Demant Hldg U/Adr

Good afternoon everyone and welcome to the conference call for Daemant's 2025 Annual Results. My name is Peter Pusselugge and I'm heading up the investor relations activities here in Daemant. With me here today, I have the usual team, our President and CEO, Søren Nielsen, our CFO, René Schneider, as well as Gustav Hög from the IR team. For the call, we will do a presentation which will be followed by a Q&A. We expect the session to last no more than one hour in total. As we get to the Q&A, we kindly remind you to limit yourselves to two questions at a time to allow as many as possible to ask a question. Before we dig into the presentation, please do pay notice to the disclaimer on slide number two. And with that, I will go to slide number three, where I'll pass the baton to Søren to kick off the presentation, please.

Thank you very much, Peter, and welcome everybody. The agenda for today is key events for 2025, financial takeaways, and then comment on sustainability advancement, more details on business area reviews, not the least the fourth quarter. Then René will do group financial and also take us through outlook and initiatives to improve profitability. And if we take 2025 in total at group level, we deliver 2% organic growth, 5% in local currencies. Of course, a significant element from acquisitions, headwind from currencies leaves us with 2% reported growth. And the biggest expansion is in hearing care, which now is the biggest business area, as you can see on the business mix split. Gross profit up 2%, but down on margin related to, I would say, hearing aids, to some extent diagnostic, but we'll get back to that. EBIT down 10% before special items, and free cash flow down 11%. Key events in 2025, we acquired the Kind Group in Germany, closed the deal in December, so have one month in the books, one of the world's leading retailers, and with that significantly expanding our position globally, but in particular in Germany to a number one in air and care. In October, we introduced Odecon Seal in selected markets, and a launch that so far have created a lot of excitement and a lot of good momentum to carry in to 26. During 2025 we signed agreement to divest both EPOS and Olicon Medical in line with our strategy to be a more focused hearing healthcare company. The hearing aid market in 2025 was softer than normal and particularly in the US where we saw flat market growth for 2025 in total. HearingCare delivered very solid performance, not the least in the view of the global hearing aid market, whereas hearing aids and diagnostic delivered softer growth. All three business areas showed an improved and strong performance in Q4. Key financial takeaways for the second half. Group organic growth of 4% for the second half in total. So a sequential improvement from the first half fueled by all three business areas. Gross margin decline versus second half 24%. due to ASP headwinds in hearing aids and increasing share of rechargeability. I'm going to get back to it, but the ASP headwind comes from channel and geography mix, so selling more in countries and channels with a lower ASP and less in higher priced markets like the US. Diagnostic was also a minor drag on the gross margin coming from their product mix and some geography. OPEX grew 5% organically, but as already guided for and expected, flat sequentially from H1, so still reflecting a cautious approach to cost expansion when we look at it sequentially, the 5% to some extent originates from a significant holdback at the end of 2024. Acquisitions added 5% point to growth compared to second half last year. EBIT before special items 2.1 billion negatively impacted by exchange rate effects and by lower operating leverage. EBIT margin therefore before special items contracted 2.6% point. Special items amounted to Danish kroner minus 128 million. Strong cash flow from operations of 2.3 billion and free cash flow of just around 2 billion Danish kroner. Outlook is going to elaborate further on it for 26. Organic growth of 3 to 6% and EBIT before special items of 4.1 to 4.5 billion Danish kroner and continue to pause on our share buyback to bring down group leverage. Sustainability means quickly we saw an increase as expected of improved lives by overcoming their hearing loss to 12 million and a growing number of tests in our own clinics following the expansion of that. And when we look at our three main sustainability goals, under the headline of respect for the planet, a planet decrease in our scope 1 and 2 greenhouse gas emissions. We have now achieved 16% reduction compared to baseline with a target of 46% by 2030. gender diversity in top-level management now at 33%, so 1 in 3, and with the aim of getting above 35% by 2030, and the number of people that have read and understood out of the People for whom it's relevant should be 100% by 2030 and you could say basically already tomorrow if at all possible and we are almost there. Business area review. Well, hearing aid market in 2025 have definitely been special and fourth quarter which is the new release is no different. We have seen a high unit growth and this is all units in Europe but it's all driven or mainly driven by NHS in UK, the National Health Service, that had strong growth, partly to expand the inventory levels, etc. And then France also showing high growth, as expected, due to the annualization of the reform. If we allow ourselves to exclude NHS and France, unit growth was 3% in Europe. In Germany, specifically, growth declined year over year. North America saw a sequential slowdown from two quarters with 2% growth to zero and leaving the year with one. Canada saw good growth, so it was offset by flat growth in the U.S. commercial and a slightly negative in the VA. The rest of the world delivered growth, Australia positive growth, while Japan saw minimal growth. China saw sequential improvement and we estimate that several emerging markets saw good growth. So again, the ASP, we normally believe in a flat ASP. But no doubt that with the geography mix and channel mix in the year and fourth quarter as much, then we estimate that we should see a negative impact on ASP in, you know, it's not the exact science, but in the area for percentage points at least. So a global hearing aid market that have assumably grown just around 2% in value for the year. Hearing