2016 targets already in the share price

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1 GN STORE NORD - REDUCE 216 targets already in the share price This is a noncomplex product We reiterate our Reduce recommendation on GN Store Nord after the release of the Q3 13 results. With high expectations already priced into the share price we see little upside to the current share price. We have made only minor changes to our estimates. Given the strong share price performance we think the shares look fully priced with a sum-of-the-parts value of DKK 126, leaving little support to valuation. GN Store Nord delivered Q3 13 results more or less in-line with expectations, beating consensus estimates by only.7% on EBITA, ex. restructuring charges. We are positively surprised by the strong Q3 13 results in GN ReSound outperforming the market by 7-1 p.p. However, we expect growth to level off in Q4 13 with organic growth only slightly above market growth. Given the strong performance in Q3 13 GN Store Nord upgraded its full year guidance. This is, however, already reflected in consensus expectations. GN Store Nord now expects GN ReSound to deliver organic Accounting figures and key figures (DKKm) 212R 213E 214E 215E Sales Operating profit Results before taxes EBIT margin 9,4% 17,% 18,8% 19,7% ROE 5,2% 14,5% 14,7% 14,7% ROIC,1% 16,6% 18,8% 2,5% EPS 1,9 5,1 5,8 6,6 P/E 66,7 24,8 21,6 19,1 EV/EBITA 34,4 18,1 15,1 13,5 P/BV 3,9 3,4 3, 2,6 Dividend,6,9 1, 1, Fundamental valuation Overvalued Risk Average News flow Positive 12-month target price 135 Closing price 127 Shar e infor m ation High/low latest 12 m 131/77 Price trend (3/12 m) 4%/52% Relative to OMXC2-4%/2% Market value (DKKm) Free float 95% Avg daily vol (DKKm) 66,5 Reuters GN.CO Bloomberg GN DC Pr ice tr end GN Store Nord 133 OMXC2 Cap n d j f m a m j j a s o n Source: Jyske Bank & Datastream Jyske Markets, Vestergade 8-16 DK-86 Silkeborg Senior Analyst, Equity Research, Janne Vincent Kjær jvk@jyskebank.dk This investment research report is an extract of a research report to professional investors. Important investor information: Please see 1

2 revenue growth of around 9% - up from earlier more than 7%. We are positively surprised by the strong performance in GN ReSound but have adjusted our estimates only slightly as our estimates already reflect GN ReSound delivering organic revenue growth of 9.8%. As promised GN Store Nord announced a new strategy plan in connection with the report. The mid-term targets are focused on growth, with GN ReSound expected to outgrow the market by more than 3 p.p. in a market growing 1-4% in terms of value. This is more or less in-line with consensus expectations. However, GN ReSound is guiding towards a margin on par with leading industry peers i.e. in the range of % using current EBITA margins, but with some upside if the market succeeds in getting margins back to the historical level. However, with continued ASP erosion this might be difficult. We see this as slightly disappointing given the high expectations already priced into the share. Based on the new financial targets we expect revenue during to grow by 26% - adding nearly 2bn to 213 revenue. This is slightly less than communicated by the company. We are however more conservative in our estimates for Netcom, as we are not fully convinced that the Mobile market will grow 17-18% p.a. With high expectations already priced into the share price we see little upside to the current share price. We have made only minor changes to our estimates and reiterate our Reduce recommendation with a sum-ofthe-parts value of DKK 126, leaving little support to valuation. Given the strong share price performance year-to-date, we think the shares look fully priced. 2

3 Overview GN Store Nord Company profile Ownership structure GN Store Nord is a leading manufacturer of hearing aids, diagnostic instruments and headsets sold under the Jabra brand to both Contact Center & Office as well as mobile phone users. GN Netcom is the worlds second largest manufacturer of headsets behind the leading manufacturer, Plantronics. The hearing aids are sold under three brand names, ReSound, Beltone and Interton. GN ReSound holds a position as number four with a global market share of 16%. Øvrige 73% ATP 1% Marathon Asset Managemen t 1% Egne aktier 7% Sales growth and profitability Break-down of sales 15% 1% 5% % -5% -1% -15% Netcom 38% ReSound 62% -2% Sales growth EBITA-margin Fundamental valuation Investment case The market for hearing aids is characterised by stable volume We believe the restructuring potential is fully reflected in growth with an average annual growth over the past 15 years of the current share price. 3.6%. We expect the growth to continue supported by a Market expectations are high with valuation not leaving room positive demographic development. for any disappointment. We see room for margin expansion going into 213 with the Market conditions remain weak making it difficult for GN restructuring programme in GN ReSound on track. However, this Netcom to achieve the targeted growth and margin expansion in is already reflected in the current share price. 213 The headset business is highly cyclical. Historically organic Competition in the hearing aid market remains tough with the growth rates in GN Netcom has been highly reliant on corporate launch of new high-end products from several leading IT spending, labour turnover and consumer spending. manufactures. Unified Communication (UC) is expected to be the key growth We fear that the lack of new breakthrough technologies in the driver in CC&O going forward as the UC market continues to market will make it difficult to secure average selling prices experience high growth rates. over the coming product cycle. Price triggers Successful launch of ReSound Verso Ability to deliver on the mid-term guidance Success in closing the margin gab to peers Positive changes to subsidy schemes Lower average age of first-time users in hearing aids Faster than expected penetration of UC Risk factors Execution risk on its mid-term guidance Implementation of restructuring initiatives The hearing aid market is reasonably resilient to the macroeconomic development. However, macroeconomic can have a temporary impact on demand Changes in reimbursement schemes will have a noticeable impact on local demand Increasing competition in the tender market for hearing aids GN Netcom is highly cyclical and have shown in the past a fairly strong correlation to GDP growth 3

