Demant — Earnings Release 2012

Aug 16, 2012

Company announcement no 2012-06 16 August
2012

With 9% unit growth in the first half-year, the Group continues to win
significant market shares

Strong cash flow from operating activities of DKK 790 million

William Demant Holding A/S today published its Interim Report 2012 for the
first half-year. Selected interim highlights are summarised below:

In the first half-year, the Group realised revenue of DKK 4,258 million, or a
9% rise compared to the same period last year. The Group's core business,
wholesale of hearing aids, realised unit growth of 9% in the period under
review and thus captured significant market shares in a global hearing aid
market that is estimated to have grown by 3-4% in units sold.

-- As expected, the Group's volume growth was especially driven by sales in
the mid-priced and low-end segments, and both the country mix and the
channel mix developed less favourably compared with the same period last
year. The average selling price in the core business thus decreased by 6%
on the first half-year of 2011. However, the major part of this reduction
actually took place in the last half of 2011.
-- Despite a declining average selling price, the Group succeeded in
increasing its gross profit margin by 0.2 percentage point to 71.7%. This
positive development can, among other factors, be attributed to ongoing
operational improvements and the realisation of economies of scale in
production.
-- Our operating profit (EBIT) amounted to DKK 864 million in the first
half-year, corresponding to 7% growth compared with the same period last
year. The reported profit ratio for the period was 20.3%, or a fall of 0.4
percentage point.
-- Corporate cash flow from operating activities (CFFO) rose by as much as 14%
to DKK 790 million in the first half-year, whereas free cash flows rose by
no less than 20% to DKK 586 million. The strong cash flow also made it
possible to buy back shares worth DKK 400 million in the past half-year.
-- The Group's expectations of 2012 remain unchanged. It is however now
estimated that the global hearing aid market will show zero growth in terms
of value in 2012 against a previous expectation of low single-digit market
growth. On the other hand, due to the strengthening of the Group's trading
currencies, we now expect a more positive exchange rate effect on revenue
than previously thought.
-- We thus still forecast consolidated revenue for 2012 to grow by 5-9%, of
which acquisitions are estimated to account for 1-3 percentage points, and
we expect operating profits (EBIT) to increase compared to the level
realised in 2011.

"The fact that consolidated cash flows in the first half-year reached a record
level, I consider to be very satisfactory. I am also very satisfied that in the
past half-year, we have succeeded in keeping our profitability at a high level
in a situation where our average selling price has in fact fallen 6% compared
to the first half of 2011," says Niels Jacobsen, President & CEO of William
Demant Holding. "Like most of our competitors' technology platforms, our
platform too is approaching the end of its current lifecycle, which has
temporarily aggravated the product mix and increased price competition in the
marketplace. On that backdrop, I look forward to the market once again focusing
on functionalities and user benefits, as we and probably some of our
competitors will launch new products," adds Niels Jacobsen.

Principal key figures and financial ratios

                                        1st half 2012  1st half 2011  Change

---

Key figures, DKK million

Revenue 4,258 3,900 9%

Gross profit 3,055 2,787 10%

Operating profit (EBIT) 864 806 7%

Net financials -55 -38 45%

Profit before tax 809 768 5%

Profit for the period 603 576 5%

Assets 8,111 7,097 14%

Equity 3,559 3,001 19%

Cash flow from operating activities (CFFO) 790 693 14%

Financial ratios

Earnings per share (EPS), DKK 10.5 9.9 6%

Gross profit ratio 71.7% 71.5%

Profit margin (EBIT margin) 20.3% 20.7%

Return on equity 39.8% 42.3%

Market conditions and business trends

In the first six months of 2012, unit growth in the global hearing aid market
developed favourably and is estimated to be at the upper end of our long-term
forecasts of 2-4% unit growth. In the USA, market unit growth in the first
half-year was 4%, which is in line with historical growth rates. The growth
rate of 4% in the private sector of the US market exceeded the growth rate in
Veterans Affairs (VA), which was 3% in the first half-year

Major hearing aid markets such as Germany, Scandinavia, the UK and France saw
fair unit growth in the first half of the year, whereas the development in unit
sales in Holland and Italy were flat to slightly negative. As expected, the
Swiss market is witnessing a sizeable fall in units compared with the same
period last year. Discussions on the revision of reimbursement systems in some
European countries have also led to short-term changes in the patterns of
demand. In the first half of 2012, the Japanese hearing aid market saw a fair
growth rate, outmatching the underlying market growth rate.

The average selling price in the hearing aid market has in our opinion been
under pressure in the first half-year, resulting in a fall of 3-4%. The main
reason for this is still thought to be overall negative product and channel mix
trends, which can among other factors be attributed to some of the major
manufacturers' technology platforms approaching the end of their lifecycle. The
absence of actual product novelties combined with individual manufacturers'
growth ambitions, which tend to exceed market growth, has also led to increased
price competition in the period leading up to the expected high-end
introductions at the end of 2012 and in early 2013. We thus estimate the global
hearing aid market to have developed flatly in terms of value in the period
under review.

In the first half of 2012, the Group's core business, which includes the
development, manufacture and wholesale of hearing aids, realised a fair growth
rate of 9% in unit sales of Group-manufactured hearing aids, which is more than
twice the volume growth rate in the market. Organic growth in core business
revenue was 4%, which means that our Group once again captured market share.

In the period under review, our overall Hearing Devices business activity,
which also includes our retail activities, also generated 4% organic growth. In
addition to a fair improvement on most of the established markets, we also saw
a generous revenue increase on some markets in Asia and South America.

