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Edited Transcript of GN.CO earnings conference call or presentation 5-Feb-20 10:00am GMT

Q4 2019 GN Store Nord A/S Earnings Call

Copenhagen Feb 10, 2020 (Thomson StreetEvents) -- Edited Transcript of GN Store Nord A/S earnings conference call or presentation Wednesday, February 5, 2020 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Gitte Pugholm Aabo

GN Store Nord A/S - CEO of GN Hearing

* Marcus Desimoni

GN Store Nord A/S - CFO

* Morten P. Toft

GN Store Nord A/S - VP of IR & Treasury

* René Svendsen-Tune

GN Store Nord A/S - CEO, and President & CEO of GN Audio

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Conference Call Participants

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* Annette Lykke

Handelsbanken Capital Markets AB, Research Division - Medtech Analyst

* Carsten Lønborg Madsen

SEB, Research Division - Research Analyst

* Maja Pataki

Kepler Cheuvreux, Research Division - Head of Med Tech Devices Sector

* Martin Parkhøi

Danske Bank Markets Equity Research - Senior Equity Analyst

* Michael Klaus Jungling

Morgan Stanley, Research Division - MD, Head of MedTech & Services and Analyst

* Kit Lee

Jefferies LLC, Research Division - Equity Analyst

* Oliver Metzger

Commerzbank AG, Research Division - Equity Analyst of Life Sciences

* Patrick Andrew Robert Wood

BofA Merrill Lynch, Research Division - Director in Equity Research and Head of the EMEA MedTech & Services Team

* Sebastian Walker

UBS Investment Bank, Research Division - Associate Analyst

* Veronika Dubajova

Goldman Sachs Group Inc., Research Division - Equity Analyst

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Presentation

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Morten P. Toft, GN Store Nord A/S - VP of IR & Treasury [1]

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Hello. Welcome all to GN's Full Year 2019 Conference Call, following our release this morning, Danish time of GN's annual report. Thank you all for dialing in. It's great to have you on the call. Please stay on the line, in case your line turns quiet all of a sudden. We are relying on mobile networks for this call.

Participating on the call today is Gitte Aabo, CEO of GN Hearing; René Svendsen-Tune, CEO of GN Audio; Marcus Desimoni, CFO of GN Store Nord; and myself, Morten Toft, Head of IR and Treasury.

Today's conference call is expected to last about 1.5 hours, where we'll go through the presentation we have uploaded on our website, gn.com. The conference call is divided into 3 parts. In part 1, we will give a historical view of the performance and achievements of the business by the 2017 to '19 strategy with a focus on 2019. In part 2, we will present our strategy for 2020 and beyond, leading into our midterm financial targets and specific financial guidance for 2020. In part 3, we have the Q&A session.

And with that very brief introduction, I'm very happy to hand over to Marcus.

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Marcus Desimoni, GN Store Nord A/S - CFO [2]

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Thanks, Morten, and good day, everyone, on the phone, and thanks for taking the time and being with us on the call. Today, we have published a remarkable set of numbers. We have been delivering a stellar set of results for 2019 as well as overall strategic period for '17 to '19. We have been delivering on our annual guidance for 2019 as we have done in the previous years. We have been delivering on our promises and targets set by our strategy for '17 to '19 in full.

In both businesses, we have delivered successful product innovation and introduction into the market. And with this, we have been able to take market share. Our business remains asset-light and highly cash-generating. And with this, all together, we have been able to create significant shareholder value again in the share price development that you can see, but also giving back the shareholders the rights they have via dividends and share buybacks.

If you look on the next slide, you basically put the words I've just said into numbers. The revenue growth in the period from '17 to '19 have been 45%; the EBITA growth, 47%; and the EPS growth, 51%. For me, 3 numbers are very simple and stellar, 13, 14, 15. 13% CAGR of revenue growth in the period, 14% CAGR of EBITA growth in the period; and 15% EPS growth in the period. As we promised you, we run, we win and we deliver.

