Investor Presentation, May 2019 - GN Hearing
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Investor Presentation, May 2019
Safe Harbor Statement
The forward-looking statements in this report reflect the management's current expectations of certain future events and
financial results. Statements regarding the future are, naturally, subject to risks and uncertainties, which may result in
considerable deviations from the outlook set forth. Furthermore, some of these expectations are based on assumptions
regarding future events, which may prove incorrect.
Factors that may cause actual results to deviate materially from expectations include – but are not limited to – general
economic developments and developments in the financial markets, technological developments, changes and
amendments to legislation and regulations governing GN’s markets, changes in the demand for GN's products,
competition, fluctuations in sub-contractor supplies and developments in ongoing litigation (including but not limited to class
action and patent infringement litigation in the United States).
This presentation should not be considered an offer to sell or buy securities in GN Store Nord.
1
Agenda
GN at a glance
GN Hearing
GN Audio
Financials
2
The GN group at a glance
150 years of innovation has created industry leading sound brands...
GN Hearing GN Audio
Innovation leader creating best-in-class Leading position in growing CC&O market
hearing aid technology
Sales DKK 5,833m Sales DKK 4,774m
EBITA DKK 1,194m EBITA DKK 905m
(margin) (20.5%) (margin) (19.0%)
… and a world class organisation
Markets hearing aids and headsets in Sales: DKK 10,607m. EBITA(1): DKK
~ 6,000 employees
100 countries across the world 1,956m (margin: 18.4%)
Source: Company information
Note: Financials refer to FY 2018
(1) Includes Group Shared Services
3
World leading sound expertise – all under one roof
Leading sound brands united under the GN Group umbrella
Hearing aids
Medical
Enterprise
Professional
Consumer Consumer
4
Agenda
GN at a glance
GN Hearing
GN Audio
Financials
5
Strong global market development supported by attractive megatrends
~3-5% expected value CAGR in coming years… … driven by multiple attractive megatrends
Global hearing aids market growth
(Value based on wholesale ASP) Ageing population +6%
~3-5% 1 791
• 65+ population 597
~4% expected to grow
significantly
• Baby boomers
USD generation reaching 2013 2018E
~5m retirement age Polulation of 65+ years old (million)
‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 ’19E ’20E ’21E ‘22E
Elderly with hearing loss
2
prevalence 35-40%
GN Hearing market share development over time…(1) • Increase noise pollution
drives prevalence of 60-65%
hearing loss
~17% With hearing loss Without hearing loss
~2%-points
~15%
Room for penetration Aided
8 years of positive organic 3 growth
Profound
growth, driven by innovative Severe
product launches • Penetration still relatively Moderately
low, especially for less severe
Moderate
severe hearing loss
Mild
2010 2018
2016
Source: Broker reports, internal GN figures
(1) Market share is based on total units sold
6
GN Hearing has been transformed into a high growth company
Past achievements Current focus
2017 – 2019
”HEAR MORE, DO MORE, BE MORE”
2014 - 2016 • Innovation excellence
“INNOVATION • Commercial excellence
2010 - 2013 & GROWTH”
2008 - 2009 • People excellence
“SMART” • Sustainable profitable sales
“FAST” • Restructuring phase – growth
• Key strategic decision not to resulting in peer level
own retail profitability
• New structured R&D approach –
innovating new standard with
2.4 GHz in 2010
DKKm Financial target
5,615 2017-19
CAGR
8%
3,200 Organic growth of
CAGR 1,153 6-8% p.a.
