Good afternoon and welcome to our conference call following the release of our first integrated annual report for 2024 earlier today. For the call here, it's business as usual, and we have a plan to run through the presentation, and then we'll do a Q&A. On the practical note, the presentation should now be on our website, and per usual, we plan for the call to last no more than one hour in total, including the Q&A session. In the room here today, it's the usual Demant representatives. We have Søren Nielsen, our President and CEO, René Schneider, our CFO, and then Gustav Høegh and myself, Peter Pudselykke, from the IR team. That is it for the practical elements, and over to you, Søren, for the presentation.
Thank you very much, Peter, and welcome, everybody. The agenda of today, also very usual: key events, financial takeaways, and the addition of a little more sustainability advancements. Business area review: René will do a group financial review. I'll comment on the outlook, and then we'll get into Q&A. Financial highlights for 2024: 4% reported growth, 2% from organic growth, and 2% from acquisitions, and then all in all, revenue up to DKK 22.4 billion, and improvement of gross profit 5%, EBIT down DKK 100 million, round numbers 2%, but very strong cash flow from the group. Key events: very good momentum in hearing care, which has continued towards the end of the year. Strong organic growth rate in a high number of markets and above market growth rate, so super solid.
Hearing aids growth was below our original expectation, impacted by, in general, a strong competitive environment, but more importantly, the choice of brand strategy in the U.S. that led to loss of significant market share back in the second quarter. Diagnostics growth was impacted by soft markets, but even in that light, we estimate that our organic growth rate was above the market growth rate. We have closed the divestment of the CI business in summer, and we, during the year, also took the decision to divest the communication business, two very important steps to become a more focused hearing healthcare company. And then we implemented restructuring in communication EPOS in the fall, which means that in Q4, we, as expected, saw a positive profit from both the communication business and the bone-anchored hearing system business.
So the two together posted a positive result, which was also in line with expectations. Key financial takeaways for the second half: organic growth in the second half was 2% as for the year, despite a strong comparison base, and again, despite the loss of the market share in the managed care channel in the U.S., and in line with our most recent expectations. Despite a continued good ASP in hearing aids, gross profit declined with 0.4 percentage points. This relates to the exchange rate and more and more rechargeable hearing aids. René will comment more on that. We see it as more of a temporary nature, and yeah, René will comment more on that. We did manage, as expected, to significantly lower the growth rate of OpEx in the second half down to 2%, significantly down from the first half. Acquisitions added additional 4 percentage points.
EBIT before special items was DKK 2.2336 billion, which is basically flat versus the second half of 2023, but an improvement from the first half, and yeah, there was a negative impact from the exchange rate and, of course, also lower operating leverage due to the softer top line. Very strong cash flow. Cash flow from operations was DKK 2.6 billion, and the free cash flow was just north of DKK 2.3 billion. Revised outlook, which we'll also comment more on: 3%-7% organic revenue growth, EBIT before special items of DKK 4.5-DKK 4.9 billion, and share buyback above DKK 1.5 billion. We deliver the first integrated report with financials and sustainability. The number one purpose of Demant is to help more people hear better, and part of the sustainability reporting is the number of improved lives, and we are close to 11 million.
This is a, you could say, over time accumulative number, with some assumptions around expected lifetime for products in the field, etc., and also, I started to report on the number of hearing tests performed in our own hearing clinics, and we reached 1.5 million of these. Other kind of sectors in the report is the respect for planet. Among that, the reduction in scope one and two emissions, and you can see a good, nice trend downwards. On the caring for people, growing gender diversity in the upper leadership team. This is also continuously nice development, exceeding our goals a little bit ahead of time and therefore new ones.
Then performing with integrity, that's a new measurement where we look at the number of people that are, you could say, above average exposed for elements in a good code of conduct and therefore have a more focused training, and we have reached 76% of these people so far and will, of course, soon get to 100. Business area review, the hearing aid market first in 2024. The fourth quarter grew globally to our estimate 5%, which is, you know, spot on to the annual expectations. That takes up the annual growth rate to 4% from after third quarter, more towards the three. Europe has a below average growth, primarily due to a slightly negative growth in the NHS, whereas Germany showed nice growth, and also France had a positive growth, making the full year end slightly positive, which is the first time since the reform in 2021.
