Okay. Welcome, everybody, to DIVAAN's Capital Markets Day 2021. My name is Matthias Halton Muller, and I'm the Head of Investor Relations at the company.
And I
am really pleased to see all of you in the room. It Feels like all back from scratch in a way, but at least we've been connected through virtual means over the last 18 months or so. Really nice to see people again in person. I think we're all energized by that. We are clearly equally happy to also welcome people on the live stream.
This is obviously being filmed, streamed and recorded, so people can follow it from their homes. So still tapping into some of the flexibility that we have had over the last 18 months with COVID. So I think with regards to the speakers, I'll just find the clicker here. You've probably all seen the investor news that we sent out this morning where we highlighted some of the key messages that we're going to convey today, but also the speakers and the agenda for today. So just quickly, the speakers today will be Nielson, our President and CEO.
It will be Thomas Behrens, our Vice President of Audiology and Applied Research in our Hearing Aids business. We'll have Ijeppe Del Balazen from EPAS, the President of which is also our communications business and then Nils Vahner, President of Hearing Care and we'll have Rene Schneider, our group CFO, on as well. So the agenda will be this. So we had the welcome right now. In a minute, we'll have Soren on for a presentation on how we aim to deliver sustained growth post coronavirus.
Then we'll bring on Thomas for basically an insight into how we work to ensure audiological leadership through our brain hearing philosophy. We'll then go to lunch for an hour, and then we'll come back with a deep dive on the hearing care business with Nils Wauner. Then we'll have Jirbe on for a presentation on EPOS. And then we'll have a 30 minute break before Rainer will basically conclude the day with a presentation on tying back basically to the sustained growth that Soren will also speak to, and then also elaborating a little bit on the margin potential that we see in each of our business areas. And then I'll come back with a quick wrap up at the end.
So just quickly, on the I'll just switch back, sorry. On the Q and A side, just want to highlight, we're going to have a Q and A after each session. So hopefully, that will keep the contents fresh in mind. And the way it's going to work is that we'll have the Speakers on stage still to do the Q and A and then Soren will join them on stage as well. We won't have Phoned in questions today from the virtual audience, but it will be possible to ask questions in writing through the chat in the web player that you hopefully all see.
So if we can just quickly ask you to state your name and company when you ask questions, then we all know basically who you are. The last point for me, just outside this room for the people in the audience, we have some good EPOS colleagues that are showcasing some of the products that they have in the portfolio. So clearly, if not a completely new business for us, then at least Some of the products may be unknown to you, so it's a chance for you to get familiarized with that. That's also a demo of our new video solution launched back in May. On GDPR, quite boring stuff, but I think you've all noticed by now that this is indeed being recorded.
It's live streamed. It will be put out on our website after the event, so just so you are aware that you are being filmed. I think with that, Soren, we are ready to go with your presentation. So welcome.
Thank you, Matthias. And also from me, a very warm welcome to everybody here. It is, again, kind of a reboot to the ordinary way of doing things. I think we have all benefited from actually being more frequently in touch The normal, it has been easier to set up a meeting, but I also think it's still very valuable to take a day out like today, Almost a full day. I'd like today to both give us an opportunity to go a little deeper in a number of topics, but also for you, of course, to interact with us and the representatives from the business that are here today to get more familiarized with how things are going these days.
And I will say, I think they are going good for the group. We have come out of COVID in with strength. We are very strong and well positioned in our 3 largest business entities. We have 2 smaller that, by nature, have a lower market share and therefore, of course, are seeing less benefit of scale and margin, etcetera. But I'm absolutely convinced that we can also bring these 2 businesses up among the absolute leaders in their respective sectors.
And that's why we have set the agenda as we have today to give you an opportunity, especially on the communication side, EPO side, to see what we're doing, how we're investing. This is a fantastic growth opportunity for the group. The market is moving very fast, and We will share that with you. So delivering sustained growth post the pandemic, It is and means that we are very ambitious. We have a positive outlook.
We are seeing pent up demand out there in the market on the hearing health site that we clearly believe will help and support the business grow, maybe even beyond the long term mid- to long term guidance that we now also put out. So we look forward. We are full of enthusiasm and full of belief in the Demands' ability to grow in the years to come. And Therefore, a little bit of reiteration on the trading update we sent out this morning, taking a long term view, Some of the how we move beyond the challenges we have obviously seen the past 2 years, not just with corona, but also before that, The cyber attack, some of the fundamentals in the hearing healthcare market and how to gain share and then a bit on ESG and sustainability at the end of my presentation. Update on current trading update, you have seen it this morning.
We basically keep The outlook for the year, but it is two things: the Hearing and Healthcare doing better than we would have expected. We still see a good tailwind from the French reform in the business. So we talked about a tailwind in first half, And we expected less in second half. We still do, but we are in the positive end of that tailwind. There seems to be Continued strong intake of users to get not just free hearing aids, but hearing healthcare in France.
We still see the wholesale business benefiting from that in France but also doing well in the U. S. Market that are still among the markets commercial markets that have recovered strongest and the best. And even though there is a little bit flattening of that development in that market, we do well. Also, our diagnostic business continued to do well and perform very well, Clearly taking share in the market and also maybe even stronger than anticipated, we definitely have a very good outlook for the rest of the year.
We can see the order pipeline look good, and we can see customers keep on being interested. On the implant side, it is a slow recovery. It is no longer just a matter of whether hospitals are open or closed. It is the full pipeline that it takes. It is a process to be ready to be a candidate, especially among adult people.
You have to have been through a counseling. You have to have talked to an ENT and go through a process. In many places, we can see the pipeline is thin, meaning it's not that people that have not been taken care of for the past 1.5 years is waiting outside some kind of door. And when the doors open, then people come straight in. So it is re ramping that entire segment, and therefore, we are seeing it continue to be So it's in line with what we expected, but it is slower.
And then the other half of the equation, on our half, but the other side, Our communication business, we have come to the conclusion that due to a number of things, then We will not live up to what we have expected for the second half. We will see a negative organic growth, Sequential growth for the first half into the second half of more than 10%, and we will also in second half deliver unfortunately negative EBIT in the range of minus €50,000,000 to minus €100,000,000 This again primarily come from a lack of growth in the top line, and we still see our exposure the way the product portfolio We currently have the geography exposure we have working a little bit against us. And then also we can just see that people that are making decisions for bigger orders with video, meeting rooms, etcetera. These processes seems to take longer. So where we thought we would get some of these bigger orders into this year, it's more likely they will move into next year.
And that is why we I see this as a, I would say, delay of the top line growth. We continue and maintain significant investment, of course, always revisiting exactly what is needed really short term versus a little more medium term when the top line is not there. And all in all, we will expect next year a minor negative result and the year after 'twenty three, a slightly positive result and from there on a year over year constant and steady improvement of the margin in the business. But it is going from this joint venture into end to end, there is significant work to be done in building brand, building the global distribution and getting out there and getting our share of the market, which positively is growing. And also today, as you have seen, We have actually updated our expectation for future growth from the past being 8% to 12% 8% to 10% So now being 12, that's what we can see from competitors, and it is especially the outlook on the video conferencing side where we see significant growth in the years to come.
The hearing aid market is resilient The market growth is there. There is the same number of hearing impaired people as we have would have expected. What is happening is, of course, in 2020, stores were closed. This is the U. S.
Market you see on the curve here. Month by month, there was, of course, a very disruptive disruption of the marketplace. Basically, everybody were in isolation, but very quickly got back up some release of pent up demand. And then into 2021, actually a very good second quarter with very Strong growth, a lot of general optimism and a lot of cases going down, etcetera. We have seen, as we all follow, Some reset of that process, but still a new stable situation where U.
S. Market is at least in line, if not slightly above, what you would expect if you compare it back to 2019, adding plus 10% of growth, and it seems to continue also into September. So a Q3 likely to end at 10%, 11%, 12%, something similar to the Q1. And we can only hope from there on that we will continue to see recovery also of the U. S.
Market. On the other markets, it's still primarily in Europe despite of the French reform. The NHS lagged a lot in first half. It's now in Asia, Australia and New Zealand that we're, of course, seeing a bit of headwind and then in Our export markets, but lately, we have seen NHS building back up. We are seeing a normalization of Most delivery systems in public delivery systems, except for the VA, that's still not They are operating, but for instance, closed door when it comes to, again, visiting the clinics and doing sales calls, etcetera.
Supply chain, just nothing new in reality, but just confirming, of course, that we as a company are also Working intensively on securing for us components to our main factories or factory in factories in Denmark and Poland where we do majority of all production for the group, whether it is in hearing aids, whether it is in diagnostic and in reality also together with knees, all the implant. It's different on communication, but on the hearing health side, which is fantastic, very, very flexible to have it all close to our main markets. 80% of Hearing Healthcare take place in Europe and North America. It allows us to do relatively late decisions on Where to use our components, we can really thin the forward going pipeline. So when shortages occur, and they do All the time, not all the time, but they do.
And we work on them, then we can still keep goods going towards our sales companies and have a very high level of flexibility. We do have to spend quite significant energy to secure alternatives when a supplier have challenges for a period, securing components with higher prices, etcetera. These things are taking place also with us. But so far, we have managed to sail through this, and we also plan to do that going forward. That doesn't mean that would never find a back order anywhere in the system.
But big picture, we are doing well in this situation and are again benefiting tremendously from having final stock and finished goods very close to all our main markets. Freight, of course, continue to cost extra. It's not so much on the hearing aids and hearing health care side As most of the freight cost there is the day to day delivery to your local customers, that is not where we've seen the main race in prices. That is between Asia and Europe. So that's mainly on the component side and therefore fills less, whereas on communication is, of course, a significant impact to their P and L, as we have talked about before, because it's basically working with 3 global hubs where the goods that are finished goods all produced in China are coming from just like all other consumer electronics.
So taking a long term view, life changing hearing health is the core of demand still. And we are in good shape. This has a lot to do with really understanding the nature Hearing loss and what this is about, Thomas is later on after me, going to elaborate further on how we see future opportunities for further development and increased benefit. So this is still the core with a growing audio business as well. Deeply rooted, you know, I think, all of you, most of the history, but again, it is since 95 and the first acquisitions where we start integration of a number of companies in diagnostic, a number of companies in hearing and also in 2000, the first steps into retail, which is a relatively passive strategy up until 20.15, especially with the acquisition of ODK and where we really see a turning Of the business, the way we operate it, the way we address it, and Nils Wagner is later on today, going to talk to you about The significant changes that have been applied to that business, especially over the past 4 years, where we now run a global business with Really the aim of being on the very forefront of how you do things in modern hearing care.
And if anything, we have learned from The pandemic that the in person counseling remains key in this industry. I could not imagine a better test of all kind of online models then a close down of the existing sector. And I feel more comfortable than ever that the in person counseling of Changing from resistance, from denial into decisions to move on doing something about Your hearing loss is key in this industry. To understand what it's about, etcetera, I'm going to speak a little bit more about that later. Oligon Medical from 2,009 and with the acquisition in 13 of LEOLEC is, of course, especially on the CI side, a longer Ernie, we do not benefit from the installed base that a number of our competitors have.
So even though we have successfully grown share In new implementations, then we will always, until we really get up in a large installed base, have A scale disadvantage, but it will come also to profitability not too far out in the future. And the 2, BONE and G and CI together, I think, is not that far out if the markets normalize. We have, of course, lost, You could say 2 years on the CI journey, not seeing any growth and where you could be a little bit uncertain still How will this market look exactly when everything opens up again? The launch of Philips have been an important milestone in getting another more end user known brand into the equation. There are a number of channels and markets in the world where The familiarity with, let's say, traditional hearing aid brands is less and where the collaboration and partnership with Philips have enabled us to fuel growth, and we are very happy with that development.
So a good long journey At in 2020, then EPOS, our own communication business. But if anything is in this overview, it is in reality the creation of joint venture back in 2003 with Sennheiser, which is where we start our journey. So for us, being in Especially the enterprise business and the gaming business is not new. We have been in this business soon 20 years. What is new is to operate it end to end and invest in the branding side, etcetera.
But remember, we are primarily on the professional side and not on the end user consumer business, which is a very different game. We need to convince relatively professional buyers that we are the right choice and not the broader public as such. The group today is if we use midpoint of our guidance, so this is not a positioning of the guidance, but just the midpoint, We'll do €18,500,000,000 in revenue this year, €3,300,000,000 in EBIT. We will be at least 17,500 employees, And the business is spread across Hearing and Healthcare being the biggest part, but the Hearing Care business being the biggest now in terms of revenue, 41% hearing aids, 39 Implants 3, Diagnostic 9 and Communication 7, global presence with Actually, EPOS on board and being much stronger in Europe than North America, then we are skewed towards Europe where we actually appeared where Biggest in U. S, I'm sure in the coming years, we'll again see especially North America grow as well, of course, the Asian region driven by the development in China, which is still a big, big development and opportunity ahead of the sector for the next ten to 20 years, I'm sure.
And key messages of today, sustainable growth, as we Put it together this morning, we don't think it's fundamentally different from what we have done in the past 10 years, but a 7% to 10% Annual growth in local currency coming from 6% to 8% being organic growth and then at least 5% from the Hearing Healthcare. That's, of course, the 5% on the lower side, but at least and that's above the market growth of expected 4%. And it's, of course, always a little tricky what is it in retail and what is it at wholesale and what have you. And then communication now believing in a market development of 12%. And as we want to take share, then at least 12% and then an acquisitive element of 1% to 2% And adding that altogether will give us 7% to 10%, where I would say the diagnostic and Hearing aid business is likely to be around 6%, 7%, slightly less organically in retail by nature because that comes from opening new stores, but then on the other hand, a bigger acquisitive element in hearing care And then both implants and communication have to deliver above the 12%, 10% growth that are in these two businesses to really grow our solid position.
On the margin side, all our businesses have opportunity to grow margin. It Comes from scale on the hearing aids, hearing care and diagnostic side, it is, of course, more incremental. It comes with the market share gains over time, no doubt. And whereas on communication and implants, it's more transformative, Of course, as we will have to take and will take significant market share in the years to come to build scale into those businesses, which I'm sure we can. And then resilience of the business.
Again, a lot of digitalization, of course, also happening in our It's a sector on industry, but it's just not. We simply don't see the majority of the business moving to some kind of online model. This in person counseling where you discuss what is at all wrong and what are the choices I have to make is still key to health care. We have only seen ourselves confirmed in that. And then a very dedicated anti effort to overcome some of the things that otherwise would work against a well functioning hearing aid is in very proprietary technology.
And again, Thomas is going to share more with you today. We still believe that that's a very competitive edge. It is the hearing aid diagnostic dedicated type of businesses, implant Type of businesses that are dedicated to in this industry that for years have shown to drive the game, and I foresee that also to be the future. So emerging strongly from past challenges we have had here since 'eighteen, the cyber ATTACK was, of course, hard hit on 'nineteen, but even more profoundly, of course, in 2020 from the pandemic, from corona, especially on the Hearing Healthcare, where EPOS, on the other hand, saw a boost. But as you see here, 2021 is in good shape, and the business is back at delivering very high growth rate, high profitability and a very healthy business that's come out after the pandemic.
And here a number of highlights, I have mentioned many of them, launch of new strong Olecon Moor and similar technology in other brands gaining share in U. S. Hearing Care really performing well, a really good operation that are able to pick up when there is a reform like in France and leveraging significantly on that The demand implant, a lot of improvements under a otherwise, of course, negative market conditions. We have just launched a Point 05, we have a new 3 Tesla implant. We have achieved U.
S. Approval for RCI, so a lot of good things. Diagnostic, doing really well, gaining significant market share. And based on that, for sure, also increasing margin. There is Also in that business, very significant scale, grow a lot from the disposable and calibration service business.
We have established EPOS. We have tapped into the extraordinary market potential in 2020, and we have launched the first video. So in all businesses, there are strong activities and important milestones being reached despite of, you could say, the very short term focus that you, of course, get during a pandemic like the one we have just been through. And again, hearing implant and diagnostic, we are not going to speak much about today. That's just to Sharpen the program and make sure we have a proper time for the topics we select, but we are seeing a lot of good stuff coming out of the Implant business that will support future growth.
I have mentioned the highlights, maybe further on the bone anchored, a new type of surgery That will make it even easier to do the surgical procedure in, let's say, medium to larger ENT clinics, and you don't need to go to a hospital, which is also a reason why this business has performed better during COVID than the actual implant business. Diagnostic, I have nothing else to add than what was just said. It is really a sound business. We have a very strong market position, And our main competitor is losing share. We are gaining share, and we show no reason why this shouldn't be able to continue.
We are keep on investing in the business, expanding into adjacent areas such as balance. We continue to expand in calibration disposable service business, which is a bigger and bigger share of the revenue. So we have also in since we met last, worked on the transparency, the way we report. We have created segment reporting, the Hearing Healthcare business versus the Communication business. We have split the revenue between hearing aids and Here in Kjeran, he is going to show you a bit more also from the history in his presentations later today.
We have expanded on more metrics for short term guidance and also even further with the announcement today, Further put light to what we basically feel we have always said, but removing a little bit on the interpretation of what does it then actually means when it comes to the numbers on the medium to long term guidance. So hopefully also supporting you better in understanding where the business is and where it potentially is heading. Fundamentals of the hearing healthcare market intact. We still see solid Growth rates in value in hearing aids of 2% to 4%. We see hearing care growing the same.
That's, of course, a bigger business in nature because of the markup. But remember, that is a significant part of the Hearing aids that are sold are sold not through commercial retail but into hospitals as well, and therefore, you cannot just take You know the 2 and see the margin in the retail business that is the VA, NHS, etcetera, where you cannot speak about a retail price as such. Implants growing 10%, 15% in the base. It's very dependent on new products introductions. We have seen that a number of times where CI is more steady and therefore the relatively big range, diagnostic to growing 3% to 5%, in particular driven in by Asia, but also new channels opening up in many markets that also need new equipment.
Communication is, as I said, up to 12%, and it is coming from a really strong push forward of the sector due to COVID. We are having a virtual meeting today. We are all going to have more virtual meetings in the future. We all want both good sound but also good picture. So we still feel we are together instead of flying all the time.
So we think it will move more back into the offices and equipping offices in the coming period. And the same on gaming, online gaming is definitely here to stay, and we also believe it will expand further. So at least at or around a 12% growth, and for that means at least 12% on our business. And aging population is the same fundamentals. We are expected to live longer.
There's also more and more people on the planet, And we will have basically a doubling in the next 30 years of the people that have turned 65. And hearing loss, don't know anything about You all know maybe knows about age, but I don't know. It's not a period of your life. So the longer we live, the more hearing impaired people there will also be. And it predominantly is going to happen in North America, in Europe, in China, in Japan.
There will still be very few in Africa, more in South America, but Now that's mainly in the African region and still also our expectations for India when it comes the market, despite of, of course, a lot more seniors, is still somewhat modest. It also takes a bit of infrastructure investments, etcetera, before the market occurs. So also in the future, predominantly European, North American, Australia, New Zealand, Japan, when it comes to the Hearing and Healthcare side of the business, the communication business is, of course, much more diverse when it comes to what markets are in focus. And then pent up demand, we have not seen a lot of it come in, In 2021, actually, so far, we have added a bit. As you can see from this, we estimate that the loss in units across all channels, all geographies with 3,400,000 units in 2020 and another 300,000 added in 2021, primarily coming from export markets and NHS that were lacking.
Europe, excluding NHS, has pulled in a little bit and the same has in North America. Europe, of course, predominantly due to the growth in France, but also we start to see a number of other markets that are actually pulling in the line. I would say the biggest commercial A delay remains to be in Germany, but also there some renewed optimism. Gaining market share in hearing healthcare space. We are centered around, as I said, life changing hearing health.
We want to be a leading hearing healthcare player. We want to grow. We want to be clear Number 1, in all the product segments we are in, in retail, we have no number one ambition that would Take a lot of acquisitions to get there, but we want to have best in class numbers. We want to show growth. We want to show profitability in line with the best you see in the sector.
And that's Possible, we have a strong strategic framework for driving this growth. We have an operating model that I'll speak to in a moment, a clear organization. We are Fundamental believers of keeping key activities such as R and D, operations, sales and marketing, supply chain management In each of the business areas we are in, so not trying to do like one big demand, we need focus, we need customer focus, we need attention In all our activities to the markets we are in, we operate intelligently multi brand activities within each of our businesses, But the businesses run with relatively high independencies when it comes to prioritization, and we see that benefiting the business on our more shared service part of it, HR, finance and IT, we have also started a more Dedicated approach where there is, of course, a lot of things we all share, but the people that work in these different shared services have Typically, 1 or 2 businesses that they are much deeper into in order to make sure, again, that their is in line with the need and DNA of that business. A lot of focus on people and culture, strong values, if anything, They're coming out of the 2 crisis.
It is a stronger company. It is a company that know where you have one another, that help one another when needed. We have lost very little energy in internal friction and discussion and have a very collaborative culture That is well set up for handling dynamic world as we have seen. And then a growing sustainability agenda. I'm also going to get back to that, so not speaking so much to that right here.
The key enablers For growth comes in one hand, dedication to each of the businesses. On the other hand, there is a number of synergies between the businesses. In innovation, again, I spoke about dedicated R and D teams, but there is things that goes across in Wireless technologies in understanding cloud, AI, these technologies. We collaborate very closely. We share knowledge.
