Sonova Holding AG (SOON) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Full Year 2019-'20 Results Presentation Conference Call and Live Webcast. I am Shari, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Arnd Kaldowski, CEO. Please go ahead.

Shari, thank you very much. Good day, good afternoon to everyone on the call. Thanks for your interest and taking the time. As you've seen, we published our fiscal year results 2019-'20 this morning, including some commentary about the current trading in the COVID-19 times. I have with me Thomas Bernhardsgrütter, our Head of IR; and Hartwig Grevener, our CFO. And as usual, Hartwig and I will split the presentation. We're trying to get through in probably 45 minutes to have ample time for the Q&A here. Looking at Page 2, the standard disclaimer. Everybody, I trust, is well aware about it. If we go to Page 3, I think, I just want to kind of take a step back and reflect a little bit on where we're standing because it's a somewhat unusual fiscal year report out. I think if we were 2.5 months ago, we would be sitting here and hoping that we finished all the year with the momentum we had and would feel good about it and just talk about all the positives, and we would probably go on some slides a little deeper. But I think we had a good finish relative to the circumstances, but we're obviously in a somewhat different time at this point of time. So we want to reflect that. And you can see this here from the bullet points in covering first a report out on last year, I think that's important: A, because we have lots of discussions around it. I want to make sure you see how we delivered on the things we shared with you as we were going through the year; also want to make sure that you see the strategy we've put in place in action and also have a fair chance to say how Sonova doing at the core before COVID because I think that's important to keep in mind on what's your momentum and how do you keep your momentum even if you, in between, have a pandemic as we have at this point of time, because we strongly believe that if you're in a strong position coming into it and you sustain that position, it should fit well with you when you're getting out of the pandemic. Obviously, lots of things to be done and decided as you go through the in-between phase here. So from our point of view, delivered well above expectations, at least the ones we put out when we entered the year. Nice market share gains across the business minus on the AB side post the voluntary field corrective action. Momentum coming on one side from innovation, but we also see clear signs that our focus on commercial execution as well as expanding sales coverage at the right places is paying off and adding incrementally to the top line. Good margin expansion, not just because of the strong top line growth but structural improvements starting to chip in, and good G&A cost management. And then if you look at the March, depending on the geo, obviously, China was earlier than others, already some impact in the numbers and we're trying to kind of peel the onion here as we go through the presentation. And then in the new world, from a COVID perspective, recognizing that somewhere in the second half of March and putting a robust plan in place, taking decisions on where they were required from a safety, protecting the core finances, OpEx as well as top line side, now sitting at a point where I think it's not an absolute surprise. We have not put out a quantitative guidance for the year. I think lots of discussions around it. But at the end of the day, quite difficult territory to navigate and be clear on what the next 12 months are. So we will guide through on where we stand and where we're headed and take any question. We've shortened the slide deck a little bit. So some of our normal pages are in the appendix. We do not intend to go through them, but I know that based on the way you build your model, some of the information is helpful rather than you trying to figure it out on our spreadsheet. So please refer to those features. Now jumping to kind of the high level report out -- or report card here. All in including the field corrective action and the COVID, we had an 8.7% growth in LC for the full year. And from an EBITA adjusted, and you see what we're adjusting for in the restructuring and -- which we have announced as we were going through the year and the AB onetime cost, we ended at 10.4% EBITA growth in LC. The EPS at 11.6%, couple of ins and outs, which Hartwig will go deeper on. And then because we had discussions around guidance and changes to guidance in February, it was important for us to try to portray here what our performance was February year-to-date so ahead of any significant impact of COVID. And we were clearly double-digit from a growth perspective, and we were on a pathway to more than 150 basis points in LC. And that point is particularly important for Hartwig and me because we understand first half year there were some question marks in the room. Just want to make sure that what we said at that point of time with regard to being able to generate leverage does exist as a capability in us. Last point here, and this is as of April, we have, given COVID, taken one of the actions was how do we get a very strong liquidity position. We've stopped the share buyback. You've seen we're proposing a dividend in shares, which we have available to us rather than a cash dividend. But in addition, we had a good cash performance in the company, added a bond 3 weeks ago with CHF 330 million and have extended credit line so that we're at this point of time from an access to liquidity above CHF 1 billion mark, which we find the right action at this point of time, given the uncertainty we have ahead of us, just to be on the safe side. From a summary perspective, I want to just focus on the things I haven't mentioned yet. I think important to note and -- sorry, they have more than 1 adjustment. So there's a page in here, I think, Page 10, which unpeels the onion, there is one which we have not rolled into adjustments. I want to be very explicit about it, and that's the third bullet point. Because of COVID, we have assessed our accounts receivables, particularly on the wholesale side. And we've taken, I think, prudent approach to build a bigger allowance for bad debt than we normally have, so that's not in the adjusted number. This is in the number, as we reported it under reported and adjusted, but there is CHF 20 million which we have put into allowance for bad debt. So in that regard, you would see an EBIDA margin expansion of 90 basis points, if you would say that is really COVID related rather than the operational performance. You see the growth rates here, hearing instruments, the highlight for us in this year relative to the others, other ones were good, too, but 11.8% in LC, despite the March getting weaker. Clearly, continued progress on the Marvel platform, but also the steps we took on channels and commercial execution. Audiological Care 6.5%, a little lower than it was in the half year, if you mentally would correct for what we did see in the March from the COVID here in the same range in both half years, we would have grown share. And then cochlear implants, unfortunately, hit by 2 effects here, the field corrective action and on the other hand, the COVID which in CI at this point of time is actually more severe than on the HI because so many hospitals are out of doing elective surgeries, quite a dramatic reduction of the growth relative to the half year point adjusted 3.4%. A good momentum on the system sales, and I'll comment on it what it was prior to the field corrective action. Last point I want to make here on EPS and cash flow. Again, Hartwig will go in more detail, but the strong operating free cash flow was driven by many things. But if you go to the operational side, a very strong focus and improvement on the accounts receivables throughout the year, not just in the last month as well as improvements on the inventory side. So really process improvements at play in order to improve our balance sheet position here. On Page 7, our best attempt to unpeel the onion on the impact of March from a sales decline and the accounts receivable perspective. You see the guidance midpoint on the left from February, you see our reported results on the right-hand side, the AR allowance follows out of CHF 20.3 million, as you see on the chart that gives you quite some impact on the EBITA. And then the sales decline, larger than 130 basis points, calculated for the full year, as the respective impact on sales and EBIT. And so you can see here kind of the rationale for the argument on the February performance. On the major developments, I think what you see here is a continuation of the execution of the strategy we had laid out, and which we have reshared with you last summer. I mean clearly, innovation is important. We brought up the Marvel. We have 2 million units sold after 16 months only, which is a big number. By far, the biggest we've ever achieved in 16 months. And then with the Marvel 2.0, we've made improvements