Welcome, everyone. Thank you for participating in this conference call held in connection with our Annual Report 2019 released this morning.

The duration of this call will be a maximum of one hour, including Q&A. Today, the company is represented by our President and CEO, Søren Nielsen; and CFO, René Schneider and the IR team.

I’ll now hand over to Søren.

Thank you very much, Søren, and I’ll run quickly, we have many things to talk about this time. We will first address key takeaways from the results of 2019, talk a little bit more about IT incident and a little update on various business activities, a little bit latest news.

René will give a financial update and I’ll come back and end with outlook before we take Q&A. If we just run quickly, highlight the strategic rationale of the group and the structure of the group, we are in four different business areas; hearing devices, implant, diagnostic and communication, all with nice growth rates.

And the reason for bringing this up is that as of January 1, the headsets business to communication business is now a true and fully integrated part of the group and we start talking more about expected growth rates in market and so on, not fully today but also at coming Capital Market Day, et cetera. If we look at 2019 highlights, the key highlight is group revenue growth of 70% despite the significant headwind we had from the IT incident which we can now conclude is estimated to be 575 million on the sales side and that leaves 4% organic growth, 2% from acquisition, less than 2% on FX.

And if we add back in the estimated headwind from the IT incident, then we would have seen an 8% underlying organic growth for the full year. The hearing aid wholesale business reported has 5% growth which splits with 8% unit growth and 3% ASP decline to channel a geography mix of course impacted by the IT incident and underlying our best estimate is we would have seen a 9% underlying growth due to a successful uptake on our flagship products, Opn S and the general introduction of the Philips HearLink as well as the introductions we saw in the fall of '19.

5% currency growth in local currencies in hearing aid retail, this is entirely the acquisitions, particular the latter one we had talked about before in U.S. in the first half of 2018.

Underlying organic growth would have been 4% which is an acceleration from first half, but we saw this already before the summer. As we talked about at the half year, we saw it building momentum in the retail business which of course again was significantly jeopardized by the IT incident.

Strong organic growth in hearing implants of 21%, 25 in CI and an impressive 18 in BAHS and then diagnostic with 10% organic growth particularly coming from strong performance in U.S. The joint venture with German Sennheiser Communications saw an underlying sales growth of 12% out of the Sennheiser business.

It was mainly driven by wireless products in Mobile Music. There was a material decrease to the contribution to the Demant group because the operating profit of the joint venture declined due to negative mix effects and increased capacity cost.

The amount announced demerger took place January 1, 2020 in line with expectations. The total estimated negative impact on EBIT in 2019 from the IT incident we now estimate to be a total of 550 which is in the lower part of the 550 to 650 we previous estimated.

We anticipate a negative spillover effect on EBIT in 2020 of 100 million to 150 million to the sales side. Reported EBIT decreased 15% to DKK 2.151 billion and EBIT margin of 4.4 due to this negative impact of the IT incident.

Adjusted for the IT incident, we would have seen – our best estimate is we would have seen a good result of DKK 2.7 billion. We have seen a strong increase in cash flow from operation of 17% when we adjust from IFRS 16 and one-off related to Sennheiser Communications demerger.

Share buybacks were 946 million, close to the expected 1 billion and gearing multiple we’re normalizing the EBITDA of 2.0 which is within also guidance. If we look towards 2020, we will see a number of one-off effects related to the consolidation of EPOS and an estimated positive effect on EBIT of DKK 200 million to DKK 400 million which will be realized as special items in 2020 and is purely one-off.

The same one-off effect will have a negative cash flow effect of 100 million to 200 million. These one-off effects are not included in the guidance.

The outlook for 2020 is naturally significant organic growth rate above modest growth. This is excluding EPOS as it’s not part of the base and EBIT is expected to come in at DKK 2.65 billion to DKK 2.95 billion with again a negative spillover effect of 100 – after a negative spillover effect of 100 million to 150 million.

The results generated by EPOS, the operating result is of course included and integrated part of the outlook. What is now excluded is purely the 200 million to 400 million positive one-off.

Solid growth in cash flow from operation coming from a bigger result and of course a continued effort to optimize working capital. Free cash flow after acquisitions are to be spent on share buybacks and we aim staying in the same range for the gearing multiple of 1.7 to 2.2.

Looking at the revenue side by activity, basically just summarizing what I just mentioned, 5% of wholesale, 0% of retail, 25% CI, 18% BAHS, 21% hearing implants and 10% diagnostic. If we look at geography, we can see that it was North America and Pacific that were most impaired by the IT incident; North America across both wholesale and retail; Pacific particularly the retail business with still to some extent suffer from the incident, however, improving every day.

