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Shaping the Future
GN Great Nordic
Kongens Nytorv 26
P.O. Box 2167
1016 Copenhagen K
Denmark
Telephone: +45 72 111 888
Telefax: +45 72 111 889
www.gn.com
Contents
3 Vision
4 Corporate Profile, Goals and Strategy
6 Letter to Our Shareholders
8 Shared Values and Competencies
10 Design for Future Needs
13 Closing the Margin Gap
14 The World’s Leading Producer of Bluetooth™ Headsets
15 Technology Leader
16 Managing Global Businesses
20 Management Group
22 Profile of GN Netcom
25 Profile of GN ReSound
28 Profile of NetTest
The BLUETOOTH trademark is owned by Telefonaktiebolaget L M Ericsson, Sweden.
3
Vision
GN Great Nordic aims to generate a competitive return to its shareholders by
developing, manufacturing and marketing intelligent solutions for personal
communication, offering customers efficient communication solutions and
developing its employees through a challenging environment.
4
The new GN Great Nordic
GN Great Nordic
GN Netcom GN ReSound NetTest
Personal communications Testing equipment for communications solutions
Corporate Profile
GN Great Nordic is an international group of companies focusing on intelligent solutions with a
high technology content for personal communication. Our solutions provide better, safer and more
comfortable communication between people.
GN Great Nordic operates on two closely-related global markets, on which the Group’s two core
businesses are both among the global leaders.
• GN Netcom – hands-free communication solutions, especially headsets.
• GN ReSound – hearing instruments and audiological test equipment.
Following several years of acquisitive and organic growth, NetTest has evolved into a leading
supplier of systems for the testing, monitoring and management of optical and other
communication networks. NetTest is outside GN Great Nordic’s future business focus on
personal communication. Therefore, the company intends to spin off NetTest for the
benefit of the shareholders. Until that happens, GN Great Nordic will continue to retain and
further develop the values in NetTest.
GN Great Nordic is headquartered in Denmark but operates globally on all relevant markets.
The Group operates subsidiaries in 30 countries and has a presence in many other countries
through distributors. The Group generates 97% of its revenue outside Denmark, with 47%
deriving from the single most important market, the United States.
GN Great Nordic had an average of 6,213 employees in 2001, of which 2,481 were based
in North America. The Group operates R&D centers in North America and Europe, and
co-operates closely with core customers and industry interest groups to develop innovative
products. A large share of production is outsourced, but the Group manufactures the most critical
products itself at plants in North America, Europe and China.
Founded in 1869, GN Great Nordic is listed on both the Copenhagen and London stock exchang-
es. GN Great Nordic is included in the benchmark KFX-index on the Copenhagen Stock Exchange.
5
Goals
The Group’s goals for the 2002-2004 period are to
• Bring earnings and cash flows from operating activities in line with the best in
the respective industries;
• Improve the companies’ market positions through organic growth and acquisitions;
• Exploit GN Great Nordic’s core competences, technologies
and brands on related markets offering attractive growth and earnings opportunities; and
• Provide timely and adequate information to the stock market so as to create the necessary
conditions for a fair market valuation.
Strategy
The highlights of GN Great Nordic’s strategy for the 2002-2004 period are to
• Ensure efficient integration of company acquisitions in GN ReSound
• Ensure that GN Netcom continues to win market share while retaining its profitability in line
with that of its competitors
• Develop the activities within hearing instruments, headsets, audiological test equipment
and related business areas through organic and acquisitive growth
• Maintain technology leadership by developing, manufacturing and marketing innovative,
high-tech products
• Utilize the synergies across the Group’s companies while encouraging each company to act
in a flexible and market-oriented manner
• Introduce performance-related incentive schemes for its management and employees
• Create an inspirational working environment for all employees through value-based
management focusing on personal development of each manager and specialist employees
• Spin off NetTest for the benefit of GN Great Nordic shareholders, but until then to retain
and further develop the values in NetTest.
5
6
Letter to Our ShareholdersGN Great Nordic as we know it today is the result of a strategic pro-cess stretching over several years. Only a few years ago, GN GreatNordic was a group with seven business areas. Each of the business-es was interesting in itself, but they were spread over diverse fieldsand without coherence. We did not have the possibility or the re-sources to develop them all into significant businesses with satisfyingearnings in their various markets.
We therefore decided to sharpen GN Great Nordic’s focus bymaking a number of acquisitions and divestments, and this processaccelerated in 1999-2000. We evaluated carefully where we couldbuild a leading global position, and we took on an active role in con-solidating our industries. We made acquisitions to obtain a platformfrom which to create value for our shareholders. On the other hand,we divested a business when it was worth more to another compa-ny than to us, and we terminated a business if it did not fulfill ourrequirements for profitability and development opportunities.
In round figures, since 1998 we have spent about DKK 16 billionon acquisitions and we have sold businesses for total proceeds ofabout DKK 15 billion. These many transactions, together withorganic growth, have given GN Great Nordic a clear profile. Todaywe develop, manufacture and market intelligent, high-technologysolutions for personal communications through two businesses:GN Netcom (hands-free communications, particularly headsets) andGN ReSound (hearing aids and audiological equipment).
Both businesses operate in markets with good growth. Although theyare now among the largest companies in their respective global mar-kets, they have substantial opportunities to grow, win market share,enter closely related markets and increase earnings significantly.
GN Great Nordic also owns NetTest, a company that throughstrategic acquisitions focused on relevant technology and throughorganic growth has become a leading provider of systems fortesting, monitoring and managing communications networks.
7
Acquisitions and Divestments since 1997
1997Acquisition of Italiana Audioprotesi (GNR)Acquisition of Siemens OTE (NT)Divestment of Rathdown
1998Acquisition of ACS Wireless (GNN)Acquisition of Fastware (NT)Acquisition of stake in FaxNet (GNC)
1999Acquisition of ReSound (GNR)Acquisition of PK Technology (NT)Acquisition of RTC Page (TS)Acquisition of Danplex (GNR)Divestment of stake in FaxNet (GNC)Acquisition of EAC-GN Communications (NT)
2000Acquisition of AB Transistor (GNN)Acquisition of Beltone (GNR)Divestment of GN Comtext’s networkingactivitiesAcquisition of stake in Voxtel (TS)Acquisition of JABRA (GNN)Acquisition of Hortmann (GNR)Divestment of stake in SONOFONAcquisition of GM Iris (NT)Divestment of York Sensors (NT)Acquisition of Hello Direct (GNN)Acquisition of Photonetics (NT)Acquisition of Optran (NT)Acquisition of ICS Medical (GNR)
2001Acquisition of Sensortech (GNN)Acquisition of stake in Auditdata (GNR)Acquisition of Dana Japan (GNR)Divestment of stakes in Denerco andZAO St. PetersburgDivestment of GN ComtextAcquisition of stake in Ultravox Holdings (GNR)
2002Divestment of last rental property
Note: The list contains significant transactions only.
The abbreviations indicate the GN Great Nordic businessarea in which the acquisition was integrated.
GNN = GN Netcom GNR = GN ReSoundNT = NetTest GNC = GN ComtextTS = Great Northern Telegraph Company
As we have already announced, NetTest lies outside of our futurestrategic focus, and it will therefore have a life of its own outsideof GN Great Nordic as soon as it is feasible and prudent. Until then,NetTest will receive the same attention and be subject to the samerequirements as our two core businesses.
In the following pages we describe the foundation of the newGN Great Nordic, with a focus on personal communications.We describe our values, ideas, development, technologies, marketsand people – everything that forms the foundation for GN GreatNordic’s future as an attractive technology enterprise and an inspira-tional workplace that offers opportunities for personal development.
We also explain why NetTest is a market leader that is ready to standon its own outside of GN Great Nordic.
Jørn Kildegaard, Jens Due Olsen,President & CEO Executive Vice President
Jørn Kildegaard (right) andJens Due Olsen (left)
7
8
Shared Values and Competencies
A common history spanning more than 100years, a vision to develop and market intelli-gent solutions for personal communicationsfocused on related global markets, and a setof core values – in themselves, these are nota guarantee of a fruitful cooperation acrossthe two core businesses in “The new GN”,GN Netcom and GN ReSound, but theyform a good basis for one. The challenges inthe short term are, first of all, to capture thesynergies that lie in the businesses them-
selves following the acquisitions of recentyears and, next, to achieve the synergies thatlie in cooperation across the businesses.
For there is of course a certain natural in-centive for collaboration between GN Netcomand GN ReSound.
