Closed Chinese factories provide 40 percent of GN's production: "Of course it is affecting our business"
On Wednesday morning, Gitte Aabo presented her first annual accounting report since joining GN Hearing, and outlined expectations for the company to achieve more than 6 percent organic growth in 2020 and to deliver an EBITA margin of over 20 percent by the end of the year.
However, the calculations for these predictions were done before the Coronavirus outbreak in China, which has so far cost more than 426 people their lives and infected over 20,630.
"The economic guidance does not include the effects of the Coronavirus outbreak. Based on our current knowledge, we expect to see an impact on the first quarter," the annual accounting report reads.
An employee at GN Hearing's factory in Xiamen is among those infected, and that has led the GN concern - like competitor Demant and many other companies with interests in China - to extend the Chinese New Year holiday for its employees.
Unlike Demant, however, a large proportion of GN Hearing's production is done in China - a whole 40 percent, which is why the virus outbreak will have negative financial consequences for GN.
"I don't want to speculate and put a figure on how much the virus outbreak will cost us yet, but the fact that we have closed our production will of course have a financial impact," says Gitte Aabo to MedWatch.
GN Hearing has not given any specific figures about the number of employees at each factory and department, but the company has approximately 1,500 employees in China. Demant has around 100.
A spanner in the works
GN got wind of the infected employee on Wednesday, January 29, and the GN employees have therefore been unable to work for more than eight days. They are not expected to come to work again until February 10, and for some employees at the facilities in Xiamen, this has been extended to February 12.
"This includes sales offices and part manufacturing factories in China," GN writes in the annual accounting report.
The Ballerup-based company is currently growing quickly in China, expanding by a double-figure percentage every year, which has led top management at the company to declare that China is the big growth driver, both now and in the future.
The Chinese economy is still growing, despite a slight slowdown in 2019, and this, combined with an aging population, increased openness to the West and a healthcare system under rapid development, is why hearing aid companies see potential in the country.
But the Coronavirus is a spanner in the works.
GN Hearing does not want to reveal the company's Chinese revenue, but press coordinator Lars Otto Lange-Andersen reports that China makes up less than 10 percent of the total revenue.
In 2019, overall revenue totaled DKK 6.4 billion (USD 942 million) - so if the Chinese activities make up 9 percent of the revenue, this equates to DKK 576 million (USD 84.7 million).
"China is one of our biggest markets, so the Coronavirus outbreak and suspension of production will of course affect us in this way as well," says Gitte Aabo.
Also affects production outside of China
GN Hearing was one of the first Western companies to establish production in China, establishing factories in Xiamen in the Fujian province in South East China in 1986.
Hearing aids are assembled here, while the devices' 'brains' - the chips - are produced in Denmark.
Gitte Aabo emphasizes that the company already has a similar production setup in Malaysia, and that GN Hearing has spread its production with equally sized parts in Xiamen and Malaysia. They also operate local production of in-the-ear hearing aids in a number of countries, including the USA, Spain and Japan.
"Luckily, we also have a lot of production outside of China - in Malaysia and the USA, for example. I think that's how we need to view it. We also have most of our products in stock, so this means that we won't be as affected by the virus as much as we could have been," says Aabo.
English Edit: Catherine Brett
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