Good afternoon, everyone. Welcome to our conference call, which we hold in connection with our interim report covering the first half of 2021, which we released earlier today. As usual, we plan for the call to last a maximum of 1 hour, including the Q and A session. We are also the usual 4 demand representatives today: President and CEO, sir Nielsen CFO, Rene Schneider the IR team, consisting of Christian Lang and myself, Matthias Holtenmuller. Soren and Anew, they will now go through the prepared remarks, and then we'll switch to Q and A afterwards.
And the presentation is available on our website. Saar?
Thank you very much, Matthias, and thank you, everybody. Welcome to this walk through of the highlights of the report on the first half. A very strong first half for the D Mann Group after some a bumpy period with COVID and what have you. I think we can clearly conclude that our business is back on the feet and in really good shape and deliver very strong growth rate as well as profitability, not the least within our Hearing Healthcare space. We have seen growth organic growth over last year of 51% And organic growth of 51% 2015%, looking back to 2019 first half.
And it is in hearing aids, thanks to the launch of a number of new very successful products, not the least Oticon More, that drive market gains in important markets, including U. S. It is very strong performance in Hearing Care, boosted supported by the growing demand from the reform in France. And it is further significant market share gains in the Diagnostics, whereas our 2 other smaller businesses. The implant business still feel headwind from coronavirus.
And also the communication business Have post corona experienced also larger than expected headwind from lack of demand. And with that driving unfortunately a negative EBIT in the period, but something we over time, of course, believe will change. The negative EBIT, primarily derived from, at the same time, significant investment in expanding the business in R and D as well as global distribution. Based on the performance in first half and an expected continued momentum and market share gains in second half, we have upgraded the guidance to the outlook for 2021. And key figures are revenue growth of 53% in local currencies, as I said, and 26% against 2019, 51% organically 'fifteen.
Against 'nineteen, we grew OpEx 18% in local currencies, of course, reflecting sales growth, in particular in Hearing Care, there is a correlation between level of sales and cost, some of it or significant part of it is variable. But also temporary savings last year, including government support that are not reoccurring this year, at least not to the same extent. We have seen a significant temporary save in second half 'twenty, some in first half twenty twenty one and see them now phase out and on their way into second half. Better than expected EBIT of DKK 1.6 a little more than DKK 1,600,000,000 corresponding to an EBIT margin of 18.2 Primarily driven by very strong profitability in the total Hearing and Healthcare sector segment of with an EBIT of 20%. The strong EBIT and strong performance have led to very strong cash flows, cash flows that have more than doubled since comparable period.
And the upgraded outlook is now an organic revenue growth for the group in the full year of previously 24% to 28%, now being 26% to 30% and a €150,000,000 upgrade to the EBIT with the same span range of now DKK 3.15 billion to DKK 3.45 billion and an upgrade to the share buyback of at least DKK 2,500,000,000 to now at least DKK 3,000,000,000. And a little more Zooming in to Hearing Healthcare area. It is really strong and solid performance, again, primarily across Hearing Aids, Hearing Care And Diagnostics, the very strong performance in hearing aids is driven by product launches and, of course, also the market recovery, but a strong effect from market share gains, definitely not the least in U. S. Among independent, but of course also on the wholesale side from France.
And similar strong in Hearing Care, supported by the French reform. And in total, the benefit of the French report, the reform on top of normal expectations, we estimate round numbers to be on the revenue side around DKK 200,000,000 Danish kroner with an EBIT effect of SEK 100 as much of this have had to be done with existing resources. Of course, some extra cost related to executing also that. Improved gross margin In first half, driven by higher productivity and volumes and business mix versus last year. However, we still see some dilution when we compare back to 2019 from growing rechargeable share.
Very strong EBIT margin of 20%, supported by the impact from the French reform and temporary cost savings. If we look at the hearing health care market and the 3 main segments we serve, first, if we start with the hearing aid market, if we look at the total, first grand total for the first half, we estimate a total growth against 2019 of 6%, where we should expect, if it was normal, 8% to 12%. So we are still adding, you could say, in first half totally to the pent up demand. It still primarily come from NHS in U. K, the Veterans Administration in U.
S. As well as less developed markets, our export markets, Whereas the rest of Europe and North America commercial are closer to a normalization. U. S. Clearly ahead of it.
But a number of other markets are still lagging. Germany is lagging. France, of course, ahead of the curve. In Asia, China, South Korea are ahead of the curve, whereas Australia and Japan. It's a little more bumpy with continued lockdowns occurring, but still small compared to UK and VA and export.
In CI, we still see headwinds in terms of the market, especially in Europe, where there's still not a normal activity level. It's not so much because the hospitals are not open, but the whole pipeline is not built up. So we hear stories from hospitals that are actually short of patients to be operated. So the whole machinery needs to get back in speed. On the bone anchored still faster pace of recovery.
You can use it with a headband. The operation is simpler. The diagnosis and process around it is shorter. And diagnostic market has seen recovery. And in particular, in Q2, we growth rate above the structural 3% to 5%.