Knowledge Sharing
The managers of the two businesses’ devel-opment activities thus meet regularly. Thetopics of the meetings are normally of a
general nature, with a focus on the role ofmanagement, development philosophy andtechnology partners.
To be sure, both businesses work withDigital Signal Processing, and most recentlyGN Otometrics announced that it will useBluetooth in the development of NOAH Link(its latest audiological instrument), but thebusiness areas are so specialized that themost important value lies in the exchange ofcontacts and an open discussion of how tofoster a creative development environment.
It is GN Great Nordic’s view, however, thatin the future it will become increasingly ap-propriate to expand the exchange of experi-ence across the Group’s companies.
Cooperation in ChinaOne of the areas in which a close and natu-ral cooperation between GN Netcom andGN ReSound has already been established isin the businesses’ joint production facility inXiamen, China, in the southern region ofthe country a few hundred kilometers northof Hong Kong.
GN ReSound has been active in Xiamen forover 10 years and has also produced compo-nents for GN Netcom there for several years.Since the summer of 2001, GN Netcom hashad its own production facilities in the samebuilding as GN ReSound.
Common Practices
Research & Development• Digital Signal Processing – GN ReSound’s ownership of DSP chip• Knowledge of audiology and signal/sound• Wireless technology
Production• Microelectronics and microtechnics• Outsourcing and production at low prices• Components
Marketing• End-user marketing• Brand-building
Shared roots and values and a common vision are the foundation on which
GN Netcom and GN ReSound develop intelligent solutions for personal
communications. Although there is a clear kinship, exchanges of experience
across the businesses still only take place in selected areas.
9
Now the capacity in Xiamen is becominginsufficient, so the two businesses are build-ing a new joint production facility only a fewminutes’ walk from their present plant.
The biggest challenge in establishing thisoperation has been to conform with themany requirements made by various parties.Not only must the local building standards becomplied with; GN Great Nordic’s own highstandards must also be met at the same timethat we – as one of the first Western busi-nesses in China – want to comply with thestrict requirements for earthquake security.
The relations and interaction with theChinese authorities have been exemplary,and this is owing to the advantages providedby GN Great Nordic’s presence in China formore than 100 years and the fact that Dan-ish companies generally enjoy a great degreeof trust from the Chinese authorities.
The new production facilities are expectedto be ready for operation at the end of 2002,as planned. At that time, GN Great Nordicwill have a facility to be proud of. As regards
the environment and the working environ-ment, this will be a state-of-the-art produc-tion plant. There will be a number of ameni-ties for employees, and the infrastructure ofthe buildings will be optimal.
In addition to the joint facilities, there willbe a dedicated production floor for each ofthe two businesses. At the beginning, therewill be about 700 employees, but the num-ber is expected to increase further when ad-ditional operations are transferred to Chinafrom other production units.
Obvious AdvantagesThe advantages of putting the two business-es together under the same roof are obvious.
For GN Netcom, the establishment hasbeen much more straight-forward than if thebusiness would have had to establish inde-pendent production. GN Netcom has savedperhaps a year just in getting approval fromthe Chinese authorities. In addition, the com-pany was able to “take over” from GNReSound a well-trained labor force skilled in
the same production method – demand-flow– that is used at GN Netcom. GN ReSound’spresence has helped GN Netcom establish aproductive and quality-conscious unit severalyears faster than it otherwise could havedone.
There are also a number of advantages go-ing forward. In Xiamen, both businesses haveaccess to inexpensive but well-trained labor –in the technical area as well. At the sametime, the two businesses share a number ofadministrative functions, including human re-sources and infrastructure. Finally, the estab-lishment of a joint production facility gives sig-nificant flexibility in the production labor force:The businesses can borrow each other’s staff,so to speak, if one has overcapacity while theother has undercapacity for a period.
The experience thus far with the place-ment of the production facilities in China isso positive that the businesses are now con-sidering other joint facilities in other locationsin the Far East.
State-of-the art technolo-gy, functionality anddesign go hand in handwhen GN Netcom andGN ReSound developnew products. Industrialdesigner Klaus Rath andDevelopment ManagerCharles Pedersen ofGN Netcom have years ofexperience in these areas.Klaus Rath also designsproducts for NetTest.
10
Twelve New Products in One YearFor GN Netcom, the focus on developmentand innovation has produced tangible anddistinct results. Previously, the companywould normally launch one new product orupdated product per year, but in 2001 itsent 12 new products onto the market.
“This was possible only because we gen-erated earnings on the products quickly,”continues Lund. “The products we launchedin the past 12 months already account for15% or 16% of our revenues.”
According to Lund, it is crucial for a busi-ness like GN Netcom to create a fertile inno-vation environment that breeds a largenumber of useful ideas.
Wireless 10 Years before the OthersA good example is GN Netcom’s project to
develop wireless technology for headsets.The first ideas in that direction saw the lightof day in the early 1990s, but it took manyyears and failed attempts before the engi-neers had mastered the technology so thatit could be transformed into commercialproducts.
“We had misses and used a large amountof resources on development,” says Lund,“but it was important for us as a business toset the standard in the market and to be ableto show what was possible.”
The payoff came in the fall of 2000, whenGN Netcom launched the world’s firstcordless headset based on Bluetooth.
“Cordless solutions amounted to about10% of our revenues in 2000 and about15% in 2001,” says Lund. “In 2005, theywill account for a much larger percentage.”
To a great degree, successful business management is a question of mastering the difficult balance
between consolidation and investment: on one hand, delivering earnings and value creation for shareholders,
and on the other, answering the need for continuing investment in new technology, new products and inten-
sified market preparation in order to ensure future earnings and value creation.
Design for Future Needs
GN Netcom and GN ReSound are businessesthat can be measured by how well theymaster this balancing act. They are bothamong the technology leaders in their fields,a position they both strive to enhance with-out neglecting the demands for earningsand profitability.
“A common key driver across this compa-ny is that we must be the first to launch newtechnology, that we must make the smartestsolutions, and that we must be biggest inour field,” says Hans Henrik Lund, the headof Research & Development at GN Netcom.
GN Netcom and GN ReSound are both inmarkets characterized by constant techno-logical development and on which the abilityto convert technological conquests to prod-ucts that fit the market’s needs and expecta-tions is essential.
GN Netcom and GN ReSound areboth in markets characterized bycontinuous technological develop-ment. They demand an ability toconvert technological conqueststo products that fit the market’sneeds and expectations, say bothHans Henrik Lund, head of R&Dat GN Netcom, and HenrikSchimmell, head of R&D atGN ReSound.
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GN Netcom’s R&D Project Development Model
Too
ls/T
emp
late
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eliv
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*** Product Specification Description*** Global Design Quality Standard* Goal-Directed Project Management
Most recently, GN Netcom has begun topenetrate the sizeable market for equipmentfor cellphones, and the breakthrough camewith an agreement to produce hands-freesolutions for Motorola’s new phones, againbased on the Bluetooth standard. The mobilemarket has a very large potential, but thecompetition is also very intense. Whereas GNNetcom previously had a time-to-market fornew products of about 24 months, the hori-zon in the mobile market has now shrunk toonly nine months.
New Paths and New Technology“We have a philosophy that we as a busi-ness want to set our stamp on the marketwith products and innovations by tryingnew paths and technologies,” says HansHenrik Lund, explaining the conditions forbringing the right ideas to the market: “It’s
more a question of leadership than of tightrules and procedures for how and when youinitiate development. I don’t think you canput 10 people together and force them tocome up with new ideas. It’s a matter of thedesire to try something new, the desire tofeel the adrenaline and the desire to take onrisk.
“Focus groups and market research areimportant, but they also have their limita-tions, because customers do not always havethe possibility of appreciating the technologi-cal potential. Our development philosophy isthat we want to play a role in shaping themarket with our products and innovations.”
Development of Brands and TechnologyWhile the focus at GN Netcom is largely ondevelopment of new technologies, productsand markets, the primary focus at GN
ReSound is the development of existingbrands and technology. The global marketfor hearing aids is dominated by four largecompanies that have all mastered digitaltechnology by now. What will be decisive inthe future is to be the best at exploiting thetechnology.
GN ReSound’s development strategy isdivided into two aspects: first, the develop-ment and launch of new products withinthe company’s brands; and second, the de-velopment of core technology for use in thedevices.
