Ladies and gentlemen, welcome to the Sonova Business Update Conference Call. I am Alessandro, the conference call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. The conference may not be recorded for publication or broadcast.
At this time, it's my pleasure to hand over to Arnd Kaldovsky, CEO. Please go ahead.
Alessandro, thank you very much. Good morning, everyone. Thanks for calling in on short notice here. Let me start off with wishing everyone that you are healthy and safe in this special times. I want to voice over some of the highlights of the press release we published this morning in about 5 minutes and then open it up for Q and A, which I'm sure many are well prepared for.
I think we published in between our normal reporting time line here because we understand that you have a significant interest to know where the market is going and how SONOVA is doing in that and why we didn't had a guidance out. We it's important to come back to you after 2 more months after our initial signals here. I think as you've seen, we've given guidance for the first half of the year in order to give you more insight go forward. But we didn't get one for the full year given some uncertainties, which I will comment in a second on. The first point out of the update, obviously, is around that the partial recovery is faster than we had expected in April.
You may remember we shared that we were at about a 35% sales level in April and that now for the Q1, including the 35% from April, we were at 59%. Different by geographies, pretty much in line with what I think most people would have expected, Asia Pacific being at 75% of prior year, EMEA at 60%, the U. S. At 55% and the Americas without the U. S.
At 50%. I think the second one important to note, and we also talked about this in April, our cost containment continued throughout the Q1. Although on the R and D side, we always continue to invest into R and D and the new product development because it's important for us from a market share gain perspective. With the increasing customer activities over the last couple of weeks, We have increased, to some degree, our lead generation as well as, obviously, our manufacturing to accomplish the higher volumes here. So a little bit less pronounced from the savings relative to April, but still quite some focus on the operating profit perspective.
Hence, the guidance we gave out for the first half year, we do this despite still existing uncertainties from the different movements of infection rates in the different markets. The revenue we're expecting for the first half year to be between 65% 75%. Keep in mind, that's the Q1 at 59% and an of positive of positive EBITDA adjusted for restructuring costs. Despite the good partial recovery so far, we also remain cautious about how this is going to play out over the quarters to come post the Q2 for us. There's 2 things which keep us kind of being on that careful side.
The one is, I think, especially with some uptick of infection rates in certain markets, we're not at a place where we exactly know how this is going to work out over the next couple of quarters. And I think at the same time, we recognize and appreciate that this is also a severe economical crisis for the world. And so in that regard, it's hard for us at this point of time to gauge what is the implication of that on the purchasing behaviors. In line with our strategy to optimize our footprint, which you may remember, we had a first step done about 18 months ago and then the second one 12 months ago, we are now accelerating some of the projects we had in mind with the objective to, in the next 9 months, save between $50,000,000 to $70,000,000 in run rate cost when the measures are implemented, requiring some $40,000,000 to $60,000,000 in restructuring dollars. We will do this wherever possible by using voluntary attritional attrition we have in general and also the structural saving potential here.
And we are focusing predominantly on what call non customer facing roles. So think about G and A structures, think about many things in the logistics and in manufacturing sites. There's a second part, which we have shared that with regard to the audiological care network, we see opportunities on a certain scale to optimize our store footprint. If you think in terms of a market where you have a higher density of stores, you can imagine some of them might lower revenues and are not that far from other locations. And so that's the type of changes we think on the Audiological Care network, keeping the strategy intact but being able to move the consumers to neighboring stores.
And then there are some opportunities on the logistics and the repair center side. Explicitly on the R and D and on the frontline salespeople, we're pretty much excluding them from those measures. You heard us talk about these being important areas for us to invest more last year. We're not dialing those back because we still see their contribution to our growth above market. We see us in a good position even in times of COVID-nineteen.
I think everybody remembers we were growing share significantly last year. We think the, let's say, fundamentals on how we operate and the products we have are still intact and in place. And at the same time, when we think about our market, we think that midterm, this continues to be a very attractive market with good fundamentals, which we have discussed all along, which are not changed by COVID-nineteen. So in that regard, I think we're in a phase of 1 to 2 years, which is holding us back from what our original, let's say, economical plans were in the strat plan. But our strategy to us looks like the right strategy for us, and the market looks continually positive and attractive for the long term.
So with that, I want to open it up for any questions. I didn't say this at the beginning. I also have Hartwig Grevener with me and Thomas Bernhard Schroeder. So in case there are specific questions they can answer better, I'm going to pull them in.
Operator, we're ready for questions.
We will now begin the question and answer session. The first question comes from Veronika Dubajova from Goldman Sachs. Please go ahead.
Good morning and thank you for taking my questions, please. If I can start with 2, that would be great. My first one is, I mean, thank you for the update. It's incredibly helpful. Just curious if you can comment a little bit on you've given us the April number and the Q1 number.
It'd be really helpful to see how you felt about June. And just maybe give us a sense by geography for the figures that aren't used to be you shared. If you could give those for June, that would be very helpful. And then sort of slightly surprised that you're giving guidance for the first half, but not for the full year. Would love to understand your thinking.
I mean, do you have concerns that as we move beyond Q2, the situation could deteriorate? What are some of the indications that you're watching there? If you can share your thoughts on that. Thank you.
Good morning, Veronica. Thanks for your questions. So we don't want to get into monthly sales updates on a regular basis. So allow me to try to describe it somewhere in between. If you think from the $35,000,000 and then to the $59,000,000 if you assume something which is in line with a more linear curve in order to get you to the 59%.
That's probably a good starting point. I think from a geo perspective, I think we did see the markets move with what we have seen from, let's say, the public lockdown behavior, right? So China was good. They started early. We said that in April.
I think we did see countries like Germany, Austria, the Netherlands move reasonably fast because they started to allow traffic in the streets and towards stores, and then we did see consumers coming back. And I think the U. S. Was always a little bit in between, hard to call it, 1 country with a different opening scenario. So that's kind of a mix.
So they were a little slower. And I think in the extremes, you go to the U. K, active selling in an audiology store has just allowed since beginning of this week. So there are some laggards here, but it's very much tied to the lockdown scenario the government has put in place. I think we see good initial consumer response right out of the gate but not at the normal level.
And so I think we understand the first half of the consumers and their behavior. We're not so sure about if all of the consumers are coming back in short time. And I think that's one of the things we're watching with regard to how do we have to think about the second half year because it could well be that there are some which are more off the break and want to get back to everything normal and other ones are really more reserved. And we have not seen that all of them easily come back. I think our Q2 or our first half year guidance is without the assumption that any market really significantly goes back to a lockdown again.
So obviously, if somebody of significant size would go into full lockdown again, that would have quite some impact, particularly in the second half of the year. So that's what we're watching. I think the infection rates are really hard to read because for us, ultimately, it's relevant in what the consumers do. So that's more kind of a leading indicator, but if people move back to lockdowns, we would get very worried.
Understood. Thank you. Arnd, and can you maybe comment on the cost? I think you said in April that in April, your kind of OpEx was down about 35%. What is it on a first quarter basis?
Or how are you thinking about on a first half basis?
Veronika, I mean, we are giving you an idea on the first half what it ultimately means on the bottom line. So we're taking measures and sitting tight on everything that is not customer related and future product development related. So I guess you need to read it a little bit from there. We believe that all that we do on the cost side is not at the expense of our future potential and harvest our position strong position as the business is coming back. But you can imagine most of the cost compression that we are doing as business is coming back is on the OpEx side.
And that's as much as we can say, I believe.
Understood. Thank you, guys. I'll go back in the queue.
The next question comes from Chris Gretler from Credit Suisse. Please go ahead.
Thank you, operator. Good morning, Arndt, Helfrich, Also from my end, thanks for providing these updates, very helpful. First on the sales trend, do you have any indication about kind of what degree these sales pickup was driven by kind of old or previously kind of by customers that have already kind of previously signed up for hearing care services. I'm just interested kind of to see essentially now where the lead generation is going so and whether you had any similar kind enough trends on the lead generation, just to see kind of the sustainability of this current recovery. And then maybe also if you could give some comments about the retail business and the implant business, maybe more specifically how that has been recovering?
And then the last question is on restructuring. Just quickly, how much of that is actually cash relevant and how much is a write off anything?
That's all. Thank you.
Chris, thanks for the questions. Good morning. On the sales trends, clearly, at the beginning of the quarter, the focus was pretty much on trying to bring people back into the stores who were halfway through the fitting process or were at least convinced that they want to get a hearing aid. I think we as well as others then moved towards going to their existing customers who may be ready for a second version of a hearing aid after 5 years. And I think by now, people are getting their toe into the water with regard to new customers.
I think from a mix perspective, we're clearly in even the June, still over proportional in existing customers over new ones. And you can see that based on it still being a relatively low level of outbound marketing in TV and other things. People have started with it, but we're still more on the existing customers. So I think there's more opportunity to go after. On the new customer side, it's going to be somewhat more costly on the OpEx side, but there was some pent up demand we could work from on people who have boarded the process.
On the recovery of the different businesses, Audiological Care, we can't say if our wholesale is faring better or our audiological care at this point of time. The audiological care from the revenue, it's a little lower than the wholesale, but that's mainly because of the revenue recognition, which can be anywhere between 2 weeks 8 weeks depending on the market and how long people can give a hearing aid back. But it pretty much looks like similar recovery curves as you would expect because ultimately, we're all after the same consumer in a specific market. I think AB is significantly slower. They are the hospitals, especially in the markets where they are still reasonably close to kind of the emergency rooms being full with people who need attention to COVID I'm not doing elective procedures, and the ones who have started doing elective procedures were first going for opportunities which have more hour and more dollars per operating room hour, and we're not the highest there.
So, I think that's lower. It's we carefully observed the U. S. I think there are certain states where they went backwards with regard to elective procedures, still on a small number here. But if you go to certain counties in Texas or in Florida, given their high infection rates, they're starting to not wanting to do elective procedures.
So there's even some more uncertainty on the AP number. But as you know, it's 10% of our total, so probably not that much of a big needle mover for us but more interesting to know and observe. I think on the restructuring cost side, Harve can comment better.
Yes. It's the overweight clearly, overweight will be cash. There will be some cases of store equipment write down, but Chris said it should not be more than 10%, 15% of the overall restructuring build. However, not everything will be cash in this fiscal year. It could be that we have to make provisions in this year, recognize it in the P and L, but the cash realization might then only trail a few months later.
Okay. Maybe can I squeeze in one more just to kind of to get a confirmation? I know you mentioned in your press release that our first half sales should reach around 65% to 75% of prior year level. And I think in your call on May, in mid May, you commented that about this level is required for you to confidently launch a new product. Would you consider the current market condition to be satisfactory to kind of launch a new product then?
I think if we see a good steady curve over the next months, yes, then the math would get you to that point. Our perspective hasn't changed on net order of magnitude. If you would be sitting here and you're seeing the curve getting flat or even for 2 or 3 weeks going downwards, then you would worry about the go forward, right? But from the general level, if we have still a steady curve with some improvement month over month, I think we're at the same place.
Okay, great. I appreciate your comments. Thanks. Thanks, Chris.
The next question comes from Patrick Wood from Bank of America Merrill Lynch. Please go ahead.
Perfect. Thank you very much for taking my questions. I've got 2, if I may. First, I'm just curious, what are you guys hearing from your independent retailer partners and sort of a broader sense of the market and how they're seeing things?
Is it similar to generally what you're seeing
in your retail franchise? Or are they having an easier or harder time of it? Just curious to get some color around what you're hearing there. And then on the second part of the question, you sort of touched on it briefly, but should we consider the cost savings to be relatively meaningful within the first half numbers? Or is this much more that cost savings program, is this much more a function of the back end of the year and into the later years?
Patrick, thanks for the questions. So on the independents, we don't see a significant a structurally significant difference. Let's put it that way. I think we see some which are more progressive. They've opened up earlier.
They're more active on their marketing activities. And then there are some who were a little bit more careful and cautious. Some of that may have been out of safety concerns. Some of that may be just they were worried about they don't have enough volume to pay for the salaries when the people are coming in. But no structural change.
I think with regard to the accounts receivables and the provisions, we feel pretty good at this point of time. We will need to see a couple of more months because at the beginning of the journey in many countries, the independents got some subsidies. But overall, we haven't seen so far any significant challenges with regard to people not being able to pay. It may be a month late, but that's the pattern we see. I think from a cost savings perspective, it's not 100% written in stone.
Some of the projects need more, let's say, planning. Also in some markets, we have situations where we need to be aligned with works councils and other things. But I think if your starting assumption would be somewhere in the fifty-fifty, that would be probably the best estimate we have right now. It may fall a little bit to the left or the right from there, but some of the projects take longer and other ones can be executed first.
Really helpful.
Thank you
very much, guys.
Thanks, Patrick.
Next question comes from Falko Friedrich from Deutsche Bank. Please go ahead.
Good morning. Thanks for taking my questions. I would 3, please. When you look at your competitive landscape, do you sense that you can recover faster and can emerge the strongest from the pandemic? And secondly, when looking at the returning customers, are those rather a younger customer group or is it pretty broad based so far?
And then thirdly, you mentioned that you freed some of the nonessential CapEx. Is that still necessary given the fast recovery?
Feikel, thanks for your question. I would say we feel good about the speed with which we have executed our 1st 3 months of the COVID playbook. We had safety first and protecting the core, as you can see from some of the things we did on the liquidity side but also the cost side. We have a 3rd phase in which we entered into a couple of weeks ago, which we called Protect the Rebound and have very focused initiatives with regard to how do we nurture our existing customer base, how do we use digital means, how do we use remote in these times. I think the other one, I think our product with the marble is still kind of well thought off in the marketplace.
So I think from those metrics, I would say we feel good about it. It's not that clear on all the published data that I would exactly know, are we winning? Are we winning a lot? Are we equal with some people? So but I think we've done a pretty good job with regard to the playbook we're playing here.
And I think the other one, as you can also tell from us going after structural opportunities to secure that we can continue to invest into our growth drivers, I think there's a clear mindset of facing the situation and making sure we're not cutting back on the things like feet on the street and the product road map. From the returning age, we have not seen a big bias towards the one or the other. I think it's really more kind of the mindset of the individual and also the need level. But we have not seen a big bias. We have not seen that now magically lots of younger people are coming.
I think it's probably in one line with how severe is your hearing loss. And then the other one is really kind of a personal preference question. On the nonessential CapEx side, I think at the beginning, we really wanted to tighten down many things. And I think we're now in a place in which we say, look, we're recovering, we're getting better, We're seeing a way to single digit profitability in the first half. We've done significant steps on the liquidity side.
So we'll continue to be a little bit more careful, but we are starting to free up things where we know these are important things to kind of march forward on our strategy.
Perfect. Thank you. You're welcome. The next question comes from David Beglefsen from JPMorgan. Please go ahead.
Good morning, guys.
Thanks for taking questions. So firstly, I just wondered if you could give us some idea about the number of stores being closed and the potential revenue impact. Secondly, just wondered if you could give some color on what you're seeing in the VA and how you see that progressing from here. And then finally, maybe just an update in terms of around the FX impact in the first half, both top line and the EBITDA level.
David, thanks for the questions. So on the number of stores, we're not giving an exact number to some degree. We also need to work through this. Again, it depends a little bit on things you can do in certain countries. But it's on the let's say, it's on the we don't want to give a number, so let me park it here.
The on the VA progress side, the let me say something to the revenue first because you asked about the revenue. In the Netherlands, some of you may remember that because of a changing reimbursement environment, 2 years ago, we reduced the store network by about 20% of the stores. And this is not the number which answers your question, certainly not anywhere close. We were able to post a year afterwards good double digit growth and then the 2nd year of close winning in the share winning in the marketplace despite those closures. Now why was that?
Because the team has done a great job on how they moved the database, how they selected the particular stores which were close to other stores. So in that regard, while there may be some short term impact on the top line side, I don't think it is that significant that you should factor it in into your model here. But I think we have the experience that when you execute those network optimizations well, you can recover those over that period of time of a year to 18 months. On the VA progress side, it's slowly getting better. We have not seen a broad based guidance in VA that people should open everything.
It seems to be more local or regional decision making, but it is the slowest of the channels with regard to pickup in the United States. On the FX side, Kartik?
Yes, David. So the prior year comp for euro and dollar is coming down in the second half of our first half. But certainly, in the first half in the first quarter, the impact was significant. Last year, we had a bit more than 3 percentage points negative impact on the top line. I guess this is still the magnitude that we would be expecting for the first half of this year at this point.
The next question comes from Maja Pataki from Kepler. Please go ahead.
Good morning from my side as well. Just very quickly, Arnd, to get back to your answer on the retail side. Could you provide us maybe an update on which regions you're mainly targeting? Is it global, broad based? Or is it a couple of markets where you have a specific focus on?
Understood that you don't want to give the number of stores. You indicated it's less than 20%. Is it in the single digit percentage points? Or would it be around half of the 20 percent? And then on the U.
S. Market, which is seeing unfortunately a very grim picture, Have you had an update on the performance over the last 2 weeks? Have there been renewed store closures on a voluntary basis or the VA clinics that have pushed back openings? Thank you.
Hi, Maher. Good morning. So on the retail side, it is, let's say, broader based in the countries, but it is the countries where we have, let's say, more significant footprint in terms of density of stores because the concept is really to keeping the consumer database. On the question on is it single digit, I would say it's clearly single digit. I will not narrow it more, but that's, I think, a fair comment here.
On the U. S. Side, we have not, in the last couple of weeks, seen people going backwards who had opened stores. And I'm talking big picture. There may be 1 or 2 somewhere.
But if you look at our leading indicators, the U. S. Stayed at the same level of store openings. We also did see still some positive momentum week over week. I think in that regard, it's okay.
It's just hard to read what are the next 2 to 4 weeks in U. S. Right now. But so far, okay.
Understood. Thank you very much.
You're welcome.
The next question comes from Tom Jones from Berenberg. Please go ahead.
Good morning. Thanks for taking my questions. I have 2. The first question I wanted to ask is just on mix and whether you're seeing anything in your mix trends as you emerge or as markets emerge from lockdown that would give you some cause for concern about the financial health of your customer base? Because my guess is that once someone's committed to a hearing aid, they'd probably continue through to the purchase.
But if they're worried about their financial picture, they may look to down brand sort of during the purchase process. So just some idea of mix trends would be helpful. And then the second question I had, which was really to try and understand how margins might progress in H2 more than H1. But I wondered to what extent has your single digit margin in H1 been supported by various government backed furlough schemes? And if so, what point does that roll off and the cost base become entirely your own again, so to speak?
And thank you for the question. So on the mix trend side, we have not seen a significant change in mix in Q1 relative to the year before. That's good news. We're observing it carefully. I think it's hard to take from that, that if we're half a year further down the road or 12 months further, if there may not be an impact, I think in 2,008, 2,009, we did see that in the U.
S. There were some mix changes after an economic crisis, but so far, we have not seen that. And that may be due to who is in the funnel right now and how convinced where they are already. I think on the margins, In the first half here, let me answer first a question on government subsidies and furlough and others. We said that when we were at the 35% OpEx reduction in April that about 20% of that 35, so meaning 7% of the total OpEx, we were getting from government subsidies and furlough.
So the by far larger, let's say, OpEx saving came out of other things we did. We're now at a significantly lower dollar amount in government subsidies inferno. So I don't think the ratio has changed a lot. Now in some countries, they're going to run out in a month or 2, but we're also getting to volumes where you don't get much anymore. So I think in that regard, we're really more in a world of managing OpEx overall and needing to decide where is it driving growth versus not, and that's what we put here into the plan for the first half of the year.
And I think the fact that we are talking about structural optimization indicates that we also think we want to do something for the longer term here, which ultimately would easily replace what we've gotten in subsidies.
That's very helpful. And I had one just quick follow-up question on the retail side. I just wondered if you're seeing any different levels of activity between stand alone shops and shop in shop type concepts? Because I guess my fear is that customers might be happier to go into an audiologist, which is usually pretty dead, whereas they might be a bit more cautious about going into a busy pharmacist. I just wonder if you're seeing any difference in the pickup in your shop in shop versus stand alone centered business.
So here, we are kind of not the best to help you out because we have very few shop in shop except for the U. K, where we have all of our stores in Boots, but U. K. Was closed until this week. So we have so few shop in shops that I couldn't derive from there any kind of meaningful answer from you, sadly.
Operator, can we ask the next question?
The next question comes from Michael Jungling from Morgan Stanley. Please go ahead.
Great. Thank you and good morning all. I have three questions. Firstly, when it comes to your comment about a gradual recovery for the market, Can you comment on what this now means in your own mind and how this relates to your restructuring efforts of keeping the sales force intact at the same level as before? That's sort of my interpretation.
