Interim Report Q1 2017 Conference call May 4, 2017
Safe Harbor Statement 2 The forward-looking statements in this interim 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 3 Group highlights Q1 2017 GN Hearing update GN Audio update Financial outlook
Group financial highlights in Q1 2017 4 GN delivered 15% revenue growth in Q1 2017 driven by solid performance in both GN Hearing and GN Audio. Organic growth was 5%, well-balanced with GN Hearing delivering 4% and GN Audio delivering 8% organic growth Gross profit increase and margin expansion GN Hearing development driven by channel mix and Audigy GN Audio development driven by product mix EBITA grew 8% reflecting solid operational execution and previously communicated investments in growth as part of the 2017 2019 strategy EPS increased 4% Very strong FCF generation for the start of the year DKK million Q1 2017 Q1 2016 Growth Revenue 2,233 1,938 +15% Organic growth 5% 8% Gross profit 1,379 1,189 +16% Gross margin 61.8% 61.4% +0.4%p EBITA 320 297 +8% EBITA margin 14.3% 15.3% (1.0)%p Profit before tax 255 269 (5)% Net profit 199 203 (2)% EPS 1.41 1.35 +4% ROIC* 20% 19% +1%p Free cash flow excl. M&A 142 27 +115 NIBD/EBITDA 1.9x 1.7x * Reported EBITA (rolling four quarters) / avg. invested capital
Strong improvements in cash flow in Q1 2017 5 Free cash flow excl. M&A (DKK million) GN Hearing GN Audio GN Store Nord GN s strong focus on cash conversion is bearing fruit across both businesses with solid increase compared to Q1 2016 In Q1 2017, cash conversion increased to 44% from 9% in Q1 2016 +83% 86 47 Q1 16 Q1 17 +169% 78 29 Q1 16 Q1 17 +426% 142 27 Q1 16 Q1 17 Focused and prudent management of net working capital continued The first quarter of the year is traditionally impacted by, among others, payment of corporate tax as well as bonus payouts Cash conversion (FCF ex. M&A / reported EBITA) GN Hearing GN Audio GN Store Nord +14%p +44%p +35%p 76% 21% 35% 44% 32% 9% Q1 16 Q1 17 Q1 16 Q1 17 Q1 16 Q1 17
Creating shareholder value through efficient capital structure 6 During 2017, GN has distributed DKK 775 million to shareholders via share buybacks and dividends Total dividend of DKK 178 million was paid out during March 2017 (DKK 1.15 per share) During 2017, DKK 597 million has been distributed by means of the concluded share buyback program On April 12, 2017 GN cancelled 9,103,715 shares as approved on the Annual General Meeting in 2017 By the end of March 2017, the net interest bearing debt ratio was 1.9x EBITDA Initiation of DKK 1 billion share buyback program. To be concluded no later then March 12, 2018 DKKm 1,500 1,000 500 0 749 * 12 month rolling Million 180 160 140 Shareholder distribution 894 +22% CAGR 1,198 1,364 775 2013 2014 2015 2016 2017 YTD Dividends Share buybacks 173 (3)% Total shares outstanding 168 (3)% 162 (5)% 155 (6)% 146 120 2013 2014 2015 2016 2017 Outstanding shares
Agenda 7 Group highlights Q1 2017 GN Hearing update GN Audio update Financial outlook
GN Hearing key highlights in Q1 2017 8 Solid revenue growth 13% revenue growth, 4% organically Strong growth in EBITA 9% increase in EBITA Strong cash generation 35% cash conversion in Q1 2017 vs 21% in Q1 2016 5 th generation 2.4 GHz announced GN Hearing fortifies its technology lead with ReSound LiNX 3D
GN Hearing financial highlights Q1 2017 9 Strong revenue development in Q1 2017 13% revenue growth Organic growth of 4% despite tough comparison base Solid gross profit increase driven by Audigy and channel mix 9% increase in EBITA reflecting solid revenue growth Slight EBITA margin decline compared to Q1 2016 reflecting investments in future growth opportunities as part of the 2017 2019 strategy Strong development in cash flows in Q1 2017. Cash flow excl. M&A up +80%, due to continued focus on cash generation throughout the organization DKK million * Reported EBITA (rolling four quarters) / avg. invested capital Note: continued operations Q1 2017 Q1 2016 Growth Revenue 1,376 1,218 +13% Organic growth 4% 11% Gross profit 938 818 +15% Gross margin 68.2% 67.2% +1.0%p EBITA 245 225 +9% EBITA margin 17.8% 18.5% (0.7)%p ROIC* 18% 16% +2%p Free cash flow excl. M&A 86 47 +39
