Danish hearing aid makers disappoint despite continued growth

COPENHAGEN - Shares in Danish hearing aid makers William Demant and GN Store Nord fell sharply on Thursday after the companies reported profits below forecasts, underlining the fierce competition in the global hearing aids market.

The two companies control just under 40 per cent of the global market, which has the potential to expand greatly as the costs, as well as the stigma of wearing an aid, are reduced through technological advances.

But William Demant, second largest seller of hearing aids behind Swiss-based Sonova, reported a fall in its operating profit (EBIT) of 4 per cent in the first half of the year to 834 million Danish crowns (S$185.70 million), below the average forecast from analysts of 922 million crowns and capped by a negative currency exchange rate effect worth 60 to 70 million crowns..

Analysts said of more concern was William Demant's revenue growth of just 3 per cent, with total sales in the half-year of 4.54 billion crowns falling short of expectations of 4.65 billion crowns and lagging growth at its rivals. These include Sonova, which reported 8.7 per cent revenue growth last year, GN Store Nord, and Siemens' Audiology Solutions unit, which the German group wants to float.

Sonova is the world's biggest hearing aid maker with a market share by volume of around 24 per cent, closely followed by William Demant with 23 per cent, while Siemens has a 17 per cent share and GN Resound is in fourth position with 16 per cent. "Demant is growing markedly slower than GN Store Nord and Sonova, illustrating that their core business is still under pressure, a trend we do not think will abate any time soon," Bernstein Research analyst Lisa Clive said.

Bernstein Research has an 'underperform' rating for William Demant and 'outperform' for GN Store Nord.

GN Store Nord's hearing aid business, GN Resound, reported 8 per cent organic revenue growth in the second quarter, exceeding overall market growth of 3 per cent. But the results were weakened by GN Store Nord's headset unit GN Netcom, which makes hands-free phone headsets, which reported EBITA of 107 million crowns, below the expected 119 million crowns as growth tailed off after a sharp rise in demand in China last year after the government banned drivers from using their handsets. "GN is falling primarily because of what's going on in their Netcom division," said analyst Morten Imsgard from Sydbank, which has a 'buy' rating for the company's shares and a 'sell' rating on William Demant.

Shares in William Demand were down 5.6 per cent at 465.8 crowns by 1218 GMT, a drop of 11.5 per cent this year, while GN Store Nord was down 3.6 per cent at 137.50 crowns, a fall of 3.5 per cent this year.

GIMMICK OR GAME CHANGER?

GN Store Nord turned heads in the industry after it launched a hearing aid it developed with Apple that streams iPhone content directly to the user's ear and the Resound Linx device is prising open some new markets for the company. "Smaller independent retailers (of hearing aids in the United States) are by far the largest segment in the US market, but traditionally we have had a very small market share," Chief Financial Officer Anders Boyer told Reuters. "With Linx, we can kick the door down into this market and we have grown 20 per cent in five months," he said.

The development with Apple is an important one as the device may appeal to more people. Current hearing aid production reaches just 10 per cent of the 360 million people with a serious loss of hearing, according to the World Health Organisation.

William Demant has sought to keep up by launching a streaming device compatible with iPhones, usually worn around the neck, linking the aid to the phone. "There is no doubt that GN Store Nord is the company with the biggest growth momentum at the moment due to their innovative products," Sydbank's Imsgard said. "Even though William Demant is trying to talk this down as a gimmick, they can't escape that the market sees this as a game changer." GN Store Nord's EBITA in the quarter rose to 302 million Danish crowns (US$54 million) from 291 million crowns a year earlier, just below an average estimate of 325 million crowns in a Reuters poll.