 8,562 8,184 7,981 7,796 Cash flow statement Cash flow from operating activities (CFFO) 2,472 1,863 1,707 915 2,000 1,593 Investment in property, plant and equipment, net 327 306 329 301 340 207 Free cash flow 1,993 1,490 1,219 398 1,522 1,316 Share buy-backs 829 17 533 1,307 1,387 1,813 Other key figures Gearing multiple (NIBD/EBITDA) 2.2 2.5 2.9 2.4 1.9 1.8 Earnings per share (EPS), DKK – continuing operations 5.81 5.63 4.99 5.07 6.40 5.08 Earnings per share (EPS) 5.44 2.60 4.61 4.60 5.76 4.94 Free cash flow per share (FCFPS) 8.93 6.68 5.40 1.75 6.55 5.54 Share price, end of period 296.00 288.50 192.55 266.30 335.10 353.00 Average number of shares outstanding 223.13 223.17 224.06 227.98 232.59 237.66 Average number of employees 21,413 20,922 20,349 18,130 17,161 16,572 Scope 1 and 2 CO2e emissions (tonnes)¹ 14,973 15,496 18,218 17,644 15,454 16,267 Gender diversity, Board of Directors (women/men) 40/60% 40/60% 40/60% 40/60% - - Gender diversity, all manag- ers (women/men) 47/53% 47/53% 44/56% 44/56% - - The Hearing Implants business was recognised as a discontinued operation in 2022 and 2023, and comparative figures for 2021 in the income statement and cash flow statement as well as related key figures and financial ratios, excluding organic growth, were restated. We refer to section 9.1 for a description of the accounting policies for key figures and financial ratios. Key figures and financial ratios – half-year (DKK million) H2 2023 H1 2023 H2 2022 H1 2022 H2 2021 H1 2021 Hearing Healthcare Revenue 10,907 10,694 9,700 8,945 8,597 8,125 Organic growth 13% 15% 5% 6% 14% 55% Gross margin 76.1% 75.0% 75.9% 76.4% 77.6% 76.6% Operating profit (EBIT) 2,344 2,162 1,748 1,695 1,908 1,718 EBIT margin 21.5% 20.2% 18.0% 18.9% 22.2% 21.1% Communications Revenue 381 461 508 552 562 621 Organic growth -22% -15% -13% -14% -27% 16% Gross margin 17.8% 33.8% 43.9% 45.9% 48.2% 48.3% Operating profit (EBIT) -210 -148 -129 -107 -78 -44 EBIT margin -54.9% -32.1% -25.4% -19.3% -13.9% -7.1% Group Income statement Revenue 11,288 11,155 10,208 9,497 9,159 8,746 Organic growth 11% 13% 3% 4% 10% 51% Gross margin 74.2% 73.3% 74.3% 74.6% 75.8% 74.5% EBITDA 2,820 2,662 2,255 2,128 2,543 2,187 EBITDA margin 25.0% 23.9% 22.1% 22.4% 27.8% 25.0% Adjusted EBIT 2,134 2,014 1,619 1,588 1,830 1,674 Adjusted EBIT margin¹ 18.9% 18.1% 15.9% 16.7% 20.0% 19.1% Operating profit (EBIT) 2,134 2,014 1,619 1,588 1,989 1,674 EBIT margin 18.9% 18.1% 15.9% 16.7% 21.7% 19.1% Net financial items -395 -359 -185 -95 -101 -101 Profit after tax – continuing operations 1,297 1,258 1,118 1,157 1,495 1,216 Profit after tax – discontin- ued operations -81 -676 -84 -107 -150 -33 Profit for the period 1,216 582 1,035 1,050 1,345 1,183 1 2021-2022 were restated in order to recognise new acquisitions. Insights and highlights Our business Corporate information Financial report Back to content CEO Letter Demant – Annual Report 2023 4 The challenges that we address in our in- dustry are chronical, and the people seg- ment we predominantly serve, the elderly, is growing. Therefore, the treatment of hearing loss and the care for people living with hearing loss require our continuous attention and consistent focus on innova- tive technology and care. For Real If anything, 2023 has confirmed that when we work with the core of hearing healthcare innovation and strive for tech- nological advances to make our products respond faster and handle complex listen- ing situations, we produce solutions that provide strong benefits for the users. This was clearly demonstrated in our broad range of new hearing aids intro- duced early in 2023 in all brands. Especially Oticon Real swept the table and became a first choice for users and cus- tomers and thus helped drive significant market share gains and outstanding or- ganic growth of 21% in Hearing Aids. For users, the most important aspect of hearing aids remains the ability to hear clearly in all listening environments, and we work tirelessly to solve this challenge. Artificial Intelligence (AI) is an important means of addressing this and improving the user experience. We use AI to train our devices to seek out, balance and deliver the best and most useful sounds to the user. We introduced our first Deep Neural Network a few years ago, and in our very latest chip platform, we have taken this technology further and implemented the next generation of AI, which we expect will truly benefit users in the future. While we continue to improve rechargea- ble battery technology and connectivity in our devices, we are especially proud to in- troduce further audiological advancements with the imminent launch of new hearing aids in all our brands. Based on the intro- duction of new sensors, which can now detect and support the user’s listening in- tentions, Oticon Intent™ will provide fur- ther benefits to users – especially in complex and dynamic listening situations. This is further supported by the introduc- tion of the second generation of our Deep Neural Network technology. These efforts contribute to the impact we strive to achieve with our hearing healthcare solu- tions: To enable people with hearing loss to enjoy a socially engaging life. CEO letter For Demant, 2023 was a year of innovative launches and remarkable growth, cementing our high relevance to users and customers world- wide. While the year started with uncertain market conditions, we saw a quickly improving market, returning to normal growth rates. I am proud to see how we were able to adapt to this normalisation after years of volatility, translating it into high performance and market share gains. The Group delivered significant 12% organic revenue growth and a strong operating profit of more than DKK 4.1 billion, and Hearing Healthcare delivered 14% organic revenue growth. Twice during the year, we lifted our guidance. And just as importantly, we created life- changing differences for more people living with hearing loss than ever before. Insights and highlights Our business Corporate information Financial report Back to content CEO Letter Demant – Annual Report 2023 5 Groundbreaking hearing test However, before any technological assis- tance becomes relevant, it is necessary to know how the individual hearing loss should be alleviated. Based on ten years of research performed by our Interacoustics Research Unit, our Diagnostics business area launched a new groundbreaking di- agnostic test method in 2023, the Audible Contrast Threshold TM , ACT. The new test method offers the possibility to diagnose how well the user is able to hear speech in noise and enables the hear- ing care professional to fit the hearing aids even more accurately to individual needs than before. We believe that in the future, the two-fold diagnosing of hearing loss, the classic au- diogram and the new Audible Contrast Threshold TM , will provide an added benefit for customers and users. Generally, our Di- agnostics business area delivered solid growth in 2023 on top of a very strong previous year, while also launching new products and inaugurating a brand new production site in Poland. In our view, alleviating hearing loss starts with the hearing care professional, who delivers professional and personalised care. The social and human aspect of hearing must not be neglected, and that is why we always put the individual at the centre of our work. We strive to under- stand their needs and preferences, while offering the best technology to support this. We continue to welcome more and more people into our clinics, and our Hearing Care business area delivered solid growth in 2023. A more focused Demant 2023 has also confirmed our belief that when we operate a more focused busi- ness, we can increase our positive impact, enhance our performance and exceed our customers’ expectations. On the Hearing Implants side, we pro- ceeded with the divestment of Oticon Medical, which has been amended in scope to only include the cochlear implants part of the business area. Since the bone anchored hearing systems business is no longer part of the transaction, the business will remain with the Group for now, pend- ing a review of our strategic options. In a difficult market, our Communications business area had a tough year with neg- ative growth and profits, impacting the Group’s overall performance. In 2023, we therefore took the decision to focus EPOS’ activities on its Enterprise Solutions busi- ness, and we have gradually wound down our Gaming business. With this change and other cost reduction measures, the business is now on a path back to profita- bility. In the light of this, we have decided that now is a good time to explore whether a different owner may be better positioned to accelerate growth for Com- munications and to allow the business to realise its full potential. We have thus de- cided to undertake a review of strategic options for the business area and expect this review to be completed by the end of the first half of 2024. Hand in hand In 2023, we sharpened our ambition: As the leading hearing healthcare company to improve as many lives as possible. Clearly, we do so every day with our solutions, but we also have an obligation to broaden our scope. Caring for people’s health and well- being goes hand in hand with caring for society and the planet. We take part in the world’s transition to net zero CO2 emissions and continue to integrate our climate strategy into our business and operations. Our ambitious targets for CO2 emissions reductions got the green light from the Science Based Targets initiative in 2023. We can certainly move the needle as far as reducing our own direct and indirect emissions are con- cerned, but we cannot do it alone in our value chain, and in 2023, we increased collaboration with our suppliers. Nations, companies like Demant and consumers must all take part in fighting climate changes and collaborate on initiatives to urgently reduce global emissions. Another goal of ours is to increase the di- versity of our organisation. I am happy to see us develop in a more diverse direction. It is my experience that a diverse culture strengthens our innovation power and our collaboration. In fact, it is a prerequisite for success in a highly complex and dynamic world. I would like to extend my thanks to our customers, employees and shareholders. We are very grateful for your trust and loy- alty throughout 2023. You have been an integral part of our success, and we are committed to continuing to deliver world- class customer experiences, an engaging work culture and attractive financial re- turns. Looking towards 2024, I expect the nor- malisation we saw in 2023 to continue, and I am confident that Demant will stay on this growth journey and continue to provide life-changing hearing health to even more users in 2024. Søren Nielsen When you work with the core of hearing healthcare innovation and strive for technological advances, you also get solutions that provide strong benefits for the users. Insights and highlights Our business Corporate information Financial report Back to content This is Demant Demant – Annual Report 2023 6 Demant is a global hearing healthcare and audio technology company that operates subsidiaries in more than 30 countries and sells products in more than 130 countries. To help people connect and communicate with the world around them, the Group of- fers solutions and services in four business areas: Hearing Care, Hearing Aids and Diagnostics, which together constitute the Hearing Healthcare segment, and Com- munications. Value chain We are active throughout the entire value chain from R&D to the final fitting of users around the world. Also, in our hearing care clinics, we support hearing aid users on their journey from awareness to fitting and adapting to a life with hearing aids. In short, we create life-changing differences through hearing health. Hearing aid user journey One in five people live with hearing loss, a number that will increase in the future due to an ageing population. However, there are material barriers to wider adoption of hearing aids, such as lack of awareness and stigma. In our view, alleviating hearing loss starts with the hearing care profes- sional, who delivers personalised care, consisting of diagnosing, fitting and ren- dering support based on the individual’s needs. We believe that people prefer per- sonal counselling to find the best treat- ment rather than seeking hearing solutions without this assistance. This is Demant Demant’s value chain Key steps in the hearing aid user journey             The Group has decided to undertake a review of strategic options for its Communications business area. Insights and highlights Our business Corporate information Financial report Back to content This is Demant Demant – Annual Report 2023 7 Purpose and strategy Insights and highlights Our business Corporate information Financial report Back to content Purpose and strategy Demant – Annual Report 2023 7 The Demant Group is built on a heritage of care, health and inno- vation since 1904. Our shared purpose is to create life-changing differences through hearing health. With our innovative technologies and services, we are let into peo- ple’s lives and are involved in some of the most important aspects of their lives by offering the possibility to be actively engaged without con- straints. My hearing aids expand my possibilities to engage in the free life with leisure activities, get-togethers, travels and time with family and not least grandchildren. Steen, pensioner, pilot Insights and highlights Our business Corporate information Financial report Back to content Purpose and strategy Demant – Annual Report 2023 8 Our strategy Leading hearing healthcare Demant is a hearing healthcare and audio technology company, and our strategy is based on a deep understanding of the fun- damental issues of hearing loss and the people who live with it. We develop and provide professional hearing healthcare centred on personal- ised counselling and innovative solutions. Across our Hearing Healthcare segment, we are focused on delivering diagnostic solutions, hearing aids and professional counselling and services with a view to im- proving people’s hearing health. As part of our strategy, we are committed to continu- ing to invest heavily in R&D and further ex- panding the distribution of our products in both existing and new markets going for- ward. In our Communications segment, we de- velop high-quality communication solu- tions for enterprises. We are currently re- viewing strategic options for this business area and exploring whether a different owner may be better positioned to acceler- ate growth. Our ambition As a leading hearing healthcare company, our ambition is to improve as many lives as possible. Our ambition goes hand in hand with our purpose to create life-changing differences through hearing health. In doing so, we contribute to building a more sus- tainable world where more people have the opportunity to enjoy an active life. Our ambition translates into clear commit- ments towards our main stakeholders: Customers: Deliver a world-class customer and user experience that exceeds expecta- tions. Employees: Pursue an engaging, inclusive and innovative work culture, enabling em- ployees to develop and grow. Investors: Drive attractive financial returns and growth based on a resilient business model. We are active in markets – with several major players, intense competition and a high level of innovation – that will continue to grow in the foreseeable future due to the demographic development. In these markets, our strategy is to operate multiple businesses that create value-adding syn- ergies. To obtain the benefit of economies of scale, our clear goal is to grow faster than the underlying markets with a view to win- ning market shares over time through both organic and acquisitive growth. Our operating model Our operating model ensures that we re- main focused on excelling in the different business areas, while – equally important – harvesting synergies across the Group and maintaining a resilient business model. With our business areas’ common under- standing of technology, innovation is the core of our operating model, and we will continue to focus on value-adding collabo- ration between the R&D functions of our individual business areas. With sales companies and hearing care clinics all over the world, the Group bene- fits from a strong global distribution set- up, which enables us to continuously in- crease our reach to a variety of countries, markets and customer segments, thereby expanding our business. Our global shared services support each business area and provide a robust infra- structure within the Group, allowing each business area to benefit from economies of scale. All our business areas have dedicated or- ganisations to enable them to service their individual markets, ensure a customer- centric approach and execute their specific strategic initiatives. The organisation and operating model combined support a strong collaboration culture across our business areas. Insights and highlights Our business Corporate information Financial report Back to content This is Demant Demant – Annual Report 2023 9 Demant – Annual Report 2023 9 These devices can help me distinguish a baby crying from the crack- les that wood makes when it burns – that ability could help me save a life! Clare, firefighter Insights and highlights Our business Corporate information Financial report Back to content Highlights in 2023 Demant – Annual Report 2023 10 Demant sets ambitious 2025 target for renewable electricity Oticon releases new premium hearing aids Oticon Real TM Philips Hearing Solutions releases the HearLink 40 hearing aids Audika doubles its presence in Belgium after recent acquisition Celebrating World Hearing Day Grand opening of the new Diagnostics production facility in Poland Increasing the awareness of hearing healthcare in China Demant’s climate targets get the green light Interacoustics launches new breakthrough Audible Contrast Threshold TM hearing test EPOS and Lenovo announce partnership to deliver professional audio solutions Highlights in 2023 Read more at demant.com/about/latest-news Insights and highlights Our business Corporate information Financial report Back to content This is Demant Demant – Annual Report 2023 11 2023 in brief Demant Group FY 2023 REVENUE 22,443 DKK MILLION Q2 REVENUE 9,083 DKK MILLION Hearing Care Hearing aid retail activities with +3,500 clinics worldwide Hearing Aids Development, production and wholesale of hearing aids REVENUE 10,036 DKK MILLION REVENUE 2,482 DKK MILLION REVENUE 842 DKK MILLION Diagnostics Diagnostic instruments, services and disposables Communications High-end audio and video solutions for enterprises Financial results shown for continuing operations Hearing Healthcare REVENUE 21,601 DKK MILLION Revenue and organic growth by geographic region in 2023 North America: Revenue: DKK 9,236 million Organic growth: 14% Europe: Revenue: DKK 9,137 million Organic growth: 9% Asia: Revenue: DKK 2,331 million Organic growth: 24% Other: Revenue: DKK 636 million Organic growth: 9% Pacific region: Revenue: DKK 1,103 million Organic growth: 8% Insights and highlights Our business Corporate information Financial report Back to content 2023 in brief Demant – Annual Report 2023 12 Hearing Healthcare Communications Demant Group GROWTH 17% IN LOCAL CURRENCIES EBIT MARGIN -42.5% EBIT MARGIN 20.9% EBIT -358 DKK MILLION EBIT 4,148 DKK MILLION EBIT MARGIN 18.5% Outlook in 2024 (continuing operations) ORGANIC GROWTH 4-8% EBIT 4,600-5,000 DKK MILLION SHARE BUY-BACKS >2,000 DKK MILLION EBIT 4,506 DKK MILLION GROWTH -19% IN LOCAL CURRENCIES GROWTH 15% IN LOCAL CURRENCIES Group key figures EMPLOYEES 21,623 1.4 DKK BILLION INVESTED IN R&D Cash flow from operating activities Earnings per share EPS 11.44 DKK CFFO 4.3 DKK BILLION Financial results shown for continuing operations Insights and highlights Our business Corporate information Financial report Back to content This is Demant Demant – Annual Report 2023 13 Sustainability Insights and highlights Our business Corporate information Financial report Back to content Sustainability Demant – Annual Report 2023 13 Through life-changing hearing health, we contribute to building a more sustainable world where all people have the opportunity to enjoy an active life. One in five people live with hearing loss and, due to an ageing population, this number is increasing. Testing your hearing is the first step towards better hearing, but many hearing losses go un- detected. If we can enable more people to hear better, we can give them a voice and thus the opportunity to be part of society without con- straints. We empower them to tune in to life and take an active part in their community for the good of everyone. Insights and highlights Our business Corporate information Financial report Back to content Sustainability Demant – Annual Report 2023 14 The difference we make for people living with hearing loss is our most important contribution to society and to a more sus- tainable world. The business areas in De- mant bring their expertise and innovative solutions within all aspects of hearing health to millions of people around the world and deliver on our ambition to im- prove as many lives as possible. Life-changing impact In 2023, we continued to increase our positive impact on society, bringing quality of life to people through life-changing hearing health. Read more in accounting policies on page 63 in the Sustainability Report 2023. Insights and highlights Our business Corporate information Financial report Back to content Sustainability Demant – Annual Report 2023 15 We identified the material ESG issues and opportunities from an impact and financial perspective. We have looked at our current and potential positive and negative impact on society and at the financial impacts and risks that the topics present to our busi- ness in the short, medium and long term. The assessment confirms our positive im- pact on society: We bring life-changing differences through hearing health to the global community of people living with hearing loss. The assessment also sheds light on other impacts and opportunities for Demant as well as on areas where we risk having a negative impact on society and nature. In Demant’s Sustainability Report 2023, we describe how we manage our material topics and risks. Sustainability reporting Demant publishes a separate Sustainabil- ity Report that serves as the statutory re- port to be presented under sections 99a, 99d and 107d of the Danish Financial Statements Act. It also includes the disclo- sure requirements of the EU taxonomy for sustainable activities. The full Sustainability Report is available on our website or via the full link on page 2 of this report. Material sustainability topics In 2023, we conducted a double materiality assessment that will guide strategic decisions and reporting going forward. Material topics Environment Social Governance • Climate action • Circular economy • Climate mitigation • Providing life-changing hearing health • Positive outcomes of treatment and technology • Employee engagement, retention and attraction • Diversity, equity, inclusion and wellbeing • Product quality • Sustainable supply chain • Work creation and optimisation • Health and safety • Business ethics • Supplier relations • Advocacy for hearing health • Data ethics • Cyber security • Intellectual property Sustainability performance and targets Performance Targets 2023 2025 2030 2050 Diversity, equity and inclusion Share of women in top-level manage- ment 27% 30% Share of top-level management teams with less than 75% of one gender 79% 75% Climate action Share of renewable electricity 21% 50% 100% Reduction in scope 1 and 2 CO2e emissions +7% -46% Net-zero emissions Compared to 2019 baseline. Insights and highlights Our business Corporate information Financial report Back to content Group financial review Demant – Annual Report 2023 16 Group financial review 3% FY (DKK million) Hearing Healthcare 2023 Communi- cations 2023 Group 2023 Group 2022 Group growth Revenue 21,601 842 22,443 19,705 14% Production costs -5,281 -618 -5,899 -5,036 17% Gross profit 16,320 224 16,544 14,669 13% Gross margin 75.6% 26.6% 73.7% 74.4% R&D costs -1,226 -184 -1,410 -1,314 7% Distribution costs -9,554 -363 -9,917 -9,232 7% Administrative expenses -1,102 -36 -1,138 -1,038 10% Share of profit after tax, associates 68 1 69 122 -43% Operating profit (EBIT) 4,506 -358 4,148 3,207 29% EBIT margin 20.9% -42.5% 18.5% 16.3% Insights and highlights Our business Corporate information Financial report Back to content Group financial review Demant – Annual Report 2023 17 H1 (DKK million) Hearing Healthcare 2023 Communi- cations 2023 Group 2023 Group 2022 Group growth Revenue 10,694 461 11,155 9,497 17% Production costs -2,677 -305 -2,982 -2,414 24% Gross profit 8,017 156 8,173 7,083 15% Gross margin 75.0% 33.8% 73.3% 74.6% R&D costs -607 -99 -706 -651 8% Distribution costs -4,726 -188 -4,914 -4,394 12% Administrative expenses -562 -17 -579 -507 14% Share of profit after tax, associates 40 - 40 57 -30% Operating profit (EBIT) 2,162 -148 2,014 1,588 27% EBIT margin 20.2% -32.1% 18.1% 16.7% H2 (DKK million) Hearing Healthcare 2023 Communi- cations 2023 Group 2023 Group 2022 Group growth Revenue 10,907 381 11,288 10,208 11% Production costs -2,604 -313 -2,917 -2,622 11% Gross profit 8,303 68 8,371 7,586 10% Gross margin 76.1% 17.8% 74.2% 74.3% R&D costs -619 -85 -704 -663 6% Distribution costs -4,828 -175 -5,003 -4,838 3% Administrative expenses -540 -19 -559 -531 5% Share of profit after tax, associates 28 1 29 65 -55% Operating profit (EBIT) 2,344 -210 2,134 1,619 32% EBIT margin 21.5% -54.9% 18.9% 15.9% Insights and highlights Our business Corporate information Financial report Back to content Group financial review Demant – Annual Report 2023 18 Introduction As a result of the decision to discontinue the Hearing Implants business, this former business area is recognised as a discontin- ued operation. As announced on 5 Febru- ary 2024, the Group has decided to under- take a review of strategic options for Com- munications, but for 2023, the business is recognised as a separate business seg- ment and as part of the Group’s continuing operations. For detailed financial reviews of our Hear- ing Healthcare and Communications seg- ments, please refer to page 27 and 37, respectively. Revenue For the full year, Group revenue amounted to DKK 22,443 million, corresponding to a growth rate of 15% in local currencies. Or- ganic growth was 12%, which is above our initial expectations but within the most recent organic growth guidance of 12- 13% for 2023. Acquisitive growth was 3%, and exchange rates had an impact on rev- enue of -1%, which includes the effect of exchange rate hedging. Total reported growth for 2023 was 14%. Revenue for H2 amounted to DKK 11,288 million, corresponding to a growth rate of 13% in local currencies. Organic growth was 11%, which was entirely driven by Hearing Healthcare, and growth from ac- quisitions was 2%. Exchange rates nega- tively impacted revenue by 3%, and total reported growth for H2 was 11%. In terms of geography, Europe saw good organic growth in H2 driven by the UK and Germany, the latter being supported by acquisitions. Organic growth in France was slightly negative, as the market con- tinued to normalise following the initial boost in demand from the hearing healthcare reform implemented in 2021. North America saw very strong organic growth thanks to both the US, in part helped by low comparative figures, and Canada, but exchange rate effects were negative. Growth rates by business segment H1 2023 H2 2023 FY 2023 Hearing Healthcare Organic 15% 13% 14% Acquisitions 4% 2% 3% Local currencies 19% 15% 17% FX 1% -3% -1% Total 20% 12% 16% Communications Organic -15% -22% -19% Acquisitions 0% 0% 0% Local currencies -15% -22% -19% FX -1% -3% -2% Total -16% -25% -21% Group Organic 13% 11% 12% Acquisitions 4% 2% 3% Local currencies 17% 13% 15% FX 1% -3% -1% Total 18% 11% 14% HEARING HEALTHCARE 21,601 DKK MILLION (+16%) COMMUNICATIONS 842 DKK MILLION (-21%) GROUP REVENUE 22,443 DKK MILLION (+14%) Insights and highlights Our business Corporate information Financial report Back to content Group financial review Demant – Annual Report 2023 19 In Asia, several markets saw very strong organic growth in H2 and Japan delivered good contribution to growth. Organic growth in China was particularly strong in Q4, supported by softer comparative fig- ures as a result of the coronavirus situa- tion in 2022. Despite delivering growth, performance in China remained below our original expectations. Revenue growth in the region was negatively impacted by ex- change rate effects. We saw solid organic growth in both the Pacific region and in our Rest of world re- gion, the latter driven primarily by strong performance in several markets in South America. Five-year gross profit (DKK million) 2019-2020 figures have not been restated to reflect the dis- continuation of Hearing Implants, but have been adjusted for one-offs. Gross profit The Group’s gross profit increased by 13% to DKK 16,544 million in 2023, correspond- ing to a gross margin of 73.7%. This is a decrease of 0.7 percentage point com- pared to 2022, primarily due to exchange rate effects in H1 and a significant decline in the gross margin in Communications. In H2, the Group’s gross profit amounted to DKK 8,371 million, corresponding to an increase of 10% compared to H2 2022 and resulting in a gross margin of 74.2%, a decline of 0.1 percentage point. While the gross margin improved compared to H1, we continued to see a significant dilution in Communications due to promotional ac- tivities and, in particular, to our decision to wind down our Gaming activities. Operating expenses (OPEX) For the full year, OPEX increased by 10% in local currencies of which 6 percentage points relate to organic growth and 4 per- centage points to acquisitive growth. In H2, OPEX growth was 7% in local cur- rencies. In organic terms, OPEX increased by 3%, reflecting ongoing investments in Hearing Healthcare, as we continued to focus on R&D to drive innovation and en- sure continuous technological leadership. In terms of business segments, OPEX growth in Hearing Healthcare was some- what offset by significant cost cutting measures in Communications following previously announced redundancies. In H2, the Group saw an impact of 4% on OPEX from acquisitions related to Hearing Care and Diagnostics, while exchange rate effects were -3%. 11,325 10,340 13,458 14,669 16,544 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 2019 2020 2021 2022 2023 Revenue by geographic region Change (DKK million) H2 2023 H2 2022 DKK LCY Org. Europe 4,609 4,092 13% 12% 8% North America 4,664 4,203 11% 15% 15% Asia 1,142 1,063 7% 18% 16% Pacific region 550 550 0% 7% 7% Rest of world 323 300 8% 9% 8% Total 11,288 10,208 11% 13% 11% OPEX by function Change (DKK million) H2 2023 H2 2022 DKK LCY Org. R&D costs 704 663 6% 7% 6% Distribution costs 5,003 4,838 3% 7% 3% Administrative expenses 559 531 5% 11% 3% Total 6,266 6,032 4% 7% 3% Revenue by geographic region H2 2023 Europe 41% North America 41% Asia 10% Pacific region 5% Rest of world 3% Insights and highlights Our business Corporate information Financial report Back to content Group financial review Demant – Annual Report 2023 20 Five-year OPEX (DKK million) 2019-2020 figures have not been restated to reflect the dis- continuation of Hearing Implants, but have been adjusted for one-offs. Operating profit (EBIT) The Group’s reported EBIT amounted to DKK 4,148 million in 2023, which corre- sponds to an EBIT margin of 18.5%. In H2, EBIT was DKK 2,134 million, an in- crease of 32%. Hearing Healthcare con- tributed DKK 2,344 million and Communi- cations DKK -210 million. The resulting EBIT margin for H2 was 18.9%, which is an increase of 3.0 percent-age points. The significant increase in EBIT margin was entirely driven by Hearing Healthcare, par- ticularly due to material operating leverage in Hearing Aids, whereas Communications delivered below expectations and was a drag on the Group’s profitability. Exchange rates had a slightly positive impact on EBIT. As a consequence of our acquisition strat- egy, we realised certain fair value adjust- ments of non-controlling interests in step acquisitions, contingent considerations etc. These totalled a net positive fair value ad- justment of DKK 32 million for the full year (DKK 23 million in 2022). Please refer to Note 6.1 for more details. Financial items For the full year, net financial items amounted to DKK -754 million, which is a very significant increase of DKK 474 mil- lion compared to 2022. The increase pri- marily relates to higher interest rates paid. In H2, net financial items totalled DKK -395 million, an increase of DKK 210 mil- lion versus H2 2022. Profit for the year – continuing operations Reported profit before tax from continuing operations in 2023 amounted to DKK 3,394 million, which is an increase of 16% compared to 2022. Tax amounted to DKK 839 million. The resulting effective tax rate was 24.7%, which is in line with our guid- ance of 24-25%. For H2, profit before tax from continuing operations was DKK 1,739 million and tax amounted to DKK 442 mil- lion. For the full year, reported net profit for continuing operations was DKK 2,555 million, or an increase of 12%, resulting in earnings per share (EPS) of DKK 11.44. In H2, reported net profit for continuing operations was DKK 1,297 million, which corresponds to an EPS of DKK 5.81. Discontinued operations Profit after tax from discontinued opera- tions amounted to DKK -757 million for the full year. Of this amount, DKK -638 million relates to non-cash write-downs of assets related to the cochlear implants business, which was recognised in H1. For H2, profit after tax from discontinued operations was DKK -81 million, which is in line with our expectations. Profit for the year For the Group as a whole, profit after tax in 2023 amounted to DKK 1,798 million, corresponding to an EPS of DKK 8.04. In H2, net profit after tax was DKK 1,216 mil- lion, with an EPS of DKK 5.44. At the annual general meeting, the Board of Directors will propose that the entire profit for the year be retained and trans- ferred to the company’s reserves. Earnings per share (EPS) for continuing operations (DKK per share) 2019-2020 figures have not been restated to reflect the dis- continuation of Hearing Implants. 9,392 9,079 10,014 11,584 12,465 4,000 6,000 8,000 10,000 12,000 14,000 2019 2020 2021 2022 2023 6.00 4.68 11.48 10.06 11.44 0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 2019 2020 2021 2022 2023 Full-year EBIT (DKK million) 2019-2020 figures have not been restated to reflect the dis- continuation of Hearing Implants, but have been adjusted for one-offs. Half-year EBIT (DKK million) 2,151 1,313 3,504 3,207 4,148 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 2019 2020 2021 2022 2023 1,830 1,588 1,619 2,014 2,134 0 500 1,000 1,500 2,000 2,500 H2 2021 H1 2022 H2 2022 H1 2023 H2 2023 Insights and highlights Our business Corporate information Financial report Back to content Group financial review Demant – Annual Report 2023 21 Cash flow statement The Group generated very strong cash flow in 2023, with cash flow from operat- ing activities (CFFO) increasing by 65% to DKK 4,335 million. In H2, CFFO amounted to DKK 2,472 million, up by 45% due to the increased operating profit, but also posi- tively impacted by a slight improvement in net working capital. In 2023, our net investments in property, plant and equipment and intangible assets (CAPEX) amounted to DKK 825 million, which is a decrease of 9%. CAPEX relative to revenue was 4%, which is equal to our medium- to long-term ambition. In H2, CAPEX was DKK 420 million, down by 16% on the same period in 2022, as we fi- nalised the construction of our new pro- duction sites in Poland and Mexico in 2022. Net investments in other non-current assets, which comprise customer loans and loans to associates, amounted to DKK 27 million, resulting in total net investments of DKK 852 million in 2023. For H2, net investments in other non-cur- rent assets amounted to DKK 65 million and total net investments to DKK 479 mil- lion. The free cash flow before acquisitions and divestments increased by 115% to DKK 3,483 million for the full year and by 63% to DKK 1,993 million in H2. Net cash spent on acquisitions and divest- ments totalled DKK 935 million for the year, a significant decrease, as cash spent on acquisitions was unusually high in 2022 due to the acquisition of Sheng Wang. In H2, net cash spent on acquisitions and di- vestments amounted to DKK 622 million, reflecting an increased activity level, alt- hough it remained below the original plans. Following the resumption of our share buy-backs in November, we spent a total of DKK 846 million in 2023 of which DKK 829 million was spent in H2. Mainly relating to the repayment of loans during the year, other financing activities amounted to DKK -1,595 million in 2023, and the net cash flow from continuing op- erations totalled DKK 107 million. For H2, other financing activities amounted to DKK -504 million, and the net cash flow from continuing operations was DKK 38 million. The net cash flow from discontinued oper- ations was DKK -65 million for the full year and DKK -48 million in H2. Please refer to Note 6.2 for more details. CFFO (DKK million) 2019-2020 figures have not been restated to reflect the dis- continuation of Hearing Implants, but have been adjusted for one-offs. CAPEX (DKK million) 2019-2020 figures have not been restated to reflect the dis- continuation of Hearing Implants, but have been adjusted for one-offs. 2,149 2,621 3,593 2,622 4,335 0 1,000 2,000 3,000 4,000 5,000 2019 2020 2021 2022 2023 756 667 711 908 825 0% 2% 4% 6% 0 200 400 600 800 1,000 2019 2020 2021 2022 2023 CAPEX CAPEX % of revenue Cash flow by main items (DKK million) FY H2 H1 Change 2023 2022 2023 2022 2023 2022 FY H2 H1 CFFO 4,335 2,622 2,472 1,707 1,863 915 65% 45% 104% Net investments -852 -1,005 -479 -488 -373 -517 -15% -2% -28% Free cash flow before acquisitions and divestments 3,483 1,617 1,993 1,219 1,490 398 115% 63% 274% Acquisitions and divestments etc. -935 -2,323 -622 -1,810 -313 -513 -60% -66% -39% Share buy–backs -846 -1,840 -829 -533 -17 -1,307 -54% 56% -99% Other financing activities -1,595 2,774 -504 1,153 -1,091 1,621 n.a. n.a. n.a. Cash flow for the period 107 228 38 29 69 199 -53% 31% -65% Insights and highlights Our business Corporate information Financial report Back to content Group financial review Demant – Annual Report 2023 22 Balance sheet As of 31 December 2023, the Group’s total assets amounted to DKK 30,546 million. This is an increase of 2% compared to 31 December 2022, which is primarily driven by additions from acquisitions of 5%, as organic growth in total assets was flat. Ex- change rate effects subtracted 1%. In rela- tion to our assets held for sale, the write- down of our cochlear implants business negatively impacted growth by 2%. The increase in total assets is primarily due to an increase in goodwill, mostly related to acquisitions, which is also the case, if we look at the development from 30 June 2023. Relative to the end of 2022, our net work- ing capital (NWC) remained flat. The Group’s NWC was DKK 3,630 million at the end of 2023, down by 5% since 30 June 2023, which is mainly due to a de- crease in trade receivables. As a conse- quence of our strong focus on cash flow, our NWC-to-revenue ratio declined to 16%. Please refer to Note 9.1 for our defi- nition of net working capital. Although our net interest-bearing debt (NIBD) increased by 1% in H2, it decreased by 3% in 2023 as a whole and thus amounted to DKK 12,280 million at 31 De- cember 2023. The decrease for the full year is primarily due to our strong cash flow generation. As a result of the de- crease in our NIBD and the higher realised EBITDA, our gearing multiple (NIBD/EBITDA) decreased significantly from 2.9 at the end of 2022 to 2.2 at the end of 2023, which is within our medium- to long-term gearing target of 2.0-2.5. Positively impacted by profit, but some- what offset by currency translation and share buy-backs, total equity for the full year increased by 9% to DKK 9,338 million of which DKK 82 million is attributable to non-controlling interests and DKK 9,256 million to the shareholders of Demant A/S. In H2, total equity increased by 4%, mainly because of profit generated by the Group. Shares acquired under the share buy-back programme recognised on the Group’s bal- ance sheet totalled 2,952,703 shares bought at an average price of DKK 286.45, totalling DKK 846 million. Employees As of 31 December 2023, the Group had 21,623 employees compared to 21,154 as of 30 June 2023, an increase of 2% driven evenly by acquisitions and organic growth. The total number of employees increased by 5% for the full year compared to the 20,570 employees at the end of 2022. Hedging activities The material forward exchange contracts in place as of 31 December 2023 to hedge against the Group’s exposure to move- ments in exchange rates are shown in the table below. Hedging activities Currency Hedging period Average hedging rate USD 10 months 676 JPY 11 months 4.90 AUD 11 months 447 GBP 10 months 844 CAD 10 months 504 PLN 9 months 161 Balance sheet by main items Change (DKK million) FY 2023 H1 2023 FY 2022 H1 2023 FY 2022 Lease assets 2,596 2,391 2,304 9% 13% Other non-current assets 18,566 17,915 17,531 4% 6% Inventories 2,845 2,739 2,904 4% -2% Trade receivables 3,650 3,826 3,626 -5% 1% Cash 1,138 1,158 1,130 -2% 1% Other current assets 1,468 1,500 1,398 -2% 5% Assets held for sale 283 304 964 -7% -71% Total assets 30,546 29,833 29,857 2% 2% Equity 9,338 8,990 8,562 4% 9% Lease liabilities 2,686 2,474 2,380 9% 13% Other non-current liabilities 12,301 9,734 7,960 26% 55% Trade payables 799 825 865 -3% -8% Other current liabilities 5,333 7,753 9,915 -31% -46% Liabilities related to assets held for sale 89 57 175 56% -49% Total equity and liabilities 30,546 29,833 29,857 2% 2% Insights and highlights Our business Corporate information Financial report Back to content Group financial review Demant – Annual Report 2023 23 Sustainability In our Group Policy on Diversity, Equity and Inclusion from 2022, Demant intro- duced targets for gender diversity in top- level management. The percentage of women in top-level management in- creased by 4 percentage points from 23% in 2022 to 27% in 2023. We also saw an increase in women managers of 3 percent- age points among all people managers in Demant. Furthermore, we have a target aiming at increasing the number of top-level man- agement teams with a diverse gender composition. The target is defined as fol- lows: Having a maximum of 75% of the same gender on 75% or more of top-level management teams in 2025. In 2023, we exceeded our 2025 target by reaching 79%. The progress on gender diversity is driven by focused actions, such as training in in- clusive leadership and unconscious bias, and inclusive recruitment initiatives and is also driven by leveraging emerging opportunities to secure a more balanced gender diversity. On the environmental side, our data shows a decrease of 15% in scope 1 and 2 CO2e emissions from 2022 to 2023. This is mainly driven by our renewable electricity share that amounted to 21% in 2023. The Group also saw a small decrease in elec- tricity consumption, whereas the total en- ergy consumption increased slightly, re- flecting a higher activity level. In July 2023, the Science Based Targets in- itiative validated and approved our targets to reduce the Group’s aggregate scope 1 and 2 CO2e emissions by 46% and to re- duce our scope 3 CO2e emissions by 46% by 2030 from a 2019 base year. Please refer to the Sustainability Report for more details on our 2023 performance. Demant performed well in 2023, which af- fected the performance-based variable pay to CEO Søren Nielsen positively. The increased variable pay is reflected in an in- crease in the CEO remuneration ratio to 48. For more details on remuneration, please refer to the Remuneration Report. Events after the balance sheet date On 5 February 2024, the Group announced the decision to undertake a review of stra- tegic options for its Communications busi- ness. The purpose of the review is to ex- plore whether a different owner may be better positioned to accelerate growth and to allow the business to realise its full po- tential. The review is expected to be com- pleted by the end of H1 2024. For account- ing purposes, the Communications busi- ness is recognised as part of the Group’s continuing operations for 2023, but for 2024 and going forward, it will be recog- nised as part of discontinued operations. There have been no other events that ma- terially change the assessment of this An- nual Report 2023 from the balance sheet date and up to today. Key full-year sustainability figures 2023 2022 Change Scope 1-2 emissions (market-based) (tonnes CO2e) 1 30,469 35,862 -15% CEO remuneration ratio 48 39 9 Gender diversity, Board of Directors (women/men) 2 40/60% 40/60% - Gender diversity, all managers (women/men) 47/53% 44/56% 3 p.p. Gender diversity, top-level management 27/73% 23/77% 4 p.p. Gender diversity, top-level management teams (on/off target) 79/21% 71/29% 8 p.p. 1 Figures in 2022 were restated in order recognise new acquisitions. 