which kept the momentum. We have also implemented or elevated our myPhonak application to a level that we have very good ratings from consumers relative to the peer group in how much they like it, and you can see it in the published data on the download number which went up quite some since we launched Marvel 2.0. On the AC side, many geographies running in double digit; U.K., France, Austria and the Nordics. There's one name missing from here which is a big number for us, which is Germany. Not such a strong performance at double-digit here, driven by the third bullet point. You may remember we talked about that we want to get to 1 brand per country and we shared -- Christophe shared last year that the one lagging one is still Germany because when we started after the AudioNova acquisition we had 6 brands. So we concluded the brand integration everything on the gear, so Vitakustik went away. That is operationally not an easy task. So we have done this in the last 12 months. And I think from here, we have the benefit and not the headwind anymore. And then on the CI side, strong momentum on upgrades and sales -- and upgrade sales, driven by the 2 new processor functionalities we launched in the spring. And we had double-digit system sales until we got to the end of January, the field corrective action had quite some impact here. With that, on Page 9, I think you can all read the numbers on the spell out here. Good leverage on the gross profit, keeping some puts and takes in place, including the continued kind of increase on the rechargeable side as well as some FX effects we have in the OpEx at 10.4%. Hartwig will unpeel the onion more. This includes the bad debt. So you can mentally deduct this from the 10.4% growth. EPS, significant in and out with regard to the Swiss tax reform, which you see on the -- as reported as a positive benefit here. And then a very strong operating free cash flow performance with 55% more operating free cash flow than we had year before. Page 10 is the one I referenced with regard to the adjustments, I think, 3 buckets: The restructuring costs in improving the footprint, this was predominantly on the HI side, some on the manufacturing, but more in retail, back offices in Germany as well as the consolidation of sites in the U.S. for Retail and Audiological Care; then the onetime cost of CI, a little bit larger than what we had shared in February; and then the Swiss tax reform impact here, which I'm sure Hartwig will voice over later. So if you look to 11, this is in a bridge format, the sales side. You get to 9.1%. So far, I talked about 8.7%. Out of the field corrective action in CI, we have the new product available by end of March in 80% of the markets, but not in 20%. So if in those 20%, somebody was handing back a device, we needed to do a credit note. That's the CHF 11 million here. So the 8.7% is not correcting for that credit note element. And then you can see we had quite some FX impact on the top line and even more so on the bottom. 12, how did we do by region? I mean keep in mind, we have not adjusted anything for COVID. So the percentages on the right-hand side, and I see would have been a little higher if we would have not had the March. I think EMEA, good number, slightly above market; Asia Pacific, different mix. Good progress in China until COVID that hit harder there; and then obviously, very strong number here on the U.S. side, mainly carried by HI, with lots of positives from product to the new private label contract with a product strong rebound on the VA side, but also what we did from a commercial execution side. And then on the AC, a high single-digit; in the year before, we were double. So post restructuring of our network, we're catching more top line per store. This is pretty much same-store basis here. We're not doing significant acquisitions in U.S. at this point of time. From an EBITA perspective, you see the 30 basis points on the first step of the bridge, CHF 61 million in organic lift. This would have been higher, if not for the CHF 20 million in debt. Hence, you get to the 90 basis points if you would correct for this. And then significant restructuring, CI voluntary field corrective action, and then you can see still a quite significant FX effect here for us. The split by half years, the first half year was overall faster from a growth perspective, but has hampered down the second half is those 2 effects: A, the AB coming from strong positive into negative territory; and then the start of the COVID side. From an EBITA margin perspective, I voiced it over the 90 basis points. If you would take the second half, you would be at 120 basis points, if you correct for bad debt. And that's what I meant with an improving leverage because at the 6.5% top line, we've gotten to 120 basis points, if not for the bad debt in the second half. Hearing instruments on Page 16. Most of the things I voiced over. You see a little bit better EBITA margin expansion because it was going backwards on the cochlear side. Ongoing growth investments in R&D and go-to-market, you will see that later in the OpEx bridge. And from a product perspective, really, the expansion to Marvel 2.0 and then pulling all of the Marvel benefits towards the end made for all formats, we still have the unique benefit to the Unitron and Hansaton gave us a broad-based boost to the revenue side. Going only on the hearing instruments, I think you can read how we did organic versus acquisition. The acquisition was in line with what we've done historically from a bolt-on perspective, but obviously, a strong organic growth here. And if you look at the bullet point under the table, you can see the margin expansion without the bad debt quite strong in the HI business in the second half of the year, quite some good performance here. On the Cochlear world, really, a story of 2 worlds. And it's unfortunate that we not just had COVID but also the voluntary field corrective action. But ultimately, it made us to have a limited growth reported and at the same time a significant step backwards on the EBITDA margin perspective. I think we continued to drive our productivity initiatives. I think if you look at the P&L overall, you would say, if you would have known you at 3.4%, you would have probably not done the one other growth investment. And I think, as you can imagine, while you're going through the quality work we had to do, there is specific costs and specific things you do, which we have not put into the onetime. So overall, I think the second half year was low on revenues and higher cost than what you would have liked to have at that kind of a revenue line. And that's the financials of that. And that is obviously a pretty drastic change in the second half versus the first from the top line. Now keep in mind, CHF 11.1 million are credit notes, but it's still a step backwards even if you would add that back and it has pushed us to having a loss in the second half in the CI business, keep in mind the 2 circumstances of field corrective action and the COVID situation. Quick comment here where we stand on the voluntary field corrective action, just a quick recap. We have initiated that field corrective action based on observations we had over a period of time of a low number of, we call, the degradation of performance of implants, meaning some of the recipients couldn't hear better anymore with the implant based on some impedance issues. It was a very small number. We were still below the quality threshold we've given ourselves until which we have to trigger, but we had the concern. We also had worked on an improvement for the device. And so we triggered this middle of February and had to pull the inventory out of the hands of the customers who -- of non-implanted devices and that led to replacements at places where the new product was approved; in other markets, it wasn't approved and we needed to do the credit notes. We are, end of March, at a place where about 80% of the market potential we have approvals. It is improving with every week. These are lagging in countries where regulatory approvals take longer. You can see the onetime costs here spelled out in more detail. I think what's important in such a phase is that you focus your attention on gaining trust back where you may lost trust with the customers, and that is what the team has done over the last couple of months. You can imagine lots of meetings at the beginning in person, now more virtual in the COVID environment, where we guide the surgeons through what we have changed on the product, why it's now better and why the timing was the right timing for when we made the change. And we're now at 93% of the top 100 accounts being green or yellow in our color coding. That was significantly different 8 weeks ago. So relative to our own plan, we're making good progress to reconvince the customers and probably the best metric to measure that is 90% have either reordered the improved device or have signaled this with a clear commitment post their COVID-19 non-implantation. With that, I want to hand over to Hartwig, and then I'll come back on the outlook.