4 Profit and loss account (DKKm) 21R 211R 212R 213E 214E 215E 216E 217E 218E 219E Net sales Cost of goods sold Gross profit Sales costs Research and development costs Administrative costs Operating profit before goodwill (EBITA) Operating profit (EBIT) EBITDA Profit before interest Net financials Profit before tax Tax Profit for the year Extraordinary items Consolidated profit Sales growth 8,8% 8,1% 12,3% 9,2% 8,7% 7,7% 7,3% 6,2% 6,% 5,% EBITDA growth 143,3% -46,1% -49,5% 72,% 23,1% 11,8% 7,1% 5,7% 6,3% 5,6% EBITA growth 32337,5% -5,5% -52,% 94,5% 19,6% 12,3% 7,1% 5,6% 6,2% 5,5% EBIT growth ,6% -51,1% -53,3% 98,3% 2,2% 12,6% 7,3% 5,7% 6,3% 5,6% Net profit growth -275,% -53,4% -62,9% 168,3% 15,2% 13,% 7,2% 5,7% 6,3% 5,5% Effective tax rate 26,9% 29,2% 27,% 24,5% 27,9% 27,7% 27,7% 27,7% 27,7% 27,7% Balace sheet (DKKm) 21R 211R 212R 213E 214E 215E 216E 217E 218E 219E Fixed assets Current assets Equity capital Provisions and minorities Long-term debt Short-term debt Liabilities/Assets, total Interest-bearing net debt Invested capital Invested capital growth 49,6% 12,% -37,2% 1,7% 3,9% 4,1% 3,9% 3,6% 3,6% 3,6% Cash flow (DKKm) 21R 211R 212R 213E 214E 215E 216E 217E 218E 219E Cash flow from operations Change in working capital Capex (gross investments) Free cash flow Multiples relating to the share 21R 211R 212R 213E 214E 215E 216E 217E 218E 219E Dividend yield,2%,2%,4%,7%,8%,8%,8%,8%,8%,8% Share buybacks (% of MV),%,%,%,%,%,%,%,%,%,% Total payment to shareholders,2%,2%,4%,7%,8%,8%,8%,8%,8%,8% Dividend per share,2,3,6,9 1, 1, 1, 1, 1, 1, EPS 9,1 4,5 1,9 5,1 5,8 6,6 7,1 7,5 7,9 8,4 EPS growth -275,% -5,8% -58,% 168,3% 15,2% 13,% 7,2% 5,7% 6,3% 5,5% P/E 13,8 28, 66,7 24,8 21,6 19,1 17,8 16,8 15,8 15, P/BV 3,9 3,5 3,9 3,4 3, 2,6 2,3 2,1 1,9 1,7 EV/FCF -269,2 87,7 6,4 26,3 25,8 22,6 2,8 19,3 18,1 17,9 EV/EBIT 1,3 2,2 36,2 18,6 15,5 13,8 12,8 12,2 11,4 1,8 EV/EBITA 1,2 19,8 34,4 18,1 15,1 13,5 12,6 11,9 11,2 1,6 EV/EBITDA 9,7 17,2 28,5 16,9 13,7 12,3 11,5 1,9 1,2 9,7 4

5 Profitability and productivity 21R 211R 212R 213E 214E 215E 216E 217E 218E 219E EBIT margin 49,9% 22,6% 9,4% 17,% 18,8% 19,7% 19,7% 19,6% 19,6% 19,8% EBITA margin 5,4% 23,1% 9,9% 17,6% 19,3% 2,1% 2,1% 2,% 2,% 2,1% Adjusted EBITA margin 49,9% 22,6% 9,4% 17,% 18,8% 19,7% 19,7% 19,6% 19,6% 19,8% EBITDA margin 53,2% 26,5% 11,9% 18,8% 21,3% 22,1% 22,% 21,9% 22,% 22,1% Net margin 36,1% 15,5% 5,1% 12,6% 13,4% 14,% 14,% 13,9% 14,% 14,% ROIC excl. goodwill 98,9% 25,2%,1% 37,3% 44,% 5,5% 54,6% 58,8% 64,5% 68,1% ROIC incl. goodwill 47,7% 15,7%,1% 16,6% 18,8% 2,5% 21,% 21,3% 21,9% 21,4% Return on equity(roe) 33,9% 12,9% 5,2% 14,5% 14,7% 14,7% 14,% 13,1% 12,5% 11,8% CAPEX as a % of sales 13,2% 9,% 7,% 7,9% 9,% 9,1% 8,9% 8,8% 8,6% 8,5% Working capital as a % of sales 63,2% 75,5% 15,% 13,3% 12,9% 12,6% 12,2% 11,8% 11,5% 11,3% Tangible assets as a % of sales 9,3% 4,7% 4,1% 4,5% 4,3% 4,2% 4,% 3,9% 3,7% 3,6% 5

