GN Store Nord A/S

Hello, welcome all to GN’s Full Year 2021 Conference Call following our release this morning, Danish time. Thank you all for dialing in.

It’s great to have you on this call. Participating on the call is Gitte Aabo, CEO of GN Hearing; Rene Svendsen-Tune, CEO of GN Audio; Peter Gormsen, CFO of GN Store Nord; and myself, Henriette Wennicke, Head of IR and Treasury.

Today’s presentation is expected to last about 25 minutes, after which, we’ll turn to the Q&A session. The agenda for the presentation itself is that Peter will start off with group highlights.

Then Gitte will provide an update on GN Hearing, and Rene will provide an update on GN Audio, after which we’ll go back to Peter for a financial update and financial guidance. After that, we hand over to Q&A with questions from the queue.

And with that very brief introduction, I’m happy to hand over to Peter.

Thank you, Henriette. Good morning, everybody, and thanks for joining our call today.

Today, we have released our 2021 Annual Report along with our corporate governance report, remuneration report and our sustainability report. All the reports are uploaded on our website, gn.com.

Let’s move to Slide 4 and a snapshot of the year. 2021 was yet again an extraordinary year for GN with COVID-19 and supply chain challenges as some of the key topics.

However, it was also a record year in terms of revenue where we delivered DKK15.8 billion, equaling an organic revenue growth of 20%. We delivered EBITA of DKK2.7 billion and earnings per share of DKK13.9, up 43% compared to last year.

Due to the solid financial numbers, leverage ended at 1.8 times, which comes on top of the lively acquisition in late December, and significant shareholder distribution of DKK1.4 billion through share buybacks and dividends. As you know, we closed the SteelSeries acquisition in the beginning of January, which naturally has increased our financial leverage significantly in early 2022.

I’ll come back to this later. But for now, I’m happy to hand over to Gitte for an update on GN Hearing.

Thank you, Peter. As Peter just mentioned, 2021 was indeed an extraordinary year.

We would have preferred for GN Hearing to have gone stronger through 2021 than was the case. Challenges in several areas gave us a temporary setback and postponed of projected growth to some months.

However, our fundamental innovation capabilities are intact and the Hearing products we have today, and those that are coming will allow us to regain above-market growth in 2022. Let me just stress that we are fully determined to return to growing revenue above the market and restore profitability in line with our midterm guidance.

But let’s start with looking at the 2021 performance before I return to 2022. Starting on Slide 6 and our financial highlights.

GN Hearing delivered 16% organic revenue growth in the hearing aid market, which saw a solid recovery across regions during the year. Organic revenue growth for Q4 was 2% and around minus 12% compared to 2019, which was driven by the earlier announced delays in product launches.

The gross margin improved to 63.8% in 2021 but is still below historical levels. The EBITA margin gradually recovered to 12.1% for the full year and 15.3% in Q4 and driven by the revenue growth and continued prudent cost management.

We delivered a free cash flow, excluding M&A of DKK198 million for the year. Now let’s move to Slide 7 and some more color on the regional developments.

Beginning with North America, we delivered 17% organic revenue growth for the year driven by solid performance in the independent market but offset by the development in VA and Costco. Specifically for Costco, we continue to see strong performance of Jabra Enhance Pro in the branded part of Costco.

However, we still see a headwind from the ASP development in the channel. Moving to Europe.

We delivered an organic revenue growth of 7% for the year. We saw, among others, a strong performance in France and Spain and a more modest performance in Germany driven by market dynamics.

In our Rest of World region, the organic revenue growth ended at 26% compared to 2020 with strong performance in, among others, China. Let’s move to Slide 8 and the exciting acquisition we announced just before Christmas.

Lively is a leader in online hearing care, and the acquisition fits perfectly into GN Hearing strategy of providing hearing care to even more people. The current customer group in Lively is on average around 10 years younger than customers in the traditional channel, demonstrating the potential to drive penetration and get users started on the hearing journey even earlier.

As part of GN Hearing, Lively will be even more effective in driving sales than before. Around two-third of Lively’s customer inquiries have not been assisted until now as they are either looking for a combination of an online and offline experience or have a severe-to-profound hearing loss.

As part of GN, Lively can forward these customers to our network of Beltone and ReSound hearing care professionals. Lively has been on a fantastic growth journey in the last couple of years and delivered DKK114 million in revenue in 2021 with growing revenue quarter-by-quarter.

We expect the online channel to grow around 30% annually in the years to come, and we expect Lively to continue to take market share. We want to build the preferred digital platform for independent hearing care professionals.

To realize our growth ambitions, we will continue to invest in the platform. Going forward, we’ll refer to these investments as investments in the emerging business.

The EBITA loss was negative DKK171 million in 2021, but we expect the emerging business, including Lively to turn profitable in the midterm. With that, let’s move to Slide 9 and the robust market outlook.

I want to spend a little time explaining our assumptions for the hearing aid market for 2022, which naturally provides the foundation for our financial guidance. Overall, we estimate the volume growth for 2022 to be in the high-end of the historical 4% to 6% range, as further market recovery is expected following COVID-19.

The global volumes in 2021 ended above the level realized in 2019 and with around 4% to 6% volume growth expected for 2022 will be back to a normalized market. The negative ASP impact for 2022 is also expected to be in the high-end of the traditional minus 1% to 2%.

This is driven by high expected volume growth in low ASP countries like China and India, but also in channels like the NHS. These estimates naturally come with uncertainty.

But let’s move to Slide 10 and our key strategic priorities. Since we announced our strategy in February 2020, the world has, to a large extent, been turned upside down due to COVID, and that has clearly changed some of the drivers impacting our industry.

While aging populations and low adoption rates of hearing aids still remain important trends for our industry, we’re now seeing accelerated demand for digital solutions and a need for a more consumerized approach to hearing care. Our strategy and our three fundamental strategic pillars are fully intact.

But as always, strategy evolves over time, and I would like to provide you with an update on our current focus areas. Let’s move to Slide 11.

Based on the technological acceleration during the pandemic, hearing care is now at an inflection point. We see an opportunity to modernize hearing care and reach more and younger people.

We have prepared and adjusted our business model accordingly in line with our strategy, like with the acquisition of Lively and the launch of Jabra Enhance Plus. The ambition is clear.

We want to modernize hearing care, we want to simplified to grow above the market, and we want to restore profitability in line with our midterm targets. We will unlock the next level of growth with a dedicated focus and investments in digitalizing the customer journey in the core hearing aid business and thereby delivering innovative and individualized customer experiences.

