Demant

Earnings Release • Aug 17, 2016

Company announcement no 2016-11 17 August 2016
Interim Report 2016

16% revenue growth in local currencies driven by retail; Opn(TM) off to a
strong start to drive growth in H2

Increased share of retail impacting the Group’s cost structure and EBIT margin

Group executes on strategic initiatives to further improve efficiency

William Demant Holding A/S today published its Interim Report 2016. Selected
highlights from the Interim Report are summarised below:

-- In the first half-year, the Group realised revenue of DKK 5,810 million,
corresponding to revenue growth of more than 16% in local currencies of
which almost 7 percentage points were attributable to organic growth and 10
percentage points to acquired growth. Our business activity Hearing Devices
delivered solid unit growth in our wholesale business and particularly
strong growth in our retail business, whereas the business activities
Diagnostic Instruments and Hearing Implants were both challenged by
difficult market conditions in the first half.
-- Based on the new Velox platform, Oticon Opn(TM)was successfully launched in
all key markets at the end of the first half-year, but it will mainly
contribute to growth in the second half of 2016. Due to the late launch of
Opn(TM) in June, we saw a slowdown in the high-end segment in the months
leading up to the launch, particularly in the US. This resulted in negative
product and country mixes in the first half of 2016, impacting the average
selling price (ASP), which are, however, expected to improve in the second
half-year.
-- To ensure continuous cost efficiency gains and to support our future
scalability at a lower cost, we have defined several strategic initiatives
to be implemented in 2016 to 2018. We consider cost-efficient and strong
set-ups in operations and R&D to be among the key drivers of future
profit growth. Therefore, we will continue to move operational activities
to Poland and Mexico. Consequently, the production facility in Eagan (USA)
was closed down in the first half of 2016, and we plan to move the
remaining activities in Thisted (Denmark) to Poland before the end of 2018.
We are evaluating the possibility of moving R&D from Switzerland to
Poland and Denmark where we expect to increase staff.
-- In size and scope, the defined initiatives go beyond what would be
characterised as normal business, and the total restructuring costs of
around DKK 500 million from 2016 to 2018 will have a noticeable impact on
our cost base and deliver annual savings of around DKK 200 million, once
the initiatives are fully implemented, in addition to future scale effects.
Restructuring costs incurred in the first half-year of 2016 amounted to DKK
52 million, and adjusted for this, operating profit (EBIT) was DKK 892
million (DKK 891 million in the first half of 2015). The adjusted EBIT
margin was 15.4% in the period under review and was adversely impacted by
strong retail growth of 43% in local currencies affecting the Group’s cost
structure. Reported EBIT amounted to DKK 840 million (DKK 880 million in
the first half of 2015).
-- In 2016, we maintain our expectations to generate growth in all our
business activities and realise an operating profit (EBIT) of DKK 2.0-2.3
billion before restructuring costs, which are expected to total DKK 200
million in 2016.

“I am happy to see the positive top line growth of an impressive 16%. We have
yet to see the effect of Oticon Opn launched late in the period, which – in
combination with a relatively high cost base – has led to an EBIT skewed
towards the second half-year. Therefore, I am particularly delighted with the
exceptionally positive end-user reactions to Opn, which makes me confident that
we will see strong per­formance in the second half-year and onwards,” says
Niels Jacobsen, President & CEO of William Demant Holding A/S.

“We have now taken the next steps in our ambitious plan to obtain further
efficiency gains and support our future growth, as I believe it is of great
importance that we establish strong and cost-efficient set-ups in operations
and R&D to stay competitive in the hearing healthcare market,” Niels Jacobsen
continues.

Adjusted income statement

(DKK million) 1st Restruct Adjust 1st Restruct Adjust
half uring ed half uring ed
2016 costs 1st 2015 costs 1st
half half
2016 2015

Revenue 5,810 5,810 5,043 5,043
Production costs -1,461 20 -1,441 -1,300 -1,300
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Gross profit 4,349 20 4,369 3,743 0 3,743

Research and development -404 8 -396 -369 -369
costs
Distribution costs -2,786 17 -2,769 -2,248 6 -2,242
Administrative expenses -334 7 -327 -274 5 -269
Share of profit after tax, 15 15 28 28
associates and joint
ventures
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Operating profit (EBIT) 840 52 892 880 11 891

For the full Interim Report, we refer to our website, www.demant.com.

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Further information: Other contacts:
Niels Jacobsen, President & CEO René Schneider, CFO
Phone +45 3917 7300 Søren B. Andersson, VP IR
www.demant.com Trine Kromann-Mikkelsen, PR