U.S. continues a good, strong momentum on the commercial side. Those should be mentioned, an easier comparison base. VA remains flat, and also strong development in Canada. Emerging markets, rest of the world in general, doing well in the second half and best in fourth quarter, again, all in all, adding up to the 5%. We still estimate that due to channel mix and country mix, etc., we have seen a slightly positive ASP development in the market in the year, and of course, our own performance needs to be seen in that light. Hearing aids in fourth quarter, organic growth of minus 1% to external customers impacted by a strong comparison base, and of course, also the loss of share in managed care and a definitely intense competitive environment. However, I would say we have kept our market share in value on a sequential basis.
We continue to see good, strong development of our ASP for the second half, explicitly -1% in units and an ASP in plus of 5%. This is, of course, both a channel and product mix. Good performance in many medium-sized markets, but negative growth in France, Germany, U.K., basically all due to different, lower sales to certain larger chains. Q4 driven by also larger chains, and slightly negative in Canada, but only due to a very high comp we had in Q4 last year. Nothing looks bad at a run-rate basis. The Canadian business is still performing well. Strong growth in Asia with positive growth in China, despite weak markets, also solid in Australia and South America and further expansion of product portfolio. We continue to benefit from a very power-efficient fundamental platform, operating a fully integrated DNN that's part of lowering the power consumption.
It's on all the time, and it doesn't have any significant impact on the size of battery we can use. And therefore, we have also succeeded to make it work on the smallest battery in the industry, what's called a 10A battery, which is used in the very smallest CIC and IIC styles, which is what we now release with the full benefit of the DNN r unning all day. So a super strong concept and a very high-performing series of products to be introduced here this February. In addition to that, we also expand our lower-priced offerings with miniBTEs, miniRITEs, in-ear products, and for the first time also with elements of the DNN performance or technology in. So super strong concepts that should also drive growth in more lower-priced price segments in markets where that's relevant.
Hearing care in fourth quarter, very strong performance, continued strong and solid momentum in many mid-sized markets and in North America. Still good contribution from acquisitions in the quarter, primarily in Denmark, Germany, and Italy, in line with our strategy to build critical mass and in selected markets and expand in Germany. Growth was primarily driven by unit, you know, the fundamentals of more stores and a bigger network, and a slight ASP tailwind coming from product and also geography mix in the period. Positive growth in France, slightly positive growth in France, strong growth in the U.K., Poland, and Germany, also good growth in the U.S. despite the exiting many managed care programs and instead driving traffic ourselves has been successful. Strong growth in Canada, negative in China, where we still suffer from weak market conditions, but a strong development in Australia as well.
Diagnostics continued headwind from soft markets in the diagnostics business, and in addition, limited access to government market in or public market in China due to insufficient products that are living up to the Made in China requirement. Nice growth in service and consumables, and outside China, I would say the primary negative growth was in France, Germany, a lot to do with comps, but also in the U.S., where we saw some postponement of orders moving from 2024 into 2025. And with that, over to you, René.
Thank you, Søren. So talking to revenue in the second half here, the organic growth was 2%, predominantly driven by hearing care, whereas hearing aids and diagnostics delivered negative growth in part due to the strong comparative figures. Acquisitions contributed with 3 percentage points, both in hearing aids and hearing care, and we saw minus one percentage point growth effect from FX.
Looking at gross profit, the gross profit increased by 3% to approximately DKK 8.6 billion. The gross margin declined by 0.4 percentage point versus second half year last year, despite the ASP in hearing aids still being strong. This was predominantly an effect of both an exchange rate effect, negative exchange rate effect, as well as a high share of rechargeable units, but also particularly in Q4, gross margin was negatively impacted by increased sales to a certain large account. OpEx in the second half here, we saw a very low organic growth of 2%, just as expected, and this is reflecting the strong focus we have had since mid-year on lowering organic growth of OpEx to be balanced with organic growth of sales, and we have managed that. Acquisitions added 4% on growth in line with our acquisition strategy, and we saw no effect from FX.
Looking at operating profit for the group, it was DKK 2.336 million in the second half year, which is essentially flat year-over-year development, meaning an EBIT margin of 20.6%, which is a contraction of 0.9 percentage point. The EBIT margin was negatively impacted in second half year, both from the before-mentioned exchange rates and also lower operating leverage, particularly in hearing aids on the gross margin side. We also saw year-over-year dilution from M&A activities, which typically are in nature. Cash flow statement for second half year also, very solid, continued very solid cash flow generation. Cash flow from operations increased 2% on last year due to significant improvements in working capital. CapEx was approximately 3% of group revenue, which is slightly below our normal expectations of 4%, so that also contributed.
