GN Store Nord (GN.CO) has reported a positive start to the year with a 5% organic growth and a reported EBITDA margin of 12.5%, backed by successful integration strategies and market share gains in its Hearing division. The company confirmed its financial guidance for the year, projecting organic revenue growth between 2% to 8%, an EBITDA margin of 12% to 14%, and a free cash flow exceeding DKK 700 million.
The earnings call highlighted the company's confidence in the growth of its Hearing business and the expected stabilization and potential growth in the Enterprise market in the second half of the year. Despite challenges faced by certain products in the Gaming & Consumer division, GN Store Nord is optimistic about the overall growth momentum in its various business segments.
Key Takeaways
- GN Store Nord kicked off the year with a 5% organic growth and a reported EBITDA margin of 12.5%.
- The Hearing division experienced a 14% organic growth in Q1, continuing to gain market share.
- Enterprise division revenues were flat compared to last year, while the Gaming & Consumer division performed in line with Q1 2023.
- Financial guidance for the year includes organic revenue growth of 2% to 8%, EBITDA margin of 12% to 14%, and free cash flow above DKK 700 million.
- The Nexia platform in the Hearing business and participation in the managed care market have contributed to growth.
- GN Store Nord expects an increase in sales and marketing costs but aims to maintain stable revenue shares.
Company Outlook
- GN reaffirms yearly guidance: 2%-8% organic revenue growth, 12%-14% EBITDA margin, FCF surpassing DKK 700M.
- The company is on track with its divestment and capital plans, with no intention to raise additional capital.
- Savings are ahead of plan, and cash flow generation has improved in Q1.
- The company is confident in Hearing business growth but notes challenges from tough comparisons and competition.
- The Enterprise market may stabilize and resume growth in H2
Bearish Highlights
- Tougher comparisons and competitive product launches may impact growth in the Hearing business.
- Certain products in the Gaming & Consumer division, including the BlueParrott range, faced challenges.
Bullish Highlights
- The Hearing business exceeded expectations in Q1, with strong growth in the US and France.
- GN Store Nord expects growth momentum to increase in the Enterprise and Gaming & Consumer divisions, driven by market recovery and new launches.
- Market share gains are anticipated to continue, particularly in the VA market for the Hearing division.
Misses
- The company did not increase its full-year outlook for free cash flow despite achieving targeted savings ahead of plan.
Q&A Highlights
- Executives expressed confidence in the Hearing business growth and addressed the competitive landscape.
- The Enterprise market is expected to return to growth in the latter half of the year.
- The company discussed the success of Nexia and its impact on growth in the US and other markets.
- Financial items for the full year are expected to be around DKK 600 million, influenced by changes in loan structure.
- The replacement cycle for headsets is around three years, with the market recovery expected to align with underlying fundamentals.
GN Store Nord's solid performance in the first quarter sets a positive tone for the company's outlook for the rest of the year. The company's strategic focus on its core divisions and the successful integration of One-GN synergies have contributed to its financial resilience. As the company prepares for its Capital Markets Day, investors and stakeholders will be looking forward to more insights into GN Store Nord's future strategies and growth prospects.
InvestingPro Insights
GN Store Nord (GN.CO) has demonstrated a robust start to the year, and the investment community is closely monitoring its financial health and stock performance. According to InvestingPro data, GN Store Nord currently boasts a market capitalization of $4.38 billion USD and is trading at an earnings multiple of 55.75, reflecting a high valuation by the market. Notably, the company has experienced a significant price uptick, with a 23.04% total return over the last three months and an impressive 65.15% over the last six months, indicating strong investor confidence and momentum.
InvestingPro Tips suggest that GN Store Nord is expected to grow its net income this year, which aligns with the company's own optimistic outlook for its various business segments. Additionally, analysts predict the company will be profitable this year, further underscoring the positive sentiment surrounding its financial trajectory. It is important to note that the company does not pay a dividend, which may influence investment decisions for those seeking income-generating stocks.
For investors seeking a deeper dive into GN Store Nord's performance metrics and potential investment opportunities, InvestingPro offers additional insights. There are currently 9 more InvestingPro Tips available that could provide valuable context and guidance. To explore these tips and gain a comprehensive understanding of GN Store Nord's investment potential, visit https://www.investing.com/pro/GNCO. Plus, use the coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - None (GGNDF) Q1 2024:
Rune Sandager: Hello, everyone. And welcome to GN's conference call in relation to our Q1 results. Participating in today's call is Group CEO, Peter Karlstromer; Group CFO, Søren Jelert; and myself, Rune Sandager, Head of Investor Relations. The presentation is expected to last about 15 minutes, after which we will turn to the Q&A session. And with that, I'm happy to hand over to Peter, starting the group highlights.
Peter Karlstromer: Thank you, Rune. And thank you all for joining us today. I'm pleased to say that we had a solid start to the year, thanks to focused execution across our three divisions and our functions of scale. On a group level, we delivered a 5% organic growth, leading to a reported EBITDA margin of 12.5%, which is up 6.5% at this point compared to last year. The strong improvement in earnings led to positive free cash flow in the quarter, despite the normal seasonality headwinds, including tax and bonus payments. The encouraging performance in the first quarter is supported by a One-GN integration, which led to around DKK 90 million of realized synergies, slightly ahead of plan. As a result, we're happy to confirm our financial guidance for the year across revenue, EBITDA and cash flow. With this high level summary of the quarter, let's now take a look on the performance in each of the divisions. I'm starting with Hearing. In Q1, our Hearing division continued to drive market share gains, supported by the successful rollout of ReSound Nexia. As a result of a robust market environment and our strong execution, we grew organically by 14%, which comes on top of the 15% we grew in Q1 2023. The gross margin increased slightly more than 1% at this point, despite the disposal of BelAudição. This was driven by the group operations synergies, as well as the success of ReSound Nexia. The development and sales and marketing costs were supported by the disposal of BelAudição, as well as the reversal of an earlier recognized pension provision. All in all, the year started slightly better than anticipated, leading to healthy growth and a divisional profit margin of 34.5%. ReSound Nexia's success in the market supports Hearing's strong performance, which lead me to slide 7 and a little bit more detail. The positive reception of ReSound Nexia family has continued in the quarter. As you know, we launched first Nexia in the US, which also by now has the best set of reliable data to analyze. These slides give you an overview of the ReSound Nexia rollout seen through our US commercial business lens. When we evaluate the success across our product launches, there are three main financial KPIs we're tracking carefully. The first one is the reach of the product. A good customer-centric hearing aid will allow us to open new doors. As you likely remember, ReSound OMNIA was a very successful launch, which regained our credibility in the market, and therefore effectively opened many new accounts. With the early success of Nexia, we can now see that we are continuing to serve even more customers. We have managed to increase the point of sales by more than 5% compared to pre-launch. Secondly, the depth of our commercial partnership is also important. We strive to, in parallel with opening new accounts, also increase our share of wallet in existing accounts. Compared to pre-launch, we have seen our units per point of sales increase by more than 5%, which is pleasing and a testimony to the appreciation of Nexia. Finally, on top of the volume growth, we have been able to follow normal launch pattern leading to higher ASPs in the commercial market in the US, despite the continued negative channel mix from the increasing share of managed care. Overall, we are confident in our ability of ReSound Nexia family to continue to deliver strong value to our customers and users, which, if nothing unforeseen happens, will support our ambition to further grow market shares. With this brief overview of the Hearing division, let's now move on to the Enterprise division. The Enterprise division delivered revenues in line with last year in an enterprise market that is continuing to gradually stabilize, while still slightly down in the quarter. Gross margin improved by 5 percentage points year-over-year, driven by group operations synergies, a positive product mix as well as a normalization of freight rates. Our sales and marketing costs reduced slightly primarily due to some phasing of marketing activities. As a result, our divisional profit margin increased by almost 6 percentage point in the quarter. If we move to slide 10, we can see our current assessment of the enterprise market. Our key messages and assumptions are fully in line with how we previously have communicated. The market is continuing to stabilize as early expected. The overall enterprise market was slightly down in the quarter, driven by call-centric headsets and speaker phones, while the market growth with knowledge worker headset was flat. We did well and gained some market shares during the quarter, which led to the flat result. If we looked at adjacent enterprise categories, we continue to see positive leading indicators. As an example, Gartner (NYSE:IT) estimates PCs to have grown by 1% in the quarter, and they forecast overall IT device spend to increase by 4% for 2024 as a whole. The spend across device categories are uncertain. but it is encouraging to see the current supportive outlook to spend levels in aggregate. These data points, as well as our own channel checks, continue to lean support towards our overall assumption that our market will return to positive year-over-year growth sometime this year, most likely in the second half. While the specific timing is still difficult to estimate, we continue to be cautiously optimistic about our ability to show growth later in the year. Finally, let's take a look at the Gaming & Consumer division. In our Gaming & Consumer division, we delivered revenues in line with the first quarter of 2023 due to demanding comparison base as the division grew 70% last year. The broader markets are supported by less promotional activities in general, which lend support overall ASP levels. Our gross margin increased by almost 6 percentage points compared to the first quarter of last year. In combination with less promotional activities, the gross margin is also supported by the groupwide operational synergies. We did some deliberate investment in the sales and marketing in the quarter as we are preparing for the market to further recover throughout the year. In total, the divisional profit increased almost 4 percentage points compared to the first quarter of last year. We are still not satisfied with the current profit levels in the division and remain very focused on driving margin expansion during the rest of the year, supported by a healthier market, product innovation, and group operations synergies. I'm moving to slide 13 to share some additional color on the business. Our investment in the software continues to show strong progress. SteelSeries GG, which is a platform that helps gamers enhance their gaming experience, continued to experience strong momentum. SteelSeries Moment, which is designed for gamers to capture and share the most exciting gameplay moments, exceeded 1 billion clips since the launch. SteelSeries Sonar, which is our software tool to optimize the gaming sound experience, crossed 2 million active users in the quarter. We know that software is an important link between us and the gamers, so it's encouraging to see this continuous strong software growth, which enhances the gaming experience and the appeal for SteelSeries among gamers around the world. In the quarter, we have also expanded our retail footprint, with new distribution added across many countries. As for Jabra consumer, we continue to experience strong review of our recent launch of premium true wireless earbuds, the Elite 8 Active and Elite 10. As for consumer in summary, we are making progress to improve the business. And what is encouraging is that the consumer business and the gaming business together, the core categories, grew in mid-single-digit in the quarter. And with that, I'm happy to hand over to Søren.
Søren Jelert: Thanks, Peter. To conclude on group level, GN delivered a healthy 5% organic revenue growth as a result of our strong execution across our three divisions. Gross margin ended the quarter at 52.9%, reflecting a 4.1 percentage points increase compared to first quarter of 2023, supported by business mix, group synergies and easing freight costs, while partly being offset by the BelAudição disposal. The divisional profit margin increased by 6.4% following the gross margin increase, as well as operating leverage and sales and marketing costs. R&D investments were slightly down year-over-year, which was primarily a reflection of timing effects of product roadmaps and group synergies. Management and administrative costs increased slightly, reflecting continued investments into IT and upfront costs associated with the new financial service center currently being established in Poland. To conclude, on the EBITDA level, the EBITDA margin increased by 6.5 percentage points compared to quarter one of 2023. Our solid earnings levels, combined with strong focus on working capital, led to a positive cash flow and a further reduction of adjusted leverage, which ended at 4.0 compared to 4.5 a quarter ago. Let's move to slide 16 for more details on the free cash flow generation. As Peter mentioned in the beginning, we were able to offset the traditional cash flow seasonality with a strong absolute earnings level, leading to a positive free cash flow in the quarter. A year ago, we experienced a cash burn of almost DKK 600 million, but as a result of the strong execution across the company, we turned this deficit into a positive cash flow figure for the quarter. This strong focus on cash flow generation in general has now resulted in four consecutive quarters of positive cash flow. Going forward, our focus on cash flow generation will continue as we remain fully committed to delevering even further. Moving on to slide 17 and the brief status on the One-GN integration. We remain on track to deliver around DKK 600 million in cost synergies by 2026, of which around DKK 400 million is expected in 2024. We are tracking slightly ahead of the original plan. And during the quarter, we managed to realize synergies of around DKK 90 million. This is encouraging to see our run rate leaving the quarter and we remain confident about the ambition for 2024 as well as 2026, which should further de-risk the company's profile over the coming years. Moving to our financial guidance for 2024. Q1 ended, broadly speaking, slightly better than we had anticipated across growth and margins. We are confirming our financial guidance for the year and you should see the strong execution in the first quarter, including the before mentioned synergies as a further de-risk of the performance. We know that there is still a lot of work to be done during the rest of the year, but we are definitely on the right track. For 2024, we still expect organic revenue growth of 2% to 8%, driven by robust performance across all three divisions. We also continue to expect a reported EBITDA margin of 12% to 14% for the year. Finally, we continue to expect free cash flow excluding M&A of more than DKK 700 million for the year. And with that I'm happy to hand you back to Rune.
Rune Sandager: Thank you, Peter and Søren, for the updates. Just to remind you all that we have our Capital Markets Day coming up five days from now. For those of you that are unable to be here in person, the entire event will of course be streamed live on GN.com. And with that practical information, I will hand over to the operator for the Q&A. Please limit your questions to two at the time.
Operator: [Operator Instructions]. Your first question comes from Hassan Al-Wakeel from Barclays.
Hassan Al-Wakeel: I have two, please. Firstly, can you talk about the strength in the Hearing business and which channels you feel you're taking the most share? Is this continuing into Q2? And are you seeing any impact from competitor launches? Secondly, on Enterprise, can you talk about the dynamics you're seeing in this market and the visibility you have and whether at all the upper end of the guidance range or at least positive growth for the full year looks more likely to you now.
Peter Karlstromer: Starting with Hearing, I think the success we see is fairly broad-based in the market, thanks to the strong reception of the Nexia platform. Obviously, if you take the US market, as you know, we have recently launched into VA, so we've seen it less there until today, of course, but in the rest of the market, fairly broad-based. We believe that Nexia will continue to lend good support to our Hearing growth, but we're also well aware that we will meet some tougher comparisons throughout the year, in particular in the key accounts, which grew quite a bit during last year, as you probably remember. As well as you say, we do expect some competitive launches also throughout the year. So we maintain very confident in Nexia and the value proposition, but do see that the growth might be a little bit more difficult for us to obtain on the same levels for the full year. And in a sense also, we believe the guidance we have in place is appropriate. And if I talk about the Enterprise dynamics, I think that what we've seen is encouraging. We've seen the market continue to stabilize and we talked about this for the last few quarters and Q1 was another quarter where this continued to happen. So I would say that the market performed slightly stronger in Q1 than it did in the last year, which is part of that kind of stabilization pattern. And as I said here in the opening remarks, our core assumption is that the market will return to growth sometime this year, most likely in the second half. The guidance range is in place, of course, to cater for different scenarios and uncertainty, and it is a lot market related. And while this is our base case, if the market recovers a little bit better and quicker, that will help us to go a bit more in the upper end. If something becomes more difficult, that's probably what will lead us a bit more towards the lower end. Our market shares have been very stable over the last few quarters and in the last quarter also stable to slightly gaining. So hopefully that helps with a little bit of further color on it.
Hassan Al-Wakeel: If I can just follow up on Hearing, I appreciate comps remain tough. But do you expect Q2 to already be meaningfully slower from a growth perspective? I'm just trying to understand whether it's anything that you see currently as to why you've retained the guidance in Hearing rather than raising it.
Peter Karlstromer: I will refrain a little bit to guide on Q2 specifically. I think that the forces I describe are in play and we have a short-taking a good look on the guidance range for the year and we believe it's appropriate what we have in place.
Operator: Your next question comes from Martin Parkhøi from SEB.
Martin Parkhøi: Martin Parkhøi, SEB. Just first to stick on the hearing aid side because you talk about some potential tougher comps in the second half, but could you go a little bit more into detail to your position in managed care in the US? We have seen recently that one of your Danish competitors has gone into an infight with UnitedHealth (NYSE:UNH) and also maybe pull a little bit out on that. So do you see a bigger opportunity in managed care now in US than you saw in the beginning of the year? Secondly, just on the Enterprise side, I appreciate that you now have a different divisional structure, but prior to all the COVID thing, you had a 10% expectation for growth in GN Audio, which of course included a bit more than just enterprise. After we are behind this stabilization period, do you think that your business is still back to a potential level of double-digit growth?
Peter Karlstromer: If we start with the first question of managed care, we see ourselves as a provider into managed care and for us it is an important market segment. We recognize, of course, the dynamics of market share and some of those dynamics are indeed a bit challenging, of course, and we see some price pressure coming from that channel for the reason it works. But we also see that we can serve the channel with a controlled cost and as such still do a healthy business there. So for us, it's a market where we would like to participate and we are participating and doing that in a good way today. I think it's too early for us to say what the moves of other competitors means over time. In the short term, it has not really impacted our business, but I can just confirm that it is a market we are very willing to serve and we are serving today. If I then go to the Enterprise, I talked a lot about the dynamics we see and the visibility we have and that's probably where I stop today. The longer term view on the market and so, we have our Capital Market Day coming up here in the next few days. We have a chance to spend more time on the dynamics and elaborate there.
Operator: Your next question comes from Veronika Dubajova from Citi.
Veronika Dubajova: I'll also keep it to two. My first one is just, Peter, on your comment about expanding your points of sales by over 5%. Can you give us a little bit of color on what type of customers you're winning with when it comes to Nexia? And obviously, it looks like the US is, in particular, also a strong start. I noticed you also called out France and Australia. It's awesome how well this product might perform in Europe as we kind of get a bit of momentum on the product as well. That would be great. Sorry, I know that's a very long question one. My question two is for Søren on the cost phasing through the year. Obviously, a fair amount of commentary from you on benefits from phasing, if you could maybe clarify how substantial those are. And as we look through the rest of the year in particular, I'm curious about selling and marketing, which was down quite substantially year-on-year, whether you see the need to step that up sequentially as we move through Q2, Q3 and into Q4.
Søren Jelert: Let me start. And the expansion of point to sales, that is, of course, for us very encouraging. And some of this is probably to regain a little bit of historical lost ground and some is likely some true expansion into new point of sales. The comments made and what I showed here on the slide in the opening, the example is largely driven by independents in the US where we see that increase. We don't have the same level of robust data in other markets, but the feeling we have from our leaders in the different markets is that the similar kind of dynamics is playing out in the other markets also. And as you know, we launched in the US first and then later in core markets in Europe and around the world. So the observations are somewhat newer and not as extensive in the US, but I would say Nexia support good growth in the rest of the world as well outside of US. And we can confirm that we had a very healthy growth in the quarter and that was strong in the US. The US was seeing the strongest growth, but we also saw above market growth in the rest of the world also in a very solid way.
Peter Karlstromer: Veronika, on your other question on the cost phasing, I think we are coming out of a quarter where we evidently have had a very good margin, supporting also the guidance for the year. It will be so that the phasing, of course, of our sales and marketing spend also follows the seasonality if you look at it from a group level. So in absolute terms, you should normally see a higher sales and marketing in absolute spend, especially when moving into fourth quarter where, of course, dominated by the Gaming & Consumer also being a leading that element. So, I think you would see a gradual increase in the sales and marketing cost in absolute terms, but you still see us focusing on what's the share compared to our – total revenue remain sort of stable as we go along for the year. So, that would be my point. Eventually also, I think it's a proof point here and also in the first quarter that our focus on the synergies is also working here. Again, we are committed to overall deliver DKK 400 million in synergies across the group, albeit that is a mix between the COGS and, of course, the OpEx, but in the OpEx, we also see it now rubbing off here in the quarter. So, overall, it still lends support to our margin expansion when you're comparing year-over-year.
Operator: Your next question comes from Christian Ryom from Danske Bank.
Christian Sørup Ryom: Two questions from my side as well. The first one is on margins and a split one, if I may. So I can say relative to my numbers and I can see also to consensus, your enterprise gross margin came in significantly stronger. Can you elaborate on whether there was anything exceptional in that here in this quarter? And the other margin related question is on these pension provisions that you talk about in the Hearing business. Any chance you might be able to give us a little bit of a feel for the size of this whether we are talking 1, 2, 3 percentage points on the margin here for the quarter? And then the second question is to the Gaming & Consumer business. And specifically, if you can help me understand the comment that you have on slide 13 in today's presentation where you talk about the gaming gear categories and true wireless categories growing mid-single-digit. How should I square that with the fact that your business was flat year-on-year? Is that a market comment or what's the missing component here, product categories that you've exited, for instance?
Peter Karlstromer: Let me start and then hand it over to Søren for the pension-related question here. If I first comment on the Enterprise gross margin, no, there is not any particular one-off nature in this. I think it's a combination of a good kind of performance on products where we have a healthy margin in Enterprise. And maybe that's a sign of health also that the market is starting to buy more on quality and the upper end of the range and so. So we had a healthy product mix evolution that lend the support to margin in the quarter. Then also, there is still some kind of normalization of some cost in the supply chain that is lending support to the gross margin. And lastly, we have the One-GN synergies also where we see both – some of them are on OpEx, but some of them are also on the cost of good sales affecting the gross margin. So in total, we believe that this level we are now, we feel good about this level, and we think it's also a level we will strive to maintain into the future. So, hopefully that is helpful as a little bit more detail. If I then take the Gaming & Consumer also before handing it to Søren, yes, if we look on the core categories, it is essentially all of SteelSeries and the true wireless. That's where we see our future strategic focus and that's what we can confirm. It actually grew in the quarter on top of a significant quarter a year ago. The products that are a bit working in another direction when we look on the totality are products we either have kind of exited or not renewed, can be headbands and older type of products. And it also is a BlueParrott range, the trucker brand in the US that had a difficult quarter when it started here on the year.
Søren Jelert: The last one would, of course, be the pension within the Hearing side and isolating – looking at it through the lens of Hearing, it's approximately 2% of the top line that is then converted into the reversal. And if you look at it on a group's level, it would be equivalent to approximately 1% on margin. So that's the way we look at it.
Operator: Your next question comes from Maja Stephanie Pataki from Kepler.
Maja Stephanie Pataki: Two questions from my side as well. And focusing on Hearing, please, I was wondering if you could give us a bit more detail why you think that the success of Nexia is coming through in this extent. Is it really product related or is it due to the fact that the service is better, fitting software is better? Just to have a bit of a granularity what is behind the success of the product will be very helpful. Second of all, if we look at the dynamics in Q1, the market growth was really strong. I would think sustained good growth coming out of North America or the US. Could you maybe talk a bit what you're seeing as market dynamics in April?
Peter Karlstromer: If we look at Nexia, we see it as a broad-based success. The hearing aid and variants of the hearing aid in the family, they are very good hearing aids. They are really helping people with hearing losses to hear better. So, the core functionality really delivers well. Then we, of course, we have the connectivity, Bluetooth Low Energy and Auracast. So that further augmenting the product. But we have also over the last few periods also worked on the broader kind of software suites including fitting software and other things helping us to make it easier to work with the product. And then we should also say the quality and the fault rates of the product is something we've really been focusing on also driving improvements in. All in all, it's probably a combination of things that make this very appreciated hearing aid, as well as help it to support our growth. And we think that this is something we started an evolution on with OMNIA, and that we now further extending into Nexia. So we think we're in a good trajectory here for our product families and our innovation. Then the question on April, I would actually a little bit avoid that question. We're here to speak about the quarter and we don't have a perfect visibility either at this point in time. So sorry to not be helpful on that one specifically.
Operator: Your next question comes from Hugo Solvet from BNPP Exane.
Hugo Solvet: First on core Hearing margin, which is coming close to 12% at 19.9% in the quarter, we're seeing continuous traction from Nexia. Any reasons or moving parts we should have in mind that could hold back further margin progression throughout the year? Second, follow-up to Veronika's question on the data points you gave on point of sale, units by point of sale. Did it gradually increase Q3 to Q4 and then to Q1 or the bulk of the increase was seen in Q1? And maybe you can help us understand if you saw the difference in terms of trend, independent versus large account. You mentioned independent, but just keen to hear [indiscernible].
Søren Jelert: Basically when it comes to the core margin, which we have promised all of you to sort of report out in text here, you're right that we state the 19.9% and then bear in mind that there are these approximately 2% that's driven or linked to the pension provision. So that's at least what's the underlying fundamental in there. Essentially, what we believe is a success also for this quarter and will be the success for the full year. It's especially linked around the Nexia that Peter also spoke to. We are very satisfied with the penetration so far and it seems to have a good also full year market uptake. In addition to that, we are working on the synergies, as we also confirmed here in my speech early on, to deliver on these DKK 400 million, of which some of them will be accredited to the Hearing side as well. So, overall, that's the way we look at it. And the guidance we have had out there on 18% to 20%, that is lending support to that journey. So there's nothing special now besides the pension that is behind it.
Peter Karlstromer: And if I can continue more on the point of sales expansion, I would say it's something that we gradually build up. It's almost like we're winning each point of sales at the time. It's usually, of course, it's a dialogue on some level with them to make them comfortable and supportive of starting to more actively working with us. So I think it's been a gradual kind of build-up and it's something we, of course, continue to focus a lot on. The dynamics, as you would appreciate, is quite different from the independents and key accounts. The key accounts are, of course, few or very large conversations. We are doing well there also. There, we are probably not tracking in the same way of point of sale. So that way of thinking is, we think, it's more helpful for us in the independents. But we can, of course, confirm that Nexia has been having a very good progress with the key accounts as well.
Operator: Your next question comes from David Adlington from J.P. Morgan.
David Adlington: Most have been asked, but maybe I should push a little bit more on the managed care contribution. I just wanted to know how much your expansion in managed care contributed to that 14% growth, or maybe how much faster than the 14% growth managed care grew. Secondly, just a housekeeping question. Your net financial charges in the quarter were quite a bit lower than we were going for. Just wondered if you had any guidance for the rest of the year there, please.
Peter Karlstromer: Managed care, I think support the growth in an equal way, so to say. Not usually over indexed or under indexed. So I think we grew that fairly much in line with overall growth. And if I hand over to you, Søren, for the next one.
Søren Jelert: It's clear that we, in this quarter, were a little short of the financial items. Part of it is actually linked to that the bond will be repaid during quarter two, so we will still have this quarter a lower interest burden and then they will pick up. And then we are still, for the full year around, the DKK 600 million in financial items. So I understand where you're coming from, but I think the explanation is also linked to that – the loan will change, the loan structure will change as we progress through the year.
Operator: Your next question comes from Oliver Metzger from ODDO BHF.
Oliver Metzger: Two on Enterprise, please. So first one on Enterprise. One pattern which will come is the reordering of headsets after restoring markets basically two years or even more time ago. So, when do you expect the repurchase cycle to come and how far you have incorporated this into your expectations for the rest of the year? Second question, it's on the recovery pattern. So you provided some positive comments on the [indiscernible] market, also the IT infrastructure. So given your experience, what's the time between improving underlying fundamentals and also the recovery of the demand for headsets.
Peter Karlstromer: If we look on the reordering and replacement cycles, our assumption is that the average replacement cycle is around three years for the headsets, varies a little bit between headset type and customer type. And as such, we should gradually enter that period you talk about, the COVID growth years. Exactly how this will play out, there is, of course, some uncertainty. COVID was, for most of us, the first time we experienced something like that and it's a bit difficult to know exactly how this will play out, but it's certainly part of the guidance range we have given. Replacement cycle, we think overall is also what's supporting the market to recover and turn back into growth. So, it is centrally in the dynamics which we talk about when the marketing refined its balance and then starting to grow again. So it is factored in the ranges we have and the guidance we've given for the year. To the question on the recovery pattern a little bit vis-à-vis the other observations we have, PC sales is a very well researched and a big market, of course, so that's something we always kept an extra eye on. And our experience is that our categories are lagging that with approximately one to two quarters, so that's what we've seen historically, and probably would be quite consistent with what we see also now the PCs a little bit earlier turning into growth and we believe on what we pick up the signals that it likely happen one to two quarter later for us here also.
Operator: Your next question comes from Shubhangi Gupta from HSBC.
Shubhangi Gupta: Congrats on the strong quarter. So I have two questions please. First, on the Hearing business, so as you progress into the year, some of your peers are also launching new products. So should we think about the growth for the year more weighted towards the Enterprise and Gaming business rather than Hearing business? And for the Enterprise business, how is the recovery pattern? Is it like more sequential recovery? And second, you have this post [indiscernible] corporate detail. So any other businesses you're planning to dispose this year?
Peter Karlstromer: If I start and then hand over to Søren for the disposals. On the Hearing, we are very pleased with a strong start on the year and it is slightly ahead of our own expectation, which feels great, of course. I think that the two things making us believe that, throughout the year, we will have a bit more difficult to drive the same level of high growth, one is that we are ourselves are meeting higher comparisons, in particular in the key accounts which grew significantly throughout last year. And that one is, as you are referred to, we do assume some competitive launches and ramp outs throughout the year. We don't know exactly how that will influence us, but it's making us a little bit more balanced in our assumptions. In total, we believe that the guidance we have for Hearing for the year and the range we have is appropriate and should hopefully guide you well here. If I then talk a bit around how we should see the growth of the group as a total, I think you're right in the way that both Enterprise and Gaming & Consumer, here we have a little bit the inverse pattern where we believe we will increase the growth momentum throughout the year. Enterprise, largely due to the market recovery, Gaming & Consumer here also, we are off to start as we planned, but it is a bit of low growth than what we have guided. But in our plan, we believe we will be able to drive stronger growth throughout the year. So if I move to Sören for the next one.
Søren Jelert: When it comes to divestments, as you would surely appreciate, we launched the capital plan last year, of which we had four pillars. And one of the pillars were actually the divestments where we said we would divest DKK 1 billion to DKK 2 billion. And as we've reported out quite consistently during the last couple of quarters, we sort of have done the first billion. One of them were the BelAudição, the other one was the headquarter sublease. And then, essentially, we said that the next billion would be driven out of disposals if we found that we were not the right strategic owners of those, or that we could yield a better return outside. And we remain committed to that, and that is actually not an extraordinary thing for us. We, in management, should, of course, always take a careful look at our assets and see whether we are the right one in bringing value to the table. So that idea still stands. We are fortunate enough to be well on track with the capital plan, so we don't have to sell anything. And that is also what we called out last time. So that's the answer to that question on disposals.
Operator: Your next question comes from Robert Davies from Morgan Stanley.
Robert Davies: My first one was just on your comments you made on the Hearing business about the continued market share gains. I just wondered if you could break that down a little bit across some of the key regions where you think you're making the strongest progress. My other one was on the Gaming & Consumer growth outlook for the full year, given where you sort of started off and the fact that comps get tougher and just your kind of conviction level because it's still quite a broad range I think in terms of the guidance for Gaming & Consumer for the full year? Final one was just sort of – a few people have touched on it already, but I guess just kind of drilling into the kind of key feedback from the audiologists and the customers of what they like around the product and what's different, what is, do you think, some of the sort of top two or three things you're hearing from customers and what they like around the product. Is it the kind of signal processing, the sort of fitting? What are the key kind of features of the product that people are really kind of telling you they like?
Peter Karlstromer: If I start with two Hearing-related questions, first, the growth we have seen until today has been stronger than the US. We've done really well in the US and we should also remember that is what we launched in Nexia first as also US has benefitted the most from the Nexia launch until today. And in the US, growth has been fairly broad-based across customer types and channels which is encouraging to see. We are also now starting to see good growth in the markets outside of the US where we're launching Nexia, not yet on the same levels as we have seen in the US, but it has been building up nicely in the quarter. So, it's good to see that several markets around the world are not growing – we are growing faster than the market there also. So, that's a little bit more color on the growth composition. Then on the feedback on Nexia, what we pick up is it is a fairly broad-based, it's more coming together as a good holistic proposition. If we look first on the end users, end users like it because it's helping them to hear better in a great way and it's a very small device with good characteristics and for some also the connectivity with Bluetooth Low Energy and Auracast is something they appreciate, in particular the future-proofness of that. But also the audiologist, they, of course, see the same benefits, but also give positive feedback on the improved fitting software and also feel confident around the product and its quality and that they help them – to help their users, so to say, in a good way. So I think it's been a positive recognition building up here based on good characteristics of the wider proposition. Then on Gaming & Consumer, we actually have planned the business this year and there have been essentially two different factors driving this. Last year, we had a very strong growth start on Gaming & Consumer. So a year ago, as an example, gaming grew very strong. And then, throughout the year, actually still grew nicely, but moderated somewhat. So that's one effect. The other one is that we do expect to make some launches in Gaming & Consumer throughout the year. We have not launched anything in Q1, but we have some launches planned throughout the rest of the year that we believe also will lend good support to the growth in the gaming, in particular.
Operator: Your next question comes from Mattias Häggblom from Handelsbanken.
Mattias Häggblom: Two questions please. So in light of savings, somewhat ahead of plan in the quarter. Any thoughts at this stage if this [indiscernible] of a total DKK 600 million in savings could prove conservative? Secondly, in light of an improvement of more than DKK 600 million in cash flow generation in Q1 compared with Q1 last year, why no follow through and increase in full-year outlook for the free cash flow? I guess another way of asking would be how you feel about the consensus expectation of roughly DKK 1 billion for the year.
Søren Jelert: In this case, of course, we are pleased to see that the plan is working on the synergies with the DKK 90 million. We have anticipated sort of this – the way it's panned out in the first quarter. And again, we are pleased to see that we both see the improvements on the gross margin, which is of course very evident for you all to see in there and then you all know that we did the reorganizations last year and that's, as I spoke to also, panning out now here in the first quarter. So we feel committed and can see the path to the DKK 600 million, of which the first DKK 400 million was in year one. And I think once we've crossed that bridge, then, of course, we will take stock on what the future will bring, but so far we are committed to the DKK 600 million and can see the path and quarter one was a testimony to that. When it comes to the cash flow, here we have guided plus DKK 700 million and then I will leave it to you guys to sort of assess where we are above the DKK 700 million. I think it's reasonable to assume that it was a good first quarter that was also lending support to the full year outlook above DKK 700 million, but on the specific number where we're targeting now, I think the guidance we have now still stands. Of course, we have a good quarter behind us now, so that's a positive on that one.