Following the acquisition of Beltone, GNReSound implemented a development pro-cess in which every year a three-year plan fortechnological development is outlined. Theplan is the result of input from engineers,salespeople, customers and others in all thebrand divisions and country organizations,
Idea
Idea/Opportunity
Description
Feasibility Studies
Project Definition
Brainstorming Process
Evaluation of Business Ideas
Project Planning
Business Plan
Basic Specification
Project Schedule
Project Description
GDPM*
Project Staffing
Project Scheduling
Activity Estimation
Stakeholder Analysis
Project Startup
Risk Analysis
Key Success Factors
High-Level Design
Project Description
Basic Specification
Marketing Plan/
Product Launch Plan
Milestone Checklist
GDPM*
Phase Shift Report
Risk Analysis
Project Schedule Update
Project Follow-up
Methodology
Design Details
Project Description
Basic Specification
Review of Documentation
Milestone Checklist
GDPM*
Phase Shift Report
Risk Analysis
Project Schedule Update
Project Follow-up
Methodology
Build/Preparation
Project Description
Basic Specification
GDQS**/PSD*** Review
GDPM*
Phase Shift Report
Risk Analysis
Project Schedule Update
Project Follow-up
Methodology
Implementation
Project Description
Basic Specification
Milestone Checklist
GDPM*
Project Completion Report
Project
Knowledge Sharing
Distribution
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GN ReSound’s R&D Project Model
Task
sPr
od
uct
s
and it sets targets for technologies and prod-ucts in the coming three-year period. Centralto this work are the company’s core technol-ogies, which are the technological solutionsthat are used across the company’s brands.
Roadmap to the VisionOn the basis of the technology plan, a num-ber of “roadmaps” are produced to describethe development sequence that will apply tothe technologies and product brands in theperiod leading to the goal that GN ReSoundwants to reach. It might seem at first like avery inflexible development philosophy, butthat is far from the case.
“Our roadmaps are flexible, of course, andthey are usually adjusted several times a yearon the basis of experience and the develop-ments in market conditions,” says HenrikSchimmell, the head of Research & Develop-ment in core technology at GN ReSound.
The market for hearing aids took a greattechnological leap in the mid-1990s with theintroduction of digital instruments, whichchanged the competitive situation dramati-cally within a few years. It led to the develop-
ment of much smaller and better hearingaids than before, but it also led to sharplyintensified competition among producers,with one outcome being significantly shorterproduct lifetimes. Previously the same prod-uct could be on the market for many years,whereas now the product lifetime isapproaching only a couple of years.
“Our objective is that within every brandwe will launch a new product series or newfunctionality every year and we will launcha significant new innovation or technologyevery other year,” says Schimmell.
The Chip Makes a DifferenceAn important factor in digital technology isthe algorithms that determine how soundimpulses are interpreted and processed inthe hearing aid. Researchers constantly de-velop new and improved algorithms, andthis is one of GN ReSound’s strongest com-petencies today. As the first – and at thattime the only – producer in the world in1998, GN ReSound was able to launch a ful-ly programmable chip that reduced both de-velopment costs and development time for
digital hearing aids. When researchers de-velop new algorithms, GN ReSound canquickly incorporate them into new productssimply by re-programming the chip. Previ-ously, the company, like other manufactur-ers, had to design a new chip every time anew algorithm was developed. The result isthat GN ReSound today can reduce the timeto market significantly for new products – acapability that is expected to have increasingsignificance in the future with frequent im-provements in technology and algorithmson one hand and a steadily more demand-ing customer group on the other. This givesGN ReSound a unique position in the mar-ket compared with its competitors becausethe company can react much faster to anychanges in needs at the same time that thecosts for the development of new technolo-gy will be limited compared with those ofthe competitors that base their products ona hardware platform.
“I believe we have a strong position in themarket with the technologies we possess,”concludes Henrik Schimmell.
Production Phase
• Product development and launch report
• Test market report
• Product evaluation report
• Release of product to market
• Adapt production to demand
• Adjustment to market reaction
• Quality control
Definition Phase
• Concept document
• Documentation of market need
• Product specification
• Project plan
• Concretization of idea
• Head of development process appointed
• Product specification
• Project plan
Development Phase
• Updates
• Alpha and beta clinical test plan
• Engineer verification test plan
• Global market introduction plan
• Prototype and test series
• Design for production
• Establishment of project group
• Technical data
• Verification of tests and components
– software and hardware
Pre-production Phase
• Updates
• Technical data
• Market introduction plan
• Production report
• Pre-production series
• Final work instructions
• Determination of design
• Documentation for production
13
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A customer calls to order goods
The customer receives the goods inno more than 48 hours if required
Assembly in Xiamen
Just-in-time production:
When a customer places an order, the sales
office places the order with a third party
distributor, who in turn sends the products
to the customer within 48 hours.
Production starts onreceipt of order
Assembles productswithin 48 hoursand delivers toDistribution Center
Hong Kong office managesthe inventory level andreplenishes distributor’s stocks
Distribution Center
Local subcontractors
Local subcontractors
Local subcontractors
GN Netcom’s sales officesends order
GN Netcom’s and GN ReSound’s new joint production
facility in southern China will begin operations in
autumn 2002. The entire production will be based
on the “just-in-time” production methods.
Closing the Margin GapGN Great Nordic’s objective is to be among the best in the industry. Achieving this goal
requires not only technological and market leadership, it also underlines to a great degree
the need for the Group to realize synergies from acquisitions.
2001, and GN ReSound still has a way to go.GN ReSound has used a top-down process
to identify the most important reasons for thecurrent earnings gap and has set forth 15projects in detail. A dedicated project organi-zation with an associated “Control Tower”prepares a “gap analysis” and assists localmanagement teams in identifying weaknessesand subsequently in breaking down the over-all issues and the appropriate solutions intofeasible and measurable subprojects, eachwith its own deadlines and project owners.The Control Tower ensures that there is anobjective evaluation of whether the individualgoals have been achieved and also sees to itthat appropriate resources are allocated to theprojects.
Altogether, GN ReSound expects to closethe earnings gap before the end of 2004 andto bring the EBITA margin in line with thebest in the industry.
GN Netcom is pursuing similar activities inorder to reduce costs, among other things.The company has thus introduced new pro-duction methods – based on demand-flowtechnology – at its production unit inXiamen, China. With the objective of deliv-ering quality products to customers any-where in the world within two days, thecompany has created an efficient supplychain. This is the foundation for substantialsavings in inventories and write-offs.
In recent years, GN Great Nordic companieshave made a number of acquisitions in pur-suit of the Group’s strategic focus. With fewexceptions, these acquisitions – because ofthe size and/or earnings of the acquired unit– have been made at valuations that arelower than those of large companies withhigh earnings.
One of the objectives in the subsequent in-tegration process has been to bring the earn-ings of the new combined unit on a par withthe best in the industry in order to create val-ue for shareholders.
GN Netcom has achieved this before and isonce again the furthest ahead in this process.NetTest was well on the way before themarket developments turned negative in
14
The World’s Leading Producerof Bluetooth Headsets
Leadership in BluetoothTM technology will be the platform
for substantial growth at GN Netcom.
GN Netcom has a clear goal: it intends toset the standard for Bluetooth headsets –nothing less.
In recent years, large IT and electronicsproducers have rallied around Bluetoothtechnology, which quickly and easily createswireless connections between various equip-ment such as headsets, PCs, printers, cell-phones, fixed-line telephones, handheldcomputers (PDAs) and more. The officialwww.bluetooth.com Web site offers more in-formation about Bluetooth. In the spring of2001, the number of approved producersnumbered in the scores; now there are hun-dreds, with about 10 new products beinglaunched every week.
GN Netcom has used and will continue touse a large amount of resources to developBluetooth products. As the most global andleast expensive standard, Bluetooth makes itpossible for users to use one headset any-where in the world – regardless of whatequipment they wish to link it to and whothe manufacturer is.
Thus far, there have been four milestonesin GN Netcom’s Bluetooth activities:• In September 2000, GN Netcom was first
in the world to obtain the official Blue-tooth certificate for a headset. It was GN9000 for users in offices and call centers,and it was also one of the world’s firstBluetooth products of any kind.
• In March 2001, GN Netcom signed a con-tract with Motorola – the largest producerof cellphones in the United States andone of the world’s leading producers –to develop and manufacture a Bluetoothheadset for use in Motorola’s cellphones,among other things. The result was asmall, ultra-light headset that sits directlyon the ear and has up to four hours’ talktime. In January 2002, Motorola launchedthe product successfully. It sells the head-set together with its Timeport telephonesin the US and will sell them around theworld under its own name. GN Netcomretains the right to its technology and canfreely enter agreements with others aswell as market solutions under its ownbrand.
