GN Store Nord A/S : Interim Report Q1 2021

Interim Report Q1 2021

GN Store Nord +46% organic revenue growth GN Audio +82%, GN Hearing +1%

New share buyback of DKK 2.5 billion initiated

GN Store Nord

46%

organic growth

GN Hearing

1%

organic growth

GN Audio

82%

organic growth

• GN delivered strong 46% organic revenue growth in Q1 2021
• EBITA reached DKK 753 million corresponding to an EBITA margin of 18.3% compared to 10.1% in Q1 2020, reflecting strong execution across the company
• Free cash flow excl. M&A was DKK -22 million in Q1 2021, reflecting the strong earnings but offset by traditional seasonality leading to leverage of 1.6x by the end of Q1 2021
• New share buyback program to be initiated today, with the intention to buy back shares worth DKK 2.5 billion until March 8, 2022
• The financial guidance, upgraded on April 14, 2021, is confirmed. Due to the COVID-19 situation, it must be stressed that the basic assumptions behind the guidance remain significantly more uncertain than normal
• GN Hearing delivered positive organic revenue growth of 1% in Q1 2021 in a market continuously impacted by the ongoing COVID-19 pandemic. Signs of market recovery towards the end of the quarter, especially in US and UK
• EBITA was DKK 98 million in Q1 2021 compared to DKK 55 million in Q1 2020 supported by the sustainable quarterly cost savings and prudent cost management on top of investments into R&D and IT infrastructure
• Free cash flow excl. M&A was DKK -204 million in Q1 2021 compared to DKK -66 million in Q1 2020, mainly driven by traditional seasonality and a negative development in net working capital
• GN Audio continued the exceptionally strong momentum going into 2021 and delivered outstanding 82% organic revenue growth in Q1 2021, driven by strong double-digit growth in both the enterprise and the consumer segment
• EBITA increased by 148% to DKK 714 million in Q1 2021 corresponding to an EBITA margin of 24.8%. The EBITA margin development primarily reflects the strong topline development and phasing of OPEX
• Free cash flow excl. M&A was DKK 438 million in Q1 2021 compared to DKK -67 million in Q1 2020, reflecting the strong growth in revenue and EBITA
• GN Audio continue to work closely with suppliers of components to address immediate and future demand

Financial overview Q1 2021

		GN Hearing			GN Audio		GN Store Nord*
	Q1	Q1		Q1	Q1		Q1	Q1
DKK million	2021	2020	Growth	2021	2020	Growth	2021	2020		Growth
Revenue	1,234	1,314	-6%	2,876	1,653	74%	4,110	2,967		39%
Organic growth	1%	-14%		82%	22%		46%	3%
Gross profit	769	841	-9%	1,480	827	79%	2,249	1,668		35%
Gross profit margin	62.3%	64.0%	-1.7%p	51.5%	50.0%	+1.5%p	54.7%	56.2%		-1.5%p
EBITA	98	55	78%	714	288	148%	753	300		151%
EBITA margin	7.9%	4.2%	+3.7%	24.8%	17.4%	+7.4%p	18.3%	10.1%		+8.2%p
Earnings per share (EPS)							3.66	0.78		369%
Free cash flow excl. M&A	-204	-66	-138	438	-67	505	-22	-160		138
Cash conversion	-208%	-120%	-88%p	61%	-23%	+84%p	-3%	-53%		+50%p

* Including "Other"

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Financial highlights

	Q1	Q1	Full year
DKK million	2021	2020	2020
(unaud.)	(unaud.)	(aud.)
GN Hearing
Revenue	1,234	1,314	4,725
Revenue growth	-6%	-13%	-26%
Organic growth	1%	-14%	-24%

Gross profit margin	62.3%	64.0%	61.5%
EBITA*	98	55	41
EBITA margin*	7.9%	4.2%	0.9%
ROIC** (EBITA*/Average invested capital)	1%	15%	1%
Free cash flow excl. M&A	-204	-66	127
Cash conversion (Free cash flow excl. M&A/EBITA*)	-208%	-120%	310%
GN Audio
Revenue	2,876	1,653	8,724
Revenue growth	74%	24%	40%
Organic growth	82%	22%	42%
Gross profit margin	51.5%	50.0%	50.4%
EBITA*	714	288	2,002
EBITA margin*	24.8%	17.4%	22.9%
ROIC** (EBITA*/Average invested capital)	86%	46%	81%
Free cash flow excl. M&A	438	-67	1,729
Cash conversion (Free cash flow excl. M&A/EBITA*)	61%	-23%	86%
GN Store Nord