We get better from talking to Our peers in the other businesses on the infrastructure side, especially, of course, for the smaller businesses, We can add a lot of value by not having to think about that much about infrastructure, IT, hardcore infrastructure, global sales companies, etcetera. And this is an infrastructure that is absolutely key to both the future growth of The communication business, the implant business and for many years have supported the growth as well in the diagnostic business that, of course, today with the size it have, have critical mass in more and more countries to be fully on their own, which we could also see in the future, for instance, of course, for implants and diagnostic growing independently. The communication business is quite independent. It's very different sales channels, etcetera. So it can more be like hosting an office than actually sitting that closely together.
Global Distribution, working closely in the distribution side in each market really to understand reimbursement systems, market development, DNA of the end user and consumer, digital sharing, digital data within What is, of course, allowed and really understanding, again, consumer behavior in each market is just key for all our sectors. Diagnostic is always a bit of ahead of the curve, knowing where market expansions are taking place, who want to further expand their distribution and that of course is something that tell us again good insight to how the market is developing currently. Resilient business model. Talking about why do people get a hearing aid and why do some not. I think there are no changes to the very fundamental.
I'm sure Neves Wagner is going to elaborate further. There are 2 to 3 main reasons why penetration is as it is. It is about that milder hearing losses where It's not a challenge to hear that there are sound or what it is. It's all the small file details that you miss. And in noisy environments where more people are talking, that prevents you from creating an understanding of what's being said, at least without spending tremendous energy leaving you tired.
This means that for some, it can seems like there is no problem, except for your surroundings because you don't have the natural calibration. You would just say it was a very busy restaurant or very loud restaurant or very bad acoustics. And therefore, the actual realizing of the problem from the interviews themselves just takes time. Not reading, we know ourselves. Not hearing is typically something your surrounding discover way before you.
And that is why a big reason why Penetration for mild hearing losses is as it is. And if you are not there yourself, you will not notice advertisement, you will not notice People calling you in, even when you are start feeling that it's there, it's still a stigma, a fatigue against aging. And therefore, you will wait another day typically, if you can, until the problem is more profound And you can yourself see that you suffer or your better half or your children push you to do something. When we see a reform in France, this is not because a lot new people have discovered they have hearing loss. It is because They, for years, have said no.
And now the last excuse is gone, which is that it costs money. When it is for free, when there is Everybody tells you there is a hearing problem and the stigma is likely to be overcome. Then through a consultation process, a lot more people come in. And I think the French case that we see right now is a fantastic case in how this can accumulate for many years. I'm sure that the users we see coming in now have been accumulated over even 10, 15 years.
And not until that accumulated non penetration has been released, We will see a normalization to a new level where there is, of course, more people coming in because you have also lowered the barrier when the price goes to 0. But all experience from all markets show you have to get to 0. It's not enough to go €300, €400, €500, €500, even €100, maybe €100, actually I asked an American the other day, what would you think it should cost if it was kind of a no change per change below €100,000,000 it just comes below €100,000,000 So you really have to get low that, that barrier is not the one you use, not that you could not afford it, but you will not do it unless it's for free. And therefore, typically, also see that utilization is a bit lower in markets where there's free hearing aids, But also probably the 3 markets in the world with the highest penetration, Denmark, Norway, U. K, where it is a hospital system, where it's not part of normal Public health care at maximum penetration is around 50.
So there's still 1 and 2 that don't do anything. And there's both a private system in Denmark, there's a public system. It's not because it's not known that you can do something. It's not that you could not overcome the financial issue. And still, there is only or not only, there is around 50% the 2% to 2%, something you can argue that that's actually relatively high for a disease that comes relatively slow and where for mild hearing losses, a lot of people get around it by, yes, turning up the TV or people speak a bit louder.
So the counselor, the process of counseling is still key. You come in to learn something and with a bit of resistance. And you have to choose form factors, you have to choose technology, you have to understand quite a bit, You have to go through counseling. You have to understand why there is a price difference. You might even want to try 1, 2, 3 models out before you make up your mind and before you're convinced to do something.
And again, I don't believe it's pricing when people walk out the door and don't do anything. If it is, it's just an excuse for something else. And not until, again, it gets to free, you remove that barrier because it's just one of the things you use to argue that, no, I'm not ready yet. And it is typically the comment you gave, I didn't feel ready yet. Nils can talk more about we'll talk more about that.
So overcoming barriers for adaptation, discreteness is key. It has to be literally invisible. It is still one of the biggest concern for people is that other people would notice. If I want to show it, fine. But I don't want it to be shown.
And it is not natural for any of us to sit with anything in our ear at a restaurant or dinner. It might be in the at the airport or a basic street, but that's not for communication. That's to listen to something else and not the people around us. If that one day becomes ordinary for all of us, then it could change. But until you're the only hearing impaired person that have to do that.
Discreteness is key. Medical grade diagnostics. Ear canals are very different. The whole fitting of it It's much better done if you have proper diagnostics, and we are researching and looking into actually new diagnostics that can further help seeing how is your understanding of speech in noise environment and not just what is a threshold for when you can hear a sound. Individualization is key.
Our geology that actually works in noise environment is key. Thomas is going to speak more about that. And professional counseling that helps the end user, I also believe, is key for the future. And therefore, from a effort point of view for Demand, miniaturization, Strong audiology and very professional counseling distribution is key investments in generating success, growth in this sector and this industry. It is end user outcome.
It is the satisfaction of the end user. It is changing the Problem and understanding that there was something wrong I might not even have discovered, feeling I'm less tired, feeling I'm more myself is the outcome we are all looking for and what drives satisfaction. We are also a positive impact business by nature. While we do help people, it turns the world into a better place. When a child is well fitted with hearing aids or undergo surgery for implants, you can take You know the same education as the rest of society.
You don't have to go to a special school. The likelihood of Early retirement is reduced significantly, etcetera. So a lot of positive impact also from age related hearing losses. People take care of themselves, less risk of cognitive diseases, staying longer in your own home, etcetera. So many good examples.
In 2020, We have helped nearly 2,000,000 hearing impaired people, helped well above 10,000 with CI. We have double digit million number of screenings of newborns, help people with headsets, etcetera, etcetera, a lot of good things. We have a clear plan for growing our efforts in sustainability and taking our share of it. Our main focus lies in diversity and inclusion for us as a company and also externally on climate impact where we don't just look at ourselves now, but also full scope 3, meaning what is outside our direct control and where we will have to work with suppliers and partners, etcetera, to improve. And we are doing a lot already.
We have increased diversity of female leaders in the group. We have done a an event of terrible hearing testing and campaign for better hearing, an event we run every year in our retail business where we screen people and through that give donations to people that are unable themselves to finance hearing loss treatment in commercial markets. We have increased the engagement among our employees. We have installed code of conduct, whistleblower schemes, etcetera, and have done a lot on packaging, which is one of the areas where we consume much. The actual product in itself is not consuming A lot of energy and is not as such compared to the benefit and the length of life, then we have much more to gain in how we actually get Our products shipped and distributed around the world.
There is a lot of disposable going into that and an area we look a lot into how we can reduce our CO2 emission coming from both transportation, but also packaging going forward. And part of that is a Positive, very positive side effect of the collaboration with Philips. Philips is slightly ahead of this curve. And in our collaboration, we look at how We actually develop a greener hearing aid also from material use, reuse, packaging, etcetera. And this is, again, just another example of benefit of working closely with a very professional partner like Philips that are, of course, investing significantly into this area as well.
On the ESG ratings, we have work to be done. We do relatively well in the MSCI, But in Sustainalytics and ISS, ESG, we still have improvements to do. Our take is that it's a lot about We report and be more transparent and open about product governance, how we Ensure high quality and taking care of when there is issues around products and how safe the reality is what we do. That seems to be the biggest gap, and we are working intensively to also make sure we, in the other ratings, get a high rating because fundamentally, we see the business as a type of business and a type of company that, of course, should get a very high rating. And then also today, we announced that we have now signed for The science based target approach, which we think makes a lot of sense, it is scientific, it is transparent, it is A bit of pareto is also good here that you really address the issues with the biggest likely positive impact if you can change.
There are certain things we cannot solve, but we can call for greener transportation. We can call for Better materials used in packaging, etcetera, and we ourselves can, of course, try to use less. And that's how we, again, working more with our partners. We will have to see how emission reduction can happen throughout the entire value chain. We estimate, but it's still early rough estimates, we will get more data that our Scope 12 is in reality down around 10% of the group's total emission.
So it's very obvious we have to work diligently with suppliers and partners. So Demand, in summary, today, We are in good shape. We have emerged well from the challenges we have been faced with in the past years. We feel we are in good shape. We address attractive markets with strong growth drivers, both in communication and in hearing healthcare, but you could say especially in communication.
We see scope for pent up demand being released in the coming years. Whether it exactly happens in 2022 or into 2023 is difficult to say. Whether it all comes back or part of it is also Impossible to say at this stage, but fundamentally, I don't understand myself why should penetration change from something that happened years back. So I do think that people again will go out, people will again see other people and this way discover they have a hearing loss And then there is no reason why they shouldn't be able to do that, take that step. There can't be a delay in public systems that needs to build up capacity, etcetera, but I think it will come.
There could be 3rd world countries that, of course, also financially much harder hit by the pandemic. And therefore, there might be unfortunate people in these countries that never get a hearing aid. But other than that, I think it's likely it come in. We want to be the leading hearing healthcare company in the sector. I would say that has been the ambition for many years, and it still is.
And I think there's good reasons why we will take important steps in that direction. We have very unique experience across diagnostic hearing aids and Hearing Care to deal and implants to deal with hearing loss and expertise that benefits all the businesses. And then, as I just talked through, a positive impact business that also in the years to come will further increase its effort to reduce the impact on society. So that was in summary, Demand. And I think with that, I think we are ready to move on to the first Q and A part.
There might be things we want to postpone until some of the others have spoken, but Matthias and I will carefully see whether we take it now or bit later. And Matthias take care of the inputs from outside, and I take a second quarter. I think, Christian, you were first. We get a microphone around so everybody can hear. So please wait for the microphone.
Yes. So my question is to the pent up demand that you are talking about, can you put that into context Of your midterm growth targets. So when you talk about 3,700,000 hearing aids as a potential pent Demand, that would be the equivalent of 20% of an annual normal 1 year market volumes. If that is to come back in just a sort of remotely near term time frame, that would suggest a Growth boost of several percentage points. Is that embedded in the targets that you put forward today?
And that's where we try to talk about a mid- to long term. I would say that's beyond pent up demand being released. The pent Demand lies more in the short term guidance, which we will, of course, for 'twenty two, have a better assessment of and talk about when we finish 'twenty one and speak about 'twenty two.
Just to clarify then, is the implication then that If we see this pent up demand coming through, that we should actually see you come out in the upper end or above your near term targets here?
I definitely think it's yes, we will come up in the other end everything else equal or even above, yes, short term. Martin? Just try to
Martin Pager, Danske Bank. Two questions. First, I know we will talk about communications later. But with the performance that we are seeing for the Communication Division this year, can you make just explain what makes you confident That this is an organization which can grow above the market. I guess that there are significant companies out there which are investing even more in distribution than you are.
And then on the supply situation, apparently, you are not particular hit, but what we can hear at least is that U. S. Audiologists, they are complaining about significant delays for many manufacturers, also some which are mentioning. So can you comment a little bit about How you're seeing the global for all companies on the supply side now?
Yes. I will start with your second question. No, I cannot comment on others' challenges. You, of course, have some maneuvering. And the longer You have the more challenging it can be.
I can only comment on our own, and I don't have anything to add to that further than what I've said. We are, of course, also, as I said, having markets or segments where you would be able to say, okay, there's extended the delivery time or even a shortage today, but it is very small and periodic. And all our main markets, our newest and latest Products are all doing well and can be supplied to customers. On the EPOS, what is it that makes me believe? Well, it is we have done it for the past 15 years plus.
And I simply don't believe that just the change of our brand and getting in control of the business will make it more difficult. I think that's the key to do better, to gain more share. It was part of the reason for the demerger that we had appetite of investing more in especially the enterprise business. We saw it coming not to the profoundness we have now seen with COVID, but that, that is a trend we want to be in, and we think we have a lot to offer. So yes, I believe we can gain share.
I believe we can grow our share in markets where we have a very low share today Up to the level we see in a number of European markets, I see no reason why that's not possible by investing further in R and D, by investing in sales and marketing efforts more in these countries than the rest, and then I'm sure we can also gain share. The fundamentals of our product portfolio is there. Our ability to create value for customers and innovation is proven. And I think also in the future, we can do that. Maybe one over here, this is Karsten.
Thank you
very much. Karsten from SEB. Two questions. First, when you mentioned your omnichannel approach and you want to succeed by being a true omnichannel player, I think that was what you said. Do you mind walking through the different channels and maybe sort of giving us an idea about where you're super strong?
Where do we where do you see any Upsides going forward in terms of improving your current setup outstanding. And then in EPOS, I don't know if it's possible, but maybe what size of top line do you need in order to breakeven in that franchise?
I'll just take a piece of paper now so I don't forget your questions. Let's start again on EPOS. I think we should return to some of these towards the end of the day. We will have A deep dive into the business. Rene will come a bit more back on the numbers and sizes and profitability.
So I actually think, Karsten, we should save that one to the end. Could I have your first one? Or you're saying sorry.
The first one was on omnichannel. Yes, omnichannel.
We have to be sure we understand whether we talk omnichannel, meaning digital versus physics or multichannel. In our General business, we try to address all channels. And there is, of course, some where we have a big opportunity than others. VA is an obvious example where we are very ambitious and want to grow. There is a number of other businesses we could mention where we want to grow the business depending on which business you talk about.
On the more digital versus in office media, I think we should hear in the Fragnas Talk about that, show how much we do on digital marketing, being in constant dialogue with users, whether they have a product or Have just somehow shown they are interested in learning more or maybe have had a hearing test some years back and how that whole funnel is going. That's exactly what Nils is going to speak about. So let's see when he has spoken whether we are there or not.
Christophe?
Thank you. Chris, Credit Suisse. I have 2 strategic questions. The first relates to benefit of scale. And I think you mentioned a few times that, that to what extent do you think M and A is actually necessary To become a leader, particularly on the implant business and the headset business.
And the second question is just with respect to your current business setup. Do you think actually there are more segments required and would be of interest to your group to Expand, for example, auto companies went into drugs also, at least kind of slowly and gently. Thank you. Yes.
Thank you. We cannot base, I would say, outside The Hearing Care, the retail business, M and A is not a prerequisite to get there. To have the growth we put here stipulate here the mid- to long term guidance. In retail, we have to buy more business. In the others, it is primarily based on an organic, and we think we can do it with what we have.
On the new business, We have stepped into balance, but as one example, so yes, we do it from time to time if it's close enough to what we do. But I think with the 3 main businesses and the 2 that are subscaled, the communication and implants, We don't need more to deliver growth. But if opportunities come up, we will always carefully look at it. So That's where we are. On drugs, we think, and I think our competitors as well, This is very early days, and you can follow the development in various ways.
We monitor the situation, but I don't see Dogs playing a significant role in Hearing Health Care anywhere near term. All the way to yes, Nils, sorry.
This is Nils from Carnegie. On your 2 smaller businesses, you are talking about transformative margin expansions. So would that mean that you will move from being loss making to profitable? Or will it mean that you would actually be able to Kind of close the margin gap to the respective market leaders. Could you be a
little bit
more specific here?
Milestone number 1 is, of course, to be profit making, but then it is to continue that journey. But you would ultimately have to see that if you have to narrow Fully the gap on the margin side, you would also have to get closer on the market share size. Maybe it's not the full market. Maybe it's segment that you are in that can you compare, but you need scale, of course, to really come all the way up there. But we can do much better.
We can have a much higher margin. We can also have a significant positive margin in those two businesses after turning them positive in itself. All the way to the bank.
It's Oliver Metzger from ODDO BHF. Two questions from my side regarding penetration rates to get a better understanding. First, you described the 3 markets penetration rate of 50%. Is it more the profound and severe hearing loss where you Really get a better traction as hearing aids are for free? Or do you have the demand hearing loss a better Traction.
2nd question is on the size of a hearing aid. For many years, the size of a hearing aid was Find by the battery and the battery tray and the ability of all people to open the devices. You now said that With miniaturization, you can easily you can it's the mean to improve penetration rates. So Do you think that the industry moves more towards smaller devices? Or what do you think about that?
Yes. Thank you very much, Oliver. I don't have statistics, so on your first question. My core assumption would be that you would see the penetration Not developed much further on the very profound hearing losses. They are typically supported reimbursed in most markets anyway somehow and especially children, whether it's just health insurance, private health insurance, there is a lot more support.
So it is the more and more mild model. It is simply the threshold to get started that has one barrier less. So it must come, not that I have full evidence for it, from the lower side. So the 10% mild is slightly higher, the Moderate, slightly higher. But it is something we had just discussed that we have a fantastic case in France, and we can simply just look into post and pre, what is the actual hearing losses we fit.
So I'm sure we will learn. And on your size of hearing aids, yes, I think we'll do a lot to shrink things, but it's always a balance. We have also added a lot. We have added antennas and radios, and we gained maybe a little bit from encapsulating the battery. But on the other hand, we also want Battery life and the batteries are not as efficient yet.
So it's more this constant tug of war. But fundamentally, a Behind the ear receiver and the ear device have turned so much more cosmetically attractive Then past classical BTEs, there's still a lot of people that get a ordinary mold and tube and so on for more profound hearing losses that we can still improve the solutions with in the years bigger type of products, create smaller products, power efficiency will go up over time. So yes, I think there will be further drive for trying to make more of the hearing aids fitted even more invisible than they are today.
So I think if we can just quickly switch to the virtual. There's a question coming in from Matthias Hegblom from Handelsbanken. If you can reference some data points, some basically some points that support the idea of pent up demand being released from the 3,700,000 total units that have been lost.
Yes. I think we can clearly see that in U. S. We saw that in Q2. We also saw it in the summer of 2020.
And basically, most European markets, including Germany for that matter, that we saw a very quick uptake. But that was also, of course, a very short shutdown where you would assume that those that kind of have realized they have a hearing loss were actually waiting to get addressed. Now the second wave you can say the whole winter of 2020 into 2021 have been longer. And that's where I also think on the other side it might take a little longer There is much more people now that this pandemic have been on for 1.5 years that might not have realized they have hearing loss yet. But I'm very sure that when society normalize and you do start to get out and see other people, you will realize that You have hearing loss and you will see pent up demand coming in.
There has constantly been a very close ratio between kind of the 8 o'clock news type of positive or negative when it comes to corona and basically things like cancellation of appointments, etcetera. So it's very short term sensitive. But long term, I think there is no doubt we will see the same amount of people more or less as we would have seen. So
Okay. Thank you. I think we have no more questions coming in from online. So if there are no there's a question there.
Maarten Pager, Danfel, again. So with your time, then just We've seen with the recently with Eargo, of course, have had a little bit of rough time, you could say, With some problems with some insurance claims, do you think that this is only specific to that particular Company or client of them? Or could there be other issues in the industry because they are not the only one who are dependent on insurance claims?
No. I will not speak on the Eargo situation. I just know that it's important for insurance that you have seen a professional. And maybe some of these over the counter models have less, I would say, compliance with at least existing requirements for releasing reimbursement
Okay. So if there are no more questions here from the audience, there are no more questions from virtual attendees, I think we'll just jump to the next presentation. Thank you, Soren. So that will be Thomas Behrens talking about audiological leadership. So Over to you, Thomas.
Thank you. So today, I'm going to give you An insight into how we drive the audiological part of our business through the brain hearing approach that we've been Using for the last 25 years or so. Basically, that journey has been driven by new insights In neuroscience that has demonstrated to us how we can provide sound so that it's easier for the brain to decode it. Then I'll be looking into Oticon more and giving you some examples of how we've been using technology To make sure that the sound has really become more available to the brain and how we've then been demonstrating both in terms of conventional outcomes but also neuroscientific outcomes, how that sound has really been taken up by the brain in a whole new way. And then finally, I'll be reviewing some of our latest additions That has proven to give us further strong benefits within our hearing aid business.
All of this, as I said, we've been on a journey for 25 years. The past decade or so, you've I've given you some highlights here of innovations within all the core areas of hearing aids that have provided people with significant new benefits. So for every premium product launch that we've made note of, Up here, we've actually expanded on the recognized benefits of hearing aids. All of this underlining how Hearing aids can actually remove borders and make people take off up a larger part of the life that they want to live. Most recent example was one of the drivers behind the innovations that we have in Oticon Mall.
Up until a few years ago, the hearing center in the brain was considered a black box. But about 5 years ago or so, researchers discovered that there were Several things happening inside the auditory cortex or the hearing system in the brain that allows the brain to efficiently navigate complex auditory environments. So as we note here, when you get sound in through the ear, Into the middle ear and into the cochlear. The cochlear forms this neural code That sends signal via the auditory nerve into the brain, into the brain stem and into the brain. And then when the sound arrives inside the brain, it firstly happen enters this area we call orient, where the brain forms Basically mental maps of the scenes that you are in so that every significant component in that environment is represented.