• In March 2001, GN Netcom demonstrat-ed, for the first time, prototypes of aBluetooth headset that builds upon thesecond generation of Bluetooth technolo-gy and is designed primarily for cell-phones. In October of the same year, GNNetcom received the official Bluetooth 1.1certificate – the first approval of a secondgeneration headset using the technology.
• In March 2002, GN Netcom launchedthree new headsets under the JABRAbrand intended especially for mobile tele-phony with voice control; Bluetoothmakes it possible for drivers to put a cell-
phone in the glove compartment and stillspeak safely over it from the driver’s seat.
On the basis of cost-effective technology,GN Netcom can market a number of diffe-rentiated designs, all with excellent audiofeatures.
GN Netcom is the uncontested world lead-er in Bluetooth for headsets. The challenge isto maintain and exploit the technological ad-vantage as the market grows and an increas-ing number of cellphones and other productswith Bluetooth technology come onto themarket. GN Netcom is therefore workinghard to get its Bluetooth headsets into theexisting sales channels – for example,JABRA’s other headsets are already soldthrough 30,000 businesses and the eightlargest mobile telephony carriers in the US.At the same time, GN Netcom wants to en-ter additional agreements with producers ofcellphones and other possible OEM custom-ers – in order to achieve larger volumes,which are the basis for cost-effective produc-tion. All OEM solutions will be based on thesame technological platform and the samechip.
Bluetooth is thus expected to become avery important platform for GN Netcom’sfuture growth.
The three new
JABRA Bluetooth
headsets for
cellphones.
15
The digital chip analyzes the signals from the twomicrophones in order to identify and suppress noisein the user’s vicinity, a signal analysis process per-formed 250 times per second.
The powerful digital, software-controlled chip at theheart of the Canta7. One of its capabilities is theconstant correction of sensitivity of the two micro-phones, which is necessary to allow the user to hearwhere sounds come from.
The chip performs a statistic analysis of soundwavemodulation which filters speech out and away frombackground noise, including noise occurring in mid-sentence.
In 1996, the two companies ReSound andGN Danavox made a joint decision. In con-trast to the most important other players inthe industry, which maintained a hardwaresolution, they chose to develop a program-mable digital chip platform – a microchip.
The idea revolutionized the field: to devel-op a general technology for hearing aidsthat, by means of software, made it possibleto exploit audiological conquests – simply,quickly and flexibly.
In practice, it has meant that GN ReSoundcan now develop new models of hearing aidssimply by developing new algorithms in theform of software for the chip without havingto change the construction of the chip itself.The result is product development that isunique as well as faster and less expensive.
For years it had been difficult for the previ-ous technology to meet the new audiologicalrequirements, but today GN ReSound pos-sesses a technology so powerful and flexiblethat it is capable of addressing problems thatare not even actual issues in the market yet.
The chip has a processor capacity that canbe compared to that found in a PC. Thismeans that the chip can simultaneously run anumber of software programs that are eachdedicated to a particular audio signal pro-cessing function.
This makes it possible for GN ReSound tomatch all known digital products, while at
As early as 1996, GN ReSound made a landmark decision: to develop a programmable digi-
tal chip instead of using the industry-standard hardware solution. The decision was the
springboard to the company’s technological leadership today.
Technology Leader
the same time offering other product advan-tages, such as active processing of acousticfeedback. With Digital Feedback Suppression(DFS), disturbing high-pitched noise can beeliminated without reducing the audio sig-nals that are to be strengthened.
The technology is at the heart of the GNReSound Canta7 and Canta4, DanavoxDanalogic, ReSound Digital 5000, and theNewtone products under the Viennatonebrand; and it is probably the most powerfulcomputer chip that has been developed forhearing aids. In 2002 the technology will alsobe introduced in the Beltone brand.
The chip has a surface of only 6.5 sq. mm,but it can execute up to 626 million opera-tions and up to 8.6 million commands persecond – more than twice as many as anyother digital hearing aid. The chip can sam-ple sounds two million times per second,and that is the reason that a hearing aidsuch as Canta7 can react to sound signifi-cantly faster than any other hearing aid.
All this in a little chip that can fit in theworld’s smallest hearing aid.
How the Canta7 works
16
Managing Global Businesses
At GN Great Nordic, corporate governance – good business management – is the set of
procedures and practices that ensure that GN Great Nordic achieves its objectives and
fulfils its obligations to shareholders, employees, public authorities and other stakeholders.
Formally, corporate governance builds upon anumber of commercial laws, The CopenhagenStock Exchange’s rules and GN Great Nordic’sbylaws. In addition, GN Great Nordic has itsown rules, values and business proceduresthat are based on the particular challengesthat the company faces in the managementof a global technology group with activitiesin many countries, for example, the abilityto react quickly to changes in markets andtechnologies. As a listed company, GN GreatNordic must also possess the ability to makedecisions in such a way as to create valuefor its shareholders.
The Work of the Board of DirectorsIn accordance with the laws and commercialcustoms of Denmark, the Board of Directorsis responsible for overall management anddetermines objectives and strategies. TheBoard also maintains oversight and estab-lishes guidelines for the assignment of re-sponsibility and for planning so that themanagement is carried out in the propermanner and lives up to the bylaws and legis-lation. The Board ensures that bookkeeping,accounting, IT systems and other criticalfunctions are organized properly, that book-keeping is controlled critically, and that bud-gets are prepared and followed up, among
other things. Finally, the Board sets forth thepolicies regarding risks, insurance and othermatters.
The Board of Directors meets regularlyevery quarter and holds additional meetingsdevoted specifically to the full-year financialstatements and to strategy and the budgets.It also meets on other occasions as necessary.Between meetings, the Chairman representsthe Board and is responsible for informingthe Board of all significant issues. The Boardmembers’ remuneration is determined by theAnnual General Meeting and is typical of alarger Danish company.
The Group’s Executive ManagementThe Board of Directors appoints the Group’sExecutive Management and sets forth theframework for its work. The Executive Man-agement is responsible for the daily man-agement of the Group and makes decisionson acquisitions, divestments and invest-ments, within certain limits. Larger acquisi-tions and divestments are submitted to theBoard of Directors, as are questions of strat-egy and significant changes in productionand sales conditions.
The Executive Management submits strate-gies, budgets, and quarterly and annual re-ports to the Board of Directors. Every month,
Executive Management also reports key fig-ures for revenues, earnings, investments,liquidity, financing, orders, cash flow andother financial items.
The Executive Management hires and ter-minates managers in the parent companyand the executive management teams of thesubsidiaries after having first notified theBoard of Directors. In addition, the ExecutiveManagement meets with all persons whowill be appointed to positions that report tothe CEO of a subsidiary. The executive offic-ers also sit on the boards of directors of thesubsidiaries, which are otherwise managedby their own executive management teamsand global management groups.
Interaction with SubsidiariesContact between the Group Executive Man-agement and the subsidiaries is close, withmeetings of the boards of directors everyquarter, monthly meetings with the execu-tive management teams, regular visits to theoperational units and – most important ofall – nearly daily contact with the compa-nies’ managers. This contact is characterizedby openness, dialogue, debate, questionsand the appropriate assistance in handlingconcrete issues. Assistance is also providedby the parent company’s specialists in law,
17
Management Teams
• American •• Danish ••• British •••• French ••••• Irish
NetTest
•• Jens Maaløe, President & CEO
•• Poul Erik Tofte, Executive Vice President, CFO
•• Dorthe Anneberg, Vice President, HR
• Carl Boisvert, President, Sales AFEA
• Tony Bulleid, Senior Vice President, Sales EMEA
• John Chapman, COO; President, Optical Group
•••• Hervé Lefèvre, Executive Vice President,
Optical Group
•• Jens Ole Legart, Vice President, M&A and
General Counsel
•• Erik Nielsen, CTO; President, Networks Group
• Bill Rozier, Vice President, Marketing
GN ReSound
•• Jesper Mailind, Group President & CEO
• Alan Dozier, Executive Vice President;
President, North America
•• Carsten Fensholt, Executive Vice President &
CFO
•• Jesper Funding Andersen, Senior Vice Presi-
dent, International Business
•• Nikolai Bisgaard, Senior Vice President, Intel-
lectual Property & Industry Relations
•• Michael Brock, President, GN Otometrics
••••• Peter Nolan, Senior Vice President,
Global Operations
•• Henrik Schimmell, Senior Vice President,
Research & Core Technology
•• Christian Strømsted, Senior Vice President,
Beltone Brand Division
•• Carsten Trads, President, GN ReSound North
America
•• Henrik Wiboltt, Senior Vice President,
GN ReSound Brand Division
GN Netcom
•• Niels B. Christiansen, President & CEO
• Mike Fairweather, Executive Vice President;
President & CEO, GN Netcom Inc.