That's question number 1. Question number 2, when it comes to the EBITA margin in the first half, you're guiding in constant currency. Is it fair to assume that the transactional FX headwind is probably going to be somewhere about 140 plus or minus basis points in the first half? If it's wrong, then perhaps you could provide me with some better guidance. And then on question number 3, can you comment on the Apple announcement of the AirPort Pro with the new iOS providing some hearing functionality, how you feel that the sort of product will eventually be accepted or not accepted in the market for people who may have hearing difficulties?
Thank you.
Hi, Michael. Thanks for your questions. On the sales force side, I think last year, we went through an exercise to analyze how many consumers customers are in the marketplace and chose that for the larger ones we were analyzing to increase our feet on the street. And that was pretty much derived from how many competitive accounts can a rep handle effectively. We are very pleased with what we're seeing now 9 months in, particularly prior to the COVID time when we're looking at how much more competitive accounts have we knocked on the door, how many of those did buy something we never bought from us.
And so this dynamic hasn't significantly changed. We still have the same number of customers in the marketplace, And we see the positive benefits here. So if you're in a world in which you're at the same level as prior year, a couple of percent points lower, couple of percent points larger, we don't think you want to restructure your territories just because you think it could be 3% different somewhere in the productivity. So in that regard and the other one, just to factor in, per rep in those markets, you had a couple of 1,000,000 revenue per rep. So if you have the opportunity to convert some more competitive account, it's always worth it.
So in that regard, it is one of the things, in addition to R and D, we keep very secret here because we see the potential on the competitive account side. On the EBITDA margin side, I'll point to Hartwig.
Yes. Mike, we're not spelling it out to the 10 basis points. I guess with the 140 basis points, you're a bit on the high side. When I'm looking at the currencies coming down in the next 3 months, thinking of the first half year, That's as much as I would go here.
And then Michael, on the Apple announcement, I think probably timing wise wasn't clear to us when they kind of make another addition technologically to their product. But I think given what they've done over the last years, you would have expected that because those technologies are available. I think if you look at their device, I would put it in a category of 1st, and that's the current version, which is a beta in the market. It focuses on streaming, not so much optimized for a speech environment. Don't know if they're working on that, but it is also a device which is from its wearing comfort as well as from its battery life and potentially from the latency time of the transfer of the signal, more a situational hearing device than it is something you would wear as a regular hearing aid.
And so we think it is actually a good thing that Apple is driving even with some of the applications they have now on their cell phone the awareness about hearing health. We think it is similar to what we have discussed all along about OTC, a good way of getting people earlier into the marketplace. But with what they're assembling there, I don't think it's a substitute in any shape or form for a real hearing aid.
Great. Can I briefly follow-up on question number 1 is the gradual recovery of the market, your commentary in your press release? What does that now mean in your mind, please? Are we talking about a recovery to pre COVID levels in calendar year 2021? Or can we achieve that sort of run rate by the end of this year?
I think end of this year would be rather optimistic to assume given the uncertainties we see and the carefulness of people in the economical situation. So I think 2021, I think, is a fair scenario. Obviously, certain things need to be seen on the journey there, but I think end of 2020 would be quite an optimistic scenario.
Great. Thank you.
You're welcome.
The next question comes from Daniel Jelovka from Mirabeau. Please go ahead.
Yes. Hello, Oswald. Just one question. Your first half guidance of the minus 25%, minus 35% gross inverse, that could see a second quarter of minus 9% best case and the second quarter of minus 29% worst case. So can you maybe describe what is the base behind that because minus 9% actually would be a further improvement versus June according to my calculation.
Is that entirely related to COVID-nineteen? Or are there other factors like pent up demand and so on?
No, I think if you take the midpoint, Daniel, thanks for the question. I think you would see a gradual improvement in Q2 versus what you're seeing here as an exit run rate in June as you did the math. And I think we're giving a range around that because there's lots of uncertainty as we've laid out. But I think if you think in terms of midpoint, we do see continued improvement. I think there's at least the U.
K. As a market which needs to open or has opened now. I think I would expect that other people also see some further improvements of consumer demand. So no major magic to that.
Okay. Very nice. Thanks.
Your next question comes from Isi Kirbi from Redburn. Please go ahead.
