Demant Hldg U/Adr

Good afternoon and welcome to our conference call following the release of our Q3 interim management statement, which was sent out after market close yesterday evening. For today, we plan for the usual structure of the call. We'll start with the presentation and then we'll proceed with Q&A. On a practical note, the presentation we'll be showing should now be on our website for you to find, and we plan for the call to last no more than one hour in total, including the Q&A session. In the room here at our head offices, we have our president and CEO, Søren Nielsen, our CFO, René Schneider, and the IR team with Gustav Høgh and myself, Peter Puseløge. That is it for the practical stuff. Over to you, Søren, for the presentation.

Thank you very much, Peter, and welcome, everybody. Well, let's go straight to it. The agenda for today is business highlights and key financial takeaways, a little bit of a color and flavor and update to each of the three business areas, outlook for 2025, and then let's quickly get to the Q&A session. Business highlight for Q3. is a performance all in the lower end of our expectations driven by hearing aids, which due to a remaining softer than normal general market and a sequential slowdown in U.S. due to mixed effects have seen a weaker ASP or you could say in the scenarios with a weaker ASP. We have, however, in the hearing aid business seen global market share gains and a good momentum in the business. So to the softer side, organic growth in the hearing aid business is purely driven by unfavorable geography mix and a still overall soft hearing aid market. Hearing care have delivered solid growth above the general market growth rate. The performance is broad-based, despite also having strong comparison figures from last year. The diagnostic business continues to be impacted by a general weak market, especially in the U.S., resulting in lower investments in equipment, the market, the general market. appetite on investments and expansions etc. has put less incentive to do investments right now. We still see a good order book and still see orders coming in, so it's more a reflection of a postponement. In October, after the quarter, but still important to mention, we launched Olicon Seal at the German Congress. We have also announced the signing of the agreement to divest Olicon Medical, found the new future owner, and we expect the closing of this part. to take place no later than the end of the first quarter, 26, and with that knowing the final route to a full departure from the implant business area. Key financial takeaways from Q3, group organic growth of 3%, which is an improvement from the first half. It is fueled by improvements in both hearing aids and hearing care, so positive. However, as already stated, we see gross margin decline coming from the negative ASP effect in hearing aids and a continued increased share of rechargeable devices. Diagnostic also saw a drag on the gross margin. So a pure translation from the lower ASP into gross margin. Our OPEX saw modest organic growth compared to last year, fully in line with expectations. Of course, acquisition contributes to further growth and we remain very focused on managing cost carefully given the uncertain market. EBIT was in the lower end of our expectations, however, still within, driven by the gross margin contraction. Foreign exchange rate also had a negative effect in Q3, but in line with expected and already disclosed. the group continues to generate very solid cash flow particularly as partially supported by working capital development and a strong focus on that of course the outlook for for the year 2025 maintained the one to three percent organic revenue growth and 3.9 to 4. 3 billion DKK, however, likely to be in the lower end of the range. As announced previously, share buybacks were stopped in June due to the announced acquisition of Kind, yet not closed. We have bought back shares worth of 582 million in the year and will not buy further. Business area highlights review. Hearing aid market in total has grown to our best estimates and having statistics for two thirds around 3%, which is more or less in line with expectations. However, a slight uptake in Europe, a sequential slowdown in U.S. commercial from 4% to 2%. which is not as expected. And VA, on the other hand, growing. It seems like some funds for for restaffing have been released, which have made it pick up. Rest of the world, 4%. So we are still below the normal 4% to 6%. However, I think it's worth to highlight 3% is still a growing hearing aid market. And our fight is then, of course, for share in that market. Growth in Europe is primarily driven by strong performance in France, which continued to show strong growth, however, primarily in the free-to-client category. In the UK, growth was driven by the private market and partly offset by slightly negative growth in the National Health Service. In Germany, growth accelerated sequentially following a slow Q2. It is worth saying that Europe without France would more be in the 2% category level. So underlying Europe is also, I would say, quite below normal. And that is, of course, also affecting our business. North America saw positive Q3 growth that announced, driven by a certain rebound in VA after a very long period, very low growth. So at some stage, again, would also have to