2 Shareholder-elected members. Insights and highlights Our business Corporate information Financial report Back to content Group financial review Demant – Annual Report 2023 24 Financial outlook Organic growth 4-8% EBIT DKK 4,600-5,000 million Share buy-backs More than DKK 2,000 million The outlook is based on a number of key assumptions as described below: • We expect the unit growth rate in the global hearing aid market in 2024 to be in line with the structural growth rate of 4-6%. We expect a negative impact of ASP de- clines around the normal level of 1-2% due to mix effects. • We expect the cash allocated to bolt-on acquisitions in 2024 to be higher than nor- mal due to the postponement of some acquisitions from 2023 and a good pipeline of attractive opportunities. • Communications will be recognised as part of discontinued operations. We expect profit after tax related to Communications to be negative by DKK 100-150 million. This relates entirely to an expected full-year operating loss and does not include any financial impact related to the review of strategic options. • The divestment of our cochlear implants business is expected to close in H1 2024. Our bone anchored hearing systems business will remain with the Group for now, pending a review of our strategic options. For the full year 2024, we expect profit af- ter tax related to Hearing Implants to be around DKK 0 million. Medium- to long-term outlook Outlook for 2024 For modelling purposes, we provide further assumptions for 2024 below: Acquisitive growth 1% based on revenue from acquisitions completed as of 4 February 2024 FX growth -1% based on exchange rates as of 4 February 2024 and including the impact of hedging Effective tax rate Around 24% Profit after tax from discontinued operations Negative by DKK 100-150 million, entirely related to Communications, with profit after tax for Hearing Implants to be around DKK 0 million Revenue growth 7-10% p.a. in local currencies with organic growth of 6-8% p.a. and acquisitive growth of 1-2% p.a. EBIT margin For Hearing Healthcare, aim for incremental EBIT margin expansion over time, and for Communications, aim for transformative EBIT margin expansion CAPEX Around 4% of the Group's revenue (investments in tangible and intangible assets, excluding customer loans and acquisitions) Gearing Gearing multiple (NIBD/EBITDA) of 2.0-2.5 Capital allocation Subject to our gearing target, we will return any excess free cash flow after acquisitions to our shareholders in the form of share buy-backs And for our business segments, we have the following medium- to long-term outlook: Hearing Healthcare Aim to gain market shares in organic terms in all our business areas, translating into an organic growth rate of at least 5% p.a. Communications Aim to grow revenue in organic terms at least in line with the market growth rate, corresponding to an organic growth rate of at least 12% p.a. Our outlook for 2024 for continuing operations (Hearing Healthcare) is summarised in the table below: The Group has decided to undertake a review of strategic options for its Communications business. Insights and highlights Our business Corporate information Financial report Back to content Hearing Aids Demant – Annual Report 2023 25 Demant – Annual Report 2023 25 Despite living with a disease that causes both visual and hearing impairment that worsens over time, my motto is: Disability is not inability. Peter, pensioner and ironman Insights and highlights Our business Corporate information Financial report Back to content Hearing Aids Demant – Annual Report 2023 26 Our business Hearing Healthcare Hearing Aids Hearing Care Diagnostics Communications EPOS Insights and highlights Our business Corporate information Financial report Back to content Insights and highlights Our business Corporate information Financial report Back to content Hearing Aids Demant – Annual Report 2023 27 Financial review Hearing Healthcare Demant – Annual Report 2023 27 Insights and highlights Our business Corporate information Financial report Back to content Hearing Healthcare GROWTH 17% IN LOCAL CURRENCIES REVENUE 21,601 DKK MILLION Income statement H1 H2 FY (DKK million) 2023 2022 Growth 2023 2022 Growth 2023 2022 Growth Revenue 10,694 8,945 20% 10,907 9,700 12% 21,601 18,645 16% Production costs -2,677 -2,115 27% -2,604 -2,338 11% -5,281 -4,453 19% Gross profit 8,017 6,830 17% 8,303 7,362 13% 16,320 14,192 15% Gross margin 75.0% 76.4% 76.1% 75.9% 75.6% 76.1% R&D costs -607 -534 14% -619 -549 13% -1,226 -1,083 13% Distribution costs -4,726 -4,170 13% -4,828 -4,617 5% -9,554 -8,787 9% Administrative expenses -562 -488 15% -540 -513 5% -1,102 -1,001 10% Share of profit after tax, associates 40 57 -30% 28 65 -57% 68 122 -44% Operating profit (EBIT) 2,162 1,695 28% 2,344 1,748 34% 4,506 3,443 31% EBIT margin 20.2% 18.9% 21.5% 18.0% 20.9% 18.5% Revenue by business area H1 H2 FY (DKK million) 2023 2022 Growth 2023 2022 Growth 2023 2022 Growth Hearing Aids, total sales 6,088 4,842 26% 6,024 5,149 17% 12,112 9,991 21% Hearing Aids, internal sales -1,100 -895 23% -976 -865 13% -2,076 -1,760 18% Hearing Aids, external sales 4,988 3,947 26% 5,048 4,284 18% 10,036 8,231 22% Hearing Care 4,508 3,932 15% 4,575 4,191 9% 9,083 8,123 12% Diagnostics 1,198 1,066 12% 1,284 1,225 5% 2,482 2,291 8% Hearing Healthcare 10,694 8,945 20% 10,907 9,700 12% 21,601 18,645 16% Insights and highlights Our business Corporate information Financial report Back to content Hearing Aids Demant – Annual Report 2023 28 Revenue In 2023, our Hearing Healthcare segment generated revenue of DKK 21,601 million. This corresponds to a growth rate of 17% in local currencies, with organic growth ac- counting for 14 percentage points and ac- quisitive growth for 3 percentage points. Exchange rate effects reduced growth by 1 percentage point, and total reported growth was thus 16%. In H2, revenue amounted to DKK 10,907 million, corresponding to growth of 15% in local currencies. The organic growth of 13% was driven primarily by excellent per- formance in Hearing Aids, although both Hearing Care and Diagnostics also saw good performance. Driven by acquisitions in Hearing Care and Diagnostics, acquisi- tive growth added 2 percentage points to growth in H2, while negative exchange rate effects reduced growth by 3 percent- age points. Total reported growth was 12% for the period. Gross profit Our gross profit increased by 15% in 2023 to DKK 16,320 million, corresponding to a gross margin of 75.6%. In H2, the gross profit increased by 13%, and the gross margin was 76.1%, an increase of 0.2 per- centage point compared to H2 2022. The gross margin was negatively impacted by an increasing share of rechargeable units, but this was more than offset by increas- ing ASPs, mostly related to geography mix changes. Exchange rate effects had a slightly positive impact on the gross mar- gin. Growth rates H1 2023 H2 2023 FY 2023 Hearing Aids, external sales Organic 24% 20% 22% Acquisitions -1% -1% -1% Local currencies 23% 19% 21% FX 3% -1% 1% Total 26% 18% 22% Hearing Care Organic 8% 7% 8% Acquisitions 8% 6% 7% Local currencies 16% 13% 15% FX -2% -4% -3% Total 15% 9% 12% Diagnostics Organic 6% 7% 7% Acquisitions 7% 2% 4% Local currencies 13% 10% 11% FX -1% -5% -3% Total 12% 5% 8% Hearing Healthcare Organic 15% 13% 14% Acquisitions 4% 2% 3% Local currencies 19% 15% 17% FX 1% -3% -1% Total 20% 12% 16% Insights and highlights Our business Corporate information Financial report Back to content Hearing Aids Demant – Annual Report 2023 29 Operating expenses (OPEX) For the full year, OPEX amounted to DKK 11,882 million with an increase of 12% in local currencies. In H2, OPEX was DKK 5,988 million with growth of 9% in local currencies, with or- ganic growth accounting for 5 percentage points and acquisitive growth for 4 per- centages points. Organic growth was highest in R&D costs, as we continued to fuel further investments to deliver future growth. Organic growth was driven by balanced growth in Hearing Aids and Di- agnostics, reflecting higher activity levels. Acquisitive growth was primarily related to Hearing Care, particularly in Germany. Exchange rate effects reduced growth in OPEX by 4 percentage points. Operating profit (EBIT) In 2023, EBIT amounted to DKK 4,506 mil- lion, corresponding to an EBIT margin of 20.9%. In H2, EBIT amounted to DKK 2,344 mil- lion, corresponding to an EBIT margin of 21.5%. This is an increase of 3.5 percent- age points versus H2 2022. The margin in- crease is primarily due to material operat- ing leverage in Hearing Aids, but was also helped by increased profitability in Hearing Care, which more than offset lower profit- ability in Diagnostics. Exchange rate ef- fects were slightly positive. Full-year OPEX (DKK million) 2019-2020 figures have not been restated to reflect the dis- continuation of Hearing Implants, but have been adjusted for one-offs. Half-year EBIT (DKK million) Full-year EBIT (DKK million) 2019-2020 figures have not been restated to reflect the dis- continuation of Hearing Implants, but have been adjusted for one-offs. EBIT for 2019 was negatively impacted by DKK 550 million as a result of the IT incident. 9,392 8,524 9,381 10,871 11,882 0 2,000 4,000 6,000 8,000 10,000 12,000 2019 2020 2021 2022 2023 1,908 1,695 1,748 2,162 2,344 0 500 1,000 1,500 2,000 2,500 H2 2021 H1 2022 H2 2022 H1 2023 H2 2023 2,085 1,211 3,626 3,443 4,506 0 1,000 2,000 3,000 4,000 5,000 2019 2020 2021 2022 2023 OPEX by function Change (DKK million) H2 2023 H2 2022 DKK LCY Org. R&D costs 619 549 13% 13% 13% Distribution costs 4829 4,617 5% 8% 4% Administrative expenses 540 513 5% 11% 4% Total 5,988 5,679 5% 9% 5% Insights and highlights Our business Corporate information Financial report Back to content Hearing Aids Demant – Annual Report 2023 30 Core SDG impact Based on the estimated lifetime of hearing aids and fittings made by the Group in 2023, we facilitated 13.3 mil- lion years of improved quality of life in 2023. Key 2023 sustainability results New handles for hearing aid filters made from 52% less material with no residue plastic as well as connectivity packaging emitting 78% less CO2e. Hearing Aids Demant – Annual Report 2023 30 Insights and highlights Our business Corporate information Financial report Back to content Hearing Healthcare REVENUE 12,112 DKK MILLION GROWTH 21% IN LOCAL CURRENCIES Oticon Intent TM Insights and highlights Our business Corporate information Financial report Back to content Hearing Aids Demant – Annual Report 2023 31 Market developments Based on available market statistics, cov- ering around two-thirds of the market, and on our own assumptions, we estimate that the global hearing aid market saw unit growth of around 7% in 2023. Although slightly above the structural growth rate of 4-6%, it is primarily due to the softer com- parative base in H2 2022, which was af- fected by the macroeconomic environment, and if we compare to pre-pandemic levels, growth in the global hearing aid market was 5% p.a., which is in line with the structural growth rate. Overall, we con- sider the hearing aid market to have largely normalised in 2023 after several years of unusual volatility, mostly related to the coronavirus pandemic. Growth in 2023 was primarily driven by North America, in particular the US com- mercial market, which had seen significant weakness in H2 2022. We estimate that geography mix changes resulted in slight growth in the market’s ASP for the year. For Q4, we estimate that global market unit growth was 8%. Compared to pre- pandemic levels, growth decelerated slightly, although this was primarily a re- flection of lower growth in government channels and phasing in distributor mar- kets. Compared to the same period last year, we estimate that growth in Europe was 2% in Q4. In France, growth was slightly positive, showing signs of stabilisation fol- lowing fluctuations related to the hearing healthcare reform in 2021. In the UK, mar- ket growth was slightly negative, as growth in the NHS declined following a very strong Q3, but growth in the UK pri- vate market was positive. In Germany, growth was solid in Q4, supported by lower comparative figures, although growth for the full year was flat due to negative growth in H1. Growth in North America accelerated to 16% in Q4. In the US, the commercial part of the market grew by 19%, as the US saw a particularly negative impact of macroe- conomic uncertainty in Q4 2022. Despite high unit growth rates in Q4, we continued to see negative mix effects, with managed care and large chains growing more than the independent part of the market. Growth in Veterans Affairs (VA) was 4%, and in Canada, growth was strong throughout the year. Looking beyond North America and Eu- rope, we estimate that in Q4, unit growth in Australia was slightly negative. Alt- hough momentum in China continued to be slower than originally expected, growth was very strong in Q4, as the coronavirus situation significantly impacted the activity level in the same period last year. We esti- mate that several other emerging markets saw strong growth, however distributor- driven markets declined in the period. Business update In 2023, total revenue in Hearing Aids amounted to DKK 12,112 million, corre- sponding to an organic growth rate of 21% (Q4: 16%). Internal revenue from sales to our Hearing Care business ac- counted for 17% of total revenue. Our commentary below focuses on total reve- nue, including revenue from sales through our own retail clinics, and thus covers our total wholesale activities. However, inter- nal revenue is eliminated from the reported revenue for our Hearing Healthcare seg- ment and thus for the Group. Hearing Aids delivered excellent growth in 2023 as a result of broad-based commer- cial momentum across geographies and channels and the successful launches of new premium hearing aids in Q1. Further- more, we saw strong additional sales to a large US customer. With growth in Hear- ing Aids significantly outpacing the market growth rate, the business area gained im- portant market share in 2023. Similar to H1, growth in H2 was mainly unit-driven, although the ASP also contrib- uted positively, particularly in Q4. In H2, unit and ASP growth was 11% and 7%, respectively. The very positive ASP devel- opment in H2 is due to changes in the channel and geography mix and our suc- cess in the premium price segment, which drove positive product mix effects. In Q4, growth was 16% in local currencies, all of which was organic growth. Growth Hearing Aids (DKK million) Q1 2023 Q2 2023 Q3 2023 Q4 2023 FY 2023 Revenue 3,048 3,040 2,924 3,100 12,112 Growth Organic 26% 20% 21% 16% 21% Acquisitions 0% 0% 0% 0% 0% Local currencies 26% 20% 21% 16% 21% FX 4% 2% -2% -1% 0% Total 30% 22% 20% 15% 21% Estimated hearing aid market unit growth in 2023 by region (vs. 2022) Q1 Q2 Q3 Q4 FY Europe 4% -4% 7% 2% 2% North America 9% 5% 11% 16% 10% US (commercial) 9% 5% 12% 19% 11% US (VA) 9% 4% 4% 4% 5% Rest of world 9% 10% 7% 10% 9% Global 7% 3% 8% 8% 7% CAGR vs. 2019 5% 5% 5% 4% 5% Insights and highlights Our business Corporate information Financial report Back to content Hearing Aids Demant – Annual Report 2023 32 thus continued at a very high level but de- celerated slightly compared to previous quarters, which is primarily due to the an- nualisation of increased sales to a large US customer, but also to lower growth with certain other large accounts. In terms of geographies, North America delivered strong growth in Q4 driven by continuously strong momentum across channels in the US. In the important VA channel, our unit market share ended at 20.3%, and throughout the year, we saw strong progress in this channel. Sales in Canada were also very strong in Q4. In Europe, growth was strong, particularly in France, where the growth rate was well above the market growth rate, but many of our other markets, including Germany also saw good performance in Q4. Sales growth in Asia was very strong in Q4, in part due to low comparative figures. China saw significant growth, but only due to sales in 2022 being negatively impacted by the coronavirus situation. In the Pacific region, growth was strong thanks to Aus- tralia, which more than offset weak perfor- mance in New Zealand. In our Rest of world region, mostly comprising emerging markets, we saw negative growth due to lower sales in distributor markets. Product update During February, we will start the roll-out of new families of premium hearing aids in our Oticon, Bernafon and Philips brands. This includes our flagship hearing aid, Oti- con Intent™, which is based on the new Sirius™ platform and is a further advance- ment of our unique BrainHearing™ philos- ophy. Oticon Intent™ is the first hearing aid to introduce 4D Sensor technology, en- abling the hearing aid to interpret the user’s listening intentions and further im- prove speech understanding in noisy envi- ronments. In addition, Oticon Intent™ fea- tures our new, second-generation Deep Neural Network (DNN) and supports Blue- tooth LE Audio, which will be the future of low-energy connectivity. The new hearing aids will be available in four price points in a rechargeable miniRITE style and will be launched in Q1 2024. Growth in units and ASP (LCY) H1 2023 H2 2023 FY 2023 Units 18% 11% 15% ASP 4% 7% 6% Total 23% 18% 21% Revenue and growth Growth (DKK million) FY 2023 FY 2022 Org. Acq. LCY FX Rep. Total revenue 12,112 9,991 21% 0% 21% 0% 21% Internal sales to Hearing Care 2,076 1,760 14% 6% 20% -2% 18% Sales to external customers 10,036 8,231 22% -1% 21% 1% 22% Growth (DKK million) Q4 2023 Q4 2022 Org. Acq. LCY FX Rep. Total revenue 3,100 2,703 16% 0% 16% -1% 15% Internal sales to Hearing Care 482 395 18% 6% 24% -2% 22% Sales to external customers 2,618 2,308 16% -1% 15% -1% 13% Revenue from internal sales to Hearing Care is eliminated from the reported revenue for Hearing Healthcare and for the Group, i.e. we only include revenue from external customers. The pricing used in internal transactions is determined on an arm’s length basis and thus reflects normal commercial terms. Bernafon Brand relaunch Insights and highlights Our business Corporate information Financial report Back to content Group financial review Demant – Annual Report 2023 33 Core SDG impact We offer people over 60 years free yearly hearing assessments and increased the number by 5% this year. Key 2023 sustainability result As part of the global Campaign for Better Hearing, we donated 466 hearing aids. Hearing Care Demant – Annual Report 2023 33 Insights and highlights Our business Corporate information Financial report Back to content Hearing Healthcare REVENUE 9,083 DKK MILLION GROWTH 15% IN LOCAL CURRENCIES Audika Love your ears campaign Insights and highlights Our business Corporate information Financial report Back to content Hearing Care Demant – Annual Report 2023 34 Market developments Please refer to the Hearing Aids section above for details on developments in the hearing aid market in 2023, but note that our Hearing Care business is not present in many emerging markets or in government channels. As a result, we estimate that the growth rate in the part of the market where Hearing Care is active has been slightly below the global unit market growth rate of around 7%. Business update In 2023, revenue in Hearing Care amounted to DKK 9,083 million. Organic growth was 8% (Q4: 8%) and acquisitive growth was 7% (Q4: 6%), driven in partic- ular by the acquisition in 2022 of Sheng Wang in China and by a high level of ac- quisitions in Germany in line with our ex- pansion strategy there. Overall for 2023, organic growth was driven by strong growth in most of our medium-sized markets, while our two biggest markets grew at a slower pace (the US) and declined slightly (France). Helped by a soft comparative base in H2 2022, the US saw accelerating growth in H2 2023 following a slow start to the year. In France, growth momentum was weak throughout the year, even though we grew slightly more than the French market, which was impacted by normalisation effects following the initial demand boost from the 2021 refom. After seeing activity levels slowing down in H2 2022 due to macroeconomic uncertainties, we generally saw solid activity levels across our clinic network in 2023, reflecting the normalisation of the global hearing aid market after several years of elevated uncertainty. Organic growth was predominantly driven by units, but we also saw a slight tailwind from an increasing ASP in H2 due to a positive product mix, which more than offset negative geography mix changes. In Q4, organic growth was 8%, reflecting continuing solid business momentum in most medium-sized markets, but we also saw accelerating growth in the US, whereas France remained weak. Regionally, Europe was the largest absolute growth driver in Q4 with particularly strong performances in Poland, the UK and Spain. France saw slightly negative growth in Q4. In North America, we saw positive organic growth in both the US and Canada. The US saw solid organic growth, although at a level below the market growth rate, as the market was fuelled by growth in managed care. While we continue to work with some managed care providers, we have reduced the share of units originating from these activities and instead increased our focus on private pay, which has led to higher profitability in the US. Australia saw strong growth in Q4, and in China, Sheng Wang delivered very strong double-digit organic growth in Q4, driven mostly by low comparative figures, as revenue remained below original expectations due to the weak consumer sentiment. Audika fitting Hearing Care (DKK million) Q1 2023 Q2 2023 Q3 2023 Q4 2023 FY 2023 Revenue 2,218 2,290 2,152 2,423 9,083 Growth Organic 9% 7% 6% 8% 8% Acquisitions 8% 8% 6% 6% 7% Local currencies 17% 15% 12% 14% 15% FX 0% -3% -5% -3% -3% Total 17% 13% 7% 12% 12% 20000 Insights and highlights Our business Corporate information Financial report Back to content Group financial review Demant – Annual Report 2023 35 Diagnostics Demant – Annual Report 2023 35 Insights and highlights Our business Corporate information Financial report Back to content Diagnostics REVENUE 2,482 DKK MILLION GROWTH 11% IN LOCAL CURRENCIES Core SDG impact Every year, our technology helps screen and diagnose over 200 million people with suspected hearing loss and screen over 20 million newborns. Key 2023 sustainability result A new, qualitative, diagnostic test will help people with hearing loss hear better in noisy environments, enabling them to engage in conversations. Interacoustics VisualEyes™ 505 Insights and highlights Our business Corporate information Financial report Back to content Diagnostics Demant – Annual Report 2023 36 Market developments We estimate that the market for diagnos- tic instruments and services saw growth in 2023 in line with the structural market growth rate of 3-5% per year. Overall, the market has proved resilient in recent years, and compared to pre-pandemic levels in 2019, growth has developed in line with the structural growth rate. Business update Diagnostics generated revenue of DKK 2,482 million in 2023 with organic growth of 7% (Q4: 8%) and acquisitive growth of 4% (Q4: 3%), relating mostly to the acqui- sition in 2022 of Italy-based Inventis Srl. Despite high comparative figures related to a very strong performance in 2022, or- ganic growth was slightly above the esti- mated market growth rate in 2023. Our Di- agnostics business thus cemented its mar- ket-leading position, building on strong in- novation, a complete product portfolio in several brands and global distribution. Overall, growth in 2023 was driven by strong performance in Europe, whereas adverse market developments in China, where Diagnostics has an above-Group revenue exposure, were a drag on growth, particularly in H2. In Q4, organic growth was 8%, a slight acceleration compared to the level in Q3, and growth was driven by solid momentum in our two largest regions, North America and Europe. In North America, both the US and Canada saw strong organic growth, helped by good momentum in e3 Diagnostics, our leading provider of diagnostic instruments and services in the US. Driven in particular by the UK and Italy, growth in Europe was strong, but it was somewhat offset by Poland where growth was negative due to very high comparative figures from Q4 2022. Similar to Q3, momentum in China in Q4 continued to be negatively impacted by general market weakness, and growth remained negative and below our original expectations. Product update In October 2023, our Interacoustics brand introduced a completely new hearing test, the Audible Contrast Threshold™ (ACT) test. ACT is designed to go beyond the tra- ditional audiogram and help the hearing care professional in a fast and accurate manner quantify a person’s real-world ability to hear in noise. This will allow for more targeted counselling and expecta- tion-setting regarding the outcome of the hearing aid fitting and thus make it possi- ble to offer a new standard of care in hearing aid clinics. Diagnostics (DKK million) Q1 2023 Q2 2023 Q3 2023 Q4 2023 FY 2023 Revenue 566 632 625 659 2,482 Growth Organic 4% 9% 6% 8% 7% Acquisitions 7% 6% 2% 3% 4% Local currencies 11% 15% 8% 11% 11% FX 2% -3% -6% -3% -3% Total 13% 12% 2% 8% 8% MAICO MB 11 Software Insights and highlights Our business Corporate information Financial report Back to content Group financial review Demant – Annual Report 2023 37 Core SDG impact EPOS audio and video solutions help prevent stress and listening fatigue, which can be caused by imperfect audio experiences, and also help improve concentration and the ability to focus for longer. Key 2023 sustainability result EPOS initiated life cycle assessments of selected products, and EPOS headquarters in Ballerup, Denmark, obtained the ISO14001 certification. Communications Demant – Annual Report 2023 37 Insights and highlights Our business Corporate information Financial report Back to content Communications EPOS IMPACT 1000 Insights and highlights Our business Corporate information Financial report Back to content EPOS Demant – Annual Report 2023 38 EPOS Financial review Income statement H1 H2 FY (DKK million) 2023 2022 Growth 2023 2022 Growth 2023 2022 Growth Revenue 461 552 -16% 381 508 -25% 842 1,060 -21% Production costs -305 -299 2% -313 -284 10% -618 -583 6% Gross profit 156 253 -38% 68 224 -70% 224 477 -53% Gross margin 33.8% 45.9% 17.8% 43.9% 26.6% 45.0% R&D costs -99 -117 -15% -85 -114 -25% -184 -231 -20% Distribution costs -188 -224 -16% -175 -221 -21% -363 -445 -18% Administrative expenses -17 -19 -11% -19 -18 6% -36 -37 -3% Share of profit after tax, associates - - n.a. 1 - n.a. 1 - n.a. Operating profit (EBIT) -148 -107 n.a. -210 -129 n.a. -358 -236 n.a. EBIT margin -32.1% -19.4% -54.9% -25.4% -42.5% -22.3% REVENUE 842 DKK MILLION GROWTH -19% IN LOCAL CURRENCIES Insights and highlights Our business Corporate information Financial report Back to content EPOS Demant – Annual Report 2023 39 Revenue In 2023, revenue in Communications amounted to DKK 842 million. This corre- sponds to -19% growth in local currencies, all of which was organic. The decline in revenue is due to continuously weak mar- kets for both gaming headsets and enter- prise solutions, as macroeconomic uncer- tainty weighed on consumers, and we continued to see buyer hesitation within enterprise solutions. In August, we also took the decision to sharpen our focus on our Enterprise Solutions business and to wind down our Gaming business. In H2, revenue reached DKK 381 million, corresponding to an organic growth rate of -22%. Growth was negative across all regions, with both Gaming and Enterprise Solutions delivering negative growth, and despite our efforts to improve the business, we saw a challenging end to the year. Gross profit For the full year, gross profit was DKK 224 million, and the gross margin was 26.6%, a significant decline of 18.4 percentage points compared to 2022. The decline was particularly steep in H2 where the gross profit was DKK 68 million, resulting in a gross margin of 17.8%. The decline com- pared to H2 2022 of 26.1 percentage points is the result of our decision to wind down our Gaming activities, where re- maining inventories were sold at very low prices, but also the result of weaker-than- expected performance by Enterprise Solu- tions. Operating expenses (OPEX) For 2023 as a whole, OPEX amounted to DKK 583 million, which is a decrease of 18% compared to 2022. In response to weak markets, we have implemented sig- nificant cost reduction measures, which have lowered our OPEX throughout the year and will also lead to lower costs in 2024 when the workforce reductions take full effect. For H2 specifically, OPEX amounted to DKK 279 million, corresponding to a de- crease of 21%. Savings were primarily re- alised on distribution costs following the earlier announced redundancies as well as on R&D costs. Administrative expenses in- creased slightly. OPEX by half-year (DKK million) Operating profit (EBIT) EBIT for the full year amounted to DKK -358 million, corresponding to an EBIT margin of -42.5%, a significant decline compared to 2022 and significantly below our initial plans. For H2, EBIT amounted to DKK -210 mil- lion, corresponding to an EBIT margin of -54.9%. Low revenue negatively impacted the scalability of our business in Enterprise Solutions, but profitability was also im- pacted by the winding down of our Gam- ing activities, which negatively impacted EBIT by approx. DKK 60 million. 349 360 353 304 279 0 200 400 H2 2021 H1 2022 H2 2022 H1 2023 H2 2023 EBIT by half-year (DKK million) -78 -107 -129 -148 -210 -250 -200 -150 -100 -50 0 H2 2021 H1 2022 H2 2022 H1 2023 H2 2023 OPEX by function – Communications Change (DKK million) H2 2023 H2 2022 DKK LCY Org. R&D costs 85 114 -25% -25% -25% Distribution costs 175 221 -21% -19% -19% Administrative expenses 19 18 6% 6% 6% Total 279 353 -21% -20% -20% Insights and highlights Our business Corporate information Financial report Back to content EPOS Demant – Annual Report 2023 40 Market developments In 2023, growth in the markets for enter- prise solutions and gaming headsets was negative. At the beginning of the year, both markets saw tough market conditions and negative growth, and as the year pro- gressed, the gaming market did not im- prove, and – unexpectedly – we also saw continuously negative growth in enterprise solutions throughout the year and thus a weak end to the year. From a geographical perspective, we esti- mate that growth was negative in all re- gions, but less negative in Asia compared to North America and Europe. Despite negative market growth in 2023, we still consider the fundamental growth drivers for enterprise solutions to be intact. However, following weak growth for the last couple of years, growth will come from a lower starting point than originally antic- ipated. Business update Revenue in Communications amounted to DKK 842 million in 2023, corresponding to an organic growth rate of -19% (Q4: -25%). This is substantially below the orig- inal plans for the year due to lower-than- expected performance by both Gaming and Enterprise Solutions, which also had a challenging end to the year. On 29 August 2023, Demant announced the decision to gradually wind down its Gaming business following a review of the future growth potential and competitive- ness of the business. As a consequence of this decision, we had cleared out most of our inventory of Gaming products at the end of Q4 where organic revenue growth in Gaming declined more than in Enterprise Solutions. In Q4, Enterprise Solutions accounted for approx. 85% of revenue in Communica- tions and organic growth was -18%. As expected, we continued to see hesitation to buy among end-customers, which neg- atively impacted growth in our Enterprise Solutions business. In terms of geographies, we saw negative growth in all the regions where we oper- ate, although it was most pronounced in North America and Europe. In 2023, we saw continuously negative de- velopment in our markets, but following the winding down of our Gaming activities, we have entered 2024 with lower costs and a sharpened focus. The business is now on a path back to profitability, and in the light of this, we have decided to under- take a review of strategic options for the business area and explore whether a dif- ferent owner may be better positioned to accelerate growth. We expect this review to be completed by the end of H1 2024. Product update In Q4, EPOS announced a new strategic agreement with Lenovo to provide high- quality audio solutions for business profes- sionals. Besides inclusion of the EPOS portfolio into Lenovo’s third-party reseller programme, the agreement will entail co- development of future professional audio solutions, which we expect will contribute to growth in 2024. Communications (DKK million) Q1 2023 Q2 2023 Q3 2023 Q4 2023 FY 2023 Revenue 246 215 196 185 842 Growth Organic -15% -16% -20% -25% -19% Acquisitions 0% 0% 0% 0% 0% Local currencies -15% -16% -20% -25% -19% FX -1% -2% -4% -2% -2% Total -16% -17% -23% -27% -21% Air Traffic Control EPOS COMMAND HME 46 Insights and highlights Our business Corporate information Financial report Back to content Shareholder information Demant – Annual Report 2023 41 Corporate information Insights and highlights Our business Corporate information Financial report Back to content Demant – Annual Report 2023 41 Board meeting Headquarters Insights and highlights Our business Corporate information Financial report Back to content Shareholder information Demant – Annual Report 2023 42 Share capital As of 31 December 2023, Demant’s nomi- nal share capital was DKK 44,787,888.00 divided into 223,939,440 shares of DKK 0.20 each. All shares are the same class and carry one vote each. The change compared to the year before is due to the cancellation of treasury shares amounting to DKK 1,287,859.00, which was approved at the annual general meeting on 8 March 2023. The Board of Directors is authorised to in- crease the company’s share capital by a total nominal value of up to DKK 4,800,000. This increase may consist of no more than DKK 4,800,000 of the share capital with pre-emptive rights for existing shareholders and of no more than DKK 4,800,000 of the share capital without pre- emptive rights for existing shareholders. The increase in the company’s share capi- tal can also be carried out through a com- bination of share capital with and without pre-emptive rights, but it cannot exceed a total nominal value of DKK 4,800,000. Furthermore, the Board of Directors is au- thorised to increase the share capital by an additional nominal value of up to DKK 2,500,000 for shares offered to employees. All authorisations have been decided by the annual general meeting and are valid until 1 March 2026. Ownership The William Demant Foundation is the majority shareholder in Demant through its investment company William Demant In- vest and has previously communicated its intention to maintain an ownership interest of 55-60% of Demant’s share cap- ital. As of 31 December 2023, the William Demant Foundation held – either directly or indirectly – approx. 58% of the share capital, excluding treasury shares. No other shareholders had flagged an ownership interest of 5% or more as of 31 December 2023. Demant had 33,324 individual investors as of 31 December 2023. Excluding shares held by the William Demant Foundation, approx. 