Revenue Revenue growth Organic growth

Gross profit margin

EBITA*

EBITA margin*

Profit (loss) before tax Effective tax rate

ROIC** (EBITA*/Average invested capital) Earnings per share, basic (EPS)

Earnings per share, fully diluted (EPS diluted)

Free cash flow excl. M&A

Cash conversion (Free cash flow excl. M&A/EBITA*)

Equity ratio

Net interest-bearing debt

Net interest-bearing debt (period-end)/EBITDA** Share buybacks***

Outstanding shares, end of period (thousand) Average number of outstanding shares (thousand)

Average number of outstanding shares, fully diluted (thousand) Treasury shares, end of period (thousand)

Share price at the end of the period Market capitalization

4,110	2,967	13,449
39%	4%	7%
46%	3%	9%
54.7%	56.2%	54.3%
753	300	1,866
18.3%	10.1%	13.9%
612	139	1,612
21.2%	23.7%	21.3%
23%	21%	19%
3.66	0.78	9.72
3.61	0.78	9.63
-22	-160	1,865
-3%	-53%	100%
34.1%	29.8%	31.0%
4,334	6,063	4,198
1.6	2.3	1.8
-	453	453
129,877	128,751	128,975
129,426	128,781	128,805
131,211	130,095	130,032
12,391	13,517	13,293
499.4	303.8	487.2
64,861	39,115	62,837

• Excluding gain (loss) on divestments of operations etc. and amortization of acquired intangible assets but including amortization of development projects and software developed in-house
• ROIC and NIBD/EBITDA are calculated based on EBITA and EBITDA for the latest four quarters
• Incl. buybacks as part of share based incentive programs

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GN Hearing

Organic revenue growth of 1% in Q1 2021, in a market continuously impacted by COVID-19. Signs of market recovery towards the end of the quarter

Highlights Q1 2021

• GN Hearing delivered positive organic revenue growth of 1% in a market continuously impacted by the ongoing COVID-19 pandemic. Signs of market recovery towards the end of the quarter, especially in US and UK
• EBITA was DKK 98 million in Q1 2021 compared to DKK 55 million in Q1 2020 supported by sustainable quarterly cost savings and prudent cost management on top of investments into R&D and IT infrastructure
• Free cash flow excl. M&A was DKK -204 million in Q1 2021 compared to DKK -66 million in Q1 2020, mainly driven by traditional seasonality and a negative development in net working capital

Revenue

GN Hearing delivered positive 1% organic revenue growth in Q1 2021. Revenue growth was -6% including around - 6% impact from the development in foreign exchange rates and around -1% impact from M&A.

As for the hearing aid industry overall, COVID-19 continued to have significant negative impact on GN Hearing in Q1 2021 due to the impact from the retightening of restrictions during the winter, but with markets showing signs of recovery towards the end of the quarter. The impact from the pandemic on the hearing aid market continued to vary greatly across regions, countries, and channels.

1,314		1,318		1,378	1,234
		-11%				1%
-14%	715		-16%
	-54%
Q1 2020	Q2 2020	Q3 2020	Q4 2020	Q1 2021
	Organic growth			Revenue (DKKm)

North America

In North America, the hearing aid market continued to be heavily impacted by the pandemic during the beginning of the quarter, but with significant differences across states and channels. Especially the Veteran Affairs channel continued to be severely impacted in January and February, but with early signs of recovery towards the end of the quarter. The market improvement was in general

seen throughout the US market in March, and with vaccination programs continuing to progress effectively, this should bode well for the coming quarters. Despite challenging market conditions in North America in especially January and February, GN Hearing continued to see solid performance across the independent market during Q1 2021 driven by the full and updated ReSound portfolio. Organic revenue growth in North America was - 7% and revenue growth was -16% including around -8% impact from the development in foreign exchange rates and around -1% from M&A, mainly related to the ongoing successful optimization of the Beltone retail portfolio.

