Interim Report Q1 2020 Conference call presentation April 29, 2020 - - PowerPoint PPT Presentation

April 29, 2020

Interim Report Q1 2020 – Conference call presentation

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.

Agenda

Group highlights GN Hearing update GN Audio update Financial outlook

DKK million Q1 2020 Q1 2019 Growth Revenue 2,967 2,840 +4% Organic growth 3% 19% Gross profit 1,668 1,754

• 5%

Gross margin 56.2% 61.8%

• 5.6%p

EBITA 300 439

• 32%

EBITA margin 10.1% 15.5%

• 5.4%p

Profit before tax 139 342

• 59%

Net profit 106 262

• 60%

EPS 0.78 1.96

• 60%

ROIC* 21% 22%

• 1%p

Free cash flow excl. M&A

• 160
• 13

NA Cash conversion

• 53%
• 3%
• 50%p

NIBD/EBITDA 2.3x 2.3x Number of employees** 6,400 6,175 +4%

Group financial highlights Q1 2020

Accelerating impact from COVID-19

• GN was affected at three levels from COVID-19 during Q1

2020: (i) production, (ii) supply of components from subcontractors, and (iii) various impacts on demand 3% organic growth

• Organic growth of 3% delivered in a challenging quarter

with very volatile end-markets

• Strong product launches across both GN Audio (with Jabra

Evolve2) and GN Hearing (with ReSound Assist Live and completion of the ReSound LiNX Quattro family)

• Cost variability limited in the quarter, leading to reduced

margins compared to Q1 2019 Sound balance sheet

• Balance sheet remains sound with ample sources of

liquidity

281

• 140
• 48
• 15

78 356

• 282
• 78
• 63
• 67

Operating cash flow before working capital Change in working capital Investing activities* Tax and financial items Free cash flow excl M&A Q1 19 Q1 20 397

• 134
• 125
• 175
• 37

176

• 27
• 126
• 89
• 66

Operating cash flow before working capital Change in working capital Investing activities* Tax and financial items Free cash flow excl M&A Q1 19 Q1 20

Continued strong focus on cash flow

GN Hearing GN Audio

DKKm DKKm

• GN Hearing’s free cash flow excl. M&A in Q1 2020

reflects lower revenue – Cost and working capital adjustments ongoing – Investing activities not impacted in the quarter

• GN Audio’s free cash flow excl. M&A in Q1 2020

reflects the strong revenue growth, especially towards the end of the quarter – Working capital impacted by revenue being skewed towards latter part of quarter – Investing activities ongoing

• Focused and prudent management of cash flow

continues

Healthy balance sheet preserved

Q1’17 1.7x Q2’16 Q1’16 Q3’16 Q3’18 Q4’16 Q2’17 Q3’17 Q4’17 1.8x Q1’18 Q2’18 2.3x Q4’18 Q1’19 Q2’19 Q3’19 Q4’19 Q1’20 1.9x 2.3x 1.0x 2.0x 49% 43% 38% 35% 30% Q4’17 Q1’16 Q4’18 Q1’17 Q2’19 Q3’16 Q2’16 Q4’16 Q1’19 Q2’17 Q3’17 Q1’18 Q2’18 Q3’18 Q3’19 Q4’19 Q1’20

Equity ratio NIBD/EBITDA

655

• 260
• 198
• 210
• 13

517

• 241
• 246
• 190
• 160

Operating cash flow before working capital Change in working capital Investing activities* Tax and financial items Free cash flow excl M&A Q1 19 Q1 20

GN Store Nord

DKKm

Free cash flow excl. M&A

Strong balance sheet with ample sources of liquidity to face challenges ahead

Maturity profile (DKKbn)

0.2 0.2 0.6 0.7 1.6 2.5 0.2 0.1 0.0 0.5 1.0 1.5 2.0 2.5 Q4 2020 0.1 Q3 2020 2022 Q2 2020 2021 2023 2024 Commercial Papers Convertible Bond Bank loan Bond EIB loan NIB loan

• Diversified funding profile with the current

mid-term maturity profile means that GN has flexibility with access to multiple sources of financing – Convertible bond market – Traditional bonds (EMTN program) – Euro Commercial Paper program – Bilateral loans from EIB and NIB – Uncommitted bank facilities – Undrawn revolving credit facility

