Demant Aktie

Good afternoon, everyone, and welcome to the Conference Call for Demant's Interim Management Statement for Q1 2026. My name is Peter Pudselykke, and I'm heading up the Investor Relations activities here in Demant. With me here today, I have the usual team. It's our President and CEO, Soren Nielsen; our CFO, Rene Schneider; as well as my good colleague in the IR team, Gustav Hoegh.

For the call today, we will follow the normal process. We kick off with the presentation, which will be followed up by a Q&A session. And we expect the total session to last no more than 1 hour. When we get to the Q&A, we kindly remind you to limit yourselves to 2 questions at a time, please, to allow as many as possible to ask a question.

Before we dig into the presentation, please do pay notice to the disclaimer on Slide 2. And with that, on to Slide 3, I'll pass the microphone over to you, Soren, to kick off the presentation with the agenda, please.

Thank you very much, Peter, and welcome, everybody, to today's call here. I'll take you through business highlights and key financial takeaways, dive a little more into the different business areas, comment on the outlook for 2026 and then open up the floor for questions.

Highlights of first quarter 2026. Well, the overall highlight is a strong start to the year for the group, delivering 6% organic growth, which is obviously in the higher end of our expectation. Growth was additionally supported by 10% growth from acquisitions. Hearing Aids delivered a very strong organic growth of 9% with growth momentum being fueled by Oticon Zeal and our existing product portfolios, and we can only attribute it to the strength of our industry-leading AI hearing aid platform delivering fantastic performance at very low power consumption.

The integration of KIND is progressing as planned with KIND as, of course, a significant contributor to growth from acquisitions in the first quarter. Structural changes announced at the full year report in our business to ensure higher growth and improved profitability were announced and have been executed in line with plans for the quarter. And maybe also worth giving a small comment to the market development. We're going to get back to the more details, but we saw an estimated market growth of 4%, which was in the higher end of our expected 2% to 4% growth for the full year.

Key financial takeaways from the first quarter. As already stated, organic growth of 6%, which is again on the higher end of our expectations. And then you can, of course, in the table to the right see how it's composed of local currency growth, organic growth, acquired growth and also the negative FX impact. Gross margin increased primarily from 2 elements: higher ASP in Hearing Aids and a positive mix effect, meaning when Hearing Care grow faster than Hearing Aids, then we'll see a natural uplift to the gross margin.

OpEx saw organic growth in line with our expectations, and we continue to invest in the business, in particular, of course, in innovation while maintaining a strong focus on cost management, including the already addressed structural changes to, everything else equal, lower the cost growth. Acquisition contributed, of course, to OpEx due to the consolidation of KIND and of course also other acquisitions. EBIT before special items improved compared to first quarter '25, driven by Hearing Aids and the consolidation of KIND and this being despite the negative effects from exchange rates.

We continue to see solid cash flows, both from operation and free cash flow was positive, both were positive in the first quarter. And on the outlook, we maintained the outlook of organic growth of 3% to 6% and EBIT from DKK 4.1 billion to DKK 4.5 billion. However, with the comment that due to the strong receipt of Oticon Zeal in the market, this makes results at the lower end of the range less likely.

Business areas, we start with the hearing aid market in the first quarter. We estimate that the overall unit growth was around 3%. As always, we have statistics from 2/3. So this is relatively solid. Q1 was relatively broad-based, however, still below the structural unit growth rate of 4% to 6% being 3%, you could say, very much in line with what we saw during last year. The ASP was estimated or is estimated by us to be up by 1%. This is stemming from geography mix, channel mixes and certain price improvements in certain channels. And of course, also, by example, us selling more premium products into the market. This is 1%. So all in all, a 4% estimated growth rate.

Growth in Europe was primarily driven by Germany and France. In the U.K., growth was negative. This is back to NHS having a very strong fourth quarter, and therefore, buying less in the first quarter. So not really structural, more timing of ordering. Growth in North America was driven by the private pay channels, but overall growth was significantly impacted from negative growth in Managed Care. VA growth improved, partly supported by easy comparison figures. In Canada, we saw unit growth remain solid. Rest of the World delivered growth driven by Japan and slight growth in China. We estimate that several emerging markets saw solid growth as well. Again, all in all, a market growth of 4%, meaning in the high end of our expectations for the full year of 2% to 4%.

Hearing Aids, from our side, significant growth following the launch of Oticon Zeal. With the Oticon Zeal now being rolled out in all major markets here in the first quarter, we can confirm and that's basically, I would say, today's main message that once Zeal is introduced in the market, we see renewed momentum in the business. We both see strong interest around Zeal and sales of Zeal, but also growth in our existing product portfolio, and it speaks to the strength of the entire portfolio.

This has, in combination led to an organic growth of 9%, driven by share gain in terms of value, but also in units and both units and ASP supported the growth. We continue to invest in the business, including new products, and we can also confirm we will come with new products in the second half. We have no more comments to what exactly it is, but we will also be bringing new products to the market in the second half of the year, just like we did in addition to Zeal, by the way, in the beginning of this year.

Europe growth was fueled by very solid performance in Germany and U.K. France, we saw smaller growth, and this is back to value versus units. There is a negative mix development since last year because more units are in the free-to-client driven by the upgrades. Strong double-digit growth in North America, organic growth in North America, very strong and positive feedback to Zeal. U.S. is the market with the highest or biggest market for premium products. So both Zeal and our existing portfolio experienced a renewed momentum and strong momentum, and this leads to very strong growth in the U.S. commercial market and also growth in VA, more driven by pricing.

Flat organic growth in Japan and China slightly negative. Rest of the World, organic growth was strong. To the right, you can see the growth distribution. You can also see, of course, the strong and significant development in internal revenue stemming from the KIND acquisition mostly and also the growing share of wallet there of Demant products.

And then I will spend a little more time commenting on Oticon Zeal. We were also ourselves a little bit, of course, unsure until we have seen how things play out in U.S. And therefore, I will comment to conclusions now on the product after being broadly introduced. Just to remind everybody, what is it that makes Zeal unique? It is very unique and unmet or unmatched to combine such a small instrument with the latest and greatest in AI signal processing, full connectivity, rechargeability and the ability to do a same-day feeding. So an unmatched product in the market, and therefore, also a positive feedback from the market.

And what we can now confirm and share, you see here kind of 3 sections. The first one is who can actually use Zeal? And if all hearing-impaired users are 100%, then there is around 1/3 where the physics, meaning ear canal, something makes you not having this as the right form factor for you. Then out of the same 100, there is around 20% that don't have a hearing loss bigger than what Zeal can support. And therefore, all in all, you end with 55% of all hearing-impaired people that choose to get a hearing aid being candidates for Zeal. So a big potential.

And there's been many discussion whether this is just an in-ear category or not, and CIC-only and on, we can say this has a broad appeal and where the broad appeal is seen most clearly is, of course, first-time users that we know are more skeptical to the cosmetics. And what we have seen so far in the data we have is that around 2/3 of all Zeal users are first-time users. This is more than the normal, which is more like 50-50 or 60-40, a little different from market-to-market. And this means that there is an over-representation of first-time users, but it's not exclusively for first-time users. But this is exactly also the commercial angle, of course, when it's good for first-time users, it's also good to attract traffic to your business and interest.

And this, I have no doubt, is part of why Zeal has broad appeal and why many customers would like to be able to offer Zeal. We also had questions and some ourselves, how many will go with a dome? How many would need a custom fitting to make it perform well? We can see that 95% of all fittings we have participated in so far. This is U.S. data, I believe, is 95% dome. So it is a same-day fit concept, and it gives very strong results this way.

And then to talk about the momentum, what we have tried to illustrate here is the fundamental of what's happening. It does create a momentum. It does create interest. It open doors to new customers, and both to existing customers and new customers, it pulls in both sales of Zeal, but also a significant uplift to the remaining portfolio.

So what the graph to the lower left illustrate is a run rate illustrative before introduction of Zeal and then post Zeal, you could say the distance between the dotted line and the full line is sales of Zeal and the below is the uplift to the existing portfolio. So we see both effects and they are both stronger than anticipated or at least in the highest, most positive scenario, and that's what we see now. This is solid. This is maintained. We can see it both in the markets that introduced all the way back to [ OHA ] so more than 6 months in the market, but also markets where we have been in 2 or 3 months.

So we see this as a global effect. And again, why U.S. and North America ends up playing an even bigger role in this and which is now why we can reduce the uncertainty is, of course, that that's the market in the world where most premium products are being sold. And therefore, it was so important for us to see the effect in U.S. before we could, you could say, increase our own comfort and also your comfort in the fact that Zeal is a very successful product concept that drives, again, both traffic in itself and sales also above what we had as a, you could say, middle-of-the-road scenario, but also pull in extra business of the remaining portfolio.

Zeal is available in all major markets. It's still only available in a premium price point, also priced above basically all other products in the market. And that, of course, also attributes to the value that it brings to clients and brings to our customers on the wholesale side. We have had a staggered launch to make sure we could supply the markets before opening the next one. We have full supply and operation is running well. We have launched in all major markets unless there is regulatory work outstanding. And we have also May 1 introduced Oticon Zeal in VA and now look very much forward to the uptake in VA.

So all in all, a strong launch, strong feedback from customers and end users that are very happy with the product and also a testament to our, I would say, industry-leading AI-based platform, again, which is based on a very low power consumption, still delivering all the benefits, and therefore, able to use a much smaller battery than competitors and also being on all the time, where in most other applications I've seen at least, there is some kind of limit to how much you can actually use the AI system.

Moving on to Hearing Care. In first quarter, we saw good performance with the integration of KIND progressing as planned. We saw a remarkable total growth in local currency of 26% coming from 4% organic growth and 23% acquisitive growth. So a very big step-up for that business, but also showing a mature and stable business that continued to deliver strong, solid organic growth rates. So a good start to the year as well for Hearing Care despite of the many things going on. And it was both units and ASP grown, and we have definitely also see markets where our own retail have benefited from the introduction of Oticon Zeal, similar to many other companies.

In Europe, solid performance across regions, driven by strong performance in U.K. Performance in Germany was also solid, good organic growth in general in North America with solid growth in Canada and good organic growth, solid organic growth in the U.S. Australia saw good growth, whereas China was slightly negative after several quarters of good performance.

Diagnostics had a good start to the year, strong finish, as you will remember. So despite still facing certain headwinds in the U.S. markets from the market still not growing as normal, then a good start, delivering 4% organic growth across many markets. However, Europe being the primary driver of growth, a good example of that, U.K. and Poland, whereas U.S. had a slightly negative growth, again, still attributed to a lack of market growth in U.S. Canada was the primary -- therefore, the primary driver of growth in North America. China continued to be impacted by general market weakness and was a drag in Asia. Most other markets did well for Diagnostics.

To outlook and our outlook assumptions. I would only highlight market. We guided when we started the year for 2% to 4% growth in the market, keeping general macroeconomic uncertainty in mind. We still think this is the best take on the full year. We can very quickly see a few percentages up and down. But of course, we have seen a good positive start, and we could see that continue, of course. The rest, special items, et cetera, there are no changes, and therefore, I will not repeat all of them.

So financial outlook is maintained. However, we find it less likely now that we will before -- in EBIT before special items and organic growth will be in the lower end, and this is attributed to the reduced uncertainty around Zeal's ability to deliver growth, and of course, also having seen such a strong start to the year.

And with that, let's go to Q&A.

[Operator Instructions] Our first question comes from Niels Granholm-Leth with DNB Carnegie.

First question would be about the ITC, CIC category. So where would you expect this part of the market to be as a percentage of the overall market as of today? And what would be the prospects of this category growing in size going forward?

Then my second question would be if you could just remind us of your exposure to the Managed Care category in the U.S. where you mentioned that you're actually growing despite your modest exposure to this category?

The world market for in-ear CIC, ITC products, I would still say the volume of Zeal compared to the total in-ear having all price categories in mind, all brands and so on, I would say, still not something that significantly changed the assumed 10%. But of course, you can zoom into individual businesses where it is and you would definitely see a higher share. But again, remember, there is many channels and customers in the world to which it's not introduced that also sell in-ear products. And therefore, I think it will still be -- yes, I haven't done the percentages, but not significantly big on the 10%. But for our business, of course, significantly changing.

We were under-represented. We're growing that. And with the customers to whom we have introduced it, yes, a significant change to product mix. In the premium segment, of course, we still talk about a premium-only product, which also put some limitations to the total market growth of the category. And Managed Care, yes, we are definitely under-indexed. We actually see good growth in our Managed Care business. So absolute good growth as well. So for us, it is despite of the headwind from the market, a positive addition what we experience right now.

So we shouldn't expect it to grow further into Managed Care from here?

It's one step at a time, but upwards, yes.

Our next question comes from Andjela Bozinovic with BNP Paribas.

First one is on the guidance. Can you please discuss why after a strong Q1 and what seems to be a strong start into Q2, you have reiterated the full range for the guidance? Can you discuss further phasing into the year and what is needed for you to maintain this momentum?

And the second one is on markets. So we have seen the positive development, especially in the U.S. in Q1. And I was wondering if the U.S. recovery is mainly driven by easy comps from last year or you expect the market growth to continue to improve throughout the year? And a follow-up to this is we've heard from your peer, Amplifon, that they are expecting the pent-up demand in the market to realize, especially in EMEA region. Can you give us your thoughts on this?

Yes. Thank you very much. First of all, why keep the guidance. We are still within what we guided for. We see a market delivering 4% growth. We guided for 2% to 4%. We could see the market be 3%. We could see the market be 2%. Things go up and down. There's also a little bit of number of working days between quarters, et cetera. So that's definitely still we think the right guidance. Then, of course, our own, we have done well. We have seen a market in the upper end. So therefore, we also land in the 6% for the quarter, and we find it less likely on the full year basis to deliver in the lower part.

And I think that's as far as we can take it for now. Of course, if things continue to develop this positive way, both market and us, then we will also further increase the likelihood of being in the positive end of our guidance. And that's the color we try to bring you. And we feel that's the right assessment of what's in front of us and still the uncertainty related to a dynamic market with multiple competitors, et cetera. On market for Q1, is it only comps or what is it? Not in particular. I think this is, again, I mentioned the NHS, then timing of orders and so on. And so there is always a lot of dynamics.

The regions you also saw last year, varies, who in the exact quarter delivers the growth. So looking at the full year, we saw 3% in units. Now we have seen 3%. So therefore, we take this as stability, not particularly upwards, but it is true that if there are people not fitted in a certain period, yes, then theoretically, you build for a later uptake. And that's also why it is unusual that you see 2 years in a row with a below the 4% to 6%. We have basically not seen that for many years. So yes, our 2% to 4% guidance for the full year, as we said in the beginning of the year, could be seen as slightly conservative, but we prefer that against being too optimistic.

Our next question comes from Martin Parkhoi with SEB.

Yes. Martin Parkhoi, SEB. Firstly, of course, Zeal with the addressable market of 55%. Are there anything you can see that is possible with the second-generation Zeal? Although that it's maybe too early to talk about that, but are there any possibility of with this size and that production technique you have that you can lift the hearing loss, that it can meet or you could do anything that would fit better into -- anything you can do on that front?

And then secondly, just again, I don't just want to talk so much about the guidance. It's obviously somewhat conservative. But can you talk about the momentum in the February and March versus what you saw in January? And if that momentum for February and March is also what you have seen at least in going into the second quarter?

Yes. Thank you very much, Martin. No, I cannot disclose a lot about the future, but we always end up improving Hearing Aids. And I would say, for now, squeezing the size further, we would have to scratch our head a little bit, but I would find it more likely that we over time would be able to increase the fitting range, meaning we could fit slightly higher hearing losses. And another 5 or 10 to be would definitely bring in more as the penetration is higher when you get higher hearing losses. So yes, we, of course, work on how to make Zeal fit even more people over time.

And then the sequencing, of course, it matters that we had an introduction in late January, early February in North America. But on the other hand, there is also a certain introduction effect. So if you take the average for the quarter, then things are relatively stable with, of course, continued slight upwards positive. We also look at the comps from last year, and you saw the momentum growing during the year. So what do we see? Well, we see a continued strong momentum in the business and expect that to continue.

Our next question comes from Martin Brenoe with Nordea.

Different Martin, slightly different question on Zeal. Just wanted to understand what the cadence could be in terms of not a new generation of Zeal, but just the same generation Zeal at a lower price point. At what time would it make sense for you guys to introduce a product that would be sort of more affordable? That's the first question.

And then the second question would be on the reception of Zeal in France. How has that been doing compared to what you have seen in the U.S.? And should we expect to see more sort of expansion to new markets here in Q2?

Yes. Thank you, Martin, for that. I would say as long as we have a good strong demand for the pricing we have and the price points we have chosen to introduce and match that well with production capacity, I don't see a need to expand it further. So any timing of additional price points or brands for that matter is something we will share once it happens.

On France, it's difficult to call out an individual market, but France would also experience that it creates a new momentum in the business. We introduced it relatively long into March, but we have not seen -- or we have seen the same effect in France as we have seen in other places. But keep in mind that the premium sales in France as a share of the total French market after the many free-to-client products coming in is not the same share of the market as it is in U.S. and therefore, slightly different. But same good momentum, definitely bringing attention. Definitely, France has for long been characterized as either as a RIC or it's a CIC type of market. So good positive trend, I'm sure.

Our next question comes from [ Zhang Wen ] with Citi.

This is Zhang From Citi. I'm going to ask about the market. The first question is, can you provide a bit more comment on the Hearing Aids market development in the quarter? Specifically, what was the exit growth rate for wholesale versus the average of 4? And is there any comment you can provide on April and May?

And the second question is whether you have seen any signs of disruption or opportunities from the announced deal between Amplifon and GN Hearing in the market?