But just a few words to pent up demand on the hearing aid side. Our assumptions is, in reality, unchanged. We did expect an improvement during 2021. We have added to the pent up demand globally in first half, but still believe that excluding VA, NHS and export markets, we will see 'eight 'twenty one coming out more or less in line with what it would have been without COVID, meaning catching up what has been lost in first half. And then all the pent up demand from 2020, we still expect will run into 2022, maybe even 2023 for some markets and channels.
Well, it will be all of it. It's too uncertain, still uncertain. But I do believe that especially in the more developed commercial part of the market world, we will see people that are hearing impaired getting a hearing aid to the same penetration level as normal, meaning that depend on demand will come back in. So if some is not coming in, it's either export markets or government driven hospital systems that simply don't managed to catch up on waiting list. So good outlook on the market growth side for the coming years.
That's still our opinion, but we cannot really predict exactly how it's going to happen. Looking closer at hearing aids, strong momentum driven by Oticon More, not the least in U. S, market share gains across many markets. When you look at unit and ASP, as in the table, in a 2 year sequence, 3% unit growth, which is, of course, not that much when we talked about the 6%, but that's our exposure, you could say. But when you look at value and ASP, very significant element.
And if
we had zoomed into the commercial U. S. Market, I'm absolutely sure we both in units and in market and value will see market share gains. So when the other markets come back up, it will also come out in units that we have gained share, I'm very sure. So solid growth in first half driven by France, Spain, Nordic countries, slow recovery in U.
K. And Germany. North America, strong in U. S. Commercial, less in VA and slow recovery in Canada, strong growth in First half against first half in China, South Korea and most of the and the Pacific, continued restrictions in Japan has worked against the growth and same with emerging markets, where we see actually a nice development, but we are still far from historical level.
And Oerlikon Mower and the other products are really good products. However, the product width of the portfolio is not the broadest. We brought out a single model, the most used one, a rechargeable ride. And we will continue to expand on this technology. And next step is a flagship in all the flagship product families, a new non rechargeable ride style.
Also still some demand for or actually many some are significant demand for non rechargeable. Many existing users that are used to batteries preferred to continue with that. That's what they're used to. So I'm sure this will further drive growth. Then we have worked a lot with the perception of how to process sound on this new music not sound, music in this new processor.
And we get a significant better music performance, both when listening to music live but also through streaming. Many hearing impaired also enjoy listening to music. So this will also be part of upgrading the product, a new cross solution. And we will also, during second half, rollout a new portable charger. There is a little bit ramp up to be taken care of, but it will gradually come out in the markets during the second half.
Here in Care, very strong performance. We have seen significant improvement across the business over the past 2 or 3 years. Our entire work with a more global approach to marketing, branding, processes, etcetera, is paying off as well as, of course, strong performance in France, but also market share gains in France under the reform have significantly lifted the performance in Hearing Care. And we have seen, of course, support from vaccination rates that have supported market growth, but we have also seen strong launch of Oticon More into own retail that have supported ALIF to the ASP. Hearing implants.
That's still, as I said, severely impacted in especially Europe, where we have the majority of our business and therefore maybe a little harder hit than competition. We see some recovery, and we definitely expect improvements during the second half. On the bone anchored things are have been for long ahead of the curve, and that's still the same picture. We have a number of important milestones in the implant business lined up for second half. We will be launching a 3 Tesla approved version of our coke implant.
So you can also do MRI scanning in 3 Tesla scanners, which has been an important call from the market. We have a very innovative solution where the magnet is well positioned and don't make any shadows. A little bit technical, so it's actually a Innovative Solution. We have received the premarket approval for the OEUR system in U. S.
So we have started marketing activities and expect to be able to do the first surgeries end of year. And then the BoneAngard will be supported in second half a new 0.25, very small processor that I'm sure will attract attention. And then we are introducing a new even simpler surgical procedure for the bone anchored that will increase and enhance the clinical efficiency. Diagnostic business, strong momentum, most markets and not the least U. S.
That's the biggest contributor and it's a very broad based growth. We have had a little bit headwinds in the market for newborn hearing screening services due to reduced reimbursement. But even with that, the performance is very, very strong, and we can see how the business have grown 30% more than 30% in 2 years. So we clearly, clearly take market share. On the communications side, we can see that there is 14% growth against last year.
But it came unevenly with a lot of growth in the beginning, low comp numbers, a lot of back orders, tougher comps in towards the end of the period and some slowdown. And when we, at the same time, have, as you can see, grown OpEx in the business to invest in sales, marketing, building the brand, but most not the least, and most importantly in R and D. Then of course, when the growth rate on the top line is not to the same extent going on happening to the same extent. We have unfortunately turned into losses, negative EBIT here in the period. And we also expect it in the second half then, Yes, that comes out like that.
And we, of course, expect to turn things up again and start to see growth in the business when we get through the worst of the comp here in the second half. So Softening of new orders is the main driver. We primarily operate in and drive our business in Europe that maybe have been a little harder hit by slowdown than, for instance, U. S. And we are also a newer and smaller player and therefore maybe taking a little harder hit on the slowdown than maybe some of the bigger players.