•• Henrik Bang, Vice President, Sales & Marke-
ting, Europe
• Ron Becht, Senior Vice President & General
Manager, Hello Direct
•• Steen Bøge, Vice President, Sales &
Marketing, Asia Pacific
• Tony Dilulio, Senior Vice President & General
Manager, GN Netcom Inc.
•• Pernille Fabricius, Vice President & CFO (DK)
• Dean G. Kacos, Vice President & CFO,
GN Netcom Inc.
• Tom Kivela, Vice President, Global Operations
•• Hans Henrik Lund, Vice President, Global R&D
••• Peter Quigley, Managing Director,
GN Netcom Ltd.
• Raleigh Wilson, Senior Vice President, JABRA
• Michael Young, CIO, Global IT
acquisitions and divestments, accounting, fi-nance, tax and other fields.
According to agreements with the GroupExecutive Management, the executive man-agement teams of the three subsidiaries setforth the rules and authorizations that applyto their companies and assemble their man-agement groups. The management groupsprepare the strategies, which are submittedto the Group Executive Management beforethey are evaluated by the GN Great NordicBoard of Directors. The global managementgroups are responsible for seeing that thestrategies are known by all employees andare converted into action.
The executive management teams of thesubsidiaries are evaluated and compensatedaccording to the results that create value forthe shareholders. In addition to the key mea-
sures of value creation, this judgment takesinto consideration innovation, products, cus-tomer and employee satisfaction, and otherfactors that are important indicators of valuecreation.
Clear Lines of ControlThe extensive delegation of responsibility inthe Group builds upon three conditions:agreement on strategy and major objectives;clear guidelines for responsibility and autho-rization; and effective reporting.
It is an invariable principle that the officersin the subsidiaries who make decisions arenot the ones who do the reporting. Theseroles are clearly separated. Each company’sCFO reports to GN Great Nordic according tofixed guidelines so that GN Great Nordic is al-ways in possession of a picture of develop-
ments in all important parts of the Group.The reporting is constantly strengthened
so that the right conditions are measured,and in 2002 there will be even greater focuson cash flows and efficient use of capital, in-cluding working capital. GN Great Nordic’sauditors ensure that the reporting is adequateand timely as to uncover unwanted risk. Theauditors also revise the control and securityprocedures on an ongoing basis.
Five Core ValuesFor a development-intensive group such asGN Great Nordic, it is essential that employ-ees can develop and have room to be inno-vative. So although there are clear objectivesand strategies for all parts of the Group, themanagement process is not based on in-structions, but rather takes as its starting
18
Voting rights limited to 7.5%.
Annual General Meeting announced two to four weeks in advance by letter to all registered shareholdersas well as by published announcements. Ample notice. Authorization for one Annual General Meeting.
No practice or written policy. The Board of Directors will always work openly to ensure the bestsolution for the shareholders in all situations.
Not considered necessary. Covered by other policies, Company vision, purposes, strategies set forth,etc.
Information policy and IR policy determined by executive management. All announcements in Danishand English and on www.gn.com. Shareholders informed through the GN Magazine, reports and theWeb site, which will be expanded further during the course of 2002. All presentations placed on theWeb site. Extensive use of webcasts, teleconferences and investor meetings. A corporate governancesection on the Web site is under consideration.
Annual report in accordance with Danish legislation and IAS.
Take place to some extent.
Publication of quarterly reports.
Appears in bylaws, standing orders, etc.
Have Vice Chairman, determined in bylaws.
Appears in bylaws, standing orders, etc.
Takes place annually.
Set forth in standing orders “Guidelines for Group Executive Management in GN Great Nordic”, etc.
The composition is assessed on an ongoing basis in light of the Company’s needs and the individualmembers’ capacity and competencies.
No structured introduction process; ongoing introduction. According to articles, there are five to nineelected members (currently six).
SHAREHOLDERS AND STAKEHOLDERSNo limit on voting rights or ownership.
Annual general meeting announced well in advance with ample notice. Authorization of boardof directors should be limited to one annual general meeting.
Upon a takeover attempt, for example, the board of directors may not increase share capital orpurchase the Company’s own shares and thereby prevent shareholders from taking a position.
Board of directors must adopt a stakeholder policy with an ideological foundation, values, pur-poses, etc.
Board of directors must adopt an information policy. Important publications in Danish andEnglish and on Web site. Shareholders should be able to exercise influence easily, and communi-cations must be strengthened by IT, investor meetings and presentations on the Web site.Corporate governance section on Web site.
Annual report in accordance with Danish legislation, preferably with use of IAS.
Annual report encompassing non-financial information, for example, on environmental issues,knowledge resources and ethical/social responsibility.
Quarterly reports.
BOARD OF DIRECTORSSpecification of board of directors’ duties.
Vice chairman as deputy/partner of chairman.
Description of duties of chairman and vice chairman.
Standing orders reviewed at least once a year.
Procedure for executive management’s reporting to board of directors and othercommunications.
The board of directors must have relevant knowledge and experience, including internationalexperience. The board must disclose recruiting criteria for the proposal of members.
Introduction process for new members of the board of directors. Maximum of six memberselected by the annual general meeting.
The debate on corporate governance that gathered momentum in Europe in 1992 with the Cadbury Report was given a Danish interpreta-
tion in 2001 with the Nørby Committee’s recommendations. The committee was appointed by the government, and the Copenhagen Stock
Exchange has recommended that all listed companies evaluate their status in relation to the committee’s recommendations in their annual
reports by 2002 at the latest. The table compares the Nørby Committee’s recommendations to GN Great Nordic’s current practice.
Corporate Governance
Nørby Committee’s Recommendations GN Great Nordic’s Practice
point certain shared values. The five corevalues of the Group are the following:• Result-oriented• Innovation• Accountability• Commitment• Openness
The values are part of employee reviews,for example, and annual surveys of employ-ees show that the values are taking root.They are also a part of management training,which to a great degree aims to promote in-novation and competencies in a world full ofchanges.
An important means of attracting and re-taining highly qualified employees – andeliminating the loss of critical knowledge –
is stock options, which give employees andowners a common interest in a rising shareprice. GN Great Nordic has stock optionplans for managers and specialists. The plansare administered by a special committee thatis responsible to the Board of Directors, andat the end of 2001, 5,369,057 outstandingoptions had been awarded to 665 employ-ees, equal to more than 10% of the staff.
Investor RelationsGN Great Nordic aims to be an exemplarycompany in the area of investor relations.The Group disseminates information broadlyand holds many information meetings everyyear both in and outside of Denmark. In ac-cordance with a desire to make all informa-
tion available to everyone at the same time,all important meetings are webcast and canbe seen directly on the company’s Web site,all presentations are available on the Website, and the company also arranges tele-phone conference calls. GN Great Nordicwishes to use technology to reach out evenmore widely and fulfill the needs of everytarget group.
GN Great Nordic’s contact with the stockmarket is regulated by a number of rules:• An IR policy that states, among other
things, that information must be disclosedopenly and precisely.
• A directive to Executive Managementabout how GN Great Nordic fulfils its obli-gations as a listed company.
19
All members elected by the Annual General Meeting are independent. Executive officers are notmembers, but participate in its meetings.
All information appears in the annual report, except ownership of shares. Executive officers andmembers of the Board of Directors must register shares in their own names.
Eleven meetings in 2001.
No rules on this issue. The composition is considered on an ongoing basis in light of thecompany’s needs and the workload of the individual directorship.
Members must retire at the first Annual General Meeting after they have reached the age of 70.
Election period of three years, although the two members with the longest period of tenure muststand for election every year. No maximum for total period of tenure. There is a proposal to chan-ge the election period to one year.
No committees, but one or more members can perform individual tasks according to agreement.
Evaluation is made on an ongoing basis. Self-evaluation by Board of Directors, but not in aformalized process.
The Board of Directors sets forth principles and administers the plans. One plan was approvedby the Annual General Meeting in 2000. The other is covered by the Company’s treasury stock.There is no plan for the Board of Directors.