Because Oticon's platform and the platforms of several of our primary
competitors are approaching the end of their current lifecycle, we have
experienced a considerable pressure on prices in many markets including the
USA. This and a continued negative trend in the product and channel mix have,
in the period under review, contributed to the Group's average wholesale price
for hearing aids having gone down by 6% compared to the same period last year.
The actual decline in the average selling price took place in the second half
of 2011 though.

Oticon Medical, which develops and sells bone-anchored hearing solutions,
continues to capture market shares in its existing markets, and the formation
of sales companies in several new markets also contributes to strong and solid
growth. As expected, the launch of a new implant system in May this year helped
fortify Oticon Medical's business even further.

In the first half-year, Diagnostic Instruments generated revenue of DKK 408
million, matching a highly satisfactory increase in revenue by as much as 36%.
Organic growth reached 8%, which, in the light of market growth of 2-4%,
mirrors a healthy trend in the underlying business. Acquired growth relates to
the purchase of distribution activities and to the acquisition of the
manufacturers Micromedical, MedRx and Sensory Devices. The integration of these
activities is progressing as planned and in overall terms, the development in
all brands and business units in Diagnostic Instruments is satisfactory.

In the period under review, Personal Communication generated revenue of DKK 139
million, matching a reported rate of growth of -3% and development in local
currency of -5%. Sennheiser Communications and Phonic Ear both saw a decline in
revenue, the former, however, having very strong comparative figures from the
first half of 2011. The negative development in Sennheiser Communications can
be attributed to the mobile segment, but generally speaking, the company is
very well equipped for continuous growth based on its complete product range
and exciting potential in Unified Communication, which, however, only accounts
for a modest slice of the company's revenue. Phonic Ear and FrontRow are still
experiencing difficult market conditions, but the adjustment of this part of
our business has, however, helped us ensure that costs will reflect the actual
level of activity.

Results for the first half of 2012

In the first half of 2012, the Group achieved revenue of DKK 4,258 million, or
a 9% increase. This increase in revenue in local currency was realised at 6%,
organic growth accounting for 3 percentage points. Exchange rate movements in
the period under review had a positive impact on revenue of 3%. In this period,
the Group realised gross profits of DKK 3,055 million, or a 10% rise. The gross
profit ratio was 71.7%, which is an improvement of 0.2 percentage point
compared with the same period last year. Based on the fall in the average
wholesale price of Group-manufactured hearing aids, the development in the
gross profit ratio is quite satisfactory and very much mirrors the economies of
scale in production that are prompted by rising unit sales.

Operating profits (EBIT) amounted to DKK 864 million, representing a 7% rise on
the same period last year. The reported profit margin for the first half of
2012 was 20.3%, or a fall of 0.4 percentage point compared with the same period
last year. This development is the result of capacity costs for the period
having risen a bit more than revenue and relates to acquisitions made.

Also, the Group's forward exchange contracts for hedging purposes negatively
affected our revenue and operating profit (EBIT) to the tune of DKK 44 million
in the first half of 2012 against a gain last year of DKK 20 million.

In the period under review, consolidated cash flow from operating activities
(CFFO) rose by as much as 14% to DKK 790 million, while free cash flows went up
by nothing less than 20% to DKK 586 million. Among other things, the strong
cash flow made it possible to buy back shares worth DKK 400 million in the past
half-year, which means that we now hold 1,491,203 treasury shares, which have,
since we resumed our share buyback programme in August 2011, been bought at an
average price of DKK 470.

Outlook for 2012 the financial year

Our forecasts for 2012 remain unchanged. We have, however, adjusted our growth
forecasts for the global hearing aid market downwards. On the other hand, due
to the strengthening of the Group's trading currencies, we now expect a more
positive exchange rate effect on revenue than previously thought. Our
expectations may be summarised as follows:

Based on volume growth rates in the global hearing aid market of 2-4% in 2012
and negative development in the average selling price of the same magnitude, we
now expect the global market for hearing aids to show zero growth in terms of
value in 2012. Our previous expectation of market development was low
single-digit growth in terms of value composed of 2-4% volume growth and flat
to slightly negative development in the average selling price.

The negative development in the average selling price in the underlying market
is mainly driven by mix shifts, since most hearing aid manufacturers'
technology platforms will in 2012 be approaching the end of their current
lifecycle. The absence of new high-end products on the market also seems to be
the reason for keener price competition.

For 2012, we expect the Group to continue to improve its market share.
Consolidated revenue for 2012 is thus forecast to grow by 5-9% of which
acquisitions are estimated to account for 1-3 percentage points.

Based on average exchange rates year to date, we expect movements in exchange
rates to have a positive impact on consolidated revenue in 2012. The full
effect of such movements is, however, postponed due to the Group's foreign
currency hedging.

Consolidated operating profits (EBIT) are thus expected to continue to grow in
2012 compared with the level realised in 2011.

The Group's effective tax rate is estimated at 25-26% in 2012.

In 2012, we expect to continue to generate substantial cash flow from operating
activities in 2012, which will as usual first and foremost be used for
investments and acquisitions. Through our share buyback programme, we will thus
continue to channel any excess cash flows back to our shareholders, while
maintaining the level of consolidated net interest-bearing debt of DKK 1.5-2.0
billion.

                              ¨ ¨ ¨ ¨ ¨ ¨ ¨

Further information:
Other contacts:

Niels Jacobsen, President & CEO Stefan
Ingildsen, SVP Finance

Phone +45 3917 7100 Søren
B. Andersson, VP IR

www.demant.com Morten
Lehmann Nielsen, IR Manager

The full Interim Report 2012 for William Demant Holding A/S totalling 15 pages
will be published in continuation of this announcement.

Please be advised that we will host a teleconference for analysts and investors
today at 1.00 p.m. CEST. The teleconference will be conducted in English and
broadcast via our website, www.demant.com.