Ladies and gentlemen, thank you for participating in this conference call held in connection with our announcement this morning. The duration of this call will be a maximum of 45 minutes, including Q&A. Today, the company is represented by Søren Nielsen, President and CEO, René Schneider, CFO, together with the IR team, and with that, I will hand over to you, Søren.
Thank you very much, Christian, and welcome everyone to a short walkthrough of basically exactly the same information as we have written today, but just with a little voiceover, then we'll quickly go to Q&A. Slide number two is an updated version of the staging model we have developed to keep track of where we have the majority of our markets.
And we have seen, in particular during the last three weeks' time, I would say, a significant progress in a high number of countries, so that we today only consider the U.K., Ireland as well, and then Brazil markets that are under strict lockdowns and virtually no activity, and we have seen, in particular during the last three weeks' time, I would say, a significant progress in a high number of countries. We remain to have Finland in early stage recovery despite the pandemic not being particularly strong and widespread in Finland.
For some reason, the market has a little more resistance in reopening and business reopening, and we see that generally up there. It's not us. It is general.
And then we have seen a big number of countries accelerating into recovery, and basically, it's easier to say that the ones that are even beyond that are China, South Korea, that for long have been in a good position, but also Denmark and Norway are very close to normalization, meaning that it's basically difficult until you get some kind of market statistics, if ever, to judge whether you are back or whether you are back in the way that the traffic coming is actually a good mix of new or things that were already in progress, and that's basically the most difficult thing right now. In the U.K. only, we can, of course, track it, but in the wholesale side, we cannot.
Whether the people that are serviced in the shops, whether they are people that were already in the frontline pipeline, for instance, having a scheduled appointment or first test fitting, etc., or whether they are coming in as a new user raising their hand, we're still under the impression that most of it comes, of course, from existing pipelines. That's natural, that that's where you start. Therefore, we cannot really tell how the underlying market is and whether the ability to regenerate traffic through marketing is intact, and whether we can also, at normal level, fill the schedule with an equal amount of kind of existing users already hearing that people that need a replacement or whether the other half coming from real scratch development.
At least in markets like China, South Korea, where we for longer have been in a more normalized situation, it seems to be able to do that without a setback, meaning that it dries out, the world dries out when the existing partners have been serviced, so a good recovery. We also don't still know much about the pent-up demand. Of course, all the users not serviced in the three-month period, past three-month period, should need the same service, and again, we'll have to see during fall to what extent this pent-up demand comes back in or whether it will run into 2021, and we have really no new transparency into that. We still need more months to pass to also on old retail get much closer to understanding those dynamics better.
But at least there is positive reactions out there from the users. We see that they all feel some relief of actually being able to go out again and again hearing that the stores are generally seen as a safe place to go. Next slide. Slide number three gives an overview of the updated runway numbers. This is with a little more interval this time, as of course, things change from week to week as normal. There is a difference between the beginning of the month, end of the month. So in order not to just take the last three days, which would not be accurate to the actual kind of runway, we have an interval. And the hearing aid wholesale business had moved from the beginning of May around 20% to mid-June, first part of June, the 60%-70% with big variation across countries and channels.
We've seen independent come up quite quickly. The cost risk level is low. The complexity of the system is low. We've seen some of the larger chains taking a little more time to get up to speed, and then we see big proportions in public channels, whether it's the NHS for natural reasons in the U.K. or the VA in the U.S., and also other public healthcare systems simply due to being in a hospital setting, due to general safety and precaution and prioritization of other areas where they are more behind after spending a lot of resources on COVID. On retail, we have moved it up from 20% to 40% to 50%.
An element of that, despite being in the same countries as the wholesale, is both about ramping up on large-scale retail, but more importantly, there is, of course, a delay in invoicing at wholesale level into the channel where a lot of retail is invoicing out of the channel and in some countries not allowed to invoice until you have actually had the instrument on trial for a while, France being an example. So the real business runway much more is attributed to test appointments and scheduled appointments, and there we see activity level being somewhat closer to what they have seen on the wholesale, but it comes delayed on the revenue side. Implants have moved up, but not to the same extent, and that is exactly what we have in the CI business, where we still see things relatively slow.