Short update on the effects of the IT incident. As I said, we now estimate the total loss related to the IT incident to be 550 million which was previously estimated to be 550 million to 650 million.

Negative sales of 575, which is slightly less than the lower part of our estimation and this is a reflection of a better finish to the year than anticipated and a good strong momentum particularly on the wholesale business. Direct cost of DKK 75 million against previously estimated to be DKK 50 million and it is the production costs that are higher.

We saw them being around 25 in our first estimates but you can just see we have spent more money on overtime shipments, getting parts, catching up with shortages around the world. So all-in-all 75 million and then an insurance coverage of 100 million giving a total effect of 550 million.

And if we put them back into the business, you can see the underlying growth rate in second half in the third column in the table on the slide 13% in wholesale, 6% in retail, all-in-all 10% in hearing devices second half and CI, BAHS and diagnostic not impacted. Especially diagnostic had of course a buildup of orders that they have managed to close towards the end of the year.

Negative spillover effect from IT incident in 2020, we expect negative spillover effect of 100 million to 150 million primarily due to impact on sales. And this is not that we don’t see strong growth, we do but we are not yet at the estimated level of where we would have been if we had not had the incident and then of course in general, planes being impacted by loss momentum.

Then also which is a change compared to our call in November, we still see in Australian retail only some negative effect. We are still not doing lead generation at normal level.

This has a little bit to do with the structure in the Australian market of delayed from the lead to actually generated to invoicing taking place, and therefore we are still working hard to fully reach the performance of the Australian business. Other than there, there are no more any IT effects on the retail business and there are no spillover effects on implant or diagnostic as there were no commercial effects in 2019.

A short update on businesses looking at the hearing aid market at wholesale level, we have seen strong growth in U.S., in particular in second half. VA has continued to expand and increase productivity.

In the beginning of the year, we saw NHS build up stock which leads to higher than normal growth rates in UK. Germany has done well.

France has a change in laser products going into consignment stock and more being invoiced directly. And then fluctuations in general around the wholesale reform also delivering solid unit growth.

Then Japan has seen solid unit growth and the same in China, whereas Australia and to some extent also Canada have had a very weak development; Australia in the beginning of the year, Canada throughout the year. Negative effect on ASP from channel mix and of course competition that to some extent offsets the otherwise expected increase of pricing due to rechargeability.

So, all-in-all, a maintained picture of a value growth of 2% to 4% and mid to long-term unit growth of 4% to 6%. Looking at the hearing aid wholesale business, we saw 5% organic growth despite the IT incident and again you can see here how units and ASP developed in first half versus second half.

Sequentially, the effect was a little less as it was in second half sales to independent and premium sales where the growth was not materializing and therefore of course translating into less units, but also less positive ASP development in realized numbers. So a really short wholesale through the year, somewhat bumpy ride, slow start to the year in particular due to a lag of competitive rechargeable solution.

We fixed that, got new premium platform out. We saw a nice pickup that was a bit of ramp up on the rechargeable and also net sales were hampered by high returns of legacy rechargeable solution of people that were still in trial.

Strong finish to the year and we really saw that in the business when we were out of supply issues. And now that we have seen a very nice pick up in the wholesale business, not in the least in U.S.

with independent customers, so we still definitely see the business being in a good shape there. Underlying organic growth in retail of 4%.

The 4% in local currencies reported is due to acquisitions and therefore minus 2% organic growth in the second half would have been 6% adjusted and this was actually the level we saw the period up to the IT incident in the past three, four months. So we feel that’s a fair estimation of what would have happened.

Retail business largely normalized. There was a significant impact in North America, which we are past now.

What we now can also see is that the trends where more people are having an insurance coverage for their potential purchase of hearing aid has grown, which means more people are coming into shops with basically a voucher in their hand from an insurance company which limits the product choice and reduce the full invoicing to typically a fitting fee and the hearing aid is acquired directly from whatever wholesaler and then of course lower ASP and organic growth in retail, however, increased similarly to some extent the wholesale sales. You need to adopt to this model and make sure you handle these clients more efficient and more productive, and we have actually seen higher productivity and significant unit growth in retail, but again dampened by overall ASP drop due to more units coming from fitting fees.

Growth in Europe in retail across many markets underlying good performance in France, but countries like Poland, Sweden, Spain and actually a high number of the newer markets we are in, we see very good performance and strong growth. Australia was off to a very good track and one of the things I remember and I kept on highlighting for driving growth in second half, but unfortunately it was the country that was most severely impacted by the IT incident and therefore also had taken longer than expected to come out of.

On implants, again 25% organic growth in CI, very nice to see and 18% in BAHS. We are very focused on our FDA submission and will seem to follow timeline reasonably well, so a little bit delayed from the IT incident and will come with very good momentum in both businesses into 2020.

Continued momentum in diagnostic with 10% organic growth, it comes from newborn screening, audiometers, balance equipment. Also, services and disposables will show strong growth in '19 and expect to continue that expansion.

We have also welcomed Canadian Audioscan to the family, the Demant group, after many years of close partnership and that of course will also add to the growth in 2020 for the diagnostic group. And again the tremendous effort in operation and supply chain and installation, we managed to catch up the backlog created by the IT incident and had a very good strong finish to the year that we are happy to see.

Sennheiser Communications, solid growth underlying a little less in the actual joint venture, evening off stock inside Sennheiser assume natural part of the demerger. Main growth was in mobile segment.

We saw a negative market development in gaming headsets after a huge boom in 2018 due to Fortnite; still nice growth rates in enterprise solutions. The EBIT contribution from the joint venture dropped from 104 million to 66 million, which was a result of mix effects and declining gross margin.

We don’t think this is long term, but this is what happened in 2019 and then growing capacity cost in R&D and distribution, some of it preparing for the demerger. The announced demerger will be completed late 2020 but will have financial effect from January 1.

On latest news, we really feel that we stand strong with Opn S, the audiological performance of the product remains to be a key growth driver and the OpenSound Navigator technology is unique in the industry and we continue to hear very positive market feedback from the performance with the new rechargeable solution. We are taking a significant step up and supply a very robust and well working, well functioning lithium-ion technology which has also been an important – and continue to be a key growth driver in the market to shift towards rechargeability is happening across most markets and happening at relatively high pace.

Why it’s also natural that we now expand our offering in rechargeability by adding mid-priced products into Oticon under the brand Ruby has just been started, but it will also come out into the three brands in the group. If we use the Oticon business as the example, you can see we have new products all over the portfolio and we have received really, really feedback on the things we launched in fall, in the power segment, pediatric segment as well as this new CROS solution with Ruby in essential offering rechargeability and Opn S I feel we stand very strong to join of course a competitive market.

We have continued to expand the Philips business. We started out with a major big box retailer but have since then continued a more erosive [ph] course setback by the IT incident, but we are now back in full speed and we have recently launched in a number of Asian countries, including China, where we have great expectations.

Quickly on EPOS, you know the story about the joint venture, you know the transition element. We saw the announcement of the new brand at the end of last year.

We have also now announced that we have done a strategic partnership with a provider of video solutions. We see a growing market for video solutions for small to medium-sized meeting rooms to support an ever more collaborative global work environment.

We are a company example of that ourselves with multiple locations where our R&D people and supply chain people, et cetera. Therefore, the addressable market has significantly expanded for the business by adding video collaboration that we see as actually a very big segment of course to some extent still dominated by players for large installations.

But we definitely see small, medium-sized grow significantly in the coming years and therefore we still look at a very positive case for communication devices being video, enterprise, audio or gaming audio. Just a few words on the situation in China.

As you all are aware, there are many things changing due to the breakout of coronavirus in China. For us specifically the closure for the Chinese New Year has been extended until Sunday by authorities.

We of course follow any guidance and also listen carefully to our local general manager. This only includes our sales office and sales business which is located in Shanghai.

We mainly have materials and components to be sourced in China for our hearing healthcare products whereas EPOS gets both partly produced and fully produced products in China and therefore of course long term clearly exposed as most consumer electronic companies are. However, as preparing for the general close down of Chinese New Year, we have increased stock and at least short to midterm seems to be in an okay situation, but of course we’ll follow it very closely.

And then to you, René, on a financial update.

Thank you, Søren. So referring to the income statement, you’ll recognize the 7% growth in revenue whereas we see gross profit of the company growing 5% implying a drop in the gross profit margin of 1.6 percentage point.

The majority of this decrease 1.2 percentage point is related to the IT incident and an additional 0.4 percentage point relates to in particular higher sales of retractable products in the second half year. We also see an increase in the various capacity cost lines that I will get back to on the next slide.