But very ambitious road map, both in gaming and enterprise, including video that we see as a big and important part of the enterprise business going forward. And so the word to you, Rene, for a little more in the on the financial numbers.
Thank you, Soren. So trying not to repeat ourselves, but here is the income statement. And as has been mentioned before, when we'll measure up against last year. It is, of course, a stellar performance but also, of course, in faded numbers given the impact of COVID in last year. But it is 48% reported growth in sales, which is 51% organic growth, a significant improvement in our gross margin, in particular driven by the Hearing Healthcare business.
It is 18% sorry, 16% growth in our capacity cost, driven by the higher sales and also significant temporary savings and government support in the comparison period. One thing in particular I would just like to highlight On this particular slide is the income from share of profit after tax from associates in joint ventures of CHF 50 €7,000,000 which is also reflecting a very strong performance in our not fully owned companies, not least our not fully owned retail operation in France, doing extremely well. And of course, we also have 8% to CHF 6,700,000,000 gross margin increase of 4.5 percentage point, mainly due to higher production volumes in Hearing Healthcare, but also supported by mix changes, given that Hearing and Healthcare structurally has a higher gross margin than Communication, leading to this 70 4.5% reported in the first half year. If we look against 2019, it is the opposite picture As it's well known to all of you, the fact that we see an approximate 1 percentage point decline from changes within Hearing Healthcare, meaning introduction of rechargeable hearing aids predominantly and then a just short of 2 percentage point dilution from business mix driven by the inclusion of EPAS into the group, But now leading us to a, again, group level of SEK 74.5 billion, which is in the middle of our soft guidance of 74% to 75% gross margin range, so exactly in line with that.
Just reviewing the OpEx in first half year, CHF 5,100,000,000 just above that, 16% growth, which is fully in line with also the soft guidance and the components that we have provided earlier. And that growth does reflect a higher activity level compared last year, again driven mostly by distribution costs and administrative expenses. The extraordinary items in the comparison period of first half year last year was government support benefiting cost of CHF 350,000,000 partly offset by bad debt provision of CHF 150,000,000 If we look at far more, you can say, a fair comparison of the development against 2019. You will see in the graph that growth here is only 6% organically over a 2 year period and then 8% from acquisitions, again predominantly derived from inclusion of EPAS. First half year this year, we also still benefited from temporary savings, but predominantly so in the beginning of the period and less so towards the end.
And we estimate that for first half year to be negligible, so more or less none of that left. That leads to, you already mentioned, EBITDA of just above CHF 1,600,000,000 derived from strong performance in Hearing Healthcare and a loss in our Communications business. But all in all, 18.2 percent EBIT margin, which is 3 percentage point up against comparing to first half year of 'nineteen. So very, very strong and solid performance there. Cash flow from operations and free cash flow more than doubling against last year and also against 2019, 44% and 76% up, respectively, driven, of course, by significantly higher EBIT but offset by increase in working capital.
Modest increase in net investments and acquisitions, predominantly related to our Hearing Care business and is back to what we consider a normal level. And also just highlighting our level of share buyback of CHF 1.8 Gideon. The balance sheet growth of 8% is 4% organic and 2% from acquisitions 2% from currency. It is, again, goodwill from acquisitions and an increase in trade receivables from the strong top line performance of the business. Net working capital increased by 17%, again as a consequence of higher revenue.
Our net interest bearing debt is SEK 8,500,000,000 and our gearing is SEK 2,100,000,000 which is in the lower end of our general guidance of 2% to 2.5%. With that, Soren, over to the outlook.
Yes. Thank you very much, Henin. And just a few assumptions before we come to the outlook. We have seen the hearing health care market recover at least in line with our expectations in first half, and we expect a further gradual recovery in the second half. And to be more precise, again, we believe the hearing aid market will largely normalize except for VA, NHS in the developed markets.
And with that, expect the market in 2021 basically to be what it should have been when excluding, again, undeveloped markets, export markets, VA and NHS. And we definitely feel the way things have developed, we are well on track for that. It can be of course, there is still some uncertainty to pent up demand in second half, but we believe it's realistic to catch up on what was lost in the first the half period. Normalizing of emerging markets and with that also NHS and VA can stretch into 2022, 2023, especially the emerging markets. And growth of at least 8% to 10% in professional headsets, which is the normal level.
We Cannot conclude any more precise than the statistics. That's still our assumption. And then In line with development in first half, our outlook assumes no material impact from potential supply chain constraints. There are many businesses that have such, but we Don't expect any. That's due to our relatively fragmented distribution and infrastructure where we have stock many places around the world the customers, and we feel we are in good shape.
Organic, that leads to an upgrade updated outlook, where we step up the expectation for the organic growth rate from previously 24% to 28% to now be 26% to 30 4 Communication. We also expect negative organic growth in second half due to the high comps. We anticipate 1% from acquisitions, which is what has been completed by today. And we expect, with the currency rates. We know right now a headwind of 1% from FX.
