Demant regains confidence after months of progress and cost reductions

The demand for hearing solutions is gradually back on the rise after the Covid-19 outbreak in spring, even though it's at earlier levels in many parts of the world. This, however, means fewer salary, sales and marketing costs, which altogether brings Demant's CEO to "be positive about the future".
Demant CEO and President Søren Nielsen | Foto: Kenneth Lysbjerg Koustrup/Jyllands-Posten/Ritzau Scanpix
Demant CEO and President Søren Nielsen | Foto: Kenneth Lysbjerg Koustrup/Jyllands-Posten/Ritzau Scanpix

Following the perhaps darkest chapter in the history of hearing aid manufacturers, some progress is now being made, as an increasing amount of markets are reopening in the wake of the massive lock-downs in March and April this year, which were caused by outbreak of Covid-19.

The wheels have started turning again, which creates a greater amount of predictability as well as more stability for the world's second-largest hearing aid company Demant, which delivered a periodic report for 2020, leading up to the start of the fourth quarter, on Tuesday.

"It's highly positive that after so much turbulence – and although there is still some uncertainty – we still think we can decode our company's performance on a very changed market, and that we can get back telling our equity holders how much we're expecting to earn back," Demant's President and CEO Søren Nielsen tells MedWatch.

In March, the company suspended its financial expectations for 2020, but on Tuesday the company announced that it's expecting an operational result before interest and taxes (Earnings Before Interest, Taxation) worth DKK 1,200-1,500m (USD 190.0m-237.4m), whereas the previous estimate was just an "improvement" compared with the first half-year.

Demant now sees a growth worth 8-13 percent measured in local currency in the second half-year compared with the same period of time last year. Before, the expectation was for sales to grow 5-15 percent.

"Since mid-August, the revenue for our hearing aid-selling business has constantly improved, and other detail activities are also moving along nicely, with the revenue now nearing the normal level, which is further supported by the accumulated demand," Nielsen explains.

"For this reason, I'm relatively positive about the future," he adds.

Less production equals fewer costs

In spite of the progress, Demant is still operating at a low activity level – especially on the markets in Canada, the United Kingdom and the world's largest single market, the US, the recovery after Covid-19 is happening slowly. This causes for lower revenues, but also results in saving rounds.

Because less activity leads to fewer costs concerning sales and marketing, and the many travel restrictions also results in some costs being saved.

"There's loads of activities we can't carry through with. Conferences, client meetings, client seminars, management traveling around the world to run the company – we're not doing any of that, because it's not possible and it's not allowed," Nielsen says.

"These activities are a major part of what our sales companies are doing out in the world, and right now we're saving a lot on them not being able to do what they usually do," he elaborates.

These savings mean the final income will "be pretty solid" – in spite of the revenue being lower than what it usually is.

The final income is further boosted by the lowered salary costs brought about by the reduced staff group, which was implemented in the first half-year and combined with fewer new recruitments than expected.

It's a different premise today. We're not selling what we were planning to, and there's things we're not doing today that we may have done earlier. We simply need less volume, and this requires fewer resources, Nielsen says.

The reduced workforce especially relates to the shut-down of double functions after the integration of an acquired company in the US in 2018, the Demant CEO states and further elaborates that the company has streamlined its marketing model in its US retail network.

For example, it has established a major back office including marketing, IT and call center resources, which has lead to improved efficiency in Demant's sales and marketing activities.

"And then we're holding back on the new employments and re-hirings of the open positions, We're quite cautious about not drastically turning up the volume. Some of what we usually do doesn't have to be completed, and for this reason, we can run the business with less people," Nielsen says.

Praise for the politicians' courage

All in all, Demant performed structural changes worth around DKK 250m per year, which adds onto the ongoing global compensation schemes worth around DKK 100m for July and August, in particular.

Many of the 15,000 employees working in Demant's firms operating in more than 30 countries were, when the pandemic was at its worst, sent home on a furlough that was funded by the Danish government in an attempt to reduce costs as much as possible.

In Denmark, around 100 Demant employees were told in April they would be going home with the state-funded pay compensation and the message they weren't allowed to work.

In the first half-year Demant accepted around DKK 350m from various state-funding support schemes.

We've received support from many places around the world, and we're grateful to be the type of company that is eligible for this kind of support," Nielsen says.

"I have high respect for the politicians who chose to implement this scheme, and all I see is that the schemes have had the exact effect they were hoping for – that potential decisions to downscale the companies were postponed, so that, when the markets returned, the companies would be standing at the ready to be part of the recovery," he elaborates.

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