And net cash to acquisitions and divestments was - DKK 471 million in H2, entirely related to hearing care, also slightly higher than our normal guidance, but in line with our most recent expectations. Share buyback in second half year of just above DKK 1.1 billion, bringing it to DKK 2.3 billion for the full year. Looking at key financials for the full year, we ended up with 2% organic growth on the back of very strong comparative base, and just as a reminder, we had 14% organic growth in 2023, so 16% over two years. The gross margin improved 0.6 percentage point, driven by a better than expected gross margin in H1 due to business mix effect and strong development in the ASP in hearing aids, stemming from, in particular, the Intent launch that we did in the first quarter.
OpEx for the year increased organically by 4%, significantly lower in H2, as we have just reviewed, and we achieved thus a better balance between revenue and OpEx growth. Acquisitions added 4 percentage points to the overall growth of 8%. This resulted in EBIT for the full year of DKK 4.4 billion and an EBIT margin of 19.6%, which is slightly below last year as a reflection of lower operating leverage, particularly in hearing aids, as well as a negative year-over-year effect of exchange rates, particularly in H2. We saw strong cash flow for the full year from operations of just above DKK 4 billion and approximately DKK 3.5 billion in free cash flow for the full year and share buybacks, as I mentioned before.
Lastly, on balance sheet items, the balance sheet increased by 6%, primarily driven by acquisitions done throughout the year, and that resulted in an increase, particularly in goodwill, whereas we have seen net working capital decline by 9%, primarily, though, due to a reclassification of communication to assets held for sale. Relative to mid-year, we did, however, see net working capital decline by 7% due to a strong focus on cash flow and resulting in a decrease in inventory and trade receivables. For the full year or end of year, we end with a net interest-bearing debt of DKK 13.5 billion and a gearing multiple of DKK 2.3 billion, which is well within our medium- to long-term expectations. So with that, we go to Outlook.
Yeah, thank you, René.
And just quickly on the market, the assumptions we have made before making the Outlook is a normal 4%-6% growth in units and a flat ASP for the year, so also in value. We expect, and this is after looking more into the numbers, but also what we sensed here in the beginning, we have come to the conclusion that we now expect the French market to grow high single digits in 2025. For the group, the Outlook, it is important to remind yourself of the comps in Q1 being particularly high due to the managed care, as well as a strong product introduction last year. Therefore, likely that the Q1 organic growth rate will come in below the full-year Outlook. This is totally to be expected when that at some stage come out.
We expect the cash allocation to bolt-on acquisitions to be higher than normal due to a continued very good pipeline and good opportunities, and we have not included any significant financial impact from potential tariffs related to U.S. in our Outlook, simply too difficult to predict, so it makes no sense to sit and guess. Discontinued operations, we continue to have the communication and bone-anchored as discontinued business. We expect a combined net profit after tax for these businesses to be in the range of DKK 0-DKK 50 million plus, and this is entirely related to operating profit and doesn't include any financial impact related to the intended divestments of these two businesses.
So all in all, summing up, organic growth expected to be 3%-7%, and two of these come from market uncertainty, and the EBIT from DKK 4.5 billion- DKK 4.9 billion, as said, and a share buyback above DKK 1.5 billion. Acquisitive growth, this is just for modeling purposes, is expected to be 2% based on revenue from acquisitions already completed by today. As currencies stand today, we expect a 1% addition on the top line, including the impact of hedging. We expect the effective tax rate to be around 23%, and again, profit from discontinued operation in the area of DKK 0-DKK 50 million. Gearing ratio, no changes to what René also just mentioned, our medium to long-term target of 2-2.5 times, yeah, by the end of the year.
Yeah, over to Q&A.
We will now begin the question and answer session.
To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Richard Felton with GS. Please go ahead.
Thank you. Good afternoon. Just two questions for me, please. My first one is on the U.S. hearing aid business and specifically the trends you're seeing in the independent channel in that market. So I suppose part one, how did your market share develop through the course of the year in that channel?
And then sort of secondly, as you reflect on the shift in your U.S. brand strategy, obviously managed care has been a headwind, but are you starting to see any of the benefits you expected from that strategic shift start to materialize? That's question one. Question two is on diagnostics business. I appreciate the overall market was soft in 2024, but are you able to give any color on what was actually driving that market weakness? And looking out into 2025, how should we think about those headwinds? Thank you.