Yes. Thank you very much. Well, we always have a natural seasonality in the first quarter where January is basically the weakest month in the full year. And of course, you can look at the growth, but it's almost a little bit relevant because of the actual absolute size of the market. So yes, we have seen an improved growth rate during the quarter, ending relatively strong in March, but there's also an effect of one more working day compared to last year. So all in all, a, I would say, modest upwards going trend, but don't overinterpret it. But all in all, 4%. And that's -- yes, it's in the higher end of what we guided. It's in the lower end of the normal. So nothing really seems to change. We don't have market statistics yet for either April or May. So we can only look at our own business, and that is, yes, a continued strong momentum. So nothing there.

Sorry, your second question, I hadn't made a good enough note on that. Well, I can't comment on the specific, but it is also always so that when big things happen, just when we -- as when we acquired KIND, then there is a bit of dynamic and disruption to stability of customer relationships and so on. And we, of course, try to benefit as much as we can from that.

And maybe as a reminder, sales to Amplifon from Demant is very limited, less than 1% of sales and even less of profit. So there's no negative for sure impact.

No, no. It's a pure, I would say, opportunity.

And sorry, just to confirm, whether you have already seen the disruption in Q1 that you could perhaps take advantage of or is it more of a forward-looking comment?

Yes, yes, that's always something on the longer run. Yes, discussions are going on and people ask a lot of questions, what do we think and so on. But materializing, not anything meaningful in the first quarter.

Our next question comes from Martinien Rula with Jefferies.

It's Martinien from Jefferies. I would have 2, if that's okay for you. The first one would be a very quick one actually on France, because as you know, we've had one of your peers reporting yesterday as well. They commented a little on France, saying that the French market was up in a solid way in Q1, but given the anniversary of the reform and so on the trend for the remainder of 2026 was somewhat uncertain. So I would love to hear your thoughts on that one.

And the second one would be on Zeal. I appreciate the slides that you've provided us with the comments of more than 50% of your addressable market being relevant for Zeal and that 2/3 of your Zeal customers are new users. But I would love to hear your view on the remaining inherent risk of cannibalization and how you intend to balance or mitigate that risk with the new products that you introduced into H2. Will these products be differentiated because you intend to innovate on the design side of things, on the features, battery capacity or is it also just on the pure tech side with stronger noise filtering capabilities and so on?

Thank you very much for your 2 questions. It's difficult to have a very firm and we don't have any different view on France. We said we will see growth in France. Some have been speculating it, whether it for the full year would be negative. We believe in growth full year. And yes, there is definitely this effect that due to the annualization, you could argue that you would see more growth in the first quarter in units than later. I don't think it's coming like that precise than exactly the day when 4 years are gone, then people come in and get a new hearing aid. So many come 4.5 years, 5 years. So I think we will see a continued good inflow of users. Still the main tricky point is the product mix that is realized. And therefore, more units, a little less on the ASP side.

On Zeal and risk of cannibalization, I think I would have to repeat what we have seen with Zeal. Any new product that has market relevance brings in momentum and business to the one that brings it. And therefore, I would say, no, I don't see a significant risk of cannibalizing Zeal with new products. Zeal has its relevance in the market. Other new products would have additional, and you would most likely give all products are perceived good and they should be from us, then you will see momentum increase.

Our next question comes from Richard Hombach with Bernstein.

Congrats on the strong quarter. I have 2 questions, please. So first, you noted that both unit growth and ASP contributed to the performance in Q1. Would you be able to quantify the contribution? How much of the ASP lift was driven by product mix versus improved geographic or channel mix?

And then secondly, you briefly mentioned the KIND integration. Could you give a bit of color how you are progressing in the conversion to Demant products?

Yes. Thank you very much for your 2 questions. It's right, it's both unit growth and ASP growth. They are not that far from one another, but ASP is the strongest effect, and that comes from the mix arriving. You can always discuss is it product or is it geography? I would say, it's geography and then it becomes product mix, because again, North America, U.S. delivering double-digit growth, then you do get a positive ASP effect because more people in U.S. buy the premium products. But we have market share gains also in units, and then I think you have enough to figure out more or less where we are.

On KIND integration, yes, it goes well and follow plans. And part of that plan is to significantly increase the share of Demant fitted products. And as you can see, internal sales have quite strong organic growth, and that's definitely a key contributor. So yes, it goes well with selling more Demant products. We also anticipated that the fitters are very familiar with the Oticon -- or not the Oticon, the Demant product portfolio in KIND's own range. And that's what we see. I cannot comment on how far we are, but it's going very well.

Our next question comes from Philip Omnou with JPMorgan.

Can I just ask, so you stated that Hearing Aids growth was supported by both Zeal and the existing portfolio. Can you help us sort of understand or quantify how much of that Q1 Hearing Aids growth came from Zeal versus the rest of that portfolio?

And then my second question, just on the Costco side, can you help us understand where we are with the Starkey trials? And are you assuming anything within your guidance regarding an additional supply being added in that channel?

Yes. Thank you very much. I cannot go into further details on what contributes from what, but they are both meaningful. Absolutely, Zeal is selling more than our plans and doing very well. But also, I would say, what have been the biggest difference in, you could also say, our own guidance and where we are a little bit uncertain is, yes, would it ultimately be cannibalization from your existing portfolio or would it be incremental to selling more of your existing portfolio? And it's a meaningful uplift to the existing portfolio.

One example is you have a user in trying Zeal, figure out for whatever reason, it doesn't fit the ear canal. It's not what you want. Well, then the most natural thing if the product is performing well from a sound quality point of view and deliver great benefits, well, you convert the client to another Oticon hearing aid that sound the same fantastic way. And therefore, it also pulls in sales to clients where you might have fitted other RIC products. And that's just an example. So it's meaningful for both.

On Costco, I can only comment on our own business. It is sequentially stable and good and strong. We, I'm sure, maintain a #1 position. Is it part of the guidance that some of the suppliers could gain further share? Yes, it is. That's within guidance.

Our next question comes from Aisyah Noor with Morgan Stanley.

First one is maybe a technical question for Rene. I think you mentioned the additional 1 percentage point M&A growth for the full year was for other acquisitions and not from a stronger outlook for KIND performance. Can you maybe disclose what acquisitions are these and where they are?

The second question is maybe again to push Soren a little bit on the guidance range of 3% to 6% organic growth for the year. I understand the point around conservatism, and maybe it's just semantics, but you said the lower end of the guidance range is less likely. Is there a chance here where the upper end of the guidance could also be too low given you're already doing 6% in Q1 itself? I guess another way to ask this question is, is 6% still the blue-sky scenario or is it more midpoint of the new range?

Yes. Thank you very much. Do you want to start, Rene?

Yes. So on the revised, say, contribution from acquisitions, it is related to our acquisition of the Amplifon business in the U.K. that we add to the outlook. Everything else is on the plans as we have laid them out in February. So that's the reason.

Yes. And on the guidance, you read the less likely very well. Are there things outside 6% that could happen? Yes, of course, but it's not our take right now. One of them is, of course, the market as an example. If we end up exceeding the 2% to 4% or continuously being the other end, then yes, things could be different. If Zeal continues to build a strong momentum and exceeds our current expectations, yes, we can keep it on. Can we find things that put it the other way? Yes, we could also. So this is our best take on the situation right now, less likely in the lower end and 3% to 6% growth and maintained, but also similar less likely in the lower end on the EBIT side.

[Operator Instructions]

Our next question comes from Andjela Bozinovic with BNP Paribas.

I just wanted to touch upon the point that you made during the call that you want to introduce new products in H2. I'm just wondering like what can you share with us at this point? And how do you think about new product introductions between the form factors? So would you continue to innovate and raise behind the ear or you want to focus your innovation on the in-the-ear custom form factor?

Yes. Thank you very much for the question. We will maintain to our traditional strategy of not disclosing details. But yes, it's meaningful products that we will bring out. And yes, we always work to improve our portfolio. Sometimes it's core technology and what we call a new platform, sometimes it's additional form factors. We don't pick just one. It is important that you have a complete strong portfolio, high relevance for all users and all purposes. So I think general logic is, of course, to revisit the portfolio and look for either weaknesses or relevance of moving on. And I think that's as far as we can take it today.

And you wouldn't say that this halo effect from Oticon Zeal has changed your perception into where you need to launch new products?

No, no. This is a launch scheduled for the next 1 to 2 years. It's relatively fixed and on track, similar to the opposite question, whether it was tactical to do platform before Zeal or whatever. These things are relatively fixed. We have worked a lot on Zeal to create something really innovative and spectacular and very unique. It has given us a tremendous attention in the market, which we are very good and happy for. But there are also other things that needs to be done to make sure we can address the entire market and all elements of the market.

Our next question is a follow-up from Richard Hombach with Bernstein.

Just super quickly, could you please elaborate on the decision to separate the Head of Hearing business position out again? And why was now the right time? And are there specific priorities that Mr. Bassel will be asked to focus on in the new role?

Yes. Thank you very much for the question. And maybe just a little bit of context if some have just seen it, we have just today released an investor news, which says that I'm after 9 years of both serving as Group CEO and President of our Hearing Aid business, have chosen to now focus my time fully on the CEO role of the group to make sure we continue to deliver growth on group level and strategically move forward in the right way. The group have in those 9 years almost doubled. So time has come to strengthen the overall leadership of the group further by adding a dedicated leader to the Hearing Aid business, similar to what we have for Hearing Care and Hearing Aids. And our new leader, President, will join us June 1 and come with a solid experience from MedTech, have a good combination of a strong commercial experience, global international and also understanding of core technologies, which fits very well with the profile needed.

Is there anything special? Yes, continued growth and deliver great results driven by the recipe we have now followed for some time of delivering innovative new products to the market at, I would say, growing speed and also capturing benefit of new technologies such as AI. So no revolutionary changes. We'll make a good solid transition. I'm also still here to advise and be part of developing the group, including the Hearing Aid business, but the daily leadership now have a fully dedicated business unit leader similar to our other 2 business areas.

This concludes our question-and-answer session. I would like to turn the call back over to management for any closing remarks.

Thank you, operator, and thank you so much to everybody for joining us today. Before we close out the session, we want to give you a very early heads up as we expect to host a Capital Markets Day here in the fall of 2026, more precisely on November 24 in Copenhagen. We will, of course, revert with additional details when we get closer to the date. Beyond this, please do reach out with any questions that you may have after the results here. And as always, we will try to be on the road in the coming weeks, and we look forward to seeing you there. Have a good rest of the day.

Good afternoon, everyone, and welcome to the Conference Call for Demant's 2025 Annual Results. My name is Peter Pudselykke, and I'm heading up the Investor Relations activities here in Demant.

With me here today, I have the usual team, our President and CEO, Soren Nielsen; our CFO, Rene Schneider; as well as Gustav Hoegh from the IR team.

For the call, we will do a presentation, which will be followed by a Q&A. We expect the session to last no more than 1 hour in total. [Operator Instructions] before we dig into the presentation, please do pay notice to the disclaimer on Slide #2.

And with that, I will go to Slide #3, we'll pass the baton to Soren, to kick-off the presentation.

Thank you very much, Peter, and welcome, everybody. The agenda for today is key events for 2025 financial takeaways, and then comment on sustainability advancement. More details on business area reviews, not the least the fourth quarter. Then Rene he will do group financial and also take us through outlook and initiatives to improve profitability.

And if we take a 2025 in total, at group level, we delivered 2% organic growth, 5% in local currencies. Of course, a significant element from acquisitions, headwind from currencies leaves us with 2% reported growth and biggest, you say, expansion is in Hearing Care, which now is the biggest business area, as you can see in the business mix split.

Gross profit, up 2%, but down on margin related, to I would say, hearing aids, some extent, diagnostic, but I'll get back to that. EBIT down 10% before special items and free cash flow down 11%. Key events in 2025, we acquired the KIND Group in Germany, closed the deal in December, so we have 1 month in the books, one of the world's leading retailers and with that a significantly expanding our position globally, but in particularly in Germany, to a #1 in Hearing Care.

In October, we introduced Oticon Zeal in selected markets and a launch that so far have created a lot of excitement and a lot of good momentum to carry into '26. During 2025, we signed agreement to divest both EPOS and Oticon Medical in line with our overall strategy to be more focused hearing healthcare company.

The hearing aid market in 2025 was softer than normal, and particularly in the U.S. where we saw flat market growth for 2025 in total.

Hearing Care delivered very solid performance in -- solid performance, not the least in the view of the global hearing aid market, whereas hearing aids and diagnostic delivered softer growth. All 3 business areas showed an improved and strong performance in Q4.

Key financial takeaways for the second half group organic growth of 4% for the second half in total. So a sequential improvement from the first half fueled by all 3 business areas. Gross margin decline versus second half '24 due to ASP headwinds in hearing aid and increasing share of rechargeability, I'm going to get back to it, but the ASP headwind comes from channel and geography mix, so selling [ more ] in countries and channels with a lower ASP and less in higher-priced markets like U.S.

Diagnostic was also a minor drag on the gross margin coming from their product mix and some geography. OpEx grew 5% organically, but -- and as already guided for, and expected flat sequentially from H1, so still reflecting a cautious approach to cost expansion when we look at in sequentially the 5% to some extent, originates from a significant holdback at the end of '24.

Acquisitions added 5 percentage points growth compared to second half last year. EBIT before special items, DKK 2.1 billion, negatively impacted by exchange rate effects and by lower operating leverage.

EBIT margin, therefore, before special items contracted 2.6 percentage points. Special items amounted to minus DKK 128 million. Strong cash flow from operations of DKK 2.3 billion and free cash flow of just around DKK 2 billion. Outlook, Rene's going to elaborate further on it for '26. Organic growth of 3% to 6% and EBIT before special items of DKK 4.1 billion to DKK 4.5 billion and continued pause on our share buyback to bring down the group leverage.

Sustainability achievements quickly, we saw a increase as expected of improved lives by overcoming their hearing loss to 12 million and a growing number of tests in our own clinics following the expansion of that. And when we look at our main -- or 3 main sustainability goals under the headline of Respect for the planet, a planet decrease in our scope 1 and 2 greenhouse gas emissions.

We have now achieved 16% reduction compared to baseline with a target of 46% by 2030. Gender diversity in top-level management now at 33%, so 1 in 3 and with the aim of getting above 35% by 2030. And the number of people that have read and understood out of the people for whom it's relevant should be 100% by 2030.

And you could say, basically already tomorrow, if at all possible, and we are almost there. Business area review, well, hearing aid market in '25 have definitely been special and fourth quarter, which is the new release is no different. We have seen a high unit growth, and this is all units in Europe, but it's all driven or mainly driven by NHS in U.K., the National Health Service that have -- had strong growth partly to expand the inventory levels, et cetera.

And then France also showing high growth as expected due to the annualization of the [ reform]. If we allow ourselves to exclude NHS and France, unit growth was 3% in Europe, in Germany, specifically growth declined year-over-year. North America saw a sequential slowdown from two quarters with 2% growth to 0 and leaving the year with 1%. U.S. or Canada saw a good growth. So it was offset by a flat growth in the U.S. commercial and a slightly negative in the VA.

Rest of the World delivered growth, Australia, positive growth, while Japan saw minimal growth. China saw a sequential improvement, and we estimate that several emerging markets saw good growth. So again, the ASP, we normally believe in a flat ASP, but no doubt that with the geography mix and channel mix in the year and fourth quarter as much, then we estimate that we should see a negative impact on ASP in -- it's not exact science, but in the area of percentage points at least.

So a global hearing aid market that have assumably grown just around 2% in value for the year. Hearing aids fourth quarter organic growth also in fourth quarter improved despite of the U.S. market weakness and the loss of share in U.S. the main area in which we have lost share in U.S. remains to be a large retailer where the number of providers or suppliers have been expanded.

We introduced Oticon Zeal in selected European markets, which have created excitement and momentum change in these 4 countries. We have really seen Zeal lift the sales also in general in these markets. However, with limited impact on the total group level in fourth quarter simply by the size of these 4 countries and the potential, even though Germany is a big country, the premium market in Germany is not that big.

So again, not something that financially impacts that much, if, of course, does some, but not that much in the fourth quarter. So unit growth was very solid. Representing overall market share gains in units across several key markets, I would say, almost with the main exception being U.S. the ASP was negative, as I said, due to geography and channel mix changes.

So France, U.K., Germany, good growth in Europe, all big markets, strong performance in Canada. U.S. growth was negative, as I said, good growth in Japan, South America, and also relatively broad-based growth in Asia, except for China, which, I still would say is market related.

And the rollout of Oticon Zeal, just a few more comments to that. We launched it in Europe and in both Germany, Switzerland, U.K. and Denmark, the conclusion is the same. It is undisputed, seen as a new very innovative concept by both hearing care professional and end users. It does help in having end users take the choice to get going and see less obstacles. So very positively seen uptake with first-time users. It does also lift sales of our other portfolio because it opens door to new customers.

And if an end user have tried a Zeal and happy with the sound quality and the quality of the instrument, but for some reason, don't continue with a -- or prefer to continue with an in year. There might be some comfort issues. The ear canal doesn't work. It's natural to then fit an intent because you'll have more or less exactly the same sound quality and something you just like.

So we do see additional sales to customers that did not work that watch with us. And we have actually also seen limited cannibalization with customers that we already were doing business with and that have taken in Zeal.

So this is the conclusion from the 4 markets. We have also I think, been open about that it's only in a premium price point and that we have lifted pricing in some markets significantly compared to intent. And so far, we have seen acceptance of the price and it has not prevented us from creating excitement and driving sales. That being said, it is a premium price point. It is a premium category type of products, but it definitely also makes some people spend more than they might have thought they would. They had to pick a [ receiver ] on ear instruments where there are more options available at different price points.

I also think we can say that you cannot really say, okay, what is the potential and what's the share and the in-ear market? Because that's not how people is basically first-time users think about hearing aids. They will look at what's available at the table and pick the one they find most attractive. And there's no doubt that by first-time users, this is seen as much more attractive than carrying a traditional right instrument.