That mental map allows the brain to focus in on what is most important. And that focus is really A key requirement for any cognitive system in your brain to work. Without that focus, you would not have an efficient access To language. And therefore, because hearing loss limits your ability to both orient and focus, That's why people with hearing impairments struggle so much in noisy environments because they basically cannot navigate those environments, And they are challenged in forming that bridge to language. And therefore, their cognitive systems are impaired.
And that's why with effective hearing aid treatment, we can really release the capacity that people have in their cognitive systems so they can do what they want. And to get to release that potential, We developed new technologies in Oticon More. And we specifically took on the challenge Of using deep learning as a means to achieve these new outcomes. If you look at deep learning, it has many, many applications in hearing health, and I'm sure you've heard of many of these applications. Perhaps most well known is its application in medical imaging and diagnostics, where it's Been demonstrated how deep learning can identify patterns or anomalies that humans cannot see.
If you look into something like personalized treatment, you can understand data from patients in whole new ways Because you can access much more data and analyze that on an ongoing way in an ongoing fashion to Give you input on when it's time to intervene. This, of course, also extends into improved health monitoring, Including wearables with real time data. And I'm showing you an example there of heart rate monitoring, Something that we've been looking into that I'll be giving you an example of in a second. But finally, we would also ultimately be able to Use deep learning for chatbots, for delivering better service to all our users around the world. And of course, for doing that, it's important that we learn exactly what it is that our customers Are desiring when they make contact to us.
And we can learn and refine that using deep learning. As I said, something we're looking at quite recently is based on a study we did with 100 users That we're using our recent premium hearing aid, Oticon Open S, and gathering 3 months of real life data, Both hearing aid data, data on the environment that people were in as well as their pulse. And what we saw was that basically, as the listening environment increases in loudness The level increases, then the pulse also increases. And that's, of course, controlled for any activity or anything else that could impact the pulse. So basically, we believe this is because pulse or sorry, the loudness of the sound is seen As a stress factor in the auditory system, and therefore, there's a natural reaction by increasing the pulse, Also because there's a higher demand on your system when you are in a more loud environment.
We also see that the type of environment that you're in matters a lot to how your system Response. If you are in the quiet environments that you see there in the middle, there's really no big impact on the pulse. But When you move into the louder environments, speech levels and above, there you see that the pulse is negatively impacted by How clear the sound is. So you have signal to noise ratio marked up there. And you can see that as the signal to noise ratio Comes higher or you get a clearer message, then your pulse goes down.
So it actually matters a lot to you That you have access to that clear information that I also talked about before, the brain is creating. So As things progress, as we can get sensors into hearing aids, we can start using deep learning to learn across different modalities and provide even better solutions to our users. Deep learning, of course, requires rich data in order to provide meaningful outcomes. So what we did for the Oticon More hearing aid was to record sound environments using this very special microphone That captures sounds from all directions. We took that microphone to specific environments that we know are important to people.
And then we use that to curate a library of those 12,000,000 sound scenes that we use to train the deep neural network we have in Oticon More for handling sound scenes so we can bring out the clarity or we can bring a clear message to users in those situations. Now deep learning really mimics real life. So when we are training with those 12,000,000 sound scenes, it's actually parallel to what happens when you learn a new language. So to learn a new language, you need access to, of course, the sounds that, that language is made up of. But not only the words themselves and their meaning, also how they are put into context in sentences or in longer conversations or in dialogue.
And as you learn that and you are exposed to it a number of times, You can then learn to speak that language, especially if you give if you're given feedback, Specific feedback that allows you to learn from the mistakes that you have made. And we have been doing exactly Something parallel in our hearing aids. So we made the recordings that I just talked about of the sound scenes that represent Daily life situations and used it to curate that library. But then very importantly, we then created Learning algorithms that gives our hearing aids the same kind of feedback that parents give their children. So we are able to inform the hearing aids of the mistakes that they made during the learning phase.
And then The structure of the neural network that we have in the hearing aid that mimics again the structure that you find inside our brains is then step by step taken towards an optimum solution. Now a specific example of what it is that deep learning achieves when it's successful. So here, a simple situation of asking deep neural networks to tell Whether an animal is a cat or dog. We can easily see that both of these animals have 4 legs, A tail, 2 eyes and a fur. But that doesn't really help us figure out if it's a cat or a dog.
So but none of you are in doubt which one is which because you've been taught On telling those subtle differences between those two animals, but that will give you the answer instantly. And that's exactly what we have done when we train our hearing aids. So we give the network the feedback to recognize The details or the differences in the fur or in the patterns of the fur in how those animals move, and we have similar actually Learning paradigms we do in sounds because when we get a sound captured from the real world, We actually create an image of that sound that very much resembles these photos that you're looking And then we look for specific patterns in those images to tell us which sound is meaningful and which one is not. And then we do that for those 12,000,000 sound scenes that I talked about, gather all that information, Put it into the deep neural network and embed that network onto the Polis chip that you find inside Oticon More. And then because that chip has these very strong capabilities, Then it's able to execute the deep neural network.
Specifically, the updates that we did to handle the network was to Increase the memory on the chip by a factor 8 and then also give the chip more processing power so it could execute on the network. And that would then give us a much better sound presented to the user. Now how is it really that hearing loss impacts a person? I've provided you here with a parallel because really what happens to people in these difficult situations is that Normal hearing people would get in this very, let's say, constructed image that represents a very complex sound scene. Then a person with normal hearing has perfect clarity of everything that happens.
But the hearing loss is really compromising that clarity Because it's removing information from the person. And then what the hearing aids are doing is that they are amplifying all the Information and removing everything that is interfering so that we are creating or giving back that clarity That the person has lost. Further, it's important to note that the impact, of course, is very individual. Some people really struggle a lot in noise. Even some people with a normal hearing can struggle so much in noise That you can that they actually need a hearing loss hearing aid, sorry.
And we're starting to see that, for instance, in France, where it's now allowed to fit a hearing aid to a person with normal hearing if there is a significant impact on that person in noisy environments. Further, our fitting software, of course, is set up to allow individualization of hearing aids, Specifically so that you can counter the effects that a person is feeling in these noisy environments. We have been doing research on our hearing instruments, Again, using the neuroscientific methods I talked about before. So we record the activity on the scalp. When a person is using our hearing aids, we capture basically an EEG.
And that Activity. We can see that there's an activity pattern, sorry, generating When people are using the newest technology that you find in Nordicon More, that is 30% more rich in terms of information That it was with our previous generation of hearing aids, Oticon Open S. That 30% is actually information That is available to the brain that can be used for this process I talked about before so people can better orient and focus On what makes sense to them. And you can see that on the right hand side where we have done research to document that people Now understand 15% more of the words that they're hearing in a noisy environment. So we actually, with Oerlikon More, achieving this dual goal Of making the world more available to people so they can better orient, but at the same time, they can focus in on what is important, and that can then make sense to them.
So what are the latest additions and evidence we have since the launch of Oticon More? Well, it's actually that we've been continuing to use these capabilities And specific competencies that Nielsen also talked about before. So we have at our headquarters these laboratories where we can create Recreate the auditory world from those recordings that we've done. And we can use that to create situations where Communication with other people are of importance, but also situations where it's the enjoyment of the sound, for instance, music, that's important. So if we look first at communication and your ability to pick up sound, There are a number of standardized methods in the industry to measure how much information you get out of a hearing aid.
So we've been using these methods to assess How much speech information comes out of a hearing aid when you fit it to a typical moderate hearing loss? If we do that and compare the Oticon More to 2 of the premium hearing aids launched Right before Odycan More. So a very recent release of a premium device. You can see that Oerlikon More, when the sound comes straight from the front, is Outperforming those competitors. It's actually doing it even better than a person with normal hearing in that situation.
But you can also see that the person with normal hearing, if that person had used a hearing aid, would have also gained increased access To speech information. So basically, what the hearing aid is doing in this situation is 2 things. It's making sound more audible, But it's also making the sound clearer. And that second part is then what is also potentially of benefit to a person with normal hearing. As some of you will know, we have been on a journey where we have been Trying to make all sounds around the person available and not only those in front.
So if we now move the person speaking there in front, the Green person out to the side. You can see that the differences between the different strategies that exist in the market is now increased. So you can see that Oricon More is now vastly outperforming those competitive technologies that focus on the front. You can also see that now a person with normal hearing, when the speakers move to the side, The sound is clearer to that ear, and therefore, the clarity element of the hearing aid is a little bit less. Now the final thing I wanted to talk about today is music because that has been a huge challenge To the industry for many years.
And it's sort of been a hate or love relationship for a person with hearing loss. Either they just Loved music and could really enjoy it or they hated it. And it's basically because, as you see in the upper right hand Corner there. When you compare music and language, then language is sort of this banana shaped form that covers levels of sound and frequencies that are quite narrow. But when you look at music, it's that much wider and more dynamic signal that Therefore, takes up a much larger part of the auditory world.
And therefore, it's much more difficult for us to handle that sound Inside the hearing aid so that it's both comfortable and enjoyable to the user. We've made a number of updates to our technologies, Implemented those on the Polies chip, come up with new ways of prescribing sound for individual people with an individual hearing loss so that they can much better enjoy the sound. We've been testing these updates in a number of different sound environments. You see the details on the left hand side. And then on the right hand side, we've put it all together.
So you see the ratings for all those 8 sound environments For both our general program for amplifying sound, both music and speech, But that program is predominantly focused on bringing out the details of speech. You also see our previous music program. And then finally, you see our new music program. And you'll be able to see that now The music ratings on those previous technologies was predominantly in the lower hand side Of those ratings, we've now been able to push those to the upper hand side. And actually, the increase you see there corresponds to roughly a 70% increase in the rating that people give the music.
So a very, very important step forward In helping people enjoy music and those many types of sounds that they've now started streaming during COVID. So again, something that brings out the sound quality in our products in a much better way. If you want to know more about this, any details, we have a number of white papers On brain hearing, on our technologies or the clinical evidence that are available to you online Anytime that you want to. In summary, we have this very strong Philosophical outset at Demand, we call it brain hearing. It's driven by decades of research that we've been doing, specifically at our Ericsson Research Center, But also at the 6 other research centers that we have in the group, with the insights that, that has given us, We have created a very unique approach that has proven itself to lead to strong innovations and Even better outcomes over time.
With Oticon More, we are providing that clarity and precision of the amplification that people need So that the brain can be empowered to work naturally with sound environments. And that has led us Yet again, 2 new benefits that has never been seen by the industry before. Some of the latest additions that we have Launched to the market have provided people with even better enjoyment of music, leading to a new level of Sound quality in our industry in our instruments. And then finally, Brain Hearing, we have full confidence in what That has given us so far, and we are sure that it will continue to give us a number of new innovations and improvements in outcomes over the coming
years. Thank you, Thomas. So, Soren, will you join us on stage, half asleep? Soren? Great.
So thank you, Soren. Is there any questions in the room? I'll just quickly take a look from the virtual world.
Yes. Christian Rime from Nordea again. So a couple of questions from me. On these measures of EEG and And the other kinds of research that you do, is this mainly something that you do to sort of inform your own R and D and maybe for marketing purposes Towards audiologists? Are you also using these data in conversations with payers?
And are you exploring that opportunity to sort of prove actual outcomes towards payers? And then my second question is You didn't mention anything about the opportunity to leverage the R and D that you're doing on the hearing aid side Crush your different businesses. Can you maybe sort of briefly touch on how you see those opportunities?
Yes.
So on your second question, how we leverage, I mean, we do collaborate every day Across the business, both on the research side and on the development side. And we share a number of resources and competencies, And knowledge can basically flow freely between our different units. So that's something that happens every day. Those research methods I talked about, for instance, the EEG, yes, it's something we use very widely, All the way from early research all the way and basically up until marketing. So it's really something that is flowing in our veins Because it wouldn't be able to inform our innovation if it was not part of our early research, so we knew what to aim for When we are developing new solutions.
Maybe a comment here to you, Christian, on the benefit. It's obvious that it's a very technical test you have done here, Thomas, where you showed us about the angle and so on. And of course, we want You know get much closer to an in clinic evidence for the improvements you have achieved. So there's a very close collaboration, for instance, with Diagnostic, and I know you are involved as well, Thomas, in how can we illustrate, how can we measure why we are different. We still Treat most people as an average coming from a threshold of can I hear a sound?
And it's obvious to really fit devices like this well for the user and also illustrate the point of what it is you're buying, then yes, it makes a lot of sense to understand more about your challenges, which speech in noise. And again, we all suffer from that in the restaurant, and we could all benefit. So another angle is, of course, in Wrong. And we could all benefit. So another angle is, of course, in noise cancellation and different devices on the communication side, which is also How does the product work in the office?
When you are team certified these days, it's not just a compatibility issue. It's actually also It extends out for the noise reduction in the environment you're in. So there's no doubt there is significant leverage from Understanding how human brain makes sense of things and what is it that helps us and what is it that, in reality, doesn't matter.
Just to clarify. So you are not at the level yet, say, or within the next couple of years where you can actually leverage this data to, say, go to a managed Care provider and say we can sort of prove these outcomes in
We will always use all this. All the public information is Always used to argue for the benefit of our products. Unfortunately, sometimes payers, insurance companies or others Don't prioritize this to the same level as you would typically do in a private setting, and therefore, you can end up, also due to Compliance to tender rules and other things, yes, but I don't know how to describe it. Even though I claim we could describe it, then they end up in something more generic because fundamentally, many of them, not everybody, are there to put pressure on price and to lower cost of buying. But we always use all the data we have to argue for paying more for quality, of course.
Nels from Carnegie. I believe that 3 or 4 out of the top five Hearing aid manufacturers, they offer some sort of artificial intelligence in their high end products. Can you Talk about to what extent those systems are similar and if they are all internally developed and what advantages that would give you.
Yes. So most of the solutions that you find in an industry today are based on basically a cloud solution, where either a smartphone or a dedicated cloud solution is actually learning from data that the user is generating Themselves in the usage situation. Whereas our solution is pretrained On that library of sound scenes that I talked about. And then that has been that training has been done to ensure an optimal situation To all our users in all relevant daily life situations. And that has then been embedded into the hearing aid.
And to our knowledge, we are the only provider that has a built in system that can provide that benefit optimally to the individual person every day. The other solutions are based on learnings. And for details, of course, you'll have to ask them. But It's generally very difficult to ascertain an optimal solution when you only gather very little data For every person, every day. In order to make artificial intelligence work optimally, The data set has to be as rich as I talked about before, and that involves that Artificial Intelligence can learn both to optimize the sound for every single situation But also to generalize from the data it has trained on to whatever data it will meet For every user all over the world.
And that's why it's so hard to really make sure that, that happens and to let loose These artificial intelligence systems for any kind of application. Therefore, in our research, We have achieved a pretty clear conclusion that we need these systems to work on Some relatively limited problems for now and train the artificial intelligence in the lab, Of course, on real life sounds to achieve an optimum solution.
Maybe if I may add maybe of the things you see, the feedback you get from the user is reality, how they operate the device. So for instance, if they turn volume up and down and given noise levels and so on, then you can, of course, correct for that over time. But it has to be something where you see a pattern from the user related to a pattern in the environment. But what we are trying to do is The engine of a hearing aid gets more and more advanced. There are tons and millions of parameters that can be set.
So what we try to grow is the level of sophistication of the control system. So it has a much better and much more nuanced a set of parameters to control the engine from, you can say. And that's pretty unique. Most of the other is Learning over time of special patterns just like Google believes it knows where you're going just because you sit in your car and go out. That's based on history.
And that's the main difference that you have a historical learning that's relatively primitive, typically related to, I. E, a volume control or if you have, for instance, manual control or directionality or different programs or something because that's the only thing you can learn from the user. You cannot learn much about whether they heard well or not There's not a training device coming. There has been examples of that, and that's not moving anywhere that you had kind of 2 months where you Work, do not work, work, do not work and stuff like that. That's at least not our route.
Thank you. Karsten from SVB. You have a pretty scientific message here. Aren't you afraid that your Average user, first time buyer, will not really be able to, 1st of all, understand and relate to all the charts and graphs you have about deep neural learning here. And going forward, the engine you have in Polis, how would it allow you to maybe get some more tangible features Like what have you, fall detection, some of the things that some of the other manufacturers have been talking about as something that's Maybe easier to relate to for the user.
And then secondly, being AI and deep neural in this, Apart from having a whole new program as music, has it can you then also sort of show that the hearing aid is improving its ability to May you see a cat and not a dog so that you maybe going forward also can see which breed you are looking at?
Yes. So starting with the last question, yes. What is helping the user is the clarity we provide. So what the deep neural network is trained to do is to amplify the meaningful sounds, the sounds that carry most information and Suppress whatever is not providing as much information. So that's how it brings the benefit to the user.
And we have lots of evidence for that, that we can share with you. Then sorry, the next question was
Maybe I can comment on that one because we have brought the smart sky we have today because of the audience here. And this is, of course, to put substance to what it is we spent the money on and why we are not at the end of the road on geodiological research. If we don't understand how the brain is working, if we don't understand how you get meaning out of things, then hearing aids will Flat now because then you would work within zoom in front of the nose and that will help you hear what's in front of you. We moved beyond that. There's tons of evidence for that.
That doesn't mean that that's what we explained to an end user. We put a certain level of sales and marketing. What it is that's the key message in this, You can follow more conversations. You can make the decision yourself. And part of helping you with that is actually to have more context to your picture.
And stuff like that is part of the counseling process that the professionals do, but we sell to the professional. I'm sure Enel's Wagner have in Hearing Care a slightly modified version of this that helps explain it to the end user. But on the hearing aid side, on the wholesale side, our main business is still a B2B where we have to get share of wallet with professional people that as a starting point normally would like to do a better job for the end user. So it is important that there is also depth And thanks, it is important there is a certain scientific element, and it's not just a new glossy feature. And when you look at Hearing impaired people, their number one priority is, of course, to overcome the problem they came in for.
The others are nice side effects, Rechargeability, right speakers, connectivity, fault detection, and it's all based on commodity. It is At Sensa, it is a radio. It is different elements that some have it a little bit ahead of the others and Prioritize differently. The only one, and that's the key message here, where we constantly do a more profound effort is in the audiological domain, which is a core of what we deliver. And I think the key message here illustrated by you, Thomas, that even normal hearing people benefits, which means we really have Understood how you work with complex listening environments and help senior citizens where they struggle the most.
And that, I believe, It's a very compelling sales argument to our professional audience.
It's Nils from Carnegie again. So a question on the future of Biometrics in hearing aids. So as we all know, you can measure the body temperature, the pulse, hard rhythm, etcetera, from the ear canal. And based on those parameters, it's possible To give a very precise estimate of, for example, blood oxygen. Are you also conducting research in other parameters?
So would it be possible to estimate, for example, blood pressure, Glucose parameters of that kind from the year now.
Yes, it's possible to estimate that. And yes, we are doing research on it, and you'll find that some of our colleagues are publishing on it together with collaborators. What we want, generally speaking, to make sure before we take this to commercialization is that there's a strong benefit. And as Soren was alluding to on the question before, that there's a benefit associated with it that points into the current business that we have. With some of the approaches that have been taken to sensors and hearing aids, there are some challenges to How you can market potential benefits such as fall detection or whatever that may be because what if you are missing a fall?
In the U. S, that could have severe legal implications. So whatever we discover In biometrics and how we can use it in hearing aids, we have to make sure that there's a sustainable business model associated with it.
All we share the data with somebody else that would like to take that part of the business. We don't see ourselves becoming The predictor of strokes or whatever you could imagine it could be preventive for and where it could be nice at least, then you have to be extremely sure that you are in control of the outcome. So agree with Thomas. There is a lot of research also, EG signals and others that Should again increase the sophistication of the data points you have to control a hearing aid, there is definitely also a potential that there are others that would like use those data. But still, the ideas have been more than the realities of patient monitoring that way unless you're in a very close to this disease, this monetization, etcetera, because you need to be sure you're right.
Marcin Pager, Danske Bank. Just a question on long term outcome trials. Are the industry or you making some kind of long term alcohol trials looking at, for example, dementia? What will the impact of being of long term use of a hearing aid of your type compared to be a non user or with a Low quality hearing aids, which I guess is it also would be a very strong proof
In front of peers and others,
of course.
Yes. We are involved in some of these trials, and some of them don't have any industry involvement at all Because, for instance, to prove a causal relationship between hearing loss and dementia and then, of course, Where the hearing aids can help slow down or even stop dementia. Those are happening. There's, for instance, a very large Ongoing trial in the U. S.
Looking at this. It will probably be another 5, 6 years before that trial is done and before we know What kind of causal relationship exists? However, we are involved in some other studies. For instance, we've done A large collaboration in Australia that we've also that is also publicly known. There's a large study ongoing here in Denmark Where we've actually been able to demonstrate that patients themselves recognized that higher quality treatment gives a better outcome.
And that's data from about 2,000 patients gathered over the past 5 years or so. So we are doing a number of those things to really demonstrate those impactful Health Care Benefits from Better Hearing.
Good afternoon. It's Michael Newman, Morgan Stanley. I have Three questions. Firstly, on the DSP. Can you comment on the DSP cost development in the industry and perhaps also some commentary around what you're experiencing to pay for the rising processing power?