If we look at share of profit after tax, this decreases from 134 million to 118 million, driven by a lower contribution from the Sennheiser Communications joint venture whereas we see other associates delivering a healthy contribution to this line. And on other operating income, this is our insurance income related to the IT incident, all-in-all leading us to these reported 2.51 billion and a 14.4% EBIT margin.

If we look a little bit more on the cash cost side, we see an overall increase in local currency of 12%, of which 7 percentage point is organic and 3 are acquisitive. The growth from acquisition is mainly related to retail.

If we look at the development over the year, half years and half years in our table in the lower right-hand side, you would see a significant decrease in the growth rate of capacity cost from 9 in the first half year to 5 in the second half year. And actually if you look at second half year over first half year, we have seen 3% growth in cap cost purely driven by acquisitions and the IT incident, thus organically more or less flat throughout the year.

When decomposing our reported EBIT decline of 15%, obviously the IT incident has the significant negative impact that Søren mentioned before and it is particular impacting our wholesale business as well as our retail business. And in addition to this we had a weak start in the wholesale business and we had the impact of the healthcare reform in France in our retail business.

Diagnostic contributed positively to EBIT growth, whilst continuing to invest in future growth whereas we have seen a decrease in the contribution from Sennheiser Communications from what was an extraordinarily strong '18 number. Our EBIT would be 2.7 billion if we were to add back the effect of 550 million from the IT incident.

On this slide we basically outline all the various components that is part of analyzing the underlying result being anything from adjustments done in '18 and '19 to reflect a more true underlying business performance as well as the impact from currency both on transactions and translation. And if you do this, it will all lead to an underlying growth of 10% in revenue and EBIT growth of 4%.

2019 has been a strong year with regards to cash flow generation. Actually our cash flow from other operations is up 28%, but artificially are positively impacted by IFRS implementation but also negatively impacted by a one-off related to the demerger of Sennheiser.

If we adjust for these two, we do still see a strong underlying 17% growth in cash flow from operations driven by strong improvement in net working capital, higher dividends from associates and joint ventures as well as lower tax payments. We have seen an increase in the investments in tangible and intangible assets.

This is in '19 driven by our ongoing expansion of our headquarters in Denmark as well as additional investment in refurbishment of retail clinics and also infrastructure for our newly established EPOS business as well as a smaller effect from our ongoing FDA trial on CI. If we look at the balance sheet, this is also inflated by the implementation of IFRS and of course currency and acquisitions leading to a 22% growth.

Organically, the balance sheet is growing 5%. The increase in net working capital as an example is 11% due to [indiscernible].

Without the effect of [indiscernible] the net working capital development would have been flat year-over-year. And gearing multiple year-end is 2.0 based on a normalized EBIT.

We have implemented IFRS 16 in 2019 and everything is exactly as we have communicated many times previously and in line with our expectations, so I’ll skip this in detail. Whereas I think it is important that we spend just 1 minute on the modeling of EPOS into 2020.

This is new for us to fully consolidate the EPOS business into the Demant P&L. And what we have done here is based on the reporting numbers from the joint venture to give fairly clear guidance line-by-line on what to expect of impact on the Demant group.

And we would say you should be able to follow this guidance. And all-in-all, it would lead to a contribution to consolidated EBIT in '20, slightly lower than the 66 million that we have seen in 2019.

And this operating profit contribution from EPOS is part of our outlook guidance. And with this, we are back to the outlook.

Søren?

Thank you very much, René. I will try to run through that.

We have no expected change to our outlook for market growth. In value, 2% to 4% in the hearing aid business and wholesale level but also on retail level, hearing implants 10% to 15%, diagnostic 3% to 5% and enterprise solutions and gaming 8% to 10%.

As René just mentioned, with special items EPOS in 2019 and there will also be in 2020. If we start with obviously a number of one-offs estimated at current state, we are not finished in assessing this.

With a positive effect of 200 million to 400 million which are not included in the outlook, it will be recognized as special items. These one-off effects will have a negative effect on cash flow on 100 million to 200 million.

And the result generated by our EPOS excluding these one-offs is of course an integrated part of the outlook that I’m going to talk through quickly. On IT, we see 100 million to 150 million in negative EBIT coming from impact of sales.

Again, what sales would have been higher had we not had the incident in the fall of 2019, this is mainly related to the hearing aid wholesale business that have not still reached the anticipated level prior to the incident and then some spillover effect in Australia. Keeping that in mind, the outlook for 2020 goes as follows.