We’ll continue being the trusted partner to the hearing care professionals while growing the emerging business to expand the market. Moreover, we’ll focus on digitizing and simplifying the way we work across our business and value chain.

Our current profitability is below our historical levels and below our midterm guidance. This has to change.

Therefore, we will have a dedicated focus to digitalize, simplify and automate our supply chain by building on the efficient and scalable setup in GN Audio. To drive this change, we’ll focus and streamline all setup.

And as a consequence, we expect non-recurring items in the magnitude of minus DKK150 million during 2022. These will mainly cover severance costs and non-recurring investments in the supply chain.

As we incur the non-recurring items, we’ll give you more details on the nature of the costs, but for now, we need to keep it high level as our business needs to run smoothly. With this, we restore profitability in line with our midterm guidance.

Now let’s turn to Slide 12 and our progress on our R&D transformation. We have made significant progress in our R&D transformation, and the delayed product from 2021 will be launched in Q1 and Q2 this year.

I want to highlight two important milestones, which have been successfully delivered by the team. The FDA approval of the Jabra Enhance Plus, a combination of a hearing aid and an earbud and the announcement of ReSound ONE BTEs.

Both products will be commercially available by the end of February. These two launches are important milestones, and I look forward to delivering more launches in the coming quarters.

We plan to finalize our ReSound ONE product family with an exciting ITE product launch in Q2 before the launch of a new platform in Q3 2022. These planned launches, together with the expected market growth are essential to our financial guidance for 2022, which leads me to Slide 13.

We want to give you the opportunity to see the progress we are making across the GN Hearing, and therefore, we want to share even more details than in the past. In our core hearing aid business, we are guiding for an organic revenue growth between 5% to 10%, which should result in market share gains.

The two new product introductions will have limited impact in Q1. And as a result, we expect to see low-single-digit growth in Q1.

As our planned launches will hit the market during the course of 2022, the growth will also follow. So we expect high-single-digit growth in the second half of the year.

The EBITA margin for the core business, excluding non-recurring items, is expected to be around 14% for 2022 and as we continue to invest into future growth opportunities. We’ll front-end load certain investments and together with the back-end loaded growth profile, this will impact our EBITA margin in Q1, which is expected to be low-single-digit.

However, the EBITA margin for the last three quarters of the year is expected to gradually improve towards 20% by Q4 2022. As mentioned, non-recurring items are expected to be around minus DKK150 million, primarily related to investments in the supply chain.

The EBITA in the emerging business, including Lively, is expected at around minus DKK190 million, reflecting a strong top line growth, but significant investments are needed to drive future growth and scale. And with that, I’m happy to hand over to Rene.

Thank you, Gitte, and hello to all of you. So it’s now my pleasure to take you through GN Audio’s results for the financial year of 2021.

Let’s move to Slide 15. So 2021 was again a strong year but challenging year for GN Audio.

We delivered 22% organic revenue growth on top of the 42% we delivered in 2020. The business is now anchored at a new and far higher level.

In 2021, we continue to execute strongly across the business and the underlying demand for our products continue to be very strong. We would have preferred even stronger growth in the year.

However, the global supply situation was unfortunately a constraint, and we are leading the year with a historically high order background. Gross margin ended at 50.6%.

This was an improvement compared to 2020 despite the increased freight and production cost. Excluding transaction-related costs, the EBITA margin reached 21.2%.

This reflects continuous leverage in the business, but also significant investments into future growth opportunities. Free cash flow came in at DKK1.3 billion, which translates into a cash conversion rate of 60%.

All in all, a year with strong execution for GN Audio despite the challenging environment created by the global supply crisis. So let’s move to Slide 16 and the regional performance.

So GN Audio’s strong growth was broad-based across regions, thanks to our dedicated teams and partners and world-leading product portfolio. In North America, we delivered strong organic revenue growth of 27%, driven by both the enterprise and consumer segments.

And we are there up 47% from 2019. In Europe, we continue to execute strongly.

And despite very high comparison numbers, we delivered organic revenue growth of 16% for the year. This is driven by strong performance in, among other, Germany and UK and here we’re up 88% from 2019.

And finally, in the Rest of the World, organic revenue growth was 30% for 2021, and we are up 86% from 2019. So let’s move to Slide 17.

So shifting gears a bit. So on January 12, we received all necessary antitrust approvals, and we closed the SteelSeries transaction.

SteelSeries has been on an impressive growth journey with solid profitability in recent years. The performance is driven by the attractive market, the strong innovation capabilities of SteelSeries and the strength and uniqueness of the SteelSeries brand.

SteelSeries delivered a strong set of numbers again in 2021 with a total revenue of DKK2.6 billion. In terms of profitability, SteelSeries delivered an EBITA margin of 13.6%.

As such, it is clear that we are now welcoming a strong performing growth engine to the GN Group. And together, we are now ready to take the company to an even higher level and to drive synergies across the different businesses.

We continue to expect annual run rate operational synergies of around DKK150 million by the end of 2022. And as earlier communicated, SteelSeries will continue as an independent business unit within GN Audio.

We do expect integration costs of around DKK100 million in 2022, and this is largely driven by IT expenses. With the addition of gaming to our business, let’s move to Slide 18 with an overview of our business segments.

And thanks to GN Audio’s growth focus over the last many years. We do today operate with a strong competitive position and a world-leading product portfolio in some very attractive market segments.

On a consolidated basis, we continue to expect GN Audio’s markets to grow at around 10% per year. Let’s turn to Slide 19 and an update on our strategy.

So building on our 2020 and beyond strategy and combined with the underlying – strong underlying market trends, we feel confident that we can continue our growth journey. Several of the underlying trends we were expecting a few years back have been accelerated by the pandemic.

We do see a significant shift in work patterns, not only in the traditional enterprise business, but increasingly also with collaboration tools for governments, education, health and what we call desk less workers at last. With these trends in mind, let’s move to Slide 20 and an update on our focus areas.

The key theme for GN Audio is simplify to grow. I’m a key believer in keeping things simple, making simple and intuitive products, but also driving simplicity in the way we operate.

And we were trying to – we will transform the business from an audio-mainly business to an audio, video and gaming business. Key priority will continuously be providing individualized customer experience, whether you are looking for best audio experience, video experience or gaming experience.

We will focus on winning in the high-growth markets across office, collaboration and gaming and further broaden the scope of the office business unit beyond office headsets. M&A will continue to be an important enabler in the future to accelerate businesses, especially for the new segment of deskless workers.

Here, we are targeting more than 2 billion workers spanning from teachers, doctors, retail staff, logistics personnel to first responders and many more key roles. All in all, the aim is simple in the next phase of our strategy.

We will unleash the next growth rate for GN Audio. Turning to Slide 21 and some additional comments on the supply chain situation and the expected impact on the business in 2022.

As we have previously stated, we do continue to see strong underlying market demand, and we are confident that we can continue to take market share across key categories. We have, as per February 1, taking price increases in the enterprise business to mitigate input cost.

This will naturally be supported to our growth in 2022. However, the uncertainty of the supply chain situation is still significant and ever changing.

We believe these challenges will continue in the first half of 2022, but the current assumption and expectation is that it will ease in the second half of the year. These considerations and building blocks have naturally laid the foundation for our financial guidance.

And let’s move to Slide 22. In 2022, given the supply situation, GN Audio expects to deliver an organic revenue growth of more than 5%.

For SteelSeries, we expect an organic revenue growth of more than 10%, which will be treated as M&A growth when we do the reporting. With the current supply situation, we are looking into Q1 organic revenue growth of around minus 25% across GN Audio organic and SteelSeries.

However, with the ongoing reengineering of products combined with an expected easing of the supply situation, we do expect to return to strong solid double-digit growth rates in the second half of the year. The EBITA margin for the combined business is expected to be around 20% in 2022 before non-recurring items.

In Q1, we expect the EBITA margin to be in the mid-teens due to expected top line development with a gradual improvement in the remaining quarters of this year. Non-recurring items are expected around DKK400 million, covering transaction and integration costs as well as non-cash PPAs.

The PPAs are related to customer inventory adjustments associated with the consolidation of SteelSeries. And with that, I’m happy to hand back to Peter.

Thank you, Rene. Moving to Slide 24, group financial highlights.

On group level, GN delivered 20% organic revenue growth and the EBITA margin increased to 16.9% compared to 13% in 2020. We delivered a strong earnings per share of DKK13.9, up 43% compared to last year when excluding transaction-related costs.

Due to the acquisition of SteelSeries and the related significant step-up in yearly non-cash amortizations, we have decided to introduce adjusted earnings per share. This metric will exclude gain and loss from non-recurring items as well as amortization and impairment of acquired intangible assets.

With the introduction, the aim is to give more transparency on the underlying development in the business. Let’s move to Slide 25 and our cash flow for 2021.

Overall, looking at the cash flow statements, let’s remind ourselves that 2020 was a year of extraordinary cash flow protection. In 2021, GN Hearing’s operating cash flow was driven by prudent cost control and higher earnings, but with a negative impact from working capital and higher tax payments.

In GN Audio, we saw a strong operating cash flow for the year but offset by a negative development in working capital and significant investments in future growth opportunities. Also remember that we, in 2020, received a gain from legal settlements and litigation of DKK114 million.

Let’s move to Slide 26 and the capital structure. Despite distributing around DKK1.4 billion back to our shareholders in 2021 and the acquisition of Lively, financial leverage ended at 1.8 times by the end of the year.

In the beginning of January 2022, we closed the DKK8 billion acquisition of SteelSeries, a deal fully financed by cash and debt, which translates into a pro forma leverage ratio of around 4.4 times by the beginning of 2022. Due to the traditional cash flow seasonality as well as the non-recurring items, the reported leverage ratio is expected to further increase during the coming months.

This also includes the suggested dividend of DKK1.55 per share in March 2022, which were in line with prior years will propose at the Annual General Meeting. From Q2 and onwards, leverage is expected to decrease rapidly, and we are confident that we will be back within our target range of between 1 and 2 times net interest-bearing debt-to-EBITDA within a couple of years as earlier communicated.

At the Annual General Meeting, we will in line with prior years, proposed to cancel all treasury shares held today in excess of the shares needed to hedge future obligations related to the convertible bond and long-term incentive programs. Let’s turn to Slide 27 and some comments on GN’s efforts on the sustainability agenda.

2021 was an exciting year where we set new ambitious 2025 goals, committed to setting science-based targets and where we continue to proactively work on each of GN sustainability goals. This included good progress in regards to future CO2 emission, more sustainable products and packaging.

And last but not least, we continue to help even more hearing-impaired people. Making an impact is something that comes on top of our priorities every day, and we are all proud to be part of a company that builds the technology for the future in a sustainable way.

Let’s turn to Slide 28 and the financial guidance for 2022. As both Gitte and Rene have commented on the guidance, let me briefly summarize.

For Hearing, we expect organic revenue growth of between 5% and 10% and an EBITA margin for the core hearing aid business before non-recurring items of around 14%. Non-recurring items are expected to be around negative DKK150 million in GN Hearing primarily related to investments in the supply chain.

EBITA from the emerging business is expected to be around negative DKK190 million. For Audio, we expect an organic revenue growth of more than 5%; and for SteelSeries, more than 10%.

Non-recurring items are expected to be around negative DKK400 million in GN Audio related to effects of the acquisition of SteelSeries. No further recurring items associated with SteelSeries are expected beyond 2022.

The EBITA margin, excluding non-recurring items are expected to be around 20% in GN Audio. In Other, we expect EBITA of around negative DKK190 million.

Consequently, growth in adjusted earnings per share is expected to be more than 10% versus adjusted EPS for 2021. Let’s move to Slide 29 and an overview of the key assumptions behind the financial guidance, which we found important to share with you this time around.

Looking across the business, we expect a challenge in Q1 and but also assume a strong performance in especially the second half of 2022. For Hearing, we expect low-single-digit organic revenue growth in Q1, while high-single-digit organic revenue growth is expected in second half of the year.

As a result, the adjusted EBITA margin is expected to be low-single-digit in Q1, with a gradual improvement towards 20% by Q4 2022. For GN Audio and SteelSeries, we expect around minus 25% organic revenue growth in Q1 due to supply chain constraints.

As the supply chain situation is expected to ease in the second half of the year, we assume to return to double-digit growth rates in the second half of the year. As a result, the adjusted EBITA margin is expected to be in the mid-teens in Q1 with a gradual improvement in the remaining quarters.

Following the acquisition of Lively and SteelSeries, let me also briefly comment on our financial disclosure level going forward. We will continue to operate the business with two segments, GN Hearing and GN Audio.

To provide transparency, we will be going forward share of revenue and EBITA for the core hearing aid business and the emerging business within the GN Hearing segment. Gross profit and OpEx will be reported on the consolidated segment of GN Hearing.

For GN Audio, we will disclose the top line for the core business and for SteelSeries. As a consequence of the integration of SteelSeries into Audio, we will disclose EBITA for GN Audio consolidated.

Finally, let’s move to Slide 30 and our mid-term guidance. Let me start by stressing that our ambitious mid-term targets are intact, which now includes the impact from recent acquisitions.

In the mid-term, we expect to outgrow the market in both Hearing and Audio. For the hearing aid industry specifically, we expect the global hearing aid market to grow at around 4% to 6% in volume with an ASP decline of between 1% and 2% annually.

In the mid-term, we expect Audio market to continue to grow at around 10% annually. On a group level, this translates into an organic revenue growth and growth in earnings per share of more than 10%.

And with this, I’m happy to hand back to Henriette.

Thank you, Gitte, Rene and Peter, for updates. Just a few remarks on the upcoming Meet the Management event before we hand over to the Q&A.

The event will take place on March 23rd in a hybrid format where you have the opportunity to join virtually or in person. We do, of course, hope to see many of you face to face and formal invitation will be sent out shortly.

On the day, we will dig a bit deeper into our two businesses, and all will share some thoughts on the new digital opportunity in GN Hearing as well as our progress in video and the gaming opportunity. We strive for an informal session and time for the Q&A.

With that, I’m handing over to the operator for Q&A, please limit your question to two at a time. And as mentioned, we strike for a call to last around an hour.

Hello, Martin Parkhoi of Danske Bank. A couple of questions for – one for each business.

Maybe Gitte, on your margin guidance for GN Hearing. Can you maybe make a bridge of how you get from the 14% margin that you delivered in – you expect to deliver this year in the existing business and going up to the 20% and meaning bridge, that is, of course, organic – driven by organic sales growth and cost savings?

And on that context, on the margin, you have this significant loss expected on the so-called emerging business this year, which is predominantly Lively. But will this go down with Lively?

Or should we expect that more emerging business arrives. So we actually should expect a continued dose in this part of the business and not going up when Lively improves?

And then Rene, on the organic growth guidance on Audio. You must say that the SteelSeries did quite well in the second half of the year also held up better than your current business.

And also a good guidance for more than 10% organic growth this year. Why is SteelSeries equally hit on the first quarter?

I, of course, understand that they made 175% organic growth in the first quarter last year. But why are they equally hit by the 25% as we see in the existing business?

And can you confirm if I use 25% in the first quarter decline, then you need to make 16% organic growth in the remaining three quarters to hit 5%. How do you have the visibility on that pickup?

Thank you, Martin. So let me start.

And maybe I’ll start with the emerging business. That is for all practical purposes, Lively.

And we expect in the mid-term to see breakeven on Lively. And in terms of the margin guidance for the year, we guided around 14% for the full year.

And as we have alluded to in the first quarter, we expect our margin to be in the low-single-digit. As we are launching new products here in February and throughout the year and a new platform in Q3, we will obviously see stronger sales growth, especially in the second half of the year, so a bigger top line.

At the same time, we are taking measures, especially in our supply chain to further drive efficiency and streamline the setup. So we reduce our costs.

That combined will allow us to see improvement in the EBITA margin over the quarters so that we end the year in Q4 with an EBITA margin coming close to our mid-term guidance of 20%.

Yes. If I can just follow up to that before Rene answer his question.

You always have a very strong fourth quarter. Historically, that has been up to 24%.

So my question was rather related to what – how do you expect to go from the 14% for the full year delivered here and then to deliver actually more than 20%. I don’t know when is it 2023 or is it 2024?

And when are you actually expecting this to happen on a full year basis and not only in Q4, which always has been the strongest quarter on the margin?

So first off, we confirm our mid-term guidance of being above 20% in the core business. And that is, again, a combination of returning to sales growth above the market and addressing efficiencies in our supply chain.

So Rene here. So on your two questions, thanks for those.

On the – you could say, on the Q1, of course, for both businesses, it’s a matter of the comp and the available components. The entire market is supply sort of determined at this point of time.

So here, we have a bit of, you can say, the volume effects, of course, are different in the two businesses, but percentage-wise, we land in plus/minus the same place. If you then look forward, then the reality is that or you can say, short-term, also the GN Audio core or organic is harder hit from a component perspective than SteelSeries as we speak.

And that’s your second because that leads to the second question, why do we believe in this pickup in the second half, and we have calculated the same percentage as you just did. From everything we hear from all the information we are collecting talking to our suppliers and so on and so forth, it is our view now that these things will ease in the second half of the year.

That could easily be a question now, do I know if that’s the case. No, I don’t know.

Nobody knows, but this is the best assumption we have, and we are guiding on that fact. Right now, the market growth is entirely driven by supply.

As supply will release, it is our belief from everything we see that the market will return to double-digit growth or at least the 10% we have talked about for a long time. And with our portfolio, with the pull from the market, the setup and how we recompetition, we will beat the market when the market starts growing again.

Like we have been doing also second half and when we were under – especially in November, December on the high restrictions as regard to component supply. I just want to say at the end of – in summary here, so we’re all on the same page.

It’s not there are no components out there. We are operating at a way higher level than we did two years back as I just commented.

So there’s a lot of components, but there is not enough for the growth that we could deliver if we had it all. And that, of course, goes from my competitors as well.

There’s a lot of components, but not enough to drive the growth we’re looking for. When that eases, we think the growth is there.

Thank you very much. Two questions for Gitte then for Rene, some follow-ups as well.

Gitte, you are stating – you are giving your view on how you expect the hearing aid market to grow with a 4% to 6% unit growth in 2022, which is arguably a bit more conservative than some of your competitors to still talk about pent-up demand release. This is now obviously bringing me to a question which might be a bit provocative.

But is it only because this is where you feel comfortable that you can deliver growth? Or is it that there are different markets?

I mean in any way, you should see more of a pent-up demand coming from Asia and the markets that were soft in 2021. Second, Martin actually asked you a very good question and you were dodging the answer a bit on that.

The emerging business in Hearing, you said it’s among Audio, Lively. What are we to expect going forward it will be parked in that emerging business so we can actually try to understand whether total Hearing margin will go back to above 20%.

And if you don’t want to give us exactly what it is, that’s fine, but just please confirm whether we should see further investments in that emerging business that will keep the GN Hearing margin below the 20%. And then, Rene, on 2022, I mean it’s arguably a really tough market to navigate.

But can you please talk bit more about the price increases that you have put through in 2021? And how much of growth you would expect to see coming from pure price increases?

Thank you very much.

Thank you, Maja. So in terms of our outlook for the overall market and when we talk about unit growth of 4% to 6%, we do expect that to be the high end of that range, so probably closer to the 5%, 6%.

Now on the question of pent-up demand, we haven’t really, at any time point, spoken specifically to pent-up demand because I don’t think we’ve really seen that. If you look at the global market volumes in 2021, I mean, they came in just above the 2019 level.