Thank you, Arnd. Good day, everybody. So I'm on Page 23. And you see a number of bullet points that Arnd already voiced over, so I won't repeat them. But let me just elevate 1 or 2 items and then elaborate further in the subsequent pages. So you see on the operating free cash flow, the improvement, it's a 55% increase year-over-year. This year, we had a cash inflow of CHF 112 million from receivable collection; last year, it was an 85% outflow. So it's almost CHF 200 million just from that, and allowing us to show cash conversion over EBIT -- adjusted EBITA of just over 100%. Looking at total shareholder return and balance sheet, you see that we are proposing not a cash dividend but a dividend in kind with company stock, a share per 150 shares owned, which is around CHF 1.35 at the moment. And it's down from prior year, but it is, we believe, the right thing to do to preserve cash, which is a subject that I won't transition to here. We had CHF 450 million gross cash on the balance sheet, and we have collected another CHF 330 million. You have just heard this early on. So we feel in a very comfortable position of actually having access to around -- to more than CHF 1 billion in the -- including the committed lines that we have with certain Swiss banks. Page 24, you have seen that, but let me just identify here the Swiss franc delta versus local currency delta and just point your attention to that. So the Swiss franc has once again strengthened, and so that gives us quite a spread of more than 500 basis points in the adjusted EBITA improvement and around 300 basis points in the -- on the top line. Our return on capital employed, let me just quickly say that this is around 20%, 20.5% in both years, last year and this year, if there was no our IFRS 16 impact. So we have adopted IFRS 16 the first time here. Then moving on to Page 25, talking about the OpEx here. You see that we have pulled through at full speed in R&D, 10.8% in local currencies year-over-year, so slightly ahead of our top line growth; sales and marketing, about in line with our top line growth; and G&A, on the face of it, double digit, but if you take out the extra receivables provision, it's between 5% and 6%. And if you would compare first half and second half, you would see that, in particular, in second half, we have been working pretty well there. And for the year, as you remember from the first half, there were also some long-term contract provisions that we had to accommodate here. So pretty good results from my perspective. Out of the onetime cost or adjusted cost that Arnd elaborated earlier on, there is CHF 43 million landing in OpEx, which is why you see them mentioned here. Page 26 talks you through from adjusted EBITA, all in Swiss francs all the way down to net profit. And so really not big swings between reported EBITA and profit before tax. And you see here that between before and after tax, we have the Swiss tax reform impact, which we have now considered here at CHF 64 million. In the half year, we had identified the number of around CHF 150 million. And so the reason why that has changed relates to that in December the Swiss tax authorities have published -- or have advised on further transitional parameters that we are accommodating here, and let me tell you that we are accommodating it in a very conservative way. Underlying tax rate around 15%, which is in line with which we have guided for the mid-term after the tax reform and accommodates for a bit of a negative from COVID-19, which relates to that in a number of countries we are now loss-making in the distribution organization, and we are reserving a little bit of the tax loss carryforward benefits there. That's why it is a bit over the 15%, else it would have been a little bit -- little lower. Page 27 talks you through the operating free cash flow. As you see, we are normalizing out the repayment of lease liabilities. So it is overall robust against the IFRS 16 change. And I guess we have talked about the 55% increase there. Page 28, balance sheet. Nothing that you would not have already expected from what I voiced over. Net debt-to-EBITDA by now 0.8x. Page 29 talks to you about -- talks you through our liquidity position and debt position. So you see the more than CHF 1 billion accessible to us on the left side and our debt position with the maturities on the right side. And as we have emphasized early on, it has been a priority for us to have deep pockets in the context of COVID, giving us more options to handle risk and opportunities that come out of those conditions. With that, I return to Arnd. Thank you very much.

Thank you, Hartwig. So as already indicated, update and some voice over here on the recent trading. The 2 columns on the left, the share of Sonova and the April Sonova, the right-hand is commentary on what we see in the marketplace. And I think the first kind of significant aha is the pure sales level in April, which was only at 35% of our prior year sales level. You can see that APAC is doing better; EMEA and United States are at 35%; and Americas around 20%. If I start with the better performing one, China, as a geography, largely recovered. A little bit of a question of this pent-up demand. This is already a stable volume. We do not have Audiological Care there. So we're living more of what we hear from the wholesale customers. Australia, New Zealand, improving, although New Zealand was on a very low level given the strength of their lockdown there. And then the, let's say, most dynamic region right now, given that some geographies are starting to come out of lockdown, is Europe. The first ones who are showing more sign of activity, Austria, which came out of lockdown, I think, 2.5 weeks ago, Germany, Nordics was always not in locked down, at least not Sweden. And what we're seeing there is, if we're looking on the appointment level, we're looking at something in the range of 30% to 60% appointments relative to historic. So clearly, not people coming back very quickly, but the first ones are starting to come back. I'll talk in a second on what we do from an AC perspective there. And then the U.S., as you would expect, quite a mixed picture because you can't look at the country as a holistic block, given how many states are moving fast versus slow coming out of the lockdown, but I think pretty much comparable there. The ones who have eased their lockdowns, we're starting to see the first consumers come back. Now if we wrap our head around this, I think, and that makes it -- I think for us, right now, probably quite challenging. There's obviously a question on how many stores are open and when are they going to open, that's the first step. And then the second one is, how fast does the average consumer come back? I think we always need to keep in mind the average age is 71, and we define them as the risk -- "at-risk population," right? And so we do see some coming very early, but it's hard for us to predict right now how long does it take until, let's say, 95% of the people are coming back. So as such, we would look at the curve right now. I know there's always discussions about the curve. It's clearly not a sharp V, given how muted we are still; looks a little bit more like U shape. How fast is it? I think that depends on the 2 things, how fast are the people in a large number willing to come back? And then the second one, how stable are these recoveries by country. We hope that everyone can move to the positive, but I think if you look at different approaches of countries of getting out of the issue they have quite different scenarios people are trying here. I think second comment -- or a comment on the CI side. In the Western World as well as in China at the early stages there, the market went into an almost complete lockdown with regard to no elective procedures to get done. And even the pediatrics, which you would argue people need an implant rather sooner than later, but even those were all in the big challenge, the hospitals had defined as elective. We're now in a world where the first hospitals are starting to do surgery, but not at the level in which we're seeing the recovery happening on the HI, although HI was already not so high. So in that regard, I think depends very much on how really the hospitals are working through all of the different procedures. But right now, they are on a lower level than the HI businesses. So that was what we wanted to share. I'm sure there will be questions around it. From what's our game plan for the COVID period, as I said in March, we wrapped our head around this and said, look, let's define 3 phases: There is the first one, we're highest focus on health and safety; the second one, and we're predominantly in the second right now, which is protecting the core; and then there will be a phase of prepare for market rebound. Now depending on the country, those phases move differently, right? So in reality, it's a mixed picture, but it's still more in the protect the core here. Health and safety is always important. We keep the measures up; went very early to full home office where possible; have taken quite extensive measures in the manufacturing environment, A, to keep our people safe, but secondarily, to not get in a situation where we may be quarantined. One side comment here, we had no issue with regard supply chain or manufacturing. I think most of you know, we have a factory in China, but we were -- as soon as the government allowed any factory to reopen, we were reopened. So I think supply chain quite robust here. From a cash flow and liquidity perspective, we voiced almost all of the points over, but we pulled every lever we had because end of March it was even less clear to us than today how this is going to evolve here. So we really wanted to make sure we take full opportunity on the liquidity side. From a cost containment, we decided to keep R&D as it was planned because we know innovation is important, and we wanted to make sure we're not getting our road map all over the map because we will come out of COVID and we still want to be the leader in audiological performance and consumer interaction. But outside of that, we also, on the sales and market -- on the sales side and on the audiology side, we made sure we kept all the people. And if somebody leaves, we're replacing because we know they are scarce assets and we have stores and we have territories. Some of them may be on kurzarbeit, but in principle, these were the areas where we said that -- not going into, we do not replace. Everything else, we're super careful if somebody leaves to replace. We are using kurzarbeit in all places where it's possible or government subsidies in the different shapes and forms. You've heard, I'm sure, from other companies, and many countries have adopted the model in their own shape and form, and so we leverage this to the full extent. We have also cut noncritical activities and all outbound marketing while consumers don't come to the store. Certainly, something we are considering step-by-step in the markets which are starting to pick up. For maximizing the revenue, and I have a slide on that, obviously, using what we have on the remote side, A, in order to realize some revenue, if possible, getting people back often in a scenario where they come for 1 visit but do 4 visits on a remote site, but also in keeping us active on developing those capabilities. And a big focus with regard to the sales force and the audiologists to constantly reach out to customers and consumers so that the leads are there when the market is starting to come back. One quick side comment on solutions here, and times of crisis sometimes make you little fast on certain things. We always had remote fitting. We had the Marvel, but in order to give an independent or our own store the ability to do the whole journey for consumer, if the consumer chooses to do that in a distant way, we had to complete 1 step, which is what we call AudiogramDirect. So for first-fit and fine-tuning, if we would send you the hearing aid, we could with AudiogramDirect do the fitting. We would expect that eventually, the consumer comes back to the store for other adjustments on the device, but there are some cases where we're selling completely online where this is from a regulatory perspective also appropriate. I must say that the number of consumers who want to go this route is small, not different than what we thought a year ago. There are a few who are willing to do this. We find more consumers who are rather waiting 2 weeks until the store opens to do the diagnostics and the initial fitting in the store. The other comment is to be a good citizen to our customers we're providing in some markets by now the customers, particularly independents, with hygiene equipment and safety equipment because it's easier for us to source it in them. On the Audiological Care stores, we went into leveraging kurzarbeit to a significant extent where it's available. You have to imagine that some of the stores we closed completely. The vast majority we kept open for a few hours a day because we also feel an obligation to help our consumers with repairs and other things they may have. In some markets, we could sell a new hearing aid if somebody was asking, take Germany as an example. In other markets, the regulation, like in the U.K., whilst you're not allowed to send anything, you can just repair. But in principle, our stores could operate because we're accounted into medical devices, which in almost every country got a pass on not having to close. But again, differentiation between repair-only versus sales. The current focus is on, first, getting obviously back to the people who aborted the process because at some point of time people didn't go anywhere anymore, but quite positive on what we're seeing as a momentum there. They want to conclude the process. The next way is about renewals of existing customers and the database. And if we say enough traffic in the market that external or new consumer lead generation through campaigns would make sense, we would move to that, but we're quite careful there because we want to see sufficient pull-through with regard to the sales at the end. And on the in-store side, quite an extensive work even when we connect with the customers via the phone to walk them through what safety we provide, how we make sure people feel welcome and safe. We only allow 1 person on the customer side and our audio in the store. We do not allow walk-ins in most of the countries. So lots of handholding with regard to signaling clearly that it's extra safe the way we operate here. So with that, pulling it back up to the highest level. There's no question in our mind that this is an attractive market with attractive fundamentals. The world still doesn't have a high enough penetration of people with a hearing loss having hearing aids. The elderly population directionally is growing and having more and more money. And so I think the longer-term outlook hasn't changed for us. But the in-between is tricky as we have laid out, and we want and have to navigate that. We feel that with the strategy we have pulled together over the last year with a focus on connectivity and some of the things we're doing on the renew side, our geological care being moving the omnichannel side forward, we're in a strong position as well as on the product side. So sustaining that advantage is critical for us, and that's part of our focus as we go through the phase. But we are quite confident that we can continue to be on the journey of winning market share in this attractive market. With that, I would open it up for questions, and Thomas is going to help us how to do that.

Sure. Operator, we're ready for the questions. If you can go through the queue, please.

[Operator Instructions] The first question comes from the line of Daniel Buchta, Vontobel.

Thank you very much for taking my 2 questions. The first one maybe on your April figures you provided. I'm positively surprised on the number in the U.S., 35% of normal sales is quite positive margin, given how the news were. Can you say a little bit more? Where does this come from? Is it from larger chains like Costco which are probably still open because they are offering much more than just hearing aids? And then the second question, maybe a bit more, is it possible for you to provide a generalized answer on how much capacity in an Audiological Care store might be lost if everything has normalized again, given stricter hygiene rules, distancing and everything? Is it 10%, 15%, 20% less of appointments you can do?

Daniel, thank you. So April, on the U.S., it was clearly not the, A, as you have seen from the A number, that volume was pretty much down. I think Costco was also, I go off memory, but clearly below the average we're showing here. Costco first had moved people to helping to sell the things people were stocking up at home. And they are now having a very, let's say, methodical approach to opening number of stores every week. So it is pretty much more the independent and our own Audiological Care, which has done better here. It's very different by state. Some of the states have seen volumes, which were above 50% even during the challenging times here. On the lost capacity for the higher hygiene, we don't see that as such a big issue. I know it gets discussed a lot in hospitals. But in our place, as long as we get the booking done well, and we do all the appointments before, the procedure, as such, takes 45 minutes, for fitting session will take 45 minutes. I think you're greeting the person at the entrance, they get a mask, they have to clean their hand, but the procedure itself doesn't change for us. So we don't see this as a significant loss. And then the other one, I think as much as we would like to, we're not always at 100% utilization in a store. So we're not as impacted as a hospital. So we don't see that as a major contributor here.

Next question comes from the line of Sebastian Walker, UBS.

I have got 2 as well, please. So the first one was, I was wondering whether you could give any flavor on what you've seen in the first half of May versus April. If not, you made a comment on scheduling. Did I hear correctly that going forward, you've got around 30% to 60% of your normal scheduled -- normal appointment scheduled, how is that going to cost geographies? So that's the first one. And the second one is just on product launches, given we've seen [ UHA ] postpone the conference to Congress into 2021, does that change at all how you're going to be approaching product launches for the remainder of the year?

Sebastian, thank you. So on the scheduling, the 30% to 60% was the range which we've seen between Austria, Germany, Netherlands, which I quoted as the first ones in Europe. I think a slight pickup in April, but not in a drastic form if I look at the global level. I think we're seeing some markets starting to move and there is initial good reaction to that, but as a 30% to 60% would indicate not at the normal level. And from a product launch perspective, I think in general, we're executing our road map. And so we had the discussion internally what would we go do if we're still at the tail end of COVID and what's the percentage of revenue. I would think in the current time, you wouldn't launch in a market in which you are just a 20% to 30%. If you're in the 60% to 70%, probably different discussion because you also need some draw to get people into the store, and you hate to give up your time to market. So I think we're executing the plan. We keep the option open of delaying something. Our slight preference would be to launch if we have something to launch because we know how important time to market advantages in the market is and having it on the shelf for 6 months and losing that 6 months against one of our most loved competitors is probably also bad economical decision.

Got it. That's very helpful. If I could just ask a follow-up then, kind of thinking about the end of the year, is your base case scenario, assuming no second wave? Is your base case scenario that were kind of flattish year-on-year? Do you expect the end of the year in October, November, December down? Or what are your thoughts on the very end of the year in terms of volumes?

I think rather than thinking about a second wave, I think the thing which keeps us busy from a thinking perspective is, yes, we will see movement coming back. But what's the balance between pent-up demand versus economical pressure and compression? So flattish would be good scenario in my eyes. Feeling a little bit more cautious.

Next question comes from the line of Maja Pataki from Kepler.

Arnd, I would like to kind of go back to the last question and the outcome for the year. And overall, when your statements are not as negative as some of your peers are sounding. You're also indicating that there is 35% activity from last year. Your peers are talking more about 20%. And you're giving the economy as an argument for not seeing really a recovery, although, given the 8% range, the economy shouldn't really play so much into it. So what is your biggest fear? Is it that audiologists are actually -- some of the audiologists will go because they will have to face a prolonged period where there are no customers or that the fear factor is keeping people out? Or -- just to understand what it really is -- what could be slowing the market? And maybe also Arnd to why you are seeing better numbers in April compared to your competitors? And then on your online offering, which is obviously very, very attractive in such times, how aggressively are you pushing it in your own stores? And is that really something that you believe in -- you believe will stay or do you think this is just a temporary tool for the market?

Maja, thank you for the questions. So on the better numbers, I don't have a good explanation. I think we did had a good momentum and that build over the last year. So that maybe one. I think the other one, I think you really need to look where people have significant market shares and positions relative to how are the markets doing. And our AC network is pretty much main Europe, but with a little bit more focus on the markets, we are picking up earlier here, weren't that low. I think on wholesale, we also have a stronghold in [indiscernible] in certain parts of Europe than the U.S. So this may be one explanation. I have not run the numbers. From an outlook perspective, no, it is actually -- what I said, I think this is why there's substantial economical crisis, and we're discussing COVID, and that's the first step of the equation. But then it is quite some burden on health care -- on governments. It is also an impact to people in how they perceive their willingness to spend significant amounts, and we just don't have the answer. But there tends to be some compression in our industry, if you go back to 2008, 2009, where you can say, look, over the years after, it was muted, we were not in the 6% to 7% growth rate at that point of time. So I think it's just -- I think it's something to keep in mind. We still have 75% to 80% is out-of-pocket pay, right. The last one was on the...

Online.

Audiology side. Look, I think we're true to what we said over the last years, which is we do want to provide an omnichannel, and we do want to provide an omnichannel of a high quality with the hearing care professional involved. But if somebody would choose to take the whole journey where it's possible remote, that's okay with us. I think the 2 factors are: we want to have the hearing care professional involved to do it well. And the second one is, we'd like to get good prices for good product and service, right? And so in that frame, I think it's logical that our Audiological Care stores, as some independents, are trying everything at this point of time to see if they can catch some revenue. So in that regard, we're pretty active with it in certain markets where it's possible and where we have the right infrastructure. But in that frame, I think it's a hearing care professional, and we want to have a good price.

The next question comes from the line of Michael Jungling, Morgan Stanley.

I have 3 questions. Firstly, on new product launches, how do you view 2020 as a year for launching new products? Does it make sense? And if so, under what conditions would that be? Secondly, on audiologists, can you comment on what the legal requirements are for audiologists to return to your stores if they feel it's unsafe? And what is the return rate of audiologists in your stores? And then finally, on the online hearing aid test, do you have data comparing how good the results are of the online test versus a test in a store?

Michael, thanks for the questions. So on the product side, I think it's -- we would be a player who has a product up their sleeve for the fall season and if you would like to hit the VA window with it. I think if you're in the range where you see a momentum in the 60%, 70%, I would go do this. Now, I think the VA window is a mechanistic -- mechanics in our world. If you have 60% to 70% at that point of time, you assume you get to 80%, 90%. And again, I think you need to create excitement to getting people in the store. So I would go do this in this frame. From a legal requirement with regard to the audiologists, it depends on the country. Interestingly, we do not have that issue. I think we've laid out the safety concept in store, which our audiologists buy into. We had some -- quite some work early on to get all of the safety and protective equipment in place. As I said, we went very quickly to -- it's only 2 people in the store. And keep in mind, they are caretakers. They want to take care about the consumer, that's why they chose the profession. So in many cases, we have people who say, I need to make sure I come enough hours so that the people need to repair or need some help are getting help. So we really -- I haven't heard any case there may be the few, but we don't have that issue on a broader scale. From an online test perspective, I think the diagnostics you do where the patient has some physical elements with otoscopy where you're checking out the ear, they have certain elements where it's more of a verbal checkup, where you go through certain tests and see the reaction and you get a lot of input from the person and then there is some more, let's say, electronic testing in some shape or form. I think you're not at a point right now where you get the full quality and the full benefit. I think you can do an initial fitting. But we believe right now that if somebody wants a hearing aid right now, that's good enough to get started, but we would advise them to come back at some point of time into the store to do the missing pieces. So I think I don't know how to put a number around it, but you probably get 70%, 80% of the benefit, but there is a couple of steps you have to do. Keep in mind, for the severe to profound, you normally also need to -- that's where the whole chain doesn't work. You need to have an earpiece, which is made specifically for the individual.

Okay. So if I look at Slide 33, and you highlight the sort of new launch for an online hearing aid test. Does this mean that the patient is only going to be maybe 60% or 70% as satisfied as they would have been if they go into a store?

No, I wasn't saying the satisfaction level. I think if you give that patient and now comes a question, did they have a hearing aid, did they not. If this would be a new patient, they didn't have a hearing aid, and I give them a Phonak Marvel with all the things I can do here, they would probably say, wow, this is really good, and I would think I can even make it better. So look at it more as my quality standard, I would put on my audio on how much they can fine-tune it. But I would not worry that you're ending up at a place where they say this is really not worth me doing it.

Okay. I'm just sort of curious about the return rate. If it's only 60%, 70%, then maybe the return rate ends up being quite high in 2 or 3 months' time.

Yes, I understand, Michael. And it's certainly something we keep a close eye. Keep in mind, we now closed this loop. As I said, it's from the initial here, this is not like a firestorm. There are certain consumers open for them. But clearly, it will educate us on how happy are they measured in satisfaction and later return rates. So we watch it carefully. We have not done that in all countries, so not a big risk here right now. But I think in the places where you can do it, you can't do the full process in some of the countries.

Your next question comes from the line of Kit Lee, Jefferies.

I have 2, please. The first question is just around some of the cost containment measures that you've laid out. Can you just quantify how much savings that's going to be either for the month of April or May, also for maybe for the rest of the year as well? And then my second question is coming back on the remote fitting or the remote solutions. I guess of the sales that you've done in April, how much of that was done through remote solutions and how do you think the adoption will grow in the current situation for the rest of the year?

Thank you for the question. So on the cost side, looking on April, and keep in mind we were, I would say, pretty draconian except for the R&D and the backfilling on sales and audio positions, order of magnitude, we were able to compress our OpEx by about 35%. About 20% of that is out of government subsidies. So you can see we're pushing very hard because most of it didn't come from the government subsidies. Is this longer term sustainable? I think at such a low business volume where you don't need to do lead generation, it would be. I think you need to be careful that while some markets are opening up because we didn't allow any lead fleet generation, you would start to get your feet wet in that. But that was kind of the order of magnitude. On the COGS side, we were able to get out about 45%. So you can see there's still quite some fixed elements in our cost of goods sold. I think that would probably improve because we put measures in play at the end of March. So for that, it's, I think, quite a good read-through of the cost side. But again, I wouldn't plan with this off the bet when I want to drive some recovery. Now on the remote side, small numbers, relatively speaking. I think we are excited for trying. I think we are excited to offer the consumer, you have 2 choices. You can go all remote or we can get you a process in which you come to the store and we handle you safely. I think the majority picks this I come safely to the store side, as I said. So I think not a significant number. I think we will learn over the next couple of months. But again, I think the vast majority of consumers rather wait until you can open the door which in more markets we're able to do.

Next question comes from the line of Veronika Dubajova, Goldman Sachs.

I have 3, please. I actually want to start first asking about the cochlear implant business and I don't know aren't how you are thinking about this. But looking at the impact of the voluntary recall, it seems to have been a bit more severe than you anticipated. So I guess just your thoughts on the achievability of some of the medium-term targets that you've laid out for this business, including getting to a double-digit profitability. Do you think either COVID or this is going to have an impact on how you're thinking about that business on a 2- to 5-year outlook, that would be helpful. So that's my first question. My second question is just a follow-up on the return of traffic that you have seen in the market where you've seen that. If you can characterize kind of the mix between new customers and returning customers who're coming in for fine-tuning or an upgrade, it would help us understand kind of what you're seeing on the ground. So anything you can share on that would be helpful. And then I'll have 1 follow-up after that, if that's okay.

Thanks, Veronica. On the CI side, you catch me on an uncomfortable foot because I was the one who said, well, we can run this business around. So for the 2 to 5, there is no reason why we cannot get this business to 15% and afterwards to meaningful numbers with the 2 in front, right? There's none. It's a high-margin business. We've done good progress. You may remember, we had 400 basis points year-over-year for 2 years for every half year. Now from the voluntary field corrective action, it is very hard for us to depict what is now the voluntary field corrective action versus what's the COVID side. I think in the recovery of customers who were willing to while they were not in COVID, reorder or now are clearly on the path of planning with us and we can see that when they talk with people who are waiting for surgery, we feel good about that. It was not expected that you had 100% at this point of time. I think, if any, our team would say, well, COVID puts it in perspective, and the surgeons may forget a little faster that they were frustrated with us. But it's the sum of the 2. And I think we need to get through the back to all buying from us. We also need to see how the COVID evolves. So I don't think you're going to see us this year at the 15%. I think that's already the start wasn't good enough. But I think in the 1 to 2 years' time frame, which I need to add to my timeline, which was this year, I think, is what the game plan is. From the traffic perspective, it is predominantly consumers whom we have in the database, meaning people who are at the 4 to 6 years. So the first one is, we're going after the people who -- what I call aborted the sales process because they were early. So those are the normal mix because these are leads which we are convinced that it just stopped the process. I think the second one we go after is the consumers who are renewing because we can size them more from an analytics perspective, we can call out, we can use our audios. So it's cost-effective. We have not driven significant volumes of new consumers. I think we're starting to think about in the markets where we see more traffic. But right now, it's pretty much existing. And I would venture to guess that's true for everyone who's not out with big campaigns at this point of time. Now, your last question?

Yes. My last question was sort of a clarification around some of the comments you've made on the cost reduction. And in particular, I'm struck by your COGS reduction of 45% or so. My understanding of the hearing aid businesses was that they had a fairly small variable at a high fixed component when it comes to manufacturing. So maybe can you give us a little bit of insight of how you've gotten to this 45% plus reduction? Is it that you've reduced your manufacturing capacity and furloughed some folks? And just how we should be thinking about that cost line coming back as you move through the next couple of months?

Yes. I think you're pointing to the right places. You have the materials side, which is a smaller percentage. But labor is still quite a number in our world because all of the hearing aids get hand assembled. That's why we have Vietnam and China, right? And so there are significant opportunities here in Vietnam and China, also, by the way, here in Stäfa as well as in our American center. And so we went very aggressively after reducing the hours. In the country available model in Switzerland, there will be [indiscernible] in AODC that would be furlough. Yes. But we have very significantly reduced the hours in the factory. And that together gave us this 45%.

Understood. And how quickly do you think you'll need to ramp that up?

I think we're seeing on the repair side more units coming in than in the first. So we're starting to ramp up more on the repair side. And I think we will see a pickup over the next 2 to 3 months in resi as well as some new product. So I think the 45% is the low point, what we can do from the hours.

The next question comes from the line of Chris Gretler, Crédit Suisse.