Organic sales growth will be significantly above market growth partly due to the negative effect in '19 of IT incident but also because we expect to gain market share in all our businesses, the positive effect of just below 1% from exchange rates. Revenue growth from acquisition will be around 1%.

And this is what’s done here to date. We don’t know what more can happen.

And then that leads to an EBIT guidance outlook of 2.65 to 2.95 after the negative spillover effect of IT of 100 to 150. The result from EPOS is as I said included in this.

We will see solid growth in cash flow from operations, excluding the negative one-off from EPOS, and we will do whatever we find right in acquisition terms and remaining free cash flow will be used to buy back shares and we expect again multiple to stay within the guided range of 1.7 to 2.2. And now, let’s open for question-and-answers.

Thank you. I have two please.

I guess firstly just on your guidance. If you look at the 2018 underlying EBIT margin of 17.5% and just looking at the lower end of your 2020 guidance, it does suggest that at the lower end the margin would contract even after adjusting for the dilution effect from Sennheiser Communications.

Maybe can you just talk through these scenarios of where this thing will happen for the EBIT at the lower end? And I’ll come back the second question.

So whilst we do not guide on margins, as you pointed out yourself, we have a negative effect from the consolidation of EPOS of roughly 1 percentage point to the group. And then if you look at our wholesale business, of course one of the elements that is impacting gross margin would be rechargeability generally speaking and what is the uptake of that.

And then obviously business-by-business the composition of gross margins are very different and thus the development in each of the businesses allow for various outcomes of the margin.

I guess on capacity cost for 2020, how should we think about the phasing or the level of investments that you have planned for this year? I guess as we look at 2019, would that be a good proxy for this year as well or is that --?

If you disregard the effect of consolidation of the EPOS business, then generally speaking the gross rates organically in capacity cost would be lower than what you have seen in the '19 business, but not significantly.

Okay. Thank you.

Thank you very much. Martin Parkhøi at Danske Bank.

Just a couple of questions. Firstly, just looking at your annual report I can see that when you list your hearing aid brands, you should now put the Philips brand before Bernafon, the Sonic brands.

So should I read this as Philips now is your absolute second brand in the hearing aid business and then maybe you will try to do something differently with Bernafon going forward? And then secondly just back on the gross margin, can you give me some kind of idea of where is that direction for 2020 because there are many moving parts of course?

The IT impact will give you some benefit due to comps from '19, but then on the other hand as you mentioned you have the EPOS impact as well as also launching rechargeable products in the mid-priced segments. So how should we expect to see the gross margin move in 2020?

And then finally and maybe most importantly, as I see it you guide for these one-off income in connection with implementing EPOS. But I guess this is a net one-off because since you’re guiding 100 million to 200 million loss on the cash flow, then I guess this is more or less a one-off cost that you expect to use on branding EPOS.

So you have adjusted for this one-off in the guidance you are giving. How can that be – first of all, this is a very big number I think for our business around 1 billion, as I recall it from my sources, then Sivantos only used €10 million to €20 million to rebranding Siemens to Signia.

And then also I think that you have never booked any one-off cost in relation to building up an Oticon medical brand. You are always taking that under the reported numbers.

Why are you adjusting for rebranding and launching EPOS?

Thank you, Martin. Let me start with the simpler one of your questions.

The ranking of brands is not indicating any strategic priority. Of course, we do focus a lot on getting Philips off the ground.

It is believed to have a big potential around the world. So yes, it takes up a lot of time and effort in our business.

But as such, you shouldn’t attribute anything to the sequence of brands mentioned. On gross margin, I don’t know, René, if you have any more to add to what you just said.

Thank you, Martin. You point to it yourself exactly that.

You should expect a lower gross margin next year for the group primarily driven by the fact that we included EPOS in the consolidation and secondarily because of the diluted effect on gross margin from rechargeability. Those would be the two things.

Yes, and if I have to do a relatively shorter answer on the cap cost element or the negative, the cost side which of course ride in when there is a negative cash flow, it’s also because we spend some money. And yes there are primarily related to branding but also a number of other things.

And yes, it is a big amount but also a big range. And I think it mostly reflect that if you do the comparison too, for instance, Siemens to Signia, our industry is very small.

It’s a small audience. It’s B2B.

We are with the big boys among Microsoft and others, the fairs and so on we participate on to make sure the brand gets out and known and trusted and they can see what we do in a totally different scale than you have seen in the hearing aid business. So yes, it is more costly and it is that type of cost we talk about in building brand, but simply the normal activities you do just at an amplified level.