All in all, EBIT upgrade from previously SEK 3,000,000,000 to SEK 3,300,000,000 to now SEK 3,150,000,000 to SEK 3,450,000,000 For communication, explicitly, we also expect negative EBIT in the second half. And again, primarily driven by growing OpEx, while we'll see a negative organic growth, of course, then that's also the expectation for second half. Effective tax rate around 23%, gearing multiple unchanged, And we are safely within that range now. And therefore, also share buyback of SEK 3,000,000,000 against a previous minimum, more than SEK 3,000,000,000 against a previously more than SEK 2,500,000,000 And with that, let's open up for questions.
Thank The first question comes from the line of Janik Denholm from ABG. Please go ahead. Your line is open.
Hi, guys. It's Janik from ABG. Thanks for taking my questions. One on each division, if I may. On U.
S. Commercial, obviously, as you say, it's probably running above usual levels right now. Expectations are Still going forward into second half, that will be a key growth driver. Can you give any flavor without giving any guidance, obviously, for your thinking Maybe the next year for U. S.
Commercial marketplace because obviously that's also where you have a strong traction and good margins these days. And the other question will go to GIPA. So obviously, it seems to be negative outlook for that division second half. When we look a little ahead of that, is that a similar expectation For the coming year, so should we already see next year a more positive traction in that market? I acknowledge you guys are not a small player, but obviously you need to make some kind of inroad in the marketplace.
Thank you. Your line was not too good. So excuse me if I didn't get your question totally right, then please come back. It's simply too early for us to start to guide on next year. We need a little more experience here in second half.
But if your the market, then yes, I think we should all see a positive development to the U. S. Commercial market next year. There is significant pent up demand left in U. S.
And yes, I am a firm believer that the U. S. Society will normalize. My assumption is that's better to say that it will normalize further. And with that, we should see pent up demand.
If people start to go out again and socialize the people that are hearing impaired and have not reacted and remain, but is primarily first time users we have not seen, then I would also anticipate a nice growth rate in the business. Ebers will come back at a later stage on the more long midterm guidance, what we expect. For now, we relate to what we can look into here in the second half.
Maybe I can add to that, Janik. Just even though we say that. We have seen the U. S. Commercial market realizing some pent up demand.
We are still at a place where there is up towards Maybe 500,000 units still remaining in unsold units drive back from last year. So still a good outlook for that market looking forward.
Thank you. The next question comes from the line of Patrick Wood from Bank of America. Please go ahead. Your line is open.
Perfect. Thank you. 2, please, 1 on pent up demand and the other on margins. On the pent up demand, just playing around with the kind of And I get this is always dangerous, but with the market numbers, do you think it's fair ballpark to say maybe 6%, 7% of sales, not for you guys, but for the market overall. Is that in that pent up bubble?
I get you may not have an exact estimate, but as a ballpark, do you think that's even vaguely in the right area code. So that's question 1. And then question 2 on the margin side, if I'm thinking and not specifically for next Yes. But the normalization that will come, I guess, there's kind of elements on both sides. On the one side, the incremental volumes, There is pent up demand, I.
E. NHS and things like that, are quite margin dilutive. But then on the other side of the coin, presumably, you guys have Taken
a big look at the
cost base during COVID and had a real sense of what's going on there. So I guess if you were asked, how would you think about structuring the margins maybe on a more midterm basis, balancing that mix effect relative to what you could do looking at the cost base in your learnings from COVID? Thank you.
So I will kick off answering your question here, Patrick. So on the pent up demand side, you can broadly speaking say that given the 6% unit cost that we have or unit growth that we have seen in first half year. We have maybe added a little bit to the actual pent up demand. So and even if you disregard Enercare's VA commercial market or export markets and the extraordinary effect. In France, you are still at that same 6% to 7% growth over 2 years, where we, you can say, underlying should have been on around 10%.
So we have just added a little bit to the pent up demand overall. And the pent up demand, as we have mentioned before, is still this €3,500,000 unit, where maybe €1,000,000 is from government channels, VA, NHS. And as I mentioned before, you can find maybe up towards another SEK 500,000 in the U. S. Commercial market.
So that potential is definitely still there. And that's where we expect to realize a part of that in second half year of this year, but another major part in 2022, 2023. But that's, of course, where the broad uncertainty lies. So it's all, you can say, broadly speaking, intact and in line with our previous assumptions. On margin implications, nothing has fundamentally changed to the fact that if we look at it On a business area by business area level, it is our expectation and ambition to continuously improved margin.
And of course, if we are into a period where we would see, let's say, higher growth than normal or higher growth than market and we will gain market share, Then it is, of course, only adding positively to our margin. But all of that comes with a disclaimer with regards what is the business mix overall.
Of course, very clear. Thank you.
Thank you. The next question comes from the line of Martin Parkhoi from Danske Bank. Please go ahead. Your line is
open. Thank you very much. Two questions, at least officially. If we start with your implied guidance hearing health care in the second half because you talk about
potential pent up demand in
the second half So forward and you still have, of course, a first half effect second half effect from Ode to Nour and now with this also the new extensions. But if I look at the midpoint of the guidance, then the organic growth rate in your second half for Human Health Care, and correct me if I'm wrong, It's below 10% with if we compare with the offer you've adjust for the cyber attack back In the second half of twenty nineteen. So could you just walk us through your assumptions for the implied growth For the second half of Hearing Healthcare in the context of the fact that you see pent up demand and you have new product offerings. And then and just to be certain on the communication side, again, I appreciate that you're not talking about year. So let's stick to the second half of this year.