And therefore, we kind of assume that we are back to normal and grow from that. Should pent-up demand occur, then it’s obviously still our ambition to take market share.

So if that happens, it will also benefit our business. It’s just that we haven’t really seen it to a large extent yet.

In terms of emerging business, sorry, if I was unclear. I mean, for all practical purposes, this is Lively.

And we again, expect Lively to be profitable or reach breakeven in the mid-term. And in longer term, we may consider expanding the D2C model beyond the U.S., but for now, this is where we focus.

Gitte, can I just have a follow-up question on that? You were talking about the two-thirds of customers or interested customers in Lively that can’t be served today.

Would you share with us what kind of ticket you would charge for a referral of people that would go and see one of your Beltone affiliates or anyone in your retail network? Shouldn’t that be adding nicely to growth?

And how can we calculate that?

Yes. I think – I mean, the way to think about it is that the – these customers will still buy their hearing aid through Lively.

But what they are looking for is to get – instead of getting the feeding service online, they would like to receive that in person. So we’ll guide them to an audiologist where they then go and pay for the fitting to the audiologists.

So I think the way to think about it is that Lively we’ll still sell the hearing aid but they will pay a fitting fee to, for instance, an audiologist in the Beltone network or a ReSound provider.

What about the ones with the severe hearing loss that can’t use a Lively hearing aid that needs something more – somewhat stronger?

Yes, that is actually a very small fragment of these people. But in that case, we will have to guide them to an audiologist, and we are still contemplating how that will look like whether people will pay a fee for having their name on the Lively web page or how we figure that out, but there will be some sort of payment.

Thank you.

And Rene here back. So on the pricing, so we have launched price increases to the market by 1 of February up to 10% on the MSRP on the list price.

This will not translate into a 10% effective price increase across the board because there are different contracts. We have global accounts and so on and so forth.

But of course, we have not guided exactly where we think this will land, but I think mid-single-digit below 5% or better in that ballpark.

Thank you, Rene, for that. So that means that from a volume perspective, you really don’t need to grow volume buys very much to comment about your guidance – I mean, to hit your guidance.

Yes, I hear you.

Okay, great. Thank you very much for that.

I’ll jump back into the queue.

Hi guys. Good morning, and thanks for taking my questions.

I’ll keep it to two for now. I’ll – one, just trying to understand, Rene, the Audio guidance for the first quarter and minus DKK25 million, I appreciate your operating in a quite difficult environment, but clearly it would imply significantly lower revenues for the excluding SteelSeries business than what you’ve been averaging at, looking even at the last couple of quarters.

Is this sort of a worst case scenario, is that how we should be thinking about it? Or is it in deep the situation that when you look at sort of the last couple of quarters versus where you are today from a supply chain perspective, things have gotten so much wars that you will end up at sort of this DKK2.2 billion of revenues as opposed to the DKK2.5 billion to DKK2.7 billion that you’ve been delivering?

And if you can give us some insights into that’d be helpful. And then get hit back to you on the gross margin dynamics.

So, I think the big difference between what’s happened for you, and your peers through the pandemic has really been on the gross margin development. I think looking at where you are, you are still meaningfully below your pre-COVID gross margins.

Whereas I think most of your peers have moved to either back to those levels or above. I mean, is the ambition of this DKK150 million restructuring to get you back into the 68%, 69% gross margin.

And maybe can you give us a better more detailed to bridge for how you get there or what you think is a realistic gross margin for the business? And maybe decompose that in terms of, what comes through the top-line, and is dependent on the launches, whereas what is in your own control and will be driven by the actions that you’re taking this year?

Thank you.

So Renee here. So thanks for that question.

I mean the minus 25% that we are now guiding for Q1 is, what we are looking into as we speak. And of course, we don’t want to come in a situation, but we give you a number and then we have to come back in May and tell that the world was any worse than that.

But I mean, the rest is that you can say November, December, were poor from a supply – component supply point of view and so has January and February been. So that’s basically the situation we are in it is – we do see some improvements as we speak, but they have to come through first.

So, we should also just talk about the absolutes. If you talk about the DKK2.1 million, DKK2.2 million that you just mentioned here if you go back to 2019, we were DKK1.3 million, right?

So, so in Q1, so of course, we are still despite this at a way higher level than where we came from. So, the business is holding up, but against the Q1 of 2021, we are down.

So coming back to your question on the gross margin development, and how to think about that. I think what we have or I’ve spoken about before is that we haven’t had our sales come back at the 2019 levels, and yet we’ve kept the full capacity in our supply chain, meaning that we had, among others, fixed production costs that was sort of uncovered, which obviously has impacted the gross margin negatively.

There’s also effect from country mix and product mix, but if we were saying, leave that out of the equation. My point is that part of the improvement we expect to see in our margins is driven by in a bigger top-line and obviously driven by our ambition to outgrow the market, which is also reflected in our guidance on the top-line.

Now, in addition to that we are taking a look at our supply chain end-to-end from how the customers or how the audiologist is place orders with us till they actually have the product in their hands. And there are a number of areas where we can further improve and become more efficient and obviously we also build very much on the experiences we have in audio, in terms of driving efficiencies and scalability in the supply chain.

And maybe just to give you a little bit more flavor, I think one of the things that we’re looking at is, how do we receive our orders. And today, in most of our markets, more than 80% then of our orders come in either via phone or email.

And as I’m sure you can imagine that can be done more efficiently in a modern world. And certainly also in a way that probably leads to less errors.

So, we have a number of areas to improve on in our supply chain. And we are addressing that.

So when we expect to see our EBITDA margin return to 20% midterm, it is due to both a larger top-line, but certainly also efficiencies driven out of measures we take, especially in the supply chain.

Okay. And so it’s fair to assume, you would like to get that gross margin back to that high 60s number over, I mean, what’s the realistic timeframe that?

Is it by 2023? Or do you think it’ll take longer than that?

Yes, well, it’s we – we are obviously looking at our EBITDA margin and it is our ambition to get back to the 20% and we will get back to the 20%.

Are you guys willing to commit to a timeframe for when you get to the 20%?

Well, I think in terms of a timeframe, I can say that we expect to see Q4 coming close to 20% this year.

Okay, excellent. Thank you guys.

I’ll jump back in the queue.

Yes. Hello.

A couple of questions from me as well. So starting with Audio.

Can you, Renee, I think in Q3, you called out that you would’ve had double-digit growth in the third quarter, had it not been for supply constraints. Can you sort of quantify the amount of the impact in Q4, the extent to which you’ve seen the order backlog increase and related to that you’ve previously talked about that your reengineering products to ease supply constraints on some product lines, when exactly will this come through?