However, some improvements. Hospitals are opening, but it's a much flatter curve than we have seen on the more commercial wholesale retail side, and we are currently around 30%-40%. And again, our bone anchored business is more globally spread and therefore more in tune with a global market where we on CI are quite sensitive to a few countries' stage, and we are having a big business in Italy, Spain, and France, and U.K., which are coming up countries. So it is the pattern that these countries are really hit, so it doesn't really help that Denmark and to some extent also Germany have a more positive curve. It cannot outbalance also our position in the markets and the end. Diagnostic has seen some improvement, but still reduced ordering delays in particular in the areas of school districts as well as dispensing segments.
A much lower activity level on the new order side, and this is, of course, natural that hearing aid fitters are cautious. And then on the other side, calibration service business remains to go well, and we see opening in hospital systems. Personal communication up or remains around the 120, and why not an interval? That's basically because it's in line with what we saw last time. We see the trend continuing, and 120 is on top of a relatively strong growth as well. So we do really well in that position. All in all, good level around 50%-60% of past business.
And then on slide four, we have summarized across the period of the first half year so far, kind of the different phases we have been in on the revenue side from strong double-digit organic growth, the lockdown from mid-March, beginning of May around 30%, and now 50%-60% gross profit in line with expectations at the beginning. Then we continue to produce for full capacity and therefore continue to see relatively in the beginning of the crisis a high gross margin, but then a low point in the beginning of May as we produced less and therefore couldn't recover the overhead structure and again could not get the funds and furlough to cover for that in the central operation and also needed to keep minimum business going. We continue to see headwinds, but the margin is improving.
It is good, as we have said many times, 1/3 approximately fixed cost, 1/3, which is semi-fixed cost, meaning we have some opportunity of scaling up and down, and then, of course, 1/3 typically material, which is one-to-one scalable to how much we produce. On the OpEx, we saw significant low double-digit growth in the beginning of the year, half organic and half due to EPOS and acquisitions. We saw a lot of new things to reduce costs during the past three months, and the runway in May was around 60%. It is difficult in the middle of a month and the beginning of a month to judge the exact runway, but our best estimate currently is we are probably up in the 75%- 85%.
It's obvious we need staff back in the stores, we need sales reps on the streets, we need people in local operation and on the phone, and it is a quite instant need to have a lot of these resources, so you will be ahead of the curve. However, we try, of course, to not do it too fast and make sure it's the most important first, and also some of the traditional, for instance, in wholesale, the fairs, trade shows, so on, we basically have decided not to participate in any such events for the remaining of the year, also for safety issues, and that together with much less traveling and entertainment, etc., of course, gives a significant offset, and then cash flow, strong start to the year, continued to be strong in March.
It's, of course, the risk of people not paying, etc., but as we have reduced the buying of material, etc., for factories, we have still had an okay account receivable. Cash flow has continued to be positive, but it is going down now, of course, because now we see the cash not coming in from a much lower sales level yet, so we will start to see the real challenges, but the negative development on the cash flow in the coming months is all in line with our expectations and predictions, if anything slightly better, as the so far ability to pay has been good, but it is, of course, with high risk.
Summarizing all this up, the thing we can add is that if you put all this together, I think we can all surprise the most that unfortunately we will have a negative EBIT before one-offs related to EPOS for the first half of 2020, and we cannot comment on it in further detail. There's still a lot of things that can swing up and down, but it is going to be negative. Then slide five, and no changes to fundamentals. We definitely believe there is a pent-up demand. We cannot exactly predict the magnitude of it. Is it 100% coming back? Is it 50% coming back? What is it? Is there still a number of people that are scared of going out and therefore don't seek help? This is the remaining uncertainty, but so far things have developed at least in line with expectations or slightly better.
So we are having some optimism around the opportunity to see pent-up demand at least partly coming also during 2020, but we cannot predict that. We will have to see. Therefore, slide six, outlook remains withdrawn or we don't have any because the uncertainty is simply too high. We maintain the suspension of the share buyback and pending a better overview of the financial implications, etc., etc. And we will next schedule news flow from us unless something very significant happens. Hopefully not. We'll be with our interim report in 17th of August this year. And with that, we will now for Q&A.
Thank you, ladies and gentlemen. If you would like to ask a question, please press zero one on your telephone keypad. We ask you kindly to limit your questions to two at a time. Once again, it is zero one on your telephone keypad to register for a question.