Yeah, thank you very much for your question. We don't speak in a lot of details, but let's take the big picture on the independent. We had a very strong launch in the first half, which naturally kind of boosts your market share because you tend to push a lot of products into the market.
So half year over half year, we saw some decline in market share. But during the second half, we have seen a stable development, of course. When others then introduce, you have a little bit the reverse effect that in a given month, your market share can go down, but coming back up. And all in all, we have at least maintained our share during the second half in the independent channel. And whether or not our managed care strategy is part of building that defense to others' introductions or not is, of course, a little bit difficult to say. You can only look at the totality. But yes, I think that definitely good examples of people that have benefited from the strategy.
But of course, as I said earlier, it can never compensate for where the changed brand strategy ended, which was that we basically lost a number of important contracts, and we are still working to make sure we find a way back into a higher share in the managed care channel. We did not intend to land where we ended, so there's still important work to be done. On the diagnostic business, again, China has the explanation with lack of access. So you can, of course, say that's not really market weakness, that's access issues. We have on the market side seen Europe being a little bit weak, but especially in the U.S., we have seen investments being pushed from 2024 into 2025. In all markets, we still see a good pipeline, and therefore the starting point for the assumptions for 2025 is a normal market development of around 5%.
Great. Thank you, Søren.
The next question comes from Julien Ouaddour with Bank of America. Please go ahead.
Thank you very much for taking my question. So I have two as well. The first one is, sorry, we are now seeing more and more competitors breaking into the DNN, an area that you pioneered some years ago. I mean, do you think DNN is becoming a standard feature for hearing aids? And I want to know how do you continue to differentiate yourself versus the peers? And also if you could explore such real-time AI technology, something similar to Sonova, just in order to further differentiate yourself in DNN versus the new entrants. That's the first question. The second one, just in your 2025 guidance, you assume the French market will grow in the high single-digit territory thanks to the reform anniversary.
Could you just detail a little bit your assumption, especially in terms of percentage of customers which will replace their Class I devices? How many could potentially trade up also to Class II? And any indication in terms of timing as well? Do you expect to see material benefits in Q2 already, or is it even a bit more back-loaded? Thank you.
Thank you very much for your questions. On the technology, I don't call it DNN a feature. The feature is what you do with it: noise management, speech enhancement, whatever you use it for. That's a technology. I have no doubt, as I have said for quite a while now, that utilizing AI, deep neural networks, which for me is two names more or less for the same, that is the way hearing aids are going to be designed. The signal processing there is faster.
It can cope with more dynamics. It can give a more fast response to what to adjust. The fundamental approach to speech and noise can still be very different. How do you utilize the multiple microphones on the instrument? Do you still use them to Zoom in on a Zoom speaker you want to listen to, or do you listen all the way around? And that comes a little bit back to how we have done things. We have prioritized to use it to enhance contrast between speech and noise. We fundamentally still believe people want to have ambience and understanding of also non-speech sound environment. What is important is the philosophy of being able to listen to multiple speakers all the way around.
So we have something that doesn't put any limits, as we also now show in our new introduction, to size of devices, classical batteries to be used. If you start adding additional chips or boosters or DNNs separately, you will have some overhang, at least so far, to your power consumption, and it will put some limitations either to how much you can use it or how aggressive you can be or what size of battery you'll have. I still find that we are in a very good competitive position. The patient benefit, the patient performance is super strong, and patients at the end don't really understand how you have applied AI or how it actually works. They will always look at the outcome, and so will well-trained audiologists. So I think we stand well, and on your second one on the French, too early to say exactly.
The eight, or not the eight, the high single digit is, of course, in units. We do expect some ASP decline, as we assume we will see more Class I devices coming in. So how that plays out is a little uncertain. The rate by which we will see it, of course, there are people that do something right away. There are people that do one year five, year six. We do expect some decent uptake here in the first half because that's also where a lot of people got in in the first place. And there is a 48-month cycle more than a given year. So we should expect, and we also first very early indication see that a good uptake in the traffic of existing users into the stores. We are, of course, in close contact because they are in our database, etc.
So all in all, a good indication for the year. And I would also say compared to our hesitancy in the fall of being very explicit, this is a, I would say, positive indication for what we have seen so far.