163 32% EBITA margin:
20-22%
2010 2017
Sales EBITA
7
GN Hearing’s strategic focus areas 2017 – 2019
Hear more,
Do more,
Be more Innovation excellence focusing on
end user needs, core technology and
time to market optimization
Commercial excellence through
expansion in the open market,
continuation of successful partnerships
and engaging end users digitally
Innovation Commercial People
excellence excellence excellence People excellence by empowering
leaders to deliver on strategy,
implement GN values and develop
talents
8
GN’s heritage as industry pioneer GN’s heritage as industry pioneer
• GN Hearing is pioneering and defining the new
industry leading audiological solutions
• “Sound quality” – more than just two words –
comprises GN’s expertise in engineering,
audiology and continuous scientific research
that has defined multiple industry breakthroughs
• ReSound’s audiological philosophy has always
been to move the needle towards a fuller,
1992 1996 2008 2013 clearer and richer sound experience
1st DSP used in a 1st Fully Digital 1st Asymmetric 1st Made for Apple
Hearing Aid Hearing Aid Directionality Hearing Aid
1988 1993 2003 2010 2017
1st WDRC used 1stDFS used in 1st Open Mini BTE 1st2.4GHz 1st RFT
in a Hearing Aid a Hearing Aid Hearing Aid Hearing Aid
1st BD
9GN Hearing’s journey towards more natural hearing…
6th generation New chipset – brilliant sound experience: unprecedented Layers of Sound™
ReSound LiNX Quattro 2018 and world’s most advanced rechargeable solution
5th generation Unprecedented benefits across three key dimensions – Sound Quality, efficient
ReSound LiNX 3D 2017 and convenient fitting and groundbreaking remote fine-tuning
4th generation Surround Sound by ReSound upgraded with Spatial Sense, helping the user
ReSound LiNX2 2015 hear where sounds are coming from, leading to more natural sound experience
3rd generation The world’s first Made for iPhone hearing aid
ReSound LiNX 2014
2nd generation World’s first 2.4 GHz based ear-to-ear data exchange, Binaural Directionality,
ReSound Verso 2012 enables users to decide which sound to focus on
1st generation World's first 2.4 GHz wireless system
ReSound Alera 2010
10ReSound LiNX Quattro –
New chip platform enables significant upgrades
30% 100%
More
Increased
Computing
memory
Power • Brilliant sound experience with
New chip, unprecedented Layers of Sound™
with 6th gen
2.4 GHz tech • The world’s most advanced
rechargeable solution
100% 25%
Increased Reduced power
speed consumption
11The world’s most advanced
rechargeable solution
• ReSound LiNX Quattro™ is the smallest & longest
lasting 2.4 GHz integrated Li-ion rechargeable
hearing aid in the market – with a small and
exclusive portable charger, holding 3 extra charges
Quick and long-lasting power – full confidence:
CHARGING TIME BATTERY LIFE
The most intuitive Li-ion rechargeable hearing aid in the market:ReSound LiNX Quattro roll-out
practically completed
• ReSound LiNX Quattro, and corresponding
Beltone Amaze, first shipped in August 2018
• Global roll-out practically completed
• Available in slightly more than 50
countries world-wide (incl. US, UK,
Germany, France, Spain, Italy, Japan and
Australia)
• Strong customer feedback focusing on
superior sound quality and a state-of-the-
art rechargeable solution
• Available in VA from November 2018
13Another industry first: Direct streaming from Android phones to hearing aids
• GN Hearing is expected to be the first
manufacturer to enable a full spectrum of
direct audio streaming from Android devices
to hearing aids
• Comprehensive work done on the new
chipset in order to include the new Andoid
connection
• Based on Bluetooth Low Energy – maximum
streaming ability without compromising the
battery
• To be available in ReSound LiNX Quattro and
Beltone Amaze
14Global coverage through own sales organizations and distributors
• GN Hearing has local sales representatives in ~30 countries, and distributors covering additional
~70 countries
North ROW:
America: 22%
55% Europe:
23%
GNH revenue
split 2018
15Beltone Franchise Network
The Beltone franchise network is well recognized within the US open market
▪ Operates via more than 1,500 stores in North
▪ Founded in 1940 and acquired by GN in 2000 America
▪ Today the most recognized brand among US
hearing aid users
▪ Nationwide presence in the US and Canada ▪ Contributes with high ASP’s across the
network
▪ Operating as part of the GN Hearing US
business entity