The plans for the executive management, managers and specialists are revolving, and redemptionis conditional on an increase in the market price.
The plans are described in the annual report, although GN Great Nordic describes only the plansfor groups, not individual persons.
All plans are of the usual type.
There are a number of policies regarding risks and procedures for risk management. They areevaluated at least once a year by the Board of Directors.
Majority must be independent – may not be employed by or be consultants for the company.Executive officers should not be members.
Annual report must disclose each member’s position, age, memberships on other boards, date ofassumption of position and reelection, and number of shares and/or options owned.
Minimum of five ordinary meetings annually.
Normally, a member may have a maximum of three external directorships or one chairmanship andone directorship.
Members should retire in the year in which they reach the age of 70.
Maximum election period of three years. Maximum total period of tenure of nine years.
Committees are generally not recommended.
Annual self-evaluation by board of directors and executive management and of the cooperationbetween the two.
INCENTIVE PLANSThe board of directors sets forth principles for incentive plans. Any such plan for the board of directorsmust be submitted to the annual general meeting and may not include stock options.
The plan for the executive management must be revolving, and upon award, the redemption pricemust be higher than the market price.
All important conditions must be described in the annual report – who is included and the nature ofthe incentive remuneration of each member of the board of directors and executive management.
Severance plans for executive management must be fair, and the main contents should be includedin the annual report.
RISK MANAGEMENTThe board of directors must ensure the establishment of systems for managing risks that reflect thecompany’s needs. The systems must be evaluated at least once a year.
Nørby Committee’s Recommendations GN Great Nordic’s Practice
• Rules on the company’s trading in GNGreat Nordic share, which may take placeonly after authorization by the AnnualGeneral Meeting and the endorsement ofthe Chairman. The shares may not be
traded in the three weeks preceding anearnings report.
• Guidelines on disclosure of internal infor-mation that apply to all employees in theGroup. Managers, Executive Management
and members of the Board of Directorsmay trade shares only in the six weeks af-ter an earnings report, and they must re-port trades made to GN Great Nordicwithin seven days.
20
Management Group
Niels B. Christiansen
President & CEO
Age: 36
Education:
MSc Engineering, MBA
Previous employment:
Hilti Corporation,
McKinsey & Co.
P. Michael Fairweather
Executive Vice President
Age: 47
Education:
BSc Business Administration/
Marketing
Previous employment:
Unex Corporation,
Summa Four Inc., Rumanco
Systems, CC Technologies
Jens Due Olsen
Executive Vice President & CFO
Age: 38
Education:
MSc Economics
Previous employment:
A.P. Møller, FLS Industries A/S,
Aston Group
Jørn Kildegaard
President & CEO
Age: 46
Education:
MSc Engineering,
Ph.D. Engineering
Previous employment:
Brüel & Kjær A/S
GN Great Nordic GN Netcom
21
Jesper Mailind
President & CEO
Age: 45
Education:
MSc Business
Economics, MBA
Previous employment:
Nycomed Danmark A/S,
Nycomed Pharma Group,
Dantec Elektronik A/S,
McKinsey & Co.
Carsten J. Fensholt
Executive Vice President
Age: 39
Education:
MSc Economics
Previous employment:
Mars Inc., Sony
Alan P. Dozier
Executive Vice President
Age: 47
Education:
BA, MBA
Previous employment:
Bausch & Lomb, Inc.
Jens Maaløe
President & CEO
Age: 47
Education:
MSc Engineering, Ph.D.
Previous employment:
Tele Danmark,
NKT Electronics,
NKT Dedicom
Poul Erik Tofte
Executive Vice President
Age: 45
Education:
MSc Economics, BComm
Previous employment:
Monberg & Thorsen,
Carnegie, Storno.
GN ReSound NetTest
22
Hands-free Communications Solutions
GN Netcom
VisionGN Netcom’s vision is to be the world’s leading provider of hands-free communicationssolutions that enable people to communicate more easily and effectively.
GN Netcom was founded in 1987 in a spin-off from GN Danavox(now GN ReSound). Today GN Netcom provides a broad range ofhands-free communications solutions for call centers, offices, cell-phones and cordless phones. GN Netcom is a world leader in wire-less technology.
The business is headquartered in Copenhagen, Denmark. Its re-search and development centers are located in San Diego and SanJose, California; Nashua, New Hampshire; and Copenhagen; and itsproduction facilities are located in China, the United Kingdom andthe United States.
GN Netcom has sales companies in 16 countries and sells throughdistributors in over 80 countries under the following brands: GNNetcom, JABRA, Liberation, Hello Direct, ACS and UNEX. Finally,GN Netcom has substantial sales of OEM products to a number oftelecommunications companies and IT manufacturers.
GN Netcom’s objective for the coming years is to increase revenuesand earnings steadily while winning market shares so that the busi-ness remains No. 1 or No. 2 in all its markets.
Profile
23
GN Netcom JABRA Hello Direct
GN Netcom
The strongest growth is expected in the mo-bile market, in which only one in every tenof the world’s 840 million users has a head-set. The market is expected to grow by anaverage of 25%-30% per annum and reacha value of USD 380 million in 2004. Thisgrowth is driven by the need for people tobe mobile and efficient, among otherthings. For example, one in five Americansuses a cellphone more often than a fixed-line telephone. Growth is also driven by newtechnology in wireless solutions, by a focuson safety while driving, and by growing cell-phone sales, including sales to teenagers.JABRA has a strong position in the US, withsharp growth in sales, an established brand,and an extensive sales network. AndJABRA’s results thus far in Europe suggestthat it is possible to achieve the same posi-tion in that region. JABRA is also building upa presence in Asia.
The office market has a large untappedpotential – there are headsets at less than5% of the world’s 300-500 million worksta-
tions. With a growth rate of 8%-10% perannum, the market will have a value of USD340 million in 2004, and it will be driven by adesire for efficiency and productivity, ergo-nomic considerations, a convergence of thePC and telephony, and new technologies.Some of the same factors are also driving thecall center market, whose growth is expectedto be lower but which will nevertheless reachan estimated value of USD 310 million in2004.
Technological LeadA steadily increasing share of GN Netcom’srevenues comes from completely new prod-ucts and cordless solutions, which havefound favor in the markets in recent yearswith GN Netcom as the driving force. In2001, GN Netcom launched 12 new prod-ucts, and several of them were cordless.
According to the firm belief that the futurewill be wireless, GN Netcom is using consid-erable development resources on wirelesstechnology. The objective is to maintain lead-
Mobile, Integrated and Personal
New products
GN NetcomGN 2100GN 2200GN 2250GN 2350GN 7100GN 8000GN 8110GN Ellipse Premium
JABRAEarSetEarBudEarBoomEarWrapEarBoom WinderEarBud Lanyard
Leading provider of hands-freecommunications solutions for callcenters and offices around theworld.
Leading provider of innovativehands-free solutions for mobiletelephony in North America,Europe and Asia.
Direct sales channel that provideshands-free telephone equipmentand other solutions to offices inNorth America through e-commerce,catalogues and telephone sales.
24
DKK millions Q1 Q2 Q3 Q4 Q4 2001 20002001 2001 2001 2001 2000 total total
Revenue 506 456 471 497 519 1,930 1,479
Gross profit 265 231 247 249 262 992 775
Earnings before interest, tax, depreciation and amortization (EBITDA) 61 12 59 55 92 187 346
Earnings before interest, tax and amortization (EBITA) 46 (4 ) 46 41 82 129 319
Earnings before interest and tax (EBIT) 12 (289 ) 36 2 53 (239 ) 272
Number of employees, end of period 1,025 1,080 1,021 944 1,031 944 1,031
EBITA margin 9.1% (0.9%) 9.8% 8.2% 15.8% 6.7% 21.6%
GN Netcom Fourth Quarter and Full-Year Financial Performance
ership through the best technology andthe broadest product line, so the portfolioof products is continually upgraded andexpanded. In the Bluetooth segment, GNNetcom today has the market’s broadestsuite of products. Headsets for cellphones,two-way radios, PDAs, cordless phones andcar phone solutions also receive much atten-tion in development work.
GN Netcom is working both to refine theexisting technology – for example, to reducedevelopment time and production costs –and to develop new technologies such asDSP (in which the manipulation of soundmakes it possible to eliminate noise, for in-stance) as well as VoIP (Voice over InternetProtocol) and USB (Universal Serial Bus),through which headsets are linked to PCswith Internet telephony.