Cash generation, of course, is number one priority for the CFO besides the cost. And all this was coming together in the share price increase that you have seen. And of course, we never forget our owners, our shareholders, and therefore, we have returned roughly DKK 4 billion via share buybacks and dividends back to the owners.

On Page 6, you see our 2019 performance. We have delivered, as mentioned before, on Hearing, 7% organic growth rate in revenues and 20.2% EBITA margins. We have delivered an outstanding result in Audio once again, 26% organic growth rate and 20% EBITA margin, excluding the Altia acquisition. And on Store Nord level altogether, we have been delivering with a 23% effective tax rate, a 20% EPS growth.

If you go on the next slide and take a look into the group financial highlights, yes, the top 3 numbers for me again, double digit organic growth, strong EBITA growth, and that all leads to the 20% EPS growth. I don't want to bore you with all, reading all the different line items over here. I just want to highlight 3 things on that slide, and then we go with the rest into the Q&A.

The first thing is we have had a relatively stable gross margin. On both businesses, of course, we see the mix effect from the mixture of the business and the regional impact. But also if you see the exclusion of Beltone retail, because we handed over in the last year, as I mentioned, 1/3 of our point of sales back to the network, that also have an impact. Excluding this, we have a very strong gross margin.

Second, net profit. As we mentioned, we have our belt tight and we only spend where we see a return. This is why there's a top line and the gross margin impact that we have described. We also see a very strong net profit increase of 18%. And that, of course, is leading down to the EPS to the nice increase of return of invested capital, and of course, into the free cash flow generation that we've had. With this, we've had the funds available to invest into the growth, return money back to the shareholders, and as our priorities have shown out, also invest into M&A: a, via technology; or b, via market access.

With this, we ended the year with a net debt-to-EBITDA ratio of 1.96, so slightly below the 2x leverage target that we set. And with the cash generation profile that we have, I'm very optimistic also into next year that we not only breaking out of our target range -- no, we're going to stay in there. But of course, also have enough funds available to continue our growth path.

Cash flow. We have had a very strong cash generation again. I know it's somehow boring if I say always again and again but it is. Yes, the fourth year in a row that we delivered again and again and again on all the promises, strong cash flow, and we still fuel the business to grow.

On the cash flow, just let me highlight also one thing: a, we have been able to invest, in particular, in Audio, into supported and tuck-on acquisitions, the PanaCast acquisition that René is going to talk a little bit in a while. And we have been able to increase our inventories in Audio and in Hearing, in particular, in December. Chinese New Year was this year a little bit earlier, was end of January. Therefore, you've seen the increase in inventories, and now it pays off that we have done so because that's in the channels for us.

If I take a look on creating shareholder value on Page 9, then you see the nice track in terms of the increase in earnings per share. And it's actually a nice number. I don't want to repeat the numbers, just looking on the graphs. And these are the pictures that I really like. Others like us, this is odd for me. If you take a look on the shareholder distribution, we're thinking about our owners always first. Dividends and share buybacks is absolutely a must for us. Excess cash, we don't want to sit it in our pockets. We want to give it to the ones who own it.

And number three, we stay within our guided range of net debt-to-EBITDA in the range of 1.5 to 2x in the short term, whereas the longer range is 1 to 2. And noted over here on the left-hand side on the bottom, we're going to go to the AGM in March and ask again for an increase in the dividend from DKK 1.35 to DKK 1.45. And again, we're going to ask for another share buyback in the magnitude of roughly DKK 1 billion.

Page 10 is showing you the funding profile. [And I thought] it's a little bit meaningful to have a second spend on that during our call because we have been really, really busy in 2019 on that. First of all, we initiated the European Commercial Paper program under Finnish Law in the first quarter in order to issue a short-term note, between 30 days to 360 days. Therefore, we didn't need it to tap into the RCF. Secondly, we have bought back the convertible bond and issued a new convertible bond, basically rolled it over to get cash for us to operate the business, and at the same time, limiting and eliminating partly the dilution of the equity holders. Then we have established an EMTN program in Q4. And then we have issued the first eurobond, also in Q4. With this, we have flattened out our maturity profile, and I think that the financing is extremely prudent and gives us a longer-term horizon, as you can see, between the years 2020 and '22 -- 2024.