16Audigy acquisition
Leveraging Audigy will further strengthen GN Hearing’s position in the US open market
▪ 250 network members across North America
▪ Founded in 2004
▪ Leading US provider of business and
performance management solutions ▪ 80,000 units sold annually by the members of
▪ Entrepreneurial and ambitious mindset the Audigy network
▪ Consistent double-digit revenue growth
▪ Acquisition completed on July 1, 2016
▪ Operating as a subsidiary in GN Hearing’s US
business entity
17GN uniquely positioned for future growth with its distribution approach
No
Focus on
competition Strategic
GN refrains core
with agility
competencies
from vertical customers
integration
Innovation excellence Efficient use of capital
Strategic partnerships
The vast majority of the retail market is not locked by manufacturers
▪ +85% of the global market
is not locked by hearing aid
manufacturers
Focus on ▪ GN has significant room to
independent grow from its currently
retail markets
around 17% global unit
market share
65-75% >75%
Note: Selected countries with indication of unit share of market not locked by manufacturers (GN
Hearing estimates)
18The most focused hearing instruments manufacturer in the world
Focus on core capabilities within hearing instruments… …and strategic partnerships in the distribution channel
•
15%
Maintain high margins
• Ensure channel access
Bone anchored hearing systems
Component Distributors /
Manufacturers buying groups Retailers
manufacturers
Cochlear implants
Growth
• Consolidated market with • Six main manufacturers of • Top buying groups • Traditional hearing
two main component hearing instruments include Audigy, Elite, and instrument dispensers,
suppliers (Sonion and AHAA ENTs and online retailers
• Competing for market
Knowles)
access • Many distributors across • Largest retail player is
Hearing instruments the world – highly Amplifon, but
(Wholesale) fragmented manufacturers are
catching-up
USD
5bn
Hearing instruments Profit pool (margin) Profit pool (margin) Profit pool (margin) Profit pool (margin)
(Retail) (20-30%) (20-25%) (10-15%) (5-15%)
Hearing diagnostics
0%
Competitors
5% Profitability 30% • Retail networks add complexity, limits agility and are investment/cost heavy
• Verticals (Implants) divert attention (few synergies)
Size (market value)
Divestment Investment
19Agenda
GN at a glance
GN Hearing
GN Audio
Financials
20GN Audio with continuously growth track record
Past achievements Current focus
2017 – 2019
”HEAR MORE, DO MORE, BE MORE”
2014 - 2016 • Innovation excellence
“INNOVATION • Commercial excellence
2010 - 2013 & GROWTH”
2008 - 2009 • People excellence
“SMART” • Sustainable profitable revenue
“FAST” • Embarking on UC growth growth
• Restructuring phase resulting in • Fortified Enterprise market
peer level profitability leadership
DKKm Financial target
3,970 2017-19
CAGR
11% Organic growth of
1,973
6-9% p.a.
CAGR 721
224 EBITA margin:
18%
17-19%
2010 2017
Sales EBITA
21GN Audio’s strategic focus areas 2017 – 2019
Hear More, Do More, Be More
Innovation
excellence
• Accelerate the call-centric category
• Expand Unified Communication (UC) strength for office
Commercial
excellence
• Grow share in focus markets
• Cloud & digital first
People • Grow consumer profitably
excellence
22The world engineered by Jabra…
Jabra Engage Jabra Evolve Jabra Speak Jabra Talk Jabra Elite BlueParrott
23GN Audio is strongly positioned in a very attractive portfolio of markets
Enterprise Consumer
Segment Call-centric Task-based BT stereo* (incl. sports)
Characteristics
“Calls for a living“ Office-based Preference for great calls, music
(e.g., contact centers, customer knowledge workers and an active lifestyle
service, traders)
Jabra Evolve
Primary product Jabra Engage Jabra Elite
Jabra Speak
offering PanaCast
Market development
Relative ”True wireless”
market size
(indicative) and market
share (indicative)
Market position #1 Small in fragmented #3
#2
market
Total relevant market of > DKK 60bn growing at close to 10% per year
* Jabra Elite now accounts for the majority of the consumer business
24Changing work environments call for product innovations
34% of knowledge workers
work in open-plan offices
78% state that interruptions in the office have a
negative impact on their productivity
DEVELOPMENT IN M2 PER EMPLOYEE OFFICE SPACE
25
1960: 2010: 2020:
50 m2 20 m2 10 m2
.... Around 500 million office workers globally, with only around 10% using a headset....