And our first question comes from the line of Martin Parkhøi from Danske Bank. Please go ahead. Your line is now open.
Thank you very much, Martin Parkhøi from Danske Bank. Firstly, a question on volumes because, as you alluded to, it's the commercial retailers which have come back faster, which means that's also the high-price channel. So can you give some kind of indication on the volume development? You are at index 60-70 on your wholesale franchise, but I guess there must be a significant gap between volume and value. And then related to this, when do you expect these? I of course understand that the situation in the U.K. is also bad and also in the U.S., but do you have any idea when the stores are opening up in Costco?
And then just lastly, on the FDA timeline on the cochlear implant that you filed in March, as I recall it, have you got any kind of indication from FDA if this will take longer due to the corona situation?
Thank you, Martin. You're absolutely correct that with the channels and bureaucracies in play, there is a significant ASP element in the revenue improvement. Very round numbers. We are more like 50% on the volume, and the main reason for that is the NHS in the U.K., which is totally dead when it comes to buying hearing aids these days. If they need anything, they pick up a little bit from their back stocks. And then exports, which is also relatively high volume, lower ASP, that is also still at a very low level. And then also some of the larger channels, as I said, VA, Costco, larger retailers are ramping up. It has just been a little slower than we have seen on the independent side, but we see most of them coming now. So it is more volume.
It is more the low-price export markets where we are still very uncertain what will happen. We have no real good answer on VA either. So VA, NHS, export remains to be the biggest uncertainty. And FDA timeline on CI, no changes. We have actually had the expected questions in writing coming back, and then there is a scheduled process for that, and it is in the works and happening as we speak. So we seem to be on track with the timeline.
Okay, thank you very much.
Thank you. Our next question comes from the line of Annette Lykke from Handelsbanken. Please go ahead. Your line is now open.
Thank you so much, and thank you to Demant for the frequent updates, and thank you for being as transparent as the situation allows you to be. My first question will be, what kind of assumptions? I mean, it's my impression that you see a pent-up demand and also with a potential positive spillover in 2021, and my question is simply on what assumptions are you working with in respect to the second half of 2020 and potential COVID-19 restrictions for, for example, senior citizens? Are you just saying there will be totally normal business, or do you see maybe some restrictions if we have some COVID-19 second wave? Also, I'd like to see when you talk about demand, what do you see in respect of price points, also taking recession into consideration?
Do you see unchanged patterns, or do you actually also see some users trading down maybe to the mid-price segment rather than the high-price segment? And then on the pent-up demand you talk about, I understand repairs, problems, cleaning, and also replacement of existing hearing aids and rescheduling of already made appointments is coming now. But what about first-time users? How big a part or how many of those patients are you seeing coming in?
Again, I would like to hit all of them. First of all, 2021, from a planning perspective, seems awfully long away, and then there is a huge difference across the various businesses.
But you mentioned that you see a positive effect of pent-up in 2021.
I see the potential for one. I say with the hearing aid side, the hearing aid side, you can definitely imagine that the countries that have gone through this well and where you see a quick recovery, you could have and you do have plans for the option to be realized partly in this year, but it could also spill into next year. But we will have to see this first. We talk about three or four weeks, and as I said, it's really difficult to take apart what comes from what. Our best insights come from own retail where we, of course, better can track whether it's somebody we have never heard about before that's on the line or whether it's a person we had scheduled for whatever part of the process and now rebooked.
We, of course, go three or four weeks into a recovery, mainly focusing on pipeline people, so we cannot yet tell whether or not we can generate the necessary new traffic, and that is back to the pent-up demand, whether that will show to be straightforward when we fully fuel marketing or whether we will feel that there are a number of people there still will opt in to engage on acquiring a hearing aid, so that's still open for us, I would say, and yes, of course, we can quickly see things that can change the situation, so we are as prepared as we have been every day doing this, that you can wake up any morning and conditions have been changed in the market, and we have to respond to that.
We all follow with anxiety the reporting from China on Beijing being in the new cases, but also notice the tremendous urgency and sense of urgency around really coping very fast with the situation. You also know we have similar small ones here in Denmark, and our priorities are totally different response than we saw back in February-March, where you try to talk it down for two or three weeks until you understood how bad it was and then finally did something, so we do work under the assumption that we have to take good precaution. There is still an element of spending a little more time here and there in the process, but I'm sure we'll find ways to optimize also that without running a risk, and then your question on price points. It's too early to tell.