40% of the share capital is Shareholder information Share information (DKK 1,000) 2023 2022 2021 2020 2019 Share capital at 1 January 46,076 48,025 48,138 49,057 50,474 Capital reduction -1,288 -1,950 -113 -919 -1,416 Share capital at 31 December 44,788 46,076 48,025 48,138 49,057 Nominal value per share, DKK 0.2 0.2 0.2 0.2 0.2 Total number of shares, thousand 223,939 230,378 240,127 240,691 245,287 Highest share price, DKK 312.3 339.3 394.7 244.4 237.2 Lowest share price, DKK 190.0 173.1 219.6 132.2 160.5 Share price, year-end, DKK 296.0 192.6 335.1 240.6 209.8 Market capitalisation at 31 December, DKK million) 65,284 42,977 77,117 57,718 50,470 Average daily trading turnover, DKK million) 85.6 76.2 111.0 99.8 112.4 Average number of shares, million) 223.1 226.0 234.8 239.8 243.6 Number of shares at 31 December, million) 220.5 223.2 230.1 239.9 240.6 Number of treasury shares at 31 December, million 3.4 7.2 10.0 0.8 4.7 Excluding treasury shares. Insights and highlights Our business Corporate information Financial report Back to content Shareholder information Demant – Annual Report 2023 43 registered in Denmark and 30% is regis- tered in North America. The remaining 30% of the share capital is split between the remaining geographies but is predomi- nantly registered in Europe. As of 31 December 2023, the company held 3,386,939 treasury shares, corre- sponding to 1.5% of the share capital. Share price development The price of Demant shares increased by 53.7% in 2023, and on 31 December 2023, the share price was DKK 296.00 This corresponds to a market capitalisation of DKK 65.3 billion (excluding treasury shares). The average daily trading turno- ver in 2023 was DKK 86 million. The com- pany is a constituent of the OMX Copen- hagen 25 Index (C25), which covers the 25 largest and most frequently traded shares on Nasdaq Copenhagen. The C25 Index increased by 7% during the year. Capital allocation The company follows the principles of its capital allocation policy and uses its cash flow from operating activities for value- adding investments and acquisitions. Sub- ject to Demant’s targeted gearing multiple of 2.0-2.5 measured as net interest-bear- ing debt relative to EBITDA, any excess li- quidity is distributed back to shareholders through share buy-backs. Until the next annual general meeting in March 2024, the Board of Directors has been authorised to let the company buy back shares at a nominal value of up to 10% of the share capital. The purchase price may not deviate by more than 10% from the price quoted on Nasdaq Copen- hagen. Investor Relations (IR) Demant strives to ensure a steady and consistent flow of information to IR stake- holders in order to promote the basis for a fair pricing of the company’s shares – pricing that will at any time reflect the company’s strategies, financial capabilities and outlook for the future. The flow of in- formation will contribute to a reduction of the company-specific risk associated with investing in Demant shares, thereby lead- ing to a reduction of the company’s cost of capital. We aim to reach this goal by continuously providing relevant, correct, adequate and timely information in our company an- nouncements. In the course of the year, we publish an annual report, an interim re- port as well as interim management state- ments pertaining to Q1 and Q3, all of which contain updates on the Group and its financial position as well as results in relation to the full-year outlook, including updates on important events and transac- tions in the period under review. We strive to maintain an active and open dialogue with analysts and with current and potential investors, which helps the company stay updated on the views, inter- ests and opinions of the company’s vari- ous stakeholders. At our annual general meeting and through presentations, indi- vidual meetings, participation in investor conferences, webcasts, capital markets days etc., we aim to maintain an ongoing dialogue with a broad spectrum of stake- holders. In 2023, we held nearly 500 inves- tor meetings and presentations. Development in share price and daily turnover in 2023 0 50 100 150 200 250 300 350 400 450 100 150 200 250 300 350 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Daily turnover (DKK million) Share price (DKK) Turnover Demant OMX C25 (rebased) Insights and highlights Our business Corporate information Financial report Back to content Shareholder information Demant – Annual Report 2023 44 We also use our website, www.demant.com, as a means of commu- nication with our stakeholders. At the end of 2023, 24 equity analysts were covering Demant. We refer to our website for a full list of analyst coverage. Demant has a three-week quiet period prior to publication of annual reports, in- terim reports and interim management statements during which time communica- tion with IR stakeholders on the current market development is restricted. Annual general meeting 2024 The annual general meeting will be held on Wednesday, 6 March 2024 at 3:00 p.m. Shareholders can attend the meeting physically at the company’s headquarters. The meeting will also be webcast live on our website. Contact information for investors and analysts Phone: +45 3917 7300 E-mail: info@demant.com Company announcements and investor news in 2023 2 Jan Managers’ transactions 7 Feb Annual Report 2022 7 Feb Notice to annual general meeting 8 Mar Decisions of annual general meeting 17 Apr Completion of capital reduction 17 Apr Demant raises financial guidance for 2023 20 Apr Update on the divestment of Oticon Medical 27 Apr Changes to the Executive Board 3 May Interim Management Statement covering Q1 2023 22 Jun Divestment of Oticon Medical to Cochlear amended in scope 22 Jun New staff-elected member of Board of Directors 3 Aug Demant’s climate targets get the green light 15 Aug Pre-announcement of Interim Report 2023 and upgraded outlook 15 Aug Interim Report 2023 29 Aug Demant to wind down Gaming activities in Communications segment 7 Nov Interim Management Statement covering Q3 2023 8 Nov Demant Capital Markets Day 2024 21 Nov Demant to resume share buy-backs 11 Dec Financial calendar 2024 Mathias Holten Møller Head of Investor Relations (Leaving the Investor Relations team as of 1 March 2024) Peter Pudselykke Investor Relations Officer (Head of Investor Relations as of 1 March 2024) Financial calendar 2024 23 Jan Deadline for submission of items for the agenda of annual general meeting 6 Feb Annual Report 2023 6 Mar Annual general meeting 12 Mar Capital Markets Day 6 May Interim Management Statement covering Q1 2024 14 Aug Interim Report 2024 4 Nov Interim Management Statement covering Q3 2024 Insights and highlights Our business Corporate information Financial report Back to content Shareholder information Demant – Annual Report 2023 45 William Demant Foundation, Demant’s majority shareholder, was founded in 1957 by William Demant, son of the company’s founder Hans Demant. Its primary goal is to safeguard and expand the Demant Group’s business and provide support for various commercial and charitable causes with particular focus on audiology and hearing impairment. William Demant In- vest, which is a fully owned holding company for all William Demant Founda- tion’s investment activities, holds the Foundation’s shares in Demant. Charitable tasks are thus handled by the Foundation itself and the Foundation’s investment ac- tivities by William Demant Invest. Voting rights and decisions to buy and sell De- mant shares are still exercised and made by William Demant Foundation. In accordance with William Demant In- vest’s investment strategy, the Founda- tion’s investments – apart from an owner- ship interest in Demant – also include other assets. William Demant Invest makes active investments in companies whose business model and structure re- semble those of the Demant Group. The in- vestments include, among others, majority ownership of Össur and Vision RT. The Foundation has made a management agreement on a commercial arm’s length basis with Demant, which governs the exchange of various invest- ment support and administrative services between the Foundation, William Demant Invest and Demant. Please also see Note 8.1. William Demant Foundation Insights and highlights Our business Corporate information Financial report Back to content William Demant Foundation ASTRA Natural Science Centre Insights and highlights Our business Corporate information Financial report Back to content Risk management activities Demant – Annual Report 2023 46 • Risk management is an integral part of the management of the Demant Group. • Risks are identified, monitored and mit- igated at all management levels. • Functional boards exist to ensure focus on development and risk management. • The audit committee oversees financial risks and internal controls, and the Board of Directors approves and fol- lows up on strategies and business plans. ▪ We are committed to a high level of business ethics Risk management activities in the Demant Group include a variety of risk areas, many of which may impact the performance and reputation of the Group. The overall re- sponsibility for risk management lies with the Executive Board, but risk management activities are carried out throughout the or- ganisation on a day-to-day basis. Risk management is an integral part of the management of the Demant Group. Risks to which business areas, markets and op- erations are exposed are identified, moni- tored and mitigated at all management levels. Through frequent and transparent reporting, these measures ensure that key risks are escalated to the business area leadership, to functional boards, to the Ex- ecutive Board, and if relevant, to the audit committee and ultimately the Board of Di- rectors. We have established a number of func- tional boards to ensure focus on develop- ment and risk management in key areas globally i.e. IT, Finance, HR, Sustainability and Legal & Compliance. The functional boards are responsible for risk manage- ment in their respective areas and ensure that policies, guidelines and processes are established to monitor risks and new legis- lation. The functional boards are managed by the functional leaders and are composed of main stakeholders and mem- bers of the Executive Board. The audit committee oversees the risk management processes related to finan- cial risks, including sufficient and efficient internal controls. The audit committee has assessed the Group’s existing control envi- ronment and concluded that it is adequate. Business ethics are an integral part of con- ducting business in a global world with many stakeholders. We continuously ex- pand and improve the Group’s business ethics programme to reflect our all-im- portant commitment to a high level of business ethics, including the Demant Group Code of Conduct, a global whistle- blower scheme as well as global policies and guidelines on business ethics. For more information, please refer to the Sus- tainability Report on page 34. Innovation risks Both our Hearing Healthcare and Commu- nications segments operate in highly prod- uct-driven markets where significant R&D initiatives help underpin our market posi- tion. It is vital for us to maintain our inno- vative edge. We protect and maintain patents for our own groundbreaking technology, while ensuring that we do not infringe the rights of others. We must continue to attract the most competent staff in key areas. An important means to this end is maintaining our strong company culture and high em- ployee engagement. Our investment in people development, leadership training and information sharing platforms is a key element to obtain this. Product requirement risks As a major player in the hearing healthcare market, the Group is exposed to certain regulatory risks in terms of changes to product requirements. We ad- here to external regulatory requirements requirements applying to our products and services to ensure that our products are safe to use and meet the requirements and needs of our users. We continuously engage with customers, healthcare practitioners and other stake- holders to ensure that we develop ground- breaking products. We incorporate the re- quirements of international standards and regulations into the design and develop- ment of our manufactured devices to en- sure compliance with regulations and to ensure product safety. All processes in our quality management system (QMS) contribute to ensuring that our products are effective and safe for our users. Notified bodies inspect our QMS on a yearly basis. Demant works continuously to improve these systems. As a general principle, our products are designed and marketed under risk management guide- lines complying with ISO 14971 to ensure the safety of our users. In case of an unex- pected incident, we act fast and decisively and maintain a transparent dialogue with relevant stakeholders. Supply chain risks Stability in sourcing and delivering high- quality manufactured goods on time is cru- cial for us to be able to fulfil the commit- ments we have made to our customers. Risk management activities Organisation and governance Innovation and operations Insights and highlights Our business Corporate information Financial report Back to content Risk management activities Demant – Annual Report 2023 47 • We attract competent staff through a strong company culture and high em- ployee engagement. • We protect and maintain patents for our own groundbreaking technology, while ensuring that we do not infringe the rights of others. • We adhere to standards and regula- tions in our innovation, production, and supply chain processes. • We work with business and contin- gency plans to secure service to our customers. • We maintain adequate safety stocks to counter potential interruptions in our production. • We are committed to supplying safe products and ensuring a safe and en- gaging working environment for our employees. Supply disruptions may result in delayed deliveries or inefficient production set-ups. Lockdowns and other restrictions may also affect the global supply chain and thus in- crease the risk of sudden changes. We work with business and contingency plans to secure service to our customers in the best possible way in any given situa- tion. We closely monitor our supply situation and seek to keep adequate safety stocks to counter potential interruptions in our production. Our main production facilities in Poland and Mexico are in close proxim- ity to our largest markets, which is im- portant for us to quickly and efficiently serve our customers despite dynamic changes in the supply chain. We continuously evaluate our production footprint and dependency on key suppliers to strike a sound balance between flexibil- ity, exposure and costs. We collaborate closely with our highly specialised suppliers. In our supply chain and throughout our or- ganisation, we actively work to ensure a safe and engaging working environment for all our employees. Sustainability risks Demant is a positive-impact business that helps people overcome their hearing loss and thus improve their quality of life. Due to the nature of our business and to our value chain, Demant is not exposed to – nor do we pose – large sustainability-re- lated risks. The most material risks include talent retention, climate impact and brib- ery and corruption. Please refer to our Sus- tainability Report for more details on envi- ronmental, social and governance risks. The hearing healthcare market consists of a few, highly specialised players that oper- ate in an extremely competitive market. While navigating in the current market conditions, we monitor potential changes to the competitive situation to ensure that we respond swiftly and effectively to any changes in the market. Macroeconomic impacts on markets Historically, the hearing healthcare market has seen stable growth driven by demo- graphic changes. The current macroeconomic uncertainties, which are still to some extent impacting some regions, may have an adverse effect on the demand for hearing healthcare so- lutions and audio equipment in those re- gions. Some countries are also experienc- ing above-previous-level inflation rates, which impact the economies in some mar- kets. In case of macroeconomic or geopo- litical headwinds, we seek to adapt our or- ganisation, activities and costs accordingly to mitigate the financial impacts in the af- fected markets. After the coronavirus pandemic, we have seen a general stabilisation of the hearing healthcare market. While the pandemic has largely passed, a new pandemic could limit contact with hearing aid users. Alt- hough demand for our hearing healthcare products is not considered cyclical, the demand for hearing aids may suffer if the client contact is limited as a significant part of our sales is based on in-person counselling of individuals with hearing dif- ficulties. Regulatory risks in the markets The Group is exposed to certain regulatory risks in terms of changes to reimbursement schemes and public tenders in the markets where we operate. In most markets, the current regulatory landscape is considered stable, so for the time being, we do not ex- pect significant changes in the regulatory environment. There might be an overlap with commercial risks, if the level of reim- bursement changes, or if the way of distri- bution changes in a market from for in- stance retail to managed care. While regulatory changes are an intrinsic part of the hearing healthcare market, we feel well positioned to respond to such changes in the commercial environment. We continue to monitor any changes in the regulatory landscape and engage in dia- logues with regulators as part of our busi- ness planning. Innovations and operations – continued Market and customer risks Insights and highlights Our business Corporate information Financial report Back to content Risk management activities Demant – Annual Report 2023 48 • We monitor potential changes to the competitive situation to ensure that we respond swiftly. • We seek to adapt our organisation, activities and costs to mitigate the fi- nancial impacts of macroeconomic uncertainties. • We adapt our operating model when we see changes to reimbursement schemes in markets where we oper- ate. • We continue to monitor changes in the regulatory landscape and engage in dialogues with regulators. • We are committed to being in compli- ance with legislation related to finan- cial sanctions, export controls and other types of sanctions. • We continuously assess our IT ma- turity and remain focused on ensuring proper IT security. • We train and educate our employees in IT-related topics. • We ensure an adequate response and timely reporting in case of an IT secu- rity incident. • We remain committed to protecting personal data. The market development over the last years has confirmed our belief in the im- portance of providing a combination of personal counselling, individual fitting, life- long service, and highly advanced technol- ogy. In the US, the new over-the-counter cate- gory of hearing aids has now been availa- ble since 2022, and while this may in- crease access to hearing aids, we have only seen a limited impact on the hearing aid market in the US. In addition, the US market in general continues to see an in- creasing part of hearing aid purchases be- ing covered by insurance companies. The emergence of large managed care organi- sations continues to pose a risk to average selling prices in the hearing aid market, as volumes may to an increasing extent be consolidated on fewer players. Lower fit- ting fees and lost customer loyalty may also become a result of this consolidation. The Group sells its products in countries that may be subject to EU or US sanctions. These sanctions include financial sanc- tions, trade/export controls and sanctions against entities and individuals. To ensure compliance, distributors and other busi- ness partners engaging in business in these countries are subject to sanction checks and, where needed, firm and swift actions are taken to ensure that the Group is compliant. Sanctions may increase due to geopolitical risks and create an overall stop to trade in certain cases, as it has been the case for Russia and Belarus. The Group continues to closely monitor the changing legislation in this area and to fur- ther develop systems and processes to en- sure that proper controls and documenta- tion are in place to secure compliance. As our Group becomes increasingly digital- ised, more devices and control systems are connected online, resulting in a broader in- terface across our IT infrastructure that could potentially be compromised. As a large, global organisation, we are de- pendent on numerous IT systems and the general IT infrastructure to operate effi- ciently across our value chain. This carries an inherent risk of system errors, human errors, data breaches or other interruptions that may impact the Group financially. In addition, we may be exposed to attempts to access or steal information, computer viruses, denial of service and other digital security breaches. Our IT security committee continuously fol- lows up on and monitors our IT security set-up to ensure that the Group remains focused on ensuring proper IT security. Once a year, the committee reviews a ma- turity assessment based on the Cyberse- curity Framework of the National Institute of Standards and Technology (NIST), the purpose of which is to ensure that also in future, we continue to focus on relevant parameters. The assessment was done by an external party in 2023. We train and educate our employees in IT- related topics on an ongoing basis to limit any IT-related incidents caused by human errors. We regularly update policies to en- sure that they are up-to-date and reflect the current environment. You can read more about this area on page 38 in the Sustainability Report. Demant is entrusted with personal data on employees, customers, users and business partners, which must be collected and pro- cessed in accordance with applicable laws and regulations. As our business continues to grow, the complexity of managing cus- tomers’ data increases. We remain com- mitted to protecting personal data, and failure to do so could have serious conse- quences for the people whose data we possess as well as for the Group. Our Data Ethics Policy can be found here. Market and customer risks – continued Data and IT security Insights and highlights Our business Corporate information Financial report Back to content Risk management activities Demant – Annual Report 2023 49 ▪ To mitigate potential liquidity and refi- nancing risks, the Group has secured access to considerable undrawn com- mitted credit facilities. ▪ We limit interest rate risks by hedging part of our exposure. ▪ We continuously seek to balance our foreign exchange rate exposures and, where relevant, these are hedged. ▪ We monitor the credit risks on busi- ness partners on an ongoing basis. Financial risk management concentrates on identifying risks in respect of changes in the financial markets and customers’ pro- pensity to pay for products and services. The Executive Board monitors the financial risks of the company to ensure that these remain well-balanced. Financial risks are managed centrally by Group Treasury, which is responsible for securing attractive funding under the prevailing market condi- tions and for monitoring and mitigating risks related to liquidity, interest rates and exchange rates. Risks related to counter- parties are managed in the individual mar- kets. Capital structure, funding and liquidity Demant remains a highly cash-generating Group with a strong balance sheet. The Group continuously adapts its capital structure to the prevailing market condi- tions in order to secure attractive financ- ing. We secure our funding based on a strong commitment by our banks to pro- vide longer-term bank facilities. To miti- gate potential liquidity and refinancing risks, the Group has secured considerable undrawn committed credit facilities. To minimise financing risks, we aim for more than 50% of our credit facilities to be committed with long-term maturity, and our financial gearing multiple is currently within our desired target range of 2.0-2.5. Interest rate risks Due to higher market interest rates, our fi- nancial expenses increased in 2023. Fur- thermore, credit spreads and debt margins increased in the financial markets due to higher capital requirements imposed on the banks. Currently, around 45% of the Group’s debt is funded through facilities with fixed rates or hedged through financial instruments limiting the interest rate risk. Exchange rate risks The Group is exposed to exchange rate risks, as the company trades with counter- parties in a number of countries, and as the Group has cash flows in different cur- rencies. It is therefore important to ade- quately balance foreign exchange rate risks to avoid unexpected adverse impacts on the financial performance. The majority of Group companies transact mainly in local currencies and are therefore exposed to limited exchange rate risks. The Group does not hedge translation risks resulting from the consolidation of Group accounts into Danish kroner. Most Group companies are invoiced from the Danish production entities. Around two-thirds of the invoicing out of Denmark is invoiced in other currencies than Danish kroner or eu- ros. To reduce our exchange rate expo- sure, we continuously seek to balance in- going and outgoing cash flows in our main trading currencies as much as possible. To ensure predictability in terms of net profit, we hedge expected future net cash flows mainly through forward exchange con- tracts with a horizon of up to 18 months. In addition, we seek to balance our on-bal- ance net exposure in our main trading cur- rencies and, where relevant, our exposure is hedged. It is the Group’s policy to exclu- sively hedge financial risks arising from our commercial activities and not to undertake any financial transactions of a speculative nature. Counterpart risks From a commercial point of view, the Group is exposed to credit risks if our cus- tomers fail to pay for products and ser- vices provided. Such risks mainly relate to trade receivables and loans to customers or business partners, and failure to ade- quately manage credit risks can adversely impact the Group. To minimise the risk of suffering losses on customers, the Group monitors the credit risks on an ongoing basis. The Group gen- erally has a diversified customer base, and in 2023, the accumulated revenue from our ten largest customers accounted for ap- prox. 15% of total consolidated revenue. We regularly adjust our financial accounts to reflect the current credit risks. When granting loans to business partners, we require that our counterparties provide security in their business. In general, we estimate that the risk relative to our total credit exposure is well-balanced at Group level, and historically, we have only suf- fered limited credit-related losses. Please refer to Note 4.1. Financial risks Insights and highlights Our business Corporate information Financial report Back to content Corporate governance Demant – Annual Report 2023 50 The work on corporate governance is an ongoing process for the Board of Directors and Executive Board. Once a year, the Board of Directors and Executive Board re- view the company’s corporate governance principles. In that context, we consider the corporate governance principles that de- rive from legislation, recommendations and good practices. We focus on develop- ing and maintaining a transparent corpo- rate governance structure that promotes responsible business behaviour and long- term value creation. Recommendations issued by the Danish Committee on Corporate Governance and adopted by Nasdaq Copenhagen are best- practice guidelines for the governance of companies admitted to trading on a regu- lated market in Denmark. When reporting on corporate governance, we follow the “comply or explain” principle. Demant follows 38 of the 40 recommen- dations. The few cases (two) where we have chosen to deviate from a recommen- dation are well-founded, and we explain what we do instead. To further increase transparency, we provide supplementary and relevant information, even when we follow the recommendations. A complete presentation of the recommen- dations and how we comply with them, the Statutory report on corporate govern- ance, is available on our website, www.demant.com. The report as well as the financial reporting process and internal control described in Risk management ac- tivities in this Annual Report 2023 consti- tute Demant’s statement on corporate governance, cf. section 107b of the Danish Financial Statements Act. Tasks and responsibilities of the Board of Directors In accordance with Danish legislation, Demant has a two-tier management sys- tem, comprising the Board of Directors and the Executive Board. No individual is a member of both Boards. The division of re- sponsibilities between the Board of Direc- tors and the Executive Board is clearly out- lined and described in the Rules of Proce- dure for the Board of Directors and in the Instructions for the Executive Board. The Board of Directors is responsible for the overall strategic management and for the financial and managerial supervision of the company, the ultimate goal being to ensure long-term value creation. On an on- going basis, the Board of Directors evalu- ates the work of the Executive Board as for instance reflected in the annual plan prepared for the Board of Directors. Composition and organisation The Board of Directors has eight members: five members elected by the shareholders at the annual general meeting and three members elected by staff in Denmark. Shareholders elect Board members for a term of one year, and staff elect Board members for a term of four years. Staff- elected members are elected in accord- ance with the provisions of the Danish Companies Act. In 2023, Charlotte Hede- gaard and Heidir Hørby were elected for the first time, and Thomas Duer was re- elected to the Board of Directors. Although the Board members elected by the annual general meeting are up for election every year, the individual Board members are traditionally re-elected and sit on the Board for an extended number of years. This ensures consistency and maximum insight into the conditions pre- vailing in the company and the industry. Such consistency and insight are consid- ered important in order for the Board members to bring value to the company. Three of the five Board members presently elected by the shareholders at the annual general meeting are considered independ- ent. The Board is composed to ensure the right combination of competencies and experi- ence, with extensive international mana- gerial experience, board experience from major listed companies and diversity traits carrying particular weight. On our website, www.demant.com/about/management- and-governance, we describe the compe- tencies and qualifications that the Board of Directors deems necessary to have at its overall disposal in order to be able to per- form its tasks for the company. Diversity The Board of Directors aims to have at least 40% of the underrepresented gender amongst the Board members elected by the shareholders, as this constitutes an even distribution in terms of gender. As of now, there is an even distribution in terms of gender of 40% women and 60% men. As part of our ambitions to ensure diver- sity and inclusion in the Group, we launched a Diversity, equity and inclusion policy in 2022, which includes targets to increase diversity and inclusion in the De- mant Group. Demant is present in all parts of the world and employs people with different ethnic background, personality, nationality, age, gender and education. We encourage re- spect for diversity, and we strive to treat all employees fairly. Corporate governance Insights and highlights Our business Corporate information Financial report Back to content Corporate governance Demant – Annual Report 2023 51 Applicable to the legal entity Demant A/S, new Danish legislation on underrepre- sented gender in management took effect from 2023, cf. section 99b of the Danish Financial Statements Act and section 139c of the Danish Companies Act. In 2023, fewer people than 50 were em- ployed in the legal entity Demant A/S and an even distribution of gender was achieved for both the Board of Directors and other levels of management. Hence Demant A/S is not required to define a specific target and policy. However, there is a requirement to disclose the distribution of genders for the Board of Directors and other levels of management in the legal entity. Evaluation of the performance of the Board of Directors Once a year, the Board of Directors per- forms an evaluation of the Board’s work. The evaluation is performed either through personal, individual interviews with the Board members or by means of a ques- tionnaire to be filled out by the individual Board members. In both instances, the findings of the evaluation are presented and discussed at the subsequent Board meeting. At least every third year, the evaluation is performed with external assistance. In 2023, the evaluation was performed with external assistance. Overall, the eval- uation confirmed that the Board is satis- fied with its governance structures and furthermore confirmed that the interaction between the Board members works well. The Board of Directors is keen to keep fo- cus on and allocate time to the long-term strategic development of the company to continuously ensure that the potential of the company is exploited to the fullest. In 2023, audit committee meetings have been separated from ordinary Board meet- ings. This has led not only to more in- depth discussions on audit and financial topics, but also allowed the members of the Board of Directors to focus more on the strategic development of the company. The collaboration between the Board of Directors and the Executive Board works well, and there is an open and trustful working atmosphere. The work performed by the Board of Direc- tors takes its starting point in the annual wheel, which is regularly refined and up- dated and ensures the Board’s commit- ment and immersion into relevant areas. Board of Directors 2023 Total number of share- holder elected members 5 Women 40% Men 60% Other levels of Management 2023 Total number of members 7 Women 43% Men 57% Executive Board incl. direct reports employed in the legal entity Demant A/S. Annual General Meeting in Smørum Denmark Insights and highlights Our business Corporate information Financial report Back to content Corporate governance Demant – Annual Report 2023 52 Board committees The company’s Board of Directors has set up four committees: an audit, a nomina- tion, a remuneration and an IT security committee. The audit committee has been engaged in setting up updated working practices in the new set-up where audit committee meetings are separated from ordinary Board meetings. This allows the members of the committee to focus more on audit and financial topics. The audit committee is dedicated to a number of topics accord- ing to its committee charter, particularly preparations for improved ESG reporting. The nomination committee has been en- gaged in activities in relation to its normal tasks pursuant to the committee charter. In April 2023, an Executive Board member left the company. The committee has been engaged in ensuring that a competent business area President is recruited. The remuneration committee has been engaged in supervising the remuneration structure and Remuneration Policy, which was adopted in March 2022. The commit- tee is satisfied with the Policy, the purpose of which is to direct the Executive Board’s focus towards value creation on important parameters. The IT security committee has focused on following up on and ensuring progress in the plans made. Once a year, the commit- tee performs a maturity assessment based on the Cybersecurity Framework of the National Institute of Standards and Tech- nology (NIST), the purpose of which is to ensure that also in future, we continue to focus on relevant parameters. Again in 2023, we manged to enhance our ma- turity. Board of Directors’ and Executive Board’s remuneration Demant has a Remuneration Policy and publishes a Remuneration Report. A new Policy was approved at the annual general meeting in March 2022. The Remuneration Report is available on our website here. The Report will be submitted for advisory vote at the annual general meeting in March 2024.                         