And again, especially in the enterprise solution, this is the main driver for it and it’s important we really stand crystal clear in the first year. And we see it as part of the transition and therefore I don’t think it fully compares to the Oticon medical which is an organic growth journey over a long time and you would say we piggybacked tremendously on the Oticon brand, which is for free.

And had it been on our brand it would have cost much more money of if the new [indiscernible] brand would have had to be a future strong band. Of course we get tremendous leverage from piggybacking and positively also in the image under Oticon brands.

I don’t think you can compare these things. We think it is going to be a significant one-off element in many sure EPOS is a well know trusted player in particularly the enterprise solution.

The gaming world is slightly different and a much more social media and close to a forum and audience, so the main part is the enterprise solution.

So is this an isolated 2020 event, so we should expect to 100 million to 200 million in branding cost should basically be out of the picture in '21?

Definitely. The one-off element is this estimate.

There will always be cost to marketing and also in '21 and maybe there will be a little left to be done, but the majority and the one-off element we expect in 2020.

Thank you.

Good afternoon. I had two questions really about North America really.

First of all the VA, just wondering what your current feelings are about that part of your business. When we might expect to see improvement, what do you think you need do, whether we’ll have to wait for the next product cycle to see a meaningful shift in your share of the VA?

And then the second question was in your geographical growth comments, you didn’t say it explicitly but you kind of intimated that you didn’t get much growth in North America on the wholesale side of the business in 2019. What was the reason behind that?

The VA numbers we cannot see, but just wondering kind of what’s going on in your independent business in North America, kind of normalized for the IT.

Thank you, Tom. Let me first take VA.

I think it’s obvious to everyone that we have seen Phonak do a remarkable comeback after some weaker period, but it’s where they historically was and they had a very strong in role and position in VA, it’s basically across the board. We lose out, but you can see other players have lost significantly more than we have.

And I still think Oticon is doing a great job. Our let’s say short to midterm strategy is to benefit from the introductions we did in the fall, which was Super Power, Ultra Power across.

It’s a minor segment but used at all hospitals and we stand very strong with these products and I’m sure we’ll get a chance to get them tried out broader. And then we will have to see if we on the back of that can also remember people that always do a really good job.

Other than that it will be future products and so on that will support an assumed future growth in the VA channel. If I return to North America, generally speaking Canada has not been a good market in 2019.

We are basically seeing a flat to slightly negative market development which of course has been felt by both wholesale and retail. In U.S.

on wholesale, if we talk about adjusted eliminating the IT incident, I’m absolutely sure we would have seen a very strong growth in the U.S. business, in particular in the premium segment with independent customers because that’s exactly what we have seen now in the later period coming out of the IT incident.

We saw it picking up prior to. We saw the reason why we couldn’t see it in full effect was the returns of the past technology that tailored off, I’m absolutely sure we would have seen a totally different picture for our U.S.

wholesale business have we not had the IT incident.

Okay, perfect. And then I just have one follow-up question on the gross margin.

With you launching rechargeables at the lower end of the price spectrum, one would assume that the cost of rechargeability doesn’t vary whether it’s a premium or a value type product. So should we expect kind of proportionally higher gross margin impact from the launch of lower priced products than we saw at the premium end of the market?

It’s always difficult to predict the future and how competition will react. We anticipate that we could grow pricing on rechargeable by taking a surplus.

In the premium segment we have to realize that due to the higher margin, this has been used to gain share, meaning you could get discount if you’re committed to a significant buying of premium products. This of course changed in the lower prices.

You have to be more aware, the same as for many years been the case for custom products that are typically more expensive compared to the BTs in the mid range because you are much closer to cost. So I once again plan to try to charge extra and more explicitly charge extra and we’ll see less discount around rechargeability in the mid price.

But again, the market will tell you, but that’s our plan.

Okay. Thanks.

Excellent. Thank you.

Good afternoon, gentlemen. Thanks for taking my questions.

I’ll keep it to two as well. Can I just follow up first upon Tom’s question just trying to understand how you’re going to price the rechargeable mid-priced product, what’s the premium that you’re hoping for versus a non-rechargeable, if you can share some color on that that would be helpful?

And then my second question is actually on some of the comments you have made around managed care and the impact that’s it’s having on the business both on the wholesale and the retail level. It would be helpful to understand how large you think that is as a channel today?