• To preserve the strong balance sheet, GN

has postponed new share buybacks and will sustain further flexibility by not cancelling shares for the time being

Short term and structural cost and cash flow initiatives across GN to mitigate impact from COVID-19

• Cost reduction program initiated across GN

globally – implemented with respect for specific market needs

• Focus on driving variability into cost base
• Executing initiatives to maintain liquidity and cash,

and to position GN for a strong rebound

• Compensation reduction of 10% by

– Executive Management and Board of Directors – Leadership teams of GN Hearing and GN Audio

Scenario-based planning approach for GN Hearing with identified triggers

• Reduced salaries – with and without

reduced work weeks

• Furloughs with local government

reimbursements

• ERP implementation paused
• Ceasing external consultants and

temps

• Country-specific restructuring
• Footprint optimization

Jul Jan Dec Apr Oct Mar Feb May Jun Aug Sep Nov

Actual Normalized level

FY 2020 revenue (for illustration purposes only)

Trigger based scenario planning

Agenda

Group highlights GN Hearing update GN Audio update Financial outlook

DKK million Q1 2020 Q1 2019 Growth Revenue 1,314 1,507

• 13%

Organic growth

• 14%

8% Gross profit 841 1,047

• 20%

Gross margin 64.0% 69.5%

• 5.5%p

EBITA 55 282

• 80%

EBITA margin 4.2% 18.7%

• 14.5%p

ROIC* 15% 18%

• 3%p

Free cash flow excl. M&A

• 66
• 37

NA Cash conversion

• 120%
• 13%
• 107%p

Number of employees** 4,450 4,575

• 3%

GN Hearing financial highlights Q1 2020

In Q1 2020, GN Hearing delivered -14% organic growth due to an accelerating impact from COVID-19

• Organic growth of -14% in Q1 2020. Revenue growth of -13%,

including impact of around 3% from FX and around -2% impact from M&A

• Gross margin lower due to extraordinary costs related to

reactive prudent measures in order to swiftly minimize supply issues

• The EBITA margin was 4.2% as a result of lower revenue level

more than offsetting the OPEX reductions initiated by the end

• f the quarter
• Free cash flow excl. M&A of DKK -66 million, which reflects

the lower revenue and traditional seasonality

• COVID-19 setting the agenda

Strong start to the year across all regions before they were impacted by the COVID-19 outbreak

GN Hearing taking actions to sustain its strong position in the market Europe Strong start to the year observed in Germany, Italy, Spain and the

• UK. COVID-19 impact was severe

in March North America Strong start to the year on top of the development in the VA. COVID-19 outbreak significantly impacted growth Rest of World Negatively impacted by COVID-19 early in the quarter. Signs of improvements observed towards the end of the quarter

Getting through COVID-19

1

Position GN Hearing to recover stronger than ever post COVID-19

2

Business continuity

3

Structural changes

Position GN Hearing to recover stronger than ever post COVID-19 Example: ReSound Assist Live

First HCP visit for an evaluation Return to the HCP to purchase and First Fit Product

• nboarding

Daily use Return to the HCP for adjusting the fitting Current customers

Via ReSound Assist Live:

• Adjustments
• Counseling
• Troubleshooting

Customers with audiogram

• Pre-programed hearing aids from current audiogram at home

delivery

• ReSound Assist Live fine-tuning and counseling session and

follow-up

• In-office follow-up for full diagnostic testing when safe

New customers with no audiogram

• HearX (US only) mobile testing curbside or in-home - program hearing aids in the office if curbside
• In-office follow-up for full diagnostic testing when safe
• In-situ hearing test in-home with pre-programmed hearing aids and program via ReSound Assist Live
• In-office follow-up for full diagnostic testing when safe

Expanding routes to customers...