This development takes place in closecooperation with regular partners and alsowith OEM customers among the major tele-com operators and IT manufacturers.
Production and Supply ChainIt is GN Netcom’s objective to have the in-dustry’s most efficient production and tomanufacture products of high quality at thelowest possible cost. At the end of 2002,the new production plant in China will be-
come the center for all standardized volumeproduction, while the plants in the UK andthe US will produce smaller, specialized se-ries. The savings from gathering work inChina are considerable.
In order to ensure that the least possibletime elapses between customer orders andshipment, the order inflow, production, out-bound delivery and distribution are integrat-ed in a tightly controlled process in China.Distribution and transportation all the way tothe end user are managed by external part-ners. This structure ensures that GN Netcomdoes not need to accumulate large invento-ries, and this in turn reduces the use of work-ing capital.
Quality is the key factor in winning marketshares. The business uses consistent testingmethods and equipment at all the plants andwith all subcontractors, with the ISO 9001standard as the unifying criterion.
Organization and HRIn recent years GN Netcom has acquired anumber of businesses – producers of head-sets and accessories as well as sales chan-nels and distributors. Acquisitions are still animportant part of the strategy.
Integration is carried out by maintainingwhat is unique in each acquired business and
cutting out redundant functions in produc-tion, finance, IT, administration and develop-ment by consolidation with the existing cen-tral functions. Sales and marketing, on theother hand, reside in the regional organiza-tions under JABRA (the US, Europe and Asia),GN Netcom (the US, Europe/rest of theworld, Asia) and Hello Direct (the US).
The integration of the most recently ac-quired businesses is nearly complete. The lastmajor measures involve a joint IT platformwith global ERP (Enterprise Resource Plan-ning) and CRM (Customer Relationship Man-agement) systems, which will optimize pro-cesses, reduce costs, strengthen control andgive more time for servicing customers andselling. The new IT platform will be fully im-plemented in the beginning of 2003.
Human resources development also takespriority. The markets demand a quick conver-sion of ideas to saleable products in a con-stant dialogue between sales and develop-ment people. There must be room forvisionary thinking, but there must also be afocus on growth and being first. This is possi-ble only if GN Netcom has the right environ-ment; the right structures and processes; andthe right mixture of knowledge, skills andpersonalities.
25
GN ReSound
VisionGN ReSound’s vision is to develop and globally market products and services that can helpaudiologists, hearing aid retailers and health care professionals improve the quality of lifefor the hearing-impaired.
High-tech Hearing Innovations Providing Quality of Life
GN ReSound’s continued success depends on the business’s ability tomaintain its global leadership in the development of new technologyand products, to build close partnerships with customers, to developa value-based working environment for employees, and to deliver areturn to shareholders at a level with the best in the industry.
GN ReSound, which is today one of the leading businesses in theworld in the development and production of high-tech solutions forthe hearing-impaired, is the result of mergers of five of the world’s11 largest hearing aid producers: ReSound, GN Danavox, Beltone,Philips and Viennatone.
The business offers a wide range of software-controlled digital,digitally programmable and traditional analog hearing instrumentsunder the two global brands GN ReSound and Beltone.
Profile
GN Otometrics, which is the market leader in audiological testingequipment, develops and markets systems that set new standardsfor clinical technology as well as administrative systems for today’shearing clinics. GN Otometrics includes the brands Madsen,Danplex, Hortmann, Rastronics and ICS Medical.
GN ReSound has its own sales companies in 19 countries as well asa network of distributors in 60 other countries.
GN ReSound’s production takes place in four countries, but it in-tends to concentrate its production in even fewer units. In addition,GN ReSound has its own development centers in Denmark, the Unit-ed States and the Netherlands as well as a global distribution centerin Ireland. GN ReSound has about 3,300 employees.
26
ing aids on an ongoing basis. In addition,before the products are marketed, a numberof focus groups contribute qualified inputfrom the perspective of the people who willactually use the products.
Present in All Significant MarketsThe strategic development of GN ReSoundhas been significant in the past three years.The business has acquired, and is in the pro-cess of consolidating, five of the 11 mostimportant players in the audiological indus-try. GN ReSound has used substantial re-sources to complete the tasks that naturallyfollow the acquisition of a business at thesame time that it has worked to harvest thesynergies of the acquisitions.
As a result of these developments, GNReSound today has its own sales and serviceorganization in all important markets, and ithas a strong position in most of its markets.
But even more important, the business –through the launch of digital products inboth of its global brands – has achieved a
A Market Undergoing Steady Growth
GN ReSound Beltone GN Otometrics
The former ReSound, Danavox andViennatone brands of high-tech anddigital products are marketed underthe GN ReSound brand. The formerPhilips products are marketed underthe Beltone brand.
Beltone is positioned toward older pa-tients and other end users with a clear fo-cus on care, personality and responsibility,while GN ReSound is positioned towardaudiologists, hearing clinics and the likewith a focus on technology, innovationand so on.
GN Otometrics is an umbrella organi-zation encompassing the Madsen,Danplex, Hortmann and ICS Medicalcompanies. It is the world’s largest ven-dor of software-controlled audiologicalmeasuring instruments.
GN ReSound
More people than ever before use sometype of aid to compensate for reduced hear-ing capacity, but still only a few of themhave a real need – less than 5% – to usehearing aids.
Studies show that more than 300 millionpeople globally have reduced hearing. In theage group from 65 to 74, 18% have signifi-cantly reduced hearing, while of those over75, 35% have significantly reduced hearing.Ninety percent of those who have reducedhearing can benefit from using contempo-rary hearing aids.
But demographic trends are not the onlyfactor pointing in the direction of a steadilygrowing market for aids for the hearing-im-paired. The need for social contact, and thusthe ability to hear and communicate withothers, is an increasingly important aspect ofcontemporary society, similar to the demandfor an advanced age without physical limita-tions that is being made by a new generationof elderly people.
Market Leader in TechnologyIn this market, GN ReSound is the technolo-gy leader. This can be seen clearly in Canta7,the first hearing aid about which one cansay that the technology used has surpassedthe requirements implied by audiologicalknowledge.
Canta7 extends GN ReSound’s technologi-cal platform, which is based on a softwaresolution, in contrast to its most importantcompetitors’ hardware-based products. GNReSound can thus quickly and flexibly adjustto the market’s changing needs simply bymaking changes to the software program.
Close Contact to the MarketGN ReSound holds a close dialogue with itsmarkets in order to be at the leading edgeof their trends and needs at all times. Thebusiness is in regular contact with the rele-vant research centers, and this enables it toobtain qualified advice on the latest audio-logical research and trends in such areas asthe shape, functionality and design of hear-
27
stronger market position in the growing digi-tal segment.
Improvement of Earning CapacityGN ReSound’s earning capacity – comparedwith that of the business’s most importantcompetitors – can still be improved, however.In order to ensure that the business’s profit-ability will also be among the best in the in-dustry by the end of 2004, a number of activ-ities are being carried out as an extension ofthe consolidation that is in the process of be-ing completed. These measures include thefollowing:• Consolidation of production• Use of a joint technology platform• Reduction of the number of products• Development of a strong global infrastruc-
ture, including ERP systems, that can sup-port employees
• Optimization of the supply chain
• Development of significant partnershipswith distributors globally
From Five Brands to TwoAs a consequence of GN ReSound’s ambi-tion to be the leader in high-tech solutionsfor the hearing-impaired, the business isdeveloping full product lines at all pricelevels for both of its two global brands –Beltone and GN ReSound.
Beltone is positioned toward older pa-tients and other end users with a clear focuson care, personality and responsibility, whileGN ReSound is positioned toward audiolo-gists, hearing clinics and the like with a focuson technology and innovation.
The former ReSound, Danavox andViennatone brands of high-tech and digitalproducts are marketed under the GNReSound brand. The former Philips productsare marketed under the Beltone brand.
Organizational Development and HRIn both 2000 and 2001, GN ReSound car-ried out working climate surveys among itsemployees. The results of these studies con-tributed valuable information to the busi-ness’s continuing work on its HR strategy.The objectives include assisting with the in-tegration of the acquired business units, cre-ating an attractive working climate and sup-porting a larger and more complexorganization.
Like all other western European business-es, GN ReSound is experiencing increasingdifficulty attracting qualified employees. Onthe other hand, because of the challengingwork assignments and unique opportunitiesfor professional development, retaining em-ployees is not difficult.