I actually still have 3 questions to ask. One is on supply chain since you touched it. Actually, how comfortable do you feel that still a substantial part of your supply chain concentrated in Asia these days, will all that's been going on? We have tariffs now and a year before, I think, already kind of and now basically it all in a kind of these health issues, et cetera. Is there a company considering any potential changes going forward? That will be the first question. I'd probably take it one after the other.

Yes. So from a tariff perspective, because that discussion was with us a year ago, we're pretty comfortable because we have the ability to shift volumes depending on the deal we deliver to between the different sites. And in that regard, having 3 main mass manufacturing plus the U.S. makes us safe relative to anything which may come out of the U.S., right? And Europe is not as aggressive. I think from a potential future pandemic perspective, I think our initial reaction would be we're not that worried because at least in this one, we could see that from a product perspective and manufacturing -- from a product movement perspective, there was no limitations, and I wouldn't expect this with an infection. And from a manufacturing perspective, having 4 is safer than having 2, even if 2 are in Asia. So I would feel better about that. It was interesting. We had in the whole China factory until 2 weeks ago, I haven't checked in the last 2 weeks, no COVID case amongst 1,000 people nor did we had a reported one in the families. And they have to report this every day and they get measured every day. So I'm not so sure where you're safer given the different lockdown scenarios people are able to implement and we can like or dislike certain countries, but the lockdown scenarios in China are pretty effective. So I feel good about having 4 rather than having 2 just in the western world.

And then the second question relates to kind of structural cost adjustment. I mean, I noticed now, basically, we are kind of running kind of low on cost because now we kind of now using government monies, et cetera, and kind of doing some kind of near-term cost savings. But Arnd, what would be the trigger points that you would look at when you would decide on actually adjusting cost structurally. So I mean, we have already seen some -- this company, for example, doing kind of have no headcount reductions, et cetera. Then just interested in your thought process, kind of what would be kind of the key indicators, kind of that you would monitor?

I think we're in a different position than the Swiss company you're naming there was Straumann. I think you remember we're discussing structural optimizations and have 2 steps which we've done already as part of our strategy. And I think there's still opportunity in Sonova. And I think you have to pick the ones at the right point of time. It's not a knee-jerk reaction on some compression at some point of time. There's different ways on how you can manage your P&L. But in principle, we still have things in mind which we want to go do over the next 2 years. Now in the current time, you may feel invited to do a little faster, a little more. But in principle, I think less of a COVID reaction but more of when is the right time for us to pick the next ones which we have in mind and what does it take to implement them without breaking the stability of your business. We don't have one which would be so big that 1 project alone could do it. That's why we also did already 2 steps because, I think, an organization can't do too many at the same time. So expect us more to be on the same plan we were before. We have a couple of things we want to go do and we will do them over the next couple of half years.

Okay. And maybe the last question is just on the rechargeable ratio. Could you maybe elaborate on that, in particular, also what you had in terms of negative effect on gross margin in the full year or in the second half just basically to see where we stand there? And kind of maybe also comment about using recharge was more towards the lower end of your product range. That would be great.

Yes. So we always made the rechargeable available to all of the different performance levels in the brand. So at this point of time, everybody has a rechargeable option. We're clearly above the 70%, and we expect this to move gradually to the 90%. Is that in 6 months or is that in 12, I don't know. But in principle, I think rechargeable is -- it will be the dominant mode. I think from the gross margin, it's a little hard to pick it out in detail. I think we had a significant step-up in rechargeable ratio in the first half last year because on Marvel we were -- on pre-Marvel we were in the range of, I go off memory, 40% or so and we stepped up to 70%. So I think the headwind wasn't as big in the second half as it was in the first half, and that's what we shared also why we expected a better fall through, not just because of it, but that was one of the reasons. So I think more steady changes which we're countering through productivity.

Next question comes from the line of Markus Gola, MainFirst.

So my first one is on your guidance, and I understand that you currently can only provide qualitative statements. However, at what point in time can we expect you to quantify your guidance? Will this just happen with the next half year results or can we expect a tock update once your visibility improves? And my second question is on Costco. I wonder whether you could provide us with some ballpark figures or visibility about your unit market share there and maybe how that has evolved in your view since you have been awarded with the KS9 contract?

Markus, thanks for the questions. So on the guidance perspective, I think it would be logical to have far more clarity when we come with the next half year results. If we feel in a far more stable situation or something has significantly changed relative to what we're flagging here, we would do the extraordinary step which we normally don't do to inform in between. On the Costco side, I think it's pretty stable in the share of wallet within Costco since we launched our product there. And in Costco, you tend to be -- 50% tends to be on the care side and 50% on the branded side. Our product fits so well in the channel that we're doing somewhat better than that normal 50%, but it's pretty stable from all we can tell.

Next question comes from the line of Daniel Jelovcan, Mirabaud.

I have also 3. The first one, the VA market share just significantly declined in April, but also the volume was very low, actually at 10% or 15% of the normal level. Can you clarify a bit why this was the case? And also when do you expect more VA activity in general? And the second one, can you also give some indications on how your wireless business developed? I guess, it was quite good as well. And the third question is on the waiting list. I mean, with your insight in your own retail, is there a waiting list. So for instance, in dentistry, some dentists are occupied for the next 2 months already booked out. Do you see some similar things in your own audiologist channels? That are the 3 questions.

Daniel, thanks for the questions. On the VA side, the VA overall has closed the fitting in almost all of the centers the VA operates by themselves. Now there's a small portion normally at high volumes of the VA where the work is contracted out to normal independents. Now I experience in a world of normal independents, independents tend to have a preference for a certain manufacturer. So we believe what we're seeing with the market share drop at such a low volume is a far higher share of this independent fitting going on where ultimately it's the audiologist who kind of chooses what they do, and we do not have 50% plus market share in the U.S. on the independent market. So that's how we were wrapping our head around it. Obviously, important to see what's going to happen if the volumes go up. I think it's unclear to us at this point of time when the VA goes back in normal operation mode. We see the independents being more eager or the commercial channels more eager than the VA people to reopen stores. On the waiting list side, overall, we do not have long waiting lists. If not, we would have less Kurzarbeit and we would have more revenue. It could well be that in a particular store, it just has a larger number of people who want to come. But we're quite sensitive in almost all countries where we use Kurzarbeit we can on a daily or weekly basis flex up the hours, but we're clearly not in a waiting list environment yet. Hartwig, on the wireless, do you have a read on the...

Well, wireless is a little bit more, let's say, within the year cyclical because there is quite a share of school business that is very low in summer and is higher towards the end of the year. We launched a new version of our Roger business -- Roger product last year that is running very well, accelerated our growth in fall last year. And within the COVID movement also new contracts were hampered quite a bit because customers, be it different schools, et cetera, were not available, but our existing contracts continued. So I would say a little bit their own dynamics, but good product level momentum there, Daniel.