Secondly, how large do you think as a manufacturer you have to be to be able to remain competitive? Is this sort of a €2,000,000 unit a year business, €3,000,000 a unit business, €4,000,000 or €5,000,000 to remain competitive on the DSP side to be able to handle this AI? And then thirdly, do these rising costs result in another round of M and A between the large manufacturers?
I'll allow myself to take, I think, that one. I don't think you can put an absolute 2, but there was a clever A person that once told me, a national economist here in Denmark, that Moore's Law is forever, and so is the number of people that it takes to control it. So the resources that you need to benefit from the potential In modern technologies that we now see, for instance, in deep neural network, AIs, etcetera, is in reality a double exponential function. And then it will always be The biggest can afford to use the most. You can see the difference between the biggest and the smallest in the industry that the biggest Having a lower share of revenue spent on R and D, but still the absolute biggest budget.
So yes, There will still be a tremendous pressure on the R and D organizations to be not just efficient, but making the right decision in what to prioritize, But developing your own chipset for the sector or for your proprietary use will continue to rise and not just a linear if you want to continue to deliver benefits like you see here. So yes, ultimately, chipset development is a driver for potential consolidation in an industry like ours.
But maybe just a comment on the use of the DSP. When we move to artificial intelligence, You use your chip resources in a whole different way. In the past, we were writing code for whatever happened on the chip, And we knew to every single instruction on that chip what was happening. When you have AI, you don't write the code yourself any longer. You teach the deep neural network what to do.
So what you have you move from writing code to gathering rich data And doing this teaching or learning of the artificial intelligence. So you can actually handle A much bigger complexity on the chip by with less resources when you're using AI. So that's why AVI is very meaningful if you can structure your data and gather the right kind of rich data for your purpose.
Just quickly on the M and A part maybe, and then I think we'll have to jump to lunch soon.
I wouldn't comment more than I said. That's how I heard Mike's question, whether pressure on R and D is a potential driver for further consolidation in a sector. And yes, it is here. But was there more to it, Mike? Yes.
That's how I heard.
I think we'll wrap it up here for the Q and A part, and then I think we'll just skip to the next part, which is lunch. So we're not at an hour's lunch now. We're more like at a 45, 48 minute lunch, but I think we should Do fine with that. So as I mentioned outside, there's a little bit of EPOS products. So make sure to pay them a visit, and then we'll be back at 1:40
Video demonstration in a meeting room into the right where there is a connection to our office where you can see the new video equipment demonstrated. If you just look outside, you would find only headsets, and that would be slightly misleading for the business. So I suggest you go in there. That's it. Thank you.
Okay. Ladies and gentlemen, I think we are about to Get set again and ready to start after the lunch break. So I hope you all had a chance to eat. Then we have the last people entering now. So up next, we have Nils Vahner from our Hearing Care business, who's going to tell us about the transformational journey that Hearing Care has been on over the last couple of years.
So I'll simply leave the floor to you, Nils.
Yes. Thank you, and hello, everyone. So during the next 45 minutes, I'll take you through This transformational journey we have been on in Hearing Care, I'll first talk about where we are today, the portfolio of business we are managing and also the business model we are applying. And then secondly, I'll get into details with Some of the accomplishments that we have delivered over the past 3 years, which I believe have truly transformed our business in Hearing Care in Dement and then finally, taking that as the onset for the future direction and what you can expect in the coming years from the Hearing Care business. But firstly, Looking into where we are today and also getting back to the headline of the transformational journey, I think this first picture truly shows that it has been a journey.
We have, as Arun said, Started back in 2000 with basically 5 countries where we were running a hair and care retailer And then accelerating around 2010 into more and more countries up towards 2015 where we finally started this transformation into becoming a truly global retailer. And as you may remember from previous presentations, for the 1st many years entering into this space, There was a significant skepticism from our wholesale customers. There was also a perception of risk on our side if we came out too transparent, too visible, being a competitor to our best customers, And therefore, we for a while postponed the harmonization, especially on the brand side until Around 2015, 2016. So until then, operating under many different brands, Many different business systems, many different cultures. However, that has now changed, and that's what I hope You will also see during the next 40 minutes, we are now present in around 20 countries plus.
We are an organization of around 8,000 employees, 2,500 Full time stores, as we define it, being opened basically 5 days a week. You will come across other definitions of stores That can show a slightly larger number. But altogether, we are approximately half the size of Amplifon, And we are sort of neck to neck in size to Sunnova retail operation. We have built this business on 400 plus acquisitions, and that's, of course, why it has been a transformation taking 400 Individual businesses into 1 global company, and that is the journey we have been on for the last 3 years and also the journey we will continue on for the coming years. Where are we today?
We are predominantly in North America, in Europe and Pacific. We have 700 plus full time stores in North America, a little over, 1500 in Europe And 200 plus in the Pacific. And if we look at our competitors in the space, we are slightly more skewed and biased towards North America and slightly underpenetrated in Europe and that is basically the history of how we entered this market. But altogether, we are basically present in most of the larger hearing healthcare markets, Except for the Asian markets that is not part of our portfolio. So where are we with our portfolio of businesses?
It is still a very differentiated The picture when you look at the different countries, one of the key elements in retail is being a recognized brand. So in a business where you only start considering hearing aids when you are 65, when you only purchase a product 2 or 3 times during your life, then brand recognition is Not as easy as many other fast moving consumer goods. And different statistics show that on average, a potential hearing aid user only remembers 1.3, 1.4 names. And therefore, in this industry, it's critically important to be number 1 or 2 in a given market because that means that the potential user is aware and that means the likelihood of that user coming to your clinic, coming to your store is significantly larger. Therefore, we have taken a look at our portfolio of business, as you see up here on the slide, and define leader as when we are number 1 or 2 in the market, define challenger as when we are number 3 or 4 and then build up everything below that.
And what you can see up here, when we then map our market position being 1 or 2 Against our profit margin, then there is a very strong correlation. If we are a market leader in a given market, then we also typically have a very high profit margin. So the markets like France, Canada, Ireland, Israel, Poland, Portugal and Sweden, where we are basically number 1 or 2. We are also running with very significant profit margins. We have markets where we are number 3, Australia, U.
K. And U. S. In those markets, we also have a fairly good profit margin. There is still some room for improvement, and that room for improvement can come from scale, from growing our market presence.
However, it's also sizable markets, which is also helping us drive a strong margin. And then there are markets where we have only recently entered maybe 5 years ago, like Belgium, like Spain. And therefore, we also have a somewhat weaker market position. It's also markets where Some of our competitors are highly consolidated, for example, Italy and Spain. And therefore, the path forward to becoming a number 1 or 2 It's a little longer because there is no larger change you can acquire and therefore the path forward is basically acquiring 1, 2 shops at a time And thereby building scale up to a number 1 or 2 position.
So in some of these markets, the profit margin is below average, But of course, the opportunity is also there to grow that profit margin by expanding our market position. Being a leader in the market also means you are able to attract employees. You are able to attract audiologists. You typically have An organization with a longer tenure in the management as well as further down in the organization. And that, of course, also helps Running a good business and delivering a high margin.
But this is the picture today, and the picture was Somewhat different if we go 3 years back. So the good news is that we have actually moved our position in a number of these markets. The journey in these markets have been different from country to country. But whenever we have been able to scale, Growing our market presence, growing the brand recognition in a given market, we have also seen returns on investment in terms of Improving profit margins. So some of the examples here is Spain, where we have firstly started out by basically expanding greenfield, setting up ourselves.
Then a little over a year ago, we were able to acquire basically the only remaining larger retailer in Spain And that gave us sort of a step change into scale in Spain. So we are now at 120 clinics in Spain, which means we can start building a brand recognition, which means we can start building an organization that can deliver as best in class in the country. The same thing applies for Denmark, where it's been more of an organic journey. Of course, our closeness to the market allows us also of an easier Identification of audiologists as well as locations for greenfield expansion. That has also helped the profit margin development in Denmark.
In the U. S. Market, we also consumed the AquaQuest acquisition a few years back, which gave us some scale Together with a brand harmonization that we took on 3 years ago, we are now also becoming a more visible and more recognized player both for recruiting staff as well as recruiting patients for our business there. In Poland, we have Been expanding very much on greenfield, but also select acquisitions from some of our good wholesale customers that have retired Of realized that the competition was getting harder, and therefore, it was time to move on and sell their business to another player. That has improved profit margins in Poland.
The same story goes for Canada, where we have for years been number 2. But over the last 2 years, we have managed to consume Couple of good acquisitions, bringing us into a first position in Canada, which has also seen us improve our profit margins. So the direction is clear. For us, it is a matter of scaling the business, building a brand position and Then also, of course, building a professional organization that can manage the business well and deliver best in class performance. And at the same time, during this period of the last 3 years, also the way We run our global business have changed.
So we originated from acquiring a number of local chains. It was, firstly, the hidden hearing chain in the U. K. Then it was Audi Care in France. It was Hearing Life In North America, and that was where the knowledge was sitting.
That was where the knowledge of the best practices was sitting. It was Also, the agility on what to change in the business when things were turning the wrong way. And of course, it was also the management experience for many years in the business. Over the past 3 years, we have managed to Sort of shift some of that knowledge into our global office in Copenhagen. We have up staffed Significantly in Copenhagen, and we are now more of an equal counterpart.
So we see a very fruitful cooperation where the local agility in the market and the local execution based on local circumstances placed together with a global organization that has scale in terms of technologies, in terms of expertise, in terms of best practice from other countries and then, of course, also your neighboring peer countries that can also help you grow your business. So these three mechanisms have seen a change in our business where we today, Compared to 3 years ago, have much better insights and understanding of what grades look like in Copenhagen In a number of key drivers, key areas for the business, it's of course M and A, but it's even more so, It's digital marketing. It's, of course, technology development and it's leadership development. So those three areas have sort of become key competence areas where we have significant resources in Copenhagen that are driving programs and communities Together with the local organizations where the execution is still happening. So out of the 8,000 employees, It's still only a little more than 100 in the global organization that is supporting the local businesses throughout these Communities and Global Programs.
But this element is a significant shift to 3 years ago, And it allows us to faster implement new activities. It also allows us to faster replicate best practices From one country to another. And the best example, I think, was during COVID where, of course, speed was of the essence And where also we saw different countries moving at different speeds, and therefore, the ability to see and learn from one country Replicating to another country just made us deliver at a faster speed combining this global local collaboration. So all in all, we are at a significantly better place than we were 3 years ago. We have specifically, within 3 areas, taken strong steps forward.
And it's these three areas that I would now elaborate a little bit on. But firstly, Let's just repeat a little bit of what explained earlier today about the psychology of the hearing aid consumer because it's so essential for understanding the business model we are applying and it's so essential to understand This consumer journey that a hearing impaired person is going through. So firstly, you recognize the triangle on the left hand from earlier today, right? So it is still a fact that hearing loss is closely associated with age. And because of that, the average consumer is still in denial the first 1, 2, 3, 4, 5 years As they recognize their hearing loss.
The average consumer that comes into our clinics is still also in denial. So they still, On average, at least hope that we will be telling them it's not that bad, your hearing loss. You don't really need hearing aids now. You can probably wait another 2 years. That is the best message you could give them when they come into the store.
And then of course, the second best is that It is actually getting bad, but we can actually help you. And that's the funnel you see in the middle here. So we are in a market where There is a significant need out there. There is part of the need that has not recognized yet and are not aware that they truly need it. And then there is some of that need that we can start to capture the ones that have recognized I have something, and I need to do something about it.
And then there is an even smaller portion that actually ends converting into an active user into converting the demand into a hearing aid user and then, of course, over time, driving loyalty. So understanding that funnel is critical for our business model. It's what drives quite significant marketing cost per sale Because you have to be in contact with a large number of users that end up not buying today at least, but it's also What drives the importance of digital technologies? Because a lot of users you are seeing today who end up postponing, you can actually Reach out to them again in 6 months, in 1 year, in 2 years and eventually, they will convert and you will benefit. And then finally, of course, understanding the structure of this business where this is a service business.
This is the service that the audiologists deliver during that 1 hour consultation, during that Half an hour to 1 hour fitting session and the follow-up sessions, that's what truly creates value. That's also, as is shown up here on the right, It's also what drives the cost in the business. It is the audiologists' salaries, audiologists being around 3,000 of our 8,000 employees is, of course, a key cost component in the business. And therefore, Most of the optimization efforts that we apply to the business is centered around the audiologists, is centered around the weekly schedule of the audiologists where there is 7, 8 hours per day in the schedule and you can only see 4, 5, 6, 7 patients during those 8 hours. And therefore, if you see patients that don't convert, you lose that hour.
And if you see Patients that don't show up, you also lose that hour. So efficient schedule management is a key a driver in this business. Another example, of course, why digital technologies, systems and data understanding is a key component in managing the business. So the consumer journey is really the way we manage our business day to day. It's, of course, delivering that perfect customer experience at all the touch points with our customers.
To start with, it's the brand experience. It's the recognition of here is somebody I trust, here is somebody I want to see With this concern, I have had for many years because I believe they can help me in the best possible way and I believe they can trust their answer. 2nd part of our strategic pillar is the digitalization of all our efforts. It's clear how in a consumer journey With such a large potential that ends up in a smaller outcome, there is huge opportunities in being more targeted, in being more relevant And being more timely with our communication and digital technologies are just perfectly suited for that. And then finally, in order to take the person through denial to accept 2 decision, it's the expertise.
It's the expertise of the audiologists as well as our expertise as leaders in the business in helping our people to help our customers through the journey and to deliver that customer experience. And based on these drivers, We have decided to go for this position as a modern hearing care expert because we believe that is truly what the consumer is looking for. And if we then dive into this consumer journey, then as we talked about a little earlier, It is a true omnichannel consumer journey because it's one where the consumer interacts in many different ways. So to start with, as you see on the left hand side here, when they are unaware, they may be searching on the web, They may be reading things in the newspaper. When we go to the next phase, the awareness phase, that's maybe when they start to reach out.
That's maybe when they pick up the phone and call the clinic. That's maybe when they send an e mail or get an e mail back or it might even be An in person first visit to the clinic where they don't yet decide. And then later on in the funnel, of course, You get to the decision phase and the reach out phase. That's where you have much more frequent interactions, and it goes by telephone. It goes by e mail.
It goes by text message or through our websites. And of course, then The first meeting in the clinic is typically in person, and we will get back to why. Soren also talked about it a little bit earlier, but there is more and more evidence That is at least what most consumers prefer. And then, of course, adaptation phase, getting used to this and Customer loyalty, getting people back. That's also why where digital technologies plays a big role, but also where Cannot be replaced by the human interaction, the phone, the person talking at the other end being a very critical and important element.
So it is a true omnichannel approach where depending on the individual, different channels, different media works better. And therefore, it's important that we are working with based on data, based on intelligence and feedback for what works with this kind of individual versus this individual And mixing this together requires digital technology. But in the first phase, branding is, of course, key Because you are unaware, you have never really been into this space before. It's a low interest category, And a brand can help you take a decision. And as I said, for the 1st many years, as we were building the business, we were still operating With all the different local brands.
But at a certain stage, in order to drive a true global business Where also you become truly trusted. We needed to harmonize the brands. This is a journey we have only been on for the last 4, 5 years. But I'm glad to say that we are now more or less complete. We are more or less globally operating under one Identity, we are in the U.
S. And Canadian market operating under the HearingLife brand. We are in Europe, predominantly operating under the OdiCap brand. We are also in Australia, operating under the OdiCap brand in New Zealand. And then in U.
K, Ireland, we are still keeping the Hidden Hearing name as it has a long brand legacy in those two markets. But all in all, we are only just starting in a number of these markets to grow our brand recognition In Hidden Hearing, we have been there for a longer time, but the potential is very significant. It is also a key element In leading our people forward, to have that lighthouse of a brand that people can relate to and understand why it's important we do things One way and do it the same way across the business. And if we look across our portfolio again, We have fairly significant differences. So we have some markets where we have been around for many years, France, Portugal and Ireland, we have an aided brand awareness of 80, which is basically best in class in the industry, and we are the leading brands in those businesses.
And then we have a number of other markets where we hover around 5%, 20%, 35%, which is not sufficient to be the preferred, to be the one people consider When they take a decision to watch where to go for hearing services. Then of course, in those markets, we are still relevant in terms of tactical marketing. We can still touch the consumer. We can still get the consumers' response. We can still draw them to our clinics.
But the brand just proves in all our markets that it gives that extra confidence of the consumer, which basically lowers the marketing cost, which improves the response rates and therefore, makes our inflow of customers into the business more stable over time. Digitalization, as I said, It's playing a role in basically all touch points with our customers today. It's especially, of course, at the early stages where The media landscape has completely changed over the last couple of years, but it's also in the nurturing where when it takes 7 years or 5 years or 3 years from awareness to decision, then digital interactions Through e mail, through text messages and of course, web presence can make a difference in a much more effective way than when we only relied on letters and telephone calls. So On the digital investments, we have seen big improvements over the last 3 years. On the right hand side here, you see an example from the U.
S. Market where we have basically multiplied the revenue from digital channels by 8 compared to 3 years ago, we also we came from a fairly small scale in the U. S. In terms of digital dependence, In terms of our marketing mix, but today, it is the key driver of generating consumer interest in the new market digital marketing. In the U.
K. Also, another good example where if you go 3 years back, we were very dependent on the Sunday newspapers in the U. K. Market that has a nationwide presence. And it basically only has a nationwide presence if you want a good price, which means we were getting leads in all across the nation, which means we had to service clients all across the U.
K. With digital media, you can much better target your audience, which means we can now, to a higher degree, target leads in the areas we need it. So in the U. K, we have basically moved more or less completely out of the Sunday newspapers and are now also More than half of our business coming from digital media. And all of that has come together with a Collaboration between a global hub in Copenhagen and then local resources in the countries.
So it has become very important to increase our expertise. It has become important to be experts in this field. And that expertise, We have not been able to hire in all of the 20 plus countries. It also makes no sense because a lot of it can be replicated from country to country. And therefore, we have significantly upskilled our resources in Copenhagen.
We have probably around doubled Number of resources in digital marketing and the IT technology supporting it over the last 3 years. And we now have a global local operating model where a lot of content, the technologies, The processes and the flows are defined globally, but the local execution based on a Optimization schedule, conversion rate optimization is then applied locally in collaboration with Global. So we also make sure that we harvest the benefits from being present in other markets and therefore, good ideas being replicated from one market to another. This is another significant shift in the way we work compared to 3 years ago Where this was much more of a decentralized model, we now have a much more global local model where Some of your work is global, and some of it is local. Three examples that have made Significant impact on the business in terms of digitalization is shown up here.
One of the key challenges in the business is back to the fixed schedule of 1 audiologist having 8 hours per day. When we look at our portfolio of clinics, some clinics are extremely busy. They can be busy 2 weeks out just like the restaurants. Some restaurants are busy several months out, right? And other clinics, they basically have available space this afternoon.
Whenever we were doing Sunday newspapers, TV advertising, etcetera, then of course, we couldn't steer the demand to a specific clinic. What we have now implemented is basically an algorithm that together with digital social media It looks at our schedule on a daily basis. It looks to what does the schedule look like for the next 3 days. If there is available space, Then I need to up my investment here, and I need to up my investment in these postcodes where the clinic is. And then in the postcodes where I already have a busy clinic, we will reduce our marketing investments.
So a clear example where we can actually Much better, customize our marketing efforts through the use of, you could say, AI, if you like, and And algorithms together with digital marketing channels. Another example that I also touched upon a little bit earlier is all of the communication That used to happen from the first interest to the appointment in the clinic as well as The interaction that used to happen from the first interaction and then adapting with hearing aids. So a lot of these interactions can now be replaced By marketing automation, where we based on where the customer is in the journey, we send relevant e mails. So in the early phases, when you have your hearing aids, you learn how to replace the batteries. You learn how to get used to different sounds.
You learn how to when to look for advice, if you need advice. And in the later phases, of course, We are starting to nurture the client about potential new technologies that may be available that can help them in the if they have needs. So another example where digital technologies have both improved the messaging to the clients, the targeted information as well as reduced the marketing costs because it is cheaper to send an e mail than a letter. And then finally, also in terms of leading our people, we are using digital technologies. COVID have been, of course, a strong tailwind in this because we have now seen that we don't always need to have all our staff together at a physical sales meeting.
We don't always need to be in the clinic Role playing, interacting, coaching the people in order to learn a new skill or new competence. So we're using digital learning tools, tutorials, 1, 2 minute videos that are posted to the relevant people in the relevant clinics at the relevant time That can teach them new practices, new skills. It is, of course, well suited for very basic skills, very basic behaviors, Etcetera. And therefore, it does not replace such the human interaction of the district manager When you have to coach a person to do something that they are not used to or that they find is a little bit difficult. So we are now using both elements in terms of developing our people, the digital learning as well as the physical interaction in the stores.
And again, one example where COVID has made Such a big difference. We have also previously always worked with a cascading principle in the business where Global management would meet with country managers. Country managers would meet with sales managers. Sales managers would meet with district managers. But over the past 18 months, we have learned that now global management, we can just as easily meet with a district manager in Australia.
And the district manager in Australia can just as easily be in the same meeting, virtual meeting, of course, with a district manager in the U. S. And actually share experiences, share insights and of course, drive engagement because I'm not alone in this. There are actually people Elsewhere in the world that have the same issue as me, and we can maybe together find a better solution. So I think a prime example again of why scale matters in this business and what scale can bring to this business that is not so available for the small independent.
And most of digital marketing, of course, ends up the website. So I am also very pleased that we have just launched A new version of our website. It's, of course, also a global website, of course, translated into each market's language, But it's based on a global platform, and we have actually received just recently a top ranking on this 97% Semrush, which is basically very high compared to the average in healthcare and in the retail industry. And what is measured and assessed in these kind of surveys is, of course, its speed, its load speed, and it is, of course, user friendliness. So the way you find how you find your way around on the website.
And of course, those kind of things are not stale. It needs to be constantly optimized based on data, based on the feedback you have from the consumers, how do they act and Where do they go to and how can we improve that experience? And how can we make sure that more of them ends up to the page where you have Either a form fill out or a phone number or a chat box that they start responding to us so we can take them through the next step in the journey. And all of this Conversion rate optimization. There is, of course, also significant synergies from operating 20 plus markets versus just being 1 Because a lot of the mechanisms, a lot of the user behavior is obviously similar across markets.
So all of this is about data. In order to deliver an even better customer experience To our end users, we need to constantly collect data about them. We need to constantly collect insights. And actually, Even in this industry, it's not that straightforward because the hearing impaired user 1st starts searching on the website. And there, they leave some, you could say, fingerprints or stamps of What are they looking for?
Then they may eventually respond to something they may call the clinic. There, they also leave some data. Then they may Coming into the clinic eventually for an appointment, they leave some data. They have a hearing test. The diagnostic Audiometer will also collect some data points.
Then they may get hearing aids. The way they act and use the hearing aids also leaves data points. And of course, in our CRM systems and our marketing systems, whereby we have been interacting with them, they have also left data points. But tying all these data points together is not an easy art because it does come from several different legacy systems. And one of the great opportunities we are working towards today is actually tying all these data points together Because the more data, the more insight we know about the consumer, the more relevant and targeted we can be in our communication And the better chances we have of taking them through this end user journey.
So it's a journey that we have not completed yet, But it's one we have invested significant energy and resources in. And it's also one where we think we stand well In succeeding because we are both as a hearing healthcare company, we are both in the diagnostic equipment As well as in the hearing aid development as well as in the hearing care business. And therefore, we should have Better changes than most in tying all these data points together and using it to the benefit of our consumers. So a very exciting journey for the future in this area. Expertise?
It is, of course, what the hearing impaired is looking for After those many years of consideration. And as we talked about a little bit earlier today, a survey actually pre COVID Done by the AIRE Institute showed that 94% of hearing impaired people would prefer in person meeting for that first hearing aid assessment. Throughout COVID, we have then seen how damn difficult it was to get even the 6% to allow us To have a remote care hearing assessment with them or a remote care counseling session. Basically, all of them asked, can I please postpone the appointment until you reopen so I can come down to your clinic? So that's strong Testament to the importance of our audiologists and therefore also, of course, we invest significant resources in developing the expertise of these people in helping these people deliver an even better customer experience to our customers.
And of course, we also assess on that. So we look at NPS scores in all of our clinics. We look at How the regions of a district manager performs on NPS. Average score here, you could see, for so far this year was around 70, Which is a high score compared to many other businesses, at least if you go widely across retail and even healthcare. And we expect to continue to deliver on that and improve that by Delivering more personalized training based on digital learning by leading our people in a more engaging way So the customer experience also becomes engaging and of course, by lifting the knowledge of our, most importantly, audiologists but also the front office person.
So huge opportunity also on that end.
So
I put a lot of markers now here on both the achievements, but also the opportunities. So in this final Shing, let me just sum up on a number of these opportunities going forward. So as you saw a similar graph earlier today, right, It has been proven through COVID that the business model is fairly resilient. We saw a very quick comeback in June of 2020, and we have seen even a lift over the last 6 months in the business. It has predominantly, to start with at least, been existing users that were coming back.
So A strong proof of the value of having a large database of existing users and potential prospects that you can reach out to And that are further in the journey and therefore, more likely to convert because the one element we are still missing Somewhat is some of the new users, there's definitely still a little bit of skepticism, a little bit of reluctance amongst new users In terms of taking the decision, they are in denial. So looking for the excuses and COVID still presents an excuse in many countries for us. But going forward, we are sure that we can benefit from this based on our network, based on our databases and our digital marketing programs. If we look at the portfolio again, Then it's also clear that we have some strong opportunities here to build scale. We already have scale in a large number of markets, But there is also markets where we don't have scale.
And depending on the market and on the opportunity, we would like to move, of course, More countries along the green arrow. So looking for acquisitions in some of these countries where we are only a number 4 or 5, Looking for where to open greenfield, where can we hire audiologists and then expand, whereas in the markets where we are already A leader in the market where we already have a national presence. It's more a matter of continuing to build and nurture our brand And then benefiting from that. But there is a significant number of markets here where we hopefully in the coming years can take yet another step up In terms of margin improvement by driving market size. So also here, strong drive for Further, bolt on acquisitions as well as greenfield openings in order to get that scale in any given market.
So finally, we believe That by taking this position, the Modern Hearing Care Expert, by focusing on these 3 strategic pillars, Strengthening our brand position market for market, building our digital competencies further and Continuing to develop our expertise both in terms of leading our people as well as the expertise that we deliver to our customers. We believe we have even more potential in the business actually to Take us to the next level. There's still plenty of opportunities under each of these that I hope has also become clear to you throughout this presentation. So that was my final word, Matthias. So Yes.
Thank you
very much, Nils. So Just get ready for Q and A. I'll just switch to the next slide. So, Soren as well, I think there's a microphone for you here. So yes, we're ready to take any questions that you may have now.
I think we have yes, you choose, Kristin.
It's Oliver from ODDO BHF. One question regarding Your focus on greenfield openings. So in particular, compared to all your major competitors, they look stronger towards external growth instead of greenfield. So could you tell us why you have even a stronger focus on greenfield to them?
Based on my insights and understanding, I don't think we are particularly more skewed towards greenfield versus acquisitions that are our competitors. I think it is a matter of fact that location is a key driver for the hearing impaired. So the closer a location you have to the user potential user, the more chances you have, they will come to you. And therefore, you also see in all markets that as more and more audiologists are coming into the market, we see a gradual Expansion of number of locations. And of course, we want to take part of that game also in order to make sure that we keep our market share.
But it is a challenge because of the challenges in attracting new users. It is significantly easier to open greenfield in markets where you have a high brand awareness than in markets where you are smaller player because, of course, The traffic comes more natural when you have a brand position. But it is a journey because on average, Half of your business in retail is existing users, half of the business is new users. So it basically takes 5 years before you start to get on a normal run rate where you have repeat business, right? So it is a matter of balancing your greenfield growth basically to still being able to continue Sustainable profit growth.
So I don't think we are more biased towards greenfield, but it's certainly a good opportunity. And we have seen in some markets, it has been very helpful for us.
You could say it also depends on the opportunity to buy Stores, of course, if you are in a market where there is less activity of that, then there is no other way than doing some greenfields. So it's a
Julien Rodolphe from Exane BNP Paribas. So we have learned that all the big retailers, I would say, in the past weeks have confirmed that they have Trenton, their position during the COVID pandemic and all you guys are willing to increase Your retail presence with even more bolt on acquisitions. So do you think it might become an issue for you to acquire the best assets because of fiercer competition, as I guess everyone will fight for the best clinics? And do you think the acquisition multiples might be impacted in the future because of
that? I would say for the past many years, There has been at least 3 players circling around every acquisition opportunity. So now we're amplifying ourselves. So I don't see that as significantly changing. Of course, if everybody sees Profit margins and growth outlooks improving, then the appetite for spending a little bit more Might increase in line with that, but I don't think it's a change in the competitive bidding for acquisitions because that's It's more or less unchanged, I would say, based on the last 10 years probably.
Karsten from SVB. Then I'll try again for the with the question I had for Soren earlier Then give it to you, Anders. There's a digital innovation with omnichannel for all users. Could you try to break What are the digital omnichannels? And where are your strengths?
And where do you see the largest opportunity to improve your current performance?
Yes. So Soren brought 2 perspectives on omnichannel. 1 was The sales channel, I will bring 2 other perspectives on omni channel. So one is, of course, the way you reach your consumers In terms of marketing and the other is how you interact with a customer that are about to decide to purchase hearing aids, right? And in terms of the marketing, I think my presentation have hopefully shared that we are basically we are utilizing all possible means in terms On omni channel, so we are using the telephone.
We are using the print. In some markets, we are using TV. We are using Email, text message, website, etcetera, right? So in terms of the marketing space, that's pretty much the omnichannel. And yes, we are present wherever we can and where we think it gives the most payback, right?
And in terms Of the journey, you will say the clinical journey, it's also quite obvious to us that, as I said, Most users prefer the first meeting to be in person. Whereas, we can also see that in especially during COVID, Some of the other meetings like the first follow-up or like service calls, they can be done through video, they can be done on the phone, They can be done by technologies where you can fit the hearing aids remotely or at least adapt and adjust the fittings of the hearing aids remotely. So that is opportunities. It's still a very small part of the consumers that are basically asking for this and preferring this channel. But it's certainly something we offer.
We also have In a number of markets, on demand service where you can call 20 fourseven for an audiology service on the phone to support you. So I don't know if that answers.
Maybe in addition, yes, wouldn't you say that one of the channels that have seen the most dramatic Development is social media, where e mails and web in general is even decreasing in relevance. So the whole Targeting through social media is developing very rapidly, and I think you are more and more in dialogue with users through social media.
It's Nils from Carnegie. Two questions. First question is you're not represented in Germany. What are your plans to expand into this It's an important market. My second question would be around If I remember correctly, when you made the acquisition of Audica, the French competition authorities ran a survey into this topic of Factory owned clinics basically just offering one brand from the manufacturer.
What was the result of this survey? And are there any examples of any countries where competition authorities are conducting Surveys into this matter of manufacturer owned clinics basically just offering 1 brand.
Yes.
As you may know, our strategy has been for a number of years with regard to Germany to not go into retail because of a significant wholesale presence. But I would also say that, of We can also see that the landscape in Germany is changing. And like has been the history in many other markets, We, of course, keep a close relationship to all our existing customers so that we make sure that if they are going into a phase of Retirement, our willing interest to divest, then of course, we want to hear them out also to consider our potential Partnerships and investments. But as such, we have no aggressive expansion plan for Germany. And with regard to your other question, I can't remember the That was not the core focus, at least of
The focus was more the density, including our Hotel customers. The day counted in when you looked at whether you got 2 consolidated in a given region. I think what we have worked a lot on, which I think should be there, is always that there is a connection and that we do recommend brands from the group and so on. So it should not be secretive. We have no problem.
We are proud of the products we offer. We think they are very high standards and quality, but it should be transparent to the user that they are walking into the best stores they can imagine, and they will be offered the best products that If there are people that insist on something else, we can also accommodate that and do.
Basel Barger, Danske Bank. Just a question on conversion rates. Can you make some comparison on a conversion rate for an Which where the hearing pad already had been primed on social media or tailor or whatever And for compared to a hearing pad coming directly into a shop, what kind of conversion rates are you actually seeing from these Appointment that you generate. Yes.
The short answer is it depends, right? There are so many factors at play, And you don't always know what kind of other touch points that individual consumer has had, but that's course, some of the things we are trying to get an understanding on in our digital tracking and tagging of consumers. There's another element that is that it is so much easier to be attempted To respond, on digital media, as it was in the old days where you had to pick up the phone and call in for an appointment. So with Facebook, for example, it only takes 2 clicks, and then you have basically accepted to give away your consent and your details. And you may have put in your e mail and then quickly getting back to you.
So I wouldn't say that they are already the ones that you are getting from social media or digital media, but we actually see Quite good response rates and not significant different response rates on digital media versus A more traditional media. And if anything, the most important thing with digital users is that you respond rather quickly. So the moment they have responded to you, they expect you to call you back or be in contact basically within 15 minutes because they may have lost the interest and gone somewhere else. So the response rate is so much more critical, at least with digital media, I'd say.
Christian Reum from Nordea. A couple of questions. First on China. Of course, one of your large retail competitors have chosen to enter China, at least in part through joint ventures. What's your considerations about how to approach the Chinese market from a retail perspective?
And then the second question is to sort of the Prospect of the U. S. OTC category. Is there something to do for you to do here in terms of maybe Using your own retail to trial out some concepts? Or will you be sort of a late mover to this market and Be reluctant to use your own retail in this regard.
Maybe I should take both. I think when it comes to China, we still find China Very fragmented, fast growing, many, many players, also players that build up a strong position in basically every major town. So in itself, we don't find it strategically important to be active in retail at this stage. Does that mean we have no considerations about it? Of course not.
It is the biggest market in the world, probably somewhere out there. And we, of course, have to Look at timing and so on. But with all our various wholesale opportunities, we think it's not a limitation to growth. It will not be the growth driver. So there will be a day, and it's a timing issue.
But short term, no. OTC and own stores is a little bit Paz, it just doesn't really fit together in my book. But Nils, you're welcome to comment. OTC is because there is no counselor. And I'm sure people that come into a store, they're not there because they have understood that there's something called OTC product and there's something called If there's a form factor, which is more like, let's say, a headset or hearable type and people really want that, then of course, we will offer it as part of the portfolio.
But I also don't think that they come to the store to get the personal counseling, in person support. It's not because they are very well aware of different products. So I don't think it makes sense. You have to try it out somewhere where there is no counselor. That's the Fundamental of the OTC category.
So if one is to experiment with that, you have to find a place where there's no councilor. Otherwise, I don't think we'll learn much. And maybe a little bit back to, Martin, your comment on or question on You know how good the leads are. I think all the effort is done to make sure, back to your scheduling, that the ones that arrive are ready. So whether it's happening digitally or by a phone call or other ways, you really try to make sure that people that arrive.
So you can't really Just measure the conversion rate in the store because hopefully, we threw the funnel from this very upper funnel that can be very inconclusive, have managed to mature the lead further to something that's actually ready to move. That's key and part of creating productivity. So you kind of lose track to, again, where it all started at some stage. And some needs more nurturing than others as you go through the fund.
Thank you. Karsten from SV. How do you think your Store footprint will evolve over the years, both in terms of or maybe not actual number of stores, but more the location of the stores. At least one of your competitors seems to be going for more and more for sort of A listings, larger stores, more branded stores. Are you seeing something similar for you?
No. Actually not. I think from everything we know, location is key in retail, and therefore, being close to the potential user is critically important. And therefore, It would be lovely if we could have 100 audiologists in 1 clinic or even 10, but I don't think we are servicing our customers the best way. They're looking for closeness.
And the experience and what and how we can help them can be equally good, whether we have 1 or 10 in a clinic. So I think it's more a broad network of high standards all across the country.
I think we have proven cases, it's basically from France, that it helps to split the store when it gets too busy and then rather have 2 frontline people helping 1 audiologist and do a little more of the screening, a little more of the maintenance of the hearing aids and stuff like that and then move A kilometer or 2 away and open another one. It's at a good location, I think, if that was in your question. We tried to get down from 2nd floor next to the E and T, wherever it was, down at the street, at a place where there is also an element of foot traffic or the local And that good availability, of course, as other retails move out. So we get better and better location. But the actual size, There's no evidence that it helps to build a big clinic.
No, no. And in terms of location, of course, Most customers come to us by appointment, right? So there's very little spontaneous traffic into a store, right? But of course, being on street level and even being on better street level, A locations or other, Of course, can help raising the brand recognition. So it plays a role in that more than it actually serves the basic needs of the consumer better.
They want you to be close to a bus stop or a train station or where they are shopping for pharmaceuticals.
So I think we have one more, maybe the last question here in this session, and then we'll
Great. Thank you. It's Michael Junghein, Morgan Stanley. I have two questions. If we maybe just assume that there is OTC disruption, can you comment on how You structure your lease liabilities for your stores in the United States.
Are you thinking as you sign more stores up and expand the network that the lease liabilities are shorter than they were in the past? And secondly, it seems to me that you won't have an OTC product yourself. Are you willing to stock A GN and a Cinnober product to see how those products do in your own stores in the U. S?
I think, sir, on the last part of your question, right, I think I fully agree with Soren. In hearing care, we want to be the modern hearing care expert, And it just rhymes very badly on OTC, right? The reason we invest so much in our expertise, in our people is that we want to give a potential user the best customer experience and also the best Experience living with hearing aids. And for that reason, very important always in our clinics that we demonstrate the hearing aids. We put the best technology on the ears of people so they get to experience what grade sounds like.
And therefore, I also I don't really see a big opportunity for OTC in our clinic network in the U. S. Basically. And with regards to the first part, the lease liabilities in the U. S, they are not that long.
Actually, the lease obligations typically as we see in Europe. So it's not that much of an issue. But at the same time, we still believe that the market That exists today. We'll definitely also be there for the next many years. And therefore, I see absolutely no risk on those leases.
I wouldn't dare so, but they are less than 5 years.
And again, remember the point you had that in order to support the growth in the market, you need to expand networks. So even if you came to a conclusion, Michael, that there would be, let's say, a growing OTC channel, I think that could, just like Costco have come in without a number of Stores being closed, etcetera, could be absorbed even if you came to that. So I don't think it's a big liability.
Thank you. I think with that, we'll have Jobe on now so he gets enough time to go through the EPOS story. We got one question also from the virtual audience, but that was answered. So no problem. So Next up, we have Jurgen Delberlaasen here, President of EPOS, also known as the communications business in Demand.
You'll be talking about how we aim to become the preferred premium audio brand. So over to you.
Thank you so much. And I will do that. I will take you into the EPOS universe here, and I will do that by going through a few points. First of all, talking about the strong foundation we think we have with APOS. Then secondly, talk a little bit about the attractive market fundamentals we see.
And then ending up with just a deep dive into the current situation we have and also a bit about the strategy focus going forward. But let's start with EVOS at a glance. EVOS was actually Coming out of a joint venture we had with Sennheiser from Germany, and we started that joint venture in 2003. And today, EPOS It's basically more than 500 employees worldwide. We focus on 2 business units, Enterprise Solutions and Gaming.
We have our headquarter here in Copenhagen in Ballarat, just the western part of Copenhagen. We have outsourced manufacturing mainly to the Far East. And we have R and D, the main office here in Denmark, but we also have offices In China and Hong Kong, we have outsourced a big portion of our software development to a partner in India. And we have a strong partnership and also 20 percent ownership in Solabriq, which help us execute on the video portfolio that we are currently working very hard on. We have a global distribution set up through 15 new subsidiaries we just established.
And we have in these subsidiaries a dedicated sales and marketing people, both catering for the gaming business and our enterprise business. But let me just elaborate on how we came from being a joint venture and how we ended up being EPOS. Basically, We had a joint venture since 2003, and the Jundsen setup was really about developing headsets For Enterprise Solutions, Gaming and for the Music business. The distribution and the majority of the sales and marketing actually Went through the Sennheiser subsidiary. So we were actually selling the Jundal Wintour was selling into the Sennheiser subsidiaries that then executed the sales and marketing through their local sales subsidiaries.
It was a very successful journey. We were actually growing more than 20% organically Through the whole period of 17 years, say 7 to 18 years that we had the joint venture, it was a mode of Stable investments and steady development. And it also had the nature of being a joint venture, a fifty-fifty Joint venture actually meaning that the owners should basically agree on everything, especially strategy. Then in 'eighteen, we decided to demerge, and the demerger was for us really about Establishing a front end to the business we took over, which was Enterprise and Gaming. That was establishing 15 new subsidiaries that we mainly did through 2019.
It was also implementing new IT infrastructure, New IT applications with a great help of being a part of Diemen. We did that pretty fast in less than a year. We transferred employees, the sales and marketing people that were living in the Senhance subsidiaries into the EPOS subsidiaries, And we were taking over the full control of the distribution channel for gaming and enterprise interacting with the directly with the channel. And then we also built, created a new brand, Epos, which I will talk more about. So basically, coming for a joint venture where we were basically the headquarter mainly focused on R and D, supply chain and getting the product produced To now focusing in on 2 business segments, enterprise and gaming, but having more or less the full value chain Except for the manufacturing, which is still outsourced in house.
So today, EPOS, we think we are now in full control. We The willingness and ability to do more, meaning that we will continue to ensure a competitive Roadmap within Enterprise Solutions and Gaming. We will enter a new important segment in the enterprise space, which is video collaboration bars. We will build we are building a dedicated gaming sales team to execute very hard on the gaming business. And we are investing in the Ecos brand to create a distinct premium positioning exactly where we want to be.
And then, of course, we do this by also adding additional investment into R and D and sales and marketing in June to be able to drive future growth. So that's basically what happened the last year or 2, creating EPOS. But back to the journey, we are not new to the business as Soren also alluded to in the beginning today. We have been in the business together with Sennheiser since 2003 in the joint venture. It was a very successful journey, growing Average of 23% organically through the period, starting for close to nothing, but rounded DKK1 1,000,000,000 in 'nineteen.
Two main periods, I would say, was the first period where we actually established ourselves and making the first product portfolio setting up production in the Far East. The second period of the joint venture was more going global, making sure we had dedicated folks in all the relevant market in this world, building Dedicated sales and marketing team for the enterprise business, but still within the St. Hynes' subsidiaries. And now we are in a new phase, The EPOS phase where we basically have full ownership, full control, we call the phase integrate, mature and expand. Integrate and mature because we still have some internal jobs to do to mature the business and integrate the business we are in.
A lot of new people, 50 new entities, a new brand, a lot of new IT systems, new processes. We are still working to optimize that as we speak, but are really doing progress every day there. Expand because it is, of course, a clear strategy and goal for us to Band of business both in gaming and in enterprise with segments we are in, but also adding new product categories to what we have already. So that is the overview of the journey basically so far. The Epos brand, we want to become the premium audio brand in enterprise and in gaming.
And the EPRAS brand is really about 3 brand pillars, 3 values that we have talked to a lot of customers about that really matters if you want to Be a premium audio brand in the two segments we're talking about. It is really about pioneering audio technology. This is where we have been doing excellence together with Sennheiser in the joint venture. And this is where we also can do quite a difference in the marketplace Going forward, being part of Demand as an audio group basically. A lot of synergies Of what we're doing in terms of communication and sharing technologies, and we need to harvest synergies to make sure That we stay in front and can deliver that premium audio in both gaming and enterprise, and we are doing that to a large extent.
Then we have a brand pillar we call Crafted to Last and Designed to Excite. It's really about the physical product where we put quite some Effort into, of course, make it look nice, but also make sure that we do high quality materials and that it's doable And it's comfortable and it's nice to wear for full day if you need to do that. So a strong focus on the craftsmanship of the product and the design of the product as well, Which we think we differentiate as well. Then we have passion for performance. Performance was actually when we asked our customers creating the brand, It was one of the values that they rated the highest.
If you are a professional business person like yourself, you really want To participate in meetings where you have crystal clear audio, you can hear what's being said and you come across very clearly. And you also want it to be plug and play when you start virtual meetings. So that criteria is really important for the enterprise space, but also for gamers that really want to have this Immersive experience being in the game when they are there with their teammates, making sure that they get the maximum out Of what they're doing when they play the game. I have an example here of a sponsorship, a partnership we do With another known brand that also rate high engineer excellence, performance and craftsmanship. So here's a little video about that.
Few events rely on communication as much as Formula 1, when each fraction of a second counts, messages must be delivered with clarity and precision. High end communication tools are critical to success in the demanding world of Formula 1. That is why EPOS have joined forces with the Aston Martin Cognizant Formula 1 team as global audio partner.
So just one of the many activities we do to build our premium brand, IFRAS. Now Back to the businesses we are in. We are in 2 businesses today, Enterprise Solutions and Gaming. And there's Huge synergies between the two segments on the back end and in R and D because basically the capabilities and technologies you need to do a gaming headset and an Enterprise has is very similar. And also the way you bring them to market through production supply chain is there's Quite similarities and synergies there.
But of course, going to market, it's quite different. It's B2B and B2C, so different channels, Different customer groups. Today, around onethree of our business is gaming and twothree of our business is If we take a look at the enterprise premium portfolio we have, we have actually split it up into 4 families. We have the 1st family, we call it impact when talk matters. This is really the traditional hardcore headset You use when you need to be on the phone many hours a day on a UC call, being it in a call center, being in salespeople, sales reps, receptionists.
So this is the category we've been in for many years very successfully with an extensive product portfolio. Then we have our Adapt line, Which is basically the more versatile product range where we basically can work from anywhere. You can take your product with you. It's Typical foldable, it's wireless, it's with noise canceling and it's sometimes also with bigger ear cups That can really make you concentrate in any environment you might need to work in. Then we have our Meeting room product line or product family, we call it expand.
It is our high end Speaker phones, but it's also going forward and we just launched. So hopefully, you had a demonstration of that, the Vision T In the meeting room next door here is the video products that is also within the category, a category we expect to grow very much in the future. Finally, we have a smaller category. We call it command. It is really for air traffic control and other Safety applications where you typically operate towards a proprietary backbone where you need special connectivity And premium audio.
And that is one of the things we also deliver in that space. It's not only about product when you talk about enterprise solutions. It is really also about bringing a full solution also in terms of management software. And So you can basically make sure when you buy into a premium audio product portfolio, you can always make sure that it's always upgraded With the latest audio features, safety features and you can manage your portfolio because it's on the network, really important for IT Managers in this world, especially these days, that they can manage their hardware platforms with these kind of softwares. So that is an important part of buying into EPOS as a solution for enterprise.
What is also very key and very important is, of course, understanding that you are part of ecosystem that you work towards the UC space. And there's other partners, other companies in there that are very important for you to work with. And we do a great effort To work with strategic alliances in this space, we have teamed up with all the logos you see there, sharing roadmaps, Making sure that we always work with their solution and anytime. So whenever they come a new version of TIM, you will make sure if you have an APOS It will always work with the new information as well. A lot of work going into that on the R and D side, but we also focus on Doing collaborations on the sales and marketing side as well with many of these folks here.
Gaming. In gaming, we see ourselves as the premium audio brand in gaming. We focus on audio, But we also have a very distinct premium positioning there, again, focused on the brand pillars, craftsmanship, The look and feel and the design and the quality of the physical product, but also the premium audio we bring with it with our latest technologies. Also here, it's not only about the premium products. It's also about providing software.
We have a gaming suite where you can actually fine tune Your audio settings to whatever game you're playing to your personal preferences in auto be upgraded when you use our products. So that was about the products and the solutions. So a bit about how we bring them to market. Both in enterprise and in gaming, we operate in a 2 tier model. In the enterprise Space, we have the telecom channel and we have the AV channel, which is especially relevant for the video category.
And in Consumer, we also have a 2 tier channel. And very simplified, the main role of the Tier 1s is To carry inventory and to make sure we get reach to a larger reseller base. The resellers, we call them Tier 2s, Where the value creation is really created, that is where they need to understand our value proposition, our product and make sure they met that to the needs of the customers being the enterprises in the B2B space and the gamers in the consumer space. And we work very closely with the channel together both with the Tier 1s and Tier 2s. But in enterprise, we also have what we call touch teams in the major markets.
So we actually go out and we engage Directly with the bigger accounts, the bigger companies of this world to make sure that we help do the demand creation there. We never take the orders directly. We always fuel it back to the channel, to the reseller most likely, In many cases, a specific choice of the enterprise. So that is basically the sales overriding model simplified here. Now a bit about the market.
We think there is a strong market out there, Strong addressable market for us. We believe that the market for enterprise audio, gaming audio and video collaboration Combined for us is an addressable market of $6,000,000,000 We see healthy growth rates. We believe that the market will grow at a CAGR of 12% average in the next 5 years And propel into USD19 1,000,000,000. We believe that the audio segments Enterprise and Gaming, we'll probably grow slightly less than 12%, maybe 8% to 10%. But we then believe that the video Business connected to UC will grow more than 12%.
So in average, 12% is what we see. So a nice place to be when you want to grow a business. And what is the underlying trends that fuel this growth for the market? In the enterprise space, it is really the adoption of UC and collaboration. Basically, they had a lot Tailwind during COVID, we all learned how to use these applications if we didn't know it already.
So that is really what is driving also of the business when you talk about endpoints. And your trend is hybrid working that is actually us coming back From to the office after COVID, it's very clear that we are going into a hybrid model as we call it. You are both allowed to work from home and in the office. There's a strong focus on specifying that at the moment for many companies, especially global companies. This is a really hot topic And a positive trend pushing the market for UC and of course, auto communication endpoint.
We see a very strong focus On meeting rooms, the UC applications have really boosted the video meetings. We all participate in video meetings. We do it right now. And that is really on the rise. And every company of this world is begging their smaller and bigger meeting rooms will to be virtual with video bars and speakerphones to be able to facilitate video meetings from the office.
And finally, we have what we call multi device and platforms, basically just meaning that You can run many of these UC applications on basically any mobile phone, any tablets, any laptop. Even on the Vision T product you show out here, You don't need to bring in compute into the room. You can actually run the UC application on the device, which we actually think is a very strong feature. If you talk about the trends in gaming, first of all, it's very simple. Better global access to high speed Internet, Which allowed the gaming manufacturer to actually up their game in terms of the advancedness of the game, not only on the video side, but also on the audio side.
And that really drives the interest for gaming as well. We see more socialization and collaboration going on in the games. More and more games are basically you playing as a team, an international team together. You make strategy together, you make tactics and you play and you communicate together. That's a clear upwards trends within gaming.
But also outside gaming, People come together in communities and engage. It's a lifestyle now. People are proud of being gamers. The average age of a gamer is on the rise. It's right now around 35 years old.
Some are pretty surprised to hear that, but that is the average age of a gamer. So it is for everybody nowadays, and it is a lifestyle. Esports is on the rise. Before COVID, we were filling stadiums with 10,000 of people looking at the heroes playing on stage. But it's also going on in virtual space.
On the channel Twitch, for example, you have these virtual tournaments going on where you have millions of And that is really, of course, also driving the interest in the whole gaming scene. No. If we look at the market right now, it's very dynamic. And that's, of course, also had to do with COVID. So in 2020, we saw a very strong momentum driven from the work from home trend.
Especially here in EMEA, we were all very abruptly sent home with a wired headset that basically happened more or less in the same time In the 1st month of 2020. And we also saw a very strong demand for gaming headset because Gaming was one of the few industries that was still very much alive during COVID and people actually used Most of the time when they were not working, actually gaming. I have some in my family that actually did that at least. In 2021, We have seen a slowdown, especially in EMEA, because of the back to office trend. So we were all selling home with a wired USB headset.
Now there is another trend where the companies need to find How do we work in the future in a hybrid mode and what equipment do we need to use? And especially in Europe, we have seen a slowdown because It is a talk going on, but we have seen a slowdown because of a delay in decision making in many countries for many companies. We have seen that the product mix have changed. It's not wired USB heads anymore. Now it's also Wireless products and also a lot of focus on medium room products.
And especially, we see that the important video Color video trend is there right now. So basically, we believe that if we before COVID Had a prediction that the market was growing on average 10%. We believe that what happened during COVID was that the market was actually fast forward 3 years And it is now on a different level. And we believe that going forward, it will grow the 12% I talked about before, especially also push forward with a strong video market. Now If we then look at EPOS, we can also start with Where we are in the current situation, talking into these trends, what we saw in 2020 was a significant boost in our business The first year as EPOS.
And that was, of course, fueled by the home for amorphous trend I just talked about. It was wired headsets that was the main demand, but all carriers actually grew, but wired headsets went through the roof. It was a supply driven market. So it was really very much our original team that was In play here, making sure that we ramp up production as fast as possible to close as many of the orders that we were getting in By large numbers. We saw the strongest growth in Europe, also us being Drake company.
And that is really where we had the biggest sales. We had some challenges here in '21, we had a very strong Q1, also fulfilling orders on the back to work trend. But in Q2 and Q3, we have seen a slowdown Mainly to what I talked about the postponement on the back to office trend, especially in Europe, Where there has been some delay in decision making for many companies and not all countries in Europe are opening up at the same pace. We must also admit that we at EPOS are still in transition mode. We have a lot of new processes, people And entities we need to integrate and mature and we have a new brand we need to get alive.
And we launched the brand actually in February 2020 and the Most of the European countries actually closed down the week after we launched the brand. So we didn't really have the chance to go out there to all the events we have planned and we didn't really have Any customer engagement getting out there physically to explain and have our great customers have a Look and feel of our products. So that was a little unlucky. We tried the best we could to go to all the virtual events, but it has not been the same is the main conclusion. We have a few areas where we have lower exposure.
One is in the video market, which is growing fast. Yes. We entered with our first product here in May, but we are working on getting a better or a bigger portfolio out there in the coming years. But so right now, we are not getting that tailwind from the growth in Video. In also in our geographical split, we still see U.
S. Right now growing quite fine. And we have relatively low exposure in the U. S. So we are not really capturing that growth there to the full extent as well.
So all in all, that includes into what I think Tharon already talked about this morning that we expect revenue in the second half of '21 to decline by more than 10% compared to first half. We expect EBIT in the second half of 'twenty one to be negative by $50,000,000 to $100,000,000 We expect to be back and above market revenue growth in 'twenty two. And we expect to deliver positive EBIT in 'twenty three despite investing in the business, Both in R and D and Sales and Marketing. That was from a numbers point of view. If you look at it from a market point of view, In the enterprise headset space, we are in a consolidated market.
We are number 3 in the market with 7% market share, Relatively higher exposure in EMEA and lower in Americas and APAC. In gaming, we have a more fragmented markets with more logos. Here, we have low single digit overall market share but focusing very much On the premium part of the market. In videoconferencing, which we will call a transforming market, We are just entering there with our first product, and we have more to come in that business segment. So looking at Our aspiration.
We want to be or become the preferred audio brand In Enterprise Solutions and in Gaming. And how to do that, how to win in the enterprise space? It is really about delivering that premium portfolio, the craftsmanship and the audio in a portfolio. We are doing that, harvesting all the synergies we can with the rest of the Demens Group to provide that premiumness to the products. This is really important.
But it's not only that, it's also providing the software I spoke about. So you buy into a solution that is always upgraded with any UC platform you use. That brings me to the next point is the strategic alliance partners. It's really key that you work closely with partners in this industry To make sure that your hardware always works seamlessly with any software out there and that we do through strong strategic collaborations with all the partners in the industry. Then we need to have a global footprint.
Our customers are global and they expect us to follow through. And we do that with A dedicated sales and distribution strategy. And we have dedicated sales teams around the globe To follow through on that, both presales and aftersales. So that is basically how we see we are winning the enterprise space. A point on the rationale for entering the video space.
Basically, we see, of course, the market in itself is attractive. It's Growing fast. But we consider the video space to be a natural portfolio extension For what we're already doing today. It brings more relevance to what we do for end users, but also for the channel and the strategic alliance partners we work with. We are focusing very much in the beginning on the all in one solution where you have onboard compute like the one you hopefully had demonstrated here during the break, which is a new category, a new segment for all basically.
And we believe that we at EPAS Well positioned to deliver growth here because first of all, we have a strong strategic collaboration And a 20% ownership of Solabri that have those capabilities. They know a lot about the hardware and software for video and also AI. So they are our extended R and D arm in terms of providing our R and D ing our R and D portfolio. We have no cannibalization of an existing business here. So basically, it is an on business to what we do.
We strongly believe that our competence With an audio coming to play here in the video space because it is combining video and audio in the meetings that is Really, well, the essence of the game here in our belief. We have a global distribution set up, a global team, And we have already a stronger relationship with all the relevant strategic alliance partners in this game. 2 of the most important ones being Microsoft and Zoom. And here is a little video of our demonstration of our first product in video in the video space, which we launched in May. Please.
Experience an intelligent all in one video solution for 1 touch and perform like you're there in person. And to ease your mind, it's a breeze to install And comes with automatic software updates. Bpos Expand Vision 3, video collaboration reinvented.
Good. Gaming, how to win in gaming. So basically, it is also about delivering a premium product portfolio, both focusing on the craftsmanship and not the product itself, but also the audio. But it's also being authentic as a gaming brand. EPOS is a gaming brand focusing on audio, And we need to be in the gaming space, sponsoring teams and events, Communicating with gamers about gaming on the right social media platforms, engaging with the communities.
We also need to be global. Gaming is a global game. It's virtual. There is no borders, and we need to act accordingly in our communication, in our go to market strategy. And we do that by Very selected distribution strategy, working with the main logos in the consumer distribution channel.
You see them here, which also carries most of the revenue in when you talk about gaming headsets. And we do that, of course, supporting that with a dedicated sales team that we have just built. So we are close to the channel and the customers in each market. So coming to an end here. I think it's clear that we are on a journey.
We are not new to the business. We have been in a joint venture mode since 2003 where we saw stable growth. We had we did We took market share year on year during the period. It was relatively low investments, but positive profitability through the period. Right now, we are, what I would call, in a transition mode.
We see very volatile growth, But we believe we will have stable market share through the period. We have accelerated the Both in R and D, but in branding and sales. And right now, we are facing negative profitability. We believe that from 'twenty three, We will be in a new mode where we will see more stable growth. We will take market share, have a more balanced investment level and be positive and growing the bottom line.
So To sum it up, we think we have a proven track record and a strong foundation for growth. We See a very attractive market outlook, including a strong growth in video. We believe we have a clear strategy and focus And can grow faster than the market and thereby gradually improve profitability while still investing in growth. So I guess that was the end. I think we are clear.
Ready for some questions?
We are indeed. Thanks, Jobe. So your microphone is over there, Saan. Thanks very much. So let's start here, Henrik.
Thank you, Matthias. Henrik Olsen from the Canada Pension Plan. So my first question is going to be what's not here. So you clearly had a joint venture with Sennheiser. You broke it up, took one part and then not that long later they sold it.
Why did you not want to buy it or keep it, put it that way?
You could, of course, say, well, we were just together on all of it. But it is our assessment that a pure consumer division is fundamentally not of our interest. It doesn't align to No. We are good at the demand. And again, part of the demerger came from at least some level of discussions on where we best invested in the business.
Our main appetite lies in enterprise and gaming, and we think there's ample of growth opportunities there. So of course, there is some loss, you can say, in some synergies on the R and D side, but the consumer is much more a sales and marketing game than it is an R and D game. So we feel very comfortable. We made a good choice in focusing on what we already have. Yes.
The question, for those of you that didn't hear it out, is why gaming? And there is an element, of course, in the Demerger to how do we split it. But gaming is also a more narrow audience. There is a lot of leverage from the headsets we develop already. So we think we can come to it at a lower cost than it has shown all the way through the joint venture.
So it builds scale On the business, and that's also, of course, packaging and sales and marketing. But we think we get very good return on putting that
together.
Does it mean that you wouldn't enter the earbud segment? And then speaking about categories, when should we expect you to enter the webcam segment?
Yes. It is the small the hearable the form factor, That's a product category, and we will introduce it when it's relevant for the business segments we are in. Right now, it's very much a consumer play, But we do believe there is a future for professional earbuds, so to say, in and we also actually launched A year but in the gaming business already and we believe there will be more of this form factor coming. But right now, it is very much A consumer driven thing as we speak. The other question about was about the webcam.
We have Choten to focus on the more intelligent solution where we have onboard compute, we think we see that as an area where we can also make Collaboration BaaS where you can combine our expertise within audio, video and thereby enrich It should broaden even further with the capabilities that we have. But that's not said that we might not introduce a webcam at some point of view. We are trying to build a portfolio here as well.
Marcie Parker, Danske Bank. A couple of questions. Firstly, with respect to supply situation. As I understand it, The main supply show is actually for old technology, which means that some of your larger competitors have decided to redesign old product To include Nutrien Technology. Is it something that you also are doing right now and use You know manpower for that.
And then secondly, on the supply situation, how comfortable are you with the market growth in 2022? You say that you Expect to grow above the market again in 2022, but the market, what is that with this current supply situation? And then just finally on the more than 10% sequential decline in second half versus the first half, Can you maybe comment on the development on a regional level on this decline?
Yes. I think the first question was about The supply situation for components and if we did reengineer, yes, we do that as well. There's no doubt We could have sold a bit more if we were not in this situation, but that is not the main reason for why we have a second half Decline in revenue. But we are spending significant effort in making sure that we can supply the components to the production lines either through spot buy or talking with the Tier 2 suppliers or doing reengineering basically Making sure that we use components that are available. So yes, yes to that.
The second question was more around The market revenue?
Market development is a shortage, but I think that's general for all the business that all the market estimation is, of course, based on Assuming that we, in reasonable terms, will be able to get supplies. If the world turns out differently, then the market ultimately could not grow to the extent The consumer wants to, but that's we're not trying to guess on that. We believe we can we're still a small player that, that will not be the limiting factor for us.
Morten, ABG. Just on the Q3, Start to the Q3, how that has progressed so far. You say 10% down at least. And so second half, could you say how much is down so far? And second question is, Jeva, you sound a little cautious on how the video equipment has launched so far.
Can you talk And a little bit more flavor on what you've seen so far?
If Jevi can take the video part in a second because I think there you're definitely more equipped than I am. First of all, we have to remember, we come into first half with quite a significant backlog. And if you take that out of the first half, Then the two halves are not that far off one another. So the business is it's not that it's diving in. We do actually see a positive development in new orders coming in and so on.
The year is simply not long enough to get the tailwind we The momentum buildup we expected at the end of the year. So back to you never got the answer on your question, Martin, the 2nd half versus first half, which is also what you addressed, Maarten. If you took out the round numbers, €100,000,000 we basically carry in from 'twenty into 'twenty one With a now much more normalized order portfolio, you see a flattish development, and we start now to sense that we see some up And again, we have a number of big orders that could come in next year instead of this year because some of the decision processes Simply longer, but you can elaborate more on that, Jabe. And then I suggest you take the video part.
Yes. On the video part, no, we are very pleased with of our Vision T, 3T in the market, it has great feedback. But that said, it's also just one product working with teams. So we are working on a portfolio strategy here. And in the next Yes.
So we will have more shoes coming in. It is also here a bit of a portfolio game. You need to have a limited portfolio is what we believe. But it gave us some great learnings in how we need to address the channel. And And we are, of course, selling the product and getting some great feedback.
The quality of the product is top notch. It is really within our brand builds.