6 Disclaimer & Disclosure Jyske Bank is supervised by the Danish Financial Supervisory Authority. The research report is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility for the correctness of the material nor any liability for transactions made on the basis of the information or the estimates of the report. The estimates and recommendations of the research report may be changed without notice. The report is for the personal use of Jyske Bank's customers and may not be copied. This report is an investment research report. Conflicts of interest Jyske Bank has prepared procedures to prevent and preclude conflicts of interest thus ensuring that research reports are being prepared in an objective manner. These procedures have been incorporated in the business procedures covering the equity research activities of Jyske Markets, a business unit of Jyske Bank. Moreover, equity analysts at Jyske Bank cannot trade in equities for which they prepare research reports. If an analyst takes over for the responsible analyst in connection with illness, business travels, etc., this analyst cannot trade in the relevant share on the day of publication of the research report and the following day. Jyske Bank may, however, hold positions, have interests in or business relations with the companies that are analysed. The research report has not been presented to the company prior to its release. Analysts receive no payment from persons interested in individual research reports. Read more about Jyske Bank's policy on conflicts of interest at Jyske Bank s share recommendations current allocation Allocation of recommendations, Danish shares (number) Allocation of recommendations, all shares (number) Strong Buy Buy Reduce Sell Strong Buy Buy Reduce Sell Source: Jyske Bank Financial models Jyske Bank employs one or more of the following models: Discounted cash flow (free cash flow), Economic Value Added and the dividend model to determine the fundamental value of a company. The fundamental value is compared to a relative valuation based on multiples such as P/E and EV/EBITA. The recommendation and the price target are moreover adjusted for the expected news flow and the market sentiment based on knowledge of the industry and company-specific circumstances. Jyske Bank s recommendations take into account the expected development in the equity market, the various sectors and company-specific circumstances. Risk Investment in this share is associated with a risk. Movements in the equity market, the sector and/or news flows, etc. regarding the company may affect the price of the share. See the front page of the research report for our view of the risk associated with the share. The risk factors stated and/or calculations of sensitivities in the research report are not to be considered all-encompassing. If the share is traded in a currency other than the investor s base currency, the investor accepts an FX risk. In connection with an ADR or similar papers, the FX risk exists relative to the currency in which the underlying share trades. Update of research report The planned update of the report will be prepared immediately upon the release of the company s financial statements. In addition, research reports may be prepared on special themes specifically for the company or research reports where the company is part of the special theme. These research reports are published on an ad-hoc basis. See the front page for the initial date of publication of the report. All prices stated are the latest closing prices before the release of the report, unless otherwise stated. 6

7 Recommendation Strong buy >2% Buy 1-2% Reduce -1% Sell <% Source: Jyske Bank Share recommendation concepts Risk-adjusted return Our recommendations are relative to the market development and are based on an evaluation of the forecast return within the coming 12 months. The forecast return is the difference between the current price and our 12-month price target (the price target includes the projected dividend). The equity market has historically yielded a return of around 1% (the US equity market, for instance, yielded a return of 1% during the period ). When we determine the recommendation for a share we use the 1% as an estimate of the return in the equity market. Since our recommendations are relative and risk-adjusted, it is possible to compare our recommendations across sectors and risk categories. In addition, the potential is stated in absolute terms via our price target. It should be borne in mind, however, that the recommendation is the anchor. A BUY recommendation will remain a BUY recommendation until changed, even if price increases have taken the price too close to the price target. The future and historical returns estimated in the research report are stated as returns before costs and tax-related circumstances since returns after costs and tax-related circumstances depend on a number of factors relating to individual customer relations, custodian charges, volume of trade as well as market-, currency- and product-specific factors. It is not certain that the share will yield the stated expected future return/s. The stated expected future returns exclusively express our best assessment. Investeringscenter Nord Toldbod Plads 1 9 Aalborg Tlf: Investeringscenter Midtvest St. Torv 1 75 Holstebro Tlf: Investeringscenter Sydvest Torvet Esbjerg Tlf: Investeringscenter Østjylland Østergade 4 8 Århus C Tlf: Investeringscenter København Vesterbrogade København V Tlf: Investeringscenter Sjælland Nørregade 6 41 Ringsted Tlf: Investeringscenter Fyn Mageløs 8 51 Odense C Tlf: Investeringscenter Silkeborg Vestergade Silkeborg Tlf: Investeringscenter Trekantsområdet Hjulmagervej 8 F 71 Vejle Tlf: Jyske Bank (Schweiz) AG Tlf: Berben s Effectenkantoor B.V. Tlf: +31 () PBC Hamburg Tlf: Jyske Bank (France) Tlf : Jyske Bank (Gibraltar) Ltd Private Banking Copenhagen (PBC) Tlf: