Hello. Welcome all to GN's full year 2021 conference call following our release this morning, Danish time. Thank you all for dialing in. It's great to have you on this call. Participating on the call is Gitte Aabo, CEO of GN Hearing, René Svendsen-Tune, CEO of GN Audio, Peter Gormsen, CFO of GN Store Nord, and myself, Henriette Wennicke, head of IR and Treasury. Today's presentation is expected to last about 25 minutes, after which we turn to the Q&A session. The agenda for the presentation itself is that Peter will start off with group highlights, then Gitte will provide an update on GN Hearing, René will provide an update on GN Audio, after which we'll go back to Peter for financial update and financial guidance. After that, we hand over to Q&A with questions from the queue.
With that very brief introduction, I'm happy to hand over to Peter.
Thank you, Henriette . Good morning, everybody, and thanks for joining our call today. Today we have released our 2021 annual report, along with our corporate governance report, remuneration report, and our sustainability report. All the reports are uploaded on our website, gn.com. Let's move to slide 4 and a snapshot of the year. 2021 was yet again an extraordinary year for GN, with COVID-19 and supply chain challenges as some of the key topics. However, it was also a record year in terms of revenue, where we delivered DKK 15.8 billion, equaling an organic revenue growth of 20%. We delivered EBITDA of DKK 2.7 billion and earnings per share of DKK 13.9, up 43% compared to last year.
Due to the solid financial numbers, leverage ended at 1.8 times, which comes on top of the Lively acquisition in late December and significant shareholder distribution of DKK 1.4 billion through share buybacks and dividends. As you know, we closed the SteelSeries acquisition in the beginning of January, which naturally has increased our financial leverage significantly in early 2022. I'll come back to this later, but for now, I'm happy to hand over to Gitte for an update on GN Hearing.
Thank you, Peter. As Peter just mentioned, 2021 was indeed an extraordinary year. We would have preferred for GN Hearing to have gone stronger through 2021 than was the case. Challenges in several areas gave us a temporary setback and postponed our projected growth with some months. However, our fundamental innovation capabilities are intact, and the hearing products we have today, and those that are coming, will allow us to regain above market growth in 2022. Let me just stress that we are fully determined to return to growing revenue above the market and restore profitability in line with our midterm guidance. Let's start with looking at the 2021 performance before I return to 2022. Starting on slide six and our financial highlights.
GN Hearing delivered 16% organic revenue growth in the hearing aid market, which saw solid recovery across regions during the year. Organic revenue growth for Q4 was 2% and around -12% compared to 2019, which was driven by the earlier announced delays in product launches. The gross margin improved to 63.8% in 2021, but is still below historical levels. The EBITDA margin gradually recovered to 12.1% for the full year and 15.3% in Q4, driven by the revenue growth and continued prudent cost management. We delivered a free cash flow excluding M&A of DKK 198 million for the year. Now let's move to slide seven and some more color on the regional developments.
Beginning with North America, we delivered 17% organic revenue growth for the year, driven by solid performance in the independent market, but offset by the development in VA and Costco. Specifically for Costco, we continue to see strong performance of Jabra Enhance Pro in the branded part of Costco. However, we still see a headwind from the ASP development in the channel. Moving to Europe, we delivered an organic revenue growth of 7% for the year. We saw, among others, a strong performance in France and Spain, and a more modest performance in Germany, driven by market dynamics. In our rest of world region, the organic revenue growth ended at 26% compared to 2020, with strong performance in, among others, China. Let's move to slide eight and the exciting acquisition we announced just before Christmas.
Lively is a leader in online hearing care, and the acquisition fits perfectly into GN Hearing's strategy of providing hearing care to even more people. The current customer group in Lively is on average around 10 years younger than customers in the traditional channel, demonstrating the potential to drive penetration and get users started on their hearing journey even earlier. As part of GN Hearing, Lively will be even more effective in driving sales than before. Around two-thirds of Lively's customer inquiries have not been assisted until now, as they are either looking for a combination of an online and offline experience or have a severe to profound hearing loss. As part of GN, Lively can forward these customers to our network of Beltone and ReSound hearing care professionals.
Lively has been on a fantastic growth journey in the last couple of years and delivered DKK 114 million in revenue in 2021, with growing revenue quarter by quarter. We expect the online channel to grow around 30% annually in the years to come, and we expect Lively to continue to take market share. We want to build the preferred digital platform for independent hearing care professionals. To realize our growth ambitions, we will continue to invest in the platform. Going forward, we'll refer to these investments as investments in the emerging business. The EBITDA loss was -DKK 171 million in 2021, but we expect the emerging business, including Lively, to turn profitable in the midterm. With that, let's move to slide nine and the robust market outlook.
I want to spend a little time explaining our assumptions for the hearing aid market for 2022, which naturally provide the foundation for our financial guidance. Overall, we estimate the volume growth for 2022 to be in the high end of the historical 4%-6% range, as further market recovery is expected following COVID-19. The global volumes in 2021 ended above the level realized in 2019, and with around 4%-6% volume growth expected for 2022, we'll be back to a normalized market. The negative ASP impact for 2022 is also expected to be in the high end of the traditional -1%-2%. This is driven by high expected volume growth in low ASP countries like China and India, but also in channels like the NHS.
These estimates naturally come with uncertainty, but let's move to slide 10 and our key strategic priorities. Since we announced our strategy in February 2020, the world has, to a large extent, been turned upside down due to COVID, and that has clearly changed some of the drivers impacting our industry. While aging populations and low adoption rates of hearing aids still remain important trends for our industry, we're now seeing accelerated demand for digital solutions and a need for a more consumerized approach to hearing care. Our strategy and our three fundamental strategic pillars are fully intact, but as always, strategy evolves over time, and I would like to provide you with an update on our current focus areas. Let's move to slide 11. Based on the technological acceleration during the pandemic, hearing care is now at an inflection point.
We see an opportunity to modernize hearing care and reach more and younger people. We have prepared and adjusted our business model accordingly in line with our strategy, like with the acquisition of Lively and the launch of Jabra Enhance Plus. The ambition is clear. We want to modernize hearing care, we want to simplify to grow above the market, and we want to restore profitability in line with our midterm targets. We will unlock the next level of growth with a dedicated focus on, and investments in digitalizing the customer journey in the core hearing aid business, and thereby delivering innovative and individualized customer experiences. We'll continue being the trusted partner to the hearing care professionals while growing the emerging business to expand the market. Moreover, we'll focus on digitizing and simplifying the way we work across our business and value chain.