Is it something that we are seeing, is that embedded in the minus 25% for Q1, or is it something that comes later in the year? And then for SteelSeries, can you briefly elaborate on what are your margin expectations for next year?

Is it basically assuming margin on par with the 13% you’ve delivered in 2021? Or should we expect improvement in the margin for SteelSeries?

Thank you.

Thanks for that. I mean, on the Q4 side, we have not disclosed the order backlog as such.

And we are not going to do that, but it’s clear we would have delivered double digit growth had we been able to supply in Q4. On the re-engineering side, none of this is available in Q1.

So, we have a list maybe also more products than we have talked about earlier in, through a re-engineering part as we speak. They will start hitting the market in late Q2 and sort of over summer, in a sense, of course.

And that gives two things. Of course we, re-engineering in a direction where we think there’s a better chance and we can get sort of better visibility to components, but it also gives us two options basically.

So, we can build on more than one chipset when we when we get there. But it’s you should see that is a support of second half more than first half.

On SteelSeries margins will go up. We are sort of as we speak starting to do the back office and supply chain integrations and so on.

So you should expect sort of 14%, 15% level.

Great, thank you very much.

Perfect. Thank you very much for taking my questions.

I’ll keep it to you, hopefully quite quick ones. First one, interesting on the backlog side, in audio being so high.

I’m just curious if you have any color around the composition there, what have you seen in terms of, is it more on the enterprise side or call center and how has the mix spin? Has it been slightly higher priced units or lower?

Just any color around that would be really helpful? And the second question, please, on the hearing aid side.

I appreciate commentary in the past, but it seems pretty clear like the latest product cycle has been think probably fair to say, not the great one relative to peers. I guess the question is, when you’re thinking of a new platform later in the year, how committed are you to things like the M&RIE fitting and side of things.

How much of a shake-up of the existing paradigm should we expect in the third quarter? Or is it more of a semi sort of mini chipset table uptake rather than a full review?

Just curious about that. Thanks.

So Renee back here. So on the backlog, I think the reality here is that it’s, you can say, it’s a mix where several of the high runners are severely affected.

I mean, across the portfolio, we have certain products with the right price levels and the right you can say sweet spot hitting that are selling at simply very much higher numbers. And some of these are affected by this.

You can say it has two. One is that the demand is very strong.

The other one of course, is that we cannot deliver on that. So it is in the core business that we see this problem.

Maybe there is a question coming later because we talked a lot about video earlier. We have seen late last year, a very sort of restricted amount of video products we could get out.

We will have a meaningful, but not nowhere close to the demand supplier video products in Q1 going up in Q2. So, now we actually starting to get some at least some fulfillment of demand in that space.

But it is unfortunately sort of across the board, but also affecting the high runners as you speak. Maybe just one more comment on the backlog.

And of course, we are talking about the backlog, because it somehow indicates the pull from the market and so on. But you also should remember, we talked about this also last year, that after a certain period of time, the backlog, the business, we restart, meaning that if you have had stuff in backlog four, five, six months, it will vanish.

When people start again, they buy what is relevant for that time. So you can say don’t expect that we have massive effect of the backlog in Q2 when we need to be back to or at least Q3, because we need to be back to the normal business maybe we built new backlog, but that’s another story, but backlogs disappear.

And I’ve just seen sort of in the market mainly talk about this now, as this is the rescue, it mainly speaks to the fact the amount is very high.

So your question on our new platform, I’m sure you appreciate that. It is really early for us to announce that we come out with a new product platform in Q3.

So, I hope you understand that I don’t want to speak too much to what features it contains. Having said that, I just want to maybe make the point that I know we haven’t had the success.

We would like to have with ReSound ONE and M&RIE in the VA. But apart from that, looking into the commercial market, we actually see ReSound ONE and M&RIE being well received.

And the benefits that M&RIE brings in terms of really supporting organic hearing or hearing as nature intended is well perceived both by audiologist and users.

Understood. Thanks for the answers.

So firstly, on Audio, again, so label the point on supply chain visibility here, just wondering in terms of the – how quantify those particularly that kind of second half rebound, because certainly one of your competitors has talked about those supply chain headwinds continuing through the calendar second half in the first part of next year. So be more comfortable if your competitors continue to see headwinds through the second half, does that give you some opportunity to take some more share if you are able to supply more fully into the market?

And secondly, just on hearing, just with respect to the emerging business, your thoughts in terms of the trends that DKK190 million does this year trade downwards or margin?

Sorry, David. David, we have a hard time hearing you.

Can you repeat, especially on the emerging business again?

Business the DKK190 million, is that better?

So sorry, David. This is Henriette here.

Can you repeat your question again, because we have a hard time hearing you on the emerging business.

The emerging business?

Yes. Can you pick up from there, we couldn’t hear the question.

DKK190 million of headwinds get a feel for how you see that scaling down emerging business always be core, its actually get to core margins at some point in the future?

David, thanks for that. I think, as you’re also speaking to the market is defined, you say the market growth is driven by supply as we speak.

So in that sense, of course, whoever supplies more into to have better supply opportunity will gain share. We think despite sort of our own frustration about the situation late last year, we actually did gain share in the market.

When we speak about recovery in second half, this is based on all the input we have from our suppliers, from everything we can see in the market, and assessment that this is what we can believe in supported by the fact that we have significant reengineerings ongoing. If we are better shape than competition in second half.

Yes, then we will take share. I think we are not concerned that you can say we will run out of demand.

There’s so much you can say going out there in terms of hybrid work teams platforms are still underlied massively. There sort of big, big upside in terms of moving people from, you can say consumer type or less professional quality headsets and speakers and cameras and so forth.

So, if we do our job well, we can create the demand we are looking for and can be supplying more than competition we’ll take share.

So David, on your question on emerging business, and I hope I understood it correctly. So for 2022 we are guiding minus DKK190 million and in the midterm we expect the emerging business to breakeven, will it be a sort of a linear improvement?

I don’t want to confirm that, but obviously we do see a gradual improvement towards breakeven while we continue in investing in capturing the growth that we see in the online market.

And I don’t if you still hear me, but if the – you expect to make further acquisitions in that emerging business that could further push back even?

Well for now we’re focusing on lively and making that successful.

I think we can take the next question.

Yes. Thank you.

Thank you for taking my question. I’m going to be quick.

So the first one on Hearing, I’m just little bit, I would surprised by the guidance for Q1 2022 as with like low single-digit organic growth and also low single-digit EBITDA margin. Yes, it seems just a bit conservative given, say easy comps and current mid-teens margin.