Members of Board committees Role Audit committee Nomination committee Remuneration committee IT security committee Niels B. Christiansen Chair Chair Chair Chair Niels Jacobsen Vice Chair Member Member Member Member Thomas Duer Member Charlotte Hedegaard Member Heidir Hørby Member Anja Madsen Member Sisse Fjelsted Rasmussen Member Chair Member Kristian Villumsen Member Member Lars Nørby Johansen Chair of the Board of Directors of William Demant Foundation Member Søren Nielsen President & CEO Member Insights and highlights Our business Corporate information Financial report Back to content Executive Board Demant – Annual Report 2023 53 Executive Board Søren Nielsen (man) President & CEO Born 1970 Nationality: Danish 37,037 shares (+4,946) René Schneider (man) CFO Born 1973 Nationality: Danish 21,322 shares (+3,577) Niels Wagner (man) President Born 1971 Nationality: Danish 27,368 shares (+2,870) Joined the company in 1995 Education: Holds an MSc in Engineering from the Technical University of Denmark Competences: Broad business and leader- ship experience from various management positions in the Group, including the com- mercial area, product innovation, quality and strategic development. International board experience, strong insights into the MedTech industry as well as a wide net- work in the global hearing healthcare community Other positions: HIMPP A/S (M), HIMSA A/S (C), HIMSA II A/S (C), EHIMA (M), Vision RT Ltd. (M), Committee on Life Science un- der the Confederation of Danish Industry (C), Committee on Business Policy under the Confederation of Danish Industry (M), DOVISTA A/S (M) and Central Board of the Confederation of Danish Industry (M) Area of responsibility: President of Demant’s Hearing Aids and Communica- tions business areas Joined the company in 2015 Education: Holds an MSc in Economics from Aarhus University Competences: Broad business and finan- cial leadership experience from various management positions with major listed companies, leading to international experi- ence in such areas as streamlining and re- establishing companies, completing M&A and driving value creation Areas of responsibility: Finance, HR, IT, Legal & Compliance and Corporate Func- tions and interim President of Demant’s Diagnostics business area Joined the company in 2007 (also with the company 1996-2003) Education: Holds an MSc in Economics from Aarhus University Competences: Broad business and leadership experience from various management posi- tions in the Group, including M&A, and head- ing the Group’s many hearing aid clinics oper- ating under various brands Area of responsibility: President of Demant’s Hearing Care business area Abbreviations C = Chair, VC = Vice Chair, M = Member Insights and highlights Our business Corporate information Financial report Back to content Board of Directors Demant – Annual Report 2023 54 Board of Directors Niels B. Christiansen (man) Chair Born 1966 Nationality: Danish 8,060 shares (unchanged) Niels Jacobsen (man) Vice Chair Born 1957 Nationality: Danish 901,340 shares (unchanged) Joined the Board in 2008 Chair since 2017 Chair of the nomination, remuneration and IT security committees Considered independent: No Position: CEO & President, LEGO A/S Other positions: William Demant Founda- tion (VC), William Demant Invest A/S (M), Tetra Laval S.A. (M) and Committee on Business Policy under the Confederation of Danish Industry (C) Education: Holds an MSc in Engineering from the Technical University of Denmark and an MBA from INSEAD Competences: International leadership experience from major, global, industrial, consumer goods and high-tech companies, business management and board experi- ence as well as strong insights into indus- trial policy and sustainability/ESG Attendance at Board and committee meetings: No absence Joined the Board in 2017 Vice Chair since 2017 Member of the audit, nomination, remuner- ation and IT security committees Considered independent: No Position: CEO, William Demant Invest A/S Other positions: Nissens A/S (M), Thomas B. Thrige Foundation (C), ABOUT YOU Holding GmbH (VC), ATP Long Term Dan- ish Capital (member of advisory board) and Central Board of the Confederation of Danish Industry (M). Related to William Demant Invest: Jeudan A/S (C), Össur hf. (C) and Vision RT Ltd. (C) Education: Holds an MSc in Economics from Aarhus University Competences: International leadership experience from major, global companies in the global healthcare and MedTech in- dustry, business management and board experience as well as in-depth insights into financial matters, accounting, risk management and M&A Attendance at Board and committee meetings: No absence Sisse Fjelsted Rasmussen (woman) Born 1967 Nationality: Danish No shares Anja Madsen (woman) Born 1976 Nationality: Danish 1,500 shares (unchanged) Joined the Board in 2021 Chair of the audit committee and member of the IT security committee Considered independent: Yes Position: CFO, Stark Group Other positions: Conscia A/S (M) and AltaPay A/S (C) Education: Holds an MSc in Business Economics and Auditing from Copenhagen Business School (CBS) and state-author- ised public accountant Competences: International leadership experience within the areas of finance and accounting, including board and CFO ex- perience from listed companies as well as in-depth insights into value creation, change management, M&A and sustaina- bility/ESG Attendance at Board and committee meetings: No absence Joined the Board in 2020 Considered independent: Yes Position: N/A Other positions: Lemvigh-Müller A/S (M) Education: Holds a BSc in Economics from London School of Economics and an MBA from INSEAD Competences: International leadership experience from large companies in the retail segment; extensive management ex- perience from such areas as operations, e- commerce and transformation; back- ground in strategy execution; lived and worked in the UK for many years Attendance at Board and committee meetings: No absence Abbreviations C = Chair, VC = Vice Chair, M = Member Insights and highlights Our business Corporate information Financial report Back to content Board of Directors Demant – Annual Report 2023 55 Charlotte Hedegaard (woman) Born 1971 Nationality: Danish 580 shares (+258) Heidir Hørby (woman) Born 1974 Nationality: Danish 591 shares (unchanged) Staff-elected Board member in 2023 for a term of four years Considered independent: N/A Position: Head of Group Compliance in Demant Has been with the Demant Group since 2019 Education: Holds an MSc in Law from Co- penhagen University Attendance at Board and committee meetings: No absence Staff-elected Board member in 2023 for a term of four years Considered independent: N/A Position: Quality Systems Engineer, De- mant facility in Ballerup, Denmark Has been with the Demant Group since 1994 Education: N/A Attendance at Board and committee meetings: No absence Abbreviations C = Chair, VC = Vice Chair, M = Member Kristian Villumsen (man) Born 1970 Nationality: Danish 4,130 shares (unchanged) Thomas Duer (man) Born 1973 Nationality: Danish 1,335 shares (unchanged) Joined the Board in 2021 Member of the audit committee Considered independent: Yes Position: President & CEO, Coloplast Other positions: Committee on Life Science under the Confederation of Danish Industry (M) Education: Holds an MSc in Political Science from Aarhus University and a Master in Public Policy from Harvard University Competences: International leadership experience from the global MedTech indus- try, management experience from such ar- eas as innovation, sales, strategy deploy- ment and commercial excellence Attendance at Board and committee meetings: No absence Staff-elected Board member since 2015. Re-elected in 2023 for a term of four years Considered independent: N/A Position: Senior Director, Requirements, Configuration & Test, R&D, Demant Has been with the Demant Group since 2002 Other positions: Danske Sprogseminarer A/S (M), Oticon A/S (M, staff-elected) Education: Holds an MSc in Electrical Engineering from the Technical University of Denmark Attendance at Board and committee meetings: No absence Insights and highlights Our business Corporate information Financial report Back to content Board of Directors Demant – Annual Report 2023 56 Financial pages Demant – Annual Report 2023 56 Bernafon Brand relaunch Insights and highlights Our business Corporate information Financial report Back to content Insights and highlights Our business Corporate information Financial report Back to content Management statement Demant – Annual Report 2023 57 The Board of Directors and Executive Board have today reviewed and approved the Annual Report 2023 of Demant A/S for the financial year 1 January to 31 Decem- ber 2023. The consolidated financial statements are prepared and presented in accordance with IFRS Accounting Standards as adopted by the EU and additional require- ments in the Danish Financial Statements Act. The Parent financial statements are prepared and presented in accordance with the Danish Financial Statements Act. Further, the Annual Re- port 2023 has been prepared in accord- ance with Danish disclosure requirements for listed companies. In our opinion, the consolidated financial statements and the Parent financial state- ments give a true and fair view of the Group’s and the Parent’s assets, liabilities and financial position at 31 December 2023, of the results of the Group’s and the Parent’s operations and of the Group’s cash flows for the financial year 1 January to 31 December 2023. In our opinion, Management’s commentary includes a true and fair view of the devel- opment in the operations and financial cir- cumstances of the Group and the Parent, of the results for the year and of the finan- cial position of the Group and the Parent as well as a description of the most signifi- cant risks and uncertainties facing the Group and the Parent. Management's Commentary has been pre- pared in accordance with the Danish Fi- nancial Statements Act and Article 8 of Regulation (EU) 2020/852 (EU Taxonomy Regulation). In our opinion, the Annual Report 2023 for Demant A/S with the file name DEMANT- 2023-12-31-en.zip for the financial year 1 January to 31 December 2023 is prepared in compliance with the ESEF regulation. We recommend that the Annual Report 2023 be adopted at the annual general meeting on 6 March 2024. Smørum, 6 February 2024 Management statement 0BExecutive Board Søren Nielsen, President & CEO René Schneider, CFO Niels Wagner, President Hearing Care 1BBoard of Directors Niels B. Christiansen, Chair Niels Jacobsen, Vice Chair Thomas Duer Charlotte Hedegaard Heidir Hørby Anja Madsen Sisse Fjelsted Rasmussen Kristian Villumsen Insights and highlights Our business Corporate information Financial report Back to content Independent auditor’s reports Demant – Annual Report 2023 58 To the shareholders of Demant A/S Report on the audit of the Financial Statements Our opinion In our opinion, the Consolidated financial statements give a true and fair view of the Group’s financial position at 31 December 2023 and of the results of the Group’s op- erations and cash flows for the financial year 1 January to 31 December 2023 in accordance with IFRS Accounting Stand- ards as adopted by the EU and further re- quirements in the Danish Financial State- ments Act. Moreover, in our opinion, the Parent finan- cial statements give a true and fair view of the Parent Company’s financial position at 31 December 2023 and of the results of the Parent Company’s operations for the financial year 1 January to 31 December 2023 in accordance with the Danish Fi- nancial Statements Act. Our opinion is consistent with our Auditor’s Long-form Report to the Audit Committee and the Board of Directors. What we have audited The Consolidated financial statements and the Parent financial statements of Demant A/S for the financial year 1 January to 31 December 2023 comprise income state- ment, balance sheet, statement of changes in equity and notes, including material ac- counting policy information for the Group as well as for the Parent Company and statement of comprehensive income and cash flow statement for the Group. Collec- tively referred to as the “Financial State- ments”. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and the additional requirements ap- plicable in Denmark. Our responsibilities under those standards and requirements are further described in the Auditor’s re- sponsibilities for the audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in ac- cordance with the International Ethics Standards Board for Accountants’ Interna- tional Code of Ethics for Professional Ac- countants (IESBA Code) and the additional ethical requirements applicable in Den- mark. We have also fulfilled our other ethi- cal responsibilities in accordance with these requirements and the IESBA Code. To the best of our knowledge and belief, prohibited non-audit services referred to in Article 5(1) of Regulation (EU) No 537/2014 were not provided. Appointment We were first appointed auditors of De- mant A/S on 10 March 2022 for the finan- cial year 2022. We have been reappointed annually by shareholder resolution for a total period of uninterrupted engagement of two years including the financial year 2023. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Finan- cial Statements for 2023. These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Independent auditor’s reports Insights and highlights Our business Corporate information Financial report Back to content Independent auditor’s reports Demant – Annual Report 2023 59 Key audit matter How our audit addressed the key audit matter Acquisitions Acquisitions are complex transac- tions, which are subject to signifi- cant estimates, including the iden- tification and valuation of assets, liabilities and contingent consider- ation etc. In order to determine the fair value of the separately identi- fied assets and liabilities in a busi- ness combination, the valuation methodologies require input based on assumptions about the future and applied discounted cash flow forecasts, including market devel- opment and WACC. We focused on this area because of the significance to the Financial Statements, the inherent complex- ity and high degree of estimation in the accounting for acquisitions, as well as the potential inherent risk related to the control environment. Our main focus of the area was on the acquisitions of Mr. Optik Group and Flemming & Klingbeil Group, the hearing aid related activities of Goed Hulpmiddelen CV and Virtu- alis Group. Reference is made to section 6.1 “Acquisition of enterprises and ac- tivities” in the Consolidated finan- cial statements. Our audit procedures included assessing the ap- propriateness of the accounting policies for ac- quisitions applied by Management and assessing compliance with IFRS Accounting Standards. We involved our internal specialists in the assess- ment of the valuation methodologies applied by Management and we challenged Management’s significant assumptions used to determine the fair value of the acquired assets and liabilities in the acquisitions, including the fair value of the intan- gible assets. Finally, we assessed the adequacy of disclosures relating to the acquisitions. Key audit matter How our audit addressed the key audit matter Revenue recognition Recognition of revenue is inher- ently complex due to the extent of different revenue streams, several performance obligations, trial peri- ods and prepaid discounts, which are subject to interpretation, in- cluding the point in time of satis- faction of the performance obliga- tions and recognition of related de- ferred income in respect of e.g. ex- tended warranties, after sales ser- vices, etc. We focused on this area because of the significance to the Financial Statements, as well as the com- plexity and high degree of estima- tion related to e.g. prepaid dis- counts, provision for sales returns and extended warranties and de- ferred income. In addition, we fo- cused on this area as revenue comprises a substantial number of transactions, with different charac- teristics depending on the business segment the revenue relates to. Reference is made to section 1.2 “Revenue” in the Consolidated fi- nancial statements. Our audit procedures included considering the appropriateness of the accounting policies for revenue recognition applied by Management and assessing compliance with IFRS Accounting Standards. We performed risk assessment procedures to un- derstand the information processing activities in relation to revenue recognition and evaluated whether the information systems appropriately support revenue recognition and measurement in accordance with the accounting policies. We identified controls addressing risk of material misstatements determined to be significant risk and evaluated the design of the controls and de- termined whether the controls have been imple- mented. We discussed the accounting estimates related to the recognition, and classification of revenue with Management. Further, we performed substantive procedures re- garding invoicing, significant contracts, cut-off at year-end and provision for e.g. sales returns and extended warranties in order to assess the ac- counting treatment and principles applied. We applied data analysis in our testing of se- lected revenue streams in order to identify trans- actions outside the ordinary transaction flow, in- cluding journal entry testing. Finally, we assessed the adequacy of disclosures relating to revenue recognition. Insights and highlights Our business Corporate information Financial report Back to content Independent auditor’s reports Demant – Annual Report 2023 60 Statement on Management’s Commentary Management is responsible for Manage- ment’s Commentary. Our opinion on the Financial Statements does not cover Management’s Commen- tary, and we do not express any form of assurance conclusion thereon. In connection with our audit of the Finan- cial Statements, our responsibility is to read Management’s Commentary and, in doing so, consider whether Management’s Commentary is materially inconsistent with the Financial Statements or our knowledge obtained in the audit, or other- wise appears to be materially misstated. Moreover, we considered whether Man- agement’s Commentary includes the dis- closures required by the Danish Financial Statements Act and Article 8 of Regulation (EU) 2020/852 (EU Taxonomy Regulation). Based on the work we have performed, in our view, Management’s Commentary is in accordance with the Consolidated finan- cial statements and the Parent financial statements and has been prepared in ac- cordance with the requirements of the Danish Financial Statements Act and the disclosure requirements of Article 8 of Regulation (EU) 2020/852 (EU Taxonomy Regulation). We did not identify any mate- rial misstatement in Management’s Com- mentary. Management’s responsibilities for the Financial Statements Management is responsible for the prepa- ration of Consolidated financial state- ments that give a true and fair view in ac- cordance with IFRS Accounting Standards as adopted by the EU and further require- ments in the Danish Financial Statements Act and for the preparation of Parent fi- nancial statements that give a true and fair view in accordance with the Danish Fi- nancial Statements Act, and for such inter- nal control as Management determines is necessary to enable the preparation of Fi- nancial Statements that are free from ma- terial misstatement, whether due to fraud or error. In preparing the Financial Statements, Management is responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, dis- closing, as applicable, matters related to going concern and using the going concern basis of accounting unless Management either intends to liquidate the Group or the Parent Company or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial State- ments Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from ma- terial misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable as- surance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered ma- terial if, individually or in the aggregate, they could reasonably be expected to in- fluence the economic decisions of users taken on the basis of these Financial Statements. As part of an audit in accordance with ISAs and the additional requirements ap- plicable in Denmark, we exercise profes- sional judgement and maintain profes- sional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the Financial State- ments, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and ap- propriate to provide a basis for our opinion. The risk of not detecting a ma- terial misstatement resulting from fraud is higher than for one resulting from er- ror, as fraud may involve collusion, for- gery, intentional omissions, misrepre- sentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appro- priate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Parent Company’s internal control. • Evaluate the appropriateness of ac- counting policies used and the reasonableness of accounting estimates and related disclosures made by Man- agement. • Conclude on the appropriateness of Management’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a ma- terial uncertainty exists related to events or conditions that may cast sig- nificant doubt on the Group’s and the Parent Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are re- quired to draw attention in our auditor’s report to the related disclosures in the Financial Statements or, if such disclo- sures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group or the Parent Company to cease to continue as a going concern. • Evaluate the overall presentation, struc- ture and content of the Financial State- ments, including the disclosures, and whether the Financial Statements rep- resent the underlying transactions and events in a manner that gives a true and fair view. • Obtain sufficient appropriate audit evi- dence regarding the financial infor- mation of the entities or business activi- ties within the Group to express an opinion on the Consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely re- sponsible for our audit opinion. Insights and highlights Our business Corporate information Financial report Back to content Independent auditor’s reports Demant – Annual Report 2023 61 We communicate with those charged with governance regarding, among other mat- ters, the planned scope and timing of the audit and significant audit findings, includ- ing any significant deficiencies in internal control that we identify during our audit. We also provide those charged with gov- ernance with a statement that we have complied with relevant ethical require- ments regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and, where applicable, actions taken to elimi- nate threats or safeguards applied. From the matters communicated with those charged with governance, we deter- mine those matters that were of most sig- nificance in the audit of the Financial Statements of the current period and are therefore the key audit matters. We de- scribe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter. Report on compliance with the ESEF Regulation As part of our audit of the Financial State- ments we performed procedures to ex- press an opinion on whether the annual report of Demant A/S for the financial year 1 January to 31 December 2023 with the filename DEMANT-2023-12-31-en.zip is prepared, in all material respects, in com- pliance with the Commission Delegated Regulation (EU) 2019/815 on the European Single Electronic Format (ESEF Regulation) which includes requirements related to the preparation of the annual report in XHTML format and iXBRL tagging of the Consoli- dated Financial Statements including notes. Management is responsible for preparing an annual report that complies with the ESEF Regulation. This responsibility in- cludes: • The preparing of the annual report in XHTML format; • The selection and application of appro- priate iXBRL tags, including extensions to the ESEF taxonomy and the anchor- ing thereof to elements in the taxonomy, for all financial information required to be tagged using judgement where nec- essary; • Ensuring consistency between iXBRL tagged data and the Consolidated fi- nancial statements presented in hu- man-readable format; and • For such internal control as Manage- ment determines necessary to enable the preparation of an annual report that is compliant with the ESEF Regulation. Our responsibility is to obtain reasonable assurance on whether the annual report is prepared, in all material respects, in com- pliance with the ESEF Regulation based on the evidence we have obtained, and to is- sue a report that includes our opinion. The nature, timing and extent of procedures selected depend on the auditor’s judge- ment, including the assessment of the risks of material departures from the require- ments set out in the ESEF Regulation, whether due to fraud or error. The proce- dures include: • Testing whether the annual report is prepared in XHTML format; • Obtaining an understanding of the com- pany’s iXBRL tagging process and of in- ternal control over the tagging process; • Evaluating the completeness of the iXBRL tagging of the Consolidated Fi- nancial Statements including notes; • Evaluating the appropriateness of the company’s use of iXBRL elements se- lected from the ESEF taxonomy and the creation of extension elements where no suitable element in the ESEF taxon- omy has been identified; • Evaluating the use of anchoring of ex- tension elements to elements in the ESEF taxonomy; and • Reconciling the iXBRL tagged data with the audited Consolidated financial statements. In our opinion, the annual report of De- mant A/S for the financial year 1 January to 31 December 2023 with the file name DEMANT-2023-12-31-en.zip is prepared, in all material respects, in compliance with the ESEF Regulation. Hellerup, 6 February 2024 PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab CVR No 3377 1231 Mogens Nørgaard Mogensen State-Authorised Public Accountant mne21404 Rasmus Friis Jørgensen State-Authorised Public Accountant mne28705 Insights and highlights Our business Corporate information Financial report Back to content Consolidated financial statements Demant – Annual Report 2023 62 Consolidated financial statements Demant – Annual Report 2023 62 Insights and highlights Our business Corporate information Financial report Back to content Consolidated financial statements Insights and highlights Our business Corporate information Financial report Back to content Consolidated financial statements Demant – Annual Report 2023 63 Consolidated income statement (DKK million) Note 2023 2022 Revenue 1.2 22,443 19,705 Production costs 1.3 / 1.4 / 1.6 / 8.3 -5,899 -5,036 Gross profit 16,544 14,669 R&D costs 1.3 / 1.4 / 8.3 -1,410 -1,314 Distribution costs 1.3 / 1.4 / 8.3 -9,917 -9,232 Administrative expenses 1.3 / 1.4 / 8.2 / 8.3 -1,138 -1,038 Share of profit after tax, associates 3.4 / 6.1 69 122 Operating profit (EBIT) 4,148 3,207 Financial income 4.2 101 83 Financial expenses 4.2 -855 -363 Profit before tax 3,394 2,927 Tax on profit for the year 5.1 -839 -651 Profit after tax - continuing operations 2,555 2,276 Profit after tax - discontinued operations 6.2 -757 -192 Profit for the year 1,798 2,084 Profit for the year attributable to: Demant A/S' shareholders 1,795 2,082 Non-controlling interests 3 2 1,798 2,084 Earnings per share (EPS), DKK - continuing operations 1.5 11.44 10.06 Diluted earnings per share (DEPS), DKK - continuing operations 1.5 11.44 10.06 Earnings per share (EPS), DKK 1.5 8.04 9.21 Diluted earnings per share (DEPS), DKK 1.5 8.04 9.21 Consolidated statement of comprehensive income (DKK million) 2023 2022 Profit for the year 1,798 2,084 Foreign currency translation adjustment, subsidiaries -177 60 Value adjustments of hedging instruments: Value adjustment for the year 41 -40 Value adjustment transferred to revenue -106 202 Tax on items that have been or may subsequently be reclassified to the income statement 17 -32 Items that have been or may subsequently be reclassified to the income statement -225 190 Actuarial gains/losses on defined benefit plans -19 105 Tax on items that will not subsequently be reclassified to the income statement 4 -27 Items that will not subsequently be reclassified to the income statement -15 78 Other comprehensive income -240 268 Comprehensive income 1,558 2,352 Comprehensive income attributable to: Demant A/S’ shareholders 1,555 2,350 Non-controlling interests 3 2 1,558 2,352 Breakdown of tax on other comprehensive income: Foreign currency translation adjustment, foreign enterprises 3 3 Value adjustment of hedging instruments for the year -9 9 Value adjustment of hedging instruments transferred to revenue 23 -44 Actuarial gains/losses on defined benefit plans 4 -27 Tax on other comprehensive income 21 -59 Insights and highlights Our business Corporate information Financial report Back to content Consolidated financial statements Demant – Annual Report 2023 64 (DKK million) Note 2023 2022 Equity and liabilities Share capital 45 46 Other reserves 9,211 8,515 Equity attributable to Demant A/S' shareholders 9,256 8,561 Equity attributable to non-controlling interests 82 1 Equity 9,338 8,562 Borrowings 4.3 / 4.4 10,171 6,098 Lease liabilities 3.3 / 4.3 / 4.4 2,045 1,766 Deferred tax liabilities 5.2 633 620 Provisions 7.1 201 175 Other liabilities 4.3 / 7.2 661 566 Deferred income 7.3 635 501 Non-current liabilities 14,346 9,726 Borrowings 4.3 / 4.4 1,597 6,598 Lease liabilities 3.3 / 4.3 / 4.4 641 614 Trade payables 4.3 799 865 Payables to associates 1 - Income tax 578 311 Provisions 7.1 77 33 Other liabilities 4.3 / 7.2 2,497 2,445 Unrealised losses on financial contracts 2.3 / 4.3 / 4.5 35 15 Deferred income 7.3 548 513 Liabilities related to assets held for sale 6.2 89 175 Current liabilities 6,862 11,569 Liabilities 21,208 21,295 Equity and liabilities 30,546 29,857 Consolidated balance sheet 31 December (DKK million) Note 2023 2022 Assets Intangible assets 3.1 13,540 12,582 Property, plant and equipment 3.2 2,813 2,553 Lease assets 3.3 2,596 2,304 Investments in associates 3.4 728 822 Receivables from associates 3.4 / 4.3 / 4.4 277 371 Other investments 4.3 / 4.5 19 15 Customer loans 1.8 / 3.4 / 4.3 / 4.4 477 566 Other receivables 3.4 / 4.3 / 4.4 170 84 Deferred tax assets 5.2 542 538 Other non-current assets 4,809 4,700 Non-current assets 3.5 21,162 19,835 Inventories 1.6 2,845 2,904 Trade receivables 1.7 / 4.3 3,650 3,626 Receivables from associates 4.3 188 170 Income tax 236 126 Customer loans 1.8 / 4.3 / 4.4 191 229 Other receivables 4.3 / 4.4 378 376 Unrealised gains on financial contracts 2.3 / 4.3 / 4.5 60 103 Prepaid expenses 415 394 Cash 4.3 / 4.4 1,138 1,130 Assets held for sale 6.2 283 964 Current assets 9,384 10,022 Assets 30,546 29,857 Insights and highlights Our business Corporate information Financial report Back to content Consolidated financial statements Demant – Annual Report 2023 65 (DKK million) Note 2023 2022 Operating profit (EBIT) 4,148 3,207 Non-cash items etc. 1.9 1,323 1,074 Change in receivables etc. -85 -491 Change in inventories 4 -532 Change in trade payables and other liabilities etc. 36 10 Change in provisions 51 3 Dividends received 85 164 Cash flow from operating profit 5,562 3,435 Financial income etc. received 85 63 Financial expenses etc. paid -706 -359 Income tax paid -606 -517 Cash flow from operating activities (CFFO) 4,335 2,622 Acquisition of enterprises, participating interests and activities -935 -2,323 Investments in intangible assets -192 -277 Investments in property, plant and equipment -654 -647 Disposal of property, plant and equipment 21 16 Investments in other non-current assets -273 -356 Disposal of other non-current assets 246 259 Cash flow from investing activities (CFFI) -1,787 -3,328 (DKK million) Note 2023 2022 Repayments of borrowings 4.4 -6,740 -2,737 Proceeds from borrowings 4.4 6,034 8,606 Change in short-term bank facilities 4.4 -188 -2,477 Repayments of lease liabilities 3.3 / 4.4 -698 -614 Transactions with non-controlling interests -3 -4 Share buy-backs -846 -1,840 Cash flow from financing activities (CFFF) -2,441 934 Cash flow for the period, net  continuing operations 107 228 Cash flow for the period, net – discontinued operations 6.2 -65 -253 Cash flow for the year, net 42 -25 Cash and cash equivalents at the beginning of the year 1,130 1,172 Foreign currency translation adjustment of cash and cash equivalents -34 -17 Cash and cash equivalents at the end of the year 1,138 1,130 Breakdown of cash and cash equivalents at the end of the year: Cash 4.3 / 4.4 1,138 1,130 Cash and cash equivalents at the end of the year 1,138 1,130 Consolidated cash flow statement Insights and highlights Our business Corporate information Financial report Back to content Consolidated financial statements Demant – Annual Report 2023 66 Consolidated statement of changes in equity (DKK million) Other reserves Share capital Foreign currency translation reserve Hedging reserve Retained earnings Demant A/S share-  share Non- controlling  share Equity Equity at 1.1.2023 46 71 73 8,371 8,561 1 8,562 Comprehensive income: Profit for the year - - - 1,795 1,795 3 1,798 Other comprehensive income: Foreign currency translation adjustment, subsidiaries - -177 - - -177 - -177 Value adjustments of hedging instruments: Value adjustment, year - - 41 - 41 - 41 Value adjustment transferred to revenue - - -106 - -106 - -106 Actuarial gains/losses on defined benefit plans - - - -19 -19 - -19 Tax on other comprehensive income - 3 14 4 21 - 21 Other comprehensive income - -174 -51 -15 -240 - -240 Comprehensive income for the year - -174 -51 1,780 1,555 3 1,558 Share buy-backs - - - -846 -846 - -846 Share-based compensation - - - 63 63 - 63 Capital reduction through cancellation of treasury shares -1 - - 1 - - - Transactions with non-controlling interests - - - - - -3 -3 Non-controlling interests on acquisition - - - -76 -76 80 4 Other changes in equity - - - -1 -1 1 - Equity at 31.12.2023 45 -103 22 9,292 9,256 82 9,338 Insights and highlights Our business Corporate information Financial report Back to content Consolidated financial statements Demant – Annual Report 2023 67 Consolidated statement of changes in equity (continued) (DKK million) Other reserves Share capital Foreign currency translation reserve Hedging reserve Retained earnings Demant A/S share-  share Non- controlling  share Equity Equity at 1.1.2022 48 8 -54 7,975 7,977 4 7,981 Comprehensive income: Profit for the year - - - 2,082 2,082 2 2,084 Other comprehensive income: Foreign currency translation adjustment, subsidiaries - 60 - - 60 - 60 Value adjustments of hedging instruments: Value adjustment, year - - -40 - -40 - -40 Value adjustment transferred to revenue - - 202 - 202 - 202 Actuarial gains/losses on defined benefit plans - - - 105 105 - 105 Tax on other comprehensive income - 3 -35 -27 -59 - -59 Other comprehensive income - 63 127 78 268 - 268 Comprehensive income for the year - 63 127 2,160 2,350 2 2,352 Share buy-backs - - - -1,840 -1,840 - -1,840 Share-based compensation - - - 80 80 - 80 Capital reduction through cancellation of treasury shares -2 - - 2 - - - Transactions with non-controlling interests - - - -3 -3 -8 -11 Other changes in equity - - - -3 -3 3 - Equity at 31.12.2022 46 71 73 8,371 8,561 1 8,562 Insights and highlights Our business Corporate information Financial report Back to content Notes to consolidated financial statements Demant – Annual Report 2023 68 Section 1  page 69 Operating activities and cash flow 1.1 Segment disclosures 1.2 Revenue 1.3 Employees 1.4 Amortisation, depreciation and impairment losses 1.5 Earnings per share 1.6 Inventories 1.7 Trade receivables 1.8 Customer loans 1.9 Specification of non-cash items Section 2  page 81 Exchange rates 2.1 Exchange rate risk policy 2.2 Sensitivity analysis in respect of exchange rates 2.3 Hedging and forward exchange contracts Section 3  page 84 Asset base 3.1 Intangible assets 3.2 Property, plant and equipment 3.3 Leases 3.4 Other non-current assets 3.5 Non-current assets by geographies 3.6 Impairment testing Section 4  page 93 Capital structure and financial management 4.1 Financial risk management and capital structure 4.2 Net financial items 4.3 Categories of financial instruments 4.4 Net interest-bearing debt, liquidity and interest rate risks 4.5 Fair value hierarchy Section 5  page 101 Tax 5.1 Tax on profit 5.2 Deferred tax Section 6  page 105 Acquisitions 6.1 Acquisitions of enterprises and activities 6.2 Discontinued operations and assets held for sale Section 7  page 111 Provisions, other liabilities etc. 7.1 Provisions 7.2 Other liabilities 7.3 Deferred income 7.4 Contingent liabilities Section 8  page 116 Other disclosure requirements 8.1 Related parties 8.2 Fees to auditors 8.3 Government grants 8.4 Events after the balance sheet date Section 9  page 119 Basis for preparation 9.1 Group accounting policies 9.2 Accounting estimates and judgements Section 10  page 130 Notes to Parent financial statements Section 11  page 138 Subsidiaries and associates Notes to consolidated financial statements Demant – Annual Report 2023 68 Insights and highlights Our business Corporate information Financial report Back to content Insights and highlights Our business Corporate information Financial report Back to content Section 1 Operating activities and cash flow Demant – Annual Report 2023 69 Operating activities and cash flow Demant – Annual Report 2023 69 REVENUE 22,443 DKK MILLION FREE CASH FLOW 3,483 DKK MILLION Insights and highlights Our business Corporate information Financial report Back to content Section 1 Operating activities and cash flow Insights and highlights Our business Corporate information Financial report Back to content Section 1 Operating activities and cash flow Demant – Annual Report 2023 70 Management has identified Hearing Healthcare and Communications as the reportable segments in the Group, as this reflects Management’s approach to the or- ganisation and the management of activi- ties, including the assessment of results and the use of resources. Hearing Healthcare comprises the busi- ness areas: Hearing Aids, Hearing Care and Diagnostics, which provide hearing healthcare solutions, involving manufac- turing, servicing and sale of hearing aids, diagnostic products and services. In 2022, Demant announced the decision to discontinue its Hearing Implants busi- ness. Please refer to Note 6.2. Communications comprises our headset business, which operates under the EPOS brand and provides headsets and other solutions for the professional call centre and office market (Enterprise Solutions) and headsets for the gaming market (Gaming). In August 2023, the decision was taken to wind down our Gaming busi- ness. Accounting policies Segmentation of income statement Segment performance is evaluated on EBIT level and is based on the accounting poli- cies for the consolidated income state- ment. Consolidated financial income and ex- penses as well as income taxes are man- aged on Group level and are not allocated to operating segments. Segmentation of assets and liabilities Segment assets and liabilities are based on the accounting policies for the consoli- dated balance sheet and allocated to op- erating segments. The Group’s borrowings, derivative finan- cial instruments and income tax-related assets and liabilities are managed on Group level and are not allocated to oper- ating segments. 1.1 Segment disclosures (DKK million) 2023 2022 Hearing Communi- Consoli- Hearing Communi- Consoli- Healthcare cations dated Healthcare cations dated Revenue 21,601 842 22,443 18,645 1,060 19,705 Production costs -5,281 -618 -5,899 -4,453 -583 -5,036 Gross profit 16,320 224 16,544 14,192 477 14,669 R&D costs -1,226 -184 -1,410 -1,083 -231 -1,314 Distribution costs -9,554 -363 -9,917 -8,787 -445 -9,232 Administrative expenses -1,102 -36 -1,138 -1,001 -37 -1,038 Share of profit after tax, associates 68 1 69 122 - 122 Operating profit (EBIT) 4,506 -358 4,148 3,443 -236 3,207 Other: Depreciation 1,128 25 1,153 998 26 1,024 Amortisation 164 17 181 135 17 152 Fair value adjustments of non-controlling interests in step acquisitions 27 - 27 14 - 14 Insights and highlights Our business Corporate information Financial report Back to content Section 1 Operating activities and cash flow Demant – Annual Report 2023 71 1.1 Segment disclosures (continued) (DKK million) 2023 2022 Hearing Communi-Elimi- Not Consoli- Hearing Communi-Elimi- Not Consoli- Healthcare cations nations allocated dated Healthcare cations nations allocated dated Intangible assets 13,091 449 - - 13,540 12,117 465 - - 12,582 Property, plant and equipment 2,789 24 - - 2,813 2,523 30 - - 2,553 Lease assets 2,564 32 - - 2,596 2,262 42 - - 2,304 Investments in associates 660 68 - - 728 755 67 - - 822 Other non-current assets 863 80 - 542 1,485 959 77 - 538 1,574 Total non-current assets 19,967 653 - 542 21,162 18,616 681 - 538 19,835 Inventories 2,422 423 - - 2,845 2,359 545 - - 2,904 Trade receivables 3,466 184 - - 3,650 3,368 258 - - 3,626 Intra-group receivables 1,478 - -1,478 - - 1,298 - -1,298 - - Other current assets 1,358 110 - - 1,468 1,296 102 - - 1,398 Cash 1,104 34 - - 1,138 1,078 52 - - 1,130 Assets held for sale 283 - - - 283 964 - - - 964 Total current assets 10,111 751 -1,478 - 9,384 10,363 957 -1,298 - 10,022 Total assets 30,078 1,404 -1,478 542 30,546 28,979 1,638 -1,298 538 29,857 Equity 22,024 -261 - -12,425 9,338 21,561 74 - -13,073 8,562 Borrowings - - - 10,171 10,171 - - - 6,098 6,098 Lease liabilities 2,023 22 - - 2,045 1,734 32 - - 1,766 Other non-current liabilities 1,468 42 - 620 2,130 1,219 37 - 606 1,862 Total non-current liabilities 3,491 64 - 10,791 14,346 2,953 69 - 6,704 9,726 Borrowings - - - 1,597 1,597 - - - 6,598 6,598 Lease liabilities 629 12 - - 641 601 13 - - 614 Intra-group payables - 1,478 -1,478 - - - 1,298 -1,298 - - Other current liabilities 3,845 111 - 579 4,535 3,689 184 - 309 4,182 Liabilities related to assets held for sale 89 - - - 89 175 - - - 175 Total current liabilities 4,563 1,601 -1,478 2,176 6,862 4,465 1,495 -1,298 6,907 11,569 Total equity and liabilities 30,078 1,404 -1,478 542 30,546 28,979 1,638 -1,298 538 29,857 Insights and highlights Our business Corporate information Financial report Back to content Section 1 Operating activities and cash flow Demant – Annual Report 2023 72 Consolidated revenue mainly derives from the sale of goods and is broken down by the customers' geographic region. The ten largest single customers together account for around 15% (12% in 2022) of total consolidated revenue. Value adjustments transferred from equity relating to derivatives made for hedging foreign exchange risks on revenue amount to DKK 106 million (DKK -202 million in 2022). 1.2 Revenue (DKK million) 2023 2022 Liabilities related to contracts with customers: Customer prepayments 62 68 Future performance obligations 1,121 946 Expected volume discounts and other customer-related items 389 343 Expected product returns 197 172 Transferred to liabilities related to assets held for sale - -4 Contract liabilities with customers 1,769 1,525 Included in deferred income. **Included in other cost payables under other liabilities. Included in product-related liabilities under other liabilities. (DKK million) 2023 2022 Changes in contract liabilities with customers: Contract liabilities at 1.1. 1,525 1,390 Foreign currency translation adjustment -15 17 Revenue recognised and included in the contract liability balance at 1.1. -576 -554 Increases due to cash received, excluding amounts recognised as revenue during the year 614 624 Changes from expected volume discounts and other customer-related items 51 35 Changes from product returns 28 6 Additions from acquisitions 142 11 Transferred to liabilities related to assets held for sale - -4 Contract liabilities at 31.12. 