Update on strategy execution for 2020 and beyond: Positioning GN Hearing to recover stronger than ever post COVID-19

Individualized customer experience Innovation leadership Commercial & ecosystem excellence

• Launched ReSound Assist Live
• cutting-edge telehealth allows

for the broadest range of at- home hearing care services

• Agile at-home in-ear test

technology gives hearing care professionals the ability to conduct in-ear tests using hearing aids

• More customer experience

centric initiatives to come

• Completing the ReSound LiNX

Quattro portfolio and launching new ground-breaking technology for the Super-Power segment

• Continued focus on innovation and

need for investments in R&D

• Preparing for a new normal post

COVID-19 and the transition through new technology

• Working with hearing care

professionals to navigate the COVID-19 environment

• Partnered with hearing care

professionals to launch ReSound Assist Live

• Re-shaping the sales
• rganization with separation of

Europe and RoW sales in order to get closer to the customers

Agenda

Group highlights GN Hearing update GN Audio update Financial outlook

DKK million Q1 2020 Q1 2019 Growth Revenue 1,653 1,333 +24% Organic growth 22% 36% Gross profit 827 707 +17% Gross margin 50.0% 53.0%

• 3.0%p

EBITA 288 193* +49% EBITA margin 17.4% 14.5%* +2.9%p ROIC** 46% 48%

• 2%p

Free cash flow excl. M&A

• 67

78 NA Cash conversion

• 23%

40%

• 63%p

Number of employees*** 1,725 1,425 +21%

GN Audio financial highlights Q1 2020

In Q1 2020, GN Audio delivered outstanding 22% organic growth, driven by strong demand for home office products

• Organic growth of 22%. Revenue growth of 24%, including

impact of around 1% from FX and around 1% from M&A

• Gross margin decreased compared to Q1 2019 due to

increased freight and production costs due to COVID-19, tariffs and FX more than offsetting positive mix effects

• EBITA increased 49%, equaling an EBITA margin of 17.4%.

Excluding the transaction related costs associated with the Altia acquisition in Q1 2019, the EBITA margin decreased 0.5 percentage points due to lower gross margin

• Free cash flow excl. M&A of DKK -67 million, reflecting the

strong revenue growth impacting net working capital negatively and traditional seasonality

Strong demand and commercial execution drives organic growth in Enterprise

GN Audio’s Enterprise business continues its strong momentum Europe Strong double-digit organic growth North America Strong double-digit organic growth Rest of World Strong double-digit organic growth

Jabra Evolve2 - the new business standard for concentration and collaboration

• Evolve2 85, Evolve2 65, and Evolve2 40 combine

concentration, collaboration and flexibility features for the ultimate productivity boost in the office

• Cancels 50% more noise through Digital Hybrid Active

Noise Cancellation (ANC) and design

• 40% better transmitted audio and twice the voice

distractor performance powered by 10 microphones in the Evolve2 85

• Three times more Bluetooth wireless range
• Industry-leading 37-hour battery life due to advanced

digital chipset

• Microsoft Teams certified for seamless UC experience

and meeting Open Office standards

Meeting the demands of customers post COVID-19

Meeting rooms Home On-the go

Technology / collaboration tools Behavioral The workspace mix changes from mainly office-based to more flexible work

• Huddle room growth could slow
• Distancing in-room and virtually
• Increasingly equipped
• More dedicated spaces
• Mixed endpoint use
• More advanced collaborative work
• Less travel
• More virtual collaboration
• Continued social distancing
• Acceptance of remote work
• Flexible schedules
• Focus on productivity monitoring
• Higher UC&C adoption
• Accelerated desk phone to softphone transition
• Cloud infrastructure shift
• More advanced virtual meeting features (screen

sharing, whiteboarding, polling etc.)

• More advanced video meetings

Workspaces

Desk

• Changed approach to seating
• Used for all-virtual meetings

Update on strategy execution for 2020 and beyond: Strong execution across

Individualized customer experience Ecosystem-led innovation Sustainable commercial &

• perational excellence
• Launched Jabra Evolve2 –

designed specifically for setting the new standards for professional workers

• Launched Elite 75t Active and

Elite 45h – offering great experiences for consumers

• Launched MySound –

individualizing the audio experience for consumers

• Jabra Evolve2 is GN Audio’s first

range of headsets certified for Microsoft Teams

• Jabra PanaCast wins

CUSTOMER’s 2020 Product of the Year Award in recognition of the products’ ability to advance the call center industry