Thanks a lot, Søren. I just have a quick follow-up on Richard's question about market share. I mean, you put in the slide that the U.S. commercial market was up 7%. I mean, probably managed care is like a couple of percentage headwind, but hearing aids were declining this quarter. And you said that you maintain market share in U.S. independent. So just wanted to understand exactly the momentum here and how can you have a stable market share, but also any comment about the market share in Europe maybe, like is it there where you saw some decline? I mean, any color would be super helpful. Thank you.
Yeah, there is a big difference in channel mix and development in the U.S. versus Europe. We, as I said, have lost sales to a number of larger accounts in Europe, and we have a stable market share with the independent in U.S. Again, it fluctuates a lot month by month as this is a sell-in measure and there has been significant introduction activity. So it is, of course, an estimate also in value, which again, our product mix continues to be very strong and solid. And that's what makes us say that we believe we have maintained share in U.S. independent, excluding the managed care segment in the second half.
Perfect. Thank you very much.
The next question comes from David Adlington with J.P. Morgan. Please go ahead.
Questions. Maybe just first on managed care. I just wondered if you could.
How much of a headwind to growth in 2024 from that for managed care in your 2025 guidance? Do you assume that you'll get back into managed care later in the year?
Your line was pretty bad, David, but I think we got the question. René has a comment.
Yeah, so you can say the built-in managed care headwind that we are facing in first quarter of 2025 is approximately 3 percentage point growth or 3% growth on hearing aids, which would constitute 1% on group around the numbers.
Are you assuming a return to managed care later in the year in your guidance?
I would say a growing managed care business is within the guidance and the reason for the uncertainty around the organic growth, whether to what level it is, I think is way too early to comment on timing and if and how much and to whom and so on.
And then just your high single-digit growth for France all year, does that mean you're expecting double-digit growth Q2 to Q4? There wasn't much growth in Q1, I expect.
No, I think it could be equally distributed around the year. We, of course, try to build a strong pipeline from the beginning. I know the invoices is a little delayed, but not much that you will see a very significant difference in uptake. But again, do you get it early? Do you get it late? I think it's too early. Our assumption is relatively equally distributed across the year. It's still too early to be more detailed than the assumed 8% on the full year. No, sorry, not 8%. Sorry, the assumed mid-single digit. Sorry.
And then the last one for me. I just wanted any updates on the new contract with the VA.
No.
The next question comes from Martin Brenøe with Nordea. Please go ahead.
Hi, Søren and René. Thank you for taking my questions. I'll just have two, if I may. The first one would be on the guidance. I suppose your guidance assumes sort of high single-digit growth in H2 to end up in the high end of your guidance range. Can you maybe help me as an outsider understand how you expect to reach that level? Just what does it take from a market growth perspective, ASP, market share, managed care, maybe provide some building blocks towards that? That would be the first question.
And then the second question is that I guess it's fair to assume that the EBIT in absolute terms and maybe also on the margin will be quite back-loaded here in 2025 with growth being lower here in H1 and then accelerating in H2. So I'm just trying to figure out how much profitability will actually be skewed towards H2. Should we expect that you are currently, for example, positioning yourself for an accelerated growth in H2, for example, from France, and you are currently investing in marketing and being ready for that opportunity in Q1 and Q2 with sort of the expectation of a return in H2 from that? Is that a fair way to look at how the EBIT will go?
No, I would actually turn it a little bit around and say it is the comps that is the biggest rationale behind the growth level that is therefore very uneven across the year. The EBIT side is, I would say, naturally distributed in a growth company. And the way we have done things, you have always found a certain unbalance between first and second half. And that's just how it is. And I think this year we are not planning for anything out of the, I would say, ordinary if you look back.
It was rather 2024. That was a little bit abnormal in terms of seasonality on the operating profit, whereas 2025, we don't see that as any particular seasonality, which would indicate normally that second half year is just larger on EBIT than first half year. So that's how we see it.
Okay, thank you.
On how to reach sort of the high single-digit growth above the 7%, how do you expect to be able to deliver that?
Yeah, that of course is a positive market development. It's a good growth momentum during the year that can come from many channels. But of course, we have plans for the year of taking share. So in that level, strong market, it could be France doing in the higher end of the high single-digit, etc. So there's not a single factor. We already talked about the opportunity that remains in managed care. That is not there. Sure. So it's gaining share in the upper end. And then of course, it's how much and in the very upper end, also a market in the upper end of the 4% to 6%.