Well-balanced growth in Q1 2017 10 Leading technology and commercial excellence driving growth North America Solid growth in VA Strong performance in Audigy Beltone back in growth Europe Solid growth especially driven by, e.g., the Nordic region and Spain Rest of World Strong growth driven by, e.g., China with double digit growth and Australia In Japan, both the market and GNH had negative growth Strongly positioned to take advantage of the newly launched ReSound LiNX 3D
11 ReSound LiNX 3D - Most advanced innovation in hearing care ReSound LiNX 3D New generation premium Smart Hearing aids allowing users to hear more, do more and be more, anywhere in life
Introducing The ReSound LiNX 3D experience 12 Hear more than you ever thought possible Enhanced hearing and fitting experience Hearing care wherever you are
The new hearing care experience leveraging multiple industry firsts 13 2.4 GHz wireless connectivity World s first (2010) Binaural Directionality World s first (2012) Made for iphone (MFi) World s first (2013) Cloud based remote fine-tuning World s first (2017)
ReSound LiNX 3D - The future of Smart Hearing 14 Unmatched Sound Quality Strong and documented audiological benefits: - Superior sound quality - Most advanced surround sound - Best speech recognition in noise Efficient Fitting Fast, easy to use New ReSound Smart 3D App On-the-go personalization Easy control of programs and sound Available on Android and ios incl. Apple Watch Groundbreaking Remote Fine-Tuning New cloud based technology Remote care comparable to that offered in clinic Flexibility, ease and convenience for both user and hearing care professional
Global launch of ReSound LiNX 3D is well underway 15 Global launch in all primary markets First launched in US on April 29. Launched subsequently in +10 other countries, including Germany, Spain and Denmark Very positive initial market feedback. First shipments made ahead of plan to accommodate extraordinarily high interest from customers Early indications of best ever media coverage ReSound LiNX 3D is launched as a full product family ReSound LiNX 3D is launched in Top and Plus performance levels
Agenda 16 Group highlights Q1 2017 GN Hearing update GN Audio update Financial outlook
GN Audio key highlights in Q1 2017 17 Solid organic growth 19% revenue growth, 8% organically EBITA increased strongly 14% increase vs Q1 2016 Highly cash generative business 76% cash conversion, up 44%pts vs Q1 2016 New CC&O products launched GN Audio fortifies its technology lead with Jabra Speak 710 and Jabra Evolve 75
GN Audio financial highlights Q1 2017 18 19% revenue growth in Q1 2017, with organic growth of 8% The growth was also in Q1 2017 driven by strong CC&O performance across regions and channels In the quarter, GN Audio continued to take some important steps in the repositioning of the consumer segment EBITA increased by 14% reflecting the strong revenue growth Slight EBITA margin decline compared to Q1 2016 reflecting previously communicated investments in growth during start of 2017 Strong improvement in cash flow generation leading to a cash conversion of 76% Q1 2017 Q1 2016 Growth DKK million Revenue 857 720 +19% Organic growth 8% 4% Gross profit 441 371 +19% Gross margin 51.5% 51.5% +0.0%p EBITA 103 90 +14% EBITA margin 12.0% 12.5% (0.5)%p ROIC* 40% 42% (2)%p Free cash flow excl. M&A 78 29 +49 * Reported EBITA (rolling four quarters) / avg. invested capital
Strong organic growth in CC&O continues 19 Leading technology and commercial excellence drives growth across geographies North America Strong organic growth in Q1 2017 despite a tough comparison base Europe Very solid double digit organic growth in Q1 2017 driven by several countries delivering strong growth Rest of World Very strong double digit growth continued in Q1 2017 across several different countries GN Audio s professional business is set for a strong 2017 after a strong Q1