1,769 1,525 (DKK million) 2023 2022 Revenue by business area: Hearing Aids 10,036 8,231 Hearing Care 9,083 8,123 Diagnostics 2,482 2,291 Communications – EPOS 842 1,060 Revenue 22,443 19,705 (DKK million) 2023 2022 Revenue by geographic region: Europe 9,137 8,108 North America 9,236 8,078 Asia 2,331 1,887 Pacific region 1,103 1,055 Rest of world 636 577 Revenue 22,443 19,705 Revenue by country: Denmark 261 265 USA 7,653 6,726 France 2,214 2,188 Other countries 12,315 10,526 Revenue 22,443 19,705 Insights and highlights Our business Corporate information Financial report Back to content Section 1 Operating activities and cash flow Demant – Annual Report 2023 73 Nature of goods and services Control is normally transferred to the cus- tomer when the goods are shipped to the customer, though delivery terms can vary and control may be transferred at a later point in time. When selling hearing aids to customers, we transfer control and recog- nise revenue, when the hearing aid is de- livered to the customer at a given point in time, and when a hearing aid is initially fit- ted to the user’s specific hearing loss. In some countries, the users are granted a trial period. In such cases, the transfer of control occurs when the trial period ex- pires. In some countries, customers are given the right to return the hearing aid within a cer- tain period. In such cases, the expected re- turns are estimated based on an analysis of historical return rates adjusted for any known factors impacting expectations of future return rates. Revenue and cost of goods sold are adjusted accordingly, and contract liabilities (refund liabilities) and rights to the returned goods (included in prepaid expenses) are recognised for the expected returns. Our activities also involve delivery of vari- ous services, such as extended warranties, warranty-related coverages (loss and damage) and after-sales services (e.g. fine-tuning of the hearing aid, additional hearing tests and cleaning). Revenue from these services is recognised on a straight- line basis over the warranty or service pe- riod, as the user makes use of the service continuously. Some users purchase a bat- tery package or are given batteries free of charge as part of the purchase of the hearing aid, entitling them to free batteries for a certain period. Revenue is recognised when the user receives the batteries or is given batteries free of charge as part of the purchase of the hearing aid. When available, we use an observable price to determine the stand-alone selling price for the separate performance obligations re- lated to these services, and in countries where observable prices are not available, we use a cost-plus-margin method. The standard warranty period for hearing aids and diagnostic equipment varies be- tween countries but is typically 12-24 months and for certain products or coun- tries up to 48 months. The extended war- ranty covers periods beyond the standard warranty period or standard warranty terms. Payment terms vary significantly between countries and depend on whether the customer is a private or public customer. The majority of hearing aids sold to users are invoiced and paid for after the initial fitting, but some customers choose to have the hearing aid financed by us. The trans- action price of such arrangements is ad- justed for any significant financing benefit, and the financing component is recognised as financial income. Accounting policies Revenue is recognised when obligations under the terms of the contract with the customer are satisfied, which usually oc- curs with the transfer of control of our products and services within Hearing Healthcare and Communications. Revenue is measured as the consideration we ex- pect to receive in exchange for transferring goods and providing services net of the es- timated discounts or other customer-re- lated reductions. Accounting estimates and judgements Discounts, returns etc. (estimate) Discounts, loyalty programmes and other revenue reductions are estimated and ac- crued when the related revenue is recog- nised. To make such estimates is a matter of judgement, as all conditions are not known at the time of sale, e.g. the number of units sold to a given customer or the ex- pected utilisation of loyalty programmes. Sales discounts, rebates and loyalty pro- grammes are adjusted, as we obtain bet- ter information on the likelihood that they will be realised and the value at which they are expected to be realised. Sales dis- counts and rebates are recognised under other cost payables as part of other liabili- ties, and loyalty programmes are recog- nised under deferred income. Depending on local legislation and the conditions to which a sale is subject, some customers have the option to return pur- chased goods and obtain a refund. Based on historical return rates, an estimate is made of the expected returns and a provi- sion is recognised. This provision is up- dated, as returns are recognised or when we collect more accurate data on return rates. After-sales services (estimate) After-sales services are provided to users of our hearing aids and are based on esti- mates, as not all users make use of these services. The estimate is a matter of judge- ment and is based on the number of visits, the duration of an average user’s visits and the expected number of users that make use of the after-sales services. 1.2 Revenue (continued) Insights and highlights Our business Corporate information Financial report Back to content Section 1 Operating activities and cash flow Demant – Annual Report 2023 74 Remuneration of the Executive Board The total remuneration of the Executive Board comprises: • Wages and salaries, which include a base salary and certain other benefits • A short-term incentive programme (cash bonus) – STIP • A long-term incentive programme (share-based remuneration) – LTIP As announced on 27 April 2023, Arne Boye Nielsen, former President of Diag- nostics and Communications and member of the Executive Board, left his position in Demant. He was entitled to continued re- muneration throughout the notice period, but not entitled to severance pay in ac- cordance with the Remuneration Policy. Arne Boye Nielsen’s remuneration covers the period in which he rendered services as member of the Executive Board. The remuneration of the Executive Board and the Board of Directors is described in detail in our Remuneration Report 2023. Remuneration of the Board of Directors The remuneration of the Board of Directors comprises a fixed fee and is not incentive- based. In 2023, the basic remuneration was DKK 450,000 (DKK 400,000 in 2022). The Chair receives three times the base fee and the Vice Chair twice the base fee. The members of the audit committee re- ceive a base fee of DKK 100,000 (DKK 50,000 in 2022), and the chair of the audit committee receives twice the base fee. The individual Board members' fees and their shareholdings can be found in our Remuneration Report 2023. Accounting policies Employee costs comprise wages, salaries, social security contributions, annual and sick leave, bonuses and non-monetary benefits and are recognised in the year in which the associated services are ren- dered by the employees. Where Demant provides long-term employee benefits, the costs are accrued to match the rendering of service by the employee in question. 1.3 Employees Remuneration to Executive Board and Board of Directors (included in employee costs) (DKK million) 2023 2022 Executive Board: Wages and salaries 25.6 25.9 Cash bonus 4.4 1.7 Share-based remuneration 11.6 8.7 Remuneration in the notice period 22.1 - Total 63.7 36.3 Board of Directors: Fee 5.4 4.8 Total 5.4 4.8 As announced on 27 April 2023, Arne Boye Nielsen, former President of Diagnostics and Communications and member of the Ex- ecutive Board, left his position in Demant. (DKK million) Note 2023 2022 Employee costs: Wages and salaries 8,051 7,307 Share-based remuneration 38 32 Defined contribution plans 98 134 Defined benefit plans 7.1 12 15 Social security costs etc. 928 817 Employee costs 9,127 8,305 Employee costs by function: Production costs 1,185 1,130 R&D costs 1,030 839 Distribution costs 5,926 5,465 Administrative expenses 986 871 Employee costs 9,127 8,305 Average number of full-time employees 21,168 19,239 Insights and highlights Our business Corporate information Financial report Back to content Section 1 Operating activities and cash flow Demant – Annual Report 2023 75 Share-based remuneration The Group has two types of share-based remuneration programmes, which consist of the “shadow share” programme and a RSU (restricted stock units) programme. The “shadow share” programme intro- duced in 2016 is cash-settled, whereas the RSU programme introduced in 2019 is eq- uity-settled. Remuneration under both pro- grammes is granted on a yearly basis and is contingent on the employee still being employed and not under termination when three years have passed from the time of the grant. The fair value of the shares at the time of the grant under both pro- grammes is based on the average share price of the first five trading days after publication of the annual report. Shadow share programme In 2023 and 2022, the Group granted no “shadow shares”. No new programmes were introduced in 2023. The liability is recognised on a straight-line basis, as the service is rendered, and the liability is re- measured at each reporting date and at the settlement date based on the fair value of the “shadow shares”. Fair value adjust- ments are recognised as financial income or financial expenses. If relevant, the liabil- ity is adjusted to reflect the expected risk of non-vesting as a result of resignations. Any changes to the liability are recognised in the income statement. In 2023, the Group bought back shares to cover the financial risk of share price fluctuations related to the programmes. At 31 December 2023, the remaining average contractual life of cash-settled remuneration programmes was three months (nine months in 2022). RSU programme In 2023, RSU shares were granted to 151 employees (149 employees in 2022). The Group recognised costs of DKK 34 million (DKK 24 million in 2022) in the income statement related to the RSU programme. There has been no subsequent remeasure- ment of the fair value. The costs are recog- nised on a straight-line basis, as the ser- vice is rendered. At 31 December 2023, the remaining average contractual life of equity-settled share programmes was 21 months (21 months in 2022). Restricted share units (RSU programme) Total Total shares fair value (number) (DKK million) Outstanding 1.1.2022 109,965 Granted 166,345 45 Exercised -18,943 Forfeited -8,069 Outstanding 31.12.2022 249,298 Granted 235,254 52 Exercised -19,001 Forfeited -1,753 Outstanding 31.12.2023 463,798 Accounting estimates and judgements Vesting conditions and fair value (estimate) For the share-based programmes, Man- agement estimates the likelihood of vest- ing conditions being satisfied. Vesting is entirely dependent on the persons enrolled in the share-based programmes remaining employed until expiry of the vesting period. Based on such likelihood, the estimate made is used to calculate the fair value of the share-based programmes. Further- more, the shares must be valued. For this purpose, Management uses the share price quoted on Nasdaq Copenhagen. 1.3 Employees (continued) Share-based remuneration ("shadow share" programme) (DKK million) 2023 2022 Other senior Other senior Executive members of Executive members of Board Management Board Management Liabilities at 1.1. 11.0 1.8 14.4 13.0 Transfer due to extension of Executive Board - - 6.1 -6.1 Transfer due to termination of Executive Board member -2.1 2.1 - - Expensed during the year in wages and salaries 4.5 0.2 6.0 0.6 Fair value adjustments 3.9 0.4 -6.6 -1.4 Settled during the year -8.0 -2.2 -8.9 -4.3 Liabilities at 31.12. 9.3 2.3 11.0 1.8 Granted during the year - - - - Unrecognised commitment at 31.12. 0.8 0.3 3.9 0.5 * Arne Boye Nielsen, former President of Diagnostics and Communications, and Niels Wagner, President of Hearing Care, joined the Executive Board effective 1 April 2022. The liability at the beginning of the year has therefore been transferred to the Executive Board. ** As announced on 27 April 2023, Arne Boye Nielsen left his position in Demant. The liability at the end of the year has therefore been transferred to the Other senior members of Management. *** Unrecognised commitment is the part of granted ”shadow shares” not expensed at 31 December. Insights and highlights Our business Corporate information Financial report Back to content Section 1 Operating activities and cash flow Demant – Annual Report 2023 76 For accounting policies on amortisation and depreciation, please refer to Note 3.1, Note 3.2 and Note 3.3. There were no impairment losses in 2023 and 2022 except for the impairment losses related to discontinued operations, please refer to Note 6.2. 1.4 Amortisation, depreciation and impairment losses 1.5 Earnings per share (DKK million) Note 2023 2022 Amortisation of intangible assets 3.1 181 152 Depreciation of property, plant and equipment 3.2 446 405 Depreciation of lease assets 3.3 707 619 Amortisation, depreciation and impairment losses 1,334 1,176 Amortisation, depreciation and impairment losses by function: Production costs 126 109 R&D costs 53 53 Distribution costs 929 812 Administrative expenses 226 202 Amortisation, depreciation and impairment losses 1,334 1,176 2023 2022 Demant A/S' shareholders' share of profit for the year, DKK million – continuing operations 2,552 2,274 Demant A/S' shareholders' share of profit for the year, DKK million – discontinued operations -757 -192 Demant A/S' shareholders' share of profit for the year, DKK million 1,795 2,082 Average number of shares, million 225.77 233.45 Average number of treasury shares, million -2.64 -7.44 Average number of shares outstanding, million 223.13 226.01 Earnings per share (EPS), DKK – continuing operations 11.44 10.06 Diluted earnings per share (DEPS), DKK – continuing operations 11.44 10.06 Earnings per share (EPS), DKK – discontinued operations -3.39 -0.85 Diluted earnings per share (DEPS), DKK – discontinued operations -3.39 -0.85 Earnings per share (EPS), DKK 8.04 9.21 Diluted earnings per share (DEPS), DKK 8.04 9.21 Insights and highlights Our business Corporate information Financial report Back to content Section 1 Operating activities and cash flow Demant – Annual Report 2023 77 Write-downs for the year are shown net, as breakdown into reversed write-downs and new write-downs is not possible. In- ventories are generally expected to be sold within one year. Accounting policies Raw materials, components and goods for resale are measured at cost according to the FIFO principle (according to which the most recently purchased items are consid- ered to be in stock) or at their net realisa- ble value, whichever is lower. Group-manufactured finished goods and work in progress are measured at the value of direct costs, direct payroll costs, consumables and a proportionate share of indirect production costs, which are allo- cated based on the normal capacity of the production facility. Indirect production costs include the proportionate share of capacity costs directly relating to Group- manufactured finished goods and work in progress. The net realisable value of inventories is determined as the estimated selling price less costs of completion and costs to sell. Accounting estimates and judgements Indirect production costs (significant judgement) Indirect production cost allocations to in- ventories are based on relevant judge- ments of capacity utilisation at the produc- tion facility, of production time and of other product-related factors. The judgements are reviewed regularly to ensure that in- ventories are measured at their actual pro- duction cost. Changes in judgements may affect gross profit margins as well as the valuation of work in progress, finished goods and goods for resale. Obsolescence provision (estimate) The obsolescence provision for inventories is based on the expected sales forecasts for the individual types of hearing devices, diagnostic equipment, headsets and other gaming/enterprise devices. Sales forecasts are based on Management’s expectations of market conditions and trends, and the obsolescence provision is subject to changes in these assumptions. 1.6 Inventories (DKK million) 2023 2022 Raw materials and purchased components 1,244 1,249 Work in progress 71 60 Finished goods and goods for resale 1,530 1,595 Inventories 2,845 2,904 Write-downs, provisions for obsolescence etc. included in the above 149 146 Included in the income statement under production costs: Write-downs of inventories for the year, net 54 52 Cost of goods sold for the year 4,343 3,813 Insights and highlights Our business Corporate information Financial report Back to content Section 1 Operating activities and cash flow Demant – Annual Report 2023 78 The opening balance of trade receivables in 2023 amounted to DKK 3,203 million. Of the total amount of trade receivables, DKK 267 million (DKK 247 million in 2022) is expected to be collected after 12 months. For information on security and collateral, please refer to Credit risks in Note 4.1. Accounting policies Trade receivables and contract assets are measured at amortised costs less ex- pected lifetime credit losses. For trade receivables, the Group has a sim- plified approach to determining the ex- pected credit loss. The allowance for credit loss is measured through a provision matrix. To measure the expected credit loss, trade receivables are grouped based on shared credit risk and the number of days that have passed after the due date. Allowances are also made for trade receivables not due. For trade receivables that are considered credit-impaired, the expected credit loss is determined on an individual basis. Accounting estimates and judgements Impairment of receivables (estimate) The Group has historically incurred insignifi- cant losses on trade receivables and con- tract assets. Allowance for impairment is calculated for trade receivables. The allowance is deter- mined as expected credit losses based on assessments of the debtors’ ability to pay. These assessments are made by local management for uniform groups of debt- ors based on maturity analyses. When in- dicated by special circumstances, impair- ments are made for individual trade re- ceivables. 1.7 Trade receivables (DKK million) 2023 2022 Allowance for impairment: Allowance for impairment at 1.1. -324 -334 Foreign currency translation adjustments 3 -11 Realised during the year 67 151 Additions during the year -147 -186 Reversals during the year 16 38 Transfer to assets held for sale - 18 Allowance for impairment at 31.12. -385 -324 Credit risk More Total 0-3 3-6 6-12 than 12 carry-Balance months months months months ing (DKK million) not due overdue overdue overdue overdue amount 2023 Gross carrying amount 2,583 759 221 140 332 4,035 Specific loss allowance -19 -62 -41 -28 -197 -347 General loss allowance -12 -9 -4 -5 -8 -38 Total 2,552 688 176 107 127 3,650 Expected loss rate 1.2% 9.4% 20.4% 23.6% 61.7% 9.5% 2022 Gross carrying amount 2,564 669 228 212 277 3,950 Specific loss allowance -15 -42 -48 -62 -123 -290 General loss allowance -11 -8 -4 -5 -6 -34 Total 2,538 619 176 145 148 3,626 Expected loss rate 1.0% 7.5% 22.8% 31.6% 46.6% 8.2% Insights and highlights Our business Corporate information Financial report Back to content Section 1 Operating activities and cash flow Demant – Annual Report 2023 79 Accounting policies Customer loans are initially recognised at fair value less transaction costs and are subsequently measured at amortised costs less loss allowance or impairment losses. Any difference between the nominal value and the fair value of the loans at initial recognition is treated as a prepaid dis- count on future sales to the customer and is recognised in the income statement as a reduction of revenue when the customer purchases goods from the Group. The fair value of customer loans at initial recognition is measured as the present value of future repayments on the loan discounted at a market interest rate. The effective interest on customer loans is rec- ognised as financial income in the income statement over the term of the loans. A loss allowance is recognised on initial recognition and is subsequently based on a 12-month expected credit loss model. If a significant increase in the credit risk has arisen since the initial recognition of the loan, a loss allowance based on the ex- pected lifetime credit loss is provided. Accounting estimates and judgements Accounting treatment (judgement) and impairment (estimate) of loans The Group provides sales-related financ- ing in the form of loans to some of its cus- tomers and business partners. These cus- tomer loan arrangements are complex, cover several aspects of the customer rela- tionship and may vary from agreement to agreement. Management assesses the recognition and classification of income and expenses for each of these agreements, including whether the agreement represents a dis- count on future sales (judgement). Man- agement also assesses whether there is an indication of impairment based on cur- rent economic market conditions and changes in the customer’s payment be- haviour (estimate). 1.8 Customer loans (DKK million) 2023 2022 Non-current customer loans 477 566 Current customer loans 191 229 Total customer loans 668 795 Allowance for impairment: Allowance for impairment at 1.1. -33 -17 Realised during the year - 1 Additions during the year -32 -26 Reversals during the year 3 9 Allowance for impairment at 31.12. -62 -33 Group internal credit rating (DKK million) Expected Gross credit carrying Carrying 2023 loss rate amount amount Performing 12-month expected credit loss 0.4% 551 549 Underperforming Expected lifetime credit loss 33.5% 179 119 Total customer loans 730 668 2022 Performing 12-month expected credit loss 0.3% 673 671 Underperforming Expected lifetime credit loss 20.0% 155 124 Total customer loans 828 795 Insights and highlights Our business Corporate information Financial report Back to content Section 1 Operating activities and cash flow Demant – Annual Report 2023 80 (DKK million) 2023 2022 Amortisation and depreciation 1,334 1,176 Share of profit after tax, associates -69 -122 Gain on sale of intangible assets and property, plant and equipment 11 -1 Provisions 95 -26 Exchange rate adjustments -50 -51 Employee share salary arrangement 64 80 Step-up gains -27 -14 Other non-cash items -35 32 Non-cash items etc. 1,323 1,074 1.9 Specification of non-cash items Insights and highlights Our business Corporate information Financial report Back to content Section 2 Exchange rates Demant – Annual Report 2023 81 Exchange rates Demant – Annual Report 2023 81 Interacoustics Insights and highlights Our business Corporate information Financial report Back to content Section 2 Exchange rates Insights and highlights Our business Corporate information Financial report Back to content Section 2 Exchange rates Demant – Annual Report 2023 82 The Group has cash flow in foreign curren- cies due to its international operations, which exposes the Group to fluctuations in exchange rates. Hedging against ex- change rate exposures ensures greater predictability in profit. The Group manu- factures and distributes most of its prod- ucts from the production facilities in Po- land and Mexico. The products are sold to the Group’s regional affiliates and are as a general principle invoiced in the functional currency of the buying entities. The currencies that mainly contribute to the Group’s exchange rate risks are US dollars, British pound, Canadian dollars, Australian dollars, Japanese yen, Polish zloty and Chinese yuan (renminbi). The aim of the Group’s hedging policy is to re- duce the Group’s exposure to exchange rate fluctuations, mainly by entering for- ward exchange contracts to mitigate the Group’s risks related to the impact that ex- change rate fluctuations have on consoli- dated earnings for up to 18 months rolling forward. The exchange rate risks are managed by Group Treasury. Hedging is done in ac- cordance with the Group’s policy to main- tain an overall adequate hedging level in 70-100% of the Group’s exposure to ex- change rate fluctuations. Group Treasury is not allowed to undertake any financial transactions in foreign currencies of a speculative nature. Cash flow hedging is undertaken to the extent possible to miti- gate any negative effects of adverse de- velopments in exchange rates on the con- solidated operating results. Due to the fixed exchange rate policy to- wards the euro in Denmark, the risk asso- ciated with exposure to fluctuations is con- sidered to be limited and therefore not hedged. Furthermore, the Group seeks to balance the on-balance net exposure in our main trading currencies. The Group does not hedge translation risks associated with the consolidating group accounts. The tables show the impact on the year’s operating profit (EBIT) and consolidated equity, given a change of 5% in the ex- change rates with the highest exposures. The exchange rate impact on EBIT is cal- culated based on the Group’s EBIT for each currency and does not allow a possi- ble exchange rate impact on balance sheet values in those currencies. 2.2 Sensitivity analysis in respect of exchange rates 2.1 Exchange rate risk policy Effect on EBIT, 5% positive change in exchange rates Effect on equity, 5% positive change in exchange rates (DKK million) 2023 2022 (DKK million) 2023 2022 USD +81 +56 USD +66 +47 GBP +35 +30 GBP +34 +29 CAD +29 +22 CAD +26 +20 AUD +10 +10 AUD +9 +9 JPY +6 +5 JPY +5 +5 PLN -33 -30 PLN -35 -31 CNY +7 +5 CNY +6 +4 Estimated on a non-hedged basis, i.e. the total annual exchange rate effect, excluding forward exchange contracts. Insights and highlights Our business Corporate information Financial report Back to content Section 2 Exchange rates Demant – Annual Report 2023 83 Cash flow hedging Open forward exchange contracts at the balance sheet date, that is entered to hedge future cash flow, may be specified as shown in the table, with contracts for the sale of currency being shown at nega- tive contract values. The expiry dates re- flect the periods in which the hedged cash flows are expected to be realised. Realised forward exchange contracts, that is entered to hedge future cash flow, are recognised in the income statement to- gether with revenue in foreign currencies that such contracts are designed to hedge cash flow for. In 2023, our forward ex- change contracts realised a gain of DKK 106 million (loss of DKK 202 million in 2022), which increased our reported revenue for the year. The Group’s forward exchange contracts were effective in 2023 and 2022. Accounting policies On initial recognition, derivatives are measured at fair value at the settlement date. After initial recognition, derivatives are measured at fair value at the balance sheet date. Any positive or negative fair values of derivatives are recognised as separate items on the balance sheet as unrealised gains/losses on financial con- tracts. Forward exchange contracts are measured based on current market data and by means of commonly recognised valuation methods. Please refer to Note 4.5. Any changes in fair values of derivatives classified as hedging instruments and satisfying the criteria for hedging the fair value of a recognised asset or a recog- nised liability are recognised in the income statement together with any changes in the fair value of the hedged asset or hedged liability. Any changes in fair values of derivatives classified as hedging instru- ments and satisfying the criteria for effec- tive hedging of future transactions are rec- ognised in other comprehensive income. The ineffective portion is recognised di- rectly in the income statement. On realisa- tion of the hedged transactions, the accu- mulated changes are recognised together with the related transactions. Derivatives not fulfilling the conditions for treatment as hedging instruments are con- sidered trading investments and measured at fair value, with fair value adjustments being recognised on an ongoing basis in the income statement. 2.3 Hedging and forward exchange contracts Forward exchange contracts Average Positive fair Negative Hedging hedging Contractual value at fair value (DKK million) Expiry period rate value Fair value year-end at year-end 2023 USD 2024 10 months 676 -1,216 15 18 3 AUD 2024 11 months 447 -239 -5 - 5 GBP 2024 10 months 844 -523 -4 1 5 CAD 2024 10 months 504 -413 -2 1 3 JPY 2024 11 months 4.90 -95 1 2 1 PLN 2024 9 months 161 711 37 37 - EUR 2024 12 months 742 893 1 1 - -882 43 60 17 2022 USD 2023 10 months 701 -1,072 18 30 12 AUD 2023 9 months 487 -263 8 8 - GBP 2023 9 months 855 -470 13 13 - CAD 2023 9 months 533 -362 16 16 - JPY 2023 10 months 5.34 -85 - 1 1 PLN 2023 9 months 150 479 15 15 - EUR 2024 24 months 742 891 -2 - 2 -882 68 83 15 Hedging periods represent the estimated periods for which the exchange rate exposure of a relative share of our revenue in a currency will be covered by forward exchange contracts. Forward exchange contracts in euros hedged a fixed committed financial loan. Insights and highlights Our business Corporate information Financial report Back to content Section 3 Asset base Demant – Annual Report 2023 84 Asset base Demant – Annual Report 2023 84 INTANGIBLE ASSETS 13,540 DKK MILLION PROPERTY, PLANT AND EQUIPMENT 2,813 DKK MILLION OTHER NON-CURRENT ASSETS 1,652 DKK MILLION Insights and highlights Our business Corporate information Financial report Back to content Section 3 Asset base Insights and highlights Our business Corporate information Financial report Back to content Section 3 Asset base Demant – Annual Report 2023 85 3.1 Intangible assets (DKK million) 2023 2022 Assets Assets Patents Other under Total Patents Other under Total and intangible develop- intangible and intangible develop- intangible Goodwill licences assets ment assets Goodwill licences assets ment assets Cost at 1.1. 11,488 75 1,639 260 13,462 9,471 137 1,229 274 11,111 Foreign currency translation adjustments -220 - -8 -6 -234 111 - 15 2 128 Additions during the year - 1 48 145 194 - 7 75 194 276 Additions relating to acquisitions 1,112 - 58 1 1,171 2,366 1 235 4 2,606 Disposals during the year - -5 -54 - -59 -1 -4 -4 - -9 Transferred to/from other items 1 - 76 -68 9 - - 107 -107 - Transferred to assets held for sale - - 18 - 18 -459 -66 -18 -107 -650 Cost at 31.12. 12,381 71 1,777 332 14,561 11,488 75 1,639 260 13,462 Amortisation at 1.1. - -56 -824 - -880 - -116 -678 - -794 Foreign currency translation adjustments - - 5 - 5 - - -11 - -11 Amortisation for the year - -5 -176 - -181 - -5 -147 - -152 Amortisation transfer - - -9 - -9 - - - - - Disposals during the year - 5 50 - 55 - 3 1 - 4 Transferred to assets held for sale - - -11 - -11 - 62 11 - 73 Amortisation at 31.12. - -56 -965 - -1,021 - -56 -824 - -880 Carrying amount at 31.12. 12,381 15 812 332 13,540 11,488 19 815 260 12,582 Prepayments are included in assets under development. Insights and highlights Our business Corporate information Financial report Back to content Section 3 Asset base Demant – Annual Report 2023 86 Accounting policies On initial recognition, goodwill is recog- nised and measured as the difference be- tween the acquisition cost – including the value of non-controlling interests in the ac- quired enterprise and the fair value of any existing investment in the acquired enter- prise – and the fair values of the acquired assets, liabilities and contingent liabilities. Please refer to Accounting policies in Note 6.1. On recognition, goodwill is allocated to corporate activities that generate inde- pendent payments (cash-generating units). The definition of a cash-generating unit is in line with the Group’s managerial structure as well as the internal financial management reporting. Goodwill is not amortised but is tested for impairment at least once a year. If the re- coverable amount of a cash-generating unit is lower than the carrying amounts of property, plant and equipment and intan- gible assets, including goodwill, attributa- ble to the particular cash-generating unit, the particular assets will be written down. Patents and licences acquired from third parties are measured at cost less accumu- lated amortisation and impairment losses. Patents and licences are amortised on a straight-line basis over their estimated useful lives. Other intangible assets consist of soft- ware, other rights than patents and li- cences and other intangible assets ac- quired in connection with business combi- nations, primarily brand value, customer relationships and non-compete agree- ments. Other intangible assets are measured at cost less accumulated amortisation and impairment losses. Other intangible assets are amortised on a straight-line basis over their estimated useful lives, except other rights, which are not amortised, as the re- sidual value of other rights is considered to exceed the cost price and is instead tested annually for impairment. Please refer to Note 3.6. Assets under development include inter- nally developed IT systems. Assets under development are measured at cost, which includes direct salaries, consultant fees and other direct costs attributable to the development of such assets. Assets under development are not amortised, as they are not available for use. Useful lives of intangible assets: Patents and licences 5-20 years Software 3-10 years Brand value 5-10 years Customer relationships 5-9 years Accounting estimates and judgements Product development (judgement) It is Management’s opinion that the prod- uct development undertaken by the Group today cannot meaningfully be allocated to either the development of new products or the further development of existing prod- ucts. Moreover, as the products are subject to approval by various authorities, it is dif- ficult to determine the final completion of new products. 3.1 Intangible assets (continued) Insights and highlights Our business Corporate information Financial report Back to content Section 3 Asset base Demant – Annual Report 2023 87 3.2 Property, plant and equipment (DKK million) 2023 2022 Other Other plant, plant, fixtures Total fixtures Total and Assets property and Assets property opera- Lease-under plant opera- Lease-under plant Land Plant ting hold im-con-and Land Plant ting hold im-con-and and and ma-equip- prove-struc-equip-and and ma-equip- prove-struc-equip-buildings chinery ment ments tion ment buildings chinery ment ments tion ment Cost at 1.1. 1,339 835 1,737 1,391 220 5,522 1,308 788 1,624 1,133 127 4,980 Foreign currency translation adjustments 6 13 - - 12 31 10 -2 22 3 - 33 Additions during the year 20 51 188 206 187 652 6 44 185 205 207 647 Additions relating to acquisitions 8 9 22 15 - 54 - 2 24 44 - 70 Disposals during the year -60 -221 -167 -40 -3 -491 -8 -33 -53 -31 - -125 Transferred to/from other items 126 39 16 2 -191 -8 23 82 -41 50 -114 - Transferred to assets held for sale - - - - - - - -46 -24 -13 - -83 Cost at 31.12. 1,439 726 1,796 1,574 225 5,760 1,339 835 1,737 1,391 220 5,522 Depreciation and impairment losses at 1.1. -333 -598 -1,281 -757 - -2,969 -306 -576 -1,166 -655 - -2,703 Foreign currency translation adjustments - -6 3 3 - - -4 2 -16 -3 - -21 Depreciation for the year -29 -87 -172 -158 - -446 -28 -78 -156 -148 - -410 Disposals during the year 58 219 160 23 - 460 5 31 44 29 - 109 Transferred to/from other items - 6 2 - 8 - -2 -8 10 - - Transferred to assets held for sale - - - - - - - 25 21 10 - 56 Depreciation and impairment losses at 31.12. -304 -466 -1,288 -889 - -2,947 -333 -598 -1,281 -757 - -2,969 Carrying amount at 31.12. 1,135 260 508 685 225 2,813 1,006 237 456 634 220 2,553 Prepayments are included in assets under construction. Insights and highlights Our business Corporate information Financial report Back to content Section 3 Asset base Demant – Annual Report 2023 88 Accounting policies Property, plant and equipment are recog- nised at cost less accumulated deprecia- tion and impairment losses. Cost is defined as the acquisition price and costs directly relating to the acquisition until the point in time when the particular asset is ready for use. For assets produced by the Group, cost includes all costs directly attributable to the production of such assets, including materials, components, sub-supplies and payroll. If the acquisition or the use of an asset requires the Group to defray costs for the demolition or restoration of such asset, the calculated costs hereof are rec- ognised as a provision and as part of the cost of the particular asset, respectively. Assets consisting of various elements will be depreciated separately if their useful lives are not the same. Property, plant and equipment are depre- ciated on a straight-line basis over their estimated useful lives. Land is not depreci- ated. Buildings 30-50 years Technical installations 10 years Plant and machinery 3-5 years Other plant, fixtures and operating equipment 3-5 years IT hardware 3-5 years Leasehold improvements Up to 10 years Accounting estimates and judgements Useful life and residual value (estimate) The depreciation basis is cost less the esti- mated residual value of an asset after the end of its useful life. The residual value is the estimated amount, which could after deduction of costs to sell be obtained through the sale of the asset today, such asset already having the age and being in the state of repair expected after the end of its useful life. The residual value is de- termined at the time of acquisition and is reviewed annually. If the residual value ex- ceeds the carrying amount, depreciation will be discontinued. Depreciation methods, useful lives and residual values are reviewed annually. Property, plant and equipment are written down to their recoverable amounts, if these are lower than their carrying amounts. Approx. 95% of the Group’s leases consist of property agreements. The lease terms are of various length and may contain ex- tension and termination options. Management exercises significant judge- ment in determining whether it is reasona- bly certain that these extension and termi- nation options will be exercised. 3.3 Leases 3.2 Property, plant and equipment (continued) (DKK million) 2023 2022 Lease assets at 1.1. 2,304 2,079 Foreign currency translation adjustments -6 8 Additions during the year 913 760 Additions relating to acquisitions 142 170 Disposals during the year -50 -71 Depreciations during the year -707 -624 Transferred to assets held for sale - -18 Lease assets at 31.12. 2,596 2,304 Lease liabilities at 1.1. 2,380 2,121 Foreign currency translation adjustments -8 7 Additions during the year 918 763 Additions relating to acquisitions 142 170 Covid-19-related rent concessions -6 -3 Disposals during the year -42 -45 Payments -767 -660 Interest 69 46 Transferred to liabilities related to assets held for sale - -19 Lease liabilities at 31.12. 2,686 2,380 Current lease liabilities 641 614 Non-current lease liabilities 2,045 1,766 Amounts recognised in the income statement: Variable lease payments 33 31 Short-term lease expenses 41 45 Low-value assets 6 4 Insights and highlights Our business Corporate information Financial report Back to content Section 3 Asset base Demant – Annual Report 2023 89 Accounting policies Lease assets Lease assets and liabilities are recognised in the balance sheet at the commencement date of the contract, if it is or contains a lease. Lease assets are recognised at cost less accumulated depreciation and impair- ment. Cost is defined as the lease liability adjusted for any lease payments made at or before the commencement date. Lease assets are depreciated on a straight-line basis over the lease term. Lease liabilities Lease liabilities are measured at the pre- sent value of future payments, using the implicit interest rate in the lease agree- ment. Lease payments are discounted, us- ing the Group’s incremental borrowing rate adjusted for the functional currencies and length of the lease term, if the implicit in- terest rate in the lease agreement cannot be determined. Lease payments contain fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate as well as payments of penalties for terminating the lease, if the terms of the lease warrants that the Group exercises that option. The lease liability is remeasured if or when the future payment or lease term changes. Any net remeasurement of the lease liabil- ity is recognised as an adjustment to the lease asset. If the carrying amount of the lease asset is reduced to zero, the adjust- ment will be recognised in the income statement. Additional information Short-term lease expenses, low-value as- sets and variable lease payments are clas- sified as operating expenses in the income statement. Please refer to Note 4.4 for a maturity analysis of the lease liabilities. Accounting estimates and judgements Lease term (judgement) The lease term is the period during which the lease contract is enforceable. If the original expiry date of a lease contract has passed, typically in the case of property leases, but the contract continues without a determined expiry date, the lease term is set for an estimated period during which the lease contract is expected to be en- forceable. This assessment is based on Management’s judgement and takes into consideration the location of the lease, capitalised leasehold improvements and experience with similar leases for the spe- cific area. Extension and termination options (significant judgement) When determining the lease term for lease agreements containing extension and ter- mination options, Management considers circumstances that create a financial in- centive to exercise an extension option or not to exercise a termination option. Exten- sion and termination options are only in- cluded in the lease term, if it is reasonably certain that a lease will be extended/termi- nated. 