Okay, that's very clear. Thank you so much for taking my questions.
The next question comes from Maja Pataki with Kepler. Please go ahead.
Hi, good afternoon, and thanks for taking my question, Søren. Just a quick question. We've had a product announcement this week and also based on DNN, but also a lot of buzzwords around AI, and I know you've been working with DNN for a long period of time. However, you've only now stepped up the wording around AI. Do you feel that based on the fact that Intent was launched 12 months ago, you were rather conservative or you were different in the way you were promoting the product in the market, holding back with the AI wording and buzzwords? Do you think that there is a disadvantage for you now in the next six months until everyone tried the product and made up its mind?
So, 2025 could be a bit more challenging for me finding the right product, or do you think it really doesn't matter, so buzzwords are buzzwords and audiologists can see through that. That's question number one. Question number two, can you provide us an update on communication? What is the timeline there or what are the next steps that we should be expecting for you to take in communication? And lastly, René, just to double-check, I believe you said that the headwind on growth for hearing wholesale would be 3% for managed care in Q1, so that's also probably the number that we have to look at for the last three quarters in 2024.
Yeah, sure, well, you can say we have the headwind in Q1 for 2025, but it's also similar in the last three quarters of 2024.
Perfect. Thank you.
And the other one, I think very quickly, AI, I would say, seen as a buzzword, DNN is the technology. And I actually think I was recently in the U.S. and asked a number of audiologists, and whether it's called the one or the other, they don't really care. And it's not what they use for the end user. So they use the argument of what it does and how you can hear. So we also throw in a little more AI than we did in the beginning, but the fundamental of the technology is it's a trained network. And I think that's what actually audiologists understand. And they have a bit of idea what it does. And I also see our competitors, once you get below the front page or behind the front page, that's also what's being explained.
So, there's a little bit of buzzword around AI that in the general audience is better understood, but for some also a negative to optimization and something totally different than what actually happens inside a product. So back to your question and the underlying question, no, I don't think we'll have six months of limbo. Of course, the new products that are being introduced, whether it's from us or somebody else, will be tried out. We are used to that. And I think we stand well to communicate around Intent and also our other new products and in general a strong portfolio that delivers a lot of end user benefit. On communication process ongoing, we will say more as soon as we know more.
Okay, great. Thank you.
Yes, thank you very much and good afternoon. Martin Parkhøi , SEB.
Firstly, on the new AI-powered in-the-ear or IIC, can you tell me, Søren, it's not, as I understand, it's only a non-rechargeable version. So what is the big problem for you to actually do an IIC with a rechargeable? And how do you actually think this is an opportunity, commercial opportunity for you now? It is not a rechargeable version. And then second question, maybe it's René or Søren or whatever. We saw in the second half that the ASP, of course, impact was less or maybe zero in the fourth quarter. How should we see your sales going into development into 2025? Are you expecting to fight more for these low price maybe? And then we will see less of an ASP impact or maybe not even any. Of course, I know that France also speaks into the picture.
Sorry if you already have had the question, but I was also on an online call.
Back to the IIC, CIC. For these very, very small products, rechargeability, the way we do it here, is fundamentally not an option. It takes too much extra electronics to build a custom, totally invisible device. So that's due to the ambition of making it a true IIC. The non-rechargeable element in custom, still to my impression or what we do, comes with a significant sizing overhead. And that's a limited number of markets and a limited, we say, total potential. So I would say that's under the bigger prioritization where cosmetics, design, whether it's a RITE or in-ear product, we focus on the most discreet devices and so far not a viable solution on rechargeable. ASP question have not been there, so all good. Into 2025, everything else equal.
We would expect a stronger unit growth. We have basically had a flat to slight negative last year, and it is the ambition to grow in units, not to give up any of our good strong position in premium, in the good channels, but a more diverse channel mix and also in some geographies, a slightly different product mix by selling more of products at a lower price. Not instead of, but in addition to, and therefore a natural potential consequence on the ASP, more down than up and stronger unit growth, but again, depending on how market development is, what market grows the most, you can very quickly have regions, channels, and so on that delivers actually both units and ASP, so it's super sensitive for many parameters, as you know, but the general direction and trend would be stronger on the units and less on the ASP.
Thank you.
The next question comes from Angela Bozenovic with BNP. Please go ahead.