Integration of VXi progressing well 20 In October 2016, GN Audio acquired VXi Corporation to further strengthen GN Audio s position in the important North American market The integration of VXi is progressing as planned and the VXi business has now been fully merged into GN Audio VXi performance as planned. Channels and customers recognize the combination of Jabra VXi and Blueparrott brands as a differentiator in the market
Launch of Jabra Speak 710 and Jabra Evolve 75 21 Jabra Speak 710, launched in March 2017 Fortifies GN Audio s leadership in the attractive market for premium, portable speakerphones for conference calls and music Jabra Evolve 75, launched in May 2017 The CC&O product portfolio is further strengthened in GN Audio s most successful product family, Evolve
Agenda 22 Group highlights Q1 2017 GN Hearing update GN Audio update Financial outlook
Financial guidance for 2017 confirmed 23 GN Hearing expects continued solid revenue growth again in 2017, in line with the 2017-2019 strategy Reflecting product launches during the year, GN Hearing expects organic growth rates and earnings levels to be lower in the first half of 2017 compared to the second half, also as a reflection of the comparison base in 2016 GN Audio expects to continue to deliver strong growth rates, in line with the 2017-2019 strategy 2017 is, as in previous years, expected to show a seasonal pattern with revenue and EBITA expected to be skewed towards the second half of the year particularly in Q4 Financial guidance 2017 Organic revenue growth GN Hearing > 6% GN Audio > 6% EBITA margin Effective tax rate 1 > 20% > 17% ~22% Note 1: GN Store Nord EBITA in Other is expected to be around DKK (125) million in 2017 GN Store Nord expects a mid-teens percent increase in earnings per share (EPS) in 2017
Q&A www.gn.com E-mail: investor@gn.com Peter Justesen, VP IR & Treasury, Dir.: +45 4575 8716
Appendix 25
GN Hearing Strategy 2017-2019 26 Hear More, Do More, Be More Innovation Excellence Commercial Excellence People Excellence Strategic User objectives centric Second to none focus on user needs and improving life through superior sound quality and services Strategic Open objectives market Expanding in the open market by improving sales execution, partner with retail and share Best Practice Strategic Empower objectives Empower leaders to drive efficient strategy execution while developing new talents Core technology Focus on core technology to deliver superior sound quality with increasing software capabilities needed Partnerships Continuation of successful partnerships by long-term alliance relations. Leadership Principles Implementation of new GN Leadership Principles: Listen Challenge Transform Time to market Continuously optimise R&D product development and time to market Digital Go digital and engage end users utilize our digital products. Growing talents Improve talent development via ongoing follow-up and quarterly reviews
GN Audio Strategy 2017-2019 27 Hear More, Do More, Be More Innovation excellence Accelerate the call-centric category Expand Unified Communication (UC) strength for office Commercial excellence People excellence Grow share in focus markets Cloud & digital first Grow consumer profitably
Strong profitable growth to continue in coming years 28 Revenue development (DKKm) 1 CAGR: +11% 8,651 Financial targets 2017-2019 5,174 CAGR: +11% CAGR: +11% +6-8% +6-9% 2011 2016 2019 EBITA development (DKKm) 1 CAGR: +20% 1,583 Financial targets 2017-2019 643 2 18% Margin: 20-22% Margin: 17-19% 12% 2011 2016 2019 Note 1: All numbers excluding Otometrics Note 2: Excl. income received from the legal dispute with Telekomunikacja Polska (TPSA)
Sources of cash 29 Profit and loss Balance sheet Cash flow Productivity, process optimisation and procurement savings lead to COGS reductions Growth, streamlined processes and investments into IT lead to SG&A efficiency Breakthrough innovation delivered while absolute spending level will be utilised with more flexibility Very capital efficient business due to low capex requirements 1.4% 2014 2.2% 2015 1.2% 2016 Capex 1 (excl. R&D) as % of revenue Ongoing working capital optimizations and strict control on balance sheet items Cash conversion improvements remain priority GN Hearing 7% 2013 GN Audio 38% 44% 2014 50% Cash conversion 65% 2015 50% 66% 2016 88% 2013 2014 2015 2016 Cash conversion Continuous improvements Continuous improvements Continuous improvements Note 1: Investments in property, plant and equipment
