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<strong>GN</strong> Annual Results 2006<br />
and the Way Forward<br />
Toon Bouten, President & CEO<br />
Jens Due Olsen, EVP and CFO<br />
February 22, 2007
2<br />
Safe harbor statement<br />
The forward-looking statements in this interim report reflect management's current<br />
expectations of certain future events and financial results. Statements regarding 2007<br />
are, of course, subject to risks and uncertainties which may result in material deviations<br />
from the outlook set forth. Furthermore, some of these expectations are based on<br />
assumptions regarding future events which may prove incorrect.<br />
Factors that may cause actual results to deviate materially from expectations include –<br />
but are not limited to – general economic developments and developments in the<br />
financial markets, technological developments, changes and amendments to legislation<br />
and regulations governing <strong>GN</strong>’s markets, changes in the demand for <strong>GN</strong>'s products,<br />
competition, fluctuations in sub-contractor supplies, and the integration of company<br />
acquisitions.<br />
Class action lawsuits are being brought in the United States against our American<br />
subsidiary and other Bluetooth headset manufacturers claiming failure to warn of 'noise<br />
induced hearing loss.' While we believe these suits are without merit, the costs to defend<br />
against them could be high and the outcome of litigation is not predictable.<br />
This interim report, announcement or <strong>presentation</strong> should not be considered an offer to<br />
sell securities in <strong>GN</strong> <strong>Store</strong> <strong>Nord</strong>.
3<br />
Agenda<br />
1. Annual results incl. Q4<br />
2. The way forward
4<br />
Profit and Loss<br />
(DKK million) 2005 Q4/2005 2006 Q4/2006<br />
Revenue 3,533 946 3,413 840<br />
Gross margin 41% 44% 36% 34%<br />
EBITA before one-offs 322 104 70 20<br />
EBITA margin before one-offs 9.1% 11.0% 2.1% 2.4%<br />
EBITA 322 104 (120) (15)<br />
EAT continuing operations 278 (55)<br />
EAT discontinuing operations 572 403<br />
• Q4 2006 excl. one-offs in line with expectations<br />
• Q4 Y-o-Y revenue decline from Mobile and HDI, CC&O EMEA +14%, CC&O US (10)%<br />
• Q4 EBITA include one-offs of DKK (35)m, primarily severance payments<br />
• Q4 CC&O EBITA margin excl. one-offs 21.2% and 26.6% excl. HDI<br />
• Q4 Mobile EBITA margin excl. one-offs (11.3)%<br />
• Full year EBITA also include one-offs from Hello Direct of DKK (115)m and Q3 write<br />
downs on inventories of DKK (40)m<br />
• EBITA decline mainly due to Mobile with higher sales of mainstream products at<br />
lower margins and higher spending on R&D and S&M
5<br />
Balance Sheet<br />
(DKK million) Pro-forma<br />
Q4/2005<br />
End<br />
Q4/2006<br />
After<br />
payout*<br />
Goodwill 502 455 450<br />
Other intangible assets 261 291 300<br />
Tangible assets 229 501 500<br />
Inventories 427 316 300<br />
Trade receivables 720 604 600<br />
Asset held for sale 5,544 5,596 0<br />
Other assets 408 464 1,400<br />
Equity 5,349 4,900 2,700<br />
Other liabilities 1,377 2,001 850<br />
Liabilities held for sale 1,365 1,326 0<br />
Total assets/liabilities 8,091 8,227 3,550<br />
Net interest bearing debt** 720 1,387 (1,000)<br />
*Approx. figures assuming 31/12 balance sheet adjusted for proceeds and payout<br />
** incl. discontinuing operations<br />
• No value from TPSA or tax disputes included in balance sheet<br />
• NIBD impact from share buy back and dividend
6<br />
Cash flow (selected items)<br />
(DKK million) 2005 Q4/2005 2006 Q4/2006<br />
CFFO before working capital 498 151 67 6<br />