So could you just give us a bit more color about the, like the sequential decline expected for Q1 detail please? And next one in Audio, so my understanding is that unlike previous years, you seem now be willing to accelerate on bolt-on M&A like, Joe to expand, let’s say proposition towards what you call non-office workers.

Just, could you let us know a bit more about even how big M&A contribution could be going forward? Thanks a lot.

Yes. So let me try to do that.

First, probably I want to say that our innovation capabilities are intact and I’m really pleased that we this week have announced two new products that we are putting into the market in the February. Having said that, we are in Q1 still impacted from the fact that we had delay in our product launches, because we were supposed to put new products into the market in the second half of 2021.

And obviously that was still be benefiting our business now here in January and February and so on. So, in addition to that, we also see somewhat softness in the markets.

We see that in the U.S, I guess due to Omicron, we see COVID restrictions reapplied in Japan, VA not allowing visits and so on. So there is still somewhat soft market that we are operating it.

Okay. If I may just a quick follow-up.

I mean, I understand that you see some softness and you have new product launches, I mean in Q1, but if you – if we look back like in history, I mean last time that you had mid-single digits like EBITDA margin was probably in Q1 2020, and in Q1 2021, you were at 8%. So, I mean, I just don’t get it why let’s say EBITDA margin will be so low eventually you have some, let’s say, softening of the market.

I think your peers say that, let’s say the market condition a bit improving since this in January. So just any color on it would be super helpful.

Thank you, Gitte.

Well, I guess in addition to the factors I’ve already mentioned. We are launching two new products here in Q1, and obviously we are supporting those with the relevant investments as well.

Thank you.

So Rene here, I think, I mean, or thanks for the question on the frontline workers or deskless workers. So, what we decide to call them, I think this is a strategy statement.

We are looking into this opportunity together with platform owners like Microsoft where you can say the UC Unified Communication Technologies will extend into this space. I mean today you have private mobile radios, for certain sectors where you somehow pushed to talk and, so there’s a lot of opportunity coming there that we think we can address with the technologies that we bring.

It’s also you can say these are our customers already, so we have the channel access to that space to a large extent. So the opportunity is out there, when we talk about M&A, I think we have had very good success and experience actually buying ourselves into a certain segment and then using the GN Audio machinery to scale that.

We’ve done that, in the transport sector in North America with the whole transportation segment, logistic segment, we’ve done it with video where we have some fantastic products in the market. We just done it in the, in the gaming space.

And, we think this model actually helps us accelerate getting to the growth point and then it’s our job to scale it with the machinery we have already. So this is not a stated intent that we are going to go and buy five companies in the next two quarters, but we think the model such is very attractive for us to drive growth faster.

So look at it that way, if we don’t have any M&A activity to announce and of course we just did a significant one. So we are absorbing that one as we speak, but this is a strategic statement basically.

Thanks.

Good morning. Thanks for taking my questions.

The first one is also about your targeted price increases. So could you give a comment about the impact on margins on this say your year comparison, should we think about covering higher input costs and therefore keeping your margins eventually stable towards 2019 or 2020 level on a, like for like base or do you see also some more differentiated approach to improve your value price mix, also this context?

Did you think that also price increases in the consumer space are realistic? That’s basically part number one.

Number two is at GN Hearing, you mentioned clearly to focus to accelerate some M&A and partnership activities. So could I give some comments about your M&A strategy and whether it relates only to, I would say expensive often loss making emerging technologies going forward, or whether you might also look to warmer this traditional say retail opportunities to strong extent than before in future?

So Renee here, a good question, of course on the price increase in margins. I think for now assume that, this is to this will find off new cost.

I mean of course we already have transportation cost very significant ones in, in the comparison. So if this doesn’t move then of course there’s an upside there.

We don’t really know what the market will say about component cost in the next phase. But and, we haven’t seen yet the massive increases, but somehow we have to assume that something will happen here.

So assume that this is to cover for cost coming in. So we are margin neutral here.

On the consumer side, let’s say on the enterprise side, we are the leader. We somehow have market power, so we can lead price increases and competition will follow.

On the consumer side, we are not the market leader so we have to somehow see what the big boys do. And then we will follow through.

So thank you for that. I mean, it is a part of our strategy to accelerate M&A and partnerships as you point out.

We already have very important partnership such as our research collaboration with Cochlear. We also have partnerships with Apple and so on.

So it can have different expressions. I do want to make it clear though that when we write that statement, it is not because we have an ambition to go and buy retail.

We don’t, that is still a clear part of our strategy not to do so. But we are obviously looking for, if there are further attractive opportunities to supplement our business, we are looking for that as well.

Okay. Thank you very much.

I had two questions. Could you just remind us, when does the next – when does the Kirkland Signature next come up for renewal?

And is that a contract you’d be interested in given you’ve already launched this sort of ReSound ONE under the Jabra brand there and on Tuesday we saw a press release on the Jabra Enhance Pro or Jabra Enhance Plus, but the link seems to have disappeared from the website. It, I think it mentioned a launch in the end of February and sort of how it was flat in with the OTC category.

So just commentary on plan to that product and what we should expect as OTC approaches in the second half of the year.

Yes. I’m happy to speak you to that.

So the KS, I believe the contract is renewed every 18 months, so it will be coming up in the second half of 2022. And obviously, I think that’s quite a competitive process in relation to Costco.

So maybe I don’t want to comment too much on that. Except maybe just underlining that the, I am actually quite pleased with our performance in the branded segment and obviously, having put Jabra Enhance Pro into Costco has made us regain a strong position in the branded segment.

And that is maybe a good segue also to speaking about Jabra Enhance Plus. As you allude to on the first instance is approved under the hearing aid regulation and as such, can be distributed through the traditional audiologist channels, and we will do so.

And we expect also that to be highly relevant. But once the OTC regulation comes into force we certainly also expect Jabra Enhance Plus to fit under that regulation.

And, we see there are a strong opportunity to expand into even more channels. And I actually think that is one of the areas where we in GN have a unique strengths, because those new channels that opens up.

I mean, they are new to Hearing, but they are not new to Audio. So this is really a great example of where we can benefit from having Audio and Hearing under the same roof.

Great. Thanks.

Yes. Good morning.

Two questions please. Sort of a similar question as earlier on the call for Audio, but here specifically for SteelSeries.

So what’s needed for the remainder of the year for SteelSeries to meet more than 10% for the year? We start with that 25% drop in Q1.