Okay. And just on the VA, again, you have no indication when they will start or reopen for normal fitting given by the VA?

To the best of my knowledge, and I may be short of an update. I was not aware. Thomas is raising his hand.

No, I'm talking to our U.S. colleagues, it seems like at the earliest it would be in June.

The next question comes from the line of David Adlington, JPMorgan.

I have 2 questions. First one, just on the authorization for additional capital, I think, 10%. Just wondered if that additional capital we should be thinking about that as being a raising money for either opportunity or potential on risk side? And then secondly, just on OTC in the U.S., just wondered if you had any updates for us in terms of what's happening with the legislation now.

David, thanks for the question. On the additional capital, I think from the purposing, we keep it relatively broad. If we get the approval from the shareholder base for that, I think our initial -- when we came up with this idea, and as you can tell also from our liquidity side, not all of the things we've done over the last couple of weeks were in the bank a couple of weeks ago. Our initial cost came more from the defensive side and saying, look, we just want to make sure that things are at our approval so if we need them. I think if -- very attractive things would emerge, we would obviously think about it, but the initial came out of the defensive side. From an OTC perspective, no updates. We have not seen any document yet as a guidance document. There was no significant signs on progress and it's making it to the next level at Congress or at the White House. So I think we're sitting here and right now, it's a day for a day. I think our assumption is that you're talking earliest end of the year until early next year because we know the timelines for getting input and finalizing. But that would require them to come out rather sooner than later.

Next question comes from the line of Oliver Metzger, Commerzbank.

I have 3. The first one is on retail. So over years, you've executed a pretty straightforward strategy to strengthen your retail network. So first, are there on the back of a current crisis, any thoughts to revise this strategy? And second, do you see more -- in concise even more opportunities to grow externally now on the back of a challenging environment which might lead to some distressed situations for smaller players. My second question is on the shape of the recovery. So in China, there's some recovery already visible. Do you see some strict structural differences between the reshape of a recovery in China compared to other markets? And my last question is also about the recovery in VA. So you just said that the stores are most likely open up from June or not earlier than June. So VA, with the whole fitting process, their point process quite structured, do you think that this structured process will help that the VA market might recover much faster than the private markets?

Oliver, thank you for the questions. On the retail side, no, we have not seen a reason to revise our general retail strategy. I think it's in line with what we said last year. Stores play a role obviously, more moves, particularly on the lead gen side into the digital world, and you need to build the capability. And then as people want to have some touchpoints remote, you need to put omnichannel in place. But no change to that. I don't see it from COVID. And as I said earlier, we haven't seen many people picking up a pure remote fitting as much as we're offering it, but many are waiting to get to the store. The -- from an opportunity perspective, we keep our eyes and ears open, but it's probably still a little early, particularly, if you would think about larger assets, I think on the 1 to 5 stores probably. But we need to get the balance right here between being selective while we want to make sure we're safe on the cash side. But I think there will be a phase in which probably more opportunities come along could be also outside of retail. From a structural change of recovery, China versus the western world, allow me to put this in a broad basket as much as I said, every country is different, I think from the outside clearly, China was very draconian on the lockdown. I think China has the ability to mobilize the population more centrally than the average western country. I hope that's fair to say. I don't want to step too much into a political debate. So in that regard, I -- as much as I like, what looks like a fast recovery in China, I'm not so sure you will see exactly the same curve in other countries. So I'd rather be a little bit more careful in my thinking. We clearly look at China to see what we can learn. But for us, the Austria's, the Germany's, the Netherlands' are probably better proxies than what you've seen in China. So in general, probably a little bit more muted from the curve. On the VA recovery perspective, I'm just guessing, we're assuming, but because they're holding longer tight apparently, I would expect they have more people who are waiting until they open, right? And so they have quite a number of people who know they are up for renewal of a hearing aids and that's a big part of their job. And so I would think the longer they wait, the more the people build the waiting line.

Next question comes from the line of Falko Friedrichs, Deutsche Bank.

I would have 2 questions, please. Firstly, also on OTC, do you think the current environment will increase the asset side for OTC hearing aid solutions, or do you think it rather pushes it further away? And then secondly, regarding your allowance for bad debt, have you already noticed customers not being able to pay, or is that something you rather anticipate over the next few months?

Falko, thanks for the questions here. On the OTC, not on the basis of a good, we should see analysis, but from the conversations we have in the markets where we see people coming back and from the conversations of people saying, hey, hearing loss, particularly in times of physical distancing is actually more important than they feel more separated. I think we rather see people putting more value about a good service than a good solution. Again, this is not based on VOC, but I will have no indication why I would assume that because of COVID, OTC will have a higher penetration than without COVID. And again, I think you can, as we have laid out with the new solution of an AudiogramDirect and the better re-mode and all that, we can offer people if it comes to convenience from for high-end system, we can over more as we go. I think from a bad debt perspective, I'd probably leave it to Hartwig, he's doing closer to managing that side of the house.

Yes, Falko, no, it's more of a precautionary measure. It reflects a reasonably detailed analysis of our mostly independents and buying group accounts. That's where this is concentrated on. So we are -- just want to be on the cautious side here, but it's not that we have write-offs at this point.

Next question comes from the line of [ Charles Benoit ], Lake Street Advisors.

Two quick questions from me. Can you please remind us what is the replacement share in terms of volumes for hearing aids? And I think you mentioned that out-of-pocket accounted for roughly 70% of the price of devices, is that correct?

So replacement share, you mean from everyone we sell, how much is a replacement versus a new consumer?

Correct.

Yes. I think you're in the range of probably a little bit above 50% being replacements. I'm just going off average age of people when they get the first hearing aid. So I'd say probably around 60% is replacement, 40% is new consumer. Out-of-pocket, I said 75% to 80%, it's actually higher than 70%, particularly because many people get a reimbursement, but they tend to buy the higher performance levels. So in most markets, you get the reimbursement granted and then you pay up.

Got it. So in practice, it's 70% to 80%?

Yes.

We have a follow-up question from Maja Pataki from Kepler.

Just out of interest on you and your management, do you anticipate to see a difference in consumer behavior in those markets where you've seen the environment being hit hard? So basically, the countries that you've now mentioned have been seen a fairly okay situation rather than if we look at U.K., France, Italy, and some areas in Spain -- some areas in the U.S. Do you think there will be a significant difference in how consumers behave?

I think relative to hard hit from a, let's say, infection and mortality rate, I would not. I think it's relevant to see how much fear was created and the way people have communicated and have guided through. I would venture to guess if you have a double -- if you have a redip, then you're probably longer out until they come back. But so far, we haven't seen that. So for me, it comes more down to what are the economics and where people get the money.

There are no more questions.

Okay. So then we conclude this call. Thanks for the engagement, the questions, the interaction here, and we wish everybody a good rest of the day and stay healthy and safe.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.