GN Store Nord five year performance 30 DKK million 2012 2013 2014 2015 2016 Q1 2017 GN Store Nord Revenue 5,778 6,248 6,763 7,755 8,651 2,233 Organic growth 6% 13% 9% 6% 6% 5% Gross margin* 58.3% 60.3% 62.4% 61.2% 62.4% 61.8% EBITA* 798 1,217 1,196 1,383 1,583 320 EBITA margin* 13.8% 19.5% 17.7% 17.8% 18.3% 14.3% EBITA reported 568 1,113 1,196 1,383 1,583 320 Operating profit reported 480 1,050 1,132 1,149 1,445 286 Financial items (62) (81) (80) (138) (52) (31) Profit before tax reported 420 968 1,057 1,016 1,395 255 Effective tax rate 31% 28% 29% 26% 22% 22% Profit for the year reported 290 695 749 747 1,086 199 ROIC (EBITA/Invested capital) 8% 20% 19% 20% 20% 20% Free cash flow excl. M&A 2,765 96 561 607 1,179 142 Cash conversion** 487% 9% 47% 44% 74% 44% * Excl. SMART restructuring costs ** Free cash flow excluding M&A / reported EBITA
GN Hearing five year performance 31 DKK million 2012 2013 2014 2015 2016 Q1 2017 GN Hearing Revenue 3,423 3,636 3,892 4,526 5,156 1,376 Organic growth 5% 10% 8% 9% 6% 4% Gross margin* 61.1% 65.8% 68.8% 67.4% 69.0% 68.2% EBITA* 503 775 833 921 1,062 245 EBITA margin* 14.7% 21.3% 21.4% 20.3% 20.6% 17.8% EBITA reported 273 671 833 921 1,062 245 ROIC (EBITA/Invested capital) 6% 14% 16% 16% 17% 18% Free cash flow excl. M&A 108 50 368 456 704 86 Cash conversion** 40% 7% 44% 50% 66% 35% * Excl. SMART restructuring costs ** Free cash flow excluding M&A / reported EBITA
GN Audio five year performance 32 DKK million 2012 2013 2014 2015 2016 Q1 2017 GN Audio Revenue 2,355 2,612 2,871 3,229 3,495 857 Organic growth 7% 18% 11% 2% 7% 8% Gross margin 54.2% 52.7% 53.6% 52.6% 52.7% 51.5% EBITA 362 472 521 540 597 103 EBITA margin 15.4% 18.1% 18.1% 16.7% 17.1% 12.0% EBITA reported 362 472 521 540 597 103 ROIC (EBITA/Invested capital) 57% 65% 57% 47% 41% 40% Free cash flow excl. M&A 236 178 340 271 523 78 Cash conversion* 65% 38% 65% 50% 88% 76% * Free cash flow excluding M&A / reported EBITA
Foreign exchange exposure and accounting approach 33 Annual EBITA impact from a 5% increase in currency excluding hedging Currency GN Hearing GN Audio GN Store Nord USD 60 1 61 GBP 2 7 9 JPY 9 3 12 CNY (8) (1) (9) CAD 4 0 4 A positive number indicates a long exposure, meaning that the revenue arising from the currency exceeds the costs that arise from the currency A negative number is a short exposure highlighting that there are more costs than revenue in the respective currency GN hedges its EBITA exposure on material currencies using forward contracts Accounting principles of hedging contracts P&L impact GN Hearing GN Audio Revenue USD, GBP, JPY and CAD GBP and CNY COGS CNY USD The gain/loss from hedging contracts arising from long exposures, will generally be booked directly on revenue The gain/loss from hedging contracts arising from short exposures, will generally be booked directly on COGS Treatment according to IFRS standards for hedge accounting
GN Store Nord share overview Share information GN has a share capital of DKK 582,736,856, which is consisting of 145,684,214 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 C20 Cap and Large Cap indexes on 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 (Dec. 31 2016) Treasury shares: 5,956,373 4.1% of share capital (May 4, 2017) Market cap: DKK 21 billion (Dec. 31, 2016) Largest shareholders: T. Rowe Price Associates Inc. (>5%) Marathon Asset Management LLP (>5%) APG Asset Management N.V. (>5%) NN Group N.V. (>5%) 34 Share price development (5 years) 330 GN C20 CAP Stoxx 600 280 280 230 180 130 80 01-05-2012 01-05-2013 01-05-2014 01-05-2015 01-05-2016 01-05-2017 Index: 01-05-2012 = 100 Financial calendar Date Event May 4, 2017 Interim Report Q1 2017 August 17, 2017 Interim Report Q2 2017 November 2, 2017 Interim Report Q3 2017