Europe

In Europe, the recovery of the hearing aid market varied greatly with some markets severely impacted by the pandemic and others performing in line with pre-COVID-19 levels. GN Hearing experienced an encouraging performance in especially the Southern European countries, but offset by other countries, where new restrictions related to COVID-19 were imposed during the winter. The organic revenue growth in Europe was -5% in Q1 2021 and revenue growth was -7% including around- 2% impact from the development in foreign exchange rates.

Rest of World

The Rest of World region continued to be impacted in different ways across counties by COVID-19, dependent on the level of local restrictions. GN Hearing saw encouraging performance in among other ANZ and China. In the Rest of World region organic revenue growth was 27%. Revenue growth was 21% including around -6% impact from the development in foreign exchange rates.

Earnings and other financial highlights

Gross profit reached DKK 769 million in Q1 2021 corresponding to a gross margin of 62.3% in Q1 2021 compared to 64.0% in Q1 2020, mainly related to mix effects. In addition, the gross margin continues to be impacted by the fixed production costs, with volumes being below normalized levels.

GN Hearing's OPEX continued to be prudently managed during Q1 2021, which resulted in a 14% OPEX reduction compared to Q1 2020. Selling, distribution and administrative expenses decreased by 15% in Q1 2021 compared to Q1 2020, mainly driven by tight OPEX control, including sustainable cost savings of around DKK 50 million, on top of investments into an expected market normalization and IT

4

infrastructure. Furthermore, GN Hearing continued to invest significantly into R&D, in line with the strategy.

GN Hearing's EBITA was DKK 98 million in Q1 2021 compared to DKK 55 million in Q1 2020 driven by tight OPEX control. The EBITA margin was 7.9% in Q1 2021, an improvement of 3.7 percentage points compared to Q1 2020.

	169	153
			98
55	12.8%	11.1%
7.9%
4.2%

-336

	-47.0%
Q1 2020	Q2 2020	Q3 2020	Q4 2020	Q1 2021

EBITA margin EBITA (DKKm)

The return on invested capital (ROIC) was 1% in Q1 2021, compared to 15% in Q1 2020, due to the impact from COVID- 19 as ROIC is calculated based on a 12-months rolling EBITA.

Free cash flow excl. M&A was DKK -204 million in Q1 2021 compared to DKK -66 million in Q1 2020. The cash flow in Q1 2021 was impacted by traditional seasonality including the corporate tax payment in March and a negative development in net working capital due to higher inventories mainly related to sourcing of components.

					263
		47	172%
-120%
	28%			-208%
-66
-117
						-204
Q1 2020	Q2 2020	Q3 2020	Q4 2020	Q1 2021
Cash conversion			Free cash flow excl. M&A

Business highlights

ReSound ONE

During Q1 2021, GN Hearing has continued to execute on the global roll-out of the revolutionary new class of hearings aids that solves one of the hearing industry's most enduring obstacles to improving speech intelligibility in noise, ReSound ONE. Feedback continues to be overwhelmingly positive, and GN Hearing experiences strong uptake in the Independent market. The uptake in VA channel has been impacted by challenging conditions following the ongoing pandemic.

ReSound ONE has been available in the VA since the end of 2020, and under normal circumstances VA is a channel that easily adopts new technology, but due to the COVID-19 physical meetings have not been possible. This combined with the fact that Resound ONE is completely new and groundbreaking technology has resulted in a slower uptake than under normal circumstances.

ReSound Key

In early February 2021, GN Hearing announced the launch of ReSound Key, a full essential hearing aid portfolio that provides greater access to proven and award-winning hearing technology worldwide. Based on an advanced chip platform and GN's Organic Hearing philosophy, ReSound Key delivers clear, natural sound quality. It is also packed with the latest technology, such as rechargeable options and state-of-the-art streaming, so that more people can now stay connected to live life to the fullest. ReSound Key joined the groundbreaking ReSound ONE™ with M&RIE and ReSound LiNX Quattro™ in the strongest and broadest ReSound portfolio ever, offering premium hearing solutions at all price levels.