So all in all, very good takeaways and we bring this excitement into '26, where we have now launched in U.S., where we will, in the coming weekend launch in Canada and where we -- early March, will launch in France, and then onwards with all remaining significant and major markets. Germany will also expand activity significantly here in first quarter to make sure they get to a full rollout, which was not the case in the initial launch.

So we move on. And again, not to open the discussion already, when we then say we still have something ahead of us, it is because it remains to be a sequential launch so we have to take it market by market to make sure we get off on the right foot. And of course, with U.S. market have been the most muted and a big premium potential, then it also, to some extent, depends on how the market develops, but maybe Zeal can be part of creating renewed excitement and also interest from end users.

So I would say there's still some uncertainty left around that, which I'm sure Rene will come back to. We continue to expand our portfolio also in Q1, we released devices of our latest technology containing disposal batteries, which in some channels and geographies are still important and then also a new offering in part of the pediatric portfolio and then all these new products offer latest and greatest sound quality and connectivity similar to Zeal, where we also get very good feedback on the latest technology, which is also a connectivity technology, which is also available in Oticon intent.

Hearing Care in Q4, solid performance in a weaker than normal hearing aid market, of course, strong tailwind from a month with KIND. So in the quarter, doing 17% in local currencies, 5% organic in -- across the geographies, strong performance in Poland and a number of other midsized European markets continued solid growth in France, driven by the anniversary of the '21 reform.

Good organic growth in North America, driven by continued improved performance in U.S. very positively. However, some negative development in Canada. Australia saw a good growth continuing improved momentum and China also delivered good organic growth, driven by ASP tailwind from a continued better product mix.

So all in all, well done in hearing care in the fourth quarter. And also diagnostic came in strong in the fourth quarter, delivered organic growth of 8% in local currencies. So clearly best performing quarter this year here and in general, a good uptake. Strong growth in U.K. and Germany, good performance across several midsized markets.

U.S. and Canada saw a strong growth, however, driven by service and consumable business again, back to gross margin, which is a little bit lower in these areas. Australia delivered strong growth primarily on instrument sales, and China continued to be impacted by general weak markets and there was some drag on growth in Asia in general.

With that, over to you, Rene.

Thank you, Soren. So let's push through the financials, a little bit of repetition. So I will be quick on this. So the revenue for second half year, we saw solid organic growth of 4%. Hearing Aids and Diagnostics saw a good organic growth and especially Diagnostics improved in the fourth quarter.

Growth from acquisitions contributed 3 percentage points to growth, and we had a FX headwind of 4% predominantly due to the decline of the U.S. dollars.

Turning to gross profit. It increased by 3% to DKK 8.8 billion. We saw a slight decline in the gross margin against second half of last year. And this decline was driven primarily by geography and channel mix changes in our hearing aids business. And we also saw some headwind in the Diagnostics business partly affected by tariffs. And last, also a slight headwind on the gross margin from the FX development.

On operating expenses and EBIT. So we increased OpEx by 5% organically half year over half year, partly due to very low comparative figures as we pulled back on cost significantly in '24. And we have seen a flat development sequentially from first half year into second half year, which is a reflection of our continued focus on cost management.

Acquisitions added an additional 5 percentage point to growth to OpEx in the second half year of '25. And again, also here, we see an offset from a declining U.S. dollar.

When it comes to EBIT, we ended second half at DKK 2.1 billion, negatively impacted by exchange rates and by lowering operating leverage in hearing aids. The decline in EBIT was due to weaker than normal growth in the overall hearing aid market as the main contributor and for us, specifically a loss of market share in the U.S., primarily due to lower sales to a large retailer. And this resulted in a contraction of the EBIT margin to 18 percentage points.

Special items in the period was related to the acquisition of KIND and a noncash adjustment. All in all, DKK 128 million in H2. Cash flow continued to be very strong. Cash flow from operations in H2 of DKK 2.3 billion and just shy of DKK 2 billion of free cash flow. So again, continued very strong cash flow generation. Our capital expenditure of DKK 409 million is an increase compared to same period last year primarily driven by higher investments in production facilities.

Cash out to acquisitions amounted to DKK 5.4 billion. And this, of course, predominantly related to the acquisition of KIND that closed beginning of December. We did not purchase any more shares under the share buyback program in second half year. So we end the year at a total of DKK 582 million as a previously disclosed.

When it comes to the balance sheet items, our net debt increased significantly. Again, this is solely due to the acquisition of a KIND and fully in line with our expectation, our gearing multiple at the end of the year, ended at 3.4%, which is above our medium- to long-term gearing target of 2% to 2.5%.

We will prioritize deleveraging and expect to return to our medium- to long-term gearing target of 2% to 2.5% within 18 to 24 months after the first of December of '25. And net working capital had a modest increase of 3% and this again, predominantly related to the result of adding acquisitions to the balance sheet. So in good control here.

Thus, summing up the financial key takeaways for the full year. As such, we're ending up at 2% organic growth, again, driven by the weak overall hearing aid market. A contraction of the gross margin by 0.6 percentage points, driven by weak market growth, particularly in the U.S. and ASP headwinds in hearing aids due to geography and channel mix changes.

The operating expenses for the full year increased by only 3% organically due to our continued focus on cost management. EBIT before special items, DKK 3.96 billion and an EBIT margin of 17.2%. And special items amounting to DKK 128 million.

And as just reviewed, strong cash flow of DKK 3.85 billion of cash flow from operations for the full year and free cash flow of above DKK 3 billion for the full year also. And share buyback DKK 582 million. So that was the quick review of the financials, and that brings us into the outlook section and initiatives that we have taken there.

So if we start on some of the assumptions that goes into our outlook and assumptions, of course, alluding to that we don't have certainty around these things, but we go in with a starting hypothesis.

And of course, the main hypothesis that goes or assumption that goes into our outlook for the year is our projection for the global hearing aid market to grow 2% to 4%, and in 2026 in value, which obviously is a conservative assumption being temporarily below our medium to long-term assumption of 4% to 6% and also, of course, low seen in the light of the last decade of growing exactly in line with these 4% to 6%.

So we believe it's prudent and in line with what we have seen in the last quarter to take a cautious stand on the market going into the year, and that is what we do with the 2% to 4% for the market.

We will come back to it, but we believe that Demant in all scenarios will grow above the market in '26. Another key assumption on the right-hand side is that as part of our plans for '26, we have launched a company-wide initiative to exactly improve profitability and lower cost growth and specifically in some areas, lead to cost reductions. These initiatives will positively impact EBIT before special items of around DKK 250 million in '26.

Since this is an initiative that is starting now, we foresee that the majority of this impact will be materialized in second half year, which is why, we, for '26 see an EBIT's good more than usual towards the second half year.

Also, product launches impact the phasing of EBIT for '26. So this is an important note. We have seen a significant decline in the U.S. dollar in particular, but also other currencies. And we expect a negative impact on EBIT from FX of DKK 200 million compared to '25, with the impact evenly split between H1 and H2.

We expect the KIND Group to contribute with DKK 300 million on EBIT before special items in '26. This is in line with our previous communication. And we expect a limited impact on tariffs on the group -- from tarrifs on the group, DKK 25 million in our Diagnostics business, also nothing new in that.

So summing up on the special items where we see particular things to take into the account for '26 is now totaling DKK 325 million, of which DKK 125 million related to the previously announced integration cost related to the KIND acquisition. And then we do add to that an additional DKK 200 million related to the foreseen restructuring and also adjustment to the organization and size as part of this cost reduction initiative.

Here, we see DKK 200 million of one-off costs. So all in all, DKK 325 million. So these are some of the core assumptions. And if we -- based on that build up and say some of the components in a more [indiscernible] visual schematic way on the graph on the right. The starting point is our EBIT for the full year '25 or DKK 3.96 billion. From that, we need to subtract the DKK 200 million that is the FX headwind in '26.

That brings us to an FX adjusted EBIT for '25 of DKK 3.76 [ billion]. To that, we would -- in line with the guidance we give here at a contribution from KIND incremental contribution from KIND which means 11 months of EBIT. As a reminder, we did have 1 month in '25. So this is a 11 months of the DKK 300 million, DKK 275 million. And then we need to add the organic part of our business, which includes the before mentioned cost savings initiatives that we are confident will bring DKK 250 million of savings to the OpEx line.

And then adding to that, whatever else we will see of organic impact from profitability in the remaining part of the group. And this builds up to an EBIT outlook of DKK 4.1 billion to DKK 4.5 billion. And important to notice here, the backdrop for this outlook is, of course, the starting point of a market assumption of 2% to 4%. And we have in our plans, and we aim to grow above that 3% to 6%. So taking market share essentially in all scenarios.

So in this light, you can say, of course, that the DKK 4.1 billion which is the lower end of this guidance reflects a very, very conservative scenario where the market, of course, is in the conservative end of the already contributive outlook here and also that our market share gain is modest, but still there.

But this is the starting point for the year, and we feel comfortable with that.

Lastly, just a few more comments on the initiatives to improve profitability. I did mention before the effect in '26 of DKK 250 million, but this is a 2-year program that will -- beginning '28 and onwards bring around DKK 500 million of cost savings to the group.

We also announced today that we estimate that this will affect approximately 700 people globally in Demant in '26, of which 150 are located in Demant. The associated costs that we recognized under special items is DKK 200 million in '26 and an additional DKK 100 million in '27, both, of course, of a one-off nature, whereas the expected cost savings will be structural and permanent.

So summing up, in total, this brings us to our outlook for '26. Organic growth of 3% to 6% EBIT of DKK 4.1 billion to DKK 4.5 billion. Share buyback is foreseen to be paused throughout '26 as we focus on deleveraging. And for modeling purpose, we estimate acquisitive growth of 8%. FX growth of minus 2%, and special items, minus DKK 325 million and an effective tax rate of 23%.

With this, we would hand over to Q&A, please.

[Operator Instructions] The first question today comes from Richard Felton with Goldman Sachs.

The first question is on the -- on your guidance and the midpoint of the organic growth guidance does imply growing ahead of the market in 2026. I think you said you expect to do that in all scenarios. So my question is sort of what -- what is giving you that confidence in outperforming the market in 2026 in all scenarios?

And then secondly, Rene, I just wanted to follow-up on your comments on EBIT phasing linked to product launches. Is that due to the phasing of the Zeal rollout or anything else to consider as you think about EBIT phasing?

Yes. I'll take the first one, Rene can comment on the other. This is in hearing aids market share gains, that is the main driver for that. We, of course, also going to see share gain coming from lifting our share in the German market after the acquisition of KIND. But the predominant is the momentum that I'm sure Zeal will create once we get full rollout in all channels at the end are opened. And also, of course, we continue to have a strong launch program for the remaining of this year and next year. So it's the comfort and all that, that make us be firm on the market share gains in all scenarios.

Yes. On the phasing of EBIT, there are 2 factors to be aware of. One is the effect of our cost savings initiative that will obviously have a little effect in Q2 but predominantly in Q3 and Q4. That is the one. And the second one is the gradual launch of Zeal that, of course, will have an effect here in the first half year, but a full half year effect in H2.

The next question comes from Martin Parkhoi with SEB.

Just a couple of questions. Firstly on -- again, back to the 3% to 6% organic growth guidance. Can you elaborate a little bit about the organic growth assumption across divisions. Now we saw a little bit of a dream run for dynastic in the fourth quarter, but what are you assuming [ genostics ] going into being in '26.

And then, of course, also, the split on wholesale and Hearing Care on our organic growth. I understand that KIND will add of course, acquisitive growth.

And then secondly, just on, Rene on the gross margin expectations, for 2026. It was not a pretty year in '25. What have you assumed of gross margin development in '26 on an underlying basis. And of course, also say how much is the contribution from KIND in that context as well.

Yes, Martin, I will do the first one quick. At this stage, I would say it's equal organic growth opportunities for all businesses. So for modeling purposes, I would be relatively equally spread across the 3.

Yes. And on gross margin, we have our, let's say, general guidance of being in the range of [ DKK 76 million to DKK 77 million ] on an underlying basis, as you referred to, you are probably in the low end of that range, but with the contribution from KIND, we are likely to see a gross margin in the high end of that range.

Just a follow-up, Soren, on organic growth. I appreciate that it's unknown yet if CEO will be included in VA from 1st of May, but have you included that scenario in the high end of your guidance?

It's very specific with the individual channels. We have estimates of -- we entail a growing business in VA during '26, and we do our utmost to ensure Zeal can also become available for veterans. We have not yet achieved that conclusion.

The next question comes from Hassan Al-Wakeel with Barclays.

Firstly, on your comments around intense competition, could you help quantify the impact in the quarter from Costco and how you're factoring this into your guidance for 2026? And how would you characterize share trends in the commercial market in the U.S. And if there are any other adverse share dynamics that you would flag?

And then secondly, on margin guidance for the -- I appreciate a weaker market. But can you help us understand some of the building blocks for a margin which is down year-over-year despite a benefit from the restructuring program in the second half? And just your comment around launches and that. Can you talk about how that would impact phasing and whether you're on track for a platform launch in 2026?

Yes. Let me start with the first on the very last. We don't comment on any new launches before they're there. I think you all know the tradition for that. I can only repeat, we have a strong program in front of us, we believe, for the coming year, including the second half of this year.

Share trends in -- and U.S., you, of course, have visibility to VA where we after recent launches, have seen a minor dip to Oticon but have held, I think, well two things. We year-over-year does see a declining share with a large retailer after expanding the number of suppliers, but relatively stable after that change.

And then with the independent, I can only say it's a very intense fight whether some have been holding that a little bit in the way for Zeal. I can't rule out, and therefore, I would say, sequentially a little bit softening towards the end of the year. But I'm sure and hopeful that we will pick up on that now Zeal out in the U.S. market. I think that's what I can speak to for now.

Yes. And when it comes to the margin, let's say, development in '26, it is, of course, challenged by our starting assumption of a market growth of 2% to 4%. That is the, you can say, fundamental margin headwind that we sit with. And of course, in this slide, our cost initiative becomes extremely important because this is what brings us, let's say, at the midpoint of our guidance, it leads to a flat EBIT margin in local currency and then, anything above that would be margin expansion.

But of course, when we assume a market growth of 2% to 4% margin expands which is not in line with our mid- to long-term then margin expansion per se is a challenge, but at least the midpoint, we are flat.

The next question comes from Julien Ouaddour with Bank of America.

So I have two. The first one is on Zeal, where, I mean, you said the feedback was like pretty good. My understanding is that Zeal is the main moving part for the share gain in '26, as you said. Just could you tell us a little bit what kind of market share assumptions have you embedded in the '26 guide for the ITE category? I'm just asking because we see a complete project working pretty well right now.

And I think another of your competitors just announced new ITE project this morning. And also on Zeal, could you confirm if it's already margin accretive to the group and how the volume pickup could impact the profitability? And a very quick second question is on the ASP. It was down 2% in '25. I think it's below your midterm assumption. You're also feeling intense competitive pressure at the moment.

So do you feel the need to have some -- maybe some kind of price discounts in the [ REIT ] category until you have a new premium platform as Intent gets old? So just what could it imply on the pricing for H1 '26? Could it be down again?

Yes. Let me start with the pricing and then return to Zeal. ASP, when we see it down is a channel and geography mix. We still uphold I think, a strong ability to have significant better pricing than many and most in the independent sector. So no, I don't see the call out for selling Intent because it should be not competitive.

I would also like to stress maybe a little bit back to Hassan's question on product launches. We are very, very happy with the performance of Oticon Intent and Zeal. This platform allows us to exactly do these very high-performing products at now unprecedented small sizes. It is with full connectivity, it is with full AI-driven signal processing that we enable Zeal, and that's why Zeal gets such a good reputation. It's not the first product that you can do as an in-ear instant fit type of product.

But you have never before seen it with such a feature list that is totally comparable to any RIC. So back to my initial comments as well, when we open new doors with Zeal, the conclusion from the first 4 markets is, we also see growing sales of Intent, because it's equally a very good product.

So Zeal is a door opener to a broader sales, and that's also why you cannot measure Zeal's, ASP effect. You cannot measure Zeal comes in with very strong ASP and of course, additional Zeal volume will lift ASP, everything else equal, it's higher price than anything else we sell. So yes, very positive for ASP. If we sell a lot in U.S. and the U.S. market growth, our ASP will go up the ASP effect in '25 is geography and channel related.

Zeal IT category, we have no other products that offer same features all new rechargeable with connectivity type of in-ear products are custom made. They are what's called in-canal which are relatively big devices that don't offer the same discreteness and invisibility as Zeal, if they are to be near as smaller Zeal, that connectivity is not there and typically also limited signal processing in order to accommodate for a much smaller battery.

The core element of Zeal is that it offers a much larger battery than any competitor, and therefore, in this size. And therefore, we uphold the full functionality we know from RICs. And that's the strength. And therefore, you cannot just measure share in the EMEA category, and I don't see any new releases that challenge the position of Zeal.

And just if I can very quickly follow up on your last point. So should we expect at least market share in line with the global average for Zeal in the IT category, I mean, given everything that you just said?

It will naturally go above because Zeal will capture share outside in your category. So you will see compared to -- you, of course, have to look at a certain higher end of that market. There could be markets where there's a lot of relatively cheap in-ear products sold if I allow myself to exclude those, Zeal will take significant share in the premium segment both from existing in-ear solutions, which are typically only the smaller, more cosmetically attractive or primarily and also from RIC products because that's the preference of the first-time user.

Next question from Andjela Bozinovic, from BNP.

Maybe the first one, again on the guidance. Can you give us your assumptions on the competitive environment and especially the competitor launches that are planned in H2 and more specifically in the ear category? Have you embedded the competitor launch that was announced this morning? And second question on the cost initiatives. Can you please give us more details on the initiatives that you're implementing, which areas, which regions would be affected?