Hi, good afternoon. This is Angela from BNP. Two questions from my side, please. Firstly, on the product, I understand that the new in-the-ear AI-enabled form factor is based on the Oticon Intent platform. Can you please update us on the overall Oticon Intent portfolio and what form factors are left for you to launch? And on top of it, do you see the need for any new platform launches in 2025? And secondly, just on Costco, what are your thoughts on the competitive dynamics in Costco in 2025? It has been three months since the return from your competitor. I'm just curious to hear if you see any market share changes in those tools. Thank you.
Yeah, thank you very much.
Oticon Intent is a rechargeable miniRITE with a lot of different speakers that enables it to be used basically from a mild hearing loss to a more severe hearing loss. So really a wide application. miniRITEs is the most popular in the market for the majority of users. And in this price category, rechargeability, I would say, is the standard. So a flexible solution, super good. And the addition we now do is the smallest in-ear products, which is for the premium product, the second most important category. Because if you don't go for a miniRITE, you typically want something even more discreet, not sitting behind the ear, but sitting in the ear. And again, we have managed to design it without any significant compromises or without any compromises, just smaller. And therefore, a really strong concept.
We think our Intent platform stands well, as I said before, against the competition. It has slightly different prioritization, but it has a number of unique benefits. Again, the ability to listen to speakers from multiple directions at the same time, even in quite loud noise. It's low power consumption leading to unique small products like here. And then that it's basically enabled all the time because of the low power consumption. We don't have to sit and restrict it to certain situations. And when you don't have to do that, you avoid some of the long transitions in and out that others would have to do when the system kind of kicks in and kicks out again. So we think we stand well on Costco. We have a good solid position in Costco. We definitely want to maintain or, even if possible, expand that.
Yes, it's also a competitive environment, and I'm sure our competitors try to or will launch new products, etc., and drive activities. We plan to do the same.
And just a quick follow-up on the product, so is the portfolio of Oticon Intent now full, so you don't need to launch anything else in the Oticon Intent platform, and I understand that you won't provide any color on the new platform, but do you see any need to launch a new platform in 2025 given that you've launched this form factor now?
We have not launched all factors. This platform, the reason why it might not call it Intent, but the underlying platform will be used in many more styles to come. There are a number of form factors where we don't yet offer a full solution, so the platform is far from exhausted and more will come and follow.
And again, the strength of the platform I find quite high also in current competitive environment.
Thank you.
The next question comes from Niels Granholm-Leth with Carnegie. Please go ahead.
Thank you. Two questions from my side. In the half-year report, you called out a reduced activity with a few larger changes as a negative. How would you see this parameter playing out in 2025? And then secondly, could you just update us on your expectations for net financial items in 2025? Thank you.
Yeah. I would say that part of what I said before of growing units is a focus and attention towards lost market share in some of these channels. And yes, therefore, I would say that's part of the ambition for 2025. Not everything is done yet, but that is to grow sales to some of these or alternative channels that could otherwise compensate.
I think you, René, on the net financials.
Slightly higher, meaning slightly more negative than for 2024, driven by, well, offsetting effects, slightly higher debt, but also on some loans, slightly lower interest rate.
Just to understand, you expect slightly higher net financial cost.
Yes.
The next question comes from Robert Davies with Morgan Stanley. Please go ahead.
Thanks for taking my questions. Most have been covered. Just a couple I had. One was just on the outlook for the VA channel. It was obviously been running quite weak through 2024. We hear sort of mixed signals in terms of expectations and growth and shortages of audiologists and all sorts of different reasons why that's been lackluster. Just be curious to get your sort of views as you head into the year, what you're seeing and hearing and how you expect that market in particular to pan out?
And then I guess the second one was just on your comments around sort of flattish ASP trends. I think if I look back over the last sort of at least two to three years, your pricing trends have actually been sort of much better than you would have seen historically. That sort of low single-digit deflationary number has actually been in sort of positive territory. I just wondered why you were steering to more of that sort of flattish ASP Outlook. So that was the second one. And then just the third one, I guess, is around the obvious one, just around tariffs. Can you just remind us of your sort of production versus sales mix where the sort of mismatch is sort of most acute across your business? Thank you.
Yeah, thank you very much for the questions. We don't have any particular strong insight to the VA.