25Integration of Altia Systems well underway
• On February 19, GN Audio announced the acquisition
of Altia Systems to expand into integrated audio and
video UC communication, offering solutions that
increase companies’ productivity and allow
companies to work smarter
• On March 11, 2019 all necessary conditions were met
and GN Audio completed the acquisition • Founded in 2011
• Headquartered in Cupertino, California, USA
• With the acquisition of Altia Systems GN Audio has
taken a major step towards bringing best-in-class • Leading innovative developer of premium
audiovisual systems to support plug-and-play video video communication solutions
conferencing for the rapidly growing segment of small
meeting rooms
PanaCast 2 PanaCast 3
26Altia Systems is strongly positioned in highly attractive huddle room segment
Video conferencing market overview
• Total video conferencing market worth USD
+$2,000 >2 billion1
solutions
• Huddle room video conferencing market
Traditional VC Systems
Growth1: ~0%
expected to grow >30% p.a.1
− Video conferencing to become a
significantly larger share of total online
conferences (today only 2% of huddle
Up to conference rooms include video
$1,300
conferencing)
Huddle Conference Cams
Growth1: >30% − Increasing number of huddle rooms driven
by high growth in open offices, remote
work and team based collaboration
− Huddle room video conferencing
Embedded characterized by plug-and-play solutions
Embedded Systems integrating into well established UC
Growth: NA solutions
− ~75% of conference rooms are used for
Small room size, Small / mid room size, Mid / large room size, meetings with three to five people
low complexity low complexity high complexity
1 Frost & Sullivan (2018) 27VXI and Blueparrott
Leveraging VXi product portfolio to further strengthen the US Audio operation and to gain access to
an attractive niche segment
▪ Founded in 1989 ▪ Generating close to all sales in North
America
▪ VXi is a US based manufacturer of
professional headset solutions covering two
segments:
▪ The Blueparrott covering the trucker ▪ Today fully integrated part of the GN Audio
industry, warehousing and workers in US organization
high-noise environments
▪ The VXi brand covering the CC&O and
Enterprise industry
▪ In October 2016 VXi was acquired by GN
28Powered by
Sound+
Launch of Jabra Elite 85h
Engineered for the best wireless calls, and music
experience with SmartSound
SmartSound. Audio that adapts
automatically to surroundings
based on Artificial Intelligence
100% Hands-free
Voice Assistant Control
Calls & Music
like never before including
Active Noise Cancellation
and superior battery life
29Repositioning of the consumer business driven by relentless customer focus
2012 – 2015 product launches 2016 – 2019 product launches
Revo Elite Sport
Solemate Elite 65h
Style Sport
Vox
Elite 65t Active
Elite 65t
Elite 85h
Stealth Motion
Solemate Max
• Specialized segment: Music and calls • Focus on technology leadership within sound
• High exposure to decreasing mono BT market processing, wireless capabilities and AI
• Competing head-to-head with superior brands • High exposure to growing markets
• Limited R&D synergies with CC&O business • Leverage R&D synergies across GN Audio
30Agenda
GN at a glance
GN Hearing
GN Audio
Financials
31Financial guidance for 2019*
GN Hearing
GN Hearing revenue (DKKm) GN Hearing EBITA margin
• Organic growth is expected to be around 7%
Organic growth 6% 7% ~7% (0.1)%p 0.0%p
• The EBITA margin is expected to be more than 20%. GN
20.6% 20.5% 20.5% >20%
Hearing will continue to invest in future growth 5,156 5,615 5,833
opportunities, as described in the strategy for 2017-2019
GN Audio 2016 2017 2018 2019 2016 2017 2018 2019
• Organic growth is expected to be more than 19%
• The EBITA margin is expected to be around 20% before GN Audio revenue (DKKm) GN Audio EBITA margin