Yes. First of all, we, of course, expect competition to continue to try to innovate and bring new products to the market. We don't have anything special in and I would definitely see what I've seen today from a single competitor.

Yes, it's an in-ear product, but in -- as I understand, lower price category and nothing special when it comes to functionality. So I don't see anything changing the fundamental competitiveness and uniqueness and an innovative level of Zeal. And I don't expect others to launch products down that Elite there is a very close relation between the production technology and the ability to make this small form factor with all the features and benefits, as I just said.

And no, I don't expect competition to be able to close that gap very short and not in this year. Cost initiatives, they are widespread across the group. They come basically in all geographies to various extent, of course, depending on our size and footprint. They -- comes in all areas. It's not just operation, it's not just R&D, it's not just any of it is basically the entire company that we have looked at.

But of course, in selected areas, so we can be even more firm in our commitment to invest in R&D in new products in a continued expansion of our hearing clinic footprint, et cetera, all the things that matters to growth. But we will find areas where you could say, inside the box, we can find more cost-effective ways of doing things.

Perfect. And just a follow-up on the first question on the traditional RIC and behind the ear, do you embed any competitive launches in your guidance?

I don't have a specific assumption on exactly who's going to introduce what except that in the last 12 months, we have seen a high number of launches from our competitors. So new premium launches, I would find less likely.

Next question comes from Martin Brenoe with Nordea.

I just have 2 relatively simple questions. The first is on the cost program which will affect a lot of people in the organization. So I would just like to hear about the timing of the cost reduction and the reduction in the number of employees. I guess that we should expect this to be relatively quickly announced and the cost program to be more of a Q1 and Q2 program rather than back-end loaded to avoid unnecessary uncertainty. That's the first question, and then I'll take the second one afterwards.

I'll do that quickly. Yes, when it comes to staff and organizational changes, of course, as quickly as possible to make sure we can move on with the business. It always takes up time and energy. But on the other hand, there's also part of this program, which is centered around cost of goods sold where we want to work against the more and more expensive types of hearing aids we have to do.

That takes some effort from selected groups of R&D, et cetera, before they come in. And before you have used existing parts if it entails a redesign. So there's also elements of the program, which have a longer run but the majority and most of what's related to people will happen here very soon.

And then just the second question is on value growth. I think 2025 was growing around 2%. And some of that were driven by France, which has been benefiting from the replacement cycle, also from the VA with a quite significant price increase, which will lap in May.

So you can say that the market growth is maybe a little bit inflated by these 2 channels and markets. So I'm wondering in your assumption going from 2% to 2% to 4%. And where do you see the sequential step-up happening if you look at the global market from here?

I would say that would be a more equal growth or different split in market growth between U.S. and rest of the world. U.S. was basically down to flat, where the rest of the world grew more. And I would say that's in the assumption of the 2% to 4% that we see a slightly better U.S. market, which will then help on global ASP.

The next question comes from Veronika Dubajova with Citi.

I have 2, and apologies, they're going to be slightly bigger picture. The first one, I just want to push you a little bit on the sort of EBIT guidance. I think if we sort of build the bridge, I think adjusting for FX, adjusting for the cost savings, adjusting for, obviously, the contribution from [indiscernible] I think the guidance implies sort of EBIT that's year-on-year minus 4% to plus 5% against sort of revenue growth of 3% to 6%.

So even at the top end really isn't a huge amount of margin expansion. And I guess sort of right big picture question is, is this the new normal? I mean if we end up in a market where growth is continuously challenged, not just in 2026, but let's say, maybe even in 2027, should we assume it's going to be quite difficult, not just for you, but for the industry as a whole to drive earnings growth? I think that's kind of the question that we've been having lots of discussions around.

My second question, and I apologize for being forthright and blunt about this, but Intent is now 2 years old. You have normally followed 2-year launch schedules. We are clearly not getting a platform in February this year. Can you reassure us that there is nothing wrong with the R&D process and that the delay is a deliberate tactic on your part as opposed to something going wrong in the background? I think given the experience with Zeal last year, it'd be helpful to understand your thinking around that.

Yes. Thank you very much, Veron. And you to some extent, have to see the cost savings in combination with the remaining business. We would still like to continue to invest in R&D. We would still like to invest in further expanding our footprint. And that's why we, in other areas, take cost out. So you have to, in my book, see the 2 together, you can't just take the cost out and then look at the rest.

So in all scenarios, when you take the 2 together, there is a growing EBIT and there is also improving margins, the better we are in the range, of course.

On the more blunt question, no, I don't think there is anything wrong in the R&D. We have made a priority to bring our Zeal, because Zeal is possible due to the platform we have, and we think it holds a big potential half of all users in the hearing aid industry are first-time users around half. And this is a major opportunity there.

And also for some the product, they really want, even if they already have one. It holds a significant innovative element. So our product road map is a conscious choice and not a broken bike.

The next question comes from Susannah Ludwig with Bernstein.

I have 2, please. I guess, first on Viola you talked about it having a higher ASP and then sort of being a positive contribution to ASP. Could you just clarify in terms of the impact on margins, I guess, sort of whether the margin is also sort of higher than the rest of your portfolio, given that higher ASP or given sort of the different manufacturing process, if there's any sort of negative impact on margins?

And then second, I guess, on the cost reduction program, are you able to share a little bit more in terms of which business areas you are targeting? Should we expect, for example, in retail, are there any closures of stores that you're expecting to do as part of this program?

Yes. Thank you very much. Selling more premium is super positive for profitability. And Zeal is intended and will grow our premium share. And this way, yes, definitely. I think we have said before that the cost of producing Zeal is higher than a RIC. So if it was just a substitution and the price was not significantly higher, it would not be.

It's better than classic in-ear instruments and the price is set higher than RIC. So all in all, good profitability, lifting premium sales, which we have seen so far in the markets we have launched definitely good for profitability.

On the cost saving program, it is for all business areas to deliver of course, a little bit different in form and shape. And yes, we would like to do the most on cost of goods sold because that helps everybody. we are very cautious on our retail footprint and network, but there are also optimization opportunities within a network where certain regions, geographies, areas down to cities, you could find that you have stores that are not optimally placed and don't deliver the profit you expect. So we will look also at the network, but it's not the majority of things.

The next question comes from Niels Granholm-Leth with DNB. Carnegie.

Could you provide a little bit more color on the phasing of your growth for this year? So would you expect the year to begin on a slightly weaker note and then end on a stronger one. And also, could you talk about for how long you would expect to maintain Zeal only available in your premium price version would -- should we expect this to go on for the remainder of this year?

Yes. Thank you very much. The phasing of the growth is relatively normally phased and with a little uptake during the year as we see a full rollout of Zeal, of course, but not very different from first half to second half if we keep it at that level. And Zeal only in premium, this is, of course, also a careful choice. We think it holds a very significant potential for value. And as long as it's unique and that potential is, you could say, not fully tapped, then we will be cautious in adding more price points. Will it eventually happen? Yes, it will, but for now it's off the table.

The next question comes from Carsten Lonborg Madsen with Danske Bank.

I only have one question left, and that's actually sort of a high-level question. So the question we are being asked a lot about from investors is whether now that you're implementing AI and hearing aids across the sector, you, your competitors and you're seeing other AI players invest massively in CapEx.

Are we seeing sort of a step change in R&D cost to develop the next hearing aid with AI capabilities? Or are you seeing more of a continuation of R&D budgets that you have seen historically? That's the question, I guess.

Yes. And thank you for the question. I don't -- I wouldn't say we see a step-up. But yes, if you look relatively to years back, this is definitely where you put in more and more effort and the complexity of what we have to develop increases. And that's also why a continued commitment to investment in R&D is key and back to our structural changes.

They are part of making sure we can continue to invest in R&D and a lot of that is into AI-driven signal processing and benefiting from AI, you could say, in all aspects of running a modern hearing aid system.

And a quick follow-up. So should we expect you longer term to sort of enter into more external collaboration in order to drive the AI agenda?

I would say we have an example of that at our research center where the William Demant Foundation have given quite a significant grant to make sure further programs in the research community can be done under the umbrella of our Eriksholm Research Centre. So yes, we do more collaboration also with external parties to build on this agenda.

The last question today comes from Jack Reynolds-Clark with RBC Capital Markets.

Two, please. First on Zeal manufacturing. Could you just remind us whether this is fully scaled? Or is this going to be a limiter for launch globally? And then how long until you're fully ramped and launched across all of your markets for Zeal? And then the second question is, I mean, is the profitability initiative a signal that you're more cautious around the timing of the recovery in market growth kind of over the longer term versus where you were in the past beyond 2026?

Okay. I think I got your questions. I'm not really sure. But the first one, no, we have made a sequential launch to make sure we don't create demand we can't fulfill. That's why we take one market at a time, and we feel comfortable about that and have a good production capacity and can also or have plans to ramp up significantly. So all good. We're a little bit ahead of the curve, if anything. So I think that's the answer to that.

Just to make sure, Jack, to understand your second question, whether that relates to the fact that we have a different view on if and when the market returns back to the normal growth, that's the reason why we introduced profitability initiatives.

Yes, you could say you should -- we always do that. I would say we accelerate it to make sure we remain a strong company that can continue to invest in the things that matters the most to our customers, R&D strong service, et cetera. So is there some link, yes, there is, I would say, the acceleration definitely has happened also as it reacts into a continued weak assumption of a continued weak market.

This concludes our question-and-answer session. I would like to turn the conference back over to the company for any closing remarks.

Thank you, operator, and thank you so much to everybody for joining us here today. I see we still have a couple of people in line in the queue, so please do reach out after the call and we'll be happy to follow-up. As always, we expect to be on the road in the coming weeks and do look forward to see all of you when we could get there. Have a good rest of the day.

Good afternoon, and welcome to our conference call following the release of our Q3 Interim Management Statement, which was sent out after market close yesterday evening.

For today, we plan for the usual structure of the call. We'll start with the presentation, and then we'll proceed with Q&A.

On a practical note, the presentation we'll be showing should now be on our website for you to find, and we plan for the call to last no more than 1 hour in total, including the Q&A session.

In the room here at our head offices, we have our President and CEO, Søren Nielsen; our CFO, René Schneider; and the IR team with Gustav Hoegh and myself, Peter Pudselykke. That is it for the practical stuff. Over to you, Søren, for the presentation.

Thank you very much, Peter, and welcome, everybody. We'll go straight to the agenda for today is business highlights and key financial takeaways. A little bit of color and flavor and update to each of the three business areas, outlook for 2025, and then let's quickly get to the Q&A session.

Business highlight for Q3 is a performance overall in the lower end of our expectations, driven by hearing aids, which due to a remaining softer than normal general market and a sequential slowdown in U.S. due to mix effects have seen a weaker ASP or you would say in the scenarios with a weaker ASP. We have, however, in the hearing aid business seen global market share gains and a good momentum in the business.

So the -- to the softer side, organic growth in the Hearing Aids business is purely driven by unfavorable geography mix and a still overall soft hearing aid market. Hearing Care have delivered solid growth above the general market growth rate. The performance is broad-based despite also having strong comparable figures from last year.

The Diagnostics business continues to be impacted by a general weak market, especially in the U.S., resulting in lower investments in equipment, the market or the general appetite on investments and expansions, et cetera, has put less incentive to do investments right now. We still see a good order book and still see orders coming in. So it's more a reflection of a postponement.

In October, after the quarter, but still important to mention, we launched Oticon Zeal at the German Congress. We have also announced the signing of the agreement to divest Oticon Medical, found the new future owner, and we expect the closing of this part to take place no later than the end of the first quarter '26, and with that, knowing the final route to a full departure from the implant business area.

Key financial takeaways from Q3, Group organic growth of 3%, which is an improvement from first half. It is fueled by improvements in both Hearing Aids and Hearing Care, so positive. However, as already stated, we see gross margin decline coming from the negative ASP effect in Hearing Aids and a continued increased share of rechargeable devices. Diagnostic also saw a drag on the gross margin. So a pure translation from the lower ASP into gross margin.

Our OpEx saw a modest organic growth compared to last year, fully in line with expectations. Of course, acquisition contributes to further growth, and we remain very focused on managing costs carefully given the uncertain market.

EBIT was in the lower end of our expectations, however, still within, driven by the gross margin contraction. Foreign exchange rate also had a negative effect in Q3, but in line with expected and already disclosed. The group continues to generate very solid cash flow, particularly -- partially supported by working capital development and a strong focus on that, of course.

The outlook for the year 2025, maintain the 1% to 3% organic revenue growth and DKK 3.9 billion to DKK 4.3 billion, however, likely to be in the lower end of the range. As announced previously, share buybacks were stopped in June due to the announced acquisition of KIND, yet not closed. We have bought back shares worth of DKK 582 million in the year and will not buy further.

Business area highlights review. Hearing aid market in total has grown to our best estimates and having statistics for 2/3, around 3%, which is more or less in line with expectations. However, a slight uptake in Europe, a sequential slowdown in U.S. commercial from 4% to 2%, which is not as expected. And VA, on the other hand, growing. It seems like some funds for restaffing have been released, which have made it pick up. Rest of the World, 4%. So we are still below the normal 4% to 6%. However, I think it's worth to highlight 3% is still a growing hearing aid market and our fight is then, of course, for share in that market.

Growth in Europe is primarily driven by strong performance in France, which continued to show strong growth, however, primarily in the free-to-client category. In U.K., growth was driven by the private market and partly offset by a slightly negative growth in the National Health Service. In Germany, growth accelerated sequentially following a slow Q2. It is worth saying that Europe without France would more be in the 2% category level. So underlying Europe is also I would say, quite below normal, and that is, of course, also affecting our business.

North America saw positive Q3 growth as announced, driven by a certain rebound in VA after a very long period with very low growth. So at some stage, again, would also have to work into the backlog, but still below normal levels. And again, U.S. commercial slowed down from Q2, while growth accelerated a bit in Canada.

Rest of the World delivered growth. It was primarily driven by solid growth in Japan, Australia, China delivered flattish to slightly negative growth, while we estimate that several of the emerging markets delivered good growth. We still estimate the ASP to be flat to slightly negative due to geography and channel mix changes.

Of course, not the least, the unfavorable development between Europe and North America. Hearing Aids in Q3, organic growth improved from Q2 and continues to -- however, continues to be impacted by the softness in the global hearing aid market. Unit growth was positive and above the estimated 3% market unit growth. So we have taken share in third quarter. And however and in several countries, not just single callouts.

Our ASP was negative due to geography and some channel mix changes. And in Europe, growth was, of course, fueled by France. And we have also positive growth in U.K. private market and a flattish growth year-over-year in Germany. I would both say in Germany, important to highlight a good strong sequential growth after some pushback after the announced acquisition of KIND, things seems to normalize.

Strong performance in Canada. U.S. growth was positive due to VA and managed care, but year-over-year, negatively impacted by the effect of additional suppliers to large U.S. retailer, as spoken to previously. Strong growth in Japan, slightly negative growth in China and strong performance in Australia and Latin America. And again, not to talk in length about Oticon Zeal, just to highlight that we did introduce and present to the world a new very novel and innovative product concept, Oticon Zeal at the recent Congress in Germany.

It is a new level of performance for in-ear hearing aids. It upholds our best and most advanced AI-driven signal processing, full connectivity, rechargeability in a so far unmet discrete design, I would say, for most invisible design and it got very good reception and feedback. And I'm sure this is even that we cannot make a very fast broad global rollout, definitely bring more attention to our business and enable a lot of good discussions with customers about the business in general.

It is a new manufacturing process, totally new. And due to the ramp-up of that, it will be more gradual than normal, then we will also see a more gradual commercial rollout where we have selected a number of European markets to start here in the fourth quarter, but more broad-based global rollout will happen, I would say, in particular, during the first half of '26.

Hearing Care in Q3, solid performance in a continuous soft market. We generated 9% growth in local currency, of which 4% was organic. So very good. And it's broad-based. Of course, also here, France do above average and also Poland, but we also have several medium-sized European markets doing well and delivering solid organic growth.

In North America, we saw an improvement in performance in the U.S. and a slightly negative development in Canada. We saw solid organic growth in Asia and Pacific, mainly driven by China and Australia due to especially improved product mix, meaning, yes, more advanced solutions. Growth in Asia, particularly offset by weak performance or partly offset by weak performance in Japan.

Diagnostics in the third quarter continues to face a headwind from soft market developments for instrumentation. Organic growth was slightly negative due to declines in key markets in Europe, but also area or part of Pacific and other regions. We did see growth in U.S., but not to normal and expected level, and that's driven by, again, macroeconomic uncertainty that leads to lower-than-normal investments in new equipment. We see good growth in our service and consumable business, but however, not enough to offset the negative growth in -- on the instrument side.

France continued to do well and grow in the quarter, some negative growth in U.K. and Germany, but strong growth in several other European markets, slightly positive in U.S., good growth in Canada. And then positive organic growth in Asia and a number of other markets.

Outlook. There are very little changes to the fundamental assumptions. I would only highlight the changes to our expectation in the discontinued business. We still are in the process of getting out of both communication and implants. We, as I said, announced that we have made an agreement to sell to a new owner, the Oticon Medical business. But as part of that, we also have recognized a need to increase the in year 2025 loss in the discontinued business. And this was already mentioned in the announcement, but this is why this has been updated.

Other than that, no changes to tariff assumptions to -- exchange rate assumptions, et cetera, et cetera, no changes at all. And therefore, also on the outlook, relatively simple. The only change is that for both organic growth and EBIT, as I mentioned earlier, we now expect that we will most likely be in the lower end of the range for both organic growth and EBIT. But other than that, no changes. And let's, with that, go to the Q&A session.

[Operator Instructions] And our first question comes from [ Janguin ] from Citi.

Two questions from me, please. The first thing is on [Technical Difficulty] comment on the uptake of the product I appreciate [Technical Difficulty] anything you can comment on how it has been trending again [Technical Difficulty] that. And my second question is on the rest of P&L. Given pressure on gross margin [Technical Difficulty]how do you envision getting to the low EBIT guidance [Technical Difficulty] second half [Technical Difficulty]...

Your line is quite poor at least on our end. But I think we got your first question on uptake of Oticon Zeal. And then you were asking a bit on the development through the P&L with the gross margin development. So I'll let Søren answer that, and then you can revert with extra questions.

Yes. And thank you very much. Well, we presented the Oticon Zeal on the EUHA Congress. We, a few days later, made the official launch and released it after compliance to all quality systems and so on. So we are still very, very early days. We have -- we can sell what we can produce. That's why we have chosen to introduce in a selected number of countries. We have seen high interest, and we can deliver to that interest. We do not yet have any fitting feedbacks or anything that can confirm our own assumption of good and broad results.

So it is too early to say anything beyond that, except very good market interest. I think I'll leave it to you, René, to comment a little bit on gross margin.

Yes. So with the caveat that we didn't get the full question, the pushes and pulls, of course, are that as a direct consequence of the changed geography and channel mix on the hearing aid business side, we see the impact on the ASP and then subsequently on the gross margin.

And therefore, this is why we explicitly guide for a gross margin that is below our general expectations of 76% to 77%. The exact, you can say, precision on how much lower it will be depends, of course, on also the development in the rest of the year and the geography mix channel changes there. Yes, so I'll leave it at that, and please revert if there's further questions around that.

Sorry for the line. But how do you think about getting to the EBIT guidance with the pressure on gross margin? What kind of cost control can you do for the rest of the year?

So it's part of the equation, of course, that we do a cost control and you can say there are across all the items in the P&L, various scenarios. And there's, of course, also a scenario where operating expenses in H2 would be lower than in H1. That's also a scenario that's there. But all things equal, our guidance is that it's likely to be flattish half year over half year.

The same with the gross margin, of course, again, back to ASP, which is a very sensitive component in our business due to very different product mix in different channels and pricing. So I think it is much more the top line growth and the composition of that, that determines where in the range we will end.

Our next question comes from Niels Granholm-Leth from DNB Carnegie.

First question on France. You're talking about double-digit growth. One of your peers, Amplifon talked about 6%. Have you seen an inventory buildup in France during the quarter? And second question on the U.S. commercial channel. In your view, what's the reason for the sluggish growth in the U.S. commercial? Is it lost purchasing power among end users, geopolitical tension? So what's wrong there?

Yes. Thank you very much, Niels. Yes, I've also noted the slight difference in expressing. I think our competitor on the retail space maybe use another source, could be reimbursement numbers, statistics from the dispenser side. We always report at wholesale level. So what is to sell into the channel and these things sometimes have a delay. Yes, there can be stock building. There can be people that buy outside reimbursement schemes and other things.

We see and have -- we are tracking well to the double digits. So I think it's more a reflection of different sources that it is of whether we are seeing a different world.

And on the U.S. commercial, I think that the U.S. commercial is everything that's not VA. And we have seen, of course, one movement downwards consistently during the year that's been mostly in the managed care space. So that's, of course, one drag. They are less eligible and so on. But there is also what I think we all know have to contribute to consumer sentiment.

So people are a little more uncertain rather than actually financial impact that it is easy to postpone your first hearing aid. It is easy to use the one you have a little longer. And the reason for believing is that also back to Europe that with out France is in 2%. We have several markets with significant reimbursement, if not free to client, and the effect is more or less the same. So we do attribute it to a lack of consumer confidence.

So following up on that. So the patients who stays away, are those first-time buyers? Or are they the recurring customers?

Yes. I would say it's both because it is also the response to calling in patients for a check and a follow-up and see new stuff. So it is in both sides, it is also the ability to attract new clients, but it's -- the exact split, I cannot say because the one is dragging a bit, you push a bit harder on the other, but it is definitely from both sources. So both extension and postponement.

Our next question comes from Julien Ouaddour from Bank of America.

So I have two, but I would like to ask the first one first. So I know a question has been asked many times. Let me just try again. Looking at the global hearing aid market in volume, I think we clearly see some slowdown versus the historical 4% to 6% level for quite some time now. Looking at some surveys out, we see that penetration may have slowed or even go backwards in some key markets, while it gets to a pretty high level in many countries, which could suggest less upside than in the past.

Going forward, we have managed care, as you said, moving backwards on benefits, maybe new options for the patients with the hearing aid glasses. So my question is, what do you expect for penetration going forward? And another way of maybe asking the question is whether you could consider it revising down the midterm growth outlook for the hearing aids market. And just for the record, this is the main question we probably all receive from investors right now. So that's why I'm pushing on this.

It's fine, Julien, and I fully understand. No, I don't see any fundamental changes. The 4% to 6% is a range because it goes up and down year-over-year. There is for isolated markets, nothing more powerful to penetration than reimbursement. We have just seen a brilliant example of that in France. So of course, you would technically see that if there is less support for managed care in U.S., you will see penetration go down a bit in U.S. But at a global level, nothing changed.

The assumed willingness to pay, the assumed threshold for when you think your hearing loss is big enough to get started. The main tailwind we have over time is extended life expectancy, which is what drive up the pool. And again, once you have started with hearing aids, you're very unlikely not to continue. And that also, of course, you could say, protects the penetration.

So no. To make a long story short, no, we don't have any changes to our expected mid- to long term. And most of the would say, additional new products around are all focused on trying to expand penetration for mild hearing losses. So that's, of course, a joker in it. Will it work or will it not? I don't see it as cannibalizing the existing market. So if anything, it will add to it. And therefore, enough up and downs to continue to believe in a 4% to 6% range. It is a little more than the prevalence and a little more than the simple number of people that have turned 65 or even 70.

And therefore, there is, in this assumption, a continuous small uplift to penetration, which is typically driven by increased reimbursement over time, which does happen around the world.

Perfect. My second question is about 2026. I know it's still a little bit early to talk precisely about next year. But I mean, can you maybe talk about the -- let's say the key impact for next year?

I'm looking at consensus, I think it has 5% to 6% organic growth, more than 100 basis points of margin improvement. The question is more, does this scenario need a normalized market growth for you to achieve it? Or maybe with new product share gains, is it realistic for you to, let's say, to get to this point?

Maybe I can start a bit and René can supplement, but thank you. No, we don't want to make this call a guidance for '26. That's for sure. But there is, of course, again, as always, a long list of things that works for us and against us. Market growth is, of course, a key one. What is the market growth going to be. And I don't think any of us have a crystal ball to predict that exactly. We don't expect an immediate change. But of course, over time, hope and anticipate we will get back to a more normalized growth rate.

Then it is market share gains in the wholesale space.

And definitely, I would consider '26 a good year compared to the year we have just been in with a Zeal launch coming out most market and also continued innovation. We have KIND coming in on top, which will also give scale and market share gains to the business. And with that, several improvements on leverage and gross margin, et cetera. So many good things. There's also currency is the other way and, of course, continued investment in the business.

So there are many lines -- many line items and things that end up determining the year. I don't know, René, if you have anything to add?

No. Well, it would be a repetition to what are the moving parts to think about. Well, it's the market assumption. And of course, short term, we don't have a strong line of sight to improvement in the beginning of the year, at least. But apart from that, it is, you can say, anybody's guess. Likely you would have still a continued tailwind in France to some extent since there is some distribution of the reform that will also take place next year.

As Søren mentioned Zeal, and I would also say other innovation, we will continuously launch. That's what we invest in. We will see a contribution from KIND the acquisition there, which we are very excited about continuously. FX, of course, when we go into next year will be a headwind. And lastly, of course, in a much smaller scale, tariffs in diagnostics, you will have a full year effect of that.

So that's some of the moving parts. And of course, we will get back to it when we talk about formally '26 next year.

This is super helpful. You mentioned KIND -- I mean, can we be sure that there is no contribution into the '25 guidance, that's all for '26, right?

It's for '26, exactly.

Our next question comes from Martin Brenoe from Nordea.

First of all, maybe just piggybacking a bit on Niels question on the commercial U.S. Can you maybe elaborate a little bit what's going on, break it down, what's happening? And how much is driven by managed care, for example, and how much is driven by something else? And then that would be the first question to understand a little bit more what's going on in U.S. commercial and also if you have seen a continuation into this quarter. And then just on Zeal and investing into this product launch, how do you balance the fact that you have this exciting product launch, which seems to be quite a big marketing splash behind it and the fact that you are in a situation where you are at the very bottom of your guidance range in terms of EBIT. What's most important to you taking market shares or delivering on your EBIT guidance? That would be the second question.

Yes. Thank you, Martin. I don't think I have much I didn't already say when speaking to the U.S. commercial market. Again, we are talking 4%, 2%, 3%. So you have to be careful. You don't overinterpret what causes what. I can only again high level highlight managed care contraction as well as general consumer sentiment. I simply don't have it more precise than that. We have no statistics yet from first month of Q4, so no comments to that.

Zeal balance, it is, of course, so important for us as a company to deliver on our guidance and deliver good results. It's also an important part of that to sell some products. We are very conscious about not creating what you call marketing spares in markets that cannot sell anything. We do enough to create attention to the business, enough to get in dialogue with customers that might not otherwise have enough dialogue with us, and we do that to win share also this year. And this is, of course, a careful balance between share gain within this year, building expectations for next year, but we are very focused on that.

Our next question comes from Susannah Ludwig from Bernstein.

I have two, please. I guess maybe just focusing back again on the U.S. market. You guys talked about better performance in managed care and the VA and then the weakness in Costco. Could you clarify how your performance versus the market was in the independent channel? Do you think you're taking market share there as well? And then are you able to quantify the headwind on sort of wholesale from the return to more players in Costco? And I guess just on Zeal, could you talk about your decision to launch first in European markets rather than launching in the U.S. market? Have you chosen markets that have a higher share of ITE products? Or what was the rationale behind sort of the launch schedule?

Yes. Thank you very much. U.S., I think it's quite simple overall. It is a, you could say, structural change in Costco following the additional supplier. Given that, I think we do quite well in terms of share in the system after the change. When we mentioned VA, this is driven by product news and general performance and of course, growth in the channel.

Managed care, yes, the general managed care market is soft, slightly down. It improved a little bit lately, but still negative. And of course, we are very little exposed in that.

However, our current performance is gaining share in that channel after bottoming out in the spring and the fall of last year. And with the independent, we have, I would say, a very stable to slightly positive development, meaning that we take some share, but very sensitive, of course, month-to-month exactly where it lands. This is also in -- all of this is in units. And of course, there is also a pricing component to it. And there's no doubt there is a quite competitive situation in the general independent market, but we do well. I think compared to most people's expectations after the many new launches, I would say we definitely stand well with the independent in the U.S. market.

Zeal Europe versus U.S., U.S. is simply too big. We don't want to start a launch in U.S. and have to run with allocation and selected customers and so on. So we have picked a number of European market where the size is at a level where we are sure we can supply to demand back to Martin's good question on efficiency and return on the investment in marketing. So we have to make sure we get a good return in the markets we launched it, meaning a significant volume compared to, you could say, the market share potential and get a good pickup.

And that's how we have selected. And then, of course, Germany, what I would call a soft launch, but you cannot announce it in, not release it to customers in the country. But that's a little more select, not selective, but with a little more constraints on the volume. But on the other hand, Germany is not a big EMEA market. So well chosen and to make sure we can balance demand and production capacity.

Our next question comes from Martin Parkhoi from SEB.

You said it before because I was just on the normal call as well. So maybe I've missed it, but I'll try again in away, just on Zeal, Søren, can you tell -- talk a little bit about your ambition for which segments of the market you actually believe [Technical Difficulty] because I'm sure that you're not only going for the [ CSC ] market.

I'm sure that you maybe also have ambitions outside the IT category, maybe the [Technical Difficulty] technology. So where do we actually see the possibility of the [Technical Difficulty] same content, if you just look at the IT [Technical Difficulty] you are more or less nonexistent in IT. Where do you see not a specific number, but are you significantly underrepresented globally in the IT market compared to your average global market share?

And then second question, I understand that still, of course, as also said would be once we [Technical Difficulty] hit the market during next year in the bigger market. Launch events at the size of a typical new platform launch with a new right? And does such market launch events interfere with the timing of a new platform?

Martin, at our end, the line was not too good. So bear with me if I don't hit it exactly on the nail compared to your question, then I come back. What segments do we see Zeal in for sure, starting with the obvious is already small in-ear products, CICs, IICs. But I think it's one level up, why have right products grown a lot in the past 5 years? Well, the combination of the most advanced technology and given that many people like to have direct streaming from their phone and a rechargeable battery and so on, these products have offered much greater benefit than the average in-ear product have done.

So we see this as the way to get all benefits back into the year. And exactly how that then plays out with the segments and so on, I think that's one of the things we want to learn and see and understand. There is a limitation in ear canal in size, not all ears can host an in-ear product. This is the smallest, I think, or one of the very smallest you can make. So it's not that it's worse than others, but there is just a limitation. Some people feel a level of occlusion, meaning like having an ear plug in. For some, it's others, it's not an issue, depend a little bit on how deep it is.

So back to your question, I think, of course, in your products, we expect to capture significant share. Why go up in size if you can have it smaller. But there will also be some cannibalization from right products. There might also be people that choose to start earlier. Now there is a solution that actually meet their needs a little bit back to how important cosmetics and design is for maybe especially the still work active, 65-year old, et cetera, milder hearing loss struggling in certain situations.

So yes, I think it's very broad. It's very important not just to look at and maybe that's a better answer what you should not just look at. Don't just look at a category for instant fit or CIC, IIC. That's, in my book, way too narrow a potential to look at. And our global share is low. We are strong in building rights. We actually made the first one.

So it's also what's the footprint and what's the sand. We are part of the market. So there's no doubt that that's one of our competitive strengths. And you could also say the reason why we reinvent the way of doing it is because we have not managed to build success in conventional India products and we believe much more in this way of doing it going forward as it can offer all benefits.

The second question was not too loud and clear. But if you ask for future introductions under these new platforms, as always, we don't disclose any details on that. But Zeal is a key focus now, but it does not prevent us from introducing other products in '26.

I just have a follow-up. It's actually another follow-up. It's actually a new question. It's just for René. We, of course, VA pricing, we, of course, most of us at least noted that you have a pretty low price on charters compared to your peers in VA. Can you confirm that if you should be lucky enough to get that sort of out and get a price on par with peers in the charter category that, that would be a potential contribution at the neighborhood of DKK 75 million to DKK 80 million on sales and EBIT on an annualized basis?

Yes. I think I will allow myself to answer. I think there is, of course, an upside of improved pricing. And you know the total market, you know the market share, you know the number of rechargeable, you know the price difference. So assuming that the price gap is narrowed significantly, then I think you can all make your math and come to a conclusion on what the upside of that is.

Our next question comes from Andjela Bozinovic from BNP Paribas.

The first one, maybe just on your wholesale business, you managed to increase market share despite having one of the oldest platforms available. Can you maybe just share any details where did you see the market share gains? And if you want to highlight any particular channel or region?

And following up on this is you've now launched Oticon Zeal, but do you feel like you can still deliver market share gains with the current offering in 2026 as well?

And the second question is just on your implied Q4 because if we put the low end of the guidance, we arrive at a slowdown in Q4. Can you give us any reasons why to assume so? And any moving parts that we should have in mind?

Yes. Thank you very much. I think our ability to grow share globally is a testament to the quality of our platform. if I may use Oticon Zeal as an illustration, this product is only possible because we have a super power-efficient platform that delivers very, very high audiological performance that have a very power-efficient system that even in a small form factor and a slightly smaller battery, you can still get a full day use and take good care of the battery in the life of the product.

And we have a very strong power-efficient radio 2.4 gigahertz, Modern Bluetooth Low Energy radio.

And these things together enable us to make an Oticon Zeal. It enables us to make very small new mini PC, very powerful one without compromising size. So I think it is actually a testament to the quality of the underlying platform and the stability of it, the quality of it, people's patient satisfaction ultimately. And this is why we have been able to year-over-year and also sequentially improve share. And there is not a single one to call out.

There is one to call out on the negative side, which is the year-over-year effect in large U.S. retailer due to expanded portfolio of manufacturers. So you could say, excluding that, we definitely have done, I think, well compared to the number of competitive introductions that have been.

So then adding Zeal and a powerful very small BT for more profound or severe to profound hearing losses and also a good launch schedule for next year, then yes, I feel comfortable about the ability to gain share in a global market. The reason why we are not performing at our best is primarily, of course, that loss of share in that particular channel in U.S., but then also the global market.

Low-end slowdown, I think you should expect at least what we do that we see somewhat similar in the fourth quarter to the performance of the third quarter. The third quarter have performed in the lower end of expectations. And it's always many scenarios when we build an expectation and also why we have 1% to 3% organic growth and DKK 400 million in EBIT is because there is a lot of variables down the line. And yes, big picture is expect Q4 to also be, I would say, in the low end of our expectations, but somewhat similar to what we have seen from a growth point of view in the third quarter.

Perfect. And if I can squeeze in just a quick one on France. I know you commented that it's probably statistic that is making the difference between you and Amplifon. But can you just comment on your market share in the country since the start of the...

Where we measure. So it, of course, both come from good performance in our retail activities as well as wholesale activities.

Our next question comes from [ Martinia Nula ] from Jefferies...

I hope that you can hear me okay. And apologies in advance if the question has already been addressed, but the line was really bad on my end. So I would ask two, if that's okay for you. The first one revolving around managed care. I'd be curious to hear your thoughts on your share recovery in the channel and any potential contribution that could or could not be baked into the 2025 guide? And how should we think about any potential tailwind going into next year? I'll give you some time to answer that -- this question to before asking the second one, if that's okay for you.

Thank you, you are loud and clear. We are still, as [indiscernible] you would say, underrepresented in managed care for, I would say, structural reasons. One of the biggest administrators is owned by one of our competitors. It would be naive to believe we could get a very high share in their channel. So we will always be sub average in that channel.

We also do it slightly -- with a slightly different strategy between our wholesale business and our retail business.

In our U.S. retail business, we have come to the conclusion that we are better off trying to build our own traffic and therefore, do less to little managed care compared to the market. And that's working good for the U.S. retail business.

On the wholesale side, we are reestablishing I would say, business relationships with a broader array of the players after the loss of share last year and into the beginning of this year, and we see continued sequential improvements. All in all, for the group performance, it's not that big and therefore, not a big weight in the total equation, but we are gaining share in the channel to confirm.

Okay. That's perfect. And my second question would be around the economics around the Zeal products. I would love to hear your thoughts on the potential margin impact that this could have not right now because I understood that you are not ready from a manufacturing capacity standpoint and so on at the moment. But just circling back on one comment that you've made around the improvements in terms of robustness and reliability stemming from the encapsulation of the body of the device. So I was wondering if this product could start to be a tailwind on the margin because I get the point that the product is more reliable, but having only one big piece for the shell of the device could also imply that the device could be less sustainable, i.e., so more difficult to repair. So any comments around that would be super helpful.

Yes. There's a lot of moving parts in that equation, and I think it's a little too early to give a precise guidance. I would still repeat what I said that from a cost of goods point of view, then a Zeal is less expensive than a custom-made in-ear product, but it is at least at current production maturity and efficiency, et cetera, more expensive than a right product. Is it then more or less reliable.

It fundamentally has been built to be more reliable because you obviously can't repair to the same extent. So you can say the call frequency or service frequency hopefully go down. On the other hand, those where we can't solve the problem with replacing a wax filter or a dome or the filter around the microphone on the antenna would be more expensive. So it's simply too early to call out exactly how that total cost equation through life looks like. So we will have to have a bit more experience until we can finalize any more specific guidance on that.

And our final question this morning comes from Niels Granholm-Leth from DNB Carnegie as a follow-up.

Again, this summer Amplifon called out this 5-year replacement cycles. So in your view, what proportion of units sold in the global hearing aid market would take place in markets where there is a pretty accurate 5-year replacement cycle?

Yes. Thank you, Niels. I think it is relatively inconsistent. If you just take the biggest markets in the world, U.S. is primarily commercial and therefore, more in the 4-year range because that's actually what people tend to do if they pay without reimbursement. Then we have France, which is 4 years, so a relatively short cycle. And then you have Germany in the other end with -- for some insurance companies up to beyond 6 years.

So I think the global average of 5 years is a very fair assumption, but it distributes. So when you have -- whether it's 4, 5 or 6 years, not everybody shows up day 1 when the reimbursement is -- when you're eligible again, it's actually an important part of our building traffic to remind people that at least they are now eligible for new reimbursement and therefore, maybe it's worth making a visit.

Great. And then just finally, do you still expect to announce integration costs related to KIND at the time of the closing?

Yes, that's still the plan, Niels.

Ladies and gentlemen, with that, we'll be ending today's question-and-answer session. I'd like to turn the floor over to management for any closing remarks.

Thank you, operator, and thank you so much to everybody for joining our call here today. As always, if you have further questions that we can help you with, please do reach out to us directly. Our contacts can be found online, as always. And we, of course, always look forward to seeing you on the road in the coming weeks ahead. Have a good rest of the day. Thank you.

Good afternoon, everyone, and welcome to our conference call following the release of our revised outlook for 2025 and interim report for H1 2025 after market closed yesterday. For the call today, we plan to run through a presentation followed by a Q&A session as per usual. The presentation should now be available on our website. We plan for the call to last no more than 1 hour in total, including the Q&A session. So please limit yourself to no more than 2 questions at a time. Thank you. On the call today, we have Søren Nielsen, our President and CEO; René Schneider, our CFO; and myself, Gustav Hoegh from the IR team. That is all for the practical elements. And with that, over to you, Søren.

Yes. Thank you very much, Gustav, and welcome, everybody. Agenda today, business highlights, key financial takeaways and sustainability advancements. And then business area, a little more details and color on that before Rene will go through group financials, and I will finish off with the revised outlook, and then we step into Q&A. Business highlight for Demant in first half of 2025. #1 headline is a global hearing aid market that grew below the normal 4% to 6% growth expectation.

This is purely attributed to various elements of macroeconomic uncertainty and turmoil in global trade, et cetera, that have led to consumers being less hesitant to start wearing hearing aids or postponing their upgrades. In hearing aids, we saw good growth in unit sales, although growth was negatively impacted by mix effects that led to a lower ASP. This is purely attributed to market share gains outside U.S. and lower growth in U.S. that leads to a decline in our global ASP that outbalanced the growth coming from selling more units.

Hearing Care grew in line with the market in first half with some growth deceleration from Q1 into Q2, partly driven by the current environment and consumer cautiousness. The effect was particularly in U.S. I will though say there is -- be careful not to overinterpret it. There's always a little bit of timing and weather things close in March or April. So look at H1, I think, most importantly. Diagnostics continued to be impacted by negative market developments, particularly in the U.S., also macroeconomic uncertainty, which has led to a postponement of investments, good order book, but lower execution than planned and expected and normal.

And we see, yes, many reasons for these things being pushed a bit out in time. In June, as already announced, we agreed to acquire the KIND Group, one of the world's leading retailers of hearing aids with around 650 hearing clinics primarily in Germany. Key financial takeaways from the first half, putting all this together, group organic growth of 0%, which is below expectations due to the lower-than-normal hearing health care market growth and lower sales to a large U.S. retailer. Group gross margin declined 0.8 percentage points, which is slightly more than expected following the unfavorable geography and mix -- geography mix changes, especially in hearing aids, which led to the already spoken to lowering of our global average selling price.

OpEx, very strong control and following the line from last year. So we saw just 1% organic growth, reflecting, yes, a lower than -- lowering of the run rate into the year and tight focus. Reported growth was 4%, and that's primarily due to acquisitions. EBIT before special items, DKK 1.849 billion. EBIT margin before special items contracted. Again, we had to sell more units to deliver the same revenue and therefore, a negative impact on profitability of the business. And this comes again from unfavorable mix changes in geographies, meaning in which countries we sell what and therefore, lower-than-planned operating leverage.

Despite lower profitability, we have delivered very solid cash flow -- of cash flow from operation of a little north of DKK 1.5 billion and free cash flow of DKK 1.126 billion. The outlook, we have adjusted the expectation for the global hearing aid market from previously 1% to 5% growth in value to now 1% to 3%. And our EBIT due to the development in geography mix adjusted downwards from previously EUR 4.1 billion to EUR 4.5 billion to now EUR 3.9 billion to EUR 4.3 billion. Share buyback, as announced in June, paused following the agreement to acquire the KIND Group.

Sustainability progress in first half, we have helped more people hear better. The pool of people that wear hearing aid from Demant have grown positive and in line -- reasonably in line with expectations. The Scope 1 and 2 market-based greenhouse gas emissions have decreased by 5% as we have managed to increase our share of renewable electricity by 5% or increase our share of renewable, reduce the emitting part, and this is in line with our expectations. Number of highly exposed employees trained in Demant's code of conduct have reached 94%, and we will soon have the target of 100% achieved.

Business area review, starting with the global hearing aid market in H1 illustrated in the table, we saw a Q1 of 2% with a very negative development in the U.S. commercial market of minus 5% and VA minus 1%. So North America in general, going down 3% and Europe in the softer side of the normal range of 4% to 6%. But here in second quarter, we have seen almost in line with expectations, a somewhat normalization of the U.S. commercial market, still a soft VA channel, but Europe that have not delivered the growth despite of the strong growth in France, then rest of Europe have not lived up to expectations, and we see contraction in several markets, again, attributed to consumer cautiousness driven by macroeconomic uncertainties.

ASP development for the global market still assumed to be negative with 1% for the half year. So again, in value at 2% growth for the first half year. And in Europe, expected strong in France. In NHS, growth was negative due to very strong comps, excluding France and NHS growth decelerated. It was still slightly positive in Germany, but downwards and so for a number of other European markets. Growth in North America, as already said, accelerated, whereas in Canada, we saw a negative development in Q2, also driven by macroeconomic uncertainties. Rest of the world saw a normal growth despite flattish growth in China and Japan.

In Australia, growth was negative. We estimated several export markets saw good growth. Hearing Aids, we saw, again, unit growth in Q2 being strong. We clearly took a global share in market share in units. However, with a continued unfortunate development in the mix of geographies, growing outside U.S. in total and in markets with less strong ASP, whereas we saw negative growth in both U.S. or in U.S. and some of the European markets, Canada still delivered strong growth.

Looking at the Hearing Care in second quarter, yes, a slower momentum. But again, don't overinterpret. It is also some timing of closing orders between the first and the second quarter. We see still some challenges in generating traffic from new users, and we attribute this to the continued macroeconomic uncertainty that impact users and make them more cautious and a little more than normal have chosen to postpone their first hearing aid further and also some upgrades are being prolonged. Growth mainly in units, but we also saw a slight ASP uplift due to also geography mixes.

We saw good growth in France, which accelerated due to the uptake in the market. We saw strong growth in Germany. We highlight here Sweden because of changes in local regulation. North America, negative growth in U.S. due to consumer cautiousness, but also, I would say, some timing of closing of orders and then negative growth in Canada due to negative market development, strong growth in China, driven by ASP tailwind and slightly negative growth in Australia. Diagnostic in second quarter, continued headwind from soft market developments, especially in U.S.

So growth decelerated from Q1 to Q2, in line with the market growth rate, growth impacted by negative market development, particularly in the U.S. where macroeconomic uncertainties led to a lower level of investments in equipment. We simply see, again, orders being postponed and installed later than expected. Of course, we hope and assume this will pick up if some more clarity around the financial development in U.S. returns.

Europe, positive in France, some negative development in U.K., again, also NHS being a little tight on investment in new equipment, strong growth in several medium-sized markets in Europe, negative growth in U.S., and this is by far the biggest factor together with Canada and North America in total. And again, Asia Pacific outside China, doing fine, but in China, still impacted by not a sufficient product range of Made in China products to participate in all government tenders. And with that, over to you, Rene.

Thank you, Søren. Starting with the revenue in the first half year. So we report an organic growth of 0%, which was below our expectations and where, in particular, it deviates from our latest expectations was a lower-than-normal hearing health care market growth and also lower sales in particular to a large U.S. retailer. The acquisitive growth contributed by 3%, primarily related to Hearing Care, but we also saw a small positive contribution from Hearing Aids. We continue to see headwind from foreign exchange rates with a minus 1% due to the adverse development in, again, particularly the U.S. dollar.

Our gross profit in the first half year was just above DKK 8.5 billion, which is flat versus first half year of '24. The gross margin declined by 0.8 percentage points versus last year. While we did expect a decrease due to a particularly strong gross margin in the first half year of last year, where we had a high-end hearing aid product launch. This development was slightly worse than we had expected. The gross margin decline is primarily the result of ASP headwind in hearing aids, as already reviewed, and also a slight decrease in the gross margin in Diagnostics.

When it comes to FX, it also had a slightly negative impact on the gross margin. So when we speak to our normal 76% to 77% gross margin range, you will see that we are in the very low end of that normal range. And when we look into H2, we also expect to be towards the lower end of that range. On the operating expenses in the first half year, we have managed that tightly, and we thus increased our group OpEx by 1% organically, again, reflecting the low run rate going into the year following our cost-saving effort in the second half year of last year and also our continued focus on cost management. Acquisitions added 4%, in line with our acquisition strategy.

And also here, we see a negative, you can say, effect from FX. Maybe also here a comment on what the run rate into H2 is. We estimate for now that when we look at the actual reported operating expenses in total, it will be very much in line with what we saw actually reported in the first half year. So sequentially, no growth in the reported number on OpEx for the group, which is a demonstration of our continued commitment to strong cost savings effort.

It's important to highlight that despite this, we continue to invest in future hearing aid introductions. That brings us to EBIT before special items. It was in the first half year, DKK 1.849 billion, which is a decrease of 11% compared to the same period of last year and an EBIT margin contraction of 2.3 percentage points. The EBIT margin before special items was negatively impacted by lower-than-normal market growth, lower-than-planned operating leverage as a consequence of market growth, you can say, and as well as an unfavorable geographical mix.

Exchange rates also significantly impact our group EBIT with around DKK 50 million in the first half year, of which most relates to the second quarter. This is, you can say, an FX impact that would also continue into H2 with a similar quarterly impact. We did not recognize any special items in the first half year. Then lastly -- sorry, not lastly, but we continue on the cash flow side, continue to be very strong, actually, a slight positive growth in cash flow from operations of 1% due to strong net working capital management. We continue CapEx investment in line with our mid- to long-term expectations of 4%.

We had cash out related to acquisitions of just shy of DKK 850 million related to bolt-on acquisitions in Hearing Care, so very much in line with our strategy. We did buy back shares amounting to DKK 582 million until we suspended our share buyback program in connection with our agreement to acquire the KIND Group. Then on balance sheet items, a quick note. It increased reportedly 1%, 2% from organic growth, 3% from acquisitions and minus 4% from FX.

The main swings are say, other current assets, mainly due to unrealized gain on financial contracts from our hedging activities. The net working capital declined by 3% and our gearing at the end of the period was 2.5%, which is within our mid- to long-term target of 2% to 2.5%. With that, Søren, I think we have the outlook.

Yes. Thank you very much, Rene. And again, many things are unchanged. But of course, we, as already stated, have had to downwards adjust our expectation for the full year market growth previously 2% to 4%, but we take 1 more percentage of the units and therefore, lower the expectations in value to 1% to 3% [indiscernible] and maintain our view on the French market that still in units deliver high single digits in -- on the tracking to deliver high single digits unit growth for the full year.

Cash allocated to acquisitions, as earlier announced, higher than normal and also the -- in previous statement, announced acquisition of KIND. And then, yes, nothing else to that. And then again, due to the unfavorable mix change in geography and having to sell more units to get to the same revenue, we have had to lower our expectations for full year profitability from previously DKK 4.1 billion to DKK 4.5 billion to now DKK 3.9 billion to DKK 4.3 million. I think that's it for now. Let's go to the Q&A session.

[Operator Instructions] And our first question today comes from Hassan Al-Wakeel from Barclays.

I have 2, please. Firstly, just on Costco. When we spoke last Rene, you were not expecting material share changes in this channel given Sonova's return and have baked in some uncertainty into the guide. Has the share change surprised and become more material? And do you think this has now stabilized?

And then secondly, could you elaborate on trends across key European markets? I know you haven't specifically called out a COVID anniversary effect, but do you think this is significant in some of the markets you operate in? And where -- which markets do you believe you're gaining share in Europe?

Yes. Maybe if I can allow to follow up on the question, even though it was semi-addressed to Rene. In the large retailer you mentioned, it was not our assumption that there would be a full addition of one more supplier. And our assumption was, if anything changed, it would have been a replacement of one. This didn't happen. And yes, that have changed both what we have seen during second quarter and also our expectation for share in second half in that channel. So it is the natural consequence of splitting sales out on more suppliers.

Trends across Europe, it's very difficult to know exactly what is the root cause to the lower demand that we see and the increased effort we have to do in our Hearing Care business to generate enough traffic. We attribute it to general uncertainty and then you can have various speculations around things such as the renewal rate after COVID. We are a little cautious on that because this normally spreads out for a relatively long period and also have to do with when you actually call on the group and you can pull things a little bit forward and so on.

So we don't attribute a lot to that. But that's, of course, always difficult to exactly point out. There's also been and continue to be a collation to very hot summer in certain European countries and so on. Yes, if we zoom into specific regions or specific markets, yes, you can find some elements of that. On the other hand, these things have a tendency to catch up relatively quickly. So if you look at it from a full first half year, then what we have seen also in Q2, we mainly attribute to a user, consumer cautiousness and overall macroeconomic uncertainty.

Very helpful. If I could just follow up on Costco. Has the share change stabilized to your mind? And what are you baking into the guide for the second half?

Yes. We look at it on a longer period, you have to do -- this is bulk shipments, so it can vary a lot. And you have no transparency to the total market or the total buying. So you have certain assumptions for the consumption by the customer and you over 1 to 2 months look at your own share. And it's too early to draw conclusions on whether it's stable or not. You would have to see trends over a little bit longer period. But this is updated view where we take out, I would say, material share in second half. Otherwise, we wouldn't mention it.

Our next question comes from Martin Parkhoi from SEB.

Martin Parkhoi [ probably more closer ]. But Martin Parkhoi, SEB. Just a follow-up on Costco, but more on the side of profitability. You cut your midpoint of your EBIT guidance by DKK 200 million. And I'm pretty sure the operational leverage are pretty high in Costco. So can you maybe -- I understand you won't say the full number, but if we look at the DKK 200 million split, how much is explained by the weaker market and actually how much is explained by lowest operational leverage in Costco?

And then second question, just on the -- what you think -- put out in the report that you mentioned impact from future product launches on production cost and OpEx in the second half. Two questions on that. Has there been any changes to that cost assumption during 2005 since you put it out now? And is this higher than normal? What should we read into that? And why do you actually put it out there?

Yes. Thank you. I don't know, Rene, will you comment on the...

On the -- if you decompose the midpoint of the profit adjustment, basically, you could boil it down to 2/3 being the market, 1/3 being Costco and then partly offset by, you can say, even further focus on the OpEx side, which could counterbalance some of the effect. That brings you to DKK 200 million. And on the OpEx, no, you can say these are activities that we have planned with throughout the year. And thus, it has not materially at least changed in second half year compared to our original expectation. It's just important to underline that despite the efforts we undertake on the cost side that it does not mean that we are not capable of funding and undertake the activities related to future hearing aid introductions.

And it's, of course, a difference between last year where such things did not take place in this year. So it's just meaningful in the year-over-year comparison.

Our next question comes from Veronika Dubajova from Citi.

I will keep it to 2, please. One, just maybe try to circle back on kind of any comment you can give us on what you're seeing in the markets when you look at July and August. I'm not asking for commentary on your performance, but obviously, in the regions where you do have monthly data, I'm curious if you could comment on whether July volumes are improving, staying stable or deteriorating. And in particularly, I guess I'm curious about U.S., Germany and France to the extent that you see those numbers. And then I'll ask my follow-up after that, if that's okay. I'll let you answer that first.

We'll be careful with single month, and we see no material difference than what we have just spoken to for the second half assumption. So things seems to be in line with that.

Okay. That's helpful. And then maybe just on the product launch spend, and I appreciate you don't want to tell us a lot. But if I kind of look at the normal run rate of OpEx sequentially first half to second half versus what you're guiding for this year, it does imply a meaningful investment into product launches, which is not normally typical in the industry unless we're seeing major product introductions, new platforms, et cetera. So can you maybe sort of talk through what are some of the expenditures that we should be anticipating in the second half and why you feel the need to invest so much at this point in time?

So Veronika, just to get the assumptions, you can say, right for second half year. So what we talk about is no growth in OpEx sequentially. So what you see of actual reported OpEx in the first half year is ballpark what you should report or what you should expect that we report in second half year. So flat growth sequentially.

It will, of course, be growth year-over-year because we did, you can say, a massive cost-saving effort in the second half year of last year. So you'll see organically a mid-single-digit growth year-over-year. But sequentially, we will not, as a group, spend more money in second half year than we did in first half year of this year, just to get that precise.

Okay. And can you talk about some of the activities that you expect to be undertaking to support the product launches you have in mind?

I mean they are, of course, of the natural kind when you do product launches as we always do. That's seeing customers having sales and marketing activities, various launch costs. Don't read into this that they are significantly different than you would normally see, but it is just a difference between, as Rene said, a very tight budget or spend second half last year and this year, and that's just what we flagged.

And our next question comes from Maja Stephanie Pataki from Kepler.

If we just take a step back and look at market growth, it has been somehow volatile over the last few years. And of course, uncertainty has been massive. It started with COVID. We had inflation. Now we have challenging political conditions with the U.S. tariffs, everything. So this uncertainty that we've seen over the last couple of years, at least for now, we need to assume that it is permanent. How do you think about planning on a 3-year basis? Do you believe that maybe because market growth is not straightforward 4% to 6%, very great differences across markets.

Do you think you need to take a different approach in how you move in markets? And a follow-up on that, how are you thinking on the cost side? Because I mean, if you look at your margin trajectory over the last couple of years, it was not too exciting. So do you think that maybe it's time for a more thorough restructuring process to get margins up?

Yes. Thank you very much, Maja. I definitely agree that the volatility quarter-by-quarter, half year by half year have definitely increased compared to what we have seen in the past. But both ways, we have also seen half years and quarters with very high growth following quickly after the decline. So it's also important you are still there and ready when the market starts growing again. So we don't see the fundamentals being changed. But yes, the volatility and dynamics being more. But the absolute size of the market, we will see smaller swings around a relatively stable line.

Your second part of your question, it does, of course, as always, call on constantly looking for cost efficiencies, which we do when we just highlighted a modest 1% organic growth in a world full of inflation. It is because we take a slightly different approach and do more than maybe done in the past to mitigate these effects.

So we don't end up taking out what needs to be done on the sales side, on the R&D side, et cetera, but of course, look for scale effects and cost efficiencies wherever possible. And of course, you could also say, looking into the future, we definitely also reflect on additional opportunities to build and regain back some of the lost margin. It is clearly still our ambition to run the business with a higher margin than you have seen here in the first half, where you have also seen a weaker-than-expected market.

Our next question comes from Graham Doyle from UBS.

Two questions for me. Just firstly, in relation to those costs around future product developments. I think we discussed in the past around how you would typically have a product launch in H2. And obviously, we haven't had anything as yet. So it would be good to understand one thing which is specifically -- when you think about the philosophy of launching a product, historically, the idea particularly to the platform is to do so with enough time to get into the VA. So could you just let me know if that's changed in terms of your approach to that? Or would you still aim if you were launching some sort of platform to make sure you make the VA window?

I would speak in generic terms. And yes, we still plan to do 2 significant launches, whether they are platform or non-platforms a year. It is also our plan to do that this year. And the exact timing is always, of course, subject to the ambitions and the finalization and make sure things are truly ready and ramped up and so on. It is always good to try to hit the VA window. It is not always possible.

Our general principle is we will tell about new products when they are ready for sales because we want to prevent potential holdback in the existing business until we can actually really introduce and deliver to customers. That's also the case this half year. So yes, we are still committed to launches 2 times a year. And yes, we have a good pipeline for both this year and the coming years. [Audio Gap] Operator, can you hear me? Hello, operator any -- are we coming through? Hello, operator [indiscernible] can you hear me?

I can hear you. Can you hear me?

Yes. We hear you.

All right. Very good. I can join this line back in. There is a little bit of an echo that I can hear my voice coming back to me, but now it seems better. Can you still hear me?

An echo. We've a little bit humming, but that's it.

We're actually pulled out of the call right now. Can you [indiscernible] so we're speaking privately.

We don't think so. It doesn't look like from our data. Should we take the next -- please take the next question, operator.

All right. One moment, let me join the line back in. This is the conference operator. We have the speaker connection reestablished. So Mr. Doyle, you can proceed with your question.

Awesome. Sorry, so what I was saying is you've described in the past that you would typically launch new products in the second half -- were in the second half. You've talked in this document about increased cost in terms of investment around new products. And I suppose the question I have is just your philosophy historically has been to put new products into the VA channel as it's an important channel. Is that still a reasonable assumption to make going forward?

Graham, I got your question. I got your question.

So, go ahead.

Yes, I'll repeat the answer and then we can take your second. Simpler version this time in respect of time. We're still committed to doing 2 launches a year, and we also will this year. We have a good strong pipeline due to the risk of people holding back on existing orders. We tell new products when they are ready to be sold and ramped up sufficiently, and that will also be the case this time around. It is, of course, always preferential to try to catch a window of like VA, you can't always do that, and I cannot comment further on shortcoming launches this time. Any second part of your question?

Gentlemen, it appears Graham has removed himself from the Q&A. So we'll move on to our next. Maybe Carsten from Danske Bank.

Carsten from Danske Bank. I don't know. I couldn't really hear.

We hear you, Carsten. Just go ahead.

Carsten from Danske Bank. I have just a question for the remaining part of the year. You delivered 0% organic growth in the first part of the year. And in terms of the midrange of your guide of, let's say, 2% for the full year, you need sort of quite a comeback here in the second part of the year. So which part of your divisions or franchises do you think will react first? Is it sort of wholesale, diagnostics, retail, et cetera? And can I also just get a sort of confirmation or what should we call it that Diagnostics will be kind of challenged for the rest of the year? Or what is your view on Diagnostics?

Yes. Thank you, Carsten. Let me try to high level. It will, of course, be mainly simply due to the size of it driven by Hearing Aids and Hearing Care. And there is both something in the comps. We again had a number of things in Q1. We have seen good share gain globally in second quarter. So we, of course, have the headwind in the U.S. business driven by a large retailer. But other than that, generally good momentum in the business.

And that's the main reason together with compared to first half, some improvements in the market. Diagnostic is a little more uncertain and related to, you could say, an increased investment level in U.S. and the exact timing of that, we cannot really say. So not too specific on the individual outlook and the growth expectation for the various business. But it has to be driven and will be driven by Hearing Aids and Hearing Care.

Our next question comes from Niels Granholm-Leth from DNB Carnegie.

On my first question, are you able to recognize any effect from this 5-year COVID close down that Amplifon alluded to on their conference call? Secondly, could you talk about your expectations for your net financial items for the full year, given that you expect to close the KIND acquisition, say, around the beginning of quarter 4?

I'll take the first. I think I actually commented a little bit on it earlier. I don't know if you got it. We, of course, can see that the exact months, some of them in Q2, the database had less prospects that were fitted there. But people don't just like all come in, in one go. So when you look at the actual distribution, we don't attribute a lot to that effect. Maybe it's part of it, but we think, yes, macroeconomic uncertainty is far bigger.

So no, we don't attribute a lot to that. You can also do the in certain regions and smaller areas, you can definitely see some effect of weather and so on, but it typically come back quickly. So strong hearing aid market in first half.

Yes. On net financials, Niels, what we expect for the full year right now is slightly more negative than last year, driven by higher debt and also growth in our retail business, but partly offset by lower interest rates. We have not built in any expectations on or from KIND, neither in financials nor in EBIT or sales since we don't have clarity on the date of closing of the transaction. But once we do that, we will update our outlook accordingly.

Our next question comes from Martin Brenoe from Nordea.

Martin Brenoe from Nordea. Just to understand it clearly in the retail division in Hearing Care, you have been quite exposed to markets that are actually growing, France, Germany, also U.S. being up. So can you maybe just elaborate a little bit whether the sluggish growth in Q2 is just purely phasing or if there is anything to call out? And on that regard, you had some comments about the market slowing by the end of the quarter. Is that also what you are seeing in the beginning of Q3? That's the first question. And then I'll wait with the second question.

Thank you, Martin. I think we actually have to take it a little bit market by market. France, good as expected uptake in the market. We follow it in our business. Germany did was part of the declining growth and less-than-expected growth in Europe on the market side, we did well in that market in Germany specifically. U.S. grew also as expected in the market. We did not capture as much of that as one could expect. And in U.S., I would attribute some of it to timing of activities and when you close and then the level of pipeline you carry into the next month and so on.

So for U.S., yes, a less strong performance isolated in Q2. But on the other hand, also a stronger-than-expected performance in Q1. And if you look at it in the first half year, still an improved U.S. business compared to what we have seen in recent years and nothing to call out and alarming, but sequentially between the 2 quarters, a little bit out of sync. But for the half year, I would say, on expectations.

Okay. That's very clear. And then just as a follow-up question, I guess that you've also noticed on this call in general that everybody and their mother are speculating whether you'll launch a product sooner rather than later. Do you think that you have also seen some retailers holding back a little bit on the anticipation of new products coming?

No, I think the rumors are very weak in the market. They are particularly much stronger among the investment community.

Our next question comes from Oliver Metzger from ODDO BHF.

The first is on the overall weakness of the hearing aid market. So Maja asked also in this direction. But if I remember a station almost 3 years ago, that was about repurchases where we see some postponement. Now I remember you talked also about the first-time users where you saw some hesitancy. So can you first classify between the decline between the first-time users and the repurchases? And also in a more bigger context in this context, it seems that the overall hearing aid market has become more volatile for decades.

You talked about very high stability [ even ] was COVID, inflation a few years ago. And now it's clearly more of a consumer confidence. So it would be great to hear what has changed in the market fundamentals that some external factors play even a bigger role than they did in the past? And the other one is very quick on China, the ASP tailwind you reported in Hearing Care, more background on that and how long it is expected to last?

Yes. Thank you very much. It's very difficult to make sure you compare apples-to-apples when you look at first-time use and upgrades because what was the effort you put behind it. So what we can see is it takes more effort to generate sufficient traffic of new -- first-time users to the business. It's always more costly to do that than it is to call on your database. But at some stage, even though you can get a little bit extra out of the database, you have to get back to the first-time users.

So you feel the lack of market growth more coming from lack of new users because it's harder. But in reality, I would say both effects are in there and it's difficult to take them apart. But we clearly sense that it is very easy to postpone your first interaction and contact when reached out to for your first hearing aid, and that is a clear factor here in the first half that we have seen.

And in Europe, stronger here in the second quarter than in the first quarter. And to the volatility, I don't think the fundamentals have changed. I really don't. I just think the number of events that could cause it have been much more frequent. We typically talked about the financial crisis in 10 years ago or 5 years ago, and then it took another 5 and 10 years until something really material happened.

We also know it has to be something that somehow impact our key audience, senior citizens. So it's not unemployment rates. It's not the annual salary development and stuff like that. It is typically in U.S. share price development. And we can also see this time that it followed that pretty closely. And then in Europe, as there is more reimbursement, it comes a little later, but it's kind of sinks in more from a psychological point of view than it actually is financial that things are a little uncertain and there's a war going on and now there's also a conflict in the Middle East and so on. And that just somehow sets in. And then in some countries, tight government budgets can also sometimes lead to increased waiting list, stuff like that.

But I don't think any of the fundamentals have changed. The frequency of these events are just higher. And then China and ASP, it comes from -- China is a country with no professional education. And the more we invest in training and education, the better performance we get in selling better quality devices to people. And that's an effort we have -- something we put a lot of effort into and see results from. So it stems from selling higher and higher in China and the education level in China of hearing care professional is lower than we see in most other mature markets around the world.

Our next question comes from Andjela Bozinovic from BNP Paribas.

My first question is on the U.S. market. And if you can comment on specifically managed care. How are you evolving with the market share in the channel and specifically with UnitedHealth? And the second part of the question is, again, on Costco. If I remember well, you were the leader in the channel before we have had Sonova back. So is this still the case? Or you are seeing greater market share loss?

Yes. Thank you for your 2 questions. And as it has been published, we have changed our offering and product offering, specifically, yes, to United. Other than that, we don't go into the details of individual plans and accounts. But overall, yes, positive. We have seen growing share during the second quarter. And it's also part of, you could say, the share gain outside large retail in U.S. that we have seen from first quarter into second quarter and is part of the momentum we carry into the second half.

Specifically on larger retailer, we believe we don't know, but we believe we are the largest player. We still believe we are that. I'm just saying when there is 4 instead of 3, you will see everybody losing some share. And I'm not -- I can't tell that any have lost more than others. We still have a good, strong business, but it is lower than it was a year ago.

Our next question comes from Susannah Ludwig from Bernstein.

I have 2, please. I guess you talked about gaining unit market share in Q2, both sequentially and year-over-year. However, is it fair to assume that this has primarily been in lower ASP geographies? Because it looks like external growth in the Europe -- in U.S. and Europe was still negative versus unit growth in those markets? Or was there also sort of an ASP negative impact within these geographies that's sort of making your unit growth closer to the market there?

And then second, could you just give a little bit more clarity on the sort of negative wholesale performance in the U.S. despite the rebound in the U.S. market to plus 4% in the quarter. I guess how much of that was the headwind from Costco? And what were the other factors driving sort of the underperformance versus what we see as sort of U.S. commercial market growth?

Yes. Thank you very much. You're absolutely right. It is geographies with lower-than-average global ASP where we have seen most growth and therefore, our ASP go down. There is big differences across the European markets, if that's how I got your question. We are doing well in France, as an example, but the product mix in France is also going down as many of the people that come in for renewal have a free-to-client category of hearing aids. They are significantly less priced on wholesale level than the premium products.

So the ASP in the French market go down. It doesn't mean that less people get in absolute terms, a premium product, but the market growth predominantly happens in the free-to-client category. So putting it all together, yes, unit growth above market growth in Q2, ASP down due to geographic mix, that's spot on. U.S. outside large retail is a good story going from Q1 into Q2. We have seen -- you just -- the question was just raised to managed care. That's an example of share gain.

We have also seen a good share gain from sequentially Q1 into Q2 with the independent, and we see that as a testament to the strength of our product range after numerous introductions from competitors that have been trialed out. That is how it works, that many customers try out the new stuff. And then you see the reaction. We are positive on the rebound we have seen in Q2. We still see a little bit of year-over-year loss, but a strong development from Q1 into Q2. So again, also a momentum we carry with us into the second half.

And then last channel in U.S. is VA, where we have seen some growth year-over-year in share up until the introduction of new products from competition. Then you see a natural also trial there. We don't know how it pans out after things have kind of settled. But also there, we have seen and do see some of the account or locations that have tried new stuff to return to Oticon Intent specifically, which still do a very good job in VA and among the independent dispensers. So you can only attribute the -- the lack of performance, if you say so, in the second quarter in U.S. to large retail.

And is there any ASP impact in Q2 in the U.S.? Or is it really like in, say, the independent channel or ASP flat? Or is there any negative ASP impact in any of those channels?

No, all that is very stable. It is also within U.S. a mix change. So you could actually say when we grow relative to Q1 with the independent and lose a bit on large retail, our U.S. ASP goes up. So there are so many channels, geography and ending up being a product mix effect that is what ends up constituting the ASP. So it's a relatively dynamic also within a market parameter depending on your actual mix of sales.

Our next question comes from Robert Davies from Morgan Stanley.

One was just on France. Your comment on 2025 doing high single digit in terms of units. Are you already at that run rate to get there? Or are you baking in sort of further acceleration through 3Q and 4Q? That was my first question. And then the other one was just around the success of, I guess, your peers in AI-enabled hearing aid.

What are you kind of hearing in terms of feedback of the sort of main features that have gone well or not well or sort of things you think you could still add in terms of new product introductions. It's been speculated already in terms of what you could bring to market. I'd just be kind of curious how you think that sort of excitement level between the audiologist has gone and their appetite to sort of take another potentially AI-enabled hearing aid in the market.

Yes. On France, it's a gradual uptake during the first half and also during the second quarter. So just by that, the growth in the second half will be above the first half, and there is -- we are still not fully at the run rate expected. On AI, I would like to highlight that we launched the first AI-driven technology in the industry and still see ourselves as among the absolute leaders in that. There is a very strong correlation between what kind of signal processing you do and what kind of battery you carry and whether things are on all the time or something you can use a little bit in special situations.

Our strategy and approach is to make sure it's always doing a job in making sure you manage the dynamic listening environment you're in. The user don't have to switch anything on and off, and it does not compromise size of the devices. And that's clearly the echo we hear from customers that the performance when it comes to end user satisfaction, solving hearing and noise, solving everyday life, our Oticon Intent based on the AI algorithms we have do a fantastic job.

And ladies and gentlemen, with that, we'll be ending today's question-and-answer session. I'd like to turn the conference call back over to Gustav for any closing remarks.

Thank you, operator, and thank you all for joining us on the call this afternoon. We look very much forward to seeing many of you on the road in the coming weeks. And if you do have any follow-up questions, please reach out to us in the IR team directly after the call, and we'll, of course, do our best to help you out. Have a good day.

Hello, everyone, and welcome to this statement conference call concerning the agreement to acquire KIND Group, which we announced this morning.

For the call today, we will run through a short presentation followed by a Q&A session. The presentation should now be available on our website. We plan for the call to last no more than 45 minutes in total, including the Q&A session. Please note that when we get to the Q&A session, we will only take questions relating to today's announcement.

On the call today, we have Søren Nielsen, our President and CEO; René Schneider, our CFO; and myself, Gustav Høegh, from the IR team. And with that, over to you, Søren.

Yes. Thank you very much, Gustav, and welcome, everybody, to this conference in connection with the acquisition or intended acquisition of the KIND Group, as Gustav said.

Before diving into it, KIND and Demant have had more than 20 years close collaboration, and I'm really proud that we have been able to land this agreement. I think it's 2 companies that are built fundamentally out of the same core DNA, a strong desire to do great for people that are hard of hearing, but also run professional companies with a view to the long run. So very complementary, very aligned in mindset and values and business focus and both well-managed companies that have a solid performance financially. So really a good, strong acquisition in line with our overall strategy. And that's first slide here.

This is one-to-one in line with the all Demant strategy to expand its hearing care footprint globally and signing an agreement to acquire the KIND Group being one of the world's largest retailer and hearing health care players in general with more than 650 clinics is totally in line with that strategy. Around 600 of these clinics are in Germany. And this transaction does further expand our presence in the German market that have been a key focus in the latter years. And we will, with that be one of the larger players -- largest players in the German market and, of course, also a strong and significant expansion of our global hearing care footprint.

The total acquisitions amounts to EUR 700 million. It's done on cash, debt-free basis and paid in cash at closing and financed fully through debt facilities. KIND is, as I said, a unique strategic fit not only sharing Demant's values and ambitions of improving lives through hearing care solutions and expertise, but also offering important synergies with the Demant Group. Both companies will make one another better. So it's a very complementary and I'm sure, a strong growth and strong performance ahead of us in the combination of the 2 businesses.

Closing this transaction is naturally subject to customary closing conditions and regulatory approval. We expect these to take place in the second half of this year. KIND is a recognized brand in a highly competitive market. The business was founded in 1952. Current management is first generation of the KIND family. They have built a very strong brand in the market and a proven track record. And again, their culture, the culture of KIND aligns very well to the culture of Demant, and we have had a long partnership, a successful partnership for both parties that you can say we further solidify with this acquisition. It's one of the leading players, more than 650 shops, of which around 600 is in Germany.

And then as you can see on the map, around 30 in Switzerland and then basically 3 minor assets in Luxembourg, Austria and Singapore. It's a well-established, mature, well-operated organization with around 3,000 skilled and experienced employees that we, of course, look forward to welcome to the Demant Group. A financial strong track record, good profitability. And as always in this kind of business, also solid cash flow generation.

So again, very complementary to Demant. The strategic rationale, I've already alluded to several of the points, but expanding our global footprint, it supports our strategy, the Demant strategy to be both a strong player in the hearing care space, while at the same time being a strong player on product innovation and technology, but this is part of the strategy of expanding our footprint with, again, later years, a focus on Germany, a unique strategic fit.

We offer state-of-the-art technology, global scale and experience and KIND offers a very strong track record, brand and experience in the German market. Very strong fundamentals, well-established organization, strong core values, highly engaged staff, strong profitability and solid operations. So very good and complementary to Demant's existing business.

There are important synergies, including growing share of wallet, conversion to -- further conversion to Demant premium technology and natural scale benefits, increasing profitability over time. We are sure we can also together deliver that. Increasing the footprint in Germany, very obviously, and with that becoming an even more significant player in the German market, one of the biggest markets in the world. So that was the overall rationale and a little more details on the financial impacts by you, René.

Yes. Thank you, Søren.

So short term, the group financial outlook for both organic growth and EBIT remains unchanged as we await the closing of the transaction, after which we will come back with more details. We estimate that at closing, our gearing multiple will be around 3.5 thus above our normal target range. And thus, the share buyback program is suspended effective immediately. KIND in itself is a solid cash flow generator with a strong cash conversion. So that in itself will, of course, contribute to Demant. And we expect from this transaction a positive effect on EPS already in the first year after closing.

For '26 and onwards, we estimate that -- KIND will contribute revenue of around EUR 300 million, being DKK 2.2 billion and will contribute with an EBIT margin before special items in the mid-teens. Revenue from the acquisition is expected to grow organically, roughly in line with the global market growth rate of 4% to 6%.

We also assess that the acquisition offers important synergies, which are expected to be realized fully by the end of '27 and thus with full year effects from beginning of '28. When synergies are fully realized, the EBIT margin contribution from this acquisition is expected to be around current group level margin. Expected transaction and integration costs in the first 2 years after closing will be recognized as special items, and we will share more details on this following closing.

On the financing and cash side of things, we would like to emphasize that Demant remains a highly cash-generative company with strong free cash flow as exemplified by the graph on the right-hand side, looking at DKK 3.5 billion of free cash flow, for example, in 2024.

KIND in itself is cash flow positive and will also be accretive to free cash flow from year 1. And as mentioned before, our estimate is that the leverage ratio will be around 3.5 at closing, and it will be a main priority for Demant to deleverage until we are back into our medium- to long-term target range of 2 to 2.5, and we expect that to take place within 18 to 24 months after closing. And still in this period, we will continue to pursue smaller bolt-on acquisitions, albeit expectedly at a reduced rate for now. I think that is what we would like to share on financials, and let's go to the Q&A.

[Operator Instructions] Our first question comes from Maja Stephanie Pataki from Kepler Cheuvreux.

This is Maja. A couple of questions from my side. Søren, how should we think about the impact of share of wallet? Would that be over 2 years that you were expected to see the positive impact? And is that included in the DKK 2.2 billion that you've indicated on the contribution on sales?

Then I was wondering is there any way that you could quantify the potential positive impact from the scalability you get on the group margin through higher volumes that you're going to be selling on hearing aids? And then the question would be on the financing. Is there any indication you could give us at this point in time what the rate would be for the financing?

And lastly, I'm not sure whether you can answer that at this point in time. But given that you're indicating the growth rate of the KIND Group at 46%, the share of your retail is increasing. Is it going to imply that you're going to change your long-term targets on the organic growth rate? Or how do you think about that?

I take the first and the last, and I will let René to comment on the 2 middle ones. We will, of course, increase the offering of Demant technologies in the business. We always move with further training and explanation and so on. So yes, it is something we aim to achieve within the first 1 to 2 years, and it's built into the guidance you get here.

We will also focus on making sure that people fully understand the benefits of the best technology and maybe with that being able to improve the product mix in the business. That's also a key focus. So growth of the 4% to 6%, it should also be seen in that light that we think there are opportunities to grow organically also within the existing business in various ways. And therefore, there is no intention to discuss the long to mid-term outlook as a consequence of this transaction.

So Maja, thank you for your question. We believe this is a very strong case also financially. And really, how you will see that is that we intend the contribution from this acquisition to go from, you can say, a typical stand-alone retail mid-teens margin to actually contribute with a group level margin on the total sales. And the levers towards that is both, you can say, potentially a better product mix from a higher share of Demant technology, but also the fact that we are, at the same time, are a manufacturer of the same hearing aids. So you will see both the growth contribution, but also a gross margin contribution from lowering production costs. So you can say straight down the middle of what you can say we are used to in these cases, but of course, at a very, very sizable scale here in this case.

On the financing rate, you can -- I can refer you back to our annual report for last year, where you can see our average interest rate being around 3.5% weighted. We are financing this through a bridge loan at a lower percentage than that. That's how much I can detail out on that.

Our next question comes from the line of Martin Parkhoi.

Yes, Martin Parkhoi, SEB. I think there will be 3 questions. Firstly, now we can say that Germany has been a focus market for Demant in recent years to make bolt-on acquisitions. I guess you will on a global -- on a group level, have less in coming years. But what other focus markets do you have in expanding your retail position like we now have seen in Germany?

And then the other, when do you think that we will have a fully integrated hearing care business in Germany for you where all clinics are under same brand? And then the third question, which I'm probably difficult to answer, but with the valuation that we see on the asset, then it has clearly been a competitive process. Why has this asset been more worth for you than the other potential bidders?

Yes. Thank you, Martin. Yes, true, Germany has been a focus market in recent years basically because it was the single market that were, you would say, left with a significant below share of hearing care activities compared to the rest of the world. So this definitely takes us to a situation where we are among the biggest and therefore, not the same special focus in the years to come. And there are not really any other markets, I would say, in the portfolio of now more than 25 where you have the same strategic gap.

So I think from now on here, unless something special should come up, we will again have a period of more traditionally bolt-on natural part of growth, which will happen in a broad array of markets. So there is no new focus market, especially, of course, we will continue to expand in markets where we feel we have a strong operating model, where we lack scale and where opportunities arise, but no special focus.

Fully integrated, we don't have any current plans for that. We operate an existing business built off a number of individual acquisitions under various brands in Germany already today in Demant. It's a key focus to continue that short term and mid-term, while we, at the same time, make sure we do a good professional onboarding of KIND to the Demant Group. And once that is completed and landed well, then, of course, we will look at how we optimize the entire German business to again make sure we get the benefits out of the asset and the mutual benefit the 2 organizations can give to one another. But that's it for now. And again, we will not comment any further to this until we have been in control at least for a while.

And value, yes, we have, of course, no insight to what offers have been made. We have reached an agreement. Yes, I assume it has been competitive, of course, but we have landed a good deal here, signed a good agreement, which I think both parties also like the match of the 2 companies, which might also have played a role in coming to conclusion.

Our next question comes from the line of Carsten Lønborg Madsen from Danske Bank.

I was just wondering when you now guide us sort of towards a growth of 4% to 6% in line with the global market growth, then how much is this above the last 12 months growth in the German market, which I think to be able to recall that has been sort of suffering a little bit in recent years.

And then secondly, if we look at the KIND in isolation, what will drive the uplift in the EBIT margin for KIND? I understand that you, in combination, as your share of wallet will increase, et cetera, will benefit from this, but which cost items will be lower for KIND in the future?

Thank you, Carsten. It's right that Germany have been more around the 4% than the 6%. But again, this is where we have to look at the global average. We feel there are opportunities in the business to drive organic growth beyond just following the market growth in Germany. And yes, we feel comfortable around that. We don't comment on specific costs, but there are, of course, always things that day 1 applies when you become part of a bigger group, whether it's your licenses to software suppliers or stuff like that. And other than that, we, at this stage, have no further comments to potential cost synergies. We are focused on the sales side.

Our next question comes from the line of Graham Doyle from UBS.

Two for me. Firstly, just obviously, as you say, it's your biggest deal, and it's a reasonable step-up in leverage. It's just the bigger context, it doesn't look to be at least initially significantly earnings accretive. And our numbers, it's not massively earnings accretive even on a sort of 2-, 3-year view. So I suppose, how important strategically is this asset because it's quite a lot of capital. And I just maybe raise the question, are there that many more attractive assets left to acquire in the retail segment? So just to get your sense on that.

And then secondly, a bit more related to the ongoing business. Could you give us an update on how the market has trended in the U.S. post Liberation Day, if at all possible? I understand if you care not to, but just if you could, that would be great.

Graham, I will start saying we don't want to use the call today to give any further color or comment. We will come out with that when we have more than a single month and so on. We don't want to run trends analysis on that. So we'll come back on that at a later natural stage. I would say it's a very good business we have acquired, as René said, and René can comment further on the details of it, but it is a solid business. So it's both a strong, solid business where I think it's a fair pricing. But it's, of course, also one which there are not many of, as you say. And therefore, when you get the chance, you need to be sharp and ready.

Yes. And just -- so we don't have full line of sight to the exact, you can say, transaction and integration cost in the short term. But beyond that, it is highly accretive to earnings per share. This is a plus EUR 300 million business with a group-like margin and with, I would say, in that context, limited financing cost for Demant and a tremendous, you can say, synergy opportunity also. So all that combined will make it highly accretive to Demant, the net profits and earnings per share.

Your next question comes from the line of Niels Granholm-Leth from Carnegie.

First question on wholesale prices in Germany. Now that Amplifon, Sonova and you control, I guess, more than 1/3 of the German market, do you think that could lead to better pricing...

[Technical Difficulty]

We lost the line...

I think for now, operator, let's go to the next question in the line.

There seems to be some disturbance here. Please go ahead.

Okay. I'll proceed with my question.

We can hear you.

So do you think this acquisition can lead to better price discipline in Germany now that Amplifon, Sonova and you control such a large part of the German retail market. As far as I remember, the wholesale prices in Germany are quite a bit below the European average. That's my first question. And my second question would be -- so is part of the synergies that you expect for the next few years, would that be to rotate production from KIND's plant in Eastern Germany to your plant in Poland?

Thank you, Niels. I think our main take on Germany is it's still, despite of this partnership being stronger, a very fragmented market and highly competitive market, and I see no chance that this should have any impact on pricing in the market. I think it will remain to be -- that's really a very dynamic market with constant competitive environment going from one manufacturer to the other evidently over time, and I don't see this impacting this at all. About the synergies on the manufacturing side, this also remains to be investigated further once we get in control of the business. We have no opinion at this stage.

The next question comes from the line of Susannah Ludwig from Bernstein.

I have 2, please. I guess, first, could you give some color as to prior to the acquisition, how margins in your German retail business compared to other countries where you have larger scale. So for example, what did German retail margins look like versus France? And then second, you highlighted one of the positives of the company with its highly engaged staff. Could you discuss strategy around retaining this loyalty with the change in ownership?

Yes. René, you can comment on the first. We always put shareholders, customers and our staff at high priority and having an engaged staff is key out in the many clinics. It's something the KIND business and KIND family have always put high and we always put high, and that's part of the I would say, cultural fit, and we feel comfortable that we can continue that effort to make sure through training, education, investment, you would say, in making our staff the best in the field is part of ensuring a strong engagement also going forward.

Yes. And we have said before that our German retail margin has been below our, you can say, average hearing care margin and simply because we -- as we also have communicated, we have been subscale. And this transaction is exactly what propels us from being subscale to having scale and a leading position and thus also enable us to get a leading, you can say, margin in the business. So it connects well and it's in line with our strategy and also financial ambitions.

So it's back to that synergies happens at both sides, both in the KIND business and also in the Demant business.

The next question comes from the line of Martin Brenoe from Nordea.

Congrats with the acquisitions here. I have 3 questions, if I may. The first one would be that at the Capital Markets Day last year, you showed how it makes sense to buy retail because you can increase your share of wallet from 25% to 95%. Is that also your ambition with this acquisition? And how fast do you expect to go there? That's the first question.

The second question would be what is the typical markup for KIND at least you know, I guess, your own wholesale price and their retail price. So the markup there would be interesting to know. And then just as a final question, what do you think the reaction will be from the independents based on this? Are you at risk of losing any market shares? Are you working with them, talking with them about anything? Are you giving any loyalty programs to them to avoid losing any market shares? That will be the final question.

Thank you very much, Martin. And yes, we will apply the same strategy for KIND as the remaining of our Hearing Care business, which is over time to grow share of wallet. It's always important to again, make sure staff feel comfortable and understand the product. So we will expand the offering over time. We will make sure staff is well even better trained in Demant technology. The good thing in this case is they are very familiar with it and like it and have worked with it for many, many years. So again, this is close partners that move even closer together.

We have no comments on markup, and I don't think it actually -- you could discuss whether it makes any sense. Now it is forward-going revenue and cost of goods sold, and that's how we look at things. And yes, it's, of course, important to reach out to -- from our wholesale organization, which is a separate organization also in Germany to customers and assure that our commitment -- strong commitment to continue to develop strong innovative solutions that are attractive for them to hold in their business will continue and that the strong support will be there.

Again, we have worked with -- partnered with KIND at wholesale level for many years. So in the market, you will not see any major changes from this. And that's I'm sure customers will notice. So -- but there is a job to be done in making sure we are still strongly committed also to the wholesale business and to growing that also in Germany.

Our next question comes from the line of Andjela Bozinovic from BNP Paribas.

Just one on the market share. So what was your market share in Germany before the acquisition? And what is it going to be after the, let's say, you realize all the synergies with the acquisition? And just like a follow-up on this, what is the market structure? Do you have any other independents and how large they are as target in Germany?

Yes. We don't comment on specific market share per country for natural competitive reasons. But we have a decent high share in Germany, you could say, reflecting basically our overall global market share. It will increase from this point as our share increase. It will still, as I said before, be a highly fragmented market, many players. There are a number of bigger players. KIND was one of them. And then, yes, some of their competitors, but then there is also a decent sized, midsized players. We are, of course, at least short term due to authorities reviewing the deal, not able to do any more acquisitions. And of course, with this, we would focus on integration and so on more than additional acquisitions in the German market specifically.

On the retail side in terms of footprint, KIND in itself was, you can say, below 10% of the German market. And in combination with our existing stores, the combined business will be just above 10% market share on the retail side in Germany. So despite being leading, still a very fragmented and competitive market.

Thank you for the questions, and thank you, operator. Thank you all for joining us on this call today. If you do have any follow-up questions, please do reach out to us directly in the IR team after the call, and we will do our best to help you out. Have a good day. Thank you.