aids fourth quarter, organic growth also in fourth quarter improved despite of the US market weakness and the loss of share in US. The main area in which we have lost share in US remains to be a large retailer where the number of providers or suppliers have been expanded. We introduced Oticon Seal in selected European markets which have created excitement and momentum change in these four countries. We have really seen Seal lift sales also in general in these markets. However, with limited impact on the total group level in fourth quarter simply by the size of these four countries and the potential, even though Germany is a big country, the premium market in Germany is not that big. So again, not something that financially impacts that much, if of course does some, but not that much in the fourth quarter. So unit growth was very solid representing overall market share gains in units across several key markets. I would say almost with the main exception being US. The ASP was negative as I said due to geography and channel exchanges. So France, UK, Germany, good growth in Europe, all big markets, strong performance in Canada, US growth was negative, as I said, good growth in Japan, South America, and also relatively broad-based growth in Asia, except for China, which I still would say is market-related. And the rollout of Odeconceal, just a few more comments to that. We launched it in Europe and in both Germany, Switzerland, UK and Denmark. The conclusion is the same. It is undisputed, seen as a new, very innovative concept by both hearing care professionals and end users. It does help in having end users take the choice to get going and see less obstacles. So very positively seen uptake with first-time users. It does also lift sales of our other portfolio, because it opens doors to new customers. And if an end-user has tried a seal and is happy with the sound quality and the quality of the instrument, but for some reason prefers to continue with an in-ear, there might be some comfort issues, the ear canal doesn't work, It's natural to then fit an intent because you will have more or less exactly the same sound quality and something you just like. So we do see additional sales to customers that did not work that much with us. And we have actually also seen limited cannibalization with customers that we already were doing business with and that have taken in seal products. So this is the conclusion from the four markets. We have also I think been open about that it's only in a premium price point and that we have lifted pricing in some markets significantly compared to intent and so far we have seen acceptance of the price. and it has not prevented us from creating excitement and private sales. That being said, it is a premium price point, it is a premium category type of products, but it definitely also makes some people spend more than they might have thought they would had they had to pick a receiver-in-the-air instrument where there are more options available at different price points. I also think we can say that you cannot really say, okay, what is the potential and what's the share and the in-ear market, because that's not how people, especially first-time users, think about hearing aids. They will look at what's available at the table and pick the one they find most attractive, and there's no doubt that by first-time users this is seen as much more attractive than carrying a traditional right instrument. So all in all, very good takeaways, and we bring this excitement into 26, where we have now launched in U.S., where we will in the coming weekend launch in Canada, and where we, early March, will launch in France, and then onwards with all remaining significant and major markets. Germany will also expand activity significantly here in Europe, first quarter to make sure they get to a full rollout, which was not the case in the initial launch. So we move on. And again, not to open the discussion already, when we then say we still have something ahead of us, it is because it remains to be a sequential launch, so we have to take it market by market to make sure we get off on the right foot. And, of course, with U.S. market have been the most muted and a big premium potential, then it also to some extent depends on how the market develops, but maybe SEAL can be part of creating renewed excitement and also interest from end users. So I would say there's still some uncertainty left around that, which I'm sure Vanier will come back to. We continue to expand our portfolio also in Q1. We release devices of our latest technology containing disposal batteries which in some channels and geographies are still important and then also a new offering in part of the pediatric portfolio and then all these new products offer latest and greatest sound quality and connectivity similar to Siegel where we also get very good feedback on the latest technology which is also a connectivity technology which is also available in Oticon Intent. Hearing care, MQ4, solid performance in a weaker than normal hearing aid market, of course strong tailwind from a month with Kint, so in the quarter doing 17% in local currencies, 5% organic. across the geography, strong performance in Poland and a number of other mid-sized European markets, continued solid growth in France, driven by the anniversary of the 21 reform, good organic growth in North America, driven by continued improved performance in US, very positively, However, some negative development in Canada. Australia saw good growth continuing improved momentum and China also delivered good organic growth driven by ASP tailwind from a continued better product mix. So all in all, well done in hearing care in the fourth quarter. And also diagnostic came in strong in the fourth quarter, delivered organic growth of 8% in local currencies. So clearly best performing quarter this year. and in general a good uptake. Strong growth in UK and Germany, good performance across several mid-sized markets. US and Canada saw strong growth, however, driven by service and consumable business, again back to cross-margin, which is a little bit lower in these areas. Australia delivered strong growth primarily on instrument sales, and China continued to be impacted by general weak markets, and there was some drag on growth in Asia in general. With that, over to you, Manin.