Market development

The hearing aid market growth in Q1 2021 continued to be negatively impacted by COVID-19, but compared to the low- point in April 2020, the market has shown some resilience even as new and severe COVID-19 restrictions have been put into place across the world in Q1 2021. The market visibility continues to be low, and the predictability highly uncertain. We continue to believe that the fundamentals of the hearing aid market are intact. We expect the market to return to more normalized conditions at 2019 levels in H2 2021, as vaccination programs progress across the world. In the mid- term, GN Hearing consequently still estimates the annual market growth to be around 4 - 6% in volumes with annual ASP decline of around 1 - 2%.

Management quote

"GN Hearing is well positioned to return to highly profitable growth, supported by the strongest and broadest product portfolio ever. As vaccines are generally becoming more available and the fact that people gradually adapt to life with various degrees of COVID-19 restrictions, we see the demand for hearing aids return towards a more normalized level."

Gitte Aabo, CEO of GN Hearing

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GN Audio

Exceptional strong momentum continued into 2021, with GN Audio delivering outstanding 82% organic revenue growth and EBITA margin of 24.8% in Q1 2021

Highlights Q1 2021

• GN Audio continued the exceptionally strong momentum going into 2021 and delivered outstanding 82% organic revenue growth in Q1 2021, driven by strong double-digit growth in both the enterprise and the consumer segment
• EBITA increased by 148% to DKK 714 million in Q1 2021 corresponding to an EBITA margin of 24.8%. The EBITA margin development primarily reflects the strong topline development and phasing of OPEX
• Free cash flow excl. M&A was DKK 438 million in Q1 2021 compared to DKK -67 million in Q1 2020, reflecting the strong growth in revenue and EBITA
• GN Audio continue to work closely with suppliers of components to address immediate and future demand

Revenue

GN Audio continued the exceptionally strong momentum into 2021 and delivered outstanding 82% organic revenue growth in Q1 2021. The enterprise segment delivered high double- digit organic revenue growth in the quarter, driven by continuous investments across organizations into hybrid and flexible working solutions combined with significant market share gains. The consumer segment experienced strong demand for consumer headsets and delivered high double- digit organic revenue growth in Q1 2021.

Revenue growth was 74%, including around -8% impact from the development in foreign exchange rates. Strong performance continued quarter over quarter, driven by GN Audio's world-leading product portfolio and strong business execution. GN Audio continued to gain market share across regions in Q1 2021.

				2,706	2,876
		2,421
			82%
	1,944	72%
1,653
	32%			43%
22%
Q1 2020	Q2 2020	Q3 2020	Q4 2020	Q1 2021
	Organic growth		Revenue (DKKm)

North America

GN Audio saw strong performance in Q1 2021 in North America, with both the consumer and enterprise segment delivering strong growth leading to an organic revenue

growth for the region of 59%. Revenue growth was 43% including around -16% impact from the development in foreign exchange rates.

Europe

Strong momentum continued into 2021 in Europe, with outstanding performance across the region with particular strong performance in Germany and France. Organic revenue growth was 113% driven by exceptional strong growth in the enterprise segment, while the consumer segment delivered strong growth. Revenue growth was 111% including around -2% impact from the development in foreign exchange rates.

Rest of World

In the Rest of World region, GN Audio saw strong performance across the region with strong organic revenue growth in among other ANZ and Japan driven by strong double-digit growth in the enterprise segment. Organic revenue growth for the Rest of World region was 40%. Revenue growth was 33% including around -7% impact from the development in foreign exchange rates.

Earnings and other financial highlights

GN Audio's gross profit reached DKK 1,480 million in Q1 2021 compared to DKK 827 million in Q1 2020, corresponding to an increase of 79%. The gross margin was 51.5% in Q1 2021 compared to 50.0% in Q1 2020 driven by positive product mix and a positive contribution from the development in foreign exchange rates, offset by increased freight and production costs due to COVID-19. GN Audio continues to be impacted by tariffs.

GN Audio's OPEX was DKK 766 million in Q1 2021, an increase of 42% compared to Q1 2020. Investments into R&D increased by 81% driven by focused product development across audio and video, while selling, distribution and administrative costs increased 29%, mainly driven by continued investments in future growth opportunities.

GN Audio's EBITA increased 148% to DKK 714 million in Q1 2021 reflecting the strong revenue growth, but also reflecting a phasing of OPEX over the year. Going forward, GN Audio will continue to invest significantly across OPEX lines to drive future growth opportunities in line with the strategy and financial guidance.