transaction related costs associated with the Altia Organic growth 10% 21% >19% +1.1%p +0.8%p
acquisition. GN Audio expects continued operational 4,774 19.0% ~ 20%
3,970 17.1% 18.2%
leverage, however partly offset by continued investments 3,495
in future growth opportunities
GN Store Nord 2016 2017 2018 2019 2016 2017 2018 2019
• EBITA in Other is expected to be DKK (150) million
related to Group Functions, continued investments in new GN Store Nord tax rate (%)1) GN Store Nord EPS1)
business opportunities and research projects on a +3%p (3)%p +10% +15% >10%
corporate level 25%
~23% 9.25
• GN expects an effective tax rate around 23% 22% 22%
7.34
8.07
• GN Store Nord targets a double-digit percent increase
in earnings per share (EPS) 2016 2017 2018 2019 2016 2017 2018 2019
US tax reform net of related items (3.1%pts)
1) Including “Other”
* The financial guidance was upgraded on April 12, 2019
32Group financial highlights Q1 2019
Continued strong momentum with 19% organic growth
and 25% EPS increase
DKK million Q1 2019 Q1 2018 Growth
• Organic growth was 19%. Revenue growth was 24%
including an impact of around 3% from FX and around
1% from M&A Revenue 2,840 2,296 +24%
Organic growth 19% 10%
• Continued solid gross profit increase driven by strong
Gross profit 1,754 1,425 +23%
business performance
Gross margin 61.8% 62.1% (0.3)%p
• EBITA increased by 24%, driven by strong execution +24%
EBITA 439 354
across GN Hearing and GN Audio
EBITA margin 15.5% 15.4% +0.1%p
• Net profit reached DKK 262 million, a 23% increase Profit before tax 342 274 +25%
compared to Q1 2018 Net profit 262 213 +23%
• EPS growth of 25% EPS 1.96 1.57 +25%
ROIC* 22% 22% -
• Flat development in ROIC, driven by increased
Free cash flow excl. M&A (13) 177 (190)
earnings level as well as strict focus on balance sheet
items during the last years, but off-set primarily by the NIBD/EBITDA 2.3x 1.8x
Altia acquisition and to some extent the implementation
of IFRS 16 * EBITA (rolling four quarters) / avg. invested capital
33Strict capital allocation principles
1
Organic growth investments
• Breakthrough innovations,
investments in markets and
channels, and FSAs
+11%
+11%
9,585 10,607
8,651
4 Share buybacks
2 Synergistic M&A
• More than DKK 5.7 billion 2016 2017 2018 • Channel access and
distributed during the last five commercial excellence
years • Technology leadership
1,372
1,272 • Streamlining activities
1,061
3
2016 2017 2018 Dividends
• Dividend policy: 15-25% of net
income
182 197
178
16% 16% 16%
2016 2017 2018
34Relentless focus on creating shareholder value
EPS development Shareholder distribution
DKK 19% DKKm Dividends SBB
10 CAGR 9.25 7%
8.07 2,000 CAGR
8 7.34 1,443
1,500 1,364
1,198 1,165
6 4.61 4.79 894
1,000
4
2 500
0 0
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Share price development during the last five years (index)
280
260 GN Stoxx 600
240
220
200
180
160
140
120
100
80
30-12-2013 30-06-2014 31-12-2014 30-06-2015 31-12-2015 30-06-2016 31-12-2016 30-06-2017 31-12-2017 30-06-2018 31-12-2018
35Focusing on creating shareholder value
Attractive megatrends of aging
population and personal communication
in industries with high entry barriers and
currently low penetration
Innovation leader – uniquely
Lean business model and resilient positioned towards future technology
cash generation driving attractive trends with hearing aid and headset
expertise under one roof
shareholder returns
Strong board and Strategic agility, with no owned retail,
management team with ensuring attractive positioning towards
proven ability to drive a growth future distribution trends
agenda
Strong track record of strategic
Synergistic M&A – channel access partnerships with leading
and commercial excellence, technology
channels and customers as well as
leadership, streamlining activities
with leaders in adjacent industries
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