And with this, I'm happy to hand over now to the -- looks into the business with our CEO, Gitte, of GN Hearing.

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Gitte Pugholm Aabo, GN Store Nord A/S - CEO of GN Hearing [3]

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Thank you, Marcus, and thanks, everybody, for attending our conference call today. Before talking you through the presentation, I would also like to take the opportunity to thank all our colleagues around the world. They are doing a stellar job each and every day.

With that, let us turn to Slide 12. And we see strong financial performance by GN Hearing in 2019. Again, to repeat what Marcus just said, which was driven by a strong performance by ReSound LiNX Quattro across regions. And I actually think given the strength of results, it is worthwhile going through them line-by-line because I think they are really outstanding.

Revenue growth was 9%, with around 2% impact from FX and an insignificant impact from M&A for the year.

Gross margin in 2019 was slightly lower than in 2018 due to mix effects. The EBITA margin reached 20.2%, which is in line with the financial guidance for the year. And free cash flow, excluding M&A, increased 17% for the year, leading to a cash conversion of 52%, which is slightly higher than in 2018, on top of the negative impact from the timing of corporate tax payments. All in all, we are very pleased by the results we've delivered for the year, and it gives us great comfort and a great starting point for the years to come.

Now turning to Slide 13. I would like to give you some additional color on the strong organic growth development. Overall, 2019 was indeed a strong year for GN Hearing across our 3 sales regions.

In North America, growth in 2019 was driven by strong performance across channels, partly offset by the loss of a large customer which, as we previously said, was a headwind on growth around 150 bps for the full year. In North America, we continued to see strong sales in the VA. In Europe, we continued to see strong growth across the region, with particular strong performance in Italy, Spain and the U.K. In Rest of World sales region, we delivered solid growth during the year with particular strong performance in China, India and Japan.

Now let's turn to Slide 14. I would like to give a brief update on the development of bringing our Android streaming solution in the market to deliver real customer benefits. As you might recall, Google released the Android 10 protocol during Q3, which, with implementation starting in selected Google phones. By the end of '19, Samsung started to roll out Android 10 in newer phones, and we continue to see telephone manufacturers eagerly testing the new Android platform with implementation across phones taking place as we speak. This means that our complete family of ReSound LiNX Quattro hearing aids can utilize the full functionality of streaming without compromising the battery. And that is obviously really important because, again, the reason you buy a hearing aid is because you want to be able to hear the people around you.

Let's turn to Slide 15. I would like to give a short recap of GN Hearing's achievements during the latest strategy period. As you know, we've been executing on the 3 specific strategic pillars for our 2017 to '19 strategy, and that is the innovation excellence, commercial excellence and people excellence. For '17 to '19, we've developed and commercialized 2 new groundbreaking products, ReSound LiNX 3D and ReSound LiNX Quattro. Both products have set new industry standards, whether it is for sound quality, rechargeability, streaming or remote fine-tuning, and we've generated strong user benefits. And I think this is also why we continue to see GN Hearing outgrowing the market.

We have been able to transform and build an even stronger commercial execution machine, which has been a key reason for our strong growth during the last couple of years, and which will be key to drive growth for us going forward.

And with that, I would like to hand over to René.

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René Svendsen-Tune, GN Store Nord A/S - CEO, and President & CEO of GN Audio [4]

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Thank you, Gitte, and thank you all for attending our call today also from my side. So now it's my pleasure to take you through the GN Audio results for 2019.

So let's move to Slide 17. So overall, 2019 was yet again a very strong year for GN Audio, and we achieved 26% organic growth on top of the 21% organic growth we achieved the year before. The growth continues to be good across our enterprise and consumer businesses and across regions. It reflects the strength of GN Audio's industry-, world-leading product portfolio as well as it reflects strong execution, delivered by our teams and partners around the world. They continue to do a truly excellent job.

