GN Store Nord A/S
Annual report/ annual accounts

Annual Report 2011 - A year of very strong growth

Copenhagen, 2012-02-23 07:59 CET -- GN’s full-year revenue was DKK 5,564 million and overall organic growth was 9% based on strong growth in both GN ReSound and GN Netcom. The organic growth surpassed the outlook of "More than 7% organic growth" provided in the Interim Report Q3 2011.

The strong topline growth in 2011 is a testimony to GN ReSound's position as a leading innovator in the hearing aid industry as well as GN Netcom’s leadership position in the rapidly growing UC segment and our ability to commercialize innovation.

Despite the turbulent macroeconomic environment, GN maintained a strong growth momentum throughout 2011 confirming that GN is “Back on a growth track” as stated in the Annual Report for 2010.

In addition to delivering solid organic revenue growth in 2011, GN also improved earnings considerably with EBITA increasing almost 30% in GN ReSound and almost 40% in GN Netcom. The consolidated EBITA for the two operating businesses combined was the highest since 2005. Both GN ReSound and GN Netcom delivered an EBITA in line with the outlook provided in the Interim Report Q3 2011. GN’s consolidated full year EBITA ended at DKK 1,284 million, which includes DKK 731 million related to the successful closure of the 10-year dispute with TPSA.

Quotes from the Chairman of the Board of Directors, Per Wold-Olsen:

”In the Annual Report for 2010, we declared that GN was “Back on a growth track”. I am very pleased to conclude that 2011 was a year of very strong growth – and the year where we resolved the 10-year long dispute with TPSA securing more than DKK 3 billion for GN’s shareholders.”

“The positive developments in both businesses are a strong testimony to our improved ability to commercialize innovation. We have a great line of products in the market already and equally important a very promising product pipeline in both businesses positioning us well for continued strong top-line growth.”

“In GN Resound, the supply chain transformation project made significant progress during 2011 and showed us that there are vast additional opportunities available for us to further reduce complexity and cost in the business - also outside supply chain and manufacturing. Therefore GN ReSound has launched the SMART program which addresses numerous legacy issues that has prevented GN ReSound from operating as a truly global company. Based on our experience with the similar FAST program in GN Netcom during 2008-2009, I am confident that the SMART program will take GN Resound to the next level.”

Q4 results

• Total GN revenue was DKK 1,573 million and organic growth was 7%.
• EBITA for the two operating businesses increased by 35% from DKK 224 million in Q4 2010 to DKK 303 million in Q4 2011. Total EBITA (including the closure of the DPTG/TPSA dispute) increased from DKK 208 million in Q4 2010 to DKK 878 million in Q4 2011.
• The free cash flow was DKK 106 million versus DKK 35 million in Q4 2010.
• Revenue in GN ReSound was DKK 962 million and organic growth was 8%. GN ReSound’s EBITA was DKK 193 million up from DKK 128 million in Q4 2010.
• Revenue in GN Netcom was DKK 611 million and organic growth was 5%. GN Netcom’s EBITA was DKK 110 million, compared to DKK 96 million in Q4 2010.
• On January 12, 2012, DPTG and TPSA reached a conclusion to the 10-year dispute regarding the traffic volumes carried over the NSL fiber optical telecommunications system in Poland. The financial statements for Q4 2011 include an income of DKK 731 million related to the TPSA case.

Full year results

•  Total GN revenue was DKK 5,564 million representing organic growth of 9% compared to 5% in 2010. Both GN ReSound and GN Netcom achieved organic growth of 9%.
• The gross margin was 59%, two percentage points above 2010. EBITA was DKK 1,284 million, including DKK 731 million related to the closure of the DPTG/TPSA arbitration case. EBITA in the two operating businesses was DKK 736 million, 33% above 2010.
• The effective tax rate was 29%. Adjusted for the write-down of certain previously capitalized tax assets and other one-off adjustments, the effective tax rate was 27% (excluding TPSA).
• Net profit amounted to DKK 865 million against DKK 1,855 million in 2010.
• The free cash flow was DKK 216 million versus DKK 196 million in 2010.
• Net interest-bearing debt ended at DKK 1,269 million (DKK 960 million at December 31, 2010) after GN conducted share buybacks of DKK 400 million during the year.

Additional highlights

• In November 2010, GN announced that its financial target for 2013 was to double the group EBITA margin to around 19% from 9% in 2010 (excluding TPSA). Despite the weak macroeconomic environment, GN confirms the target for the EBITA margin and increases the revenue target by DKK 100 million to “More than DKK 6.4 billion”.  
• On January 12, 2012 DPTG and TPSA reached a conclusion to the dispute regarding the traffic volumes carried over the NSL fiber optical telecommunications system in Poland. With the conclusion, TPSA agreed to pay a total of EUR 550 million to DPTG in full and final payment. GN was entitled to receive 75% of the amount or around DKK 3,060 million. The net cash impact for GN is expected to be around DKK 2.5 billion net of tax and related expenses. All payments were received in January 2012 and GN has terminated all enforcement proceedings against TPSA. As a result the more than 10-year dispute with TPSA is now fully resolved.
• Based on the closure of the DPTG/TPSA dispute and acting under the current share buyback authorization, GN initiated a share buyback program amounting to DKK 1.3 billion on January 13, 2012. The share buyback program will continue after the Annual General Meeting to be held in March 2012, subject to an authorization from the shareholders.
• In order to claim compensation for the significant loss imposed on GN in connection with the German Federal Cartel Office’s prohibition of the sale of GN ReSound to Sonova, GN fi led a claim of EUR 1.1 billion (approximately DKK 8.2 billion) on December 22, 2010 with the district court in Bonn, Germany. The Federal Cartel Office handed in its defense brief on July 4, 2011 and on November 28, 2011 GN handed in its reply. It is expected that the rejoinder will have to be submitted by the Federal Cartel Office no later than by the end of March 2012. Subsequently, an oral hearing will most likely be held in Q2 or Q3 2012.

Outlook 2012

In 2012, GN Store Nord expects overall organic growth of more than 5% and EBITA to improve from DKK 553 million (excluding TPSA) in 2011 to DKK 800-900 million before non-recurring restructuring costs of up to DKK 200 million related to the SMART program. It is expected that both earnings and revenue for the first half of 2012 will be softer than in the second half of the year, as in previous years.

Revenue

• GN ReSound: 3-5% organic growth
• GN Netcom: More than 9% organic growth
• GN Store Nord total: More than 5% organic growth

EBITA

• GN ReSound: DKK 525-575 million (before non-recurring restructuring costs of up to DKK 200 million)
• GN Netcom: DKK 350-375 million
• Other: DKK (50) – (75) million
• GN Store Nord total: DKK 800-900 million (before non-recurring restructuring costs of up to DKK 200 million)

Amortization of intangible assets and financial items is expected to amount to around DKK (50) million and profit before tax is thus expected in the range of DKK 750-850 million before non-recurring costs. The effective tax rate is expected to be in the range of 26-27% for 2012.

Q4 2011 Segment Disclosures

The segment disclosures for Q4 2011 are included as an attachment to this company announcement.

Teleconference

A teleconference will be held on February 23, 2012 at 11.00 a.m. CET. Please see www.gn.com for dial-in details.

For further information, please contact:

Mikkel Danvold
VP, IR & Communications

GN Store Nord A/S
Tel.: +45 45 75 02 71