You're talking about a decline to year on year, but what about sequentially? What should we expect compared to what should we expect for what have you baked in with respect to both OpEx development sequentially And also sales development to understand what kind of magnitude of EBIT loss we're looking at.
Yes. Thank you, Martin. First of all, I think you take the midpoint and there is a range because there are ups and downs. In one of the biggest uncertainty on the Hearing Healthcare side is, of course, also the recovery On the implants, it's the continued development in France. How long is this effect from the reform going to last?
We don't believe we will see as much tailwind in second half as we have seen in first half from the market. And that is a big part of the uncertainty. So with that in mind and still general uncertainty to small lockdowns here and there, this is what we feel is right outlook for the year, even if we will see some catch up of pent up demand in a number of markets. On the communication side, on the sequential, it is flat to slightly positive expectations. But we will, of course, also see a relatively high growth rate on the OpEx side in the second half and which will also grow sequentially.
So everything, slight flattish to slightly better.
So Martin, just adding to that point. Just have in mind, of course, when you compare here in Healthcare growth in first half year and second half year, the comparison periods are very, very different from a soft first half year to a very strong second half year when you add back the IT incident.
I appreciate that. But you also have, of course, a complete new portfolio this year. And then just to Simon, can I just Follow-up, just on your guidance? We have seen, I think, it was last month that Shunova went out with some It was phone again. And Jonas was out with some supply issues on certain of their products.
I think it was BTE, so no major issue. Have you baked any kind of things into a risk of supply issues in the second half? We also hear now the environment in China, not so much only on the components, but also in the fact of getting products out of there. Are you seeing any increased risk in the second half you also have baked into the coastal
guidance. With the visibility we have, we don't believe we'll see material impact on the financial side, Not that we are not dealing with challenges, but having the operation in Europe and all our stock here and so on, we feel that. There is very little risk. We should see any or no risk. We should see any impact on the financials.
It's not that we don't fight in exactly the same world as everybody else. But we feel we are well set up for dealing with these things. We have a new travel charger coming in And there is some ramp up limitations on that. But other than that, no issues.
Thank you.
Thank you. The next question comes from the line of Christian Reharm from Nordea. Please go ahead. Your line is open.
Hi, good afternoon and thank you for taking my questions. I have 2 as well. So the first is on the market development here over the last couple of months. So obviously, you Port a strong development from or strong acceleration in the market from Q1 to Q2. But can you elaborate a bit on what you've seen more recently, so over June, July and here into early August.
And then the second question Yes, to your market share development. Because as I read your presentation and your report today, you're actually reporting a loss of unit market share. So I think you're reporting unit growth of around 3% versus first half twenty nineteen, Whereas you're estimating the market to be up by around 6%. Can you help us a little bit with the interpretation of that? Thank you.
Yes, Christian, of course, and I understand both questions. We have not seen any material change to the market development in the later months. We continue to see the U. S. Market commercial develop well, a little bit flattening of the development in VA.
We see sporadic lockdowns in Australia. We see some soft development in Japan, good nice development in China and South Korea. In Europe. Of course, some a little bit starting to see a little bit slowdown in France from a very high level, of course, and therefore, still a growth significant growth over last year. We see still at Germany that are impacted by corona, where we are still kind of not really normalizing society at the same level as rest of Europe.
We see Scandinavia doing well and leaving things behind and then NGS that are getting up to speed, but that have not at all catched up to the past. And then, yes, rest of Europe in relatively good shape. Canada is still soft or slower in the normalization, but we see that as caution more than real problems and see steady improvement. So no material change to the situation as we saw it just a few months back. On the market share development, I tried to point it out when I went through it.
You're absolutely right, fully globally. But it is when we take out an NHS of Europe, where we have a very high share that is significantly down. Then if you just looked at basically all our key markets commercially, we are taking also unit share. And then adding to that a very significant ASP improvement. Then in value, we have no doubt we are gaining market share.
And that's how you should interpret the numbers.
Thank you.
Thank you. The next question comes from the line of Oliver Metzger from Commerzbank. Please go ahead. Your line is open.
Hi, good afternoon. Thanks a lot for taking my questions. The first one is On Communications, so you reported a slowdown. And also you stated that Gaming out from the Professional segment. So first question to that is, was the Professional segment still in positive territory in the first half?
And do you regard slower growth primarily derived by a weaker market environment or base effect? Or do you Any other reasons for that? My second question is at the wholesale of hearing aids, you recorded significantly higher growth to your own stores bank to external customers. Could you disclose to which extent this growth was boosted due to the French hearing healthcare reform? And also which scope do you see in future for further increase your share of sales in your own stores?
Thank you, Oliver. I really had difficulties fully getting your first question. I don't know, Rene, did you get it?