• Jabra introduces “the Soundbar”, a

podcast made in collaboration with leading productivity experts

• New product packaging using

FSC-approved materials that significantly reduces paper and plastic materials

• Flexibility in commercial

execution as evidenced by growing demand for home-

• ffice equipment
• Continuous commercial and
• perational excellence focus

Agenda

Group highlights GN Hearing update GN Audio update Financial outlook

Financial guidance for 2020 withdrawn on April 3, 2020

The COVID-19 situation has and will not only strongly impact our operational performance this year, but it will also impact predictability and visibility across markets, partners and channels as we continue the year. Therefore, we find it appropriate that we withdraw our financial guidance for 2020

GN’s investment case is intact

Clear strategy underpinned by deep technology expertise and strategic global partnerships Strong cash conversion and asset light business model Focused growth model, dedicated developer, manufacturer and distributor, refraining from vertical integration Profitability in line with or better than peers Focused innovation within sound processing in selected market segments Leading positions in attractive markets with high entry barriers

www.gn.com E-mail: investor@gn.com Morten P. Toft, VP - IR & Treasury, Tel.: +45 4575 4607 Rune Sandager, Senior Manager – IR, Tel.: +45 4575 9257

Q&A

Appendix

GN Store Nord – five-year performance

DKK million 2015 2016 2017 2018 2019 GN Store Nord Revenue 7,755 8,651 9,585 10,607 12,574 Organic growth 6% 6% 8% 13% 15% Gross margin 61.2% 62.4% 62.7% 62.0% 60.3% EBITA 1,383 1,583 1,744 1,956 2,321 EBITA margin 17.8% 18.3% 18.2% 18.4% 18.5% Operating profit 1,149 1,445 1,558 1,796 2,002 Financial items

• 138
• 52
• 60
• 203
• 92

Profit before tax 1,016 1,395 1,504 1,606 1,913 Effective tax rate 26% 22% 25% 22% 23% Net profit 747 1,086 1,122 1,247 1,468 ROIC (EBITA/Invested capital) 20% 20% 21% 24% 25% Free cash flow excl. M&A 607 1,179 1,134 1,110 1,296 Cash conversion* 44% 74% 65% 57% 56% EPS 4.79 7.34 8.07 9.25 11.12

GN Hearing – five-year performance

DKK million 2015 2016 2017 2018 2019 GN Hearing Revenue 4,526 5,156 5,615 5,833 6,351 Organic growth 9% 6% 6% 7% 7% Gross margin 67.4% 69.0% 69.4% 69.2% 69.0% EBITA 921 1,062 1,153 1,194 1,284 EBITA margin 20.3% 20.6% 20.5% 20.5% 20.2% ROIC (EBITA/Invested capital) 16% 17% 18% 19% 19% Free cash flow excl. M&A 456 704 866 574 672 Cash conversion* 50% 66% 75% 48% 52%

GN Audio – five-year performance

DKK million 2015 2016 2017 2018 2019 GN Audio Revenue 3,229 3,495 3,970 4,774 6,223 Organic growth 2% 7% 10% 21% 26% Gross margin 52.6% 52.7% 53.2% 53.2% 51.5% EBITA 540 597 721 905 1,192 EBITA margin 16.7% 17.1% 18.2% 19.0% 19.2% ROIC (EBITA/Invested capital) 47% 41% 46% 59% 57% Free cash flow excl. M&A 271 523 481 798 849 Cash conversion* 50% 88% 67% 88% 71%

Share price development (3 years) Financial calendar

GN Store Nord share overview

Date Event August 19, 2020 Q2 2020 September 28, 2020 Meet the Management November 11, 2020 Q3 2020

Share information

• GN has a share capital of DKK 569,072,400, which is consisting of

142,268,100 shares, each carrying four votes. GN has one share class, and there are no restrictions on ownership or voting rights

• GN is, among others, included in the C25 and Large Cap indexes
• n Nasdaq Copenhagen as well as the Stoxx Europe 600 index
• Ticker symbols: GN:DC (Bloomberg) and GN.CO (Reuters)
• Number of registered shareholders: Around 25,000 (End Q1 2020)
• Treasury shares: 13,517,327. 9.5% of share capital (End Q1 2020)
• Market cap: DKK 39 billion (End Q1 2020)
• Largest shareholders:
• APG Asset Management N.V. (>5%)
• NN Group N.V. (>5%)