Operator: Your next question comes from Niels Granholm-Leth from Carnegie.
Niels Granholm-Leth: First question on R&D capitalization, which contributed DKK 69 million in the quarter. Could you talk about if you also experienced a contribution from IT cost capitalizations in this quarter? And my second question would be, since the business is now well back in good shape, would you consider to raise more capital?
Søren Jelert: I think as I stated also coming out of the year-end call last quarter, the capitalization we have, we are not changing the principles behind the capitalization. It is true that it's benefiting us DKK 69 million. It's also true, though, that it was even higher the year before. So, essentially, we are taking the needed measures to ensure that whatever we set to show in terms of new projects that the spend is kept at the right level. We will always see some fluctuations as the projects progress during the year, whether it's R&D or IT projects. So again, we will remain on the same principles. We will see some fluctuations. We've seen it come down a little bit here in the first quarter, but overall we still remain focused on the projects we do start, that we spend the money right. And then the other question was linked to the capital raise. I think all of you here now can sense and feel that we are on definitely the right track with the capital plan. And as such, we do not see this as an option we are going to exercise.
Operator: Your next question comes from Julien Ouaddour from Bank of America.
Julien Ouaddour: I have two in Hearing and one in audio. So, first in Hearing, just regarding the market, I think in your press release you said that France benefited quite a lot. Can you just comment a bit of the market dynamic in France and how do you see the recovery in this market? And as well just in the US, a good traction with the independents. You're putting the Nexia on the VA this month. So what's your expectation in terms of market share gain just based on strong momentum. The second question on Hearing is probably a follow-up to Veronika's question. So you mentioned sort of timing of certain cost items in Q1. Just how should we think about the phasing of the margin going forward? So should we expect that margin decline in the coming quarters? And the last question in audio, so I understand that you said that headset lags PC by one to two quarter, we've seen plus 1% in the PC growth. How should we understand the plus 1% should translate in headset growth in two quarters? So, is it like a one to one? And what kind of PC volume growth you need to get back to, let's say, high single or double digit headsets at some point?
Peter Karlstromer: Let me start and then hand it over to Søren for some support there also. Starting with Hearing, I think it's true that we saw a good momentum in France. The market itself recovered in a very nice way and picked up again in terms of growth and dynamics. But there, thanks to Nexia and own initiatives, we managed to grow on top of the healthy market, so to say. Probably with a similar set of reasons and dynamics, as I talked to before in the US, it is driven by the appreciation of Nexia as a wider proposition in the market. That is a good example also on how Nexia is starting to lend support in growth outside of US in a meaningful way. Then Nexia in VA, yes, no. It is correct, of course, that we launched into VA here this month, just a few days ago, and what's good for us is that we're now launching with a full range of products in Nexia, which we feel very good about, and we have invested significantly to prepare for this launch and really support the growth in VA. We have not externally communicated any specific targets here, but as you know, we have a bit of lower market share in VA, so we see a good opportunity for us to grow there and something we are very focused on. And then if I move to the Enterprise, now everything that's said and the lagging, these are observations. I think it's difficult to make it too quantified logic, so to say. There are many forces at play. I would rather see it as the enterprise market grew significantly during the COVID year, as we know, then experienced a significant reduction. We should remember, though, after reduction, still on a higher level than when the pre-COVID growth started. And now there is a normalization where the market trying to find, what should I say, some kind of flat outlook and then hopefully resume the growth. This year, we don't think we will come back to full trend growth of the market. Probably we'll take a bit longer. But as we said, we believe the market will turn into growth, but probably a more modest growth sometime this year and most likely in the second half.
Søren Jelert: And then, of course, routing a little bit back to Veronika's point on the margin, yes, here on the EBITDA margin on Hearing, that's the 19.9%, right? Then we have here said we have a one-off of approximately 2%. So that would underlyingly mean an 18%. And it's, of course – as you know, the guidance, full year guidance is between 18% and 20%. and we are of the opinion, with a good Nexia launch and also the synergies of One-GN, of course, we strive to get within that mix. And I think, of course, that Q1 here was a proof point that we are now within that range and the underlying and fundamental also driver of it, the improvement is linked to the gross margin that actually is quite significantly up already in first quarter. So, overall, that should give you some idea of why we are claiming the 18% to 20% and, of course, not over-inflating the one-off we had in the first quarter.
Julien Ouaddour: Just if I can come back on your comments with margins, so you – I think in the press release, you can see timing of certain cost items. So I'm not talking about the pension, but really like about the other costs. Any kind of phasing for this cost should we have in mind for the coming quarters?
Søren Jelert: No, not a specific phasing for that that we are aware of. No, it will follow the top line and the launches as we progress through the year.
Operator: Thank you. This concludes our question-and-answer session. I would now like to turn the conference back to the speakers for any closing remarks.
Rune Sandager: Thank you very much, operator, and thank you for everybody joining on the call today. We appreciate your time and we hope to see many of you in a few days at our Capital Markets Day.
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