I think it was related and you can correct me, Oliver, but it was clear to our comments regarding Enterprise Communication performance there, whether that was also negatively impacted and what was the driver of that, whether it was the market or our own performance. And have in mind here that we are the smaller player. Overall, so our insight to a market is limited, but it is our feeling that at least where we are exposed, the market has definitely contracted. But also in that market, we maybe have performed slightly below overall market. And the market, of course, on that side also contains video where we are a very, very new player in that.
And I think we have seen from one of the major players that they actually also confirmed that the headset market in Europe was contracting, whereas video was kind of booming. So I think there is a lot that is marked. But again, as I also try day. Being the smaller player when demand go down, maybe we are being slightly more squeezed than some of the major players. I don't see there's lack of competitiveness, but we have to, of course, grow the business and expand.
And then U. S, we are not very strong and very big. And therefore, if the U. S. Market, which it seems is growing nicely, then we, of course, are not getting our fair share of that.
And on wholesale versus sales to own retail, it is the French reform that play in. It is, of course, also growing share, but there is also a little bit of running in the measurement of that or from when we didn't report, then we have not revisited the 2019 numbers and how it's done. Therefore, there's a little bit effect of that. But we have, of course, with a strong growth in own retail, also seen a strong growth in sales into own retail in our wholesale business.
Okay. Thank you very much.
Thank you. The next question comes from Veronika Dubajev from Goldman Sachs. Please go ahead. Your line is open.
Hi, good afternoon and thank you guys for taking my questions. I have one on Hearing and one on Communications, please. On Hearing, just Trying to understand, obviously, the gross margin is pretty robust here, but clearly with some very strong ASP tailwind as you look at it from a mix Effective versus 1.8. And Rene, we just love your thought whether you think this is a sustainable gross margin as you see kind of normalization In some of those lower ASP markets or should we be penciling in something else for 2020 or 2023, whenever that might happen, And then my second question is on EPOS. And I appreciate you guys want to invest.
But when you did acquire this business, there was a very clear commitment from you for this business to see positive EBIT, 1, and for that EBIT margin to expand. And I'd love to hear whether your thinking on that has changed and Exactly what didn't go right this half year, that meant we swung basically by DKK70,000,000, DKK80,000,000 positive to negative EBIT in spite of the revenues increasing pretty meaningful year on year? Thanks, guys.
Yes. Thank you very much. Gross margin is final line with our own kind of soft guidance as Rene told about. So don't expect any significant changes from around that point. The lower priced products also have significant lower cost.
And there is scalability in getting the extra volume through. So no meaningful change to that is expected. And on EPOS, it is quite simple. It is the top line that have not delivered in line with our own expectations and therefore, quickly changing from slightly positive to slightly negative. But again, we are very trustful in our ability to generate organic growth and grow the business, a significant part of the investment is into the video space where we see it as a prerequisite for being a significant player in the enterprise going forward.
So yes, we invest in R and D, but we also, of course, invest in making fewer people know we are there and exist and in expanding the distribution around the world so we can get out to customers. So the expansion is in line with expectations. It's the top line that have disappointed here, especially towards the end of the first half.
So Soren, I guess, for you to return to EBIT positive in 2022, you will need to see substantial revenue growth. Is that the way to think about it?
That is the way to think about it.
Okay. Excellent.
Thanks, guys. Thank you. The next question comes from Carsten Lombard From SEB, please go ahead. Your line is open.
Thank you very much. Just a question to again to the gross margin in Hearing Healthcare. Did the Rechargeable Solutions put pressure on your gross margin? I can also remember that you think you said historically that you had to source components at a relatively high price because it was sort of a necessity to have these available fast. But is there also sort of a scenario where Going forward, you could source components cheaper, you could develop maybe the new portable charger is cheaper to produce so that it will not have this drag on your overall gross margin.
And if you could also give us a little bit of a hint on as to how much of your sales is today, whether we charge for solution. That was my 2 questions.
Yes. Thank you, Carsten. Gross margin I think we have said many times We have a number of initiatives to lower the cost of rechargability, and we definitely will do over the coming period. But it will never be for free. And it will never have the same margin as a pure hearing aid.
So there will always be a dilution compared to historical levels when they were non rechargeable. But of course, the further impact on gross margin will fade out. Today, we see A very high share in the markets and channels and segments where rechargability is out of up to 70%, Whereas kind of total group, we are more like 30% of units, but that is because there is a lot of in Europe, in government systems, in export devices that have not yet become rechargeable. But of course, the long term expectation is that, ultimately, one day, maybe all hearing aids will be rechargeable. It's just something We will have to cope with and therefore, of course, also significant effort goes into developing models with significantly lower prices on, for instance, the charger just as you speak about.
A few comments to the two questions also from Veronika earlier on the gross margin on Hearing and Healthcare. As you all know, there are so many components going into that share of rechargeable, what is the unit growth, elevated freight costs at the moment, ASP, so on and so forth. But the overall message is that we feel comfortable that we can maintain the gross margin level that we are at currently. And that's our firm expectation.
Great. Thanks.
Thank you. The next question comes from Maya Pataki from Kepler Cheuvreux. Please go ahead. Your line is open.
