Earnings Transcript for DEMANT.CO - Q2 Fiscal Year 2020

Mathias Møller: Good afternoon, everyone, and welcome to our conference call which we are our holding in connection with our release this morning of our interim report 2020. As usual, we plan for the call to last a maximum of one hour, including the Q&A session. We have our President and CEO, Søren Nielsen; CFO, René Schneider; as well as the IR team here Christian Lange; and myself Mathias Møller. We'll be going through our presentation now. It's been uploaded to the website, a short while ago, but for now over to you, Søren.

Søren Nielsen: Thank you very much, Mathias, and welcome everybody. I'll try to do this quick, so we have time for Q&A. Key takeaways from, of course, disastrous first half one could say. The pandemic had a severe impact on the entire hearing health care industry. And we ended the first half year with a total minus 18% growth in local currencies, a 27 percentage point organic growth negative and nine from acquisition, of which mostly comes from the inclusion of EPOS after the demerger. Gross profit decreased 7.6% adjusted for EPOS one-offs and slightly more than two of these come from EPOS dilution effect, due to the lower margin in each of that business. But also a continued growth in rechargeable hearing aids and not the least higher freight cost, due to the pandemic. We saw excluding provision for additional bad debt of DKK 150 million, 14% organic decline in capacity cost 29% in Q2 alone. This is done through savings on salaries admin sales and marketing spend and particularly within the hearing aid retail, where we had a complete shutdown for a big part of April and May. R&D continued to work mostly through working from home efforts, but have maintained momentum and this was of course the entire approach in the company to make us come through the crisis in an intact way and be productive where we could and where it made sense, and we could not to furlough people benefiting from the many support programs around the world. We ended up having excluding EPOS, a reduced workforce of around 600 less people compared to the beginning of the year majority of this in operation to adjust to a smaller production plan, but also continued efforts in retail and admin to restructure and optimize. Operating profit of minus DKK 193 million, before a net positive EPOS one-off but including provisions for additional bad debt of DKK 150 million reported EBIT of DKK 114 million. Cash flow from operations before one-offs decreased 27% DKK 766 million and it was severely impacted then profits and this is due to a strong focus on effort in working capital improvements, collecting money paying later saving money et cetera. And this is a successful. We're going to see a tougher third quarter as the lower revenue will lead to less income or less cash in and also other things that have to be paid now here in third quarter. Mid-August where are things now? We have seen a strong improvement of the business and come back in many markets. There has definitely been – a element of pent-up demand being released. I'll get a little bit back to how it comes through in the different businesses. But we see a current run rate for the group of minus 5%, so plus 5% of last year when including EPOS. The hearing aid wholesale minus 15 to minus 5, and this is because there are still markets that are significantly impacted not the least Latin America but also still somewhat lower recovery process in North America, due to VA and U.K. due to the NHS and in a few other countries, where we see run rate slightly below last year. Retail has also significantly improved and now up between zero and minus 10%. And the normalization is moving forward quite rapidly. We still have things to be done in North America and U.K., which were the last countries to reopen more stores. Uncertainty exists still, and this is of course a theme I'm sure also in the Q&A session. We cannot -- or we do not have full transparency on full recovery of the market we expect it towards the end of the year. It requires also NHS and VA to get back up. It requires CA surgeries to get up to speed. It requires that U.S. gets into a more stable situation. We have seen both forward and backwards and then also emerging markets. And then biggest uncertainty relates to whether when this pent-up demand diminish or is done with, whether then is a remaining segment of the market that are still hesitant to seek help, whether it's from a general practitioner or an optician or a hearing care specialist there is a risk and uncertainty around how the -- what the underlying market growth is. On the cost side, we still also have significant uncertainties and it can seem strange. But the actual speed by which we can ramp up sales and marketing in practical terms, hiring of new people, development of freight costs, there is a number of cost elements and also total units as we can see in the first half. The unit growth is still behind the revenue growth due to various mix elements. And based on this, we have chosen to do the best possible guidance we can, and we only think we can do it in some sense and solidness on the revenue side and our guide for an all-inclusive revenue growth compared to last year of 5% to 15% in the second half. This is coming from EPOS not included last year. And of course, there is also a negative effect in 2019 from the IT incident and that still leaves some uncertainty on the underlying hearing aid and implant -- hearing device and implant business. Quick update from business activities. If we look across the various businesses, you can see the organic growth in wholesale was minus 25%. For the half year minus 35% for retail. And the difference there is the exposure to a number of markets where we are less exposed in retail and where recovery came faster and also reversely that retail with the exposure in U.S., we've seen -- and U.K. have seen a longer recovery process and then also a bit of sell-in in wholesale or invoice -- in wholesale and maybe a bit of a restocking filling our pipeline whereas retail in a more 1