Revenue growth was 30%, including a 3% impact from foreign exchange and around 1% impact from M&A. And this is mostly related to the acquisition of Altia Systems. Gross margin was down compared to 2018. This was due to product mix, adverse impact from foreign exchange and the impact from U.S. tariffs in Q4.

EBITA, excluding transaction-related costs associated with the Altia acquisition, increased 37% in 2019. The EBITA margin for 2019 was 1 percentage point higher than '18 and ended at 20%, which is exactly in line with our updated guidance. This does reflect the solid levels in the business and is achieved on top of headwind from foreign exchange rates and continued investments in future growth opportunities.

Free cash flow was again very strong in 2019, and this was driven by a strict focus on balance sheet items on top of significant revenue growth.

So let's shift to Slide 18, where we want to dive a bit deeper into development in our enterprise division. Please note that we have now consistently changed our segment description from CC&O to enterprise. The 2 segments are obviously identical, but the enterprise is much better aligned with the external partners and our customers. In 2019, enterprise continued to develop very favorably with double-digit organic growth rates across all 3 regions. And as a consequence, we have once again taken market share and strengthened our position in the global enterprise market.

In North America, we delivered double-digit organic growth based on our strong product portfolio and our commercial execution. In Europe, we saw again very strong organic growth, driven across a range of countries across the region. And equally, in our Rest of World region, we delivered very strong organic growth. The growth also here was based -- broad-based across countries in the region.

On Slide 19, I'm actually excited to put some words to Jabra MySound. This is an innovation that levers the strong combination of GN Hearing and GN Audio's expertise. MySound, Jabra MySound is setting a new standard for best-in-class individualized customer experiences for headset users. The technology enables users to tailor an audio profile based on their unique hearing profile, and then deliver a truly individualized audio experience. In practice, the user will be offered a hearing test for the headset. And based on the results, we can adjust the headset to deliver an experience optimized for that user.

So while Jabra MySound will benefit the customers of GN Audio for now, the technology is based on algorithms developed based on GN Hearing's database of 85,000 hearing tests. Jabra MySound is available on our newly launched Jabra Elite 45h headset and Jabra Elite Active 75 (sic) [Jabra Elite Active 75t], which were both announced at CES in January this year and obviously can be migrated to cover a broad range of our headsets.

Turning to Slide 20, where I would like to give a quick summary of the achievements in GN Audio over the past 3 years. First and foremost, we have introduced world-class and highly relevant products and product families that have been driving our strong growth and market share gains. We have extended our reach into the video market by the acquisition of Altia Systems with us. And Altia Systems has now been fully integrated into the GN Audio machinery. We have delivered a successful turnaround of our consumer business, and we have made innovative products successful by strong channel and brand execution.

On the people side, we have built a strong organization that has been able to scale with the business, even as the business has almost doubled by growing 78% over the past strategy period. I think we can be really proud of what the global team has delivered, and personally, I am very pleased with the results over the recent strategy period.

And with that, I hand the word to Morten. Thank you.

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Morten P. Toft, GN Store Nord A/S - VP of IR & Treasury [5]

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Thank you, René. Before moving into the specific strategies for GN Hearing and GN Audio, I would like to introduce the overall GN strategy.

Turning to Slide 22. GN, will in the years ahead, drive market share gains by delivering individualized customer experiences. We will make this happen by continuing our focus on innovation. On top of this, we will develop our commercial and ecosystem excellence skills even further. Across the group, GN will utilize the synergies of having GN Hearing and GN Audio under 1 roof even further.

To deliver on our strategy, we need the continued engagement and focus of our more than 6,300 colleagues worldwide. We will continue to develop our employees and unfold our culture by focusing on ensuring a diverse and talented organization. Moreover, we will continue to focus on being lean and efficient by removing inefficiencies and drive scale in our businesses. We will further invest in strengthening our infrastructure and building our sustainability framework to address ESG topics proactively.