It's really difficult to have to zoom in almost on account level. So again, it's going to be our own retail that can best tell whether there are any movements in product needs. Typically not, but could be some if it's a really deep recession in some countries. But globally, I must say, I don't expect it to be significant, but we'll have to see how that plays out as well, which, of course, also is a little bit the chicken and the egg, of course. How is the world economically developing in the second half? I think we, at least in Denmark, have gotten also renewed optimism from even the most clever financial economists that believe that maybe it was a little exaggerated, the predictions in April-May, and to a slight improvement of the outlook. So we'll have to see.
And I think with that, I covered most of your questions. Otherwise, I know you have to repeat one of them.
No, but that's fine. I'll jump back in with you. Thank you so much.
Thank you. Our next question comes from the line of Michael Jüngling from Morgan Stanley. Please go ahead. Your line is open.
Thank you for taking my questions. I have two then. Firstly, on the first half of 2020, you're referring to it being negative. Can you provide some more color? I mean, there's only a few weeks to go for the first half end. Are we talking here about a DKK 100 million loss, or is it going to be a DKK 300 million loss? Some sort of color, please. And then secondly, when it comes to the recovery on or the recovery for lead generation, can you comment to what degree you started lead generation? Are we 50% back to normal, or are you back at 100? And how long does it normally take for a lead to result in a sale? Thank you.
Thank you, Michael. We cannot get any closer on the EBIT side. There are still many moving parts in finishing a first half like this. All the calculations on cost of goods sold and commissions and what have you. We have to be very diligent, and with the speed of things changing in June, both sales and costs coming in, we cannot get it any closer at this stage. Yes, we have. If you ask for whether we have started activities to generate leads, yes, we are quite active. We are very digital, but also trying out many different messages to see what works. Again, people are in very different stages. We also try to do some consumer surveys to figure out how the mental state is among consumers in different countries and what kind of messages people react to or not.
So if it is effective as it was before, not fully, but that is where it is really difficult still, unless you really zoom in on the lead management on whether it's a totally new name or an existing name. Of course, still there is a significant overflow of new names or existing names because they're booked recently first, but that doesn't mean that we don't start to fill up the pipeline. But we cannot yet tell to what effectiveness level, if that's your question, we are able to create appointments. But looking at the schedules in the mix of existing and new and how that comes out, we have seen a very quick change in many of our retail countries from basically very little to a very high activity level that gives good indications for a further positive development in the recovery.
And also, it seems like those that decide to move on, they are more firm in their decisions, meaning that we see less cancellations. We see less no-show, which is at a relatively high level normal business, so we see a positive trend, and that also makes it a little difficult to totally predict. Even if the leads are a little less, they might come out with a better quality, so at the end, a better revenue, and then back to your question on the delay, it is typically between 30 and 60 days, country by country, from you have started to flow and book the first test until you actually see it working.
Great. Quick follow-up on the first half EBIT. Do you expect to record a write-off of receivables that is significant?
Yeah. So we are continuously assessing the risk on our accounts receivables. And so we are going to look thoroughly on that end of half year. But the size of any potential provision we would have to assess at that point in time more based on our expectations towards future defaults rather than what we have seen so far. So therefore, we are not in a position right now to give detailed guidance on the size of that assessment because it is a forward-looking assessment at a point in time. And it relates closely to the market recovery, of course. We will see many of the furlough and support schemes roll off, which have definitely benefited the total industry tremendously, also small business owners. If the revenue quickly comes up at just 80%-90% level per store, then people will definitely survive and pay their bills.
If it all of a sudden is 60 or 70, then some will definitely be challenged, and it's that assessment, which is things are very dynamic right now, which is a difficult one to do for a further outlook into the remaining of the year where you barely know what the state is, so a lot of uncertainty, and therefore, we cannot be more precise.
Okay. And may I follow up on the lead generation question, please? If I look at the HIA survey, the independents seem to be really struggling. How are they, in your mind, able to start lead generation when they're just about surviving yet not having a budget that they would normally have to prompt lead generation now? How will that work, you think, with the independents?