René Schneider: Thank you, Søren. So when we look at our reported income statement for the first half year, we do see an operating profit of DKK114 million. And this we do adjust for the one-offs related to the consolidation of EPOS as of 1st of January. This constitutes DKK109 million with -- on production costs with no cash effects. It constitutes the minus DKK37 million relating to the rebranding -- or branding of the EPOS with cash effect and then the accounting step up gain of DKK453 million all-in-all adding up to a positive -- net positive income of DKK307 million on EPOS. When we look at the income statement first half year 2020 over 2019, we see the drop in revenue only being partly compensated by lowering of production costs as a significant part of these are fixed. It all leads to a 25% drop in gross profit, and of course, also a significant drop in gross profit margin. The majority of -- the main driver of the lower gross profit margin is of course the lower sales and the missing overhead recovery, but also the consolidation of EPOS dilutes by slightly more than two percentage points. In addition, we have seen a dilution by increased importance of recyclability as well as extraordinary high freight cost. Yeah. So on the next slide just dive a little into the cost side of things. So we have -- in particular during second quarter executed a lot of cost reduction activities and has exceeded in actually bringing down our capacity costs a 14% organically in the first half year. But the majority of that achieved in the second quarter where we were down 29% compared to last year when we exclude bad debt provision of DKK150 million, which we have taken as a precaution, and as we do see a more uncertain outlook for a part of our customers going forward, so all of these savings have been realized through government compensation schemes. A substantial number of employees furloughed during the lockdown period, and also a significant reduction in sales and marketing activities. And we have basically suspended all non-essential spending during that period except for R&D, where we have continued our activities in line with the plans made. So, as already reviewed, this adds up to an EBIT of minus DKK 193 million before the EPOS one-off income. And this is, of course, very different from the very strong start and improved profitability we had until mid-March. And we have seen a decline in profit in all hearing healthcare businesses, and -- despite the fact that we see a tailwind in EPOS. This has only counterbalanced the shortfall in other areas slightly since we did see in EPOS, a less favorable product mix and also there are significant freight costs. Yeah. This is just a housekeeping item on the bridge between reported adjusted and underlying when adjusting for currency, we can come back to that if there are questions. This is more for reference. So, on the cash flow side, even though we are down DKK 1.5 billion in EBIT compared to first half year last year, we are in that context only down slightly more than DKK 300 million on cash flow from operations. And this is due primarily to the fact that we have seen significant working capital improvement, and also strong, in that context -- very strong cash collection efforts during the first half year that has to a large extent compensated for the shortfall in EBIT. But obviously, in the months to come, we do expect to see the actual impact of a low revenue generation in second quarter to spill through on the cash flow generation. On acquisitions, we have more or less put that on hold since mid-March, but we did in the beginning of the year, acquire a large retail network in France, and that constitutes the majority of the acquisitions done in the first half year. And likewise, on share buyback, the DKK 197 million related to what we did, until we suspended our buy back program on 15th of March. The balance sheet growth is 1%, primarily driven by the consolidation of EPOS and excluding that consolidation, it would have dropped by 2%. The increase is primarily related to what is here, other non-current assets, but essentially goodwill due to the consolidation of EPOS and also the aforementioned acquisition in France. The decrease in trade receivables is part of the working capital improvement since we have seen continued strong cash collection even with the drop in revenue, and thus a strong improvement in working capital. The gearing multiple is 3.9 by the end of the quarter -- or the half year, sorry. Lastly, a little narrowing of our EPOS expectations, so we have now realized the one-off effects on production costs and also the step-up gain. So what remains, is the remaining branding activities on EPOS that naturally also had a setback in the first half year due to corona, but is stepping up activities in the second half year. And we now expect that to be between DKK 75 million and DKK 125 million with cash flow effect in the second half year. And with that, back to Nielsen?

