Demant issued an Interim Management Statement for Q1 2022, which is highlighted below. To read the full report, please click here.
- In Q1, the Group generated organic growth of 6% with additional growth of 1% from acquisitions and of 3% from exchange rate effects. Total reported revenue growth for the Group was 9%.
- Hearing Healthcare saw organic growth of 9% driven by very strong performances by Hearing Aids and Diagnostics, according to Demant. Hearing Aids continued to gain market share following a successful expansion of the latest product families into more form factors and price points. Growth was driven by higher unit sales, whereas ASP growth was negative, as expected, due to product and channel mix changes. Hearing Care saw solid organic growth in most markets but was negatively impacted – albeit to a lesser extent than anticipated – by very high comparative figures in France due to the hearing healthcare reform implemented last year. In Q1, acquisitions in Hearing Care also contributed considerably to growth. Diagnostics continued its very strong momentum from last year.
- Communications saw organic growth of -25% due to very high comparative figures. Performance was largely in line with our plans driven by Enterprise Solutions, but in Gaming, supply chain challenges had a negative impact on the sale of specific product families, Demant says.
- The Group’s gross margin was in line with expectations as it remained negatively impacted by the dynamic supply chain situation. We estimate that this impact amounted to around 0.5 percentage point, primarily relating to higher freight costs.
- OPEX was in line with the company’s plans, and at this stage, it sees no material inflationary pressures beyond initial expectations. The Group’s OPEX saw low double-digit growth in local currencies, with part of this growth reflecting the previously flagged temporary cost savings in the comparative period, which totaled approximately DKK 150-200 million (USD $21-$28 million) for H1 2021 as a whole.
- As a result of the war in Ukraine and the current halt in sales to Russia, Belarus, and the provinces of Donetsk and Luhansk, Demant says it expects the Group’s EBIT to be negatively impacted by around DKK 100 million (USD $14 million) in 2022. This mostly comprises lost sales to the directly affected countries for the rest of the year, which account for less than 1% of the Group’s total revenue, with only small realizable cost savings. It also comprises a provision for expected losses on all trade receivables, which has been recognized in distribution costs in Q1, the company says. The negative EBIT impact is expected to have full cash flow effect.
- In spite of a negative impact of the war in Ukraine, the Group’s EBIT was in line with expectations driven by Hearing Aids and Diagnostics. Exchange rate effects also contributed positively to the Group’s EBIT in Q1. In line with expectations, Communications realized a negative EBIT.
- On March 4, 2022, Demant completed the acquisition of 20% of ShengWang, a hearing care network in China with around 500 clinics. Demant says it still expects to complete the acquisition of the remaining 80% of ShengWang before the end of H1 2022 at which point details of the financial impact of the transaction will be disclosed.
- As announced on April 27, 2022, the Group intends to divest its Hearing Implants business to Cochlear Limited, and Hearing Implants is therefore recognized separately as a discontinued operation. Consequently, Hearing Implants is no longer reported as part of the Hearing Healthcare segment, and comparative figures are restated to reflect this. In Q1, Hearing Implants saw growth in line with expectations, but in the period until closing of the transaction, growth is expected to be negatively impacted by the announcement of the transaction.
- As of March 31, 2022, Demant says it had bought back shares worth DKK 817 million (USD $116 million).
Outlook for 2022
Demant’s Management Statement 2022, which is summarized in the table below, remains unchanged except for the FX growth, which is updated to reflect current exchange rates.
|Metric||Outlook for 2022|
|Acquisitive growth||1% based on revenue from acquisitions completed as of May 2, 2022|
|FX growth||4% based on exchange rates as of May 2, 2022 and including the impact of hedging|
|EBIT||DKK 3,600-3,900 million|
|Effective tax rate||22-23%|
|Gearing||Gearing (NIBD relative to EBITDA) in line with medium- to long-term target of 2.0-2.5|
|Share buy-backs||At least DKK 2.5 billion|
|Profit after tax from discontinued operations||Negative by DKK 150-200 million|
The Demant Management Statement 2022 continues to be based on a number of key assumptions, which remain unchanged except for comments in bold below:
- The hearing healthcare market to normalize in 2022, resulting in unit growth in the hearing aid market of 4-6% and additional growth due to the release of some pent-up demand, albeit with significant differences between individual markets and channels. Such differences will not least be driven by different comparative bases going into 2022. Due to changes in geography and channel mixes, Demant expects ASP growth in the hearing aid market to be slightly more negative in 2022 than the normal 1-2% annual decline.
- Growth in the French hearing aid market to be negative in 2022 following the extraordinary demand in 2021, which we estimate benefited the Group’s revenue by DKK 300 million (USD $43 million) and EBIT by DKK 150 million (USD $21 million). The company says it does not expect this benefit to recur. Following the positive momentum in Q1, the French hearing aid market could develop slightly more favorably in 2022 than initially anticipated, according to Demant.
- The market for enterprise and gaming headsets and video solutions to grow below the estimated structural growth level of around 12% due to the current supply chain situation.
- Both segments, Hearing Healthcare and Communications, to gain market share in 2022.
- Supply chain situation to remain dynamic throughout the year and to result in higher-than-normal component costs and freight charges with an impact that is roughly similar to the impact in 2021, but with no material disruption to sales activities.
- The Group’s OPEX base to see no benefit from temporary cost savings in 2022, which it estimates amounted to DKK 150-200 million (USD $21-$28 million) in H1 2021.
- Communications to realize a slightly negative EBIT in 2022.
- Planned divestment of Hearing Implants to close at the end of 2022.
“Today, on the backdrop of an eventful beginning of 2022 with uncertainties impacting businesses all over the world, we announce a strong first quarter for Demant with particularly strong growth in our Hearing Aids and Diagnostics business areas,” said Søren Nielsen, President & CEO of Demant. “During the quarter, we have demonstrated that we are very successful when it comes to bringing attractive products and services to market and constantly staying relevant to our customers and users. We will continue to do so, and despite expecting a negative impact of the halt in sales activities in Russia, we maintain our financial outlook for 2022, which reflects very solid growth and profit. Our constantly changing surroundings as well as our own strategic decisions, such as our recently announced intention to divest our Hearing Implants business, more than anything demonstrate that our ability to act dynamically is a prerequisite for success.”