Thank you, John. So let's push through the financials, a little bit of repetition, so I will be quick on this. So the revenue for the second half here, we saw solid organic growth of 4%. Hearing aids and diagnostics saw good organic growth and especially diagnostics improved in the fourth quarter. Growth from acquisitions contributed 3% to growth and we had FX headwind of 4% predominantly due to the decline of the US dollars. Turning to gross profit, it increased by 3% to 8.8 billion. We saw a slight decline in the gross margin against second half of last year. And this decline was driven primarily by geography and channel mix changes in our hearing aids business. And we also saw some headwind in the diagnostics business, partly affected by tariffs. And last also a slight headwind on the gross margin from the FX development. On operating expenses and EBIT, so we increased the OPEX by 5% organically half year, over half year, partly due to very low comparative figures as we pulled back on cost significantly in 24. And we have seen a flat development sequentially from first half year into second half year, which is a reflection of our continued focus on cost management. Acquisitions added an additional 5% to growth to OPEX in the second half year of 2025. And again, also here we see an offset from a declining US dollar. When it comes to EBIT, we ended second half at 2.1 billion. negatively impacted by exchange rates and by lowering operating leverage in hearing aids. The decline in EBIT was due to weaker than normal growth in the overall hearing aid market as the main contributor and for us specifically a loss of market share in the US primarily due to lower sales to a large retailer. and this resulted in a contraction of the EBIT margin to 18 percentage point. Special items in the period was related to the acquisition of Kint and a non-Cash adjustment, all in all 128 million in H2. Cash flow continued to be very strong. Cash flow from operations in H2 of 2.3 billion and just shy of 2 billion of free cash flow. So again, continued very strong cash flow generation. Our capital expenditure of 409 million is an increase compared to same period last year, primarily driven by high investments in production facilities. Cash out to acquisitions amounted to 5.4 billion and this of course predominantly relates to the acquisition of Kim that closed beginning of December. We did not purchase any more shares under the share buyback program in second half year. So we end the year at a total of 582 million as previously disclosed. When it comes to the balance sheet items, our net debt increased significantly. Again, this is solely due to the acquisition of Kint and fully in line with our expectation, our gearing multiple at the end of the year. ended at 3.4, which is above our medium to long-term giving target of 2 to 2.5. We will prioritize deleveraging and expect to return to our medium to long-term giving target of 2 to 2.5 within 18 to 24 months after the 1st of December of 2025. And net working capital had a modest increase of 3%, and this again predominantly relates to the result of adding acquisitions to the balance sheet. So in good control here. Thus summing up the financial key takeaways for the full year as such, we ended up at 2% organic growth, again driven by the weak overall hearing aid market, a contraction of the gross margin by 0.6 percentage point, driven by weak market growth, particularly in the US, and ASP headwinds in hearing aids due to geography and channel exchanges. The operating expenses for the full year increased by only 3% organically due to our continued focus on cost management. EBIT, before special items, 3.96 billion, and an even margin of 17.2% and special items amounting to 128 million and as just reviewed strong cash flow of 3.85% of cash flow from operations for the full year and free cash flow of above 3 billion for the full year also and shadowback 582 million. So that was the quick review of the financials and that brings us into the outlook section and initiatives that we have taken there. So if we start on some of the assumptions that goes into our outlook and assumptions of course alluding to that we don't have certainty around these things but we go in with a starting hypothesis and of course the main hypothesis that goes or assumption that goes into our outlook for the year is our projection for the global hearing aid market to grow two to four percent in 2026 in value which obviously is a conservative assumption being temporarily below our medium to long-term assumption of four to six and also of course low