Maybe also, Elyse, what you have shared with me, They didn't exactly selling a product like that is not like one piece at a time. It is exactly some of these larger orders where bigger enterprises are discussing what Do with 500 meeting rooms or 100 meeting rooms or even larger. And it is some of these where also the products we cannot yet show publicly abroad. Everybody are bringing their upcoming portfolio to discuss, is this the future supplier for me? This is B2B For my future, videoconferencing strategy.
And there are many options out there, and some of them are more prototype than reality. And that's probably why we see some of these processes take longer. So it's very important in showing that we are in this game and we can be a Viable, full one stop shop opportunity going forward for an enterprise. And that has definitely Been successful. Had we not had a product like this, we would have been a headset supplier and could only join those kind of deals.
So I think it's Been very important in showing our full capabilities going forward.
Christian from Nordea again. So my question is really to how we should think about your requirements In R and D looking over the medium and the long term because, Soren, you talk about the products category here Product categories here being R and D driven and wanting to be a one stop shop. But when we compare to your main competitors, They spend between 5x and 8x as much as you do on R and D. So How do you go after specific niches to sort of maximize the impact of what you spend on R and D? Yes.
How do you approach this problem of having such a big gap up to your competitors in terms of their resources?
Yes. But You're absolutely right that we have in absolute numbers, a smaller R and D module maybe on some of our competitors. But that's also why it's really important that we try to Focus on what we are good at and not being as broad as some of our competitors In all the product categories, which we are not actually. And then it's also about working very cleverly with strategic partners We do in video bringing the partner in that can extend that R and D motion with us, but still having the core capabilities In R and D, centered around where we really can make a difference. So we create that value, that EPOS foot stamp on the product.
So it is really about Working clever, not being too ambitious in terms of the broadness of the portfolio, but have portfolio enough And then strategically with partners making sure that you don't execute everything in house, but you also work with partners to leverage their execution power in terms of executing roadmaps.
It's Michael Jungling, Morgan Stanley. I have two questions. Firstly, on the enterprise headsets. Your strategy of being a premium supplier is interesting, but I'm just curious whether you've
done some consumer surveys, which would demonstrate that
indeed the consumers' surveys which would demonstrate that indeed the consumer is seeing that difference. Do you have that? And if so, why did you not show it To convince us of that. And secondly, also on enterprise headsets, what are your assumptions with respect to the acceleration in market growth as to how many days The average employee will work at home pre COVID versus post COVID. What is that number that you're sort of factoring in when you do these better market growth rates?
If we tell you about the market growth rates, I haven't shared the calculations here. I think we look at it in A broad picture. We, of course, read also in-depth reports. We talk a lot to the channel, to our strategic alliance partners. And altogether, We form this picture of what we showed here.
And so that is as close I come to answer that question there. The other one was more about being premium. Do we have proof that we are perceived premium? And yes, we have. And that is also when we created the Eplus brand.
It is really also what people want us to be, and we have been able to deliver on that for many years also in the joint venture in the Sennheiser brand. And we want to continue that journey and deliver on that premiumness. And the brand pillars I talked about is really where we believe we can differentiate being premium. It is on the craftsmanship, the design of the product and is on the audio side, which we have a proven record of. And we know that from feedback from numerous customers in that sense.
We have internal studies showing that we come out premium compared to competitors in different product categories and different segments, yes.
Karsten from SVB. If we remove the fact that you're coming from a low base in terms of market share, What else should then drive you gaining share from 2023 and beyond?
That is again okay.
Yes. I'm just ready for a follow-up.
Yes. Good. No, it is, of course, Similar answer to I just had another question here. It is really to focus on delivering on those premium brand pillars to take that And deliver on that and not be as broad in the portfolio, but still have a portfolio enough. And then there is, of course, focus, making sure that when I talk about how to win, it is of course about the product, but it is also about being very Sharp on the software solutions and then in terms of the under plumbing, as we call it, really making sure you always work With all platforms of this work.
We have built that over 15 years, and that is basically an asset we have that we need to build on. And that is also one of the things that I'm sure can bring us growth going forward that you buy into a solution, not only a Product, a premium product, but a solution that is future safe in terms of it's upgradable, and it always work with any platforms out there.
Okay. And in terms of Delta contribution to your franchise, which of The 3 franchises do you see contributing most over the next 5 years to overall revenue creating?
When you say franchises, what do you mean by the Video, enterprise or video. I believe We can grow in all segments. And I don't think we guide on which of the 3 we will grow the most. But we See, we can take market share in all of them, especially in video, starting from 0. But we have an ambition to take market share in all segments.
Again, I think it is worth noticing how we today have significant position in Central Europe, U. K, France, Benelux, Switzerland, Germany, where the business originated. And it is based on the competitiveness we see there that we believe we can generate growth in other geographies. And it is the biggest opportunity is to build the same position In other countries. And if it's good enough in Germany and we have proven it there with the R and D we have and the expansions we have made, then it is much more of a sales and marketing effort in the other markets.
And that, I am sure, we can also do.
Tom, please.
Tom Jones from Berenberg here. If I look at your traditional hearing aid business, you're very close to your Or users, however you want to define them. You have demand people talking to the end users every day. But if I read your or if I interpret your slides right on EPOS, you're Quite a bit further from the actual customer in quite a lot of ways in that business. So I guess what are the big challenges you face in being 1, 2, sometimes even 3 steps away from the actual customer.
And sort of a connected question to that, Particularly when I look at the enterprise business, how dependent are you on things kind of beyond your control? Because if I'm an enterprise thinking about refitting a lot of My meeting rooms. The enterprise has got to go through lawyers. It's got to get builders in. It's got to get electricians in to do all this stuff, none of which you have any control over.
So kind of how dependent are you on kind of other people with this business? And how do you manage that sort of third party risk? Because it's something quite new to Demand, I think.
I can answer that. Actually, we are directly engaging with the customers, both on the gaming side and also on the enterprise side. We have these touch Teams that actually go out and work directly with bigger accounts to make sure that, of course, we understand their needs, but also that we Make sure that we offer the right solutions for them. So we have direct customer engagement for sure. That said, of course, We also work very close to the channel.
We are very dependent on the channel, and therefore, we also have people working with the channel every day to make sure that they are Fully aware of what solution we provide and what benefits and what values they bring to the customer choosing our solutions. And I think especially if we talk about video, the AV channel, that is really where you are really Most dependent on them because they really install stuff things in companies. If you talk about headsets, it is More box moving basically. So of course, they need to understand the product, but the after service and pre service engagements is faster and low is lower, takes shorter time. But for Video, it's a longer sales process, which requires more engagement from the sales channels.
And it's really key for us to be very close to the reseller to basically understand Well, they need to be back up to them to be together with them when they face bigger customers. So We are in it together with them side by side.
Okay. Did you have one more, Tom?
It was just a follow-up really, but you talk about the enterprise and the gaming business. Now enterprises, We tend to think of it as an office based business. And gaming, we tend to think about home. But if we are truly moving to a Hybrid models, are there any opportunities to push the enterprise products into the home setting? Because as an employer, if I want somebody to work from home, I have provide the equipment for them to do the job.
So do those two businesses come together at some point?
I think in the channel, we see that the consumer sales Channel is getting more and more relevant for the enterprise business. You have more and more people that are allowed to go To Amazon and buy the equipment themselves. So of course, we see more and more business going through that channel as well. We also see the consumer channel Focusing in on being relevant for businesses. You have Elgigant in Denmark.
They have something called Elgigant EWE. You will see that in Germany. MediaMarkt also have a business arm now. So that channel is aware of this and is Developing accordingly, and we are aware of that.
So I think we'll just take one more question from the web chat here. It's Isi Kirby at Redburn asking, do you see any risk that your enterprise audio and video opportunity from Zooms moving into hardware, both through partnering with some of your competitors and more recent investments into hardware players like Neet. And as a follow-up question on the gaming side, Do you believe you can win in the gaming market with headsets alone? Or will you need to partner with a third party to develop additional products like keyboards and mice, etcetera?
I can take the gaming part first. No, I think we are very Keen on focusing on the audio part. That is our DNA. That's where we can differentiate and be premium. So we are a gaming brand, But we are focusing on the audio part.
So that's a short answer to that. About in the video space that some of the UC providers like Zoom are Actually, also making hardware. Yes, we see that we are also with other brands making headsets, But it is again then about the focus. And we really believe that with a focus on the endbound and doing the hardware, the software and solutions, We can still play in this growing market. And as I understand what they're doing with Zoom, they are also very focusing on Zoom application and there, as you know, are more applications and there are companies that are very interested in having Communication devices that work with basically any device, which is basically our value proposition as well that we will work with any UC application out there.
Thank you. I think we'll have to leave it at that for now. There was another But I think we pretty much covered that already. So thank you both of you. The next up is really the break.
So we are 5 minutes over time. So instead of a 30 minute break, it's a 25 minute break. So at 4:15 p. M. CET, We'll be back.
Okay. Yes, I think we'll just be bringing the last people into the room, about to start. I guess this is one of the challenges with the in person events and getting on schedule after the breaks, but let's see if we can get back into that mode. So while the last gets settled, now we are at the point where Rene will take us through finance presentation. So I'll be covering, again, the sustained growth agenda that Soren also spoke about in the beginning, but also add some flavor around the potential for margin expansion, etcetera.
So, Danir, the floor is yours.
Thank you, Matthias, and good to see everyone here. So this is the final stretch on the, let's say, more formal part of the program. And what I will do in my presentation basically is to tie it all together in financial numbers and to give you some Different perspectives both on, let's say, historical performance and also how that could translate into our ambitions for the future. So sustained growth with potential for margin expansion. I will not touch in details on this piece, but fundamentally, we believe that we have a very attractive Value proposition to shareholders.
We are exposed to markets that enjoys Structural tailwinds that are fundamentally very attractive, and we do believe that we are in a position in that market To gain market share through a combination of strong innovation across the Businesses that we are in, but also building on our distribution platform globally. And adding to that, we have now, let's say, more formed an integrated view on our acquisition Ambitions as part of our growth outlook that we will continue to do predominantly in Hearing Care, as You heard from Nils, but also on the Diagnostics side as we have done historically. I will also address the topic of margins. We are a group that's comprised of Different business areas with different margins, but we do believe that in all of those, we do have the potential to increase margin, Some incremental and some more transformative. Then we are also a capital efficient business.
We generate a lot of cash that we can either redeploy into building the business or return to shareholders currently in the form of buying back shares. So just addressing where we are. Already touched upon it in his presentation, the current trading. We are in an extremely strong position after what has been some challenging years. You all know the story of 2019 and the IT incident and, of course, the impact from corona Last year and also still as we speak.
And that has, of course, clouded the performance of the business. But if you draw a line from 2018 into 2021, taking the midpoint of our current guidance, It is still a local currency growth of 11%. And even, I would say, despite, You can see the clarification this morning on the headwind on the communication side. We are doing Equally or even better on the hearing health care side, which is still 90% of what we do. So I would say, if anything, we are in an even better shape today than we were yesterday.
So just to make that point extremely clear. So when you look at group EBIT, we also have seen in very short term, revitalized, you can say, group EBIT and also an 8% year over year growth in this short period. But if you take a little bit longer perspective on group performance, you would actually see kind of a similar picture. So here, it's taking a decade going back. And if you for those of you who participated in our CMD, last time, we also had a previous 10 year view that was very similar.
It is one of top line growth in local currency of 10% consistently year over year for a decade. In this period, a combination of 6% organic growth and 4% from acquisitions. And then to reconcile to reported growth, minus 1% headwind from currency in this period. If you also look at operating profit, you are similarly seeing an 8% CAGR Over a decade, again referring to the midpoint of our current guidance. So a really strong A track record of solid growth, both in sales and also in operating margin.
And of course, for reviewing a little bit more in detail, you will look at the bottom right. You will also see The margin development in this period being affected by a number of significant Diversification of or changes in the business mix that we will come back to. So the important thing is, of course, now what are then our expectations for the coming Mid to long term outlook. And we have updated that this morning. And I would say fundamentally, there's not anything new to this.
But that being said, We are now more explicit about our revenue growth ambitions. And it translates into an ambition of growing 7% to 10% in local currencies, and that comprise of organic growth of 6% to 8% And acquisitive growth of 1% to 2% from bolt on acquisitions like we have done historically. So that's one element of the mid- to long term outlook. EBIT margin, it is we don't have an overarching EBIT margin ambition for the group because we run inherently 5 different businesses with very different margin profiles. But it is our aim to increase the EBIT margin in each of these businesses.
And we also believe that there is An actual potential to do so. So therefore, whatever the group EBIT margin will B, over time, is, of course, a composite of these developments in the 5 business areas. But as I will share with you, there are, of course, more arrows pointing upwards than flattish or downwards. On CapEx, well, we do expect to continue to be Efficient on the capital deployed in terms of CapEx And continue to spend around 4% of annual revenue on that. Gearing, unchanged 2 To 2.5x EBITDA in net interest bearing debt.
We believe that's a good place to be for business, a cash generating business It's like ours. And on capital allocation, it is still our belief that we should not accumulate cash over time. So even after acquisitions, there is still excess cash that we will redistribute back via share buybacks. So let's dive into each of these topics 1 by 1. So on revenue growth, this is a little bit of an iteration from and Jeppe on the communication side.
But just to clarify, it is our ambition to gain market share in Hearing Healthcare. We have done so historically, And we believe that we can do so going forward. So let's say, the composite Hearing Healthcare market growth, we estimate Around 4%. And it is our ambition to organically grow at least 5% per year. And it is also here extremely important that our growth ambitions should be seen in the light of whatever the market is.
So that also entails, if we are short term into a period where you would see the market growing Excessively and beyond what you would normally see because of release of pent up demand. Well, then the implications Our ambition should, of course, be that we regain market share in that market and grow above and beyond that. That is clearly in our ambition. But if you look mid- to long term, we believe that in Hearing and Healthcare growing At least 5% organically year over year is realistic, achievable and ambitious. On the communication side, Jeppe also elaborated on it Previously, but here, it is also our ambition to grow at least 12% of the market And also above that, and you saw the CAGR, Historical CAGR from 2,003 of the joint venture with ups and downs in periods, But overall, in the long history, it has been growing 23% year over year and also with a similar growth rates in recent year.
So of course, it should be our ambition to grow at least the 12% year. We will continue to pursue value adding acquisitions. I think, if anything, that is slightly different In tonality here is the fact that we now express Acquisition ambitions as part of our, let's say, group growth and numbers. As Nils explained, it is not until recently that we have been extremely transparent around Hearing Care, size of business, presence and really running that business as A fully fledged stand alone professional global retailer, and it is an integrated part Of that growth journey to also do acquisitions. It's part of growing scale in some of the, In particular, countries on the lower left hand side where we are still lacking critical size.
And Again, therefore, it's also an integrated part of Demands growth opportunity going forward. So now we are very explicit about it. You can see that in the previous 10 years, acquisitions added up to 4% of growth, But that includes, you can say, more transformational acquisitions like a Neurolec or an ODK. So if you would Back those out. In the past 4 years, we have had 2% growth from acquisitions, from Bold on an ongoing basis.
And that is, as a starting point, what we bake into our 7 to 10 year growth trajectory. That doesn't mean that, let's say, larger, more transformational acquisitions cannot happen. It's just not part of the formal outlook. You can see some of the acquisitions mentioned here. So we do have a track record of actually, you can say, building Larger businesses on the back of smaller acquisitions and many of them, and we have done so Successfully over time, whether it is multi brand on the hearing aid side, burner phone is highlighted here, Acquiring Interacoustics as a diagnostics brand, GSI, the same.
Neuroleg was the acquisition in 2013 into Cochlear Implants and Odecay in 2015, which was, you can say, the stepping stone to actually changing our strategy on the hearing care side to being more of a stand alone global retailer. So We recently increased transparency on how the composition of our top line is in terms of hearing aids, hearing care, etcetera. And now we have applied that transparency Also 10 years back, so the numbers that we have not, you can say, disclosed before, how was the Demand business actually looking back In 2012, how much was hearing aids, how much was hearing care, you have here in this slide. And of course, what you can see is that the group's business mix has changed significantly over the years. So go back a decade.
We were 58% A hearing aid company. So a wholesale of hearing aid, R and D Manufacturing, B2B type of company. But still, we're actually back then a significant hearing care business, But out of a more, you can say, defensive strategy of defending market share, Nils already disclosed the Hidden Hearing, the Hearing Life acquisitions back then. You can see a small A light blue, bone anchored business, medical, almost non existing back then and then a sizable diagnostics business There. So fast forward to 2016.
There you see 2 shifts In how the group business mix is, you see a significant expansion on the hearing care side. That's, of course, on the back of the Oude Care Acquisition in Q4 of 2015. So with a full year effect into 2016, That changes the picture not dramatically but significantly. And you also see the Medical side of the business increasing in importance. Then fast forward to 2020, so last year.
And here, it's you can say it's affected by COVID, but That really doesn't change sort of the overall picture dramatically. The sort of relative percentages would be more or less the same if you would do it on First half year 'twenty one, our expectations for full year doesn't really change the conclusion that You could say hearing aids is now just shy of 40% of the business. Hearing Care, now the largest business area that we have. But Diagnostics still Large part of our business. And you see the orange of EPOS.
You can see the most recent significant change in business mix, consolidating APOS fully into our business and not just as a joint venture. And consequently from this, since these different businesses are operating with different margins, it also has had an impact on the group margin. So we have tried to say what if we applied our current business area margins To the business mix of 2012. So what is actually, you can say, isolating business mix From margin expansion. This is the picture that you would get.
So on the left hand, you see Our 2012 EBIT margin, 19.3%. That was what we reported as a group. And in the last decade, across hearing aids, hearing care, diagnostics and the bone anchored businesses that we had Back then, we have increased margin by 1.5 percentage points. So all things being equal, A 20.8 percent EBIT margin for comparison. And then you would see the effect of the business mix pulling down the EBIT margin by 3 percentage points to 17.8%, which is what we have reported as, you can say, midpoint of our current guidance right now.
And this minus 3%, you can say broadly speaking in round numbers, it is minus 1% from The entry into cochlear implants, and it is just shy of 2 percentage point From the consolidation effect and current performance of the EPOS business. And of course, as we have, You can say, discussed previously and can do again, of course, the 2 percentage point on EPOS is In particular, where you have the potential to see a transformational change in the short- to mid term, Whereas, of course, on the Medical side, it's been a longer journey. So these are some of the effects that is beneath this development of the business. So if you try to look at each sort of business area 1 by 1 and look at, okay, where what is the potential and where are we today as a group. So we have given here, you can say, indicative, illustrative cost and margin compositions of The different business areas.
And it is rounded numbers, so it is, of course, to that sense, indicative. But still, it gives a little bit of visibility to where we can do better and where we can do, let's say, much or better. So on the hearing aid side, you will see it is a business area that if you are best in class, It is, roughly speaking, a 30% operating margin business. That is what best in class look like. I would say, How are we comparing against that?
We are not best in class, but we are definitely a top tier, and I would even claim a clear number 2 in that. So not quite there. Still some gap to close, But probably a clear number 2 based on the visibility that we have. On Hearing Care, Nils, for good reasons, could not show, let's say, economical performance of Hearing Care over time. But if there is a business area where we have significantly closed the gap towards best in class, It is really on the hearing care side.
It is a significant change in operating margin that we have seen in the last couple of years from that business driven out of, let's say, running it as a global business, Running it with a level of professionalism on global systems and digital marketing has really and also, in particular, brand strength in local markets. We have seen our market share also being top tier, If not actually fully in line with a best in class. So on implants, you all know we are Loss making in implants, I would say prior to COVID, we had months or quarters where we were Breakeven on implants as a whole, but through a combination of a profit making bone anchored and a loss making CI. But all in all, of course, significantly away from the 25% that sort of best in class operating margin on that. And of course, it is scale over time that needs to and market position that needs to close that gap.
We will come back to that. Diagnostics, 20 percent operating margin is best in class, and there's no doubt we are best in class there. It has proven on the margin side to be a clear and steady margin expansion year over year in that business. So No doubt, we are best in class and there also with potential to, let's say, redefine what best in class looks like. And lastly, on Communications, where we have seen the best in class competitor Doing 20% operating margin, as we have reviewed, we are some way away from that, but we could plan to narrow in the gap.
So On a little bit more on the Hearing Healthcare side, what are the potential for margin expansion? And of course, on the Hearing 8 side, and for that matter also Thomas already conveyed some of the key messages Around margin expansion there. The key, and we have seen that again and again, is, of course, innovation On the hearing aid side. So if you have a strong hearing aid offering that is differentiated to competitors To gain market share, that is the strongest driver of margin. That's Without doubt.
So innovation is absolutely critical here. And that being said, you also need to control cost of goods sold. So of course, the innovation that we drive, what is the follow on effect into the unit cost In terms of components, we just recently had the whole era or have the whole era of introducing rechargeable hearing aids, which has been a costly, you can say, innovation, but it is coming down in price. So that whole piece is also super important for margin. But again, market share is the most important driver.