Our current profitability is below our historical levels and below our midterm guidance. This has to change. Therefore, we'll have a dedicated focus to digitalize, simplify, and automate our supply chain by building on the efficient and scalable setup in GN Audio. To drive this change, we'll focus on streamline our setup, and as a consequence, we expect non-recurring items in the magnitude of -DKK 150 million during 2022. These will mainly cover severance costs and non-recurring investments in the supply chain. As we incur the non-recurring items, we'll give you more details on the nature of the costs, but for now, we need to keep it high level as our business needs to run smoothly. With this, we'll restore profitability in line with our midterm guidance. Now let's turn to slide 12 and our progress on our R&D transformation.
We have made significant progress in our R&D transformation, and the delayed products from 2021 will be launched in Q1 and Q2 this year. I want to highlight two important milestones which have been successfully delivered by the team. The FDA approval of the Jabra Enhance Plus, a combination of a hearing aid and an earbud, and the announcement of ReSound ONE BTE. Both products will be commercially available by the end of February. These two launches are important milestones, and I look forward to delivering more launches in the coming quarters. We plan to finalize our ReSound ONE product family with an exciting ITE product launch in Q2 before the launch of a new platform in Q3 2022. These planned launches, together with the expected market growth, are essential to our financial guidance for 2022, which leads me to slide 13.
We want to give you the opportunity to see the progress we are making across GN Hearing, and therefore, we want to share even more details than in the past. In our core hearing aid business, we are guiding for an organic revenue growth between 5%-10%, which should result in market share gains. The two new product introductions will have limited impact in Q1, and as a result, we expect to see low single-digit growth in Q1. Our planned launches will hit the market during the course of 2022, the growth will also follow, so expect high single-digit growth in the second half of the year. The EBITDA margin for the core business, excluding non-recurring items, is expected to be around 14% for 2022 as we continue to invest into future growth opportunities.
We'll front-end load certain investments, and together with the back-end-loaded growth profile, this will impact our EBITDA margin in Q1, which is expected to be low single digits. However, the EBITDA margin for the last three quarters of the year is expected to gradually improve towards 20% by Q4 2022. As mentioned, non-recurring items are expected to be around -DKK 150 million , primarily related to investments in the supply chain. The EBITDA in the emerging business, including Lively, is expected at around -DKK 190 million , reflecting a strong top-line growth, but significant investments are needed to drive future growth and scale. With that, I'm happy to hand over to René.
Thank you, Gitte, and hello to all of you. It's now my pleasure to take you through GN Audio's results for the financial year of 2021. Let's move to slide 15. 2021 was again a strong year, but challenging year for GN Audio. We delivered 22% organic revenue growth on top of the 42% we delivered in 2020. The business is now anchored at a new and far higher level. In 2021, we continued to execute strongly across the business, and the underlying demand for our products continued to be very strong. We would have preferred even stronger growth in the year, however, the global supply situation was unfortunately a constraint, and we are leaving the year with a historically high order backlog. Gross margin ended at 50.6%. This was an improvement compared to 2020.
In 2020, despite the increased freight and production cost. Excluding transaction-related costs, the EBITDA margin reached 21.2%. This reflects continuous leverage in the business, but also significant investments into future growth opportunities. Free cash flow came in at DKK 1.3 billion, which translates into a cash conversion rate of 60%. All in all, a year with strong execution for GN Audio, despite the challenging environment created by the global supply crisis. Let's move to slide 16 and the regional performance. GN Audio's strong growth was broad-based across regions, thanks to our dedicated teams and partners and world-leading product portfolio. In North America, we delivered strong organic revenue growth of 27%, driven by both the enterprise and consumer segments, and we are there up 47% from 2019.
In Europe, we continue to execute strongly, and despite very high comparison numbers, we delivered organic revenue growth of 16% for the year. This is driven by strong performance in, among other, Germany and U.K., and here we are up 88% from 2019. Finally, in the rest of the world, organic revenue growth was 30% for 2021, and we are up 86% from 2019. Let's move to slide 17. Shifting gear a bit. On January 12, we received all necessary antitrust approvals, and we closed the SteelSeries transaction. SteelSeries has been on an impressive growth journey with solid profitability in recent years. The performance is driven by the attractive market, the strong innovation capabilities of SteelSeries, and the strength and uniqueness of the SteelSeries brand.
SteelSeries delivered a strong set of numbers again in 2021, with a total revenue of DKK 2.6 billion. In terms of profitability, SteelSeries delivered an EBITDA margin of 13.6%. It is clear that we are now welcoming a strong performing growth engine to the GN Group. Together, we are now ready to take the company to an even higher level and to drive synergies across the different businesses. We continue to expect annual run rate operational synergies of around DKK 150 million by the end of 2022. As earlier communicated, SteelSeries will continue as an independent business unit within GN Audio. We do expect integration costs of around DKK 100 million in 2022, and this is largely driven by IT expenses.
With the addition of gaming to our business, let's move to slide 18 with an overview of our business segments. Thanks to GN Audio's growth focus over the last many years, we do today operate with a strong competitive position and a world-leading product portfolio in some very attractive market segments. On a consolidated basis, we continue to expect GN Audio's markets to grow at around 10% per year. Let's turn to slide 19 and an update on our strategy. Building on our 2020 and beyond strategy, and combined with the underlying, strong underlying market trends, we feel confident that we can continue our growth journey. Several of the underlying trends we were expecting a few years back have been accelerated by the pandemic.
We do see a significant shift in work patterns, not only in the traditional enterprise business, but increasingly also with collaboration tools for governments, education, health, and what we call deskless workers at large. With these trends in mind, let's move to slide 20 and an update on our focus areas. The key theme for GN Audio is simplify to grow. I'm a keen believer in keeping things simple, making simple and intuitive products, but also driving simplicity in the way we operate. We will transform the business from a mainly audio business to an audio, video, and gaming business.
Key priority will continue to be providing individualized customer experience, whether you are looking for best audio experience, video experience, or gaming experience. We will focus on winning in the high-growth markets across office, collaboration, and gaming, and further broaden the scope of the office business unit beyond office headsets. M&A will continue to be an important enabler in the future to accelerate businesses, especially for the new segment of desk-less workers. Here we are targeting more than 2 billion workers, spanning from teachers, doctors, retail staff, logistics personnel, to first responders, and many more key roles. All in all, the aim is simple. In the next phase of our strategy, we will unleash the next growth rate for GN Audio. Turn to slide 21, and some additional comments on the supply chain situation and the expected impact on the business in 2022.
As we have previously stated, we do continue to see strong underlying market demand, and we are confident that we can continue to take market share across key categories. We have, as per February 1, taken price increases in the enterprise business to mitigate input cost. This will naturally be supportive to our growth in 2022. However, the uncertainty of the supply chain situation is still significant and ever-changing. We believe these challenges will continue in the first half of 2022, but the current assumption and expectation is that it will ease in the second half of the year. These considerations and building blocks have naturally laid the foundation for our financial guidance. Let's move to slide 22. In 2022, given the supply situation, GN Audio expects to deliver an organic revenue growth of more than 5%.
For SteelSeries, we expect an organic revenue growth of more than 10%, which will be treated as M&A growth when we redo the reporting. With the current supply situation, we are looking at a Q1 organic revenue growth of around -25% across GN Audio organic and SteelSeries. However, with the ongoing re-engineering of products, combined with an expected easing of the supply situation, we do expect to return to strong, solid double-digit growth rates in the second half of the year. The EBITDA margin for the combined business is expected to be around 20% in 2022 before non-recurring items. In Q1, we expect the EBITDA margin to be in the mid-teens due to expected top-line development, with a gradual improvement in the remaining quarters of this year.
Non-recurring items are expected around DKK 400 million, covering transaction and integration costs, as well as non-cash PPAs. The PPAs are related to customer inventory adjustments associated with the consolidation of SteelSeries. With that, I'm happy to hand back to Peter.
Thank you, René. Moving to slide 24, group financial highlights. On group level, GN delivered 20% organic revenue growth, and the EBITDA margin increased to 16.9% compared to 13% in 2020. We delivered a strong earnings per share of DKK 13.9 , up 43% compared to last year when excluding transaction-related costs. Due to the acquisition of SteelSeries and the related significant step-up in yearly non-cash amortizations, we have decided to introduce adjusted earnings per share. This metric will exclude gain and loss from non-recurring items, as well as amortization and impairment of acquired intangible assets. With the introduction, the aim is to give more transparency on the underlying development in the business. Let's move to slide 25 and our cash flow for 2021.
Overall, looking at the cash flow statements, let's remind ourselves that 2020 was a year of extraordinary cash flow protection. In 2021, GN Hearing's operating cash flow was driven by prudent cost control and higher earnings, but with a negative impact from working capital and higher tax payments. In GN Audio, we saw a strong operating cash flow for the year, but offset by a negative development in working capital and significant investments in future growth opportunities. Also remember that we in 2020 received a gain from legal settlements and litigation of DKK 114 million. Let's move to slide 26 and the capital structure. Despite distributing around DKK 1.4 billion back to our shareholders in 2021 and the acquisition of Lively, financial leverage ended at 1.8x by the end of the year.
In the beginning of January 2022, we closed the DKK 8 billion acquisition of SteelSeries, a deal fully financed by cash and debt, which translates into a pro forma leverage ratio of around 4.4x by the beginning of 2022. Due to the traditional cash flow seasonality as well as the non-recurring items, the reported leverage ratio is expected to further increase during the coming months. This also includes a suggested dividend of DKK 1.55 per share in March 2022, which we, in line with prior years, will propose at the annual general meeting. From Q2 and onwards, leverage is expected to decrease rapidly, and we are confident that we will be back within our target range of between 1 and 2x net interest-bearing debt to EBITDA within a couple of years, as earlier communicated.
At the annual general meeting, we will, in line with prior years, propose to cancel all treasury shares held today in excess of the shares needed to hedge future obligations related to the convertible bond and long-term incentive programs. Let's turn to slide 27 and some comments on GN's efforts on the sustainability agenda. 2021 was an exciting year where we set new ambitious 2025 goals, committed to setting science-based targets, and where we continued to proactively work on each of GN's sustainability goals. This included good progress in regards to future CO2 emission, more sustainable products and packaging, and last but not least, we continued to help even more hearing-impaired people. Making an impact is something that comes on top of our priorities every day, and we are all proud to be part of a company that builds the technology for the future in a sustainable way.
Let's turn to slide 28 and the financial guidance for 2022. As both Gitte and René have commented on the guidance, let me briefly summarize. For hearing, we expect organic revenue growth of between 5% and 10% and an EBITDA margin for the core hearing aid business before non-recurring items of around 14%. Non-recurring items are expected to be around -DKK 150 million in GN Hearing, primarily related to investments in the supply chain. EBITDA from the emerging business is expected to be around -DKK 190 million. For Audio, we expect an organic revenue growth of more than 5% and for SteelSeries more than 10%. Non-recurring items are expected to be around -DKK 400 million in GN Audio related to effects of the acquisition of SteelSeries. No further recurring items associated with SteelSeries are expected beyond 2022.
The EBITDA margin, excluding non-recurring items, are expected to be around 20% in GN Audio. In other, we expect EBITDA of around -DKK 190 million. Consequently, growth in adjusted earnings per share is expected to be more than 10% versus adjusted EPS for 2021. Let's move to slide 29 and an overview of the key assumptions behind the financial guidance, which we found important to share with you this time around. Looking across the business, we expect a challenging Q1, but also assume a strong performance in especially the second half of 2022. For Hearing, we expect low single-digit organic revenue growth in Q1, while high single-digit organic revenue growth is expected in second half of the year. As a result, the adjusted EBITDA margin is expected to be low single-digit in Q1, with a gradual improvement towards 20% by Q4 2022.
For GN Audio and SteelSeries, we expect around -25% organic revenue growth in Q1 due to supply chain constraints. The supply chain situation is expected to ease in the second half of the year. We assume to return to double-digit growth rates in second half of the year. The adjusted EBITDA margin is expected to be in the mid-teens in Q1, with a gradual improvement in the remaining quarters. Following the acquisition of Lively and SteelSeries, let me also briefly comment on our financial disclosure level going forward. We will continue to operate the business with two segments, GN Hearing and GN Audio. To provide transparency, we will going forward share revenue and EBITDA for the core hearing aid business and the emerging business within the GN Hearing segment. Gross profit and OpEx will be reported on the consolidated segment of GN Hearing.
For GN Audio, we will disclose the top line for the core business and for SteelSeries. As a consequence of the integration of SteelSeries into Audio, we will disclose EBITDA for GN Audio consolidated. Finally, let's move to slide 30 and our midterm guidance. Let me start by stressing that our ambitious midterm targets are intact, which now includes the impact from recent acquisitions. In the midterm, we expect to outgrow the market in both hearing and audio. For the hearing aid industry, specifically, we expect the global hearing aid market to grow at around 4%-6% in volume, with an ASP decline of between 1%-2% annually. In the midterm, we expect audio markets to continue to grow at around 10% annually. On group level, this translates into an organic revenue growth and growth in earnings per share of more than 10%.
With this, I'm happy to hand back to Henriette .
Thank you, Gitte, René, and Peter for the updates. Just a few remarks on the upcoming Meet the Management event before we hand over to the Q&A. The event will take place on March 23rd in a hybrid format where you have the opportunity to join virtually or in person. We do, of course, hope to see many of you face-to-face and a formal invitation will be sent out shortly. On the day, we will dig a bit deeper into our two businesses, among others, share some thoughts on the new digital opportunity in GN Hearing, as well as our progress in video and the gaming opportunity. We strive for an informal session with ample time for the Q&A. With that, I'm handing over to the operator for Q&A. Please limit your questions to two at a time.
As mentioned, we strive for our call to last around an hour.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad and your enter key. After you're announced, please ask your question. Our first question is from Martin Parkhøi of Danske Bank. Please go ahead.
Hello, Martin Parkhøi , Danske Bank. A couple of questions, one for each business. Maybe, Gitte, on your margin guidance for GN Hearing, can you maybe make a bridge of how you get from the 14% margin that you delivered in, you expect to deliver, this year in the existing business going up to the 20%? I'm meaning bridge that is, of course, organic, driven by organic sales growth and cost savings. On that context, on the margin, you have this significant loss expected on the so-called emerging business this year, which is predominantly Lively.
Will this go down with Lively or should we expect that more emerging business arrives, so we actually should expect a continued loss in this part of the business and not going up when Lively improves? Then, René, on the organic growth guidance on Audio.
You must say that the SteelSeries did quite well in the second half of the year, also held up better than your current business and also a good guidance for more than 10% organic growth this year. Why is SteelSeries equally hit on the first quarter? I, of course, understand that they made 125% organic growth in first quarter last year, but why are they equally hit by the 25% as we see in the existing business? C an you confirm, if I use 25% in the first quarter decline, then you need to make 16% organic growth in the remaining three quarters to hit 5%. How do you have the visibility on that pickup?
Thank you, Martin. Let me start with the emerging business. That is, for all practical purposes, Lively, and we expect in the mid-term to see break even on Lively. In terms of the margin guidance for the year, we guide around 14% for the full year. As we have alluded to in the first quarter, we expect our margin to be in the low single digits. As we are launching new products here in February and throughout the year, and a new platform in Q3, we will obviously see a stronger sales growth, especially in the second half of the year, so a bigger top line.
At the same time, we are taking measures, especially in our supply chain to further drive efficiency and streamline the setup, so we reduce our costs. That combined will allow us to see improvement in the EBITDA margin over the quarters so that we end the year in Q4 with an EBITDA margin coming close to our midterm guidance of 20%.
Yes. If I can just follow up to that before René answers his question. You always have a very strong fourth quarter. Historically, that has been up to 24%. M y question was rather related to how do you expect to go from the 14% for the full year delivered here and then to deliver actually more than 20%? I don't know when. Is it 2023 or is it 2024? W hen are you actually expecting this to happen on a full year basis and not only in Q4, which always has been the strongest quarter on the margin?
First off, we confirm our midterm guidance of being above 20% in the core business. That is again a combination of returning to sales growth above the market and addressing efficiencies in our supply chain.
René here. On your two questions, thanks for those. On the Q1, of course, for both businesses, it's a matter of the comp and the available components. The entire market is supply sort of determined at this point of time. Here we have a bit of, you can say, the volume effects of course are different in the two businesses, but percentage-wise, we land in a plus minus the same place. If you then look forward, the reality is that, or you can say short term also, the GN Audio or organic is harder hit from a component perspective than SteelSeries is as we speak.
Then to your second, because that leads to the second question, why do we believe in this pickup in the second half? We have calculated the same percentage as you just did. From everything we hear, from all the information we are collecting, talking to our suppliers and so on and so forth, it is our view now that things will ease in the second half of the year. There could easily be a question now, do I know if that's the case? No, I don't know. Nobody knows. But this is the best assumption we have, and we are guiding on that fact. Right now, the market growth is entirely driven by supply.
As supply will release, it is our belief from everything we see that the market will return to double-digit growth or at least the 10% we have talked about for a long time. With our portfolio, with the pull from the market, the setup and how we read competition, we will beat the market when the market starts growing again. Like we have been doing also second half and when we were under, especially in November, December, under high restrictions as regard to component supply. I mean, I just wanna say at the end of the-- In summary here, so we're all on the same page. It's not that there are no components out there.
We are operating at a way higher level than we did two years back, as I just commented. There's a lot of components, but there is not enough for the growth we could deliver if we had it all. That of course goes for my competitors as well. There's a lot of components, but not enough to drive the growth we are looking for. When that eases, we think the growth is there.
Thank you.
Thank you. Our next question is from Maja Pataki of Kepler Cheuvreux. Please go ahead.
Great. Thank you very much. Two questions for Gitte and then, for René, some follow-ups as well. Gitte, you are giving your view on how you expect the hearing aid market to grow with a 4%-6% unit growth in 2022, which, you know, it's arguably a bit more conservative than some of your competitors who still talk about pent-up demand release. This is now obviously, you know, bringing me to a question which might be a bit provocative. Is it only because, you know, this is where you feel comfortable that you can deliver growth, or is it that there are different markets? I mean, in any way, you should see more of a pent-up demand coming from Asia and the markets that were soft in 2021.
Second, Martin actually asked you a very good question, and you were dodging the answer a bit on that. The emerging business in hearing, you said it's among other Lively. What are we to expect going forward that will be parked in that emerging business so we can actually try to understand whether total hearing margin will go back to above 20%? I f you don't wanna give us exactly what it is, that's fine, but just please confirm whether we should see further investments in that emerging business that will keep the GN Hearing margin below the 20%. T hen René, on 2022, I mean, arguably a really tough market to navigate.
Can you please talk a bit more about the price increases that you have put through in 2021, and how much of growth you would expect to see coming from pure price increases? Thank you very much.
Thank you, Maja. In terms of our outlook for the overall market, and when we talk about a unit growth of 4%-6%, we do expect that to be the high end of that range, so probably closer to the 5%-6%. Now, on the question of pent-up demand, we haven't really at any time point spoken specifically to pent-up demand because I don't think we've really seen that. If you look at the global market volumes in 2021, I mean, they came in just above the 2019 level, and therefore, we kind of assume that we are back to normal and grow from that.
Should pent-up demand occur, then it's obviously still our ambition to take market share, so if that happens, it will also benefit our business. It's just that we haven't really seen it to a large extent yet. In terms of emerging business, sorry if I was unclear. I mean, for all practical purposes, this is Lively. We again expect Lively to be profitable or reach break even in the midterm. In the longer term, we may consider expanding the D2C model beyond the U.S., but for now, this is where we focus.
Gitte, can I just have a follow-up question on that? You were talking about the two-thirds of customers or interested customers in Lively that, you know, can't be served today. Would you share with us what kind of ticket you would charge for a referral of people that would go and see one of your Beltone affiliates or anyone in your retail network? Shouldn't that, you know, been adding nicely to growth, and how can we calculate that?
Yeah, I think, I mean, a way to think about it is that these customers will still buy their hearing aid through Lively, but what they are looking for is to get, instead of getting the fitting service online, they would like to receive that in person. We'll guide them to an audiologist, where they then go and pay for the fitting to the audiologists. I think the way to think about it is that Lively will still sell the hearing aid, but they will pay a fitting fee to, for instance, an audiologist in the Beltone network or a ReSound provider.
What about the ones with the severe hearing loss that can't use a Lively hearing aid that needs something more, you know, something stronger?
Yeah, that is actually a very small fragment of these people. In that case, we will have to guide them to an audiologist. You know, we are still contemplating how that will look like, whether people will pay a fee for having their name on the Lively webpage or how we figure that out, but there will be some sort of payment.
Thank you.
René here back. On the pricing, we have launched the price increases to the market by first of February, up to 10% on the MSRP on the list price. This will not translate into a 10% effective price increase across the board because there are different contracts. We have global accounts and so on. Of course, we have not guided exactly where we think this will land, but think mid-single-digit, below five, but in that ballpark, yeah.
Thank you, René, for that. That means that from a volume perspective, you really don't need to grow volume-wise very much to come in above your guidance. I mean, to hit your guidance.
Yeah, I hear you.
Okay, great. Thank you very much for that. I'll jump back into the queue.
Thank you. Our next question is from Veronika Dubajova of Goldman Sachs. Please go ahead.
Hi, guys. Good morning, and thanks for taking my questions. I'll keep it to two for now. I'll say, one, just trying to understand, René, the audio guidance for the first quarter and -DKK 25 million. I appreciate you're operating in a quite difficult environment, but clearly it would imply significantly lower revenues for the excluding SteelSeries business than what you've been averaging at, you know, looking even at the last couple of quarters. Is this sort of a worst-case scenario? Is that how we should be thinking about it?
Is it indeed the situation that, you know, when you look at sort of the last couple of quarters versus where you are today from a supply chain perspective, things have gotten so much worse that you will end up at sort of this DKK 2.2 billion of revenues as opposed to the DKK 2.5 billion-DKK 2.7 billion that you've been delivering? If you can give us some insights into that'd be helpful. Gitte, back to you on the, you know, gross margin dynamics. Obviously, I think the big difference between what's happened for you and your peers through the pandemic has really been on the gross margin development.
I think, you know, looking at where you are, you are still meaningfully below your, you know, pre-COVID gross margins, whereas I think most of your peers have moved to either back to those levels or above. I mean, is the ambition of this DKK 150 million restructuring to get you back into the 68%-69% gross margin? Maybe can you give us a better, more detailed bridge for how you get there, or what you think is a realistic gross margin for the business? M aybe decompose that in terms of, you know, what comes through the top line and is dependent on the launches, whereas what is in your own control and will be driven by the actions that you're taking this year? Thank you.
René here. Thanks for that question. I mean, the minus 25% that we are now guiding for Q1 is what we are looking into as we speak. Of course, we don't want to come in a situation where we give you a number, and then we have to come back in May and tell that the world was any worse than that. I mean, the rest is that you can say November and December were poor from a supply component supply point of view, and so has January and February been. That's basically the situation we are in. It is, we do see some improvements as we speak, but they have to come through first.
We should also still just talk about the absolutes. If you talk about the 2.1, 2.2 that you just mentioned here, if you go back to 2019, we were 1.3, right? In Q1, of course, we are still, despite this, at a way higher level than where we came from. The business is holding up. Against the Q1 of 2021, we are down.
Coming back to your question on the gross margin development and how to think about that. I think what we have or I've spoken about before is that we haven't had our sales come back at the 2019 levels, and yet we've kept the full capacity in our supply chain, meaning that we had, among others, fixed production costs that were sort of uncovered, which obviously has impacted the gross margin negatively. There's also effects from country mix and product mix, but if we for a second leave that out of the equation.
My point is that part of the improvement we expect to see in our margins is driven by a bigger top line, and obviously driven by our ambition to outgrow the market, which is also reflected in our guidance on the top line. Now, in addition to that, we are taking a look at our supply chain end to end from you know how the customers or how the audiologists place orders with us till they actually have the product in their hands. There are a number of areas where we can further improve and become more efficient. Obviously, we also build very much on the experiences we have in audio in terms of driving efficiencies and scalability in the supply chain.
Maybe just to give you a little bit more flavor, I think one of the things that we're looking at is, you know, how do we receive our orders. Today, in most of our markets, more than 80% of our orders come in either via phone or email. As I'm sure you can imagine, that can be done more efficiently in a modern world, and certainly also in a way that probably leads to less errors. We have a number of areas to improve on in our supply chain, and we are addressing that.
When we expect to see our EBITDA margin return to 20% midterm, it is due to both a larger top line, but certainly also efficiencies driven out of measures we take, especially in the supply chain.
Okay. Gitte, it's fair to say you would like to get that gross margin back to that high 60s% number. I mean, what's the realistic timeframe then? Is it by 2023 or do you think it'll take longer than that?
Well, we are obviously looking at our EBITDA margin, and it is our ambition to get back to the 20%. We will get back to the 20%.
Are you guys willing to commit to a timeframe for when you get to the 20?
Well, I think in terms of a timeframe, I can say that we expect to see Q4 coming close to 20% this year.
Okay. Excellent. Thank you, guys. I'll drop back into the queue.
Thank you. Our next question is from Christian Ryom of Nordea Markets. Please go ahead.
Yes. Hello. A couple of questions from me as well. Starting with Audio, can you, René, I think in Q3 you called out that you would have had double digit growth in the third quarter had it not been for supply constraints. Can you sort of quantify the amount of the impact here in Q4, the extent to which you've seen the order backlog increase? R elated to that, you previously talked about that you're re-engineering products to ease supply constraints on some pro-product lines. When exactly will this come through? Is it something that we are seeing? Is that embedded in the -25% here for Q1 or is it something that comes later in the year?
For SteelSeries, can you briefly elaborate on what are your margin expectations for next year? Is it basically assuming a margin on par with the 13.5% you delivered in 2021, or should we expect improvement in the margin for SteelSeries? Thank you.
Thanks for that. I mean, on the Q4 side, we have not disclosed the order backlog as such. We are not gonna do that, but it's clear we would have delivered double-digit growth had we been able to supply in Q4. On the re-engineering side, none of this is available in Q1. We have a list, maybe also more products than we have talked about earlier through a re-engineering path as we speak. They will start hitting the market in late Q2 and sort of over summer in a sense, of course. That gives two things.
Of course, engineering in a direction where we think there's a better chance and we can get sort of better visibility to components, but it also gives us two options, basically. We can build on more than one chipset when we get there. You should see that as a support of second half more than first half. On SteelSeries, margins will go up. We are sort of as we speak starting to do the back office and the supply chain integrations and so on, so you should expect sort of 14%-15% level.
Great. Thank you very much.
Thank you. Our next question is from Patrick Wood of Bank of America. Please go ahead.
Perfect. Thank you very much for taking my questions. I'll keep it to two hopefully quite quick ones. First one, interesting on the backlog side and audio being so high. I'm just curious if you have any color around the composition there. You know, what have you seen in terms of. Is it more on the enterprise side or call center? You know, how has the mix been? Has it been slightly higher priced units or lower? Just any color around that would be really helpful. The second question, please, on the hearing aid side. You know, I appreciate commentary in the past, but it seems pretty clear, like the latest product cycle has been. I think probably fair to say not a great one relative to peers.
I guess the question is, when you're thinking of a new platform later in the year, how committed are you to things like the M&RIE fitting and, you know, that side of things? How much of a shake-up of the existing paradigm should we expect in the third quarter? Or is it more of a semi sort of mini chipset update rather than a full review? Just curious about that. Thanks.
René back here. On the backlog, I think that the reality here is that it's a mix where several of the high runners are severely affected. I mean, across the portfolio, we have certain products with the right price levels and the right sweet spot hitting that are selling at simply very much higher numbers. S ome of these are affected by this. You can say it has two. I mean, one is that the demand is very strong. The other one, of course, is that we cannot deliver on that. It is in the core business that we see this problem.
Maybe there is a question coming later because we talked a lot about video earlier. We have seen late last year a very sort of restricted amount of video products we could get out. We will have a meaningful, but not nowhere close to the demand, supply of video products in Q1 going up in Q2. Now we're actually starting to get some at least some fulfillment of demand in that space. But it is unfortunately sort of across the board, but also affecting the high runners, as you speak. Maybe just one more comment on the backlog, and of course, we're talking about the backlog because it somehow indicates the pull from the market and so on.
You also should remember, we talked about this also last year, that after a certain period of time, the backlog, the business restarts. Meaning that, if you have had stuff in backlog four, five, six months, it will vanish. People start again, they buy what is relevant for that time. You can say, don't expect that we have massive effect of the backlog in Q2, when we need to be back to, or at least Q3, because we need to be back to the normal business. Maybe we build new backlog, but that's another story. Backlogs disappear. I've just seen, sort of in the market, many talk about this now as this is the rescue. It mainly speaks to the fact demand is very high.
Your question on our new platform, I'm sure you appreciate that it is really early for us to announce that we come out with a new product platform in Q3. I hope you understand that I don't wanna speak too much to what features it contains. Having said that, I just want to maybe make the point that I know we haven't had the success we would like to have with ReSound ONE and M&RIE in the VA. Apart from that, looking into the commercial market, we actually see ReSound ONE and M&RIE being well-received. The benefits that M&RIE brings in terms of really supporting organic hearing or hearing as nature intended is well perceived both by audiologists and users.
Understood. Thanks for the answers.
Thank you. Our next question is from David Adlington of JP Morgan. Please go ahead.
Questions. First, on audio, again, sorry to labor the point, but on supply chain visibility, I'm just wondering in terms of how to quantify those, particularly that kind of second half rebound, because certainly one of your competitors has talked about those supply chain headwinds continuing through the calendar second half and the first part of next year. Be more comfortable if your competitors continue to see headwinds through the second half, does that give you some opportunities to take some more share if you're able to supply more fully into the market? Second, just on hearing, just with respect to the emerging business, your thoughts in terms of the trends of the DKK 190 million does this year be downwards or margin--
Sorry, David. David, we have a hard time hearing you. Can you repeat, especially on the emerging business again?
Business, the DKK 190 million. Is that better?
Sorry, David. This is Henriette here. Can you repeat your question again because we have a hard time hearing you on the emerging business.
The emerging business?
Yes. Can you pick up from there? We couldn't hear the question.
DKK 190 million of headwind. Get a feel for how you see that scaling down. Emerging business always be core. Expect to get to core margins at some point in the future.
David, thanks for that. I think as you're also speaking to, the market is defined. You say the market growth is driven by supply as we speak. In that sense, of course, whoever supplies more into it to have better supply opportunity will gain share. We think, despite sort of our own frustration about the situation late last year, we actually did gain share in the market. When we speak about recovery in second half, this is based on all the input we have from our suppliers, from everything we can see in the market, an assessment that this is what we can believe in, supported by the fact that we have significant re-engineerings ongoing.
If we are in better shape than competition in second half, yeah, then we will take share. I think we are not concerned that you can say we will run out of demand. There's so much you can say going on out there in terms of hybrid work. Teams platforms are still undersupplied massively. There's a big upside in terms of moving people from you can say consumer type or less professional quality headsets and speakers and cameras and so forth. If we do our job well, we can create the demand we are looking for, and if we can supply more than competition, we'll take share.
David, on your question on emerging business, I hope I understood it correctly. For 2022, we are guiding -DKK 190 million, and in the midterm, we expect the emerging business to break even. Will it be a sort of a linear improvement? I don't wanna confirm that, but obviously we do see a gradual improvement towards break even, while we continue investing in capturing the growth that we see in the online market.
I don't know if you still hear me. Do you expect to make further acquisitions in that emerging business that could further push back even?
Well, for now, we focus in on Lively and making that successful. Operator, I think we can take the next question.
Thank you. Our next question is from Julien Ouaddour of Exane BNP Paribas. Please go ahead.
Yeah, thank you. Thank you for taking my question. I'm gonna be quick. The first one on hearing. I'm just little bit, I would say, surprised by the guidance for Q1 2022. As we expect low single-digit organic growth and also low single-digit EBITDA margin. Yeah, it seems just a bit conservative given, let's say, easy comps and current mid-teens margin. C ould you just give us a bit more color about the, like, the sequential decline expected for Q1 detail, please? Next one in audio. My understanding is that unlike previous years, you seem to now be willing to accelerate on bolt-on M&A, like in Ojo, to expand, let's say, proposition towards what you call non-office workers.
Just could you let us know a bit more about it and how big M&A contribution could be going forward? Thanks a lot.
Yeah. Let me try to do that. First, probably I wanna state that our innovation capabilities are intact, and I'm really pleased that we, this week, have announced two new products that we are putting into the market end of February. Having said that, we are in Q1 still impacted from the fact that we had delay in our product launches, because we were supposed to put new products into the market in the second half of 2021, and obviously that would still be benefiting our business now here in January and February and so on. In addition to that, we also see some softness in the markets.
We see that in the U.S., I guess, due to Omicron, we see, you know, COVID restrictions reapplied in Japan, VA not allowing visits and so on. It's still a somewhat soft market that we are operating in.
Okay. If I may, just a quick follow-up. I mean, I understand that you see some softness and you have new product launches, I mean, you know, in Q1. If you look back, like, in history, I mean, last time that you had mid-single digits, like EBITDA margin was probably in Q1 2020. Even in Q1 2021, you were at 8%. I mean, I just don't get it, why, let's say, EBITDA margin will be so low even if you have some, let's say, softening of the market. I think your peers said that, let's say, the market conditions are a bit improving since January.
Just any color on it would be super helpful. Thank you, Gitte.
Well, I guess in addition to the factors I've already mentioned, we are launching two new products here in Q1, and obviously we are supporting those with the relevant investments as well.
Thank you.
René here. Thanks for the question on the frontline workers or deskless workers or what we decide to call them. I think this is a strategy statement. We are looking into this opportunity together with the platform owners like Microsoft, where you can say the UC, Unified Communications Technologies will extend into this space. I mean, today you have private mobile radios for certain sectors, where you somehow have push to talk and so on. There's a lot of opportunity coming there that we think we can address with the technologies that we bring. It's also you can say these are our customers already, so we have the channel access to that space to a large extent. The opportunity is out there.
When we talk about M&A, I think we have had very good success and experience actually buying ourselves into a certain segment and then using the GN Audio machinery to scale that. We've done that in the transport sector in North America, with the whole transportation segment, logistics segment. We've done it with Video, where we have some fantastic products in the market. We just done it in the gaming space. We think this model actually helps us accelerate getting to the growth point, and then it's our job to scale it with the machinery we have already. This is not a stated intent that we are gonna go and buy five companies the next two quarters.
We think the model as such is very attractive for us to drive growth faster. Look at it that way. We don't have any M&A activity to announce. Of course, we just did a significant one, so we are absorbing that one as we speak. This is a strategic statement we're making.
Thanks a lot, René.
Thank you. Our next question is from Oliver Metzger of ODDO BHF. Please go ahead.
Good morning. Thanks. Let's take my questions. The first one is also about your targeted price increases. Could you give a comment about the impact on margins on this year-on-year comparison? Should we think about covering higher input costs and therefore keeping your margins eventually stable towards 2019 or 2020 level on a like-for-like basis? Or do you see also some more differentiated approach to improve your value price mix? Also in this context, did you think that also price increases in the consumer space are realistic? That's basically part one. Number two is at GN Hearing. You mentioned clearly to focus to accelerate some M&A and partnership activities.
Could you give us some comments about your M&A strategy and whether it relates only to, I would say, expensive, often, loss-making emerging technologies going forward, or whether you might also look to warm more to this traditional, say, retail opportunities to a stronger extent than before in future?
René here. Good question, of course, on the price increase in margins. I think, for now, assume that this will fend off new costs. I mean, of course we already have transportation costs, very significant ones in the comparison. If this doesn't move, then of course there's an upside there. We don't really know what the market will say about component costs in the next phase. But we haven't seen yet massive increases, but somehow we have to assume that something will happen here. Assume that this is to cover for costs coming in, so we are margin neutral here.
On the consumer side, let's say on the enterprise side, we are the leader. We somehow have market power, so we can lead price increases and competition will follow. On the consumer side, we are not the market leader, so we have to somehow see what the big boys do, and then we will follow through.
Thank you for that. I mean, it is a part of our strategy to accelerate M&A and partnerships, as you point out. We already have very important partnerships, such as our research collaboration with Cochlear. We also have partnerships with Apple and so on. It can have different expressions. I do wanna make it clear though that when we write that statement, it is not because we have an ambition to go and buy retail. We don't. That is still a clear part of our strategy not to do so. We are obviously looking for if there are further attractive opportunities to supplement our business, we are looking for that as well.
Okay. Thank you very much.
Thank you. Our next question is from Lisa Clive of Bernstein. Please go ahead.
Hi there. Two questions. Could you just remind us, when does the Kirkland Signature next come up for renewal? Is that a contract you'd be interested in, given you've already launched the sort of ReSound ONE under the Jabra brand there? On Tuesday, we saw a press release on the Jabra Enhance Pro or Jabra Enhance Plus, but the link seems to have disappeared from the website. I think it mentioned a launch in the end of February and sort of how it would slot in with the OTC category. Just commentary on plans for that product and what we should expect, as OTC approaches in the second half of the year.
Yeah. I'm happy to speak to that. On the KS, I believe the contract is renewed every 18 months, so it will be coming up in the second half of 2022. Obviously, I think that's quite a competitive process in relation to Costco. Maybe I don't wanna comment too much on that. Except maybe just underlining that, I am actually quite pleased with our performance in the branded segment. Obviously having put Jabra Enhance Pro into Costco has made us regain a strong position in the branded segment. That is maybe a good segue also to speaking about Jabra Enhance Plus.
As you allude to, on the first instance, it's approved under the hearing aid regulation, and as such can be distributed through the traditional audiologist channels, and we will do so. We expect also that to be highly relevant. Once the OTC regulation comes into force, we certainly also expect Jabra Enhance Plus to fit under that regulation, and we see there a strong opportunity to expand into even more channels. I actually think that is one of the areas where we in GN have a unique strength, because those new channels that opens up, I mean, they are new to hearing, but they are not new to audio. This is really a great example of where we can benefit from having audio and hearing under the same roof.
Great. Thanks.
Thank you. Our next question is from Mattias Häggblom of Handelsbanken. Please go ahead.
Yes, good morning. Two questions, please. Sort of a similar question as earlier on the call for audio, but here specifically for SteelSeries. What's needed for the remainder of the year for SteelSeries to meet more than 10% for the year if we start with a 25% drop in Q1? I don't have in front of me how large Q1 was as a percent of 2021, so I don't know if you can help me with that proportion so I can calculate myself, or since you most likely have done the exercise, remind me what growth is required for the three remaining quarters to meet 10% plus for the year, and what comfort you have in that trajectory.
Then secondly, sort of along the same lines as earlier questions here on the call, but following a series of earnings misses and guidance revisions, you know, I'm trying to understand if there is a new element of conservatism to the guidance that have now been put in place, or if the process for how you set your guidance is unchanged?
René , back here on the SteelSeries, I don't think we disclosed that number. We are 15%-20%. I think you should think about it like that.
Yes. Maybe just as information, Mattias, then we have in the appendix of the slide deck the quarterly numbers for SteelSeries for 2021, just so you have a reasonable base.
Fantastic.
What was the question?
Sorry. I think we are in doubt of the question, Mattias. Can you just repeat?
Yeah. I'm just curious to hear if, you know, if the process of how you set your guidance is unchanged from before, or given that, you know, given some of the, you know, missteps, both from internal hiccups in product development, but also external factors, if the process for how you set your guidance is unchanged or if it's been, to some extent, perhaps more conservative.
Maybe I take this one. This is Peter. No, we've not changed our guidance. We do it the same way as we have done. Of course, as it was the case last year, it's still uncertainty is higher, visibility is lower, so of course that makes it difficult. Fundamentally, we have not changed the approach we use for coming out with guidance. It's the same.
Perfect. Very clear. Thanks so much.
Thank you. Our next question is from Kate Kalashnikova from Citi. Please go ahead.
Hello. It's Kate Kalashnikova from Citi. A few of my questions have already been answered, but perhaps following up on Lisa's question. I was surprised that the price point for Jabra Enhance Plus is below Bose's SoundControl. Yet your product is more discreet. It looks much more like an earbud rather than a traditional hearing aid, is rechargeable, and can also stream music and calls, unlike SoundControl. Moreover, if anything, input costs have gone up compared to when Bose launched SoundControl. Can you explain why have you decided to price it lower? And can you also give us any color on what size of sales opportunity do you see for Jabra Enhance Plus? What sales contribution would you be satisfied with? Thank you.
Thank you. Well, for that question. Well, obviously, we have done quite significant consumer research, and also looked at you know price levels on hearing aids, price levels on true wireless earbuds when setting the price for Jabra Enhance Plus. I really like your comments on the product because I too believe that we really have something unique here that is stylish, it's elegant, and it's discreet. We are now launching into a new category. We are building a new market here.
In order to do that, it's been important for us to go in with a price point that is obviously high enough to make it attractive from a financial perspective and profitable, but also at a point where we can reach a broader audience. Those have been the trade-offs that we have considered.
On the size of sales opportunity, what would be a success in your view?
Well, as I'm sure you understand, we don't guide on a specific product. Also, we are launching into a new category here, so clearly, it's going to be a very exciting year also in that regards.
Can you talk about your expectations for the category maybe more broader, obviously once OTC is implemented from the second half?
Well, I think, in order to think about the OTC category, I think one have to think about that in the longer perspective. I think in the long run, and I think that's the whole idea with the OTC regulation, is to expand the market and make hearing aids accessible for more people in the U.S. With the speed that will happen with, I think, we will all have to watch that and see how fast that progresses.
Thank you.
Thank you. Our next question is from Carsten Lønborg of SEB. Please go ahead.
Yeah. Thank you very much. I just have to come back to this, EBITDA margin guidance, the midterm of 20%. It sounds like supply chain cost is a major lever in all of you to get back towards these levels. How much of your cost base is supply chain cost these days? Also, I mean, when you talk about Q4 this year and getting close to 20%, coming back all the way back to Martin's comments, but normally in Q4 you have maybe 25% on average since 2017, 2018 and 2019, so there's still five percentage points to go even from Q4 this year, where we must assume that markets are maybe more or less back to normal, so normal course of business.
Second question is, in Q4 here, you take a rather large amortization of intangible. There's a write-down of something. Can you try to maybe explain what it is that you're writing down? Thank you.
Yes. In terms of the costs related to our supply chain, obviously the majority of those costs are showing up under our cost of goods. You can say if we run a gross margin around 64%, it will be close to 40% of our costs sitting in the supply chain. That's obviously a significant part. I think also if you look closer into our OpEx, you will see that we have, during the last couple of years, reduced our sales and marketing costs and kind of reset the base here. We have invested heavily in R&D and IT, and will continue to do so. I think that's important for us to be competitive in the future.
Where we see opportunity to further improve is in the supply chain and obviously also a few other areas, but especially in the supply chain. Now part of that improvement also comes with a bigger top line to cover more of the fixed production overheads. It is a combination of that.
Hi, Carsten, this is Peter . Maybe I take the question related to the amortization increase. This is primarily related to the write-down in some of our channel investments that we do in GN Hearing. That was the right thing to do in Q4 of 2021.
All right. Just trying to understand. Was it 40% of your costs that was related to supply chain costs?
No, sorry, I misspoke. I mean, 40% of our total costs in GN is related to supply chain. I mean, when we operate with a gross margin of 64%, I mean, that is a. You have 36% going to cost of goods sold, and that is mainly supply chain costs.
Okay. Thank you.
Thank you. Our last question will be from Niels Leth of Carnegie. Please go ahead.
Thank you for taking my question. F irst question would be for GN Hearing and your geographical exposure. Since you have such a high exposure to emerging markets and Japan, could you just talk about some of your expectations, well, mostly for Japan for this year, which is an important market for you? My second question would be on SteelSeries. Now you mentioned earlier that you would expect the margin to go up to 14%-15% this year. But the EBITDA margin that you're showing is an adjusted EBITDA margin. I guess we would want to see the reported EBITDA margin is.
Would you also expect that to be 14%-15%, of course, excluding those one-off items that you have already called out in your report? Thank you.
Let me start talking to Japan. I mean, as you point out, Japan is our second-largest market, so obviously a very important market for us. We unfortunately continue right now to see lockdowns in Japan or restrictions following COVID. We do, however, expect that to ease up. I think one of maybe the important things to think about in relation to Japan is that the ITE form factor is quite attractive in a Japanese context. Therefore, I look forward to bringing our new ReSound ONE ITE into Japan later this year. I think that will be really helpful.
René here. Yeah, sorry I was not precise perhaps. This EBITDA margin, we expect 14%-15%. We understand the translation, of course. Yeah.
When comparing with 2021, we should not adjust for any cost items which have been below adjusted EBITDA margin?
Peter? No is the answer. We should not.
Okay. Thank you.
Thank you. There'll be no further questions at this time. I'll hand back over to our speakers.
Thank you very much, operator. Thank you everybody on the call for the very good questions. With that, we appreciate your time today, and we will see you on the road. Thank you very much.