seen in the light of the last decade of growing exactly in line with these four to six. So we believe it's prudent and in line with what we have seen in the last quarter to take a cautious stand on the market going into the year and that is what we do with the two to four percent for the market. We will come back to it, but we believe that demand in all scenarios will grow above the market in 26. Another key assumption on the right-hand side is that as part of our plans for 26, we have launched a company-wide initiative to exactly improve profitability and lower cost growth and specifically in some areas lead to cost reductions. These initiatives will positively impact EBIT before special items up around 250 million in 26. Since this is an initiative that is starting now, we foresee that the majority of this impact will be materialized in second half year, which is why we for 26 see an EBIT scoot more than usual towards the second half year. Also, product launches impact the phasing of EBIT for 26, so this is an important note. We have seen a significant decline in the US dollar in particular, but also other currencies, and we expect a negative impact on EBIT from FX of 200 million compared to 25, with the impact evenly split between H1 and H2. We expect the KIMT group to contribute with 300 million on EBIT before special items in 26. This is in line with our previous communication. And we expect a limited impact from tariffs on the group, 25 million in our diagnostics business. Also nothing new in that. So summing up on the special items where we see particular things to take into the account for 26 is now totaling 325 million of which 125 relates to the previously announced integration cost related to the Kint acquisition and then we do add to that an additional 200 million related to the foreseen restructuring and also adjustment to the organization and size as part of this cost reduction initiative. Here we see 200 million of one-off costs, so all in all 325. So these are some of the core assumptions and if we Based on that built up some of the components in a more visual schematic way on the graph on the right. The starting point is our EBIT for the full year 2025 or 3.96. From that we need to subtract the 200 million that is the FX headwind in 2026. That brings us to a FX adjusted EBIT for 25 of 3.76. To that, we would, in line with the guidance we give here, add a contribution from Kint, incremental contribution from Kint, which means 11 months of EBIT. As a reminder, we did have one month in 25. So this is 11 months of the 300 million, 275. And then we need to add the organic part of our business, which includes the before-mentioned cost savings initiatives that we are confident will bring 250 million of savings to the OPEX line and then adding to that whatever else we will see of organic impact from profitability in the remaining part of the group. And this builds up to an EBIT outlook of 4.1 to 4.5 billion and important to notice here The backdrop for this outlook is, of course, the starting point of a market assumption of 2 to 4%. And we have in our plans and we aim to grow above that 3 to 6%, so taking market share essentially in all scenarios. So in this light, you can say, of course, that the 4.1% which is the lower end of this guidance reflects a very very conservative scenario where the market of course is in the conservative end of the already conservative outlook here and also that our market share gain is modest but still there. But this is the starting point for the year and we feel comfortable with that. Lastly, just a few more comments on the initiatives to improve profitability. I did mention before the effect in 26 of 250 million, but this is a two-year program that will beginning 28 and onwards bring around 500 million of cost savings to the group. We also announced today that we estimate that this will affect approximately 700 people globally in demand in 2026, of which 150 are located in Denmark. The associated costs that we recognize under special items is 200 million in 2026 and an additional 100 million in 2020. 27, both of course of a one-off nature, whereas the expected cost savings will be structural and permanent. So summing up in total, this brings us to our outlook for 26, organic growth of 3-6%, EBIT of 4.1 to 4.5 billion, Share buyback is foreseen to be paused throughout 26 as we focus on deleveraging. And for modeling purpose, we estimate acquisitive growth of 8%, FX growth of minus 2, and special items minus 325 million and an effective tax rate of 23%. With this, we would hand over to Q&A. Please.