Leads, there are apples that sit high in the tree, and there are apples that sit a little lower in the tree. Emailing or physical mail to your existing database with an upgrade campaign has always been cheaper than and actually yielding better. The only problem is you can't do it all the time because then the well dries up. But with a three-month break, that is where you start. And that's exactly what we do on the wholesale side. We are extremely active outreach with very concrete suggestions for reopening marketing and these kinds of upgrade campaigns rather than trying to shake the tree and see if you can get tons of tokens.
You will see the mixture of leads, just like in our large retail chains, from being in the beginning, existing pipeline, people that are ready to move or should be ready to move because there is new reimbursement available for them or hearing aids have aged or they are the ideal candidate for an upgrade to a rechargeable mid-price product, whatever it is. And we try to be very active with our good independent customers in collaborating around lead generation.
Thank you.
Thank you. Our next question comes from the line of Christian Ryom from Nordea. Please go ahead. Your line is now open.
Hi. Good afternoon, Søren and René. And thank you for taking my questions. I have a couple, please. My first is, when you look at the state of recovery across different markets, can you comment about the differing experience in, say, the northern European countries and then southern European countries and whether you expect that the difference in their current activity level is only a matter of countries having begun reopening sooner and following the same trajectory in recovery, or do you expect, say, harder-hit countries to follow a structurally different path of recovery than, say, what we've seen in northern European countries? That's my first question, and my second question is somewhat related. The slide that you have on the staging model, when you talk about approaching normalization, can you give us a little more color about what you actually mean here?
Is that markets where the impact of COVID-19 is now indistinguishable on revenues? Are we talking revenues around index 80 or even lower than that? Anything there would be very helpful. Thank you.
Can you read some of the message with the first one? First of all, of course, it is reopening of society. And in the beginning, Denmark was reopening, and France was reopening. And in Denmark, you would go to the hairdresser, and in France, you could take your pet out for two hours. So, of course, what does reopening mean? And structurally, it is important to see where the country actually is for what is allowed for people's behavior. And then secondly, whether it is contained in a few areas in the country. Of course, in those areas, it then takes a little longer, or whether there are very significant areas that have just been locked down, but the pandemic never really got there, and therefore, people get back a little quicker.
But that being said, then after the time that that process meets and allows for, the reaction seems to be very similar. What is still, and I'll try to get across here, is impossible, in particular in the wholesale side, for us to say. We have a little bit of intelligence looking into retail, but we are not all over the place.
That is, whether this initial very quick uptake that we have also seen in Italy or Spain and so on, once it kind of gets to the point of France, whether that is because the three months we have not been operating simply have built up so much immediate demand that you can only get a quick recovery, and whether we will then see, let's say, a slowdown as we move into really having to generate a significant number of new users, where you could have a hypothesis that it gets a little tougher in the short term, whether you are feeling it's necessary to go out, recognizing you need a hearing aid is a long process already, and whether that's three weeks longer or four weeks longer, I don't think the user will see as dramatic as if you are an existing hearing aid user with a broken hearing aid.
It is urgent to do something. And in between that, people that have a device, but maybe for a while have needed a new one because it doesn't really work. So it is previously uptake also in countries where you would have been skeptical, but on the other hand, you can't really tell apart whether it's just this pent-up immediate need. And we only talk about three, four weeks at a max, if not two or three in most of these countries. So we'll still need a little more time until we can conclude on that.
Okay. That makes sense. So essentially, just to make sure I understand what you're saying, is that the sales performance has actually been somewhat similar in pickup, but what you're uncertain about is whether the new lead generation is similar between countries that have been affected differently by the pandemic?
Denmark and Spain as an example.
Yeah.
Exactly. And then also channel mix. Again, if you take the U.S., one thing is the geography where in the countries, of course, New York business is not as good as an area that has never been hit. That is the channel type, back to hospitals, large retail, etc., where it just picks up a little bit slower. And hospital settings, much slower, and again, implants, much slower. So you also have to take that element in where a pure private commercial type of business and also it actually doesn't seem to matter whether it's with reimbursement or not, picks up quite fast.
Okay.
Your second question was, what does it mean with approaching normalization? This is when we get into the zone where it's really difficult to take apart the potential market share gains, market recovery, initial hype from repairs and immediate fittings and so on. You feel you are normal because you're busy. If you talk to the same people, they say it's busy, but you can still be below 100%. You can also be above, but you're not down in the 70s and 80s, then you're still in recovery in our books.
