Demant A/S Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Martin Parkh°i - SEB - Analyst : Yes, very good afternoon. I'm Martin Parkh°i of SEB. I have two questions, one on Managed Care and one on EPOS. Firstly, on Managed Care, maybe you could say a little bit about when you expect to see this negative impact from your chosen Managed Care strategy should be in the comparison figures. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 15, 2024 / 12:00PM, DEMANT.CO - Q2 2024 Demant A/S Earnings Call And on that note, S°ren, you say it, of course, that we have not been able to fully compensate on the loss in managed care with more sales and independent. My observation normally is if that would happen, then it would have probably happen right away. But do you still believe that you could see that impact later? And then the second question on adjusted EPOS, now you're taking the initiative to restructure EPOS to become more profitable and make it more attractive. But if you after this also will not be able to find a buyer and you decide to close it down how much additional cost should we see from that? Or is that maybe already part of the restructuring you're doing in the second half?

Question: Martin Parkh°i - SEB - Analyst : But can I just follow up, RenT. Have some of the people you are coming to talk to have said that they would be interested after you have done this restructuring, and I don't understand why don't they just do it themselves if they really are interested in the asset?

Question: Martin Parkh°i - SEB - Analyst : Okay, thank you very much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 15, 2024 / 12:00PM, DEMANT.CO - Q2 2024 Demant A/S Earnings Call

Question: Julien Ouaddour - Bank of America Corporation - Analyst : Hi, good afternoon everyone. So my first -- I mean, sorry, I have two. So my first question on product. So I'm sure you had a look at your main (technical difficulty) service and product launch. So I was wondering, what do you think about the fact that they also went for like a deep neural network tech let's say, also succeed to add a second chip in the device to a real-time AI. So is it something you worked on to? Or does it come as a surprise? And what are the main differences versus your DNN version? And my second question is on guidance. It happened in the past that the guidance could have been slightly optimistic. This time, it seems that you're taking a conservative approach in your assumptions, especially in managed care and with independence. So I was just wondering, is there potential further downside here? And like the -- what is the bare case and are you reflecting the bottom of the guidance? Thank you.

Question: Julien Ouaddour - Bank of America Corporation - Analyst : Thanks a lot, S°ren. If I can just follow up on the -- like on the second question. So I mean, is there a potential for, let's say, like even more market share loss with like with Manage Care or have you reached sort of kind of the bottom at the moment? And also with like independents, I mean what did you put in the guidance in terms of like market share momentum for H2? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 15, 2024 / 12:00PM, DEMANT.CO - Q2 2024 Demant A/S Earnings Call

Question: Maja Pataki - Kepler Cheuvreux - Analyst : Hi, good afternoon. Also two questions from my side, please, S°ren. If we look at Managed Care, and I have been talking about the fact that you've been losing significant share and you say that it's difficult to lose more. But at your Capital Markets Day, you've been talking about the fact that you want to establish Bernafon as the brand with Managed Care. Now can we talk a bit about where you are in this process? Are they open to listen? Are they currently so annoyed that they don't even want to look at product. It would be very helpful to understand how the process looks on that side. And then also, there are a couple of hopes in the market, I would say that 2025 is going to be a great year because France is annualizing or the reform in France is annualizing and that is going to result in fantastic market growth, and therefore, you should benefit. If we look at what happened in Germany, that clearly is something that we've seen. Do you have any expectation what the French market could look like in 2025? Thank you.

Question: Maja Pataki - Kepler Cheuvreux - Analyst : S°ren, just quickly to follow up on that. Sorry to interrupt you. Just quickly to follow-up on that one. Out of experience, when you say constructive conversations by the time you reached an agreement until the products start to be sold and enter your numbers, what kind of time frame are we looking at? Can that be turned around within a month? Or is that a three months' time frame? Just to have a bit of a kind of idea how a potential path going forward would look like? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 15, 2024 / 12:00PM, DEMANT.CO - Q2 2024 Demant A/S Earnings Call

Question: Maja Pataki - Kepler Cheuvreux - Analyst : Great. Thank you.