DKK millions Q1 Q2 Q3 Q4 Q4 2001 20002001 2001 2001 2001 2000 total total
Revenue 701 725 724 756 702 2,906 2,255
Gross profit 355 361 346 371 328 1,433 1,089
Earnings before interest, tax, depreciation and amortization (EBITDA) 63 59 75 73 55 270 209
Earnings before interest, tax and amortization (EBITA) 43 38 55 67 25 203 144
Earnings before interest and tax (EBIT) (44) (1,311 ) (24 ) (96) (125 ) (1,475) (146 )
Number of employees, end of period 3,384 3,393 3,444 3,417 3,296 3,417 3,296
EBITA margin 6.1% 5.2% 7.6% 8.9% 3.6% 7.0% 6.4%
GN Resound Fourth Quarter and Full-Year Financial Performance
28
NetTest is one of the world’s leading vendors of testing instruments,testing systems and other services for the optimization of communi-cations networks. NetTest supplies network operators, data commu-nications operators, manufacturers of network accessories and com-ponent producers with the appropriate solutions for telecomnetwork testing. These solutions repair errors and optimize produc-tivity in some of today’s most advanced and complex networks aswell as the networks of tomorrow.
NetTest’s most important customer groups are the following:• Manufacturers of optical fiber, cables and components• Manufacturers of equipment for telecommunications and data
communications• Telecom operators and other providers of communications services
VisionNetTest’s vision is to be among the leading providers of solutions for testing, monitoringand managing communications networks.
The business addresses each customer group’s needs in optical com-munications, in which information is transferred via pulses of light,and in telecom and data networks with transmission systems, rout-ing and related signaling.
NetTest has its headquarters in Copenhagen and a presence in busi-ness centers in Denmark, the United States, Canada and France aswell as sales companies and dealers around the world. NetTest’sproducts are sold in over 70 countries. The business has about 1,500employees.
Profile
29
The Internet Is Driving GrowthIn recent years, demand from businessesand consumers has created strong growth invoice, data and video traffic in the world’scommunications networks. Growth is drivenmainly by the fact that the Internet is usedfor an increasing number of purposes andalso by the fast growth of mobile telephony.
Despite the networking industry’s currentstagnation, the traffic on the Internet contin-ues to rise, as measured both by the numberof users and by volume of use. Industrysources estimate that the annual growth ofInternet traffic is still at 100% to 150%,bringing a need for increased bandwidth.
New users, increased traffic and new ser-vices and applications quickly fill up commu-nications networks’ capacity as fast as it canbe expanded. In addition, service providersand manufacturers of equipment have haddifficulty fulfilling the growing demand forbandwidth because the existing communica-
tions networks have been intended and opti-mized for voice traffic.
NetTest’s products are used to identify er-rors and to analyze and optimize capacity inoptical fiber, cables and components andalso in systems that are used in optical com-munications networks. The products inNetTest’s network segment test and monitorthe quality of voice and data transfer as wellas related signaling. In addition, measure-ment and analysis of the signaling in the net-work give telecom operators importantknowledge about their customers’ and sub-scribers’ use of the network, billing informa-tion and also any improper use of the net-work.
Technology Leader with BothBreadth and DepthNetTest is one of very few providers that of-fers testing and monitoring of all types of
NetTest’s New Business Model
networks, that is, the optical, physical seg-ment (optical fiber and components); theoptical transport layer (DWDM and up to 10Gbit/s transmission tests); and the networksegment (IP/ATM and signaling in bothfixed-line and mobile networks). This posi-tion enables NetTest to take advantage ofthe convergence between network seg-ments that previously were clearly separatedand allows NetTest to offer solutions thatcorrelate measurements from the variousnetwork segments. This gives telecom oper-ators new opportunities to optimize the per-formance of their networks as well as thequality in the transfer of data.
NetTest’s broad product range is an un-qualified competitive advantage in attractingand retaining customers with many differentneeds. This strategy is reflected in the busi-ness’s extensive product launches throughout2001, and it will also be a constant theme in
Manufactoring Network Planning Service &and Lab & Deployment Management
NetworkServices
NetworkApplications
IP/ATMCommunicationand Signaling
Optical/ElectricalTransmission
Optical Switching/DWDM
Optical Fiber &Components
NetworkSegment
OpticalSegment
30
DKK millions Q1 Q2 Q3 Q4 Q4 2001 20002001 2001 2001 2001 2000 total total
Revenue 714 701 475 437 736 2,327 1,817
Gross profit 329 335 232 108 364 1,004 925
Earnings before interest, tax, depreciation and amortization (EBITDA) 79 77 (27 ) (158 ) 173 (29 ) 269
Earnings before interest, tax and amortization (EBITA) 63 62 (49 ) (180 ) 155 (104 ) 236
Earnings before interest and tax (EBIT) (87) (4,590 ) (137 ) (2,985 ) (11 ) (7,799 ) 37
Number of employees, end of period 1,742 1,835 1,787 1,484 1,515 1,484 1,515
EBITA margin 8.8% 8.8% (10.3%) (41.2%) 21.1% (4.5%) 13.0%
NetTest Fourth Quarter and Full-Year Financial Performance
the comprehensive plan that has been set forthe launching of new products in 2002.
In 2002, NetTest will thus market automat-ic testing solutions for manufacturers of opti-cal fiber and components that can executemeasurements even faster and with greaterprecision than previously. For use in the in-stallation, implementation and maintenanceof optical communications networks as wellas mobile networks, NetTest will introduce acommon product platform for its testing andmeasurement equipment. In the systemsarea, NetTest will continue to introduce newapplications for its optical monitoring system(QuestFiber) and the SS7/GSM/GPRS man-agement system (MasterQuest).
At present NetTest offers more than 60products.
NetTest focuses on the development ofproducts that integrate both optical technolo-gies and network technologies. The businesswill continue to expand its strong positionthrough acquisitions and by actively acquiringproducts and technologies that strengthen itsposition in fast-growing markets.
NetTest Is Maintaining Its PositionSuccessful acquisitions will also improveNetTest’s opportunities to accelerate productdevelopment and optimize time to market.
NetTest has considerable experience in iden-tifying, acquiring and integrating other com-panies with important new technologiesand has carried out nine major acquisitionsin the past 10 years.
NetTest’s general objective remains to max-imize value for shareholders. This must ofcourse be seen in light of the very difficultperiod that the business has experiencedsince May 2001.
NetTest will continue to focus on develop-ment in order to ensure that the business iswell prepared when the market begins to re-cover.
NetTest has a clear objective to be amongthe three largest providers in the business’sstrategic market segments. NetTest will thus:• Continue to develop and market products
that answer customers’ changed financialand technological needs
• Make acquisitions for strategic purposes• Maintain and expand its technological
leadership
NetTest operates in an estimated USD 6.4billion market and has a market share ofabout 5%. The market for testing equip-ment is extremely fragmented, and NetTesthas a large market share in the segments itaddresses. NetTest has a number of compet-
itors, with Agilent and Acterna the most sig-nificant.
Organization and HREffective January 1, 2002, NetTest changedits organization so that it addresses custom-ers’ needs directly. The organization is nowdivided up with a focus on the followingsegments:• Manufacturing and Lab• Networks• Systems
Each of the three business units will focuson its own market segment.
Whereas NetTest had previously been or-ganized according to specific technologies,the new organizational model puts the cus-tomer in focus. With this organization,NetTest is better prepared to take advantageof the convergence opportunities which arebeginning to develop in the market andupon which it expects to place greater em-phasis in the future.
Now, more than ever before, NetTest’sbusiness model is based on a philosophy ofone company. The new NetTest brand willdraw support from a global organization thatis not limited by geographical and technolog-ical boundaries.
Contents
3 Vision
4 Corporate Profile, Goals and Strategy
6 Letter to Our Shareholders
8 Shared Values and Competencies
10 Design for Future Needs
13 Closing the Margin Gap
14 The World’s Leading Producer of Bluetooth™ Headsets
15 Technology Leader
16 Managing Global Businesses
20 Management Group
22 Profile of GN Netcom
25 Profile of GN ReSound
28 Profile of NetTest
The BLUETOOTH trademark is owned by Telefonaktiebolaget L M Ericsson, Sweden.
Shaping the Future
GN Great Nordic
Kongens Nytorv 26
P.O. Box 2167
1016 Copenhagen K
Denmark
Telephone: +45 72 111 888
Telefax: +45 72 111 889
www.gn.com