Okay. Great. Thank you very much.
Thank you. Our next question comes from the line of Veronika Dubajova from Goldman Sachs. Please go ahead, Veronika. Your line is open.
Thank you for taking my questions. I have three, please. My first one is just your comments on pent-up demand, and I appreciate you're talking about potential, but I'm a little surprised. My understanding is, for instance, when you look at countries like China so far, and they're tracking a couple of months ahead of the rest of the world, there really has not been any pent-up demand. So are you starting to see something else on the ground in places like China that gives you the confidence that we'll see this materialize, or is this more of an expectation but without any kind of evidence that you see in the market? So that would be my first question. My second question is, based on the trends that you see, just curious what your expectations are for the second half.
Do you think that you might see positive organic revenue growth in the second half of the year or not? And then my last question is just the negative EBIT comment. Is that inclusive of the bad debt provisions, or is that an underlying number, and any of the bad debt provisions would come on top of that? Thank you.
Thank you very much, Veronika. First of all, at least I don't believe I've said that there is no pent-up demand in China. I think China is a good example of a market where our transparency into whether it is the existing pipeline and therefore an element of pent-up demand that's activated, or whether it's truly users, it's non-existing as we don't run any retail. We don't have market statistics. We can just see that our own business is definitely in good shape. And whether that's because we take share or the market recovers can to some extent be difficult to judge. I think we have seen China come back at a very good pace and have also shown indication of pent-up demand coming back. But again, when you have absolutely no market statistics, then that's why I'm a little soft on China, what is actually going on.
In markets with market statistics, when we add together 2019, 2020, 2021, hopefully we'll see that we didn't lose much. But you cannot see that on China because we don't have precise data. But the system out there is working. Very nice growth. There should also be growth in the market. So it's just impossible to come with any precise guidance on what is pent-up demand and what is what out there. That's a little too dynamic to itself. And then expectation for organic growth in the second half. If we just see, let's say, a complete normalization, then definitely towards the end of the year, half year, we should see organic growth. So I believe it in the first weeks or months of second half, no. Then we should see a further big acceleration. How the whole second half year comes out, very difficult to tell.
That is exactly the uncertainty about the balance between pent-up demand and new users coming in, and also how these epidemic breakouts impact things. So that we cannot say anything about at this stage. And then the EBIT, that's a summary of everything we are commenting on, including provisions.
Okay. Understood. And if I can just follow up on China, because I think when you said sort of the comment you had made in early May was it was running at maybe 75% of normal. I appreciate it's now similar to where it was before. But I guess, I mean, this is precisely my point. In China, you're still only running at last year's run rate, not necessarily meaningfully ahead. Or should we interpret your comments as saying, actually, China is now catching up, and we are seeing 120% of normal, and we think that's pent-up demand? I guess, I mean, that's what I'm trying to understand.
I mean, my point is it's going well, and we are at a high business level. But again, in China, we only know our own numbers. And it's really difficult to say to a customer and be very precise in whether they are doing 110% per store or whether they're doing 95% per store. So the 75% back then was kind of a best judgment for the level of business into stores. We here, generally speaking, Chinese society have normalized to a large extent, but of course sensitive to what we see these past days. But whether or not that includes a significant pent-up demand, I certainly don't have data points to be very precise on. But we also mix it up with, again, Philips loans and a lot of other stuff.
So I think we are more busy looking at our own numbers and trying to execute on that in really understanding the underlying market growth, because we have never been able to. It's always a big estimate of what is the growth in China if there are no statistics.
Understood. Thank you very much.
Thank you. Our next question comes from the line of Maja Pataki from Kepler Cheuvreux. Please go ahead. Your line is open.
Thank you very much. This is my question, but they have already been answered, so I'd like to give the space on to someone else. Thanks a lot.
Thank you. Our next question in that case comes from the line of Tom Jones from Berenberg. Please go ahead. Your line is now open.
Cool. I know we're a bit short of time, so I'll just give you the one question. I just wanted to compare the staging model chart you gave us with the Q1 IMS with the one you provided today. Most countries have moved one or two blocks to the right, but there are some notable countries outside Brazil and the UK, so Germany, Japan, a couple of the Nordics, for example, which began the recovery but haven't really moved on your chart. Is that just related to local socioeconomic or viral factors, or is there something specific about the hearing aid market in those countries that we need to bear in mind?
