Demant A/S (WDH1.F) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to the Conference Call for Demant's 2025 Annual Results. My name is Peter Pudselykke, and I'm heading up the Investor Relations activities here in Demant. With me here today, I have the usual team, our President and CEO, Soren Nielsen; our CFO, Rene Schneider; as well as Gustav Hoegh from the IR team. For the call, we will do a presentation, which will be followed by a Q&A. We expect the session to last no more than 1 hour in total. [Operator Instructions] before we dig into the presentation, please do pay notice to the disclaimer on Slide #2. And with that, I will go to Slide #3, we'll pass the baton to Soren, to kick-off the presentation.

Thank you very much, Peter, and welcome, everybody. The agenda for today is key events for 2025 financial takeaways, and then comment on sustainability advancement. More details on business area reviews, not the least the fourth quarter. Then Rene he will do group financial and also take us through outlook and initiatives to improve profitability. And if we take a 2025 in total, at group level, we delivered 2% organic growth, 5% in local currencies. Of course, a significant element from acquisitions, headwind from currencies leaves us with 2% reported growth and biggest, you say, expansion is in Hearing Care, which now is the biggest business area, as you can see in the business mix split. Gross profit, up 2%, but down on margin related, to I would say, hearing aids, some extent, diagnostic, but I'll get back to that. EBIT down 10% before special items and free cash flow down 11%. Key events in 2025, we acquired the KIND Group in Germany, closed the deal in December, so we have 1 month in the books, one of the world's leading retailers and with that a significantly expanding our position globally, but in particularly in Germany, to a #1 in Hearing Care. In October, we introduced Oticon Zeal in selected markets and a launch that so far have created a lot of excitement and a lot of good momentum to carry into '26. During 2025, we signed agreement to divest both EPOS and Oticon Medical in line with our overall strategy to be more focused hearing healthcare company. The hearing aid market in 2025 was softer than normal, and particularly in the U.S. where we saw flat market growth for 2025 in total. Hearing Care delivered very solid performance in -- solid performance, not the least in the view of the global hearing aid market, whereas hearing aids and diagnostic delivered softer growth. All 3 business areas showed an improved and strong performance in Q4. Key financial takeaways for the second half group organic growth of 4% for the second half in total. So a sequential improvement from the first half fueled by all 3 business areas. Gross margin decline versus second half '24 due to ASP headwinds in hearing aid and increasing share of rechargeability, I'm going to get back to it, but the ASP headwind comes from channel and geography mix, so selling [ more ] in countries and channels with a lower ASP and less in higher-priced markets like U.S. Diagnostic was also a minor drag on the gross margin coming from their product mix and some geography. OpEx grew 5% organically, but -- and as already guided for, and expected flat sequentially from H1, so still reflecting a cautious approach to cost expansion when we look at in sequentially the 5% to some extent, originates from a significant holdback at the end of '24. Acquisitions added 5 percentage points growth compared to second half last year. EBIT before special items, DKK 2.1 billion, negatively impacted by exchange rate effects and by lower operating leverage. EBIT margin, therefore, before special items contracted 2.6 percentage points. Special items amounted to minus DKK 128 million. Strong cash flow from operations of DKK 2.3 billion and free cash flow of just around DKK 2 billion. Outlook, Rene's going to elaborate further on it for '26. Organic growth of 3% to 6% and EBIT before special items of DKK 4.1 billion to DKK 4.5 billion and continued pause on our share buyback to bring down the group leverage. Sustainability achievements quickly, we saw a increase as expected of improved lives by overcoming their hearing loss to 12 million and a growing number of tests in our own clinics following the expansion of that. And when we look at our main -- or 3 main sustainability goals under the headline of Respect for the planet, a planet decrease in our scope 1 and 2 greenhouse gas emissions. We have now achieved 16% reduction compared to baseline with a target of 46% by 2030. Gender diversity in top-level management now at 33%, so 1 in 3 and with the aim of getting above 35% by 2030. And the number of people that have read and understood out of the people for whom it's relevant should be 100% by 2030. And you could say, basically already tomorrow, if at all possible, and we are almost there. Business area review, well, hearing aid market in '25 have definitely been special and fourth quarter, which is the new release is no different. We have seen a high unit growth, and this is all units in Europe, but it's all driven or mainly driven by NHS in U.K., the National Health Service that have -- had strong growth partly to expand the inventory levels, et cetera. And then France also showing high growth as expected due to the annualization of the [ reform]. If we allow ourselves to exclude NHS and France, unit growth was 3% in Europe, in Germany, specifically growth declined year-over-year. North America saw a sequential slowdown from two quarters with 2% growth to 0 and leaving the year with 1%. U.S. or Canada saw a good growth. So it was offset by a flat growth in the U.S. commercial and a slightly negative in the VA. Rest of the World delivered growth, Australia, positive growth, while Japan saw minimal growth. China saw a sequential improvement, and we estimate that several emerging markets saw good growth. So again, the ASP, we normally believe in a flat ASP, but no doubt that with the geography mix and channel mix in the year and fourth quarter as much, then we estimate that we should see a negative impact on ASP in -- it's not exact science, but in the area of percentage points at least. So a global hearing aid market that have assumably grown just around 2% in value for the year. Hearing aids fourth quarter organic growth also in fourth quarter improved despite of the U.S. market weakness and the loss of share in U.S. the main area in which we have lost share in U.S. remains to be a large retailer where the number of providers or suppliers have been expanded. We introduced Oticon Zeal in selected European markets, which have created excitement and momentum change in these 4 countries. We have really seen Zeal lift the sales also in general in these markets. However, with limited impact on the total group level in fourth quarter simply by the size of these 4 countries and the potential, even though Germany is a big country, the premium market in Germany is not that big. So again, not something that financially impacts that much, if, of course, does some, but not that much in the fourth quarter. So unit growth was very solid. Representing overall market share gains in units across several key markets, I would say, almost with the main exception being U.S. the ASP was negative, as I said, due to geography and channel mix changes. So France, U.K., Germany, good growth in Europe, all big markets, strong performance in Canada. U.S. growth was negative, as I said, good growth in Japan, South America, and also relatively broad-based growth in Asia, except for China, which, I still would say is market related. And the rollout of Oticon Zeal, just a few more comments to that. We launched it in Europe and in both Germany, Switzerland, U.K. and Denmark, the conclusion is the same. It is undisputed, seen as a new very innovative concept by both hearing care professional and end users. It does help in having end users take the choice to get going and see less obstacles. So very positively seen uptake with first-time users. It does also lift sales of our other portfolio because it opens door to new customers. And if an end user have tried a Zeal and happy with the sound quality and the quality of the instrument, but for some reason, don't continue with a -- or prefer to continue with an in year. There might be some comfort issues. The ear canal doesn't work. It's natural to then fit an intent because you'll have more or less exactly the same sound quality and something you just like. So we do see additional sales to customers that did not work that watch with us. And we have actually also seen limited cannibalization with customers that we already were doing business with and that have taken in Zeal. So this is the conclusion from the 4 markets. We have also I think, been open about that it's only in a premium price point and that we have lifted pricing in some markets significantly compared to intent. And so far, we have seen acceptance of the price and it has not prevented us from creating excitement and driving sales. That being said, it is a premium price point. It is a premium category type of products, but it definitely also makes some people spend more than they might have thought they would. They had to pick a [ receiver ] on ear instruments where there are more options available at different price points. I also think we can say that you cannot really say, okay, what is the potential and what's the share and the in-ear market? Because that's not how people is basically first-time users think about hearing aids. They will look at what's available at the table and pick the one they find most attractive. And there's no doubt that by first-time users, this is seen as much more attractive than carrying a traditional right instrument. So all in all, very good takeaways and we bring this excitement into '26, where we have now launched in U.S., where we will, in the coming weekend launch in Canada and where we -- early March, will launch in France, and then onwards with all remaining significant and major markets. Germany will also expand activity significantly here in first quarter to make sure they get to a full rollout, which was not the case in the initial launch. So we move on. And again, not to open the discussion already, when we then say we still have something ahead of us, it is because it remains to be a sequential launch so we have to take it market by market to make sure we get off on the right foot. And of course, with U.S. market have been the most muted and a big premium potential, then it also, to some extent, depends on how the market develops, but maybe Zeal can be part of creating renewed excitement and also interest from end users. So I would say there's still some uncertainty left around that, which I'm sure Rene will come back to. We continue to expand our portfolio also in Q1, we released devices of our latest technology containing disposal batteries, which in some channels and geographies are still important and then also a new offering in part of the pediatric portfolio and then all these new products offer latest and greatest sound quality and connectivity similar to Zeal, where we also get very good feedback on the latest technology, which is also a connectivity technology, which is also available in Oticon intent. Hearing Care in Q4, solid performance in a weaker than normal hearing aid market, of course, strong tailwind from a month with KIND. So in the quarter, doing 17% in local currencies, 5% organic in -- across the geographies, strong performance in Poland and a number of other midsized European markets continued solid growth in France, driven by the anniversary of the '21 reform. Good organic growth in North America, driven by continued improved performance in U.S. very positively. However, some negative development in Canada. Australia saw a good growth continuing improved momentum and China also delivered good organic growth, driven by ASP tailwind from a continued better product mix. So all in all, well done in hearing care in the fourth quarter. And also diagnostic came in strong in the fourth quarter, delivered organic growth of 8% in local currencies. So clearly best performing quarter this year here and in general, a good uptake. Strong growth in U.K. and Germany, good performance across several midsized markets. U.S. and Canada saw a strong growth, however, driven by service and consumable business again, back to gross margin, which is a little bit lower in these areas. Australia delivered strong growth primarily on instrument sales, and China continued to be impacted by general weak markets and there was some drag on growth in Asia in general. With that, over to you, Rene.

Thank you, Soren. So let's push through the financials, a little bit of repetition. So I will be quick on this. So the revenue for second half year, we saw solid organic growth of 4%. Hearing Aids and Diagnostics saw a good organic growth and especially Diagnostics improved in the fourth quarter. Growth from acquisitions contributed 3 percentage points to growth, and we had a FX headwind of 4% predominantly due to the decline of the U.S. dollars. Turning to gross profit. It increased by 3% to DKK 8.8 billion. We saw a slight decline in the gross margin against second half of last year. And this decline was driven primarily by geography and channel mix changes in our hearing aids business. And we also saw some headwind in the Diagnostics business partly affected by tariffs. And last, also a slight headwind on the gross margin from the FX development. On operating expenses and EBIT. So we increased OpEx by 5% organically half year over half year, partly due to very low comparative figures as we pulled back on cost significantly in '24. And we have seen a flat development sequentially from first half year into second half year, which is a reflection of our continued focus on cost management. Acquisitions added an additional 5 percentage point to growth to OpEx in the second half year of '25. And again, also here, we see an offset from a declining U.S. dollar. When it comes to EBIT, we ended second half at DKK 2.1 billion, negatively impacted by exchange rates and by lowering operating leverage in hearing aids. The decline in EBIT was due to weaker than normal growth in the overall hearing aid market as the main contributor and for us, specifically a loss of market share in the U.S., primarily due to lower sales to a large retailer. And this resulted in a contraction of the EBIT margin to 18 percentage points. Special items in the period was related to the acquisition of KIND and a noncash adjustment. All in all, DKK 128 million in H2. Cash flow continued to be very strong. Cash flow from operations in H2 of DKK 2.3 billion and just shy of DKK 2 billion of free cash flow. So again, continued very strong cash flow generation. Our capital expenditure of DKK 409 million is an increase compared to same period last year primarily driven by higher investments in production facilities. Cash out to acquisitions amounted to DKK 5.4 billion. And this, of course, predominantly related to the acquisition of KIND that closed beginning of December. We did not purchase any more shares under the share buyback program in second half year. So we end the year at a total of DKK 582 million as a previously disclosed. When it comes to the balance sheet items, our net debt increased significantly. Again, this is solely due to the acquisition of a KIND and fully in line with our expectation, our gearing multiple at the end of the year, ended at 3.4%, which is above our medium- to long-term gearing target of 2% to 2.5%. We will prioritize deleveraging and expect to return to our medium- to long-term gearing target of 2% to 2.5% within 18 to 24 months after the first of December of '25. And net working capital had a modest increase of 3% and this again, predominantly related to the result of adding acquisitions to the balance sheet. So in good control here. Thus, summing up the financial key takeaways for the full year. As such, we're ending up at 2% organic growth, again, driven by the weak overall hearing aid market. A contraction of the gross margin by 0.6 percentage points, driven by weak market growth, particularly in the U.S. and ASP headwinds in hearing aids due to geography and channel mix changes. The operating expenses for the full year increased by only 3% organically due to our continued focus on cost management. EBIT before special items, DKK 3.96 billion and an EBIT margin of 17.2%. And special items amounting to DKK 128 million. And as just reviewed, strong cash flow of DKK 3.85 billion of cash flow from operations for the full year and free cash flow of above DKK 3 billion for the full year also. And share buyback DKK 582 million. So that was the quick review of the financials, and that brings us into the outlook section and initiatives that we have taken there. So if we start on some of the assumptions that goes into our outlook and assumptions, of course, alluding to that we don't have certainty around these things, but we go in with a starting hypothesis. And of course, the main hypothesis that goes or assumption that goes into our outlook for the year is our projection for the global hearing aid market to grow 2% to 4%, and in 2026 in value, which obviously is a conservative assumption being temporarily below our medium to long-term assumption of 4% to 6% and also, of course, low seen in the light of the last decade of growing exactly in line with these 4% to 6%. So we believe it's prudent and in line with what we have seen in the last quarter to take a cautious stand on the market going into the year, and that is what we do with the 2% to 4% for the market. We will come back to it, but we believe that Demant in all scenarios will grow above the market in '26. Another key assumption on the right-hand side is that as part of our plans for '26, we have launched a company-wide initiative to exactly improve profitability and lower cost growth and specifically in some areas, lead to cost reductions. These initiatives will positively impact EBIT before special items of around DKK 250 million in '26. Since this is an initiative that is starting now, we foresee that the majority of this impact will be materialized in second half year, which is why, we, for '26 see an EBIT's good more than usual towards the second half year. Also, product launches impact the phasing of EBIT for '26. So this is an important note. We have seen a significant decline in the U.S. dollar in particular, but also other currencies. And we expect a negative impact on EBIT from FX of DKK 200 million compared to '25, with the impact evenly split between H1 and H2. We expect the KIND Group to contribute with DKK 300 million on EBIT before special items in '26. This is in line with our previous communication. And we expect a limited impact on tariffs on the group -- from tarrifs on the group, DKK 25 million in our Diagnostics business, also nothing new in that. So summing up on the special items where we see particular things to take into the account for '26 is now totaling DKK 325 million, of which DKK 125 million related to the previously announced integration cost related to the KIND acquisition. And then we do add to that an additional DKK 200 million related to the foreseen restructuring and also adjustment to the organization and size as part of this cost reduction initiative. Here, we see DKK 200 million of one-off costs. So all in all, DKK 325 million. So these are some of the core assumptions. And if we -- based on that build up and say some of the components in a more [indiscernible] visual schematic way on the graph on the right. The starting point is our EBIT for the full year '25 or DKK 3.96 billion. From that, we need to subtract the DKK 200 million that is the FX headwind in '26. That brings us to an FX adjusted EBIT for '25 of DKK 3.76 [ billion]. To that, we would -- in line with the guidance we give here at a contribution from KIND incremental contribution from KIND which means 11 months of EBIT. As a reminder, we did have 1 month in '25. So this is a 11 months of the DKK 300 million, DKK 275 million. And then we need to add the organic part of our business, which includes the before mentioned cost savings initiatives that we are confident will bring DKK 250 million of savings to the OpEx line. And then adding to that, whatever else we will see of organic impact from profitability in the remaining part of the group. And this builds up to an EBIT outlook of DKK 4.1 billion to DKK 4.5 billion. And important to notice here, the backdrop for this outlook is, of course, the starting point of a market assumption of 2% to 4%. And we have in our plans, and we aim to grow above that 3% to 6%. So taking market share essentially in all scenarios. So in this light, you can say, of course, that the DKK 4.1 billion which is the lower end of this guidance reflects a very, very conservative scenario where the market, of course, is in the conservative end of the already contributive outlook here and also that our market share gain is modest, but still there. But this is the starting point for the year, and we feel comfortable with that. Lastly, just a few more comments on the initiatives to improve profitability. I did mention before the effect in '26 of DKK 250 million, but this is a 2-year program that will -- beginning '28 and onwards bring around DKK 500 million of cost savings to the group. We also announced today that we estimate that this will affect approximately 700 people globally in Demant in '26, of which 150 are located in Demant. The associated costs that we recognized under special items is DKK 200 million in '26 and an additional DKK 100 million in '27, both, of course, of a one-off nature, whereas the expected cost savings will be structural and permanent. So summing up, in total, this brings us to our outlook for '26. Organic growth of 3% to 6% EBIT of DKK 4.1 billion to DKK 4.5 billion. Share buyback is foreseen to be paused throughout '26 as we focus on deleveraging. And for modeling purpose, we estimate acquisitive growth of 8%. FX growth of minus 2%, and special items, minus DKK 325 million and an effective tax rate of 23%. With this, we would hand over to Q&A, please.

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

The first question is on the -- on your guidance and the midpoint of the organic growth guidance does imply growing ahead of the market in 2026. I think you said you expect to do that in all scenarios. So my question is sort of what -- what is giving you that confidence in outperforming the market in 2026 in all scenarios? And then secondly, Rene, I just wanted to follow-up on your comments on EBIT phasing linked to product launches. Is that due to the phasing of the Zeal rollout or anything else to consider as you think about EBIT phasing?

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

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

The next question comes from Martin Parkhoi with SEB.

Just a couple of questions. Firstly on -- again, back to the 3% to 6% organic growth guidance. Can you elaborate a little bit about the organic growth assumption across divisions. Now we saw a little bit of a dream run for dynastic in the fourth quarter, but what are you assuming [ genostics ] going into being in '26. And then, of course, also, the split on wholesale and Hearing Care on our organic growth. I understand that KIND will add of course, acquisitive growth. And then secondly, just on, Rene on the gross margin expectations, for 2026. It was not a pretty year in '25. What have you assumed of gross margin development in '26 on an underlying basis. And of course, also say how much is the contribution from KIND in that context as well.

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

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

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

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

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

Firstly, on your comments around intense competition, could you help quantify the impact in the quarter from Costco and how you're factoring this into your guidance for 2026? And how would you characterize share trends in the commercial market in the U.S. And if there are any other adverse share dynamics that you would flag? And then secondly, on margin guidance for the -- I appreciate a weaker market. But can you help us understand some of the building blocks for a margin which is down year-over-year despite a benefit from the restructuring program in the second half? And just your comment around launches and that. Can you talk about how that would impact phasing and whether you're on track for a platform launch in 2026?

Yes. Let me start with the first on the very last. We don't comment on any new launches before they're there. I think you all know the tradition for that. I can only repeat, we have a strong program in front of us, we believe, for the coming year, including the second half of this year. Share trends in -- and U.S., you, of course, have visibility to VA where we after recent launches, have seen a minor dip to Oticon but have held, I think, well two things. We year-over-year does see a declining share with a large retailer after expanding the number of suppliers, but relatively stable after that change. And then with the independent, I can only say it's a very intense fight whether some have been holding that a little bit in the way for Zeal. I can't rule out, and therefore, I would say, sequentially a little bit softening towards the end of the year. But I'm sure and hopeful that we will pick up on that now Zeal out in the U.S. market. I think that's what I can speak to for now.

Yes. And when it comes to the margin, let's say, development in '26, it is, of course, challenged by our starting assumption of a market growth of 2% to 4%. That is the, you can say, fundamental margin headwind that we sit with. And of course, in this slide, our cost initiative becomes extremely important because this is what brings us, let's say, at the midpoint of our guidance, it leads to a flat EBIT margin in local currency and then, anything above that would be margin expansion. But of course, when we assume a market growth of 2% to 4% margin expands which is not in line with our mid- to long-term then margin expansion per se is a challenge, but at least the midpoint, we are flat.

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

So I have two. The first one is on Zeal, where, I mean, you said the feedback was like pretty good. My understanding is that Zeal is the main moving part for the share gain in '26, as you said. Just could you tell us a little bit what kind of market share assumptions have you embedded in the '26 guide for the ITE category? I'm just asking because we see a complete project working pretty well right now. And I think another of your competitors just announced new ITE project this morning. And also on Zeal, could you confirm if it's already margin accretive to the group and how the volume pickup could impact the profitability? And a very quick second question is on the ASP. It was down 2% in '25. I think it's below your midterm assumption. You're also feeling intense competitive pressure at the moment. So do you feel the need to have some -- maybe some kind of price discounts in the [ REIT ] category until you have a new premium platform as Intent gets old? So just what could it imply on the pricing for H1 '26? Could it be down again?

Yes. Let me start with the pricing and then return to Zeal. ASP, when we see it down is a channel and geography mix. We still uphold I think, a strong ability to have significant better pricing than many and most in the independent sector. So no, I don't see the call out for selling Intent because it should be not competitive. I would also like to stress maybe a little bit back to Hassan's question on product launches. We are very, very happy with the performance of Oticon Intent and Zeal. This platform allows us to exactly do these very high-performing products at now unprecedented small sizes. It is with full connectivity, it is with full AI-driven signal processing that we enable Zeal, and that's why Zeal gets such a good reputation. It's not the first product that you can do as an in-ear instant fit type of product. But you have never before seen it with such a feature list that is totally comparable to any RIC. So back to my initial comments as well, when we open new doors with Zeal, the conclusion from the first 4 markets is, we also see growing sales of Intent, because it's equally a very good product. So Zeal is a door opener to a broader sales, and that's also why you cannot measure Zeal's, ASP effect. You cannot measure Zeal comes in with very strong ASP and of course, additional Zeal volume will lift ASP, everything else equal, it's higher price than anything else we sell. So yes, very positive for ASP. If we sell a lot in U.S. and the U.S. market growth, our ASP will go up the ASP effect in '25 is geography and channel related. Zeal IT category, we have no other products that offer same features all new rechargeable with connectivity type of in-ear products are custom made. They are what's called in-canal which are relatively big devices that don't offer the same discreteness and invisibility as Zeal, if they are to be near as smaller Zeal, that connectivity is not there and typically also limited signal processing in order to accommodate for a much smaller battery. The core element of Zeal is that it offers a much larger battery than any competitor, and therefore, in this size. And therefore, we uphold the full functionality we know from RICs. And that's the strength. And therefore, you cannot just measure share in the EMEA category, and I don't see any new releases that challenge the position of Zeal.

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

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

Next question from Andjela Bozinovic, from BNP.

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

Yes. First of all, we, of course, expect competition to continue to try to innovate and bring new products to the market. We don't have anything special in and I would definitely see what I've seen today from a single competitor. Yes, it's an in-ear product, but in -- as I understand, lower price category and nothing special when it comes to functionality. So I don't see anything changing the fundamental competitiveness and uniqueness and an innovative level of Zeal. And I don't expect others to launch products down that Elite there is a very close relation between the production technology and the ability to make this small form factor with all the features and benefits, as I just said. And no, I don't expect competition to be able to close that gap very short and not in this year. Cost initiatives, they are widespread across the group. They come basically in all geographies to various extent, of course, depending on our size and footprint. They -- comes in all areas. It's not just operation, it's not just R&D, it's not just any of it is basically the entire company that we have looked at. But of course, in selected areas, so we can be even more firm in our commitment to invest in R&D in new products in a continued expansion of our hearing clinic footprint, et cetera, all the things that matters to growth. But we will find areas where you could say, inside the box, we can find more cost-effective ways of doing things.

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

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

Next question comes from Martin Brenoe with Nordea.

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

I'll do that quickly. Yes, when it comes to staff and organizational changes, of course, as quickly as possible to make sure we can move on with the business. It always takes up time and energy. But on the other hand, there's also part of this program, which is centered around cost of goods sold where we want to work against the more and more expensive types of hearing aids we have to do. That takes some effort from selected groups of R&D, et cetera, before they come in. And before you have used existing parts if it entails a redesign. So there's also elements of the program, which have a longer run but the majority and most of what's related to people will happen here very soon.

And then just the second question is on value growth. I think 2025 was growing around 2%. And some of that were driven by France, which has been benefiting from the replacement cycle, also from the VA with a quite significant price increase, which will lap in May. So you can say that the market growth is maybe a little bit inflated by these 2 channels and markets. So I'm wondering in your assumption going from 2% to 2% to 4%. And where do you see the sequential step-up happening if you look at the global market from here?

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

The next question comes from Veronika Dubajova with Citi.

I have 2, and apologies, they're going to be slightly bigger picture. The first one, I just want to push you a little bit on the sort of EBIT guidance. I think if we sort of build the bridge, I think adjusting for FX, adjusting for the cost savings, adjusting for, obviously, the contribution from [indiscernible] I think the guidance implies sort of EBIT that's year-on-year minus 4% to plus 5% against sort of revenue growth of 3% to 6%. So even at the top end really isn't a huge amount of margin expansion. And I guess sort of right big picture question is, is this the new normal? I mean if we end up in a market where growth is continuously challenged, not just in 2026, but let's say, maybe even in 2027, should we assume it's going to be quite difficult, not just for you, but for the industry as a whole to drive earnings growth? I think that's kind of the question that we've been having lots of discussions around. My second question, and I apologize for being forthright and blunt about this, but Intent is now 2 years old. You have normally followed 2-year launch schedules. We are clearly not getting a platform in February this year. Can you reassure us that there is nothing wrong with the R&D process and that the delay is a deliberate tactic on your part as opposed to something going wrong in the background? I think given the experience with Zeal last year, it'd be helpful to understand your thinking around that.

Yes. Thank you very much, Veron. And you to some extent, have to see the cost savings in combination with the remaining business. We would still like to continue to invest in R&D. We would still like to invest in further expanding our footprint. And that's why we, in other areas, take cost out. So you have to, in my book, see the 2 together, you can't just take the cost out and then look at the rest. So in all scenarios, when you take the 2 together, there is a growing EBIT and there is also improving margins, the better we are in the range, of course. On the more blunt question, no, I don't think there is anything wrong in the R&D. We have made a priority to bring our Zeal, because Zeal is possible due to the platform we have, and we think it holds a big potential half of all users in the hearing aid industry are first-time users around half. And this is a major opportunity there. And also for some the product, they really want, even if they already have one. It holds a significant innovative element. So our product road map is a conscious choice and not a broken bike.

The next question comes from Susannah Ludwig with Bernstein.

I have 2, please. I guess, first on Viola you talked about it having a higher ASP and then sort of being a positive contribution to ASP. Could you just clarify in terms of the impact on margins, I guess, sort of whether the margin is also sort of higher than the rest of your portfolio, given that higher ASP or given sort of the different manufacturing process, if there's any sort of negative impact on margins? And then second, I guess, on the cost reduction program, are you able to share a little bit more in terms of which business areas you are targeting? Should we expect, for example, in retail, are there any closures of stores that you're expecting to do as part of this program?

Yes. Thank you very much. Selling more premium is super positive for profitability. And Zeal is intended and will grow our premium share. And this way, yes, definitely. I think we have said before that the cost of producing Zeal is higher than a RIC. So if it was just a substitution and the price was not significantly higher, it would not be. It's better than classic in-ear instruments and the price is set higher than RIC. So all in all, good profitability, lifting premium sales, which we have seen so far in the markets we have launched definitely good for profitability. On the cost saving program, it is for all business areas to deliver of course, a little bit different in form and shape. And yes, we would like to do the most on cost of goods sold because that helps everybody. we are very cautious on our retail footprint and network, but there are also optimization opportunities within a network where certain regions, geographies, areas down to cities, you could find that you have stores that are not optimally placed and don't deliver the profit you expect. So we will look also at the network, but it's not the majority of things.

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

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

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

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

I only have one question left, and that's actually sort of a high-level question. So the question we are being asked a lot about from investors is whether now that you're implementing AI and hearing aids across the sector, you, your competitors and you're seeing other AI players invest massively in CapEx. Are we seeing sort of a step change in R&D cost to develop the next hearing aid with AI capabilities? Or are you seeing more of a continuation of R&D budgets that you have seen historically? That's the question, I guess.

Yes. And thank you for the question. I don't -- I wouldn't say we see a step-up. But yes, if you look relatively to years back, this is definitely where you put in more and more effort and the complexity of what we have to develop increases. And that's also why a continued commitment to investment in R&D is key and back to our structural changes. They are part of making sure we can continue to invest in R&D and a lot of that is into AI-driven signal processing and benefiting from AI, you could say, in all aspects of running a modern hearing aid system.

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

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

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

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

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

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

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

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

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