work into the backlog, but still below normal levels. And again, U.S. commercial slowed down from Q2, while growth accelerated a bit in Canada. The rest of the world delivered growth. It was primarily driven by solid growth in Japan. Australia and China delivered flattish to slightly negative growth, while we estimate that several of the emerging markets delivered good growth. We still estimate the ASP to be flat to slightly negative due to geography and channel mix changes. of course not the least the unfavorable development between Europe and North America. Hearing aids in Q3, organic growth improved from Q2 and continues to, however, continues to be impacted by the softness in the global hearing aid market. Unit growth was positive and above the estimated 3% market unit growth. So, we have taken share in third quarter. And, however, in several countries, not just single countries. call-outs. Our ASP was negative due to geography and some channel mix changes. And in Europe, growth was, of course, fueled by France. And we have also positive growth in UK private market and a flattish growth year over year in Germany. I would say in Germany, important to highlight a good, strong sequential growth after some pushback after the announced acquisition of Kind. Things seem to normalize. Strong performance in Canada. U.S. growth was positive due to VA and managed care, but year-over-year negatively impacted by the effect of additional suppliers to large U.S. retailers as spoken to previously. strong growth in Japan, slightly negative growth in China, and strong performance in Australia and Latin America. And again, not to talk in length about Odeconceal, just to highlight that we did introduce and present to the world a new, very novel and innovative product concept, Odeconceal, at the recent Congress in Germany. It is a new level of performance for in-ear hearing aids. It upholds our best and most advanced AI-driven signal processing, full connectivity, rechargeability in a so far unmet discrete design, I would say for most invisible design. And it got very good reception and feedback. And I'm sure this is even that we cannot make a very fast, broad global rollout, definitely bring more attention to our business and enable a lot of good discussions with customers about business in general. It is a new manufacturing process, totally new, and due to the ramp-up of that, it will be more gradual than normal. Then we will also see a more gradual commercial rollout, where we have selected a number of European markets to start here in the fourth quarter, but more broad-based global rollout will happen, I would say in particular during the first half of 26. Hearing care in Q3, solid performance in a continuous soft market. We generated 9% growth in local currency, of which four was organic. So very good. And it's broad-based. Of course, also here, France do above average, and also Poland. But we also have several medium-sized European markets doing well and delivering solid organic growth. In North America, we saw an improvement in performance in U.S. and a slightly negative development in Canada. We saw solid organic growth in Asia and Pacific, mainly driven by China and Australia, due to especially improved product mix, meaning more advanced solutions. Growth in Asia particularly offset by weak performance, or partly offset by weak performance in Japan. Diagnostic in the third quarter continues to face a headwind from soft market developments for instrumentation. Organic growth was slightly negative due to declines in key markets in Europe, but also part of the Pacific and other regions. We did see growth in the US, but not to the normal and expected level. and that's driven by macroeconomic uncertainty that leads to lower than normal investments in new equipment. We see good growth in our service and consumable business, but not enough to offset the negative growth on the instrument side. France continues to do well and grow. in the quarter, some negative growth in UK and Germany, but strong growth in several other European markets, slightly positive in US, good growth in Canada, and then positive organic growth in Asia and a number of other markets. Outlook There are very little changes to the fundamental assumptions. I will only highlight the changes to our expectation in the discontinued business. We still are in the process of getting out of both communication and implants. We, as I said, announced that we have made an agreement to sell to a new owner, the Oticon Medical business. But as part of that, we also have recognized a need to increase the in-year 2025 loss in the discontinued business. And this was already mentioned in the announcement. But this is why this has been updated. Other than that, no changes to tariff assumptions to exchange rate assumptions, etc., etc., no changes at all. And therefore, also on the outlook, relatively simple. The only change is that both organic growth And EBIT, as I mentioned earlier, we now expect that we will most likely be in the lower end of the range for both organic growth and EBIT. But other than that, no changes. And let's with that go to the Q&A session.

Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touchtone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster. And our first question comes from Zhang Wen from Citi. Please go ahead with your question.