Yeah. Thank you, Tom. I think the example with Sweden is probably the best example. They never really got deep down, but they're still not fully up, and to some extent, a little bit the same in Germany, and that's back to all this discussion about the pent-up demand that you're not seeing a dramatic day-over-day development like that in Germany. They never lost at all, and therefore they never jumped up like that, so they're still moving, but the speed of movement is slower. And therefore, maybe last meeting, they were to the left of that section, and now they're to the right of that section, but we try not to do that detailed description, and there is a big difference in run rate between leaving low activity level and getting into normalization. There is quite a difference there as well.
Mostly it's like they never got into virtually no activity in Germany, and they're still not fully normalized.
Okay. That makes sense. That's helpful. Thanks.
Thank you. Our next question comes from the line of Niels Granholm-Leth from Carnegie. Please go ahead. Your line is open.
Great. Thanks. My first question would be, do you expect an immediate boost to volumes when public channels such as VA and NHS reopen due to the waiting lists that would be in those channels? My second question would be, are you seeing any signs of independent clinics narrowing purchases to their primary supplier during this crisis? Thank you.
Yes, we definitely expect. When? Yes and no to your first question. No, VA is not a centralized purchasing department. It is 450 hospitals. So we do foresee that that will come as the hospitals reopen. But when a given hospital opens, yes, then we foresee that the waiting list is long, and it basically ramps up very quickly when they have found their procedures. We saw Denmark that way. It took one or two weeks until they found out how to separate waiting rooms and reorganize the way people were called in. But then they were very busy in servicing also their clients waiting outside the door with urgent needs and saw a quite steep curve. The NHS could be a bit different. We still don't know whether they will use this to tap into their Brexit stock or whether they once again will keep that.
So that can also be a more brutal ramp-up. We try to stay in dialogue with them to avoid that all of a sudden we need to deliver hundreds and thousands of hearing aids, but they can take it in a more gradual ramp-up now that we know they have a Brexit stock. Maybe we can fill that afterwards again if needed. But the actual activity level in individual hospitals comes quite steep when it comes on the hearing aid side. Let's extend on beyond.
On my second question, are you seeing any signs of independent clinics narrowing purchases to their primary supplier?
I guess everybody has a little bit of loyalty towards whoever they work the closest with during the crisis, but very soon, and we are doing that, of course. You have also spent a lot of time in training and discussing with your prospects and so on because they have not been busy with doing business, so it could also come out that you have actually managed to warm up a number of leads that are now ready to take the discussion on whether to change their suppliers.
Okay. Great. Thank you.
Thank you. Our next question comes from the line of David Adlington from JP Morgan. Please go ahead. Your line is open.
Hey, guys. Next questions. Two, please. So maybe just if I could ask why you put out this press release today. Obviously, we've got a pretty wide consensus range. I just wondered if today's release was in response to that range and try and narrow that down as we get into the first half results. And then secondly, just given the operating leverage in the business, I just wondered what sort of sales hit you could take in the second half and still basically get through to break even. If sales are down 30% in the first half, let's say, looks like you're loss-making, just down 20%, take you back into break even, just some sort of gauge there would be helpful. Thanks.
Why today? Generally speaking, today is just another day, but we had different meetings yesterday where we made a reassessment of our market situations, and we felt that it was a good timing to provide investors and analysts with an update, and it's not much more than that, you could say, a service. Other than that, not a special trigger for why today, except we felt we had a good, updated overview of the situation, and maybe you and I can better comment on that.
Yeah. It's because it's a super complicated question on what it takes to be exactly on break even because it does depend on which types of businesses drive your sales and which channels and so on and so forth. So I think the best sort of assessment that you can make on that is to look at what we have provided updated points here for the first half year in terms of flexibility on the cost of goods sold, how much is fixed, how much is variable, and how much is completely variable, and also what kind of potential we have for cost savings when sales are down, having in mind that one might not expect the same level of government support programs for the second half year.
I think those are some of the ballpark figures that you could use for your own analysis and assessment on what it takes to be on a break-even point.
Okay. Maybe just to follow up in terms of the reassessment that you went through yesterday, are you in a more positive frame of mind than you were when you updated the market with the IMS, or has the outlook gone a little bit worse?