Hi, good afternoon. Thank you. And two questions from my side as well, please. Soren, I was wondering if you could share your thoughts about your VA market shares. We've seen this tremendous improvement in May when you launched the Oticon More and now it's come also based.
This is a bit of a different pattern than if we look back to 2018, where you had a significant step up with open And then it continues to go up. So is it because VA channels are overrun, so it is a bit difficult To get new customers on the product? Or how shall we think about market share development going forward for you in the VA time over the next couple of months based on what you're seeing? And then my second question relates to your guidance. If we look at the guidance hike of the 200 bps on the top line, what has changed obviously is also that this time around you softer growth for EPOS, presumably.
So could you help us understand what is driving the upgrade on the hearing aid side. Is it trends? Is it the commercial market in the U. S? Were you taking greater share?
It would be just Grace to understand a bit the various growth growth. Thank you.
Yes. Thank you very much, Maarten. On VA, it's right. We have seen quite a step change from short of 10% to above 14%. And I would say that, that's 3 elements in growing further.
Better access, it is still literally impossible to get in and get a face to face meeting with VA staff to explain about the benefits of our product. So no doubt, we have primarily seen people that were already familiar with Oticon picking up. So access needs to improve. Then also some element of product line expansion. We have only a Oticon Moor in a rechargeable rig.
It is the most used. But VA has kind of a slightly different product mix than rest of the U. S. Market, more custom products, also still quite some with disposable batteries. So getting more products in, I.
E, the disposable battery version we launched now we'll get on in November. And then hard work to improve all these many details it takes to be a good supply to VA. But access, I would say, right now, access to sales calls is the limiting factor for short term moving things further. And then on the guidance, it is continued market share gains. It is momentum in the business.
That's the main driver for further growth in second half. The expectations to the market recoveries in line with our expectations. So you should read this as strong momentum in hearing aids, hearing care and also diagnostic and that the French reform, as one example, have shown to have a longer lasting effect than first anticipated.
Okay, great. Can I just follow-up on the VA share, please? Have you seen anything from the VA clinics that they've started to be a bit more hesitant again, given the fact that hospitalization rates have started to increase. Is there anything that you've heard from yourselves people anecdotally?
Question comes from Michael Jungling from Morgan Stanley. Please go ahead. Your line is open.
And good afternoon. I have a few questions. Firstly, when it comes to Communications. What do you make of the slowing orders in Communications Towards the end of the quarter, what's the feedback from your distributors and customers sort of telling you? Was there a destocking event?
And did you even see cancellation of orders? Secondly, on OTC, Can you comment on your thoughts around conversation boost coming out with the next generation Apple AirPod Pros? I think they're coming out in a few months' time. And specifically sort of the ad highlights that it helps people with mild hearing loss and use beamforming microphones. Are these sort of products That's not to worry you tackling some of the hearing aids that you would normally sell in that category.
And then thirdly Is on the CMD. Can you comment on whether you intend to give some sort of midterm guidance in that CMD next month? Will you showcase new products? Will it be an OTC strategy that you may highlight as well or some sort of M and A event? Just to sort of color what of areas you may address in the CMD.
Yes. Thank you, Mikael. First on communication. It is The distributors that have primarily we hear a lot on stock and then some decrease, of course, in demand as People are no longer sent home to work to the same extent and the channel is kind of full for that. So we also hear about converting into discussion, Which gives a little bit the stalling of decision taking in how do I actually equip my office, what is the equipment I need, video versus headsets speakerphones and so on.
So there is actually good activity out of the channel, and we see it start pickup with the customers we have, but they for the products we sold the most of during COVID have basically seen installing. We have not the cancellation of orders. It's not like that. It is just a flattening of the demand from us to them that we have seen and that lasting longer, of course, because at the other end, maybe the dip was a bit stronger than anticipated and a little more longer lasting than anticipated. On the OTC, specifically the airport, I would put them in the broader categorization.
The way I have talked to Apple and know Apple, it is just very important for Apple that people that use their products can have benefit from them. And yes, now including if you use them to actually listen to things. But I still think there is a tremendous step that I at least not yet accepted, that is that you wear headphones when you are in social situations like restaurants and others and use them for listening. Hearing impaired people, especially mild, moderate, are very hesitant to even if they have a suspicion they have a hearing loss to admit it's there. And it would take a significant change to stigmatization around hearing loss and so on.
So no, I do not see this As other than trying to make your airport work better, if you have one and you believe you have some inherent challenges. If anything, Then positively, it could add and draw more attention that you actually have a hearing issue because if you try to switch this feature and you actually hear better. So maybe you will feel that it's time to have your hearing checked and go see a specialist and get a real product that you will actually wear where it's most needed. And then on CMD, no surprises planned.
Okay. So for the CMD, is it more of an educational session then rather than trying to produce anything that is sort of different towards How you want to tackle things in terms of strategy?
We will try to give a little more in-depth to some of the businesses we operate that right now is whether it's uncertainty related and try to give our best view on how things could develop. So we all feel as enlightened as possible.
Thank you. The next question comes from Michael Hanych from Stifel. Please go ahead. Your line is open. Yes.