And as you think about your retail footprint, how penetrated or how far have you see managed care reach into the business? And is there more margin compression we should be thinking about in 2020 as a result of that?

Thank you.

Yes, I cannot comment specifically on the pricing. This ends up being whatever the market tells you the pricing will be.

But yes, we will try and it varies a little bit across the world. Extra at least covering, but also more the cost of goods sold coming with rechargeability while at the same time of course using scale to make sure we become more efficient in producing and see an improvement of cost of goods sold.

So there is a number of moving parts and I cannot be specific at what surplus you will see. That will vary from market to market.

On managed care, it is a trend that these third party administrators offer insurance companies to add hearing services to their program for a minor payment. In reality, the entire payment remains to be the end user.

However they use, you could say the insured group as a bargaining power for the fitting fee size as well as the hearing aid pricing. On the wholesale side, the pricing is not very different from what other organizations can do.

There’s a long tradition for value-added services in U.S. and at wholesale level it compares very much for that.

And you can say, well, it will basically move from one channel to the other and the effect is more marginal. But of course, on the retail side there’s a big difference between receiving a fitting fee and receiving the full invoice level.

The first thing you lose is the hearing aid value part, but then also you have been squeezed a bit on the margin. On the other hand, I’m very convinced that the reason for the strong market growth in the private sector in U.S.

in 2019 is also that there are more marketing activities going on towards this channel. We have seen quite a solid unit uptake in the shops that have significant managed care which indicates that there’s somebody pushing and getting users to enter the market prior to what they would have done before.

And therefore, there’s both an extra inflow I’m sure. There is less effort to be done in selling.

They are basically presold and have a voucher of some kind in their hand. Of course, some regret but they can see they get a better price than they would have if they had private paid themselves.

So I think it’s a little bit like a Costco channel that it shows growth, the ASPs lower but it potentially over time adds more to the market than it takes out. But we of course have to follow this very carefully how it develops, but still a very significant part of the American population that work on the more private insurance where it’s a full coverage by the insurance and you still buy at full retail level.

It is mainly these third party administrators that go to this fitting fee model and that we have seen grown significantly in 2019.

That’s great. Thank you.

And can I just squeeze in actually one follow-up question on Sennheiser? Just curious, René, how you’re thinking about the margin progression beyond 2020?

I guess a 5% margin business or thereabout seems fairly underwhelming. What do you think you’d need to do to bring that margin higher and what’s the timeframe for that?

Two things. Of course, we need to have improved product mix.

Again, I’m sure with the pipeline we have, that will happen. There’s a lot of scale.

When we take over, split the joint venture, we have a significant R&D capacity in Denmark. And if we should have been very squared, then we should have reduced R&D.

Now we only have part of the business. But we know that over the coming years we need those hands anyway and also short term to really make sure we can grow.

So we keep them of course. We don’t add more but we keep them.

And that in itself is margin dilutive on the business as the extra sales coming in is very low margin at the frontend you could say of the value chain on the sales company side. So I’m absolutely sure that scale growth will – better product mix, better ASP will help get the margin back up where it should be and where it historically has been.

Thank you.

Thank you. I have two questions.

Firstly on product cycle, can you talk about and how you feel about Opn as a product cycle to drive growth over the next 12 months? The key concern that I have is it’s now four years old in a way before the DSP was launched in July of 2016 and things have moved on, hence the question.

And question number two is on the ASHA standard for Android. Can you comment on when Opn will receive the ASHA/Android connectivity connection please to the phone?

Thank you.

Thank you, Michael. I feel very comfortable about the product lifecycle of Opn S.

We have seen a significant strengthening of the product concept both due to the improved audiological benefits, but in particular the rechargeable solution added. And I see growth every day and I think the product do well.

So we are not at the end of the cycle. I don’t see it as a four-year cycle.

I see it as a three plus one year. It is exactly a year ago since we started the launch and it still holds a lot of strength and the marketplace has also been relatively stable.

So nothing has really changed and I definitely see we can drive growth on Opn S. When we can support an ASHA protocol and in what way, I have no further comments too.

That lies for the future and we will until when we can do that.

Can I just follow-up on the ASHA standard? What is the biggest bottleneck for you of launching it?

Are you waiting for more handset manufacturers to launch it or is it something else that you need to do to make it work?

We obviously need to do something on our device to actually support it. And when that is ready we will support it, but I cannot give you any further flavor on details now.

Okay. And then maybe finally on OTC, can you comment on what the most recent update is with respect to the FDA on launching the draft regulations for the OTC category?