Change in working capital (357) (163) 185 246<br />
Cash flow from operations 137 (12) 231 239<br />
CFFI excl. HQ and disposals (156) (53) (201) (37)<br />
Disposal of companies 1 1 49 0<br />
Invest. in new HQ (20) (19) (306) (77)<br />
Cash flow from investments (175) (71) (458) (114)<br />
Free cash flow, continuing (38) (83) (227) 125<br />
Free cash flow, discontinuing 112 n/a (4) n/a<br />
• Positive impact from working capital reductions, particularly in Q4<br />
• CFFI excl. new HQ and disposals increased, primarily R&D capitalizations
7<br />
<strong>GN</strong> ReSound<br />
• <strong>GN</strong> ReSound will be sold to Phonak for DKK 15.5bn on a net debt free<br />
basis<br />
• Net gain will be more than DKK 10bn<br />
• All anti-trust approvals obtained except for Germany. This approval is<br />
expected mid April 2007<br />
• Closing is expected late first half 2007<br />
• After closing <strong>GN</strong> will pay out DKK 61 per share = DKK 12.4bn<br />
• <strong>GN</strong> will fine tune pay out via share buy back program but retain DKK<br />
1bn net cash
8<br />
TPSA arbitration facts<br />
• <strong>GN</strong> involved in an arbitration case against TPSA through its 75% share of<br />
DPTG<br />
• Arbitration case concerns traffic volumes carried over the NSL fiber optical<br />
telecommunication system in Poland<br />
• DPTG is entitled to 14.8% of net profits from NSL during the period 1994-<br />
2009<br />
• Early 2003 DPTG claimed approx. DKK 1.6bn for the period 1994 to mid<br />
2002<br />
• Based on a preliminary expert opinion and because of the lapse of time<br />
from mid 2002 to mid 2005, early 2006 DPTG modified its claim to<br />
approximately DKK 5bn<br />
• TPSA disputes the expert’s estimates and calculations as well as the legal<br />
basis of DPTG's claim
9<br />
Agenda<br />
1. Annual results incl. Q4<br />
2. The way forward
10<br />
DKK bn<br />
25<br />
20<br />
15<br />
10<br />
5<br />
0<br />
Headset is an attractive market opportunity<br />
Total market value, manufacturer value<br />
Contact Center: 2% CAGR<br />
Office and Mobile: 20% CAGR<br />
2005 2006 2007 2008 2009 2010<br />
BT Mobile Office CC<br />
> 17% CAGR p.a. to DKK 24 bn.<br />
Source: Datamonitor, IMS, Annual reports, <strong>GN</strong> estimates<br />
Market share: CC&O~ 35%, BT Mobile ~ 25%
2500<br />
2000<br />
1500<br />
1000<br />
500<br />
11<br />
0<br />
DKKm<br />
Status – end of 2006<br />
2002 2003 2004 2005 2006<br />
CC&O Revenue<br />
Mobile Revenue<br />
CC&O EBITA Mobile EBITA<br />
EBITA %<br />
25<br />
• The world’s leading provider of<br />
headsets<br />
• 1,800 employees<br />
• Low cost manufacturing in China<br />
• Sales in 70 countries<br />
• R&D centers in Denmark and China<br />
• Product brand name Jabra<br />
• OEM for the mobile phone industry<br />
Strengths: Product creation, channel partners, sales and marketing<br />
Challenges: Insufficient business and market focus, weak operational<br />
excellence, low productivity<br />
20<br />
15<br />
10<br />
5<br />
0<br />
-5<br />
-10<br />
-15
12<br />
Reengineer:<br />
Build Scalable Business<br />
The 3-step approach to a sustainable business<br />
Extend:<br />
Add New Activities<br />
Accelerate:<br />
Accelerate the Headset Businesses<br />
2007 2008 2009<br />
Reengineer – build scalable business<br />
1. Market-oriented Organization<br />
2. Operational Excellence<br />
3. Increase Productivity<br />
Goals:<br />
1. Expand the leadership in the<br />
headset market<br />
2. Achieve competitive profitability<br />
and attractive return on capital<br />
employed
13<br />
Marketing<br />
Services<br />
R&D<br />
GSC<br />
1. Market-Oriented Organization<br />
Sales<br />
Services<br />
Contact<br />