3.3 Leases (continued) Insights and highlights Our business Corporate information Financial report Back to content Section 3 Asset base Demant – Annual Report 2023 90 3.4 Other non-current assets (DKK million) 2023 2022 Invest-Receivables Invest-Receivables ments in from Customer ments in from Customer associates associates loans Other associates associates loans Other Cost at 1.1. 816 369 587 108 803 271 501 97 Foreign currency translation adjustments -11 -1 -17 -2 21 -2 23 1 Additions during the year - 73 136 58 - 120 303 9 Additions relating to acquisitions 15 - - 15 7 - - 9 Disposals related to step acquisitions and disposals of associates -79 -28 - - -15 -20 - -5 Disposals, repayments etc. during the year - -145 -69 -7 - - -56 -3 Transferred to current assets - - -111 - - - -184 - Cost at 31.12. 741 268 526 172 816 369 587 108 Value adjustments at 1.1. 6 2 -21 -24 55 -4 -8 -22 Foreign currency translation adjustments 2 - 1 - -4 - - - Share of profit after tax 69 - - - 122 - - - Dividends received -85 - - - -164 - - - Disposals relating to step-up acquisitions of associates -3 1 - - - - - - Other adjustments -2 6 -29 16 -3 6 -14 -2 Disposals during the year - - - 6 - - 1 - Value adjustments at 31.12. -13 9 -49 -2 6 2 -21 -24 Carrying amount at 31.12. 728 277 477 170 822 371 566 84 Insights and highlights Our business Corporate information Financial report Back to content Section 3 Asset base Demant – Annual Report 2023 91 Transactions with associates In 2023, the Group recognised revenue from sales to associates of DKK 620 mil- lion (DKK 589 million in 2022). Further, the Group received royalties from and paid li- cence fees to associates amounting to net income of DKK 12 million (DKK 18 million in 2022), purchased materials and re- ceived other fees from associates amount- ing to net expenses of DKK 11 million (DKK 18 million in 2022) and received dividends from associates in the amount of DKK 85 million (DKK 164 million in 2022). In 2023, the Group received interest income from associates in the amount of DKK 24 million (DKK 16 million in 2022). Under the provisions of contracts con- cluded with associates, the Group is not entitled to receive dividends from certain associates. This is reflected in the profit in- cluded in the income statement, as no profit is recognised if the Group is not enti- tled to receive dividends. Accounting policies Investments in associates are recognised and measured using the equity method, i.e. investments are recognised in the balance sheet at the proportionate share of the eq- uity value determined in accordance with the Group’s accounting policies after the deduction and addition of proportionate intra-group gains and losses, respectively, and after the addition of the carrying amount of any goodwill. The proportionate shares of profit after tax in associates are recognised in the income statement after the year’s changes in unrealised intra- group profits less any impairment loss re- lating to goodwill. The proportionate shares of all transac- tions and events, which have been recog- nised in other comprehensive income in associates, are recognised in consolidated other comprehensive income. On the ac- quisition of interests in associates, the ac- quisition method is applied. For accounting policies on segment infor- mation, please refer to Note 1.1. Associates (DKK million) 2023 2022 Financial information from financial statements (Group share): Revenue 768 876 Profit for the year 69 122 Comprehensive income 69 122 3.5 Non-current assets by geographies (DKK million) 2023 2022 Non-current assets by geographic region: Europe 10,296 8,815 North America 7,155 7,243 Asia 2,125 2,223 Pacific region 853 802 Rest of world 191 214 Non-current assets 20,620 19,297 Non-current assets by country: Denmark 2,303 2,307 USA 5,635 5,641 France 3,139 3,136 Other countries 9,543 8,213 Non-current assets 20,620 19,297 3.4 Other non-current assets (continued) Insights and highlights Our business Corporate information Financial report Back to content Section 3 Asset base Demant – Annual Report 2023 92 Impairment testing is carried out for the Group’s two cash-generating units, Hear- ing Healthcare and Communications. Based on the impairment tests performed, a material excess value was identified in each cash-generating unit compared to the carrying amount for which reason no impairment of goodwill was made at 31 December 2023, except for the impairment of goodwill related to discontinued opera- tions, please refer to Note 6.2. This conclu- sion is supported by the fact that the mar- ket capitalisation of the company on Nasdaq Copenhagen by far exceeds the equity value of the company. At 31 December 2023, goodwill amounted to DKK 11,964 million in Hearing Health- care (DKK 11,071 million in 2022) and DKK 417 million in Communications (DKK 417 million in 2022). The impairment tests are performed as a test of the value in use, including a five- year budget/projection period from 2024- 2028. Future cash flows are based on the budget for 2024, on strategy plans and on projec- tions hereof. Projections extending beyond 2024 are based on general parameters, such as expected market growth, selling prices and profitability assumptions. The terminal value for the period after 2028 is determined on the assumption of 2% (2022: 2%) growth for each segment. The market growth rate in the hearing aid industry and for audio solutions is predom- inantly determined by the following factors: Hearing Healthcare: • Growing demographics and an increas- ing share of elderly in the population, driving stable unit growth in the hearing aid market. • Expansion of diagnostic instruments and services across the world. • Increased penetration rates of hearing healthcare solutions due to education, increased affluence and availability. Communications: • Increasing adoption of Unified Commu- nications and Collaboration equipment, especially professional headsets. • Emergence and establishment of video solutions for enterprises. The pre-tax discount rate is 8% (2022: 8%) for Hearing Healthcare and 12% (2022: 12%) for Communications. Sensitivity cal- culations show that even a significant in- crease in the discount rates or a significant reduction of the growth assumptions will not change the outcome of the impairment tests. Apart from goodwill, all intangible assets have limited useful lives. Accounting estimates and judgements Cash-generating units (judgement) Impairment testing is carried out annually on preparation of the annual report or on indication of impairment in which dis- counted values of future cash flows are compared with carrying amounts. Group enterprises cooperate closely on R&D, pur- chasing, production, marketing and sale, as the use of resources in the individual markets is coordinated and monitored by Management in Denmark. Group enter- prises are thus highly integrated. Regard- less of this, the products and services of- fered by Hearing Healthcare and Commu- nications address different customer de- mands and customer groups, which would not be comparable by nature. Management therefore considers it most appropriate to split the activities into two reportable seg- ments, Hearing Healthcare and Communi- cations. The two reportable segments con- stitute the Group’s cash-generating units. Individual impairment testing is therefore carried out for these two cash-generating units. Accounting policies The carrying amounts of property, plant and equipment and intangible assets with definite useful lives as well as investments in associates are reviewed at the balance sheet date to determine whether there are indications of impairment. If so, the recov- erable amount of the particular asset is calculated to determine the need for im- pairment, if any. The recoverable amounts of goodwill and other intangible assets with indefinite useful lives will be esti- mated, whether or not there are indica- tions of impairment. The recoverable amount is estimated for the smallest cash-generating unit of which the asset is part. The recoverable amount is determined as the higher of the fair value of the asset or cash-generating unit less costs to sell and the value in use of such asset or unit. On determination of the value in use, estimated future cash flows will be discounted to their present values, using a discount rate that reflects partly current market valuations of the time value of money, and partly the special risks at- tached to the particular asset or cash-gen- erating unit for which no adjustment has been made in the estimated future cash flows. If the recoverable amount of a par- ticular asset or cash-generating unit is lower than its carrying amount, such asset or unit is written down to its recoverable amount. Impairment losses are recognised in the in- come statement. On any subsequent re- versal of impairment losses due to changes in the judgements on which the calculation of the recoverable amount is based, the carrying amount of an asset or cash-gen- erating unit is increased to the adjusted estimate of the recoverable amount, how- ever not exceeding the carrying amount of the asset or cash-generating unit, had the particular asset or cash-generating unit not been written down. Impairment of goodwill is not reversed. 3.6 Impairment testing Insights and highlights Our business Corporate information Financial report Back to content Section 4 Capital structure and financial management Demant – Annual Report 2023 93 Capital structure and financial management Demant – Annual Report 2023 93 NET INTEREST- BEARING DEBT 12,280 DKK MILLION NET FINANCIAL ITEMS -754 DKK MILLION Insights and highlights Our business Corporate information Financial report Back to content Section 4 Capital structure and financial management Insights and highlights Our business Corporate information Financial report Back to content Section 4 Capital structure and financial management Demant – Annual Report 2023 94 Policies relating to financial risk management Financial risk management concentrates on identifying risks in respect of changes in the financial markets and customers’ pro- pensity to pay for products and services. The Executive Board monitors the financial risks of the company to ensure that these remain well-balanced. Financial risks are managed centrally by Group Treasury, which is responsible for securing attractive funding under the prevailing market condi- tions and for monitoring and mitigating risks related to liquidity, interest rates and exchange rates. Risks related to counter- parties are managed in the individual mar- kets. Capital structure, funding and liquidity risks Demant remains a highly cash-generating company with a strong balance sheet. The Group continuously adapts its capital structure to the prevailing market condi- tions in order to secure attractive financ- ing. We secure our funding based on a strong commitment by our banks to pro- vide longer-term bank facilities. To miti- gate potential liquidity and refinancing risks, the Group has secured considerable undrawn committed credit facilities. To minimise financing risks, we aim for more than 50% of our credit facilities to be committed with long-term maturity, and our financial gearing multiple is currently within our desired target range of 2.0-2.5. Interest rate risks Due to higher market interest rates, our fi- nancial expenses increased in 2023. Fur- thermore, credit spreads and debt margins increased in the financial markets due to higher capital requirements imposed on the banks. Currently, around 45% of the Group’s debt is funded through facilities with fixed rates or hedged through financial instruments limiting the interest rate risk. The Group’s net interest-bearing debt (NIBD) amounted to DKK 12,280 million as of 31 December 2023, and the gearing multiple (NIBD/EBITDA) was 2.2. Exchange rate risks The Group is exposed to exchange rate risks, as the company trades with counter- parties in a number of countries, and as the Group has cash flows in different cur- rencies. It is therefore important to ade- quately balance foreign exchange rate risks to avoid unexpected adverse impacts on the financial performance. The majority of Group companies transact mainly in local currencies and are therefore exposed to limited exchange rate risks. The Group does not hedge translation risks resulting from the consolidation of Group accounts into Danish kroner. Most Group companies are invoiced from the Danish production entities. Around two-thirds of the invoicing out of Denmark is invoiced in other currencies than Danish kroner or eu- ros. To reduce our exchange rate expo- sure, we continuously seek to balance in- going and outgoing cash flows in our main trading currencies as much as possible. To ensure predictability in terms of net profit, we hedge expected future net cash flows mainly through forward exchange con- tracts with a horizon of up to 18 months. In addition, we seek to balance our on-bal- ance net exposure in our main trading cur- rencies and, where relevant, our exposure is hedged. It is the Group’s policy to exclu- sively hedge financial risks arising from our commercial activities and not to undertake any financial transactions of a speculative nature. Counterpart risks From a commercial point of view, the Group is exposed to credit risks if our cus- tomers fail to pay for products and ser- vices provided. Such risks mainly relate to trade receivables and loans to customers or business partners, and failure to ade- quately manage credit risks can adversely impact the Group. To minimise the risk of suffering losses on customers, the Group monitors the credit risks on an ongoing basis. The Group gen- erally has a diversified customer base, and in 2023, the accumulated revenue from our ten largest customers accounted for ap- prox. 15% of total consolidated revenue. We regularly adjust our financial accounts to reflect the current credit risks. When granting loans to business partners, we require that our counterparties provide security in their business. In general, we estimate that the risk relative to our total credit exposure is well-balanced at Group level, and historically, we have only suf- fered limited credit-related losses. The maximum credit risk relating to receiv- ables matches the carrying amounts of such receivables. Overall, the Group has limited deposits with financial institutions for which reason the credit risk in respect of deposits is considered to be low. 4.1 Financial risk management and capital structure Insights and highlights Our business Corporate information Financial report Back to content Section 4 Capital structure and financial management Demant – Annual Report 2023 95 Accounting policies Net financial items mainly consist of inter- est income and interest expenses, credit card fees and bank fees and also include interest on lease liabilities, the unwinding of discounts on financial assets and liabili- ties, fair value adjustments of “shadow shares” under share-based remuneration programmes as well as certain realised and unrealised foreign exchange gains and losses. Interest income and interest expenses are accrued based on the princi- pal amount and the effective interest rate. The effective interest rate is the discount rate used for discounting expected future payments attaching to the financial asset or financial liability in order for the present value to match the carrying amount of such asset or liability. The following non-financial item is included in the balance sheet and represents the difference between the table and the bal- ance sheet: Other liabilities of DKK 543 million (DKK 460 million in 2022). Accounting policies Debt to credit institutions is recognised at the date of borrowing as the proceeds re- ceived less transaction costs. For subse- quent periods, financial liabilities are measured at amortised cost in order for the difference between proceeds and the nominal value to be recognised as a finan- cial expense over the term of the loan. 4.2 Net financial items (DKK million) 2023 2022 Interest on cash and bank deposits 35 11 Interest on receivables, customer loans etc. 55 45 Other financial income 11 27 Financial income from financial assets measured at amortised cost 101 83 Interest on bank debt, mortgages etc. -488 -145 Interest expense on lease liabilities -71 -46 Financial expenses on financial liabilities measured at amortised cost -559 -191 Foreign exchange losses, net -119 -13 Transaction costs -177 -159 Financial expenses -855 -363 Net financial items -754 -280 4.3 Categories of financial instruments (DKK million) 2023 2022 Unrealised gains on financial contracts 60 103 Financial assets used as hedging instruments 60 103 Receivables from associates 465 541 Customer loans 668 795 Other receivables 548 460 Trade receivables 3,650 3,626 Cash 1,138 1,130 Financial assets at amortised cost 6,469 6,552 Other investments 19 15 Financial assets at fair value through profit/loss 19 15 Unrealised losses on financial contracts -35 -15 Financial liabilities used as hedging instruments -35 -15 Debt to credit institutions etc. -11,238 -11,931 Short-term bank facilities etc. -530 -765 Lease liabilities -2,686 -2,380 Trade payables -799 -865 Other liabilities -2,615 -2,551 Financial liabilities measured at amortised cost -17,868 -18,492 Insights and highlights Our business Corporate information Financial report Back to content Section 4 Capital structure and financial management Demant – Annual Report 2023 96 4.3 Categories of financial instruments (continued) On initial recognition, other financial liabili- ties are measured at fair value and subse- quently at amortised cost using the effec- tive interest method, and the difference between proceeds and the nominal value is recognised in the income statement as a financial expense over the term of the loan. 4.4 Net interest-bearing debt, liquidity and interest rate risks (DKK million) Contractual cash flows Weighted average effective Less than More than Carrying interest 1 year 1-5 years 5 years Total amount rate 2023 Interest-bearing receivables 269 677 145 1,091 1,036 Cash 1,172 - - 1,172 1,138 Interest-bearing assets 1,441 677 145 2,263 2,174 4.1% Debt to credit institutions etc. -1,489 -10,619 -301 -12,409 -11,238 Short-term bank facilities etc. -560 - - -560 -530 Borrowings -2,049 -10,619 -301 -12,969 -11,768 3.9% Lease liabilities -688 -1,822 -650 -3,160 -2,686 Net interest-bearing debt -1,296 -11,764 -806 -13,866 -12,280 2022 Interest-bearing receivables 302 790 194 1,286 1,235 Cash 1,140 - - 1,140 1,130 Interest-bearing assets 1,442 790 194 2,426 2,365 2.6% Debt to credit institutions etc. -6,027 -5,358 -885 -12,270 -11,931 Short-term bank facilities etc. -801 - - -801 -765 Borrowings -6,828 -5,358 -885 -13,071 -12,696 2.2% Lease liabilities -656 -1,531 -462 -2,649 -2,380 Net interest-bearing debt -6,042 -6,099 -1,153 -13,294 -12,711 Interest-bearing receivables comprise customer loans, receivables from associates as well as other receivables. Insights and highlights Our business Corporate information Financial report Back to content Section 4 Capital structure and financial management Demant – Annual Report 2023 97 Trade payables and other liabilities have a contractual maturity of less than one year, with the exception of other liabilities of DKK 661 million (DKK 566 million in 2022), which have a contractual maturity of 1-5 years. The contractual cash flows approximate their carrying amounts. Borrowings broken down by currency: 59% in Danish kroner (63% in 2022), 26% in euros (23% in 2022), 6% in US dollars (6% in 2022), 2% in Canadian dollars (3% in 2022) and 7% in other currencies (6% in 2022). Reconciliation of liabilities arising from financing activities The table shows the changes in consoli- dated liabilities arising from financing ac- tivities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classi- fied in the consolidated cash flow state- ment as cash flows from financing activi- ties. The fair value of the interest rate swap outstanding at the balance sheet date is DKK 18 million (DKK 0 million in 2022), and the contractual value of the interest swap is DKK 1,000 million (DKK 0 million in 2022). The interest rate swap matures in 2026. Sensitivity analysis in respect of interest rates Based on the Group’s net debt at the end of the 2023 financial year, a rise of 1 per- centage point in the general interest rate level will cause an increase in consolidated annual interest expenses before tax of ap- prox. DKK 58 million (DKK 57 million in 2022). Around 45% (around 46% in 2022) of the interest-bearing debt is subject to fixed interest rates, partly due to a bought interest rate swap and partly due to loans being raised at fixed interest rates. 4.4 Net interest-bearing debt, liquidity and interest rate risks (continued) Interest rate swap (Interest rate cap in 2022) (DKK million) Contractual Positive Negative Interest amount fair value fair value Expiry rate/strike at year-end at year-end at year-end 2023 DKK/DKK 2026 3.27% 1,000 - -18 1,000 - -18 2022 DKK/DKK 2023 0% 650 20 - 650 20 - Insights and highlights Our business Corporate information Financial report Back to content Section 4 Capital structure and financial management Demant – Annual Report 2023 98 4.4 Net interest-bearing debt, liquidity and interest rate risks (continued) Non-cash changes Cash flow Covid-19 Acquisi-Transferred from rent tions and Foreign to liabilities financing conces-divest-exchange Other held for (DKK million) 2022 activities sions ments movement additions Disposals sale 2023 Lease liabilities 2,380 -698 -6 142 -8 918 -42 - 2,686 Debt to credit institutions etc. 11,931 -706 - 15 -2 - - - 11,238 Short-term bank facilities 765 -188 - 1 -48 - - - 530 Interest-bearing liabilities 15,076 -1,592 -6 158 -58 918 -42 - 14,454 2021 2022 Lease liabilities 2,121 -614 -3 170 7 763 -45 -19 2,380 Debt to credit institutions etc. 6,020 5,869 - 30 12 - - - 11,931 Short-term bank facilities 3,197 -2,477 - - 46 - - -1 765 Interest-bearing liabilities 11,338 2,778 -3 200 65 763 -45 -20 15,076 Insights and highlights Our business Corporate information Financial report Back to content Section 4 Capital structure and financial management Demant – Annual Report 2023 99 Methods and judgements for determining fair values Other investments Other investments are assessed on the basis of their fair value. Derivatives Forward exchange contracts are assessed using discounted cash flow valuation tech- niques. Future cash flows are based on observable forward exchange rates at the end of the reporting period and on con- tractual forward exchange rates dis- counted at a rate that reflects the credit risk related to various counterparties. Interest rate swaps are assessed using discounted cash flow valuation techniques. Future cash flows are based on observable forward yield curves at the end of the re- porting period and on contractual interest rates discounted at a rate that reflects the credit risk related to various counterparties. The value of a cap is assessed using dis- counted cash flow valuation techniques. A cap consists of a series of interest rate op- tions (IRGs) with the same strike rate. The individual interest rate options each cover an interest period. The key elements, when pricing interest rate options, are strike rate, forward rate, maturity and volatility. The value of an interest rate option is made up of the intrinsic value and the time value of such option. The value of a cap is the com- bined value of the individual IRGs. Contingent considerations Contingent considerations are measured at their fair values based on the contrac- tual terms of the contingent considerations and on non-observable inputs (level 3), such as the financial performance and purchasing patterns of the acquired enter- prises for a period of typically 1-5 years after the date of acquisition. Fair value hierarchy for assets and liabilities measured at fair value in the balance sheet Financial instruments measured at fair value are broken down according to the fair value hierarchy: • Listed prices in an active market for the same type of instrument (level 1). • Listed prices in an active market for similar assets or liabilities or other valu- ation methods, with all significant in- puts being based on observable market data (level 2). • Valuation methods, with any significant inputs not being based on observable market data (level 3). Accounting policies On initial recognition, other investments are recognised at fair value and subse- quently measured at fair value in the in- come statement. Unrealised value adjust- ments are recognised in the income state- ment. On realisation, value adjustments are recognised in net financial items in the income statement. Contingent considera- tions arising from the acquisition of enter- prises and activities are recognised at fair value at the time of acquisition. The obli- gations are re-evaluated on a recurring basis at fair value. 4.5 Fair value hierarchy Insights and highlights Our business Corporate information Financial report Back to content Section 4 Capital structure and financial management Demant – Annual Report 2023 100 There have been no transfers between level 1 and 2 in the 2023 and 2022 financial years. Financial assets and contingent considera- tions are measured at fair value in the bal- ance sheet based on valuation methods, with any significant inputs not being based on observable market data (level 3). Most of the contingent considerations recog- nised relate to deferred payments, which are not dependent on any performance obligations and will usually be paid out within 1-5 years. The majority of the contingent considera- tions are recognised as the maximum con- sideration to be paid, which Management has assessed to be the most likely outcome. (DKK million) Level 1 Level 2 Level 3 Total 2023 Financial assets used as hedging instruments - 60 - 60 Other investments - - 19 19 Financial liabilities used as hedging instruments - -35 - -35 Contingent considerations - - -380 -380 2022 Financial assets used as hedging instruments - 103 - 103 Other investments - - 15 15 Financial liabilities used as hedging instruments - -15 - -15 Contingent considerations - - -420 -420 4.5 Fair value hierarchy (continued) Contingent (DKK million) Financial assets considerations 2023 2022 2023 2022 Assets and liabilities (level 3) Carrying amount at 1.1. 15 11 -420 -148 Foreign currency translation adjustment - - -1 -8 Acquisitions 7 4 -156 -478 Disposals, repayments, settlements etc. - - 192 193 Other adjustments -3 - 5 11 Transferred to liabilities related to assets held for sale - - - 10 Carrying amount at 31.12. 19 15 -380 -420 Insights and highlights Our business Corporate information Financial report Back to content Section 5 Tax Demant – Annual Report 2023 101 Tax Demant – Annual Report 2023 101 TAX ON PROFIT -839 DKK MILLION EFFECTIVE TAX RATE 24.7% DKK MILLION Insights and highlights Our business Corporate information Financial report Back to content Section 5 Tax Insights and highlights Our business Corporate information Financial report Back to content Section 5 Tax Demant – Annual Report 2023 102 The Group is not expected to be materially impacted by OECD/EU Pillar Two Model rules and local implementation hereof. Most countries where the Group has oper- ations impose taxation in excess of 15%, meaning that most countries are covered by the transitional Safe Harbour rules. Those few countries not covered by the transitional Safe Harbour rules are still ex- pected to show a GloBE ETR in excess of 15%. As such, OECD/EU Pillar Two Model Rules and local implementation hereof are expected to result in neither materially in- creased tax payments nor changes to the Group’s ETR. The Group has applied the temporary ex- ception, introduced in May 2023, from the accounting requirements for deferred taxes in IAS 12, which means that the Group neither recognises nor discloses in- formation about deferred tax assets and li- abilities related to Pillar Two income taxes. Accounting policies Tax on profit for the year includes current tax and any changes in deferred tax. Cur- rent tax includes taxes payable and is de- termined on the basis of the estimated tax- able income for the year and any prior- year tax adjustments. Tax on changes in equity and other comprehensive income is recognised directly in equity and in other comprehensive income, respectively. Foreign currency translation adjustments of deferred tax are recognised as part of the year’s adjustments of deferred tax. Permanent differences primarily include Danish interest limitation, R&D incentives, profit in associates and non-deductible share-based payments. Current tax liabilities or tax receivables are recognised in the balance sheet and deter- mined as tax calculated on taxable income for the year, adjusted for any tax on ac- count. The tax rates prevailing at the bal- ance sheet date are used for calculation of the year’s taxable income. 5.1 Tax on profit (DKK million) 2023 2022 Current tax on profit for the year -814 -580 Adjustment of current tax, prior years 11 20 Change in deferred tax -31 -79 Adjustment of deferred tax, prior years -4 -10 Impact of changes in corporate tax rates -1 -2 Tax on profit for the year -839 -651 Reconciliation of tax rates: Danish corporate tax rate 22.0% 22.0% Differences between tax rates of non-Danish enterprises and Danish corporate tax rate 0.9% 1.0% Impact of changes in corporate tax rates - 0.1% Impact of unrecognised tax assets, net - 0.3% Permanent differences 2.3% -1.6% Other items including prior-year adjustments -0.5% 0.4% Effective tax rate 24.7% 22.2% Insights and highlights Our business Corporate information Financial report Back to content Section 5 Tax Demant – Annual Report 2023 103 The tax value of deferred tax assets not recognised is DKK 104 million (DKK 116 million in 2022) and relates mainly to tax losses and tax credits for which there is considerable uncertainty about their future utilisation. Tax losses of DKK 25 million will expire within 5-10 years, whereas other tax losses carried forward have no expiry date. Accounting policies Deferred tax is recognised, using the bal- ance sheet liability method on any tempo- rary differences between the tax base of assets and liabilities and their carrying amounts, except for deferred tax on tem- porary differences arisen either on initial recognition of goodwill or on initial recog- nition of a transaction that is not a busi- ness combination, with the temporary dif- ference ascertained on initial recognition affecting neither net profits nor taxable income. Deferred tax is determined on the basis of the tax rules and rates prevailing at the balance sheet date in a particular country. The effect of any changes in tax rates on deferred tax is included in tax on profit for the year, unless such deferred tax is at- tributable to items previously recognised directly in equity or in other comprehensive income. In the latter case, such changes will also be recognised directly in equity or in other comprehensive income. The tax base of a loss, if any, which may be set off against future taxable income, is carried forward and set off against deferred tax in the same legal tax entity and jurisdiction. (DKK million) 2023 2022 Deferred tax recognised in the balance sheet: Deferred tax assets 542 538 Deferred tax liabilities -633 -620 Deferred tax, net at 31.12. -91 -82 Deferred tax, net at 1.1. -82 126 Foreign currency translation adjustments 8 -8 Changes in deferred tax -31 -79 Additions relating to acquisitions 5 -18 Adjustment of deferred tax, prior years -4 -10 Impact of changes in corporate tax rates -1 -2 Deferred tax relating to changes in equity, net 14 -59 Transferred to assets held for sale - -32 Deferred tax, net at 31.12. -91 -82 5.2 Deferred tax Insights and highlights Our business Corporate information Financial report Back to content Section 5 Tax Demant – Annual Report 2023 104 Accounting estimates and judgements Deferred tax assets (significant estimate) Deferred tax assets, including the tax value of any tax losses allowed for car- ryforward, are recognised in the balance sheet at the estimated realisable value of such assets, either by a set-off against a deferred tax liability or by a net asset to be set off against future positive taxable in- come. At the balance sheet date, an as- sessment is made as to whether it is prob- able that sufficient taxable income will be available in the future against which the deferred tax asset can be utilised. Deferred tax on temporary differences be- tween the carrying amounts and the tax values of investments in subsidiaries and associates is recognised, unless the Parent is able to control the time of realisation of such deferred tax, and it is probable that such deferred tax will not be realised as current tax in the foreseeable future. De- ferred tax is recognised in respect of elimi- nations of intra-group profits and losses. 5.2 Deferred tax (continued) Foreign Recognised currency in other Transferred Temporary translation Recognised compre-to assets Temporary differences adjust-Acquisi-in profit for hensive held for differences (DKK million) at 1.1. ments tions the year income sale at 31.12. 2023 Intangible assets -542 - 5 -28 - - -565 Property, plant and equipment -102 13 - -70 - - -159 Leased assets 13 1 - 7 - - 21 Inventories 204 - - 4 - - 208 Receivables 42 - - 10 - - 52 Provisions 67 -2 - 34 - - 99 Deferred income 161 -1 - -2 - - 158 Tax losses 47 -4 - 13 - - 56 Other 28 1 - -4 14 - 39 Total -82 8 5 -36 14 - -91 2022 Intangible assets -500 -16 -20 -7 - 1 -542 Property, plant and equipment -65 -1 - -50 - 14 -102 Leased assets 12 - - 1 - - 13 Inventories 277 4 2 -31 - -48 204 Receivables 54 2 - -13 - -1 42 Provisions 85 -5 - -12 - -1 67 Deferred income 152 8 - 1 - - 161 Tax losses 48 - - -1 - - 47 Other 63 - - 21 -59 3 28 Total 126 -8 -18 -91 -59 -32 -82 Insights and highlights Our business Corporate information Financial report Back to content Section 6 Acquisitions Demant – Annual Report 2023 105 Acquisitions Demant – Annual Report 2023 105 EPOS Connect app Insights and highlights Our business Corporate information Financial report Back to content Section 6 Acquisitions Insights and highlights Our business Corporate information Financial report Back to content Section 6 Acquisitions Demant – Annual Report 2023 106 As part of the capital allocation policy, a portion of the cash flow from operating ac- tivities is allocated to value-adding acqui- sitions. In 2023, a total of 31 acquisitions were completed within the Hearing Healthcare segment at an estimated total consideration of DKK 1,074 million. The in- dividual acquisitions are not considered to be material and therefore not disclosed separately, but grouped together with other acquisitions within the geographical region. Acquisitions in Hearing Healthcare In 2023, the Group acquired a number of businesses or obtained significant stakes in hearing healthcare businesses, the most significant ones being Mr. Optik and Flem- ming & Klingbeil both in Germany, the hearing aid-related activities of Goed Hulpmiddelen in Belgium and Virtualis in France. On 5 January 2023, the Group acquired 55% of the shares in Virtualis, a developer and manufacturer of virtual reality rehabil- itation equipment based in France. As part of the agreement, a forward contract was entered into for the remaining 45% of the shares, meaning that Demant agreed to buy and the seller to sell in three tranches based on an agreed revenue multiple. The purchase price for the remaining shares is estimated based on Virtualis’ current per- formance and on expectations of the fu- ture. The purchase price is not capped. On 1 March 2023, the Group acquired the remaining 51% of the shares in Mr. Optik 6.1 Acquisitions of enterprises and activities (DKK million) 2023 2022 Hearing Healthcare Hearing Healthcare North North Sheng Europe America Asia Total Europe America Asia Wang Total Intangible assets 55 4 - 59 149 5 4 82 240 Property, plant and equipment 53 1 - 54 11 3 16 40 70 Other non-current assets 167 21 - 188 22 6 17 139 184 Inventories 47 2 - 49 39 4 2 38 83 Current receivables 105 7 - 112 48 7 1 101 157 Cash and cash equivalents 56 2 - 58 49 4 3 41 97 Non-current liabilities -413 -5 - -418 -57 -7 -11 -96 -171 Current liabilities -131 -9 - -140 -51 -16 -34 -201 -302 Acquired net assets -61 23 - -38 210 6 -2 144 358 Goodwill 1,078 34 - 1,112 299 235 96 1,736 2,366 Acquisition cost 1,017 57 - 1,074 509 241 94 1,880 2,724 Carrying amount of non-controlling interests on obtain-ing control -80 -4 - -84 - -15 - - -15 Fair value adjustment of non-controlling interests on obtaining control -26 -1 - -27 - -14 - - -14 Contingent consideration and deferred payments -151 -5 - -156 -33 -19 - -426 -478 Acquired cash and cash equivalents -56 -2 - -58 -49 -4 -3 -41 -97 Cash acquisition cost 704 45 - 749 427 189 91 1,413 2,120 Figures are shown at fair value on the acquisition date. Insights and highlights Our business Corporate information Financial report Back to content Section 6 Acquisitions Demant – Annual Report 2023 107 and now holds 100% of the shares. Mr. Optik operates hearing clinics across East- ern Germany. The step-up resulted in a fair value adjustment of Demant’s existing shares of DKK 26 million. On 31 August 2023, the Group acquired 100% of the shares in Flemming & Kling- beil, which operates hearing clinics across Berlin, Germany. On 31 August 2023, the Group acquired all the hearing aid-related activities of Goed Hulpmiddelen. The transaction was struc- tured as an asset purchase. The activities in Goed Hulpmiddelen consist of hearing clinics in the northern part of Belgium. The activities were integrated into our existing retail business in Belgium. In addition, the Group made a number of other minor acquisitions in North America and Europe in 2023. In 2022, the Group acquired 100% of the shares in Sheng Wang, first 20% as a mi- nority investment on 4 March 2022 and subsequently the remaining 80% of the shares on 1 July 2022. Accounting treatment In respect of the acquisitions, the Group paid a total acquisition cost of DKK 1,074 million, which exceeded the fair values of the acquired assets, liabilities and contin- gent liabilities. Such positive balances in value can be attributed to expected syner- gies between the activities of the acquired entities and our existing activities, to the future growth opportunities and to the value of staff competencies in the acquired businesses. These synergies are not recog- nised separately from goodwill, as they are not separately identifiable. Total goodwill recognised in respect of the acquisitions made in 2023 amounted to DKK 1,112 mil- lion. Of the total acquisitions made in 2023, the fair value of the estimated contingent con- siderations in the form of earn-outs or de- ferred payments accounted for DKK 156 million (DKK 478 million in 2022). Earn- outs depend on the results of the acquired entities for a period of 1-5 years. The max- imum of earn-outs and other contingent considerations related to the acquisitions are estimated to be DKK 158 million (DKK 482 million in 2022), excluding Virtualis where the earn-out that is not capped. The fair values of acquisitions are not con- sidered final until 12 months after the ac- quisition date. Adjustments to acquisitions completed more than 12 months prior to the time of the adjustments, including changes in estimated contingent consider- ations, are recognised in the income state- ment. In 2023, adjustments were made to the preliminary recognition of acquisitions rec- ognised in 2022. These adjustments relate to payments made, contingent considera- tions provided as well as net assets and goodwill acquired. The impact of these ad- justments on goodwill was DKK 5 million (DKK 10 million in 2022) and DKK 2 million (DKK 2 million in 2022) on contingent con- sideration. In 2023, adjustments were also made to contingent considerations related to acqui- sitions before 2022. These adjustments amount to DKK 5 million (DKK 9 million in 2022) and are recognised as part of distri- bution costs for acquisitions. Step-up acquisitions At the time of acquisition of non-control- ling interests, the shares of the acquisi- tions are measured at their proportionate share of the total fair value of the acquired entities, including goodwill. On obtaining a controlling interest through step acquisi- tions, previously held non-controlling inter- ests are, at the time of obtaining control, remeasured at fair value with fair value adjustments recognised in the income statement. The total impact on the income statement of fair value adjustments of non-control- ling interests in step acquisitions was DKK 27 million (DKK 14 million in 2022). The above statements of fair values of ac- quisitions are not considered final until 12 months after the acquisition date. Transaction costs Transaction costs in connection with ac- quisitions made in 2023 amounted to DKK 14 million (DKK 15 million in 2022), which were recognised in distribution costs. Acquired assets and proforma figures The acquired assets include contractual receivables amounting to DKK 59 million (DKK 55 million in 2022) of which DKK 1 million (DKK 2 million in 2022) was thought to be uncollectible at the date of the acqui- sition. Of total goodwill in the amount of DKK 1,112 million (DKK 2,366 million in 2022), DKK 209 million (DKK 193 million in 2022) can be amortised for tax purposes. Revenue and profit after tax generated by the acquired enterprises since our acquisi- tion in 2023 amount to DKK 311 million (DKK 326 million in 2022) and DKK 13 million (DKK -20 million in 2022), re- spectively. Had such revenue and profit been consolidated on 1 January 2023, we estimate that consolidated pro forma reve- nue and profit after tax would have been DKK 22,636 million (DKK 20,070 million in 2022) and DKK 1,805 million (DKK 2,542 million in 2022), respectively. Without tak- ing synergies from our core business into account, we believe that these pro forma figures reflect the level of consolidated earnings after our acquisition of the enter- prises. Acquisitions after balance sheet date From the balance sheet date and until the date of financial reporting in 2024, we have acquired a number of retail busi- nesses. We are in the process of assessing their fair value. The acquisition cost is ex- pected to relate primarily to goodwill. 6.1 Acquisition of enterprises and activities (continued) Insights and highlights Our business Corporate information Financial report Back to content Section 6 Acquisitions Demant – Annual Report 2023 108 Accounting policies Newly acquired or newly established en- terprises are recognised in the consoli- dated financial statements from the time of acquisition or formation. The time of acquisition is the date when control of the enterprise is transferred to the Group. For Group accounting policies on control, please refer to the consolidated financial statements in Note 9.1. In respect of newly acquired enterprises, comparative figures and key figures will not be restated. On acquiring new enterprises of which the Group obtains control, the purchase method is applied according to which their identi- fied assets, liabilities and contingent liabili- ties are measured at their fair values on the acquisition date. Any non-current as- sets acquired for the purpose of resale are, however, measured at their fair values less expected cost of disposal. Restructuring costs are solely recognised in the pre-ac- quisition balance sheet if they are a liabil- ity for the acquired enterprise. Any tax ef- fect of revaluations will be taken into ac- count. The acquisition cost of an enterprise con- sists of the fair value of the consideration paid for the enterprise with the addition of the fair values of previously held interests in the acquiree. If the final consideration is conditional upon one or more future events, the consideration will be recog- nised at the fair value on acquisition. Any subsequent adjustment of contingent con- sideration is recognised directly in the in- come statement, unless the adjustment is the result of new information about condi- tions prevailing on the acquisition date, and this information becomes available up to 12 months after the acquisition date. Transaction costs are recognised directly in the income statement when incurred. If the purchase price exceeds the fair values of the assets, liabilities and contingent lia- bilities identified on acquisition, any re- maining positive differences (goodwill) are recognised in the balance sheet under in- tangible assets and tested for impairment at least annually. If the carrying amount of an asset exceeds its recoverable amount, it is written down to such lower recovera- ble amount. If, on the acquisition date, there are any uncertainties with respect to identifying or measuring acquired assets, liabilities or contingent liabilities or uncertainty with respect to determining their cost, initial recognition is made on the basis of provi- sionally calculated values. Such provision- ally calculated values may be adjusted, or additional assets or liabilities may be rec- ognised up to 12 months after the acquisi- tion date, if new information becomes available about conditions prevailing on the acquisition date, which would have affected the calculation of values on that day, had such information been known. Accounting estimates and judgements Identification of assets and liabilities (significant judgement) On recognition of assets and liabilities from acquisitions, Management judge- ments may be required for the identifica- tion of the following: • Intangible assets, resulting from tech- nology, customer relationships, client lists or brand names. • Contingent consideration arrange- ments. Contingent consideration (estimate) Acquisitions may include provisions to the effect that additional payments of contin- gent considerations be paid to the previous owners when certain events occur or cer- tain results are obtained. Management as- sesses on a regular basis the judgements made in respect of the particular acquisi- tions, taking sales run rates of the acquired entity into account. 6.1 Acquisition of enterprises and activities (continued) Insights and highlights Our business Corporate information Financial report Back to content Section 6 Acquisitions Demant – Annual Report 2023 109 In 2022, Demant announced the decision to discontinue its Hearing Implants busi- ness area. In 2023, the transaction with Cochlear was amended to only include the cochlear implants (CI) business. The bone anchored hearing systems (BAHS) busi- ness is no longer part of the transaction and will thus remain with Demant for now, pending a review of strategic options. The amended transaction has no impact on the decision to exit Hearing Implants and both the BAHS and CI business are considered discontinued operations. Due to the amended scope, no consideration will be paid as part of the transaction. In 2023, discontinued operations thus comprise the Hearing Implants business area, which realised a profit after tax of DKK -757 million (2022: DKK -192 million). The negative result can be attributed to non-recurring, non-cash write-downs of assets related to the CI despite slightly higher revenue compared to 2022. The BAHS business delivered slightly positive growth in the year, following growth re- lated to the launch of the Ponto 5 sound processor in 2022. Revenue for Hearing Implants was low following the voluntary field corrective action in 2021. Accounting policies Discontinued operations represent a sepa- rate line of businesses disposed of or being prepared for sale. The results of discontin- ued operations are presented separately in the income statement, and comparative figures are restated. Cash flows from dis- continued operations are presented sepa- rately in the cash flow statement. 6.2 Discontinued operations and assets held for sale (DKK million) 2023 2022 Revenue 509 497 Expenses -666 -737 Amortisation, depreciation and impairment losses -632 -10 Profit before tax - discontinued operations -789 -250 Tax on profit for the period 32 58 Profit for the period - discontinued operations -757 -192 Profit for the period for discontinued operations attributable to: Demant A/S shareholders -757 -192 -757 -192 Earnings per share (EPS), DKK -3.39 -0.85 Diluted earnings per share (DEPS), DKK -3.39 -0.85 Cash flow from discontinued operations Cash flow from operating activities (CFFO) -225 -232 Cash flow from investing activities (CFFI) -23 -4 Cash flow from financing activities (CFFF) 183 -17 Cash flow for the period, net - discontinued operations -65 -253 Insights and highlights Our business Corporate information Financial report Back to content Section 6 Acquisitions Demant – Annual Report 2023 110 Assets classified as held for sale at 31 De- cember 2023 comprise assets in the Hear- ing Implants business areas. Cochlear will take over the obligations to service exist- ing CI customers. The transaction is sub- ject to regulatory approval and other cus- tomary closing conditions, and closing is expected in the first six months of 2024. The amended transaction has no impact on the decision to exit Hearing Implants, and the BAHS business will continue to be disclosed as held for sale. Accounting policies Assets and liabilities relating to the discon- tinued operations are classified as held for sale. Assets held for sale, except financial assets etc., and liabilities related to assets held for sale are measured at the lower of their carrying amount and their fair value less costs to sell. Non-current assets held for sale are not depreciated. 6.2 Discontinued operations and assets held for sale (continued) (DKK million) 2023 2022 Balance sheet items: Intangible assets 97 577 Property, plant and equipment 1 27 Lease assets 1 18 Deferred tax assets 44 32 Other non-current assets 1 2 Non-current assets 144 656 Current assets 139 308 Assets held for sale 283 964 Provisions 8 28 Lease liabilities 1 19 Other liabilities 80 128 Liabilities related to assets held for sale 89 175 Insights and highlights Our business Corporate information Financial report Back to content Section 7 Provisions, other liabilities etc. Demant – Annual Report 2023 111 Provisions, other liabilities etc. Demant – Annual Report 2023 111 PROVISIONS 278 DKK MILLION OTHER LIABILITIES 3,158 DKK MILLION Insights and highlights Our business Corporate information Financial report Back to content Section 7 Provisions, other liabilities etc. Insights and highlights Our business Corporate information Financial report Back to content Section 7 Provisions, other liabilities etc. Demant – Annual Report 2023 112 Miscellaneous provisions relate to provi- sions for disputes etc. The majority of these provisions are expected to be real- ised within the next five years. 7.1 Provisions 2023 2022 Staff- Miscel- Staff- Miscel- (DKK million) related laneous Total related laneous Total Other provisions at 1.1. 59 58 117 57 99 156 Foreign currency translation adjustments - -5 -5 - 1 1 Additions relating to acquisitions - 17 17 1 4 5 Provisions during the year 6 27 33 - 15 15 Realised during the year - -9 -9 - -37 -37 Reversals during the year - -9 -9 1 -2 -1 Transfer to/from liabilities related to assets held for sale - 19 19 - -22 -22 Other provisions at 31.12. 65 98 163 59 58 117 Breakdown of provisions: Non-current provisions 65 24 89 59 25 84 Current provisions - 74 74 - 33 33 Other provisions at 31.12. 65 98 163 59 58 117 (DKK million) 2023 2022 Staff-related provisions 65 59 Miscellaneous provisions 98 58 Other provisions 163 117 Defined benefit plan liabilities, net 115 91 Provisions at 31.12. 278 208 Breakdown of provisions: Non-current provisions 201 175 Current provisions 77 33 Provisions at 31.12. 278 208 Insights and highlights Our business Corporate information Financial report Back to content Section 7 Provisions, other liabilities etc. Demant – Annual Report 2023 113 Generally, the Group does not offer defined benefit plans, but it has such plans in Swit- zerland, France and Germany where they are required by law. Defined benefit plan costs recognised in the income statement amount to DKK 12 million (DKK 15 million in 2022), and the accumulated actuarial gain recognised in the statement of comprehensive income amounts to DKK 10 million (gain of DKK 28 million in 2022). In 2024, the Group expects to pay approx. DKK 24 million (DKK 15 million in 2023) into defined benefit plans. Defined benefit obligations in the amount of DKK 132 mil- lion (DKK 130 million in 2022) will mature within 1-5 years and obligations in the amount of DKK 324 million (DKK 299 mil- lion in 2022) after five years. If the discount rate was 0.5% higher (lower), the defined benefit obligation would decrease by 7% (increase by 8%). If the expected salary growth rate was 0.5% higher (lower), the defined benefit obliga- tion would increase by 1% (decrease by 1%). Plan assets are recognised as follows: Equity 28% Bonds 31% Property 27% Other 14% Accounting policies Provisions are recognised if, as a result of an earlier event, the Group has a legal or constructive obligation, and if the settle- ment of such obligation is expected to draw on corporate financial resources, but there is uncertainty about the timing or amount of the obligation. Provisions are measured on a discounted basis based on Manage- ment’s best estimate of the amount at which a particular liability may be settled. The discount effect of any changes in the present value of provisions is recognised as a financial expense. The Group has defined benefit plans and similar agreements with some of its em- ployees. When it comes to defined contribution plans, the Group pays regular, fixed contri- butions to independent pension compa- nies. Contributions are recognised in the income statement for the period in which employees have performed work entitling them to such pension contributions. Contri- butions due are recognised in the balance sheet as a liability. When it comes to defined benefit plans, the Group is obliged to pay a certain con- tribution when an employee covered by such a plan retires, for instance a fixed amount or a percentage of the employee’s final salary. An actuarial calculation is pre- pared periodically of the accrued present value of future benefits to which employ- ees through their past employment with 7.1 Provisions (continued) (DKK million) 2023 2022 Present value of defined benefit obligations: Defined benefit obligations at 1.1. 429 541 Foreign currency translation adjustments 24 22 Current service costs 10 15 Calculated interest on defined benefit obligations 8 2 Actuarial gains/losses 34 -134 Net benefits paid -57 -21 Contributions from plan participants 8 10 Transfer to liabilities related to assets held for sale - -6 Defined benefit obligations at 31.12. 456 429 Fair value of defined benefit assets: Defined benefit assets at 1.1. 338 348 Foreign currency translation adjustments 21 16 Actuarial gains/losses 21 -29 Contributions 18 24 Net benefits paid -57 -21 Defined benefit assets 31.12. 341 338 Defined benefit obligations recognised in the balance sheet, net 115 91 Return on defined benefit assets: Actual return on defined benefit assets 21 -29 Actuarial gains/losses on defined benefit assets 21 -29 Assumptions: Discount rate 1.7% 2.3% Expected return on defined benefit assets 0.0% 0.0% Future salary increase rate 1.6% 1.4% Insights and highlights Our business Corporate information Financial report Back to content Section 7 Provisions, other liabilities etc. Demant – Annual Report 2023 114 the Group are entitled and which are pay- able under the defined benefit plan. This defined benefit obligation is calculated an- nually, using the projected unit credit method based on judgements in respect of the future development in for instance wage levels, interest rates, mortality and inflation rates. The defined benefit obligation less the fair value of any assets relating to the defined benefit plan is recognised in the balance sheet under provisions. Defined benefit costs are categorised as follows: • Service costs, including current service costs, past-service costs as well as gains and losses on curtailments and settlements • Net interest expenses or income • Remeasurements Remeasurements, comprising actuarial gains and losses, any effects of changes to the asset ceiling as well as returns on de- fined benefit assets, excluding interest, are reflected immediately in the balance sheet with a charge or credit recognised in other comprehensive income for the period in which it occurs. Remeasurements recognised in other com- prehensive income are reflected immedi- ately in retained earnings and are not re- classified to the income statement. Service costs and net interest expenses or income are included in the income statement as staff costs. Other non-current employee benefits are recognised using actuarial calculation. Ac- tuarial gains or losses on such benefits are recognised directly in the income statement. Accounting estimates and judgements Assessment of provisions (estimate) Management assesses, on an ongoing basis, provisions for amongst others re- structuring costs and the likely outcome of pending and probable lawsuits etc. (other provisions). When assessing the likely out- come of lawsuits, Management bases its assessment on internal and external legal advice and established precedent. Provi- sions for restructuring costs are based on the estimated costs of implementing re- structuring initiatives and thus on a num- ber of assumptions about future costs and events. For all provisions, the outcome and final expense depend on future events, which are by nature uncertain. Product-related liabilities include standard warranties and returned products etc. Staff-related liabilities include holiday pay and payroll costs due. The carrying amounts of other liabilities approximate the fair values of such liabilities. Accounting policies Other non-financial liabilities are recog- nised if, as a result of an earlier event, the Group has a legal or constructive obliga- tion, and if the settlement of such obliga- tion is expected to draw on corporate fi- nancial resources. Other non-financial lia- bilities are measured on a discounted ba- sis, and the discount effect of any changes in the present value of the liabilities is rec- ognised as a financial expense. On the sale of products with a right of re- turn, a refund liability and a right to the returned products are recognised as a re- fund liability and a current asset (included in prepaid expenses), respectively. The re- fund liability is deducted from revenue, and the right to the returned products is offset in production costs. Warranty commit- ments include an obligation to remedy faulty or defective products during the warranty period. Accounting estimates and judgements Warranty and return liabilities (estimates) Liabilities in respect of service packages and warranties are calculated on the basis of information on products sold, related service and warranty periods and past ex- perience of costs incurred by the Group to fulfil its service and warranty liabilities. Li- abilities in respect of returns are calculated based on information on products sold, re- lated rights concerning returns and past experience of products being returned in the various markets. Consolidated prod- uct-related liabilities are the sum of a large number of small items, the sum changing constantly due to a large number of trans- actions. 7.2 Other liabilities 7.1 Provisions (continued) (DKK million) 2023 2022 Product-related liabilities 543 460 Staff-related liabilities 1,022 980 Other debt, public authorities 356 277 Contingent considerations 380 420 Other costs payable 857 874 Other liabilities 3,158 3,011 Due within 1 year 2,497 2,445 Due within 1-5 years 661 566 Insights and highlights Our business Corporate information Financial report Back to content Section 7 Provisions, other liabilities etc. Demant – Annual Report 2023 115 Free products, service and some of the warranty-related services mentioned are provided free of charge to the customer. Certain other services and warranty-re- lated services are paid by the customer simultaneously with delivery of the related goods, but delivery of the service takes place 1-4 years after delivery of the goods. Please refer to Note 1.2 for a description of the nature of the deferred income. Accounting policies Deferred income includes income received or future performance obligations relating to subsequent financial years and is recog- nised as revenue when the Group performs its obligations by transferring the goods or services to the customers. 7.4 Contingent liabilities The Demant Group is involved in minor liti- gations, claims, disputes etc. Management is of the opinion that such disputes do not or will not significantly affect the Group’s financial position. The Group seeks to make adequate provisions for legal proceedings. As part of our business activities, the Group has entered into normal agreements with customers and suppliers etc. as well as agreements for the purchase of sharehold- ings. 7.3 Deferred income Expected recognition of revenue Less than More than (DKK million) 1 year 1-2 years 2-4 years 4 years Total 2023 Prepayments from customers 62 - - - 62 Deferred warranty-related revenue 247 232 104 8 591 Deferred free products revenue 75 35 15 1 126 Deferred service revenue 164 116 94 30 404 Total 548 383 213 39 1,183 2022 Prepayments from customers 68 - - - 68 Deferred warranty-related revenue 267 220 89 6 582 Deferred free products revenue 48 36 8 6 98 Deferred service revenue 130 95 37 4 266 Total 513 351 134 16 1,014 (DKK million) 2023 2022 Prepayments from customers 62 68 Future performance obligations: Deferred warranty-related revenue 591 582 Deferred free products revenue 126 98 Deferred service revenue 404 266 Total 1,183 1,014 Insights and highlights Our business Corporate information Financial report Back to content Section 8 Other disclosure requirements Demant – Annual Report 2023 116 Other disclosure requirements Demant – Annual Report 2023 116 Oticon Companion App Insights and highlights Our business Corporate information Financial report Back to content Section 8 Other disclosure requirements Insights and highlights Our business Corporate information Financial report Back to content Section 8 Other disclosure requirements Demant – Annual Report 2023 117 William Demant Foundation, Kongebakken 9, 2765 Smørum, Denmark, is the only re- lated party with a controlling interest. Con- trolling interest is achieved through a com- bination of William Demant Foundation’s own shareholding and the shareholding of William Demant Invest A/S for which Wil- liam Demant Foundation exercises the vot- ing rights. Subsidiaries and associated en- terprises of William Demant Invest A/S are related parties to the Demant Group. Related parties with significant influence are the company’s Board of Directors and their related parties. Furthermore, related parties are the Executive Board and com- panies in which the above persons have significant interests. Subsidiaries and associates as well as the Demant Group’s ownership interests in these companies appear from Subsidiaries and associates in Section 11. For financial information on transactions with associ- ates, please refer to Note 3.4. In 2023, William Demant Foundation paid administration fees to the Group of DKK 2 million (DKK 2 million in 2022). The Group paid administration fees to William De- mant Invest A/S of DKK 3 million (DKK 2 million in 2022) and received service fees of DKK 6 million (DKK 4 million in 2022) from William Demant Invest A/S. In 2023, the Group paid service fees to Össur hf., a subsidiary of William Demant Invest A/S, of DKK 4 million (DKK 4 million in 2022) and received service fees of DKK 44 million (DKK 47 million in 2022) from Össur hf. In 2023, the Group was reimbursed by Vi- sion RT, a subsidiary of William Demant Invest A/S, for pass-through expenses in the amount of DKK 115 million (DKK 113 million in 2022). At year-end 2023, the Group had receiva- bles of DKK 18 million for services pro- vided to Vision RT and Össur hf. (DKK 18 million in 2022). In 2023, William Demant Foundation do- nated DKK 27 million to Eriksholm Re- search Centre (DKK 0 million in 2022) and DKK 4 million to industrial PhD projects in Oticon A/S (DKK 0 million in 2022). Further, William Demant Foundation acquired di- agnostic and Oticon equipment worth DKK 2 million and DKK 6 million (DKK 3 million and DKK 1 million in 2022), respectively, from the Group. Since 2011, the Group has settled Danish tax on account and residual tax with Wil- liam Demant Invest A/S, which is the ad- ministration company for the joint taxation. There have been no transactions with the Executive Board and the Board of Direc- tors apart from normal remuneration. Please refer to Note 1.3. Some of the Group's subsidiaries are not subject to auditing by Pricewaterhouse- Coopers. In 2023, the fee for non-audit services de- livered by PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab, Denmark, amounted to DKK 0 million (DKK 2 million in 2022). 8.1 Related parties 8.2 Fees to auditors (DKK million) 2023 2022 Fees to Parent´s auditors appointed at the annual general meeting Statutory audit fee 18 14 Other services 1 2 Total 19 16 Insights and highlights Our business Corporate information Financial report Back to content Section 8 Other disclosure requirements Demant – Annual Report 2023 118 In 2023, the Demant Group received gov- ernment grants in the amount of DKK 20 million (DKK 25 million in 2022) of which DKK 5 million (DKK 12 million in 2022) are Covid-19-related publicly funded compen- sation schemes. Non-Covid-19 grants are offset against R&D costs. Accounting policies Government grants are recognised when there is reasonable certainty that the con- ditions for such grants are satisfied and that they will be awarded. Grants received as compensation for costs incurred are recognised proportionately in the income statement over the periods in which the related costs are recognised in the income statement and are offset against costs in- curred. Government grants relating to the acquisi- tion of non-current assets are deducted from the cost of such assets. On 5 February 2024, the Group announced the decision to undertake a review of stra- tegic options for its Communications busi- ness. The purpose of the review is to ex- plore whether a different owner may be better positioned to accelerate growth and allow the business to realise its full poten- tial. The review is expected to be com- pleted by the end of the first six months of 2024. As this review of strategic options has been initiated after 31 December 2023, the criteria for Communications to be classified as held for sale and/or dis- continued operations are not met on the balance sheet date. After the balance sheet date for the 2023 financial statements, but before the sub- mission of this Annual Report, Communi- cations meets the criteria for being classi- fied as held for sale and discontinued op- erations, and will be presented as such in 2024. The results, outcome and financial impact from the strategic review cannot be estimated at this time. All assets and lia- bilities presented as part of the Communi- cations segment in note 1.1, to which we refer, will be included in the review of stra- tegic options for the Communications busi- ness. No other events have occurred after the reporting date that might affect the con- solidated financial statements. 8.3 Government grants 8.4 Events after the balance sheet date (DKK million) 2023 2022 Government grants by function: Production costs - 1 R&D costs 16 17 Distribution costs 3 7 Administrative expenses 1 - Total 20 25 Insights and highlights Our business Corporate information Financial report Back to content Section 9 Basis for preparation Demant – Annual Report 2023 119 Basis for preparation Demant – Annual Report 2023 119 Audika Insights and highlights Our business Corporate information Financial report Back to content Section 9 Basis for preparation Insights and highlights Our business Corporate information Financial report Back to content Section 9 Basis for preparation Demant – Annual Report 2023 120 The Group’s general accounting policies are described below. In addition to this, specific accounting policies are described in each of the individual notes to the con- solidated financial statements as outlined here: 1.1 Segment disclosures 1.2 Revenue 1.3 Employees 1.6 Inventories 1.7 Trade receivables 1.8 Customer loans 2.3 Hedging and forward exchange con- tracts 3.1 Intangible assets 3.2 Property, plant and equipment 3.3 Leases 3.4 Other non-current assets 3.6 Impairment testing 4.2 Net financial items 4.3 Categories of financial instruments 4.5 Fair value hierarchy 5.1 Tax on profit 5.2 Deferred tax 6.1 Acquisition of enterprises and activities 6.2 Discontinued operations and assets held for sale 7.1 Provisions 7.2 Other liabilities 7.3 Deferred income 8.3 Government grants General The consolidated financial statements are presented in accordance with IFRS Ac- counting Standards as adopted by the EU and Danish disclosure requirements for annual reports published by reporting class D (listed) companies, cf. the Danish executive order on IFRS issued in compli- ance with the Danish Financial Statements Act. The registered office of Demant A/S is in Denmark. The consolidated financial statements are presented in Danish kroner (DKK), which is the functional currency of the Parent. The consolidated financial statements are pre- sented based on historical costs, except for obligations for contingent consideration in connection with business combinations, share-based remuneration, derivatives and financial assets classified as assets available for sale, which are measured at fair value. The financial statements for the Parent as well as the Parent’s accounting policies are presented separately from the consoli- dated financial statements and are shown on the last pages of this Annual Report 2023. Effect of new accounting standards The Group has adopted the new, amended and revised accounting standard and in- terpretation as published by the IASB and adopted by the EU effective for the ac- counting period beginning 1 January 2023. The new, updated and amended standard and interpretation did not result in any changes to the accounting policies for the Group nor had it any significant impact on the consolidated financial statements for 2023. IASB has issued new accounting stand- ards and amendments effective for ac- counting periods beginning after 1 January 2024, which have been adopted by the EU. The changes to these standards are not expected to have any significant impact on the Group. The Group has applied the exception to recognize deferred tax on OECD’s/EU’s Pil- lar Two Model Rules and local implemen- tation hereof. Except for the implementation of the new and amended standards, the accounting policies remain unchanged compared to last year. Consolidated financial statements The consolidated financial statements comprise Demant A/S (the Parent) and the enterprises in which the Parent can or does exercise control by either directly or indi- rectly holding more than 50% of the voting rights, or in which the Parent exercises control in some other manner. Enterprises in which the Group holds 20-50% of the voting rights and/or in some other manner can or does exercise significant influence are considered associates or joint ventures and are incorporated proportionately into the consolidated financial statements us- ing the equity method. Consolidation principles The consolidated financial statements are prepared based on the financial state- ments of the Parent and its subsidiaries by aggregating uniform items. Enterprises that, by agreement, are managed jointly with one or more other enterprises are recognised using the equity method. The consolidated financial statements are prepared in accordance with the Group’s accounting policies. Intra-group income, expenses, shareholdings, balances and dividends as well as unrealised intra-group profits on inventories are eliminated. The accounting items of subsidiaries are recognised 100% in the consolidated fi- nancial statements. On initial recognition, non-controlling interests are measured ei- ther at fair value or at their proportionate share of the fair value of the identifiable assets, liabilities and contingent liabilities of the acquired subsidiary. The method is chosen for each individual transaction. Non-controlling interests are subsequently adjusted according to their proportionate share of changes in equity of the subsidiary. Comprehensive income is allocated to non-controlling interests whether or not, as a result hereof, the value of such inter- ests is negative. The purchase or sale of non-controlling interests in a subsidiary, which does not result in obtaining or dis- continuing control of such subsidiary, is treated as an equity transaction in the consolidated financial statements, and any 9.1 Group accounting policies Insights and highlights Our business Corporate information Financial report Back to content Section 9 Basis for preparation Demant – Annual Report 2023 121 difference between the consideration and the carrying amount is allocated to the Parent’s share of the equity. Foreign currency translation The Group’s presentation currency is Dan- ish kroner. On initial recognition, transactions in for- eign currencies are translated at the ex- change rates prevailing at the date of the transaction. The functional currencies of the enterprises are determined by the eco- nomic environment in which the enter- prises operate, normally the local currency. Receivables, payables and other monetary items in foreign currencies are translated into Danish kroner at the exchange rates prevailing at the balance sheet date. Real- ised and unrealised foreign currency trans- lation adjustments are recognised in the income statement as part of gross profit or net financial items, depending on the pur- pose of the underlying transaction. Property, plant and equipment, intangible assets, inventories and other non-mone- tary assets purchased in foreign currencies and measured on the basis of historical cost are translated at the exchange rates prevailing at the transaction date. Non- monetary items, which are revalued at their fair values, are translated using the exchange rates at the revaluation date. On recognition in the consolidated finan- cial statements of enterprises presenting their financial statements in a functional currency other than Danish kroner, the in- come statement is translated using aver- age exchange rates for the months of the year in question, unless they deviate mate- rially from actual exchange rates at the transaction dates. In case of the latter, ac- tual exchange rates are applied. Balance sheet items are translated at the exchange rates prevailing at the balance sheet date. Goodwill is considered as be- longing to the acquired enterprise in ques- tion and is translated at the exchange rate prevailing at the balance sheet date. All foreign currency translation adjustments are recognised in the income statement, except for the following, which are recog- nised in other comprehensive income: • The translation of income statements of foreign subsidiaries using monthly aver- age exchange rates for the respective months of the year, whereas balance sheet items of such foreign subsidiaries are translated using exchange rates prevailing at the balance sheet date. • The translation of non-current, intra- group receivables that are considered to be an addition to or deduction from net investments in foreign subsidiaries. • The translation of investments in asso- ciates. Income statement Income and costs are recognised on an accruals basis. The income statement is broken down by function, and all costs, including depreciation, amortisation and impairment losses, are therefore charged to production, distribution, administration and R&D. Production costs Production costs are costs incurred to gen- erate revenue. Distribution companies rec- ognise cost of goods sold as part of pro- duction costs. Production companies rec- ognise cost of raw materials, consuma- bles, production staff as well as mainte- nance of and depreciation, amortisation and impairment losses on property, plant and equipment and intangible assets used in the production process as part of pro- duction costs. R&D costs Research costs are always recognised in the income statement as such costs incur. Development costs include all costs not satisfying capitalisation criteria but in- curred in connection with the development, prototype construction, development of new business concepts and amortisation of capitalised development costs. Distribution costs Distribution costs include costs relating to training, sales, marketing, promotion ma- terials, distribution, bad debts as well as depreciation and amortisation of and im- pairment losses on assets used for distri- bution purposes. Administrative expenses Administrative expenses include adminis- trative staff costs, office expenses as well as depreciation and amortisation of and impairment losses on assets used for ad- ministrative purposes. Other operating income Other operating income includes income from all activities not related to the core business activities of the Group. Prepaid expenses Prepaid expenses recognised as part of assets include costs relating to the subse- quent financial years. Prepaid expenses are measured at cost. Equity Foreign currency translation reserves in- clude foreign currency translation adjust- ments on the translation of financial state- ments of foreign subsidiaries and associ- ates from their respective functional cur- rencies into Danish kroner. Foreign cur- rency translation adjustments are recog- nised in the income statement on realisa- tion of the net investment. Hedging re- serves include fair value adjustments of derivatives and loans satisfying the criteria for hedging of future transactions. The amounts are recognised in the income statement or the balance sheet at the same time as hedged transactions are recognised. Treasury shares and dividend On the buy-back of shares or sale of treas- ury shares, the purchase price or selling price, respectively, is recognised directly in equity as other reserves (retained 9.1 Group accounting policies (continued) Insights and highlights Our business Corporate information Financial report Back to content Section 9 Basis for preparation Demant – Annual Report 2023 122 earnings). A capital reduction through the cancellation of treasury shares will reduce the share capital by an amount corre- sponding to the nominal value of such shares. Proposed dividends are recognised as a liability at the time of adoption at the annual general meeting. Cash flow statement The cash flow statement is prepared ac- cording to the indirect method and reflects the consolidated net cash flow broken down into operating, investing and financ- ing activities. Cash flow from operating activities in- cludes inflows from the year’s operations adjusted for non-cash operating items, changes in working capital, financial in- come received, financial expenses paid, and income tax paid. Cash flow from oper- ating activities also includes short-term lease payments, lease payments of low- value assets and variable lease payments. Cash flow from investing activities includes payments in respect of the acquisition or divestment of enterprises and financial as- sets as well as the purchase, development, improvement or sale of intangible assets and property, plant and equipment. In ad- dition to this, cash flow from investing ac- tivities also includes movement in receiva- bles from associates as well as customer loans. Cash flow from financing activities in- cludes payments to and from shareholders and the raising and repayment of non-cur- rent and current debt and lease liabilities. Cash flow in currencies other than the functional currency is recognised at aver- age exchange rates for the months of the year unless they deviate significantly from actual exchange rates on the transaction dates. Repayments of lease liabilities are included as well. Cash and cash equivalents are cash less overdrafts, which consist of uncommitted bank facilities that often fluctuate from positive to overdrawn. Any short-term bank facilities that are consistently over- drawn are considered cash flow from fi- nancing activities. iXBRL tagging The Commission Delegated Regulation (EU) 2019/815 on the European Single Electronic Format (ESEF Regulation) has introduced a single electronic reporting format for the annual financial reports of issuers with securities listed on the EU regulated markets. The combination of XHTML format and iXBRL tags makes it possible for annual financial reports to be read by both hu- mans and machines, thus enhancing ac- cessibility, analysis and comparability of the information included in the annual financial reports. The Group’s iXBRL tags have been pre- pared in accordance with the ESEF taxon- omy, which is included in the ESEF Regula- tion and developed based on the IFRS tax- onomy published by the IFRS Foundation. The line items in the consolidated financial statements are tagged to elements in the ESEF taxonomy. For financial line items that are not directly defined in the ESEF taxonomy, an extension to the taxonomy has been created. Extensions are anchored to elements in the ESEF taxonomy, except for extensions that are subtotals. The annual report submitted to the Danish Financial Supervisory Authority (the Offi- cially Appointed Mechanism) consists of the XHTML document together with the technical files, all of which are included in the ZIP file DEMANT-2023-12-31-en.zip. Key definitions XHTML (eXtensible HyperText Markup Language) is a text-based language used to structure and mark up content such as text, images and hyperlinks in documents that are displayed in a web browser. iXBRL tags (or Inline XBRL tags) are hid- den metainformation embedded in the source code of an XHTML document that enables the conversion of XHTML-format- ted information into a machine-readable XBRL data record using appropriate soft- ware. A financial reporting taxonomy is an elec- tronic dictionary of business reporting ele- ments used to report business data. A tax- onomy element is an element defined in a taxonomy that is used for the machine- readable labelling of information in an XBRL data record. 