We have no news.

Okay. Thank you.

Thanks for taking my questions. I’d like to stick to two.

Søren, would it be possible for you to kind of elaborate on the thinking process when you were – by giving us the underlying growth rate in wholesale and retail? I think it’s fairly straightforward in retail as you have your experience of how many products you can sell per week.

But when it comes to wholesale, were you really looking at mainly missed product sales by existing customers or was there baked in quite a bit from accessing new customers just to understand when you talk about the momentum, how to think about it? And then the second question is just given your comments about the U.S.

managed care impact on pricing and retail but also in wholesale and your large acquisition in the U.S. retail side, I was wondering if you could give us a bit of a color of how much U.S.

retail accounted to group revenues that’s passed 10%, and how much of your U.S. retail business is actually close to that managed care business where you see the fitting fees being impacting ASPs in retail?

Thank you.

Thank you, Maja. Your line was really bad, so I’ll try to make sure I have the right questions before starting answering.

I heard you say if I could elaborate on how we estimate the wholesale impact of the IT incident as you could see it being easier to estimate on the retail side. And secondly on managed care in U.S., how we are exposed to the effects and then also asking me to confirm the sizing of our U.S.

retail. And I can start with the last.

We’re not specific on that, so I don’t have more flavor to add to that. When we look at the wholesale estimate, it is a combination of things we didn’t see, because we couldn’t and people went somewhere else and brought something.

And then really looking of course at the growth plan and also what we can see happening before and after the IT incident. And it is our best estimate that what we stated here, the 575 million lost in sales where the majority is in the wholesale loss, slightly more than half is in the wholesale, that is exactly what would have happened had we not had the incident.

When I said that in November we need to see November, December at full before we can judge and what I have seen in that period confirms that what we have is competitive. We will and would have been able to gain new customers and gain traction.

We have seen an end to all proportionally higher returns of past recharge methodology, et cetera. And based on these different elements, this is our best estimate.

On the managed care, it comes out very differently across geographies and sections and areas. So I don’t have much more to add than what I answered just before, except there are stores in areas where they have been totally focused on driving things through normal advertisement, et cetera, and others receive a significant proportion of managed care.

It’s not fully clear yet whether that’s the market split or whether that has to do with the model and some of the things we of course look very carefully at. Reasonably well answered your questions, it was as I said very difficult to hear what you asked.

Hi, Søren and hi, René. I actually have just one question left.

I’m surprised by your ASP growth in the second half, this minus 1 given that you had higher no retractable mix percentage. Could you discuss that and maybe also break that down into two like-for-like price and mix effect?

Thank you, Chris. That is exactly the lack of growth with independent and premium which was most hampered by the IT incident.

The bigger players, they have a fewer locations that you supply to and you quickly fill that hole. So what we have really [indiscernible] with and you could lost in fall was the opportunity to gain new share and really kicking out Opn S and getting that mix effect.

So as I said, had we not had the IT incident, I’m sure we would have a few more units but not as much and then a very significant effect on ASP exactly and that’s the predominant component in the minus 1%. Then it of course always has a little bit to do with the comps and how things were the year before.

But you would have seen a significant higher ASP if we had not had the IT incident.

Okay, that’s very helpful. Thank you.

Hi. Thanks for taking the question.

Just one for me please. So given the IT incident, I just wanted to --

Can you speak a little louder or move closer to your phone? We cannot hear you.

Hello. Can you hear me better?

That is better.

Hello?

Hello. We can hear you.

Great. So I’m sorry about that.

Just one from my side please. Given the IT incident, I was wondering whether you’re still comfortable on delivering on a typical two-year product cycle for your next product launch.

I cannot comment on that. Of course, R&D also lost some time and momentum, but you can reprioritize and so on.

So after a while it becomes a little blurred whether it’s your own changes you fight or whether it’s something coming from delays in IT. You always work on solving unforeseen issues when you do R&D.

That’s also the case here now and we cannot comment on when we’ll come with a next generation. I think the key message is we are very comfortable with what we have and very strong portfolio, recently updated now on all paths responding to a strong call from all rechargeable options in the market.

The core of all our products on the audiological side performed extremely well. We have it in four brands and so on.

So we feel we are in a good position in the cycle.

Great. Thank you.

Okay. Thank you.

This concludes today’s call. I’m sure we could have continued for another 30 minutes, but feel free to reach out to the IR team or directly to René and Søren.

Thank you very much for listening in. Have a great day.