Centre<br />
Financial<br />
Stability<br />
Office<br />
Profitable<br />
Growth<br />
Toon Bouten<br />
CEO<br />
Jens Due Olsen<br />
CFO<br />
Premier<br />
Brand<br />
Preference<br />
Mainstream<br />
Scale
14<br />
Four distinct but increasingly overlapping<br />
markets …<br />
Contact Center<br />
• Market growth currently 2-4%<br />
• Profit mid 20%<br />
• Contact Centre customers<br />
• Indirect fulfilment<br />
Premier (mobile)<br />
• Market growth currently 30%<br />
• Profit mid single digits<br />
• Telcos and CE stores<br />
• Category management<br />
Converging technologies, distribution and brand<br />
Office<br />
• Market growth currently 10-20%<br />
• Profit mid 10%<br />
• Large enterprises , SME and Home<br />
Office<br />
• Indirect fulfilment<br />
Mainstream (mobile)<br />
• Market growth currently 30-40%<br />
• Profit low single digits<br />
• High vol. Jabra channels<br />
•OEM
15<br />
2. Operational excellence – GSC From a<br />
Fragmented to Main partner model<br />
How:<br />
• One main partner for total<br />
supply chain. Manufacturing<br />
and physical distribution<br />
• 60% reduction in vendors<br />
• Postponement centers<br />
Advantages:<br />
• Reduce working capital<br />
• Improved service levels<br />
• Transfer from fixed to<br />
variable cost<br />
• Increase flexibility<br />
• Reduce cost
16<br />
3. Increase Productivity Improvements<br />
People<br />
• sales per employee<br />
• Simple KPI’s aligned to strategy and remuneration<br />
systems<br />
Products<br />
• Prune product portfolio<br />
• Platform development<br />
• Improve time to market<br />
Manufacturing<br />
• Outsource remaining manufacturing to one<br />
main and few secondary partners<br />
• Retain key sourcing competencies<br />
• Improve flexibility and reduce capital<br />
through postponement<br />
Customers and distribution<br />
• Focus on key account vs. indirect model to<br />
better fulfil individual customer requirements<br />
Capital employed and overall cost structure<br />
• Outsource manufacturing<br />
• Significantly reduce capital employed<br />
•+40% to DKK 3.8 m (non manufacturing<br />
employees).<br />
•Headcount reduction >40% within 18<br />
months primarily in supply chain.<br />
•25% of products on same platform.<br />
•Shorten volume product development<br />
cycle by 50% to app. 6 months.<br />
•Contract ready by end of Q2.<br />
•Existing organization upgraded.<br />
•First postponement center in place<br />
August 2007.<br />
•Global accounts organization in place.<br />
•Focus on key customers and key markets<br />
•Contract main partner signed end Q2.<br />
•Working capital reductions.
(DKK million -<br />
approximate figures)<br />
17<br />
2007 guidance<br />
Outlook for 2007 Comments<br />
Continuing operations:<br />
Revenue<br />
Contact Center & Office Headsets 1,300 - 1,400 Org. growth of app. 10%<br />
Hello Direct 250 - 300 Flat revenue at Q4 2006 run rate<br />
Mobile Headsets 2,000 - 2,100 Org. growth of app. 15%<br />
<strong>GN</strong> Total 3,700<br />
EBITA (before one-offs)<br />
Contact Center & Office Headsets 250<br />
CCO normal seasonality with low<br />
Hello Direct minor, positive<br />
Mobile Headsets (50) - (75)<br />
in H2; with Q4 at 2-3%<br />
Other (30)<br />
<strong>GN</strong> Total 150 - 175 2006 EBITA (excl. one-offs) = 70<br />
Restructuring (50) - (100)<br />
Q3. Mobile negative in H1; positive<br />
Overall profitability highest in Q4<br />
Amortization ((10)) & finance (0), net (10) Depending on timing of closing<br />
Discontinuing operations:<br />
Profit from discontinuing operations 150 - 200 EAT excl. depreciations for 6 months<br />
Profit from sale of <strong>GN</strong> ReSound min. 10,000