9.1 Group accounting policies (continued) Insights and highlights Our business Corporate information Financial report Back to content Section 9 Basis for preparation Demant – Annual Report 2023 123 9.1 Group accounting policies (continued) Key figures and financial ratios Organic growth Organic growth is measured as the year-on-year change excluding impact from acquisitions, divestments and foreign exchange adjustments in per-centage EBITDA Operating profit before amortisation, depreciation and impairment losses EBIT Operating profit Adjusted EBIT Operating profit adjusted for non-recurring transactions Free cash flow Cash flow from operating activities (CFFO) and investing activities (CFFI) before acquisitions and disposals of enterprises, participating interests and activities Net interest-bearing Net amount of borrowings and lease liabilities less interest-bearing debt (NIBD) receivables and cash Net working capital Net amount of current assets (excluding tax, financial contracts and cash) less trade payables, the current part of other liabilities and deferred income EPS Earnings per share Per share Financial ratios per share are calculated per share of nominally DKK 0.20 Average number of Average number of shares excluding the average number of treasury shares outstanding shares for the year Gender diversity, all Gender distribution between women and men in percentage among all managers people managers with one or more reports Gender diversity, Gender distribution between men and women at management levels from top-level manage-Vice Presidents and up ment Gender diversity, The percentage of top-level management teams that are on or off the top-level manage-target of 75% of all teams having a maximum of 75% of one gender ment teams Gender diversity, Gender distribution between women and men of shareholder-elected Board of Directors members of the Board of Directors Gross profit 100 Gross margin Revenue Operating profit 100 EBIT margin Revenue Net interest-bearing debt 100 Gearing multiple EBITDA Profit for the year attributable to Demant A/S' shareholders EPS Average number of shares outstanding Profit for the continuing operations for the year attributable to Demant A/S' EPS - continuing shareholders operations Average number of shares outstanding Profit for the discontinuing operations for the year attributable to Demant EPS - discontinuing A/S' shareholders operations Average number of shares outstanding Free cash flow Free cash flow per share Average number of shares outstanding Total annual remuneration of the CEO CEO remuneration ratio Average remuneration of Demant employees excluding the CEO Insights and highlights Our business Corporate information Financial report Back to content Section 9 Basis for preparation Demant – Annual Report 2023 124 Key figures and financial ratios Financial ratios are calculated in accord- ance with “Recommendations and Ratios” from CFA Society Denmark. Gender diversity Gender diversity is calculated based on the data from the countries enrolled in our global HR data management system. In 2023, 90% of our employees were regis- tered in the system. Carbon emissions Carbon emissions are measured using the carbon dioxide equivalent (CO2e) to in- clude relevant greenhouse gasses accord- ing to the Greenhouse Gas Protocol. The consolidated emissions data comprise en- tities where Demant has operational con- trol. These include emissions data from leased facilities. Scope 1 emissions (direct GHG emissions) cover CO2e emissions from actual and es- timated consumed natural gas, liquefied petroleum gas, gasoline and diesel. De- partment for Environment, Food & Rural Affairs (Defra) emissions factors were used. Scope 2 emissions (own indirect GHG emissions) cover CO2e emissions from ac- tual and estimated purchased and con- sumed electricity and district heating. In- ternational Energy Agency (IEA) CO2 Emissions from Fuel Combustion factors were used for location-based emissions and residual mix for market-based emis- sions (when available) generated from electricity. Department for Environment, Food & Rural Affairs (Defra) emissions fac- tors were used for district heating. As part of the preparation of the consoli- dated financial statements, Management makes a number of accounting estimates and judgements. These relate to the recog- nition, measurement and classification of assets and liabilities. Many items can only be estimated rather than accurately meas- ured. Such estimates are based on the most recent information available on prep- aration of the financial statements. Esti- mates and assumptions are therefore re- assessed on an ongoing basis. Actual fig- ures may, however, deviate from these es- timates. Any changes in accounting esti- mates will be recognised in the reporting period in which such changes are made. Significant accounting estimates and judgements are described in the individual notes to the consolidated financial state- ments as outlined below: 1.2 Revenue 1.6 Inventories 3.3 Leases 3.6 Impairment (identification of CGUs) 5.2 Deferred tax 6.1 Acquisition of enterprises and activities Specific accounting estimates and judge- ments are described in each of the individ- ual notes to the consolidated financial statements as outlined below: 1.2 Revenue 1.3 Employees 1.6 Inventories 1.7 Trade receivables 1.8 Customer loans 3.1 Intangible assets 3.2 Property, plant and equipment 3.3 Leases 5.2 Deferred tax 6.1 Acquisition of enterprises and activities 7.1 Provisions 7.2 Other liabilities 9.1 Group accounting policies (continued) 9.2 Accounting estimates and judgements Insights and highlights Our business Corporate information Financial report Back to content Parent Financial statement Demant – Annual Report 2023 125 Parent financial statements Demant – Annual Report 2023 125 Philips Insights and highlights Our business Corporate information Financial report Back to content Parent financial statements Insights and highlights Our business Corporate information Financial report Back to content Parent Financial statement Demant – Annual Report 2023 126 Parent income statement (DKK million) Note 2023 2022 Revenue - - Administrative expenses 10.1 / 10.2 -116 -73 Operating loss (EBIT) -116 -73 Share of profit after tax, subsidiaries 10.8 1,742 1,584 Share of profit after tax, associates 10.8 -2 -3 Financial income 10.3 158 49 Financial expenses 10.3 -413 -147 Profit before tax 1,369 1,410 Tax on profit for the year 10.4 6 29 Profit for the year 10.5 1,375 1,439 Insights and highlights Our business Corporate information Financial report Back to content Parent Financial statement Demant – Annual Report 2023 127 Parent balance sheet 31 December (DKK million) Note 2023 2022 Assets Goodwill 20 23 Intangible assets 10.6 20 23 Land and buildings 24 24 Property, plant and equipment 10.7 24 24 Lease assets 1 1 Investments in subsidiaries 10.8 16,211 15,028 Loans to subsidiaries 10.8 3,014 1,284 Investments in associates 10.8 30 33 Other investments 2 - Other receivables 9 8 Other non-current assets 19,267 16,354 Non-current assets 19,311 16,401 Receivables from subsidiaries - 953 Income tax 11 30 Other receivables 2 32 Prepaid expenses 32 18 Cash 7 - Receivables 52 1,033 Current assets 52 1,033 Assets 19,363 17,434 (DKK million) Note 2023 2022 Equity and liabilities Share capital 45 46 Other reserves 2,312 1,812 Retained earnings 2,426 2,522 Total equity 4,783 4,380 Provisions 498 124 Deferred tax liabilities 10.4 4 8 Provisions 502 132 Borrowings 10,137 6,062 Lease liabilities 1 1 Other debt 240 232 Non-current liabilities 10.9 10,378 6,295 Borrowings 10.9 1,311 6,051 Debt to subsidiaries 2,168 383 Other debt 10.9 221 193 Current liabilities 3,700 6,627 Liabilities 14,078 12,922 Equity and liabilities 19,363 17,434 Contingent liabilities 10.10 Related parties 10.11 Events after the balance sheet date 10.12 Parent accounting policies 10.13 Insights and highlights Our business Corporate information Financial report Back to content Parent Financial statement Demant – Annual Report 2023 128 Parent statement of changes in equity (DKK million) Other reserves Share capital Foreign currency translation reserve Hedging reserve Reserve according to equity method Retained earnings Total equity Equity at 1.1.2022 48 -75 2 1,717 2,762 4,454 Profit for the year - - - 1,581 -142 1,439 Dividends received - - - -1,731 1,731 - Foreign currency translation adjustment of investments in subsidiaries etc. - -1 - 55 - 54 Other changes in equity in subsidiaries - - - 256 - 256 Value adjustment for the year - - 16 - - 16 Tax relating to changes in equity - - -4 - - -4 Share buy-backs - - - - -1,840 -1,840 Capital reduction through cancellation of treasury shares -2 - - - 2 - Share-based compensation - - - - 9 9 Other changes in equity - - -4 - - -4 Equity at 31.12.2022 46 -76 10 1,878 2,522 4,380 Profit for the year - - - 1,740 -365 1,375 Dividends received - - - -1,018 1,018 - Foreign currency translation adjustment of investments in subsidiaries etc. - -7 - -114 - -121 Other changes in equity in subsidiaries - - - -72 - -72 Value adjustment for the year - - -37 - - -37 Tax relating to changes in equity - - 8 - - 8 Share buy-backs - - - - -846 -846 Capital reduction through cancellation of treasury shares -1 - - - 1 - Share-based compensation - - - - 96 96 Equity at 31.12.2023 45 -83 -19 2,414 2,426 4,783 Insights and highlights Our business Corporate information Financial report Back to content Parent Financial statement Demant – Annual Report 2023 129 At the balance sheet date in 2023, the share capital was nominally DKK 45 mil- lion (DKK 46 million in 2022) divided into the corresponding number of shares of DKK 0.20. There are no restrictions on the negotiabil- ity or voting rights of the shares. At the balance sheet date 2023, the number of shares outstanding was 220,552,501 (230,161,030 in 2022). As part of the company’s share buy-back programme, the company acquired 2,952,703 own shares in 2023 (6,969,114 shares in 2022), amounting to a total of DKK 846 million (DKK 1,840 million in 2022). 2023 2022 Treasury shares Percentage of share capital Treasury shares Percentage of share capital Treasury shares at 1.1. 7,217,705 3.1% 9,997,689 4.2% Cancellation of treasury shares -6,783,469 -2.9% -9,749,098 -4.1% Share buy-backs 2,952,703 1.3% 6,969,114 3.0% Treasury shares at 31.12. 3,386,939 1.5% 7,217,705 3.1% Parent statement of changes in equity (continued) Insights and highlights Our business Corporate information Financial report Back to content Section 10 Demant – Annual Report 2023 130 Notes to Parent financial statements Demant – Annual Report 2023 130 EPOS Impact 100 Insights and highlights Our business Corporate information Financial report Back to content Section 10 Notes to Parent financial statements Insights and highlights Our business Corporate information Financial report Back to content Section 10 Demant – Annual Report 2023 131 (DKK million) 2023 2022 Employee costs Wages and salaries 83 59 Share-based remuneration 14 12 Total 97 71 Average number of full-time employees 44 32 For further details on the remuneration of the Executive Board and the Board of Di- rectors and the share-based remuneration programme, please refer to Note 1.3 in the consolidated financial statements. 10.2 Fees to statutory auditors 10.3 Net financial items (DKK million) 2023 2022 Interest from subsidiaries 158 39 Interest income - 10 Financial income 158 49 Interest to subsidiaries -31 -5 Interest expenses -367 -103 Transaction costs -7 -2 Foreign exchange losses, net -8 -37 Financial expenses -413 -147 Net financial items -255 -98 10.1 Employees Remuneration to Executive Board and Board of Directors (included in employee costs) (DKK million) 2023 2022 Executive Board: Wages and salaries 25.6 25.9 Cash bonus 4.4 1.7 Share-based remuneration 11.6 8.7 Remuneration in the notice period 22.1 - Total 63.7 36.3 Board of Directors: Fee 5.4 4.8 Total 5.4 4.8 *The amounts are based on the principles set out in Note 1.3. As announced on 27 April 2023, Arne Boye Nielsen, former President of Diagnostics and Communications and member of the Executive Board, left his position in Demant. (DKK million) 2023 2022 Statutory audit 4 2 Total 4 2 Insights and highlights Our business Corporate information Financial report Back to content Section 10 Demant – Annual Report 2023 132 10.4 Tax on profit for the year and deferred tax (DKK million) 2023 2022 Current tax on profit for the year - 30 Adjustment of current tax, prior years 2 - Change in deferred tax 6 -1 Adjustment of deferred tax, prior years -2 - Tax on profit for the year 6 29 Deferred tax recognised in the balance sheet: Deferred tax, net at 1.1. 8 7 Changes in deferred tax -6 1 Adjustment of deferred tax, prior years 2 - Deferred tax, net at 31.12. 4 8 10.5 Proposed distribution of net profit (DKK million) 2023 2022 Transferred to reserves for net revaluation according to the equity method 1,740 1,581 Retained earnings -365 -142 Total 1,375 1,439 Insights and highlights Our business Corporate information Financial report Back to content Section 10 Demant – Annual Report 2023 133 10.6 Intangible assets (DKK million) Goodwill Rights and other intangible assets Total intangible assets Cost at 1.1.2023 65 11 76 Cost at 31.12.2023 65 11 76 Amortisation at 1.1.2023 -42 -11 -53 Amortisation for the year -3 - -3 Amortisation at 31.12.2023 -45 -11 -56 Carrying amount at 31.12.2023 20 - 20 Cost at 1.1.2022 65 11 76 Cost at 31.12.2022 65 11 76 Amortisation at 1.1.2022 -39 -11 -50 Amortisation for the year -3 - -3 Amortisation at 31.12.2022 -42 -11 -53 Carrying amount at 31.12.2022 23 - 23 10.7 Property, plant and equipment (DKK million) Land and buildings Cost at 1.1.2023 31 Cost at 31.12.2023 31 Depreciation and impairment losses at 1.1.2023 -7 Depreciation and impairment losses at 31.12.2023 -7 Carrying amount at 31.12.2023 24 Cost at 1.1.2022 31 Cost at 31.12.2022 31 Depreciation and impairment losses at 1.1.2022 -7 Depreciation and impairment losses at 31.12.2022 -7 Carrying amount at 31.12.2022 24 Insights and highlights Our business Corporate information Financial report Back to content Section 10 Demant – Annual Report 2023 134 The carrying amount of investments in subsidiaries includes capitalised goodwill in the amount of DKK 8,059 million (DKK 7,819 million in 2022). Amortisation of capitalised goodwill for the year was DKK 627 million (DKK 562 million in 2022). Due to the planned divestment of the CI busi- ness to Cochlear with no consideration to be paid, a write-down of investments in subsidiaries of DKK 266 million was recog- nised in share of profit after tax. Loans to subsidiaries of DKK 3,014 million (DKK 1,284 million in 2022) are considered additions to the total investments in the particular enterprises and are therefore considered non-current. Please refer to Section 11 Subsidiaries and associates for further information on sub- sidiaries and associates. 10.8 Financial assets (DKK million) 2023 2022 Investments in subsidiaries Loans to subsidiaries Investments in associates Investments in subsidiaries Loans to subsidiaries Investments in associates Cost at 1.1. 13,009 1,284 50 10,843 1,429 50 Foreign currency translation adjustments - -7 - - 18 - Additions during the year 257 1,801 - 2,166 173 - Disposals during the year - -64 - - -336 - Cost at 31.12. 13,266 3,014 50 13,009 1,284 50 Value adjustments at 1.1. 1,895 - -17 1,731 - -14 Foreign currency translation adjustments -114 - - 54 - 1 Share of profit after tax 1,742 - -2 1,584 - -3 Dividends received -1,018 - -1 -1,730 - -1 Other adjustments -58 - - 256 - - Value adjustments at 31.12. 2,447 - -20 1,895 - -17 Carrying amount at 31.12. 15,713 3,014 30 14,904 1,284 33 Subsidiaries with negative equity reclassified to provisions 498 - - 124 - - Carrying amount after reclassification at 31.12. 16,211 3,014 30 15,028 1,284 33 Non-current financial assets 16,211 3,014 30 15,028 1,284 33 Insights and highlights Our business Corporate information Financial report Back to content Section 10 Demant – Annual Report 2023 135 A part of other debt of DKK 222 million (DKK 193 million in 2022) has a contrac- tual maturity of less than one year, and a part of other debt of DKK 240 million (DKK 232 million in 2022) has a contractual ma- turity of 1-5 years. Interest-bearing debt broken down by currency: 74% in Danish kroner (74% in 2022), 22% in euros (20% in 2022), 4% in US dollars (4% in 2022), 0% in Canadian dollars (1% in 2022) and 0% in other cur- rencies (1% in 2022). The fair value of the interest rate swap outstanding at the balance sheet date was DKK 18 million (DKK 0 million in 2022), and the contractual value of the interest swap was DKK 1,000 million (DKK 0 million in 2022). The interest rate swap matures in 2026. In 2022, part of the non-current debt was hedged via an interest rate cap with a contractual value of DKK 650 million. Sensitivity analysis in respect of interest rates Based on bank debt facilities at the bal- ance sheet date, a rise of 1 percentage point in the general interest rate level will result in an increase in the Parent’s annual interest expenses before tax of approx. DKK 76 million (DKK 75 million in 2022). Around 33% (around 38% in 2022) of the interest-bearing debt is subject to fixed or limited interest rates, partly due to a bought interest rate swap, and partly due to loans being raised at fixed interest rates. Interest rate swap (Interest rate cap in 2022) (DKK million) Expiry Interest rate/strike Contractual amount at year-end Positive fair value at year-end Negative fair value at year-end 2023 DKK/DKK 2026 3.27% 1,000 - -18 1,000 - -18 2022 DKK/DKK 2023 0% 650 20 - 650 20 - 10.9 Interest-bearing debt Contractual cash flows (DKK million) Less than 1 year 1-5 years More than 5 years Total Carrying amount Weighted average effective interest rate 2023 Debt to credit institutions etc. 1,474 10,584 301 12,359 11,189 Short-term bank facilities etc. 271 - - 271 259 Lease liabilities 1 - - 1 1 Interest-bearing liabilities 1,746 10,584 301 12,631 11,449 3.9% 2022 Debt to credit institutions etc. 5,998 5,322 885 12,205 11,867 Short-term bank facilities etc. 254 - - 254 246 Lease liabilities 1 - - 1 1 Interest-bearing liabilities 6,253 5,322 885 12,460 12,114 2.0% Insights and highlights Our business Corporate information Financial report Back to content Section 10 Demant – Annual Report 2023 136 Demant A/S has provided security in re- spect of credit facilities established by Danish subsidiaries. These credit facilities totalled DKK 1,140 million in 2023 (DKK 1,517 million in 2022) of which DKK 103 million was utilised (DKK 257 million in 2022). Demant A/S has provided security in re- spect of rent as well as guarantees con- cerning the continuous operation and pay- ment of liabilities in 2023 for some of our subsidiaries. The Parent is jointly taxed with William Demant Invest A/S, which is the admin- istration company, and with all Danish subsidiaries of both. Under the Danish Corporation Tax Act, Demant A/S is first of all fully liable for corporate tax payments and for withholding tax at source in re- spect of interest, royalties and dividends in relation to its own subsidiaries and is sec- ondly liable for tax payments due for Wil- liam Demant Invest A/S and its partly owned subsidiaries. For the purposes of section 357 of the Republic of Ireland Companies Act 2014, Demant A/S has undertaken to indemnify the creditors of its subsidiaries incorpo- rated in the Republic of Ireland in respect of all losses and liabilities for the financial year ending on 31 December 2023 or any amended financial period incorporating said financial year. No material loss is ex- pected to arise from this guarantee. 10.11 Related parties William Demant Foundation, Kongebakken 9, 2765 Smørum, Denmark, is the only re- lated party with a controlling interest. Con- trolling interest is achieved through a com- bination of William Demant Foundation’s own shareholding and the shareholding of William Demant Invest A/S for which Wil- liam Demant Foundation exercises the vot- ing rights. Subsidiaries and associated en- terprises of William Demant Invest A/S are related parties to Demant A/S. Related parties with significant influence are the company’s Board of Directors and their related parties. Furthermore, related parties are the Executive Board and com- panies in which the above persons have significant interests. 10.12 Events after the balance sheet date Please refer to Note 8.4 in the consolidated financial statements. 10.10 Contingent liabilities Insights and highlights Our business Corporate information Financial report Back to content Section 10 Demant – Annual Report 2023 137 The financial statements of the Parent, Demant A/S, are presented in accordance with the provisions of the Danish Financial Statements Act for class D entities. The Parent financial statements are pre- sented in Danish kroner (DKK), which is also the functional currency for the Parent. The accounting policies are the same as last year. In respect of recognition and measurement, the Parent’s accounting policies are gener- ally consistent with the Group’s accounting policies. The instances in which the Par- ent’s accounting policies deviate from those of the Group are described below. The Parent has decided to apply the re- cognition and measurement in accordance with IFRS 15 and 16. The standards affect the Parent’s proportionate share of its subsidiaries’ equity value, and IFRS 16 affects the Parent’s leases. Changes to comparative fig- ures The 2022 comparative figures for invest- ments in subsidiaries and provisions have been changed due to incorrect presenta- tion of investments in subsidiaries with negative equity in the past. Effect of the changes to the comparative figures for 2022: • Reclassification from “Carrying amount” in subsidiaries: DKK 124 million • Reclassification to provisions: DKK 124 million Income statement Tax The Parent is jointly taxed with its Danish subsidiaries and its parent, William De- mant Invest A/S. Current income tax is al- located to the jointly taxed Danish compa- nies in proportion to their taxable income. Balance sheet Goodwill Goodwill is amortised on a straight-line basis over 20 years, which is the useful life determined on the basis of Management’s experience in respect of the individual business activities. Goodwill is written down to its recoverable amount, if lower than its carrying amount. Rights Rights acquired are amortised on a straight-line basis over their estimated useful lives and measured at cost less ac- cumulated amortisation and impairment losses. The amortisation period is five years. Rights acquired are written down to their recoverable value, if lower than their carry- ing value. Investments in subsidiaries and associates Investments in subsidiaries and associates are recognised and measured using the equity method, i.e. interest is measured at the proportionate share of the equity values of such subsidiaries and associates with the addition or deduction of the carry- ing amount of goodwill and with the addi- tion or deduction of unrealised intra-group profits or losses, respectively. The Parent’s proportionate shares of prof- its or losses in subsidiaries and associates are recognised in the income statement af- ter elimination of unrealised intra-group profits or losses less any amortisation and impairment of goodwill. Subsidiaries and associates with negative equity values are measured at DKK 0, and any receivables from such companies are written down with the Parent’s share of the negative equity value to the extent that such receivable is considered irrecovera- ble. If the negative equity value exceeds the value of receivables, if any, such resid- ual amount is recognised under provisions to the extent that the Parent has a legal or constructive obligation to cover liabilities incurred by the particular subsidiary or as- sociate. On distribution of profit or loss, net revalu- ation and net impairment losses on invest- ments in subsidiaries and associates are transferred to reserves for net revaluation according to the equity method. Other investments On initial recognition, other investments are measured at cost. Subsequently, they are measured at fair value on the balance sheet date, and any changes in fair values are recognised in the income statement under net financial items. Provisions Provisions include liabilities, which are un- certain in respect of the amount or the tim- ing of their settlement. Provisions may in- clude different types of liabilities, such as deferred tax liabilities, pension obligations, investments in subsidiaries with negative equity as well as provisions for disputes etc. Statement of changes in equity In compliance with the format require- ments of the Danish Financial Statements Act, any items included under comprehen- sive income in the consolidated financial statements are recognised directly in eq- uity in the Parent financial statements. Cash flow statement In compliance with section 86(4) of the Danish Financial Statements Act, a cash flow statement is not prepared for the Par- ent, such statement being included in the consolidated cash flow statement. 10.13 Parent accounting policies Insights and highlights Our business Corporate information Financial report Back to content Section 11 Demant – Annual Report 2023 138 Subsidiaries and associates Demant – Annual Report 2023 138 Insights and highlights Our business Corporate information Financial report Back tBack to contento content Section 11 Subsidiaries and associates Insights and highlights Our business Corporate information Financial report Back to content Section 11 Demant – Annual Report 2023 139 Company Interest Audmet New Zealand Limited, New Zealand 100% Audmet Oy, Finland 100% Audmet Srl, Italy 100% AudPractice Group, LLC, United States 100% Beijing Shengwang Yuanbo Commerce and Trade Co., Ltd., China 100% Bernafon (UK) Limited, United Kingdom 100% Bernafon A/S, Denmark 100% Bernafon AB, Sweden 100% Bernafon AG, Switzerland 100% Bernafon Hörgeräte GmbH, Germany 100% Bernafon, LLC, United States 100% Birdsong Hearing Benefits, LLC, United States 100% Braun Hören GmbH & Co. KG, Germany 100% Braun Hörgeräte GmbH & Co. KG, Germany 100% Braun Hörgeräte Offenburg GmbH & Co. KG, Germany 100% Centro Auditivo Telex Ltda., Brazil 100% CQ Partners, LLC, United States 100% Danacom Høreapparater A/S, Denmark 100% Demant Australia Pty Ltd, Australia 100% Demant Belgium B.V., Belgium 100% Demant Business Services Poland Sp. z o.o., Poland 100% Demant Iberica, S.A., Spain 100% Demant İşitme Cihazları San. Tic. A.Ş, Turkey 100% Demant Italia S.r.l., Italy 100% Demant Japan K.K., Japan 100% Demant Korea Co., ltd., Korea 100% Demant Malaysia Sdn. Bhd., Malaysia 100% Demant México, S.A. de C.V., Mexico 100% Demant Nederland B.V., Netherlands 100% Demant New Zealand Limited, New Zealand 100% Demant Operations Poland Sp. z o.o, Poland 100% Demant Operations S.A. de C.V., Mexico 100% Company Interest Demant A/S Parent Oticon A/S, Denmark 100% Oticon AS, Norway 100% Oticon Denmark A/S, Denmark 100% Oticon GmbH, Germany 100% Oticon Limited, United Kingdom 100% Oticon Medical A/S, Denmark 100% Oticon Medical AB, Sweden 100% Oticon Medical Maroc, Morocco 100% Oticon Medical, LLC, United States 100% Oticon Polska Sp. z o.o., Poland 100% Oticon, Inc., United States 100% Oticon (Shanghai) Hearing Technology Co., Ltd., China 100% ACS Audika Sp. z.o.o., Poland 100% Acustica Sp. z o.o., Poland 100% Advanced Hearing Providers, LLC, United States 100% Akoustica Medica S.A., Greece 100% Amplivox Limited, United Kingdom 100% Audika AB, Sweden 100% Audika AG, Switzerland 100% Audika ApS, Denmark 100% Audika Australia Pty. Ltd., Australia 100% Audika GmbH, Germany 100% Audika Groupe S.A.S., France 100% Audika Management GmbH, Germany 100% Audika New Zealand Limited, New Zealand 100% Audilab SAS, France ** *** 100% Audio Seleccion S.L., Spain 100% Audiology Services Company USA, LLC, United States 100% AudioNet America, Inc., United States 100% Audmet Australia Pty Ltd., Australia 100% Audmet Canada Ltd., Canada 100% Directly owned by the Parent for 100%. The list includes the Group's active companies. Insights and highlights Our business Corporate information Financial report Back to content Section 11 Demant – Annual Report 2023 140 Company Interest Demant Sales Strategic Accounts A/S, Denmark 100% Demant Schweiz AG, Switzerland 100% Demant Singapore Pte Ltd, Singapore 100% Demant South Africa (Pty) Ltd., South Africa 100% Demant Sweden AB, Sweden 100% Demant Technology & Innovation Centre Sdn. Bhd., Malaysia 100% Demant Technology Centre Sp. z o.o., Poland 100% DGS Diagnostics Sp. z o.o., Poland 100% Diagnostic Group LLC, United States 100% Diatec A/S, Denmark 100% Diatec AG, Switzerland 100% Diatec Canada Ltd., Canada 100% Diatec Diagnostics GmbH, Germany 100% Diatec Diagnostics Ltd, United Kingdom 100% Diatec Polska Sp. z o.o., Poland 100% Diatec Shanghai Medical Technology Co., Ltd., China 100% Diatec Spain, S.L.U., Spain 100% DSEA A/S, Denmark 100% e3 Diagnostics, Inc., United States 100% Entomed Medtech AB, Sweden 100% EPOS Audio Australia Pty Ltd, Australia 100% EPOS Audio India Private Limited, India 100% EPOS Audio Ireland Limited, Ireland 100% EPOS Audio Singapore Pte. Ltd., Singapore 100% EPOS Audio UK Ltd., United Kingdom 100% EPOS Austria GmbH, Austria 100% EPOS Belgium BV, Belgium 100% EPOS Canada Ltd., Canada 100% EPOS France S.A.S, France 100% EPOS Germany GmbH, Germany 100% EPOS Group A/S, Denmark 100% EPOS Hong Kong Limited, Hong Kong 100% Company Interest EPOS Japan Kabushiki Kaisha, Japan 100% EPOS Netherlands B.V., Netherlands 100% EPOS Sales A/S, Denmark 100% EPOS Sweden AB, Sweden 100% EPOS Switzerland AG, Switzerland 100% EPOS USA, Inc., United States 100% Etymonic Design Inc., Canada 100% Fluorite Sp. z o.o., Poland 100% Great Lakes Provider Network, LLC, United States 100% Guymark UK Limited, United Kingdom 100% Hearing Screening Associates, LLC, United States 100% HearingLife Canada Ltd., Canada ** *** 100% Hidden Hearing (N.I.) Limited, United Kingdom 100% Hidden Hearing (Portugal), Unipessoal, Lda., Portugal 100% Hidden Hearing International Plc, United Kingdom 100% Hidden Hearing Limited, Ireland 100% Hidden Hearing Limited, United Kingdom 100% Hidden Hearing Properties Ltd, United Kingdom 100% Hörgeräte-Akustik Flemming & Klingbeil GmbH & Co. KG, Germany 100% Horgerate-Akustik Flemming & Klingbeil Verwaltungs-GmbH, Germany 100% IDEA Isitme Sistemleri Sanayi ve Ticaret A.S., Turkey 100% Interacoustics A/S, Denmark 100% Interacoustics Pty Ltd, Australia 100% Inventis North America Inc., United States 100% Inventis S.r.l., Italy 100% Kuulopiiri Oy, Finland 100% Langer Hörstudio GmbH, Germany 100% LeDiSo Italia S.r.l., Italy 100% Maico Diagnostics GmbH, Germany 100% Maico S.r.l., Italy 100% Mediszintech Audiologica Kft., Hungary 100% MedRx, Inc., United States 100% Directly owned by the Parent for 100%. *Sub-consolidated group of companies, including companies with non-controlling interests. Sub-consolidated group of companies, including associated companies. The list includes the Group's active companies. Insights and highlights Our business Corporate information Financial report Back to content Section 11 Demant – Annual Report 2023 141 Company Interest Moser Hörgeräte GmbH, Germany 100% Mr. Optik GmbH, Germany *** 100% Neurelec S.A.S, France 100% Northeast Hearing Instruments, LLC, United States 100% Philiear Inc., Philippines 100% Phonic Ear Inc., United States 100% Prodition S.A.S, France 100% Ritter Hörgeräte GmbH, Germany 100% SBO Hearing A/S, Denmark 100% SBO Hearing US, Inc., United States 100% SBO International Sales A/S, Denmark 100% Shanghai YinPo Technology Co., Ltd., China 100% Shin Nihon Hochoki Kabushiki Kaisha, Japan 100% Sonic AG (Sonic SA) (Sonic Ltd.), Switzerland 100% Sonic Equipment Australia Pty Ltd, Australia 100% Sonic Innovations, Inc., United States 100% Synapsys S.A.S, France 100% Udicare S.r.l., Italy 100% Value Hearing (Pty) Ltd., South Africa 100% WDH Germany GmbH, Germany 100% WDH UK Limited, United Kingdom 100% WDH USA, Inc., United States 100% Workplace Integra Inc., United States 100% Van Boxtel Hoorwinkels B.V., Netherlands 100% Audika NV, Belgium 100% Medton Ltd., Israel 90% Colorado Hearing, LLC, United States 80% Destin Hearing Associates, LLC, United States 70% ADB Sarl, France 60% Audika Alpes Sarl, France 60% Institut de l'Audition du Var Sarl, France 60% Conc. Maico - Centro Otoacustico Marchesin S.r.l., Italy 50% Company Interest Virtualis SAS, France ** 55% European Hearing Care (Myanmar) Limited, Myanmar 50% Audiovita S.r.l., Italy 49% Exclusive Hearing Limited, United Kingdom 49% Microfon S.r.l., Italy 49% Otic Hearing Solutions Private Limited, India 49% Ma.Bi.Ge Bioacustica S.r.l., Italy 49% Audiology Concepts, LLC, United States 40% Audition Bahuaud SAS, France 40% Dencker A/S, Denmark 40% Vocechiara S.r.l., Italy 40% Acustica Umbra S.r.l., Italy 35% Centro Audioprotesico Lombardo S.r.l., Italy 35% Euro Hearing LLC, Uzbekistan 35% TruEar LLC, United States 35% Fonema Italia S.r.l., Italy 30% HearWell Audiology Clinics Inc., Canada 25% HIMSA A/S, Denmark 25% Imperial Hearing Limited, United Kingdom 25% Acufon S.r.l., Italy 20% Acustica Marche S.r.l., Italy 20% Audiovox Preduzece Za Izradu I Promet Ortopedskih Pomagaladoo, Serbia 20% Bontech Research CO D.o.o., Croatia 20% HIMSA II A/S, Denmark 20% Solaborate Inc., United States 20% The Hearing Doctors of Georgia, LLC, United States 20% K/S HIMPP, Denmark 18% HIMSA II K/S, Denmark 15% HIMPP A/S, Denmark 13% HearBase Limited, United Kingdom 10% Directly owned by the Parent for 100%. Sub-consolidated group of companies, including companies with non-controlling interests. **Sub-consolidated group of companies, including associated companies. The list includes the Group's active companies. Insights and highlights Our business Corporate information Financial report Back to content Section 11 Demant – Annual Report 2023 142 Demant A/S Kongebakken 9 DK-2765 Smørum Denmark Phone +45 3917 7300 info@demant.com www.demant.com CVR 71186911 Annual reportAuditor's report on audited financial statementsParsePort XBRL Converter2023-01-012023-12-312022-01-012022-12-31213800RM6L9LN78BVA56OpinionBasis for Opinion213800RM6L9LN78BVA562023-01-012023-12-31cmn:ConsolidatedMember213800RM6L9LN78BVA562023-01-012023-12-31213800RM6L9LN78BVA562022-01-012022-12-31213800RM6L9LN78BVA562023-12-31213800RM6L9LN78BVA562022-12-31213800RM6L9LN78BVA562021-12-31213800RM6L9LN78BVA562022-12-31ifrs-full:IssuedCapitalMember213800RM6L9LN78BVA562023-01-012023-12-31ifrs-full:IssuedCapitalMember213800RM6L9LN78BVA562023-12-31ifrs-full:IssuedCapitalMember213800RM6L9LN78BVA562022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800RM6L9LN78BVA562023-01-012023-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800RM6L9LN78BVA562023-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800RM6L9LN78BVA562022-12-31ifrs-full:ReserveOfCashFlowHedgesMember213800RM6L9LN78BVA562023-01-012023-12-31ifrs-full:ReserveOfCashFlowHedgesMember213800RM6L9LN78BVA562023-12-31ifrs-full:ReserveOfCashFlowHedgesMember213800RM6L9LN78BVA562022-12-31ifrs-full:RetainedEarningsMember213800RM6L9LN78BVA562023-01-012023-12-31ifrs-full:RetainedEarningsMember213800RM6L9LN78BVA562023-12-31ifrs-full:RetainedEarningsMember213800RM6L9LN78BVA562022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800RM6L9LN78BVA562023-01-012023-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800RM6L9LN78BVA562023-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800RM6L9LN78BVA562022-12-31ifrs-full:NoncontrollingInterestsMember213800RM6L9LN78BVA562023-01-012023-12-31ifrs-full:NoncontrollingInterestsMember213800RM6L9LN78BVA562023-12-31ifrs-full:NoncontrollingInterestsMember213800RM6L9LN78BVA562021-12-31ifrs-full:IssuedCapitalMember213800RM6L9LN78BVA562022-01-012022-12-31ifrs-full:IssuedCapitalMember213800RM6L9LN78BVA562021-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800RM6L9LN78BVA562022-01-012022-12-31ifrs-full:ReserveOfExchangeDifferencesOnTranslationMember213800RM6L9LN78BVA562021-12-31ifrs-full:ReserveOfCashFlowHedgesMember213800RM6L9LN78BVA562022-01-012022-12-31ifrs-full:ReserveOfCashFlowHedgesMember213800RM6L9LN78BVA562021-12-31ifrs-full:RetainedEarningsMember213800RM6L9LN78BVA562022-01-012022-12-31ifrs-full:RetainedEarningsMember213800RM6L9LN78BVA562021-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800RM6L9LN78BVA562022-01-012022-12-31ifrs-full:EquityAttributableToOwnersOfParentMember213800RM6L9LN78BVA562021-12-31ifrs-full:NoncontrollingInterestsMember213800RM6L9LN78BVA562022-01-012022-12-31ifrs-full:NoncontrollingInterestsMember213800RM6L9LN78BVA562023-12-31cmn:ConsolidatedMember213800RM6L9LN78BVA562023-01-012023-12-31cmn:ConsolidatedMember1213800RM6L9LN78BVA562023-01-012023-12-31cmn:ConsolidatedMember2213800RM6L9LN78BVA562023-01-012023-12-31cmn:ConsolidatedMember3213800RM6L9LN78BVA562023-01-012023-12-31cmn:ConsolidatedMember1213800RM6L9LN78BVA562023-01-012023-12-31cmn:ConsolidatedMember2213800RM6L9LN78BVA562023-01-012023-12-31cmn:ConsolidatedMember3213800RM6L9LN78BVA562023-01-012023-12-31cmn:ConsolidatedMember4213800RM6L9LN78BVA562023-01-012023-12-31cmn:ConsolidatedMember5213800RM6L9LN78BVA562023-01-012023-12-31cmn:ConsolidatedMember6213800RM6L9LN78BVA562023-01-012023-12-31cmn:ConsolidatedMember7213800RM6L9LN78BVA562023-01-012023-12-31cmn:ConsolidatedMember8213800RM6L9LN78BVA562023-01-012023-12-31cmn:ConsolidatedMember1213800RM6L9LN78BVA562023-01-012023-12-31cmn:ConsolidatedMember2213800RM6L9LN78BVA562022-01-012022-12-31cmn:ConsolidatedMemberiso4217:DKKiso4217:DKKxbrli:sharesxbrli:pure