So it's part of the 4%-6% guidance. No doubt that the weak development in VA is a significant part of pulling down from in the lower end of the 4%-6%. Could it happen again in 2025? Can it normalize? Yes, I have no specific insight to that. And again, things can change over a year. The flattish ASP, I still think if you put in as well channel mix development globally as well as geography, that's part of the basis for it. Otherwise, you're right, we have increased prices due to inflation and also from more advanced technology, most importantly, rechargeability. So our comment is that this so far at least seems to have outbalanced one another, giving a flattish ASP for the market.
We have then in that market improved our product mix and channel mix and therefore seen an ASP growth higher than the market quite consistently over a period now. Of course, part of what I said earlier of trying to sell into some of the channels where we don't sell as much and have less share is not instead of, but it's an addition to, and we would of course like to have a good share across channels and geographies. So that's part of planning for a year to look for opportunities across a broader field.
Thank you. And on the tariff?
And the tariffs, we have no comments. This is incredibly unpredictable and unclear what and when and if and how. I can say that all our main production happens in Poland and Europe with that. We have some in Denmark as well. And that's the basis.
The rest of what we have around the world in many, many countries is typically operation of different sizes to support building in-ear instruments like the one we just launched, do service on hearing aids, building ear molds, and so on. We do some of that in the U.S., and we do part of it outside the U.S.
Understood. Thank you very much.
The next question comes from Carsten Lønborg Madsen with Danske Bank. Please go ahead.
Yeah, thank you very much. I was hoping that you could talk a little bit more about your high end of the EBIT range of DKK 4.9 billion, which would kind of require you to grow EBIT by 11% while the organic growth line is up to 7%.
And also taking into account that you're talking about more volume than ASP to drive growth in 2025, which I will assume has a negative effect on the gross margin, or at least not a positive effect on the gross margin. So how should you get to this 11% growth on EBIT potentially? Is it something about acquisitions that could play in or currencies, or will you hold back on OpEx in general? Thank you.
Well, Carsten, for Demant it's just like you have seen the reverse effect this year, scale effects across the business that a number of things are basically fixed in cost, and therefore there is a scalability effect in it, I would say. I don't know if you have anything to add.
Yeah, so agree if we're at 7%. So one thing is how do you get to the 7%?
It's, of course, it is fundamentally gaining market share in a market that is healthy and growing well. That's that scenario, and that will translate significantly into operating profit because of scalability. Also in operations and also despite a more normal unit ASP distribution because it is not selling incremental, you can say, more lower-priced units instead of high-priced units. It is in addition to that would drive growth. So when you have this, you can say, more marginal contribution from low-priced hearing aids, it's also not diluting the gross margin. That's the effect that you have. You have one factory fundamentally, right, and that's what you distribute your units on. It can also be very meaningful to grow via, you can say, more low-priced channels if it comes in addition to what we already do on the more high-priced side.
And it typically don't drive any additional OpEx. So that's fundamental of the scale effect.
Okay. And then one more question is in relation to your internal sales to hearing care. You're growing this by 18% this quarter, 18% last quarter, 12% the quarter before. And sell out in retail is 7%, 7%, and 5%. I know there are some phasing effects, etc., but is it possible for you to explain what's driving this relatively big difference in what you're selling in and what is being sold out of the stores over quite a long period of time, I'll say?
Yeah. So that number will always be bigger, right? And it's because you have both the organic growth on the hearing care side, then you have the acquisition growth on the hearing aid side. And then you have, when we acquire businesses, the increased share of wallet.
We typically replace what was typically a, you can say, a third-party product with a Demant product. We will sell in additional from the hearing aid side to our own clinics. You will always need to add not just organic and acquired, but also increased share of wallet. That's the math of it. The principle that we have is that the, you can say, the arm's length price between wholesale and retail in this calculation is unchanged over time. You can basically say, apart from geography mix, it's a unit measure.
Yeah. A quick question. You already used it. Talk a little bit about the opportunity that remains in managed care. Are we to interpret this that you are making progress in your discussions with some of the companies here, or is it more the same as after Q3?
No, it's the sheer reflection that we lost significantly during 2024. So there's just logically more to gain than to further lose. So that's the.
Okay. Excellent. Thank you.
This concludes our question and answer session. I would like to turn the conference back over to the management for any closing remarks.
Thank you, Operator. I know there's still a couple of people in line, but please do reach out to us directly after the call, and we will do our utmost to help you on the way. Thank you so much for joining us, and we look very much forward to seeing you on the road in the coming weeks. Have a very good rest of the day.