I don’t have in front of me how large Q1 was as a percent of 2021 side, if you can help me with that proportion so I can calculate myself or since you most likely have done the exercise, remind me what growth is required for the three remaining quarters to meet 10% plus for the year and what comfort you have in that trajectory. And then secondly sort of along the same lines as earlier questions here on the call, but following a series of early missteps in guidance visions, I’m trying to understand if there is a new element of conservatism to the guidance that have now been put in place, or if the process for how you set your guidance is unchanged.

So Rene back here on, on the SteelSeries, I don’t think we disclosed that number. We are 15% to 20%.

I think you should think about it like that.

Yes. And maybe just as information materials than we have in the, in the appendix of the slide deck, we have the quarterly numbers for SteelSeries for 2021.

Just so you have a original base.

Fantastic. For the guidance

What was the question?

Sorry. I think we are unclear of the question.

Can you just repeat?

Yeah. I’m just curious to hear if, if the process of how you set your guidance is unchanged from before or given that, given some of the, missteps, both from internal hiccups in product development, but also external factors.

If the process for how you set your guidance, is unchanged, or if it’s been to some extent, perhaps more conservative,

Maybe I take this one, this is Peter. So no we have not changed our guidance.

We do it the same way as we’ve done. And of course as it was the case last year, it’s still uncertainty, is higher.

Visibility is lower. So of course that makes it difficult, but fundamentally we have not changed the approach we use for coming out with the guidance.

It’s the same.

Perfect. Very clear.

Thanks so much.

Hello, it’s Kate Kalashnikova from Citi. A few of my questions have already been answered, but perhaps moving up on Lisa’s question.

I was surprised that the price point for Jabra Enhance Plus, it they will poses sound control. Yet your product is more discreet.

It looks much more like an earbud rather in a traditional hearing aid is the challengeable and can also stream music and calls unlike sound control, but always anything input calls have gone up compared to when both launched sound control. Can you explain why have you decided to price it lower?

And can you also give us any color on both sides of sales opportunity do see for Jabra Enhance Plus, what sales contribution would you be satisfied with? Thank you.

Thank you. Well for that question, well obviously we have done quite significant consumer research and also looked at, price levels on hearing aids price levels on true wireless earbuds, but when setting the price for Jabra Enhance Plus.

I really like your comments on the product because I too believe that we really have something unique here that is, it is stylish, it’s elegant and it’s is discreet. So we are now launching into a new category.

We are building a new market here and in order to do that, it’s been important for us to go in with a price point that is obviously high enough to make it attractive from a financial perspective and profitable, but also at a point where we can read a broader, reach a broader audience. So those have been the tradeoffs that we have considered

And on the size of sales opportunities here, what would be success in your view?

Well, as I’m sure you understand, we don’t guide, on a specific product and also we are launching into a new category here so clearly it’s going to be a very exciting year also in that regards.

Can you talk about your expectations for the category may be more broader. Obviously, once OTC, is implemented from the second half?

Well, I think in order to, to think about the OTC category, I think one have to think about that in the longer perspective. I think in the long run, and I think that’s the whole idea with the OTC regulation is to expand the market and make a hearing aids accessible for more people in the U.S.

with the speed that will happen with I think we will all have to watch, watch that and see how fast that progresses.

Thank you.

Yes, thank you very much. I just have to come back to this EBITA margin guidance, the midterm of 20%.

It sounds like supply chain costs is a major lever in all of you to get back towards these levels. But how much of your cost base is supply chain cost these days?

And also, I mean, when you talk about Q4 this year and getting close to 20% coming back all the way back to Martin’s comments, but normally in Q4, you have maybe 25% on average in 2017, 2018 and 2019. So there’s still five percentage points to go, even from Q4 this year where we must assume that markets are maybe more or less back to normal, so normal course of business.

And then second question is in Q4 here you take a rather large amortization of intangible, there’s write-down of something. Can you try to maybe explain what is that you’re writing down?

Thank you.

Yes. So in terms of the cost related to our supply chain, so obviously the majority of those costs are showing up in under our cost of goods.

So you can say if we run with an EBITA or a gross margin around 64%. It will be close to 40% of our costs sitting in the supply chain.

So that’s obviously a significant part. I think also if you look closer into our OpEx, you’ll see that we have during the last couple of years reduced our sales and marketing costs and kind of reset the base here.

We have invested heavily in R&D and IT, and will continue to do so. I think that’s important for us to be competitive in the future.

So where we see opportunity to further improve is in the supply chain and obviously also a few other areas, but especially in the supply chain. Now, part of that improvement also comes with a bigger top line to cover more of the fixed production overhead.

So it is a combination of that.

Hi, Carsten, this is Peter. So maybe I take the, the question related to the, the amortization increase.

This is primarily related to the breakdown in some of our channel investments that we do in GN Hearing. So and that was the right thing to do in, in Q4 of 2021.

All right. Just trying to understand that the – was the 40% of your cost that was related to supply chain osts?

No, sorry. Then I misspoke.

I mean, 40% of our total costs in GN is related to supply chain. So the, I mean, when we operate with a gross margin of 64%, I mean, that is a, then you have 36% going to cost of goods sold, and that is a mainly supply chain cost.

Okay. Thank you.

Thank you for taking my question. So first question would be for GN Hearing and your geographical exposure, since you have such a high exposure to emerging markets in Japan, could you just talk about some of your expectations well, mostly for Japan for, for this year, which is an important market for you.

And my second question would be on, on SteelSeries. Now, you mentioned earlier that you would expect the margin to go up to 14%, 15% this year.

But the EBITA margin that you’re showing is an adjusted EBITA margin. So I guess we would want to see the reported EBITA margin is, would you also expect that to be 14% to 15%, of course, excluding those one-off items that you have already called out in your report.

Thank you.

So let me start talking to Japan. I mean as you point out, Japan is our second largest market, so obviously a very important market for us.

We unfortunately continue right now to see lockdowns in Japan or restrictions following COVID. We do, however, expect that to ease up.

And I think one of maybe the important things to think about in relation to Japan is that the ITE form factor is quite attractive in a Japanese context. And therefore I look forward to bringing our new ReSound ONE ITE into Japan later this year.

I think that will be really helpful.

Rene here. Yes.

So, sorry. I was not precise to have these.

The EBITA margin, we expect 14% to 15%. We understand the translation.

Of course. Yes.

And when comparing with 2021, we should not adjust for any cost items, which have been below adjusted EBITA margin.

No is the answer. We should not

Okay. Thank you.

Thank you very much Operator. And thank you everybody on the call for the very good questions.

So with that, we appreciate your time today, and we will see you on the road. Thank you very much.