Good morning and thank you for taking my question. Firstly, on the restructuring costs, it would be great to get some color on what is contained within that $50,000,000 to $70,000,000 annual savings going forward, particularly how much of this is expected from retail streamlining versus the optimization of other cost lines? And then just on Remote Care, how are you thinking about Remote Care and Remote City at the moment? Any color on what you're seeing in terms of the uptake? And has this influenced your decision around the retail footprint in any way?
Be great to get your thoughts on what role you think this will play in the business going forward given the recovery. Thank you.
EZ, thank you. I think if I I think in terms of where are the savings falling, I don't have the exact number, but you're probably somewhere
in the
half and half between the retail side and the rest of the business directionally. It's not all there, but given that we make a step towards a network optimization, it's a little over proportional to the rest of the business. On the remote side, I think the positive news story is we see 4 to 5 times as many people doing remote from a hearing care professional as well as from a user. For the ones who want to see a lot of remote, the negative part of the story is you're still in low single digit number of fittings being done remote even in COVID times. And it's not for the lack of trying of us for sure.
I think people know that we launched even some new tools during the crisis, and we were pushing them quite aggressively with our independence because we want to make sure they have something in their hand. We did see some hearing care professionals pick it up, but the number is pretty low. We think it's still long term an important part of the offering to a consumer. We do believe that the omnichannel offering is the right way to go, meaning you have stores for some of the interaction where the consumer wants that. There's diagnostics to be done.
There's other things to be done. There's an initial fitting to be done, which we see the vast majority of consumers wanting to do in person. We think that there's a small proportion of people who are happy to do their first fitting, perhaps from a distance with some audio support. But in principle, COVID hasn't changed the dynamic towards the landslide shift towards more remote, and we were surprised. So we're continuing our journey on our audiological care to build those kind of remote capabilities and the different tools consumers want on their digital journey if they choose to do part of the journey digital with us.
We're building content and capabilities for helping them when they're in a distance. I think on the wholesale side, we have completed our portfolio of tools, which they need in order to do even the initial fitting, if that's allowed from a regulatory perspective. But we don't see a change here to what the world is going into this as the only scenario or going there quickly.
Very helpful. Thank you.
Operator, I think we have time for
one more question before we have to stop.
The last question comes from Hashan D'Silva from CLSA. Please go ahead.
Hi, good morning and thank you for taking my questions. If I can get 2 in really quickly. First one is any commentary on the recovery of the cochlear implant business by geography? And also has the recall of the CI units been completed? And how is the manufacturing process going to restock that channel?
And any feedback from key opinion leaders on the replacement process?
Asha, thank you. So recovery by geo, China, ahead of last year, as a market, we're also doing well there. I think Europe significantly better on its recovery than the U. S. I think it really hangs very much together with the sensitivity on the, let's say, capacity issues in the hospitals with regard to surgery suites and emergency departments, and the U.
S. Is really in a more difficult position there. I think from, let's say, dealing with the voluntary field corrective action we put in place, we have approval for the new device in pretty much all relevant markets today. From a manufacturing, we conserve the demand. We shared end of April that we had 90% plus of the key customers indicating they would buy or have already bought the new device.
And we continue to do our work to convince the remaining ones. So I think we're in a good position with regard to getting back to the table and being implanted. So I think so far, so good. To some degree, COVID has helped a little bit because the hospitals were busy also with other things. And so I think as much as we had 2 headwinds here, I think it's probably more 1.5.
Yes, perfect. Just if I had to put
a number on the recovery overall, would
you say it's 50% of last year or 25% of last year?
Closer to the 50% than the 20 It's somewhat muted relative to our average fleet, which is all hearing instruments.
No, that's perfect. That's great color. And just one final one, if I could sneak it in. You mentioned earlier that you needed a certain baseline of sales before you launch a new product. Does that also apply in the CI business unit?
I think directionally, yes. Would it be exactly the same percentage? I don't know. But in principle, I think you want to have sufficient market volume in order to take advantage and not just the volume, but the mental, let's say, engagement of your customers right now with the category, right? So probably a couple of months out here, if you would have something where I would kind of put the time line to.
That's perfect. Thank you so much.
Okay, operator, thank you very much.
Thank you everybody for taking the time to listen in. If you have any further questions, feel free to contact me directly. And I wish you all a nice day.
Thanks, everyone. Thanks.
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