No, it's not an outlook. We can only comment on the time that has passed. And I think when you sit in the darkest point, you can create very negative scenarios on the length and the reopening, and none of us have tried it before. I think it's positive to see this. I've described it before to some of you as an S-curve. It's definitely steep in the initial phases. What we still don't know is where we'll see it flattening out at 80% or 90% or 100%, or whether we will have three, four, five months where we'll run above 100 as an index because pent-up demand is coming quickly. And we have no new feeling for that. But we are, of course, positive to see that, generally speaking, the seniors that were in the process, at least, do not seem to be hesitant.
The big question mark remains to be the people that have not had any particular contact with us before and where we start from scratch. There, we don't really know yet, simply too early in the recovery phase, to tell whether we have too many to say, "No, not yet. You have to call me back in a month," or "Not interested," and so on, whether our sales and marketing expertise on the retail side can generate the business level we need.
Okay. Thank you.
Thank you. Our next question.
A few more and then I think.
Okay. Our next question comes from the line of Martin Parkhøi from Danske Bank. Please go ahead. Your line is open.
Sorry for that. I guess Søren would probably say that this was the last question, and this is a follow-up question. Just Martin, back again on Danske. Just Søren, that normally we talk about the industry, there's a lot of glue, and it's relatively difficult to move market shares. But in a situation where we see a significant recovery and potentially also a significant pent-up demand, do new product launches mean more than it normally would do? Could we actually see a shake-up where we see significant market share changes during a potential pent-up demand?
Can you argue? I think it's always a relative game. Whether you are at a low point or a high point and of course, those with the most attractive product program, those that are best in engaging with customers in a good and positive way. In this phase, you can both be too passive and too aggressive. So it is the ones that, of course, master the interaction with the customers the best that will get the biggest piece of the pie. That includes product ranges. It's not all of it, but it does include. Does it only include something you introduce in the future, or is it just as great with something you introduced in February or March? I think, generally speaking, the width and newness and results that lead your products give and drive.
And therefore, it will be each customer's assessing who is the right one to work with for me. There's still the pluses and much more things than just products in who do I work with. And I think in a time like this, you are even more looking at other aspects of who were there beside me when I was in trouble and stuff like that than just the latest offer. But news is always good for driving activities.
Okay. Thank you.
Think one more, and then we can finish off. I did actually try to say two more beforehand.
Thank you. Our last question comes from the line of Annette Lykke from Handelsbanken. Please go ahead. Your line is open once again.
Thank you. I'll make it short. Just asking about the appetite for tariffs and business within the Diagnostics Group . Do you see that also come back to fully normal, or would you expect that maybe some of the clinics will keep your systems for longer before they replace them and await the situation a little bit?
Annette, I heard you ask for the diagnostic. Could you please confirm that? So I'm sure I answered my question.
Yes. Exactly. Yes. Yes, it was. Yes.
We definitely expect the normalization and also, again, the market being relatively stable. It's a really segmented market where there's a big difference between industrial and schools and dispensers and ENT clinics and hospitals and so on. And as I said, it is mainly in the dispenser area and the schools that we see things the sluggiest. But on the other hand, we had a really good, fantastic product introduced at EUHA last year, what's called the Affinity Compact in Interacoustics and a number of other good products for that. And I definitely believe once things normalize and people's business recover, the sentiment will still be strong to renew the equipment. And then, of course, there's still a number of markets where it's much more related to expansion in the market and market growth and new outlets being opened.
I see no reason why that shouldn't pick up speed again. But it will take a little longer than on the hearing aid side, how long it's difficult to predict. But the biggest concern, I would say, in the diagnostic business is the distributor export business. We have a bigger proportion of sales coming out of that part of the world on the diagnostic side because so much of it is to non-hearing aid-fitting people. And there we know, back to a previous crisis and low oil prices and so on, that there's a strong correlation to the general financial stability of the country and situation of the country. And there could be some still, but we'll have to see.
Okay. Thank you so much.
Thank you, and then I'll hand over to our speakers for any closing comments.
Yeah. With that, we'll just say thank you very much for listening in. The IR team, as always, is available on the phone, and René and myself also as well. We have a number of activities in the field in the coming period, so we will see. I'm sure we'll interact over time. Thank you very much for today, and thank you for listening.