Question: Veronika Dubajova - Citi - Analyst : Hi, guys. Good afternoon and thank you for taking my questions. I have two, please. One, just trying to understand the change in magnitude and the downgrade of the organic revenue growth guidance. And even if I made a fairly sizable assumption about your managed care business and assumed it has gone entirely to zero without any offset, it's clear that there is something else that's happening. So I was just curious if you could kind of outline the magnitude of impact when I look at the downgrade to the organic, what's driven by Managed Care? What's driven by those large accounts? And to what extent are you reflecting anything else that might have not gone fully to plan as you've kind of downgraded the guidance a month ago. So if you can maybe just elaborate, I know there's been a lot of folks for Managed Care, like mathematically, there must be something else going on that's not just managed care. So if you could talk through that, that would be helpful. And then the second thing is just on the market dynamics. Obviously, we heard this from Amplifon it remains the theme that the European market is subdued. Just curious, on what you think is going on? And how long do you have to wait what change for that market momentum to improve and return to the historical norms. Because we've been here kind of trending along the bottom for now 24 months. When is it going to get better? And what do you think needs to change? Thanks so much.

Question: Veronika Dubajova - Citi - Analyst : That's helpful. And then your thoughts on market growth in Europe and what it takes for it to return to the historical norms?

Question: Veronika Dubajova - Citi - Analyst : That's great. Thanks so much.

Question: Martin Bren°e - Nordea Markets, Corporates & Institutions - Analyst : Hi, thanks very much for taking my questions. Most of them have been answered. So I'll just do two housekeeping questions if I may. The first one is on the gross margin that you delivered here in H1, which is quite impressive. Can you maybe just give a bit more color how sustainable that is also given your thoughts on big accounts with lower ASP, where you are now seeing some momentum? Again, can you just elaborate a little bit on how we should think about the gross margin going forward in H2 and maybe also a little bit beyond in terms of how structural this margin is? And then on the OpEx side. I get the organic part of the equation. How much should we expect in terms of OpEx growth in H2 from let's say, acquisitions that you have conducted over the last 12 months or so. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 15, 2024 / 12:00PM, DEMANT.CO - Q2 2024 Demant A/S Earnings Call

Question: Martin Bren°e - Nordea Markets, Corporates & Institutions - Analyst : Okay. And maybe just for the sake of my understanding. Can you just help me explain a little bit what you have in the toolbox in terms of what you can do to cut costs in your core business?

Question: Martin Bren°e - Nordea Markets, Corporates & Institutions - Analyst : Yes, the efficiency program.

Question: Martin Bren°e - Nordea Markets, Corporates & Institutions - Analyst : Got it. Thanks so much, RenT. Thanks for taking my questions.

Question: Christian S°rup Ryom - Danske Bank - Analyst : Yes, good afternoon and thank you for taking my questions. I have two as well. The first is to the Diagnostics business and specifically the prospects for that business in the European market. So as I read your report, I understand that you had that European markets were drag on growth, and my REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 15, 2024 / 12:00PM, DEMANT.CO - Q2 2024 Demant A/S Earnings Call question is essentially whether that's sort of a temporary dynamic as you see it or something that might extend for a few more quarters over coming quarters? And then my second question is on whether -- or to what extent the wholesale brand decision that you've taken vis-a-vis managed care in the US is also impacting your retail hearing care business? And if so, how meaningful that is? Thank you.

Question: Christian S°rup Ryom - Danske Bank - Analyst : Thank you very much.

Question: David Adlington - JPMorgan Chase & Co. - Analyst : Hi, guys thanks for the questions. Again, sorry, again on Managed Care. It doesn't sound like it, but I just wanted to double check whether you're contemplating any change in strategy there given the fact it hasn't gone quite as planned. And then secondly, just in terms of China, I just wondered what your thoughts were there in terms of seeing a recovery in the market. Is that something we should expect in the second half of this year or maybe more looking into next year? Thank you.

Question: David Adlington - JPMorgan Chase & Co. - Analyst : Thanks.

Question: Robert Davies - Morgan Stanley & Co LLC. - Analyst : Hi, thanks for taking my questions. The first one was on the Bernafon versus Oticon kind of offering. I just wondered from a sort of getting it into the sort of target audience? Is it a brand issue? Or is it a tax differential versus the Oticon product that is kind of causing concern. I just was curious on the sort of main sort of areas of pushback that the customers have given you there. And then the second one was just around in terms of your comments of making up the sort of volume from managed care with additional growth in the independent channels. Why -- what has been the core reason you sort of struggled to make up that volume growth in the independent channels in your view? Thank you.

Question: Robert Davies - Morgan Stanley & Co LLC. - Analyst : And can I just squeeze in one follow-up just around the -- I guess, the unit growth differential between the US commercial channel and VA. It's obviously pretty stark, right. I mean you had 13% and 6%, I think, in the commercial channel and minus one and one in the VA channel. Just looking forward into the second half of this year, do you see any scope for that gap to close?

Question: Robert Davies - Morgan Stanley & Co LLC. - Analyst : Understood. Thank you.