Thank you. I have 2, please. First one on the Philips here link. Can you shed a bit of light on it? I know you wrote that it's doing rather well in the announcement.
But a bit more detail would be helpful also on the success within the cost of channel. And further, it would Great, if you could give us a rough indication how big the cost of channel is for you. The second one is on communication. On the communication slide, you wrote that growth in H1 is driven by gaming. Can you give an overview on what of the 16% growth can be attributed to gaming?
What's with the audio side?
Sorry, your line is really weak. I have difficulties hearing your question. It's not very good sound quality. Could you try to repeat the second question?
Sure. On the Communications slide, you wrote that growth in H1 was driven by Gaming. Can you give an overview on what of the 16% growth can be attributed to Gaming and what with the Audio side?
Yes, understood. Let me first comment on Phillips Air Link. Phillips Air Link is a relatively broad based growth across channels. As we have said, a primary focus in the beginning have rightfully been the COSCO system. And we have definitely increased opposition significantly during the first half.
And also, we have launched the Philips brand in Asia, China in particular, and have seen very good growth coming from that. So we are now also entering a number of other markets with other channel strategies and see good interest in growing the Philips brain. So it's getting more and more broad based, and it's a good momentum around the product. On the communication, we cannot comment any further on the split between enterprise and gaming. There was also a significant boost in the gaming market during COVID.
And we have also seen some slowdown there. There's a lot of users that got a nice new headset during COVID. But further than that, we cannot comment.
Okay.
Thank you. We have one final question from Kate Kalashnikova from Citi. Please go ahead. Your line is open.
Hello. It's Kate Karsnikova. As for the question on OCC, So a self speaking hearing device was launched by your competitor, National Vice this week as we await FDA regulation for OCC devices. Even that there is already a self fitting hearing device on the market, how much further can the hurdles actually form PTC devices Compared to the traditional hearing aid. What would you be most concerned about seeing in the FDA framework 4 OPC devices when it comes out.
I'm sorry, again, your line is really tough. I'm not sure I got your question. Was it how people could release things prior to the FDA regulation?
But we would have concerns about that.
No. So
As we await FDA guidance regulation for OTC devices, as there are already self fitting devices, How much further can the hurdles fall for OCC devices? And what are you most concerned about Being potentially in the FDA framework on OTC devices.
I'm sorry, I simply don't get the question.
And I think you're asking about the concerns, the major concerns around the OTC category and what would come out. And I think we're pretty uncertain as to what exactly the category will look like. We don't have any clarity on that. But through here, the industry organization in the U. S, we have published vision paper on the OTC category and here's recommendation as to what regulations should look like in here's opinion.
And I think that's a pretty good proxy for looking at the important areas that we view, the things that we'll be looking at in the coming OTC framework. Other than that, I don't think we can really say much on OTC. It's still kind of in the making and no further clarity on either timing or contents.
There is no reason to expect another delay in publication beyond 18th August?
Yes, so 18th August was the statutory deadline last year in 2020. There was a 3 year deadline for the FDA to come out with regulations. Obviously that was not met. And then we've heard from the FDA on several occasions through these unified agendas and a few other means. And basically, I don't think they've given any clarity in terms of when exactly they expect to publish this, except we've seen several dates and deadlines that have then subsequently not been met.
So I don't think we have much clarity there unfortunately.
The line with here. We definitely would like to see it out. That would only bring clarity. I'm very skeptical that it will bring much news because FDA is about safety and claims. And whether or not there is a dispenser that fit a hearing aid, basically don't interest FDA.
It's just important that if it does not include 1, then it's safe for the user and the instructions are proper. So that's why I You have seen Bose coming out with their best shot at OTC device already under the existing regulation, And I don't expect it to be fundamentally different. So let's get the full clarity and transparency and then See who actually plans to release some and we will see if the market responds. As you have seen, probably seen the pricing of OTC devices has Had a trend to grow in order to maybe help somebody show profitability one day And it's not very far from what hearing aid actually can be bought for these days. So I think the whole theme May, slightly exaggerated in importance.
Actually, on the price of both the self fitting KEREG devices, dollars 8.50 It's actually quite high given that service is not included. What are your expectations for potential price stage For all the key devices, given likely high rate of return, given that there may be higher selling cost Because it's a 4th stand sale, not the replacement device.
I cannot give any further flavor to pricing development on OTC. You can follow the development and see the various players positioning. You have Yago, you have Bose and a number of other less known players, and I think they are the best. Right now, the good thing is already out there. We see how the market reacts.
We see how the whole thing will develop. So we will watch out for that in the coming period and would actually like, again, clarity from FDA what it is they are going to regulate. So with that, I think we should round off and say thank you for questions and thank you for today. Matthias, any closing remarks?
No, I think yes, that was it. So we talked about it before Capital Markets Day still being planned for 27 September. We still hope to see as many of you as possible in person, but more to comment that in due course. Otherwise, thanks very much for participating. Let us know in case of any questions.
We are going on the road mostly virtual but also in person this time. So looking forward to connecting with you in the next couple of months. Have a great day. Thank you.