Søren Nielsen: Yeah. And I will quickly round off, so we can get to questions. Next slide here is a curve illustrating -- a number of curves illustrating index revenue by region. And we have -- at the top blue is Asia, where we did see some decline in February and then already in March a move up again, and then saw mainly due to Japan and Korea. Again, same thing decline in April and then back up in May, June, and we have seen a very strong performance in the region in general, not the least driven by China. Pacific also close to the starting point and index, and this is again back to the recovery, then Europe being close to group average and North America being below that. And then that's again purely attributed to VA and a slower than rest of the world recovery despite of basically the problem coming more or at the same time maybe a weeks later. But the uncertainty left into society whether things are dealt with or solved compared to Europe, clearly impacting our type of business. And also other countries being export development countries similar. And this is back to then the current run rate. I have been through this high level but 5% to minus 5% on group, slightly more negative on hearing aid wholesale, minus 15% to minus 5%; retail minus 10% to 0%; implants minus 20% to minus 10%; diagnostic minus 10% to 0%; and capacity cost minus 5% to plus 5% all-inclusive including EPOS as well. And uncertainty, I have talked through it. And also, again, the speed by which we can accelerate, spend on sales and marketing. We'll of course, not travel, we will not have a large customer seminars and so on. So there will be savings but ramping up people and how we end up hiring new people, we still believe this is a growth industry and a growth company. So we of course will hire not the least of course in EPOS business that's accelerating very fast. So new outlook, revenue growth in local currency all-inclusive 5% to 15% in second half and this includes EPOS. It's of course also includes that there was a negative IT – effect of the IT incident last year. And the EBIT of course will improve from first half into second half as a reflection of the improvement in revenue but due to the uncertainty on the revenue and also to some extent the cost side we see no option to guide details on EBIT. It would simply be too wide a range that it make any sense to call it a guidance. Negative EPOS one-offs of DKK 75 million to DKK 125 million now solely related to branding as René just went through. And we maintain our suspension of the share buyback program. And with that, the end of the presentation and open for Q&A.

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Michael Jungling from Morgan Stanley. Please go ahead. Michael, if your line is on mute, can you please unmute yourself. Okay. We will try the next question from the line of Patrick Wood from Bank of America. Please go ahead.

Patrick Wood: Hi, there. Thank you very much. I'll keep it to two. You guys touched on mix a little bit. I'm just curious as to what you're seeing on the volumes as the recovery is coming through. What you're seeing on the mix of the hearing aids, you're seeing from, whether it's a price perspective, I know you don't have the price mix. But from the high end to low-end or branding that kind of thing roughly what you're seeing in some of the anecdotal evidence from stores reopening. So on that side mix, that's the first question. Maybe on the second question, I should probably know this but I haven't seen anything. If you were me, do you think it's fair to assume that all that OTC legislation, all that stuff is probably toast, given we've got an election coming up and August is all quiet and the world has bigger things to worry about. Is that probably a fair assumption or not?

Søren Nielsen: Okay. Thank you very much, Patrick. First of all, mix is simply currently a geography mix change with only one exception that is that our sales in mid-price grow but growing absolutely because we have a new launch. We have not seen a cannibalization effect, we're just selling stronger to this segment. So when the mix changes, it's because the VA is not there, it's because the NHS is not there. It's because France has a faster recovery than Italy and Spain and China is selling Philips, et cetera, et cetera. So it's the geography, the driver. In mix changes, we have not seen any, at least not notable or quantifiable mix change account by account. Was that – on your question?

Patrick Wood: Yes. And the second one is the OTC legislation.

Søren Nielsen: Yes, I'm fine. I just wanted to hear that I hit it. OTC we have no clarity. We would not be surprised if the FDA missed the deadline. There seems to be no consequences if they missed it. And I guess the attention is on the fast tests and whatever treatment of COVID. But we don't know. We could see it tomorrow we don't know.

Patrick Wood: Sure. Make sense. I think all big things laid up. Thank you.

Operator: And the next question comes from the line of Maja Pataki from Kepler Cheuvreux. Please go ahead.

Maja Pataki: Yeah, hi. I'll start with two questions then I'll get back in line.

Søren Nielsen: Maja, we can't hear you.

Maja Pataki: Okay.

Søren Nielsen: Off telephone?

Maja Pataki: Okay now?

Søren Nielsen: No, you're very weak, sorry.

Maja Pataki: Now?

Søren Nielsen: Yes, it's much better.

Maja Pataki: Okay, much better good. Sorry. So just very quickly. When I think back to your update I think it was in June we've actually seen back then a momentum or a catch up in hearing aid wholesale better than in hearing aid retail. Of course, that was then baseline to budget or to plan. Now we're looking compared to last year. So could you please confirm whether there is -- this is just a technicality of how you're comparing it or whether we've really seen a catch-up now in hearing retail and wholesale is lagging behind? And what the reasons would be for that? And my second question relates to EPOS. We had some manufacturing disruptions in the beginning of the year. And you mentioned you have some backlogs. So do you actually expect that the total revenues of EPOS in the second half will be stronger than in H1? Thank you.

Søren Nielsen: Thanks, Maja. Let me first elaborate on wholesale versus retail. The run rate in June was faster on the wholesale on the momentum buildup then in retail simply because as we say smaller enterprises turned quicker and you sell into the channel. So we saw that, but then it kind of matured as it was slower with some of the bigger ones and also that NHS and VA and export have not turned. And therefore you have kind of at least reached the first level of market penetration whereas the retail came in a bit later. But we are only exposed in markets that are all reopened and it's our own commercial channel. So it has actually passed in normalization terms you can say retail versus wholesale. So the run rate now versus last year is better in retail than in wholesale. But that's because there are significant channels and geographies that are not yet normalized. And then EPOS it's always difficult to predict the future. But yes I find it likely that we could do a better second half than first half.

Maja Pataki: Thank you, Søren. Just a quick follow-up on the wholesale side. You talked about NHS being hit harder like the VA. But just out of curiosity, do you have a visibility on how the NHS is dealing with the inventory that they built ahead of Brexit? Are they starting to tap into that? Could that come on top of the slowdown in NHS, or is that something that will only become a topic in 2021?

Søren Nielsen: Now well that's always very dynamic when they place orders and not. But we mainly focused on is our clinics which we have transparency into. And approximately a third of the clinics are doing reasonably okay and have reaccelerated hearing aid fittings a third is started and a third is nowhere. So all in all we're still below 50%. And that's what we relate to whether there's been a big week and a small week from us selling into them at least. They have tapped into the Brexit stock. We assume they will fill that up. But our commentary is mainly on the normalization of the channel as selling through eventually. And again a bit up and down it will be a one-to-one between what they sell-out and what we sell-in.

Maja Pataki: Okay. Good. Thanks a lot.

Operator: And the next question comes from the line of Annette Lykke from Handelsbanken. Please go ahead.

Annette Lykke: Thank you so much. First of all, I would just ask and if you could share a little bit of a maybe insider guidance in respect to the gross margin. Where we had a second half 2019 we had the cyber attack effect and then gross margin in the second half 2020, we do have EPOS effected COVID-19 and also rechargeable I don't know about FX as well. So if you could just give us a little bit of level of what kind of comparisons we should do? Then I'm just curious, what you -- or what we or you expect of the virtual EUHA meeting and also in this respect on considerations on product launches. Do it necessarily have to be on September 1st or March 1st ahead of the VA windows or would other kind of timing make risk free? Thank you.

Søren Nielsen : I think René will comment on the gross margin?

René Schneider: Yes, sure. So I think actually if we decompose first half year '19 compared to first half year '20, I think it gives some good direction on what is let's say a permanent dilution and what is let's say temporarily related to the lower sales. And if you look at our debt and what we have guided is that of these 7.6 percentage point that you see the gross margin drop slightly more than two percentage points of debt related to the consolidation of EPOS. So that's a permanent effect. There's one percentage point of debt that relates to currency. So that can fluctuate up and down and not necessarily permanent. And there is let's say 1.5 percentage point approximately related to the effects like rechargeability and other items that have a more permanent effect. So 2.5 plus 1.5 is more structural whilst the remaining we do see let's say regained once the sales recover.

Annette Lykke: Okay. Thank you.

Operator: And the next question comes from the line of Niels Leth from Carnegie. Please go ahead.

Niels Leth : Yes, good afternoon. My first question is about your business activity. So in your retail business, you talked about a decline in the current business activity of 10% up to 0%. Could you break down this business activity between existing users and first-time buyers of hearing aids? And secondly, could you talk about to what extent August has actually been worse than July?

Søren Nielsen : Let me try first on the retail. It's not -- you cannot only see whether people did not use a hearing aid already or whether they did. What we mostly measure on is first and foremost, whether it's somebody already in the process somewhere in the process. And then we see where leads come from and of course the quickest rebound come from tapping into your database people that now have an out of warranty all these things we normally do and which we did less of in the period. And that's where we have seen the strongest recovery and a strong performance because that's of course where pent-up demand is most clear. Next level has been to move into people where we knew name and number and address and we're somewhat in discussion with people. They can be with a hearing aid or without one. That's also yielding well. Where we're still a little bit uncertain is where we have never talked to people before. And that seems to improve day-by-day, but we are still not at the last bracket that normalized. But in total that is enough to fill the schedule. But of course that's back to the uncertainty whether the totally new-new leads a six months from now can be generated at the level we are used to or whether there is a group of senior citizens that still choose to push in a discussion on you can be a dental visit or GP or hearing aid specialist. And then August, no we cannot comment detail in August, we have to look at the run rate. But there's no doubt that we have seen a little bit of flattening out in some markets after. Again, we have seen more cases after the summer holiday and so on. And then maybe I think we skipped one point Annette, the virtual launches and yes, I think EUHA will be a good opportunity to hear what's news from the companies. We'll act a normal get together and discussion with customers on next year's business. But that has to happen some other means. And product launches I think everybody is coming out here with trying to maintain focus on R&D to maximum extent. And I think everybody will launch when they have new products. We are in the commercial market high enough that the market is big enough that everybody will still try to get the biggest share. How the market responds to sales and marketing and good offers and so on is still a little blurred as the normalization have happened quite fast over the past weeks. So, how is customers changing suppliers and so on, it's still too early to judge.

Operator: And the next question comes from the line of Christian Ryom from Nordea Markets. Please go ahead.

Christian Ryom: Hi, good afternoon. Thank you for taking my questions. I have two please. So, both are related to your cost base. So, in your update back in May, you said that prior to COVID, you were seeing low double-digit growth in your capacity costs? And should we think of that as sort of say the high watermark of where your capacity costs might go back to if say you see a full normalization of the market and maybe achieve the upper end of your revenue guidance for the second half? And then maybe somewhat related to that how should we think about this headcount reduction of 600 people that you've seen in the first half ex-EPOS. Should we expect those people to be hired back in a scenario where your business normalizes to 2019 levels by the end of the year or what's the outlook here? Thank you.

Søren Nielsen: Yes Christian and you hit right into some of the uncertainty as well. We are a growth business and we will do everything we can to grow the business and fight for share. So, even if the NHS and the VA have not normalized and our export markets not, we will do everything we can to gain share in the independent channel and among chains and what have you annual cost activity level. And we will have to ramp up also in retail and diagnostic to at least the level in the plans because whether it then yields or have the same return or not it will still be the best thing to do. So, I think that's also what we tried to say that we actually want to really further increase sales and marketing. Now, the markets have normalized to the level they have where it's been as productive as it normally is time will show. And therefore if it doesn't give sales enough we will have to do further. There's no idea in having all stores open and not try to fill the schedule. And this is the uncertainty both on the revenue side and corresponding on the capacity cost side. We of course still have savings when it comes to travel and larger customer events and some of them will not take place. But the actual spend in particular in retail to generate leads would have to basically continue until you fill the schedule. It seems to work well. But we are uncertain with whether the initial -- when the initial pent-up demand is kind of released and dealt with how is the market then performing. Currently, it looks good. But there's still -- it relates to the uncertainty towards the end of the year. In headcount majority relates to how many hearing aids we are to build and as you can see we have been harder hit on the units and on the revenue due to the mix effect, so we did have to do some adjustments to the workforce. But of course, if we have to introduce more hearing aids again they will all come in again. It is just not that we have chosen to outsource or things like that. And there has been an element of restructuring and continued effort in retail and admin. And of course the same people will not come back, but there will be other people coming in as part of the growth scenario and fighting for share and continued expansion of the business. Will it happen to the speed we anticipated or will we keep the speed lower as we have obviously done? Will we hire -- fill open positions to the same speed? That is exactly the continued week-to-week judgment of the where the business is moving. And where do we get benefit from investing, it's obvious that an EPOS running at full speed calls for immediate action and no hesitancy in starting up if needed on sales side or operation side or R&D even. Whereas an implant business, that's currently -- negatively impacted of course, we don't need to hire in operation. We still run it on the long run on R&D. So, we'll still fuel that, but the additional supporters to help and support out in the clinics with more surgeries are obviously less needed now than they may have been if things had fully normalized. So, it's really difficult to answer exactly how headcount development will be. It depends on how we also see the various business regain their full momentum.

Christian Ryom: Okay. Thank you, very much.

Operator: And the next question comes from the line of Kit Lee from Jefferies. Please go ahead.

Kit Lee: Thank you. I have two please. The first question is on your retail lead generation. How do you see that developing versus the pre-COVID levels? And then my second question is on your guidance. I know you talked about EBIT being too wide a range. But I'm wondering, is the second half EBIT margin last year a realistic outcome or within the range in your assumptions?

Søren Nielsen: Yes. Lead generation as I said before, generally a positive picture because we can generate a lot of leads. But again, majority is still coming from existing appointments of some kind and database and people we knew. And there is enough pent-up demand to make a productive day and it'll be quite busy actually in many places. But on the other hand, the recovery and this ramp-up of the business in U.K. and U.S. and to some extent Canada have taken longer. And therefore, we are still not at full speed. And it is this -- that's why we are at minus 10% to 0% right now. And how we then will look like in really new lead generation it's simply too early to tell. If we look right now, it is not up to normal. But on the other hand, it's not necessarily up to normal because we get enough from the other. So, so we are not firing yet on all cylinder in marketing. There is a ramp-up element getting all people back in the call center and sending out the mailings that then later on we gives a call. What we can see is that, people stick to their appointments, at higher rates they show up. The show up rate, no show rate has dropped. The closing rate is better meaning that you touch warmer leads or better leads and you get less of this dabbling because people then postpone it. So, we are generally positive, but uncertainty remains towards the end of the year, whether we would then see again not surprisingly especially among people that have been told, they are in a high-risk group because they have other chronical diseases and so on. That there would be a group that would still hesitant to seek hearing care health, dental health and so on. We hear that a little bit in some parts of the world. That is of course want -- gives the remaining uncertainty. And the guidance and EBIT, I don't think we can comment closer than we already have.

Kit Lee: Thanks. And just to follow-up on the lead generation. I was more referring to new customers so addition to your database. So, do you have some visibility on that just on how that's developing versus the pre-COVID levels, or...

Søren Nielsen: Yes, that's what I'm saying. It is improving, but we are not at pre-COVID level, but we are not trying to be because we deal with pent-up demand. So we will not see the real effect until we really try to get it to the same level. And we are not ramped up for that part of the marketing yet. It's another type of lead generation. You have to do a much more widespread type of marketing hundreds and thousands of mail pieces out and phishing -- not phishing that's a bad word, but cookies and Google Pay and so on. And of course, as long as we can fill the schedule coming from the other two that cost less, then we'll do that. But we of course in parallel are ramping up and following it. We see improvements, but we're not yet at the last year's level.

Kit Lee: Thank you.

Søren Nielsen: René had another comment on the EBIT as well.

René Schneider: Yes maybe just a general comment on your question Lee and also on OEMs prior to that. I think just -- so, I have a strong confidence in our ability to generate profit. And if we look at our current run rate on cap costs compared to group revenue, these are very much aligned compared to last year. And we do present to you, an outlook of 5% to 15% growth in the second half year on the top line. And as it is currently, we see a good relationship between these two, which would also bode well for a strong operating profit in the second half year. However, we know, there are some tailwinds that we are sort of entering the half year with, lower headcount obviously; travel; entertainment; conferences those types. We do naturally have savings. But of course, what we do not know is what is the level of sales and marketing activity? And what is the return on these investments and what kind of investment level on that line is warranted to drive that sale that's where the uncertainty lies. So fundamentally, we do believe in strong profit generation. But still the uncertainty is unusually high at the moment, why we cannot provide a specific range.

Kit Lee: That's great. Thank you.

Operator: And the next question comes from the line of Carsten Lønborg from SEB. Please go ahead.

Carsten Lønborg: Yeah. Thank you very much. Carsten here just with a quick question. I was wondering without government furloughs in the first part of the year, what would your SG&A costs have been? And also, maybe if you could talk about how many of these the government support programs that are still available if any?

Søren Nielsen: Yeah. Thank you, Carsten. We talk about interval between DKK 300 million and DKK 400 million. But I think it's more important to note that, all these support programs did what it could to postpone and push decisions on adjusting the business, because you could offload a significant proportion, if not all of your costs related to people that had nothing to do. And now we are back to normal. So we basically have, I think a very, very few or none at all on furlough schemes. So whether they run out or not doesn't really matter. We need all our people to run the business. So I think we have a very good example of a type of business that really, really benefit and had exactly the support it needed to push decisions on adjusted workforce, which was the intention from politicians as well not to get to unnecessary unemployment level unless the business is on a much longer horizontal destroyed.

Carsten Lønborg: Okay. Makes sense. Then just a quick follow-up on R&D cost. Do you expect growth sort of in second part of the year or the first part of the year again? So more than DKK 618 million in R&D cost in H2?

Søren Nielsen: I cannot comment on that specific, but yes, we will see a further growth in R&D cost. I'm pretty sure, we have hold back on rehirings of open positions and you see a minus 3% underlying organic. I don't think we will be minus 3% again in the second half.

Carsten Lønborg: Thanks.

Operator: And the next question comes from the line of Veronika Dubajova from Goldman Sachs. Please go ahead.

Veronika Dubajova: Good morning, gentlemen. Thank you for taking my questions, really appreciate it. I have two as well. One just wanted to understand, if I kind of contrast your commentary from earlier in the summer, whether from the update call, or a couple of other appearances that you had made. It sounded to me that, you are maybe a little bit more cautious on the pace of the recovery now than you might have been before. And I'm just curious kind of, what has changed in your mind? What is it that you have seen that has given you that reason for a bit more cautiousness? Is it the new lead generation? Is it that the recovery is leveling off in some of the markets that we're tracking ahead? If you can give us a little bit more flavor for understanding that that would be helpful. And then a second, I just want to clarify the comment you have made on the lead generation spending within the retail business. I mean, should we be thinking within retail that actually your capacity costs are running ahead of revenues and you're generating savings elsewhere in the business, or did I misunderstand that?

Søren Nielsen: Thank you, Veronika I had – this is a delicate, but I actually think I'm trying to be very consistent and say, we have always believed in pent-up demand. And the conclusion now is that in countries that did again very – no shaking-hands regulation and intervening to get the pandemic under control, we have seen a very strong and also better-than-anticipated recovery. The countries that have been more hesitant to go tough on things, we have seen a more bumpy recovery. And we saw and still have seen U.S. independent move very fast, but they can only recover once. And what is now amazing is still the NHS, it's the VA, it's the export business. And then there is just, as I've said, all the time an uncertainty related to when the pent-up demand has been dealt with where the hearing health care market is then able to show the classical 4% to 6% growth. We don't know. We still don't know. We didn't know in June. But the commentary today is that what's behind us the recovery has been better and stronger than anticipated in the markets where it has been possible. We see very positive development in a market like France, but have also handled well Denmark, Germany, et cetera. We are a little more -- and maybe also more uncertain about the longevity of the pandemics handling in a market like the U.S. Make sense?

Veronika Dubajova: That's very clear.

Søren Nielsen: Cool. And lead generation retail, the same picture. It has been better than expected and it will continue hopefully to be better than expected. But it's the same rhetorical question, what happens when there's no longer pent-up demand and we really have to every day get, let's say, 50% of leads, maybe a little less as real, real new users. It's simply too early to judge, because, a, it has not been necessary the ramp-up of those type of marketing activities has simply not happened yet at least not in all markets. In the earliest markets, we also see that one coming up, but still strongest in markets where the self confidence among users and potential customers is higher that the pandemic is under control. And then, yes, the expected new -- many smaller breakouts and what comes in the fall, I just think we are closer to that now. And therefore, we iterate the uncertainty of how things will look through fall and winter as there is obviously no short-term cure that will make this go away.

Veronika Dubajova : That's helpful. Thank you guys.

Søren Nielsen: Thank you.

Operator: And the next question comes from the line of Oliver Metzger from Commerzbank. Please go ahead.

Oliver Metzger: Hi. Good afternoon. Thanks for taking my question. First one is on your expectation for cochlear implants. I'm a little surprised about the slow recovery of cochlear implants in particular towards the end of the first half. Could you share with us your view how much time it really takes until cochlear implant return to growth, because the underlying growth prospects should be quite healthy. We have some waiting list in hospitals. So if the hospitals return we should see quite quick improvement and I'm surprised not having seen that yet. The second question is a follow-up on Maja's question on communications. So you commented earlier this year about 45, 55 distribution between H1, H2 revenues 2019. Do you regard it as unrealistic that we might see a similar pattern for this year to a similar magnitude?

Søren Nielsen: Yeah. Let me first comment on implants. I think it's very different from country-to-country. And you have to remember we are not as broadly exposed around the globe. So it's mainly a Europe commentary and then export markets. And definitely exports markets remain to be very weak. We have had a single big order coming in, but compared to the normal tender level much, much lower activity. And then across Europe -- and Germany recovered the relatively speedier, but there was also less of a pandemic, but whereas in France, U.K. places where broadly speaking hospital systems have been turned upside down to handle COVID, we have seen a very slow recovery and still do. It does seem to improve, but then first one in line is children, and we are less strong with children adults better. So that's it. But it's still not up to historical speed with number of surgeries being done.

René Schneider: And on the EPOS question. Yeah, so we had a bumpy start to the year and a strong acceleration in sales since then. And this could indicate that our 45, 55 normal ratio between first and second half year could be skewed more towards the second half year. But again, it is still uncertain, but at least we are on a very good path towards that.

Oliver Metzger: Okay. That’s helpful. Thank you very much.

Operator: And the next question comes from the line of Chris Gretler from Credit Suisse. Please go ahead.

Chris Gretler: Thank you, operator. Good afternoon, Søren, René. Two questions here. On the acquisition side, I think, you mentioned in your press release now that you've seen an impact, obviously, kind of, on the acquisition opportunities. Has that normalized as well, kind of, the funnel of calendar also of acquisition opportunities, given the market recovery? And then the second question is just, maybe, could you comment on the freight costs? I think, I mean, you typically have relatively small devices and I'm surprised, it matters so much. And shouldn't we see some of these freight costs to have normalized, given kind of there are more planes in the air, again, et cetera. Maybe if you could comment on that that would be great.

Søren Nielsen: Yes. Thank you, Chris. Acquisitions. We see a little bit of improvement, but it's still a market where we have not yet seen people that want to leave the business. I think, if such a scenario comes, it comes in the third quarter where some might have challenges also in their cash flow, as the furlough programs have stopped and support programs have stopped. But, again, we don't sense that. So, I just think, it has been cooled off and we have also cooled it off. So let's see if it doesn't get back to normal, we sense it's about to happen. Freight cost, remember EPOS is produced in China, backlogs and so on. So that's one area. But also domestically in U.S., we still have a high service level with overnight shipment out of one location to U.S. and with that a significant airborne part. And there has just been increases. We have done a lot to ship to people's home. That's much more expensive than sending to a dispenser and so on. So generally speaking, both the type of transportation we have done and also the rates are simply much higher still on airborne.

Chris Gretler: Okay. Thank you.

Mathias Møller: Okay. Ladies and gentlemen, I think, that's it for now. Thank you very much for participating and joining us here. As always, you're very welcome to reach out to Christian and myself. We'll be on the road virtually over the coming weeks, even months, except for a few visits that we can actually do in person. But thank you very much and a good day to all you.