On Hearing Care, the margin driver there is really scale On a local level, on brand, so moving up the brand recognition and being able to have critical mass in a particular country, Critical. And then using, you can say, our global scale on digitalization, reuse of systems and all of that, that a Smaller, you can say private, independent cannot really utilize. On so on Hearing Aids, Hearing Care, you can say the margin expansion there has more of an incremental nature over time, Not dramatically different. On hearing implants, on the other side, you can say that's a more transformative in nature since we are far from What is best in class? And the 2 main drivers for that margin expansion is really, First of all, access to high value markets and the most recent example being cochlear implants in the U.
S, but also further expanding our position in sort of main European markets where we are already doing well in some of the markets, And not to mention France, Germany, increasingly in the U. K. So doing more of that. And then secondly, over time, of course, and it is time that drives that, build the installed base of upgrade sales For existing users because that is really some of the, say, main profitability drivers of those that are significantly larger than us. On Diagnostics, well, growth in the service business, service and calibration, Increasingly important.
And then just generally speaking, exploit the scale advantages that we have in R and D And operations and distribution makes it incredibly difficult for competitors to match. And we believe that we haven't exploited fully what the margin Potential is there, but again, also in nature, more incremental. Communications, I think we have dwelled on that to some extent. But just to reiterate, even though it's a short term setback compared to what we had previously Communicated, we are confident that this is a business that is short term to mid term, depending on how you define 'twenty three, should return to profitability. And the route to that, just you can say, what I think, Carsten, you Ask specifically what would it take, right?
And you can say, historically, we grew just 23% in the joint venture. It does not take that type of top line, but somewhere between that and growing above the 12% in the market And then having a mid single digits, maybe slightly higher OpEx investment continuously from the higher level that we have now, then we are at profitability in 'twenty three and we'll be able to grow profitability from there. So just to be very precise, that's what it takes. And we think we have the product portfolio and the plans to do that now. So slightly on the housekeeping side still but important, We are operating a cash efficient business, and we do have high cash flow generation.
We do spend 4% year over year on CapEx, and that's approximately what we will continue to do, slightly elevated 'eighteen, 'nineteen, 'twenty. 'eighteen from headquarter expansion and also factory footprint in these years and slightly depressed, You can say sales to calculate the number on, but 4% is basically what you should expect going forward. You can see free cash flow in the same decade as we have reviewed, growing 13% on a CAGR level, Very high cash flow generation last year and also, I would say, this year. So even Doing it on, let's say, expected 2021 numbers would provide the same result. Again, extremely Profitable on a cash level also.
Our gearing targets are unchanged, 2% to 2.5%. We believe that's a good place to be. It allows for some flexibility On the M and A side, without being too highly levered and on the other hand, taking advantage of, let's say, reallocating as much capital back to shareholders as possible. So we believe that for now, this is a good range to be in. We will continue to prioritize value adding acquisitions.
Bolt on is what is included in the 7% to 10%. We would not shy away from And more or less, say single larger acquisitions if the opportunity arise, but it's not really built into our as they are more binary of nature. And then we will continue to buy back shares. This year, We have guided for €3,000,000,000 but you can see here, of course, that it is a result of a 2019 2020 that is a little, you can say, Lower than normal. So it's an element of catch up on the share buyback side in that.
So all in all, I think we are committed to delivering attractive return to our shareholders. Growth, top line growth is the key driver of that value, 7% to 10% in local currencies. It corresponds extremely well with what we have done historically as a combination of organic growth and acquisitions. And we also have a clear aim to increase margin business area by business area. We do believe that on hearing aids, hearing care and diagnostics, the margin expansion potential is an It's of an incremental nature, whereas on hearing implant and communication, we see a more transformative improvement Mid- and to long term when it comes to the Medical side.
So I think that's sort of the overall tying it all together in In numbers, I'm summarizing the value proposition sort of from a financial standpoint. So I think with this, We will open up for Q and A for this particular section or for basically, you can say, all the sections in general.
Yes. Thank you, Rene, for that presentation. So we'll open up for questions. Oliver?
It's Oliver from ODDO BHF. One question regarding your Margin expansion target. So basically, all initiatives were linked towards economies of scale and Being bigger and bigger means higher margin. I've missed some points regarding more cost cutting, making the organization leaner. Potentially, you can I'll say a few words on that, please.
Yes. So that is definitely also Into the equation because the easiest thing is to, let's say, pursue all opportunities when it comes to R and D, distribution, digitalization and so on. So there is a strict, you can say, Process for prioritizing resource allocation internally to fuel that growth. But the margin, you can say so implied in the margin expansion is, of course, a more modest Cost expansion that what you would see on top line. But there's no embedded, you can say, Cost cutting exercise or restructuring exercise into the margin expansion ambitious.
It is an ambition to be very cautious on the cost growing side, but then building top line. That's what should drive the margin expansion. And then you can say you have, in particular, on the cost of goods sold on the hearing aids, you have Extremely dedicated efforts to bring down costs, whether it's on the component, design of the different Products or accessories, how we work with suppliers, etcetera, etcetera. So there you have extremely focused cost cutting exercises going on, But that's actually, that's the one I would highlight.
Please, Morten?
Morten, ABG. You don't want to provide a lot of margin mix For the group level. But we look at the divisional level, the low margin divisions are basically the ones that grow the fastest. So isn't This basically admission you may actually look into declining EBIT margins for the coming years.
The reason why we don't give a group margin is because it's a composite of very different margins. And then based on this guidance, of course, you can sit and Play around with different scenarios. And of course, you can say, you are right, the group margin would essentially be, you can say, Have a headwind if you had implants and communications growing 25% year over year for 5 years in a row If the margin does not expand at the same time. But I would say, that being said, There are much more scenarios pointing towards an improved group margin than the opposite. It is our ambition again to grow within each of the businesses.
And you need to look for the, I'd say a little more extreme scenarios to see a flatten or even a declining margin. It is definitely more scenarios pointing towards a higher margin for the group.
David?
David Addington from JPMorgan. Just on the Cochlear business, I mean, it's 8 years since you acquired New Relic, still not managed to make that move into profitability. Sunnova is not having a lot more luck either. Just wondered in terms of a path to profitability here, how important is that resale or the up sale of existing clients? And therefore, how far out should we be thinking about that profitability?
It is, of course, Important to have a lot of upgrades to be done to the existing base. We see that very clearly on the bone anchored. I think the main setback we have had is basically 2 years of corona. As Rene pointed out, we were very close to the breakeven together. We, after we introduced Neo2, Saw a +20 percent growth.
We saw expansion in most markets. I'm sure we would have seen that if we could have You know, been in U. S. Earlier, we could not because of lack of access. So I think we can for sure run a profitable business In a CI alone in the next 4, 5 years, I feel comfortable.
Together, it will occur sooner. We still see very good traction on the Bone Anchor. We have moved to a clear number 2 position, and you cannot even rule out. We could potentially lease in the percutaneous achieve a number one position, we are very strong there. So So I think, yes, it takes time in CI, and it does because of the lagging on the installed base.
But our biggest shortage has been geography more than the lack of that. And geography, we are working on and are now ready to start the U. S.
Journey. Michael?
Yes. Michael, you're in Morgan Stanley. I have sort of three questions. Firstly, on return on assets. You didn't mention it once of what your targets are over the midterm.
Can you sort of comment How you see the returns of this business develop versus history? Where is this business going in terms of return on this capital? Secondly, On gross margin of hearing aids wholesale, what was the margin expansion for the same period you showed, so 2012 2021. What happened to the gross margin for Hearing Aid Wholesale? And then thirdly, where do you see the gross margin for Hearing Aid Wholesale over the midterm.
I mean, you mentioned the margins will go up on EBIT level, but I'm curious what you mean for the gross margin on the Heating and Wholesale business.
Yes. So in the same if I brought the return on invested capital over the same decade, it would have gone down Quite significantly. Basically, due to the same business mix change that you've seen, that the return on invested capital on hearing care is lower than the traditional hearing aid business. But and I would say, implied in our mid- to long term outlook, I would not see a dramatic dilution from change in business mix. Yes, you can say implicitly, Hearing Care could grow slightly higher due to acquisitions than hearing aids, but not dramatically.
And probably that part would be offset By margin expansion and profitability. So all in all, I would claim, even though we don't guide on it, same return on invested capital or slightly higher But on a higher or larger business. So I hope that's on that. On hearing aid gross margin, how that has developed in the same decade, I Honestly, cannot remember the numbers back to 2012 and what it was. But at least you can say Pre if you go back 3, 4 years back to pre rechargeability and so on, We did see in the interim period a setback from introducing rechargability.
And what we are seeing now is a return basically in gross margin to basically what it was prior to Well, underway at least to return back to prior to rechargability. I think we're still 1 percentage point short from rechargability, But we are continuously, let's say, lowering the cost of that element as it is maturing, as the design of the accessory is changed to a more, let's say, low cost accessory. And the last piece was?
I cannot remember all the numbers either. But if you look back to, let's say, At least in mid-0s, I would assume a positive development to the gross margin. There's so much in our moving to Poland, better leverage on overhead, much higher volume. The The connectivity products in the beginning were awfully expensive. I remember the cost price is single unit, and we are definitely in a much better place today.
So if it's not coming through, then I would be surprised. Single unit pricing and component pricing, we are in a much better place. Short term, it is this balance with how fast do we make hearing aids rechargeable Because it does cost more to put a battery in than to not have it. It does cost more to produce a charger. On the other hand, the cost of this Extra is going down quite dramatically.
So we gain on the volume we already have. We lose on the volume that comes in. We, of course, also get a higher ASP. So short term, I think we are relatively stable. Long term, I again think scale will come in.
Direct material is still not the majority of the cost. It is, of course, different when you, again, add a charger that has had quite significant impact on the cost of hearing aids, and we cannot run away from that.
So I'll just quickly throw in a question from the web chat here. So it's from Veronika Dubajova from Goldman Sachs Asking basically three questions. So first one, can you comment on whether you see the lower or upper end of the full year 'twenty one guidance as more likely given the Development of the EBIT in communications is number 1. Number 2, what level of revenues would you need to deliver for implants and communications, respectively, to achieve a double digit margin for those businesses? And number 3, what level of revenue or sorry, would you expect for your sales to grow at the 6% to 8% organic growth level in every year over the midterm?
Those three questions.
The last one. Yes,
the last one. Would you expect the 6% to 8% organic growth for every year over the midterm?
Yes. So maybe if so the first question on If we have any particular view on whether we will be on the lower or the higher end on the outlook In light of the clarification this morning on EPOS, I would say no, there's no change. But I would just, again, I stress or emphasize that, yes, we have made a clarification on the headwind on EPOS. But if anything, we are as confident in the full year outlook given that the 90% of what we do is doing incredibly well. So I think that's just a key takeaway that we are not kind of, You can say being more cautious on the outlook for this year, if anything, we are doing Equally well or even better.
So the 6% to 8% of last question, 6% to 8% Organic growth per year is, of course, you can say, No, an average over years. And our ambition should be seen in light of whatever the market is. So if the market develops, I could say, in a very stable, normal way, yes, Then we will also have the ambition to grow 6% to 8% organically in that period. So but just recent years And maybe next year have shown that it can be a little bit more volatile. And of course, our performance will be A reflection of that.
And then I don't know if we can guide specifically on what type of sales We would need in order to have double digit margin on Medical or EPOS, But it is, of course, not in the short term that we will be there. It is in the mid- to long term probably.
Thanks. And communication before a plant.
Definitely, yes.
Morten? Just on your margin outlook as well. How dependent is the margin expansion for hearing aids on you continuing to take market share? Seems you build a model That requires you continue to take market share for actually delivering a little bit of incremental margins.
Yes. But it is obvious that, that is the key. It doesn't it does matter which Marginshareshouldtake. The main difference between us and the highest margin, the best in class, is Fundamentally, sales in North America to 2 particular channels where the cost of doing business is literally the same. So the biggest The difference is our strong position with the National Health Service versus a very strong position with VA and a strong position with the COSCO, where the latter is, of course, more of a fragile position, where the 2 health care system we know are quite sticky and conservative.
But it is, in North America, primarily that we have to gain share from our competitors. If we do so, we will also see a margin expansion.
Christian from Nordea. Just a question for clarification on how the Development in business mix impacts the margin. So as I understood you, Rene, you're suggesting that if, say, we see implants and EPOS growing significantly faster than the rest of the group, then we could actually see an adverse impact of the overall margin. The implication of that would be, as I understand it, that the incremental margin in implants and EPAS is below the group level. So it's not merely a matter of sort of growing on into sort of a large overhead in these businesses.
It's also a matter of you Investing almost whatever you get in, in those businesses back into those businesses. Is that the way to think about it?
No, not really because If you were for that scenario, let's assume that you would see 25 years in a row, 25% Growth year over year in the EPOS business as a great outcome. Then, of course, you would see the margin increase Also for that business. So you would not 5 years later, let's say, dilute with the current margin. Of course, that will improve over time. But of course, building up to an 18% operating margin and so That would take some time before it would actually be accretive to group margin.
So but the actual what is the mathematical sensitivity To that journey is, of course, you can say that's where I It takes a very special scenario for, You can say the Medical and the APOS communication group to, you can say, dilute the group margin. But so overall, in most scenarios, pointing upwards than downwards. But it is an effect. I hope that was clear.
Carsten, please.
Just in terms of 2021, and you are now saying that Hearing Healthcare is in an even better Situation than last time when you guided. What is it actually that has improved? For example, we see VA data is Probably not there. You have the big incremental change in COSCO. Another player is claiming to have regained its The market position in volume, we don't really know whether that's true or not.
But maybe you could give some details on what's driving the incremental better performance.
I would just repeat what I at least tried to say this morning, that France continues to deliver more growth. We are definitely in the higher end of our expectations for how that could continue. We have, of course, seen a slowdown during summer Because it was summer, but we just can see that it still seems to deliver very solid growth. And as a lot of it is Delayed invoicing and consignment on the wholesale, we start to get really good transparency towards the end of the year, and it is higher than expected. And in U.
S, on the independent with Oudkon Mall and Oudkon, we continue to we feel very comfortable gaining share. So these are the main drivers. Other than that, there's pluses and minuses, but they are key in that. And then diagnostic, I would mention as well, is doing really well.
So I'll just throw in another one here from Maja Pataki at Kepler Cheuvreux. Can you please help us on how to think about 2022 with NHS growth weighing on pricing and France likely seeing growth slowing down if Germany is a reference point.
I think that's too early. Again, we have just seen the effect in France last longer. Of course, at some stage, You would assume that the accumulated growth potential over many years has somewhat been exhausted and come to another level, but the speed by which you approach that is difficult to judge. Of course, one of the upsides we have is NHS, but as I also showed, there is a significant upside also in North America with pent up demand, and I think they are as likely to outbalance the other. So I don't it's too early to be too detailed on 'twenty two, but I think there is equally many upwards pointing Opportunities, some of those that point could point the other way.
Any more questions in the room here?
Maybe a comment that I would like to make in all this about margins. It is still so that Even though we try and would very much like to describe from a business point of view wholesale and hearing care hearing aids and hearing care separately. From a strategic point of view, they are very connected. We continue to see, as Nils said, a consolidation In the distribution, the end user have very little overview of what is what and what I get from whom. So Access is key.
And I will still claim and highlight that another key to long term profitability is a significant hearing care element for the total business because that is ultimately the strongest ASP pressure applied to the wholesale sector. That's consolidation into larger players that could apply that pressure. And therefore, these things, even though presented today quite separately, In my book, it's still a very integrated strategy of long term margin protection and expansion to operate across both wholesale and retail, of course, best in class measured separately. But from a strategic point of view, it seems evident that the players that have embarked on a route with significant wholesale of retail are also among the significant players in wholesale. And I think the evidence after 10, 20 years is very evident that, that is part of achieving best in class in the broader hearing instrument business, you could say.
I think that's very evident.
So I just have another one here. Matthias Hegblom from Handelsbanken about the free cash flow growth of 13% on average in the reference period we had here before versus the EBIT growth of 8% in the same period. What is the delta? What has been the driving force behind the higher growth in free cash flow than EBIT?
Yes. So basically, you can say, Relatively speaking, cash flow working capital management is sort of actually the main delta In that period compared to where we were back in 'twelve, the CapEx side is, you can say, more or less unchanged in percentages. So I think that's the main driver.
Yes. And secondly, the cash spend on bolt ons on average, the €600,000,000 per annum over the last 4 years, anything that you can share in terms of return on invested capital and maybe versus other capital allocation options, how that compares?
Yes. So you can say when capital is a scarce resource, So what is the new ranked priority of investments? And obviously, you can say What we can do in terms of R and D innovation on the wholesale side, if we are comfortable, It provides differentiation. It is still the most differentiating investment that we can do. It is really in R and D.
And then that being said, closely following, we are still extremely cash rich. We do create tremendous value from investing in building distribution and building scale in hearing care Or in Diagnostics, for that matter, we have not been that explicit about it. But part of the, you can say, the current Very strong performance of our Diagnostics business. It's actually a you can say deliberate strategic roll up of distribution across the U. S, many, many small investments that in themselves might not have That high, you can say, an immediate return.
But once it's bolted on to what is a larger business, It all comes together and can provide high returns. So I think that's the case for Diagnostics also and that's definitely also we have seen the case For Hearing Care. So we will continue down that route. And it is still you can say it's still there was some A question around development of price levels and so on. Yes, it has, of course, been a competitive environment to acquire Here in KEA, but predominantly, we are globally, at least we are still only 3 players, you can say, into that game.
So We believe that we can still do acquisitions with a very high return on invested capital, I would say, almost Immediately, but close to if it's bolted onto something that's well functioning.
I have a last one here from the virtual audience from Veronika Dubajova again at Goldman Sachs. In terms of M and A, what are the business areas or the regions where a large scale deal would make strategic sense for you?
It's so opportunistic when we move Outside bolt on in retail or in diagnostic, that I don't think we can really comment on that. On the retail side, Nils gave a good presentation on where we look for scale. So examples like Spain and some of the countries there, U. S. Potentially as well, would help to build that business.
But if we move outside Hearing Care, There's not anything of geography or something that we could highlight. Then I think it's just Asian, broadly speaking, in our industry, it makes a lot of sense still, and we would heavily participate if it ever become possible. Right now, we don't see that as scenarios just around the corner.
Thank you. Do we have more questions in the room we have there, Henrik?
Henrik again, Cannondale Pension Van. China, can you update us on how you view the market? And what your efforts are over the next 2, 3 years? And what you want to achieve both on On the wholesale and retail side, please?
Yes. China, it's very evident that China is growing a lot. We have though seen, I would say a bit flattening of the growth rates here during corona and the pandemic. We You start to see it being back up to the plus 10% growth a year. We are very active with all our 4 brands on the hearing aid side in Partnerships and close collaboration with key players in the Chinese market, we are very focused on making sure We don't get trapped.
We have seen a significant market share expansion over the past 5 years, not the least due to the introduction of Phillips, but also broader than that. And of course, as I said, we are keeping an eye out for if there is timing where we need to move into retail. But short term, I would say short to midterm, we feel very comfortable that there is plenty of growth opportunities without starting retail as such. And if you were to, it would require a strong starting point of some kind. Just starting to build greenfield stores or Collaboration with a single partner in a single town, I think, is too long of a journey.
And on again, in China, Do you view this as is it going to be like a normal hearing aids market where The professional is very important? Or do you think that there's a risk that this is going to be more of an OTC market than other comparable markets?
I would say it actually comes China comes from being almost a pure OTC market because that was how you could get hold of things. So the trend is clearly towards more and more professional. However, the education is still lagging significantly. All manufacturers invest heavily in Different kind of training facilities and doing training of dispensers is typically relatively short. So absolutely, biggest, I would say, challenge for growth is to make sure that there's enough qualified.
The end user Goes the same way. They seek help. They seek a professional. But of course, it's obvious that it's not available to everybody. So the creativity On different models, it's probably the highest anywhere in the world in China.
Things take place in pharmacies, in opticians, Real dedicated hearing aid specialist stores with maybe even training from outside China. You have you can buy a voucher On the Internet and go somewhere and get a device forward, you have more different models in play in China, but the conversion, The main trend is a more and more professionalized channel, definitely. It's more digital than we have seen in our part of the world. It basically Act like that. So all users are digital and look for everything digital.
So the digital capabilities are more important even more important in China than They are here because you need to reach a lot of people and need to find an efficient way of servicing people as the demand will grow. So there is, you could say, a capacity challenge when it comes to getting things delivered that are behind The demographics and the penetration is still very, very low. We did some modeling the other day, and it gets all crazy in 10 years if you just Modestly up in penetration and look at how many turn 65 in the coming years. So a key focus and a lot of attention. We are in top 5 now with China as a hearing aid wholesale market, and we can only see it move further.
Do we have any more questions here? Because we don't on the from the virtual audience. So I think with this, we'll say thank you to both of you and to all of you for the questions. So we are now at the very end, 3.5 minutes ahead of schedule. So that's pretty well done.
I hope you all have a pretty clear understanding of Dimer and then the company, the path forward, etcetera, at least that was the ambition. So otherwise, Let the IR team know, and we'll see if we can convey it in a little bit more clear terms, if that's necessary. I think last thing I want to say, replay is available on our side probably tomorrow. We hope to have everything ready by then. So it's possible to access it there.
Otherwise, I think just thank you very much to the virtual audience. Thanks very much to you in the room. We hope you will join us for a glass of wine outside. And then there's a dinner later for the ones of you joining that one. So thanks very much.
Thank you
very much.