And with that, I'm excited to hand over to Gitte, for a strategy update for GN Hearing.

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Gitte Pugholm Aabo, GN Store Nord A/S - CEO of GN Hearing [6]

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Thank you, Morten, for that introduction to the GN strategy overall. I am very pleased to share our strategy for GN Hearing for 2020 and beyond for all of you today. I'm convinced that this strategy will set us even further apart in the industry.

Now let's turn to Slide 24. I would like to start by addressing our market projections for the coming year. And if we start in the upper left corner of the slides, the chart shows that we expect a stable unit growth in the years to come. Unit growth in our industry has been very resilient in the past, even in years with no to negative global GDP growth. We have experienced an annual unit growth of 4% to 6% in the past, which we expect to continue in the coming years. On top of this, we still expect an ASP decline of 1% to 2% per year, ultimately resulting in a value market growth of 3% to 5% per year in the coming years.

In addition to that, if you look at the global penetration of hearing aids among hearing-impaired people, it is still very low, with only 1 in 5 who have a hearing loss wearing a hearing aid. The expected unit growth is driven by multiple factors, including an increase in the number of elderly people around the world as well as increased noise pollution, which will further drive prevalence of hearing loss. And more and more people will be able to afford buying a hearing aid, due to the increased wealth in the world.

Finally, I would also like to stress that we see increasing entry barriers to the market, including even more regulations with EU, medical device regulation as an example. Moreover, it requires significant investments into R&D as well as an extensive intellectual property rights to be competitive in the industry. Last but not least, the industry has very steady distribution where HCPs prefer to work with the same manufacturers year-after-year. So the space we are in, it's a market that is growing. There's still huge unmet needs and there are high entry barriers. So I think from that perspective, it is actually a really interesting place to be.

Let's move on and look at Slide 25. Because here, I would like to spend a bit of time reflecting on some of the challenges we have seen in the hearing aid industry for a number of years, but which I actually think is an area where we've done quite a poor job at overcoming this as an industry. And seeing the loss for that, as our shortcomings in addressing these topics have led to too few people realizing the important health benefits that we know it has for people with a hearing loss to wear a hearing aid. I think we can do better than that.

Similar to bad eyesight and a number of other health conditions, a hearing loss typically gets gradually worse over a number of years, leading to the end users often failing to notice that they have a hearing loss. Early studies show that wearing hearing aids may have a positive effect on cognitive functions. Hearing loss is associated with an increased risk of depression and developing dementia. It's also the case that people with mild hearing loss were nearly 3x more likely to have a history of falling than those with no hearing loss. One study even shows that wearing hearing aids may improve balance.

But despite the obvious positive aspects, the vast majority of hearing aid users actually end up buying a hearing aid many years after they could have started benefiting from wearing a hearing aid. This has the further negative consequence in that many people get biased toward thinking that hearing aids for old people only, even though they are really for people of all ages, roughly speaking, from 50 years old and onwards.

While independent study shows that ReSound LiNX Quattro is the preferred technology for sound quality in the market today, for understanding speech in the noisy background and localizing of sounds, hearing aids in the market today are still too complex to use, both for the end user and for the hearing care professionals. The combination of the late adoption of hearing aids and the complex user interface of hearing aids in the market today means that end users need to have several visits to the hearing care professionals before their hearing aids are correctly fitted to them. This leads to a very challenging first 90 days as an end user.

On the positive side, we know that once end users get successfully through the first 90 days with a hearing aid, they do reap significant benefits of the hearing aids. As I said, none of this is new knowledge in the industry. But what is new, as I see it, is that we now have technology available that can be used to overcome these challenges. I'm confident that within the coming years, we'll be able to overcome a lot of these challenges, not just because we have an amazing R&D organization and not just because I've seen similar challenges overcome in another industry, but because we simply owe it to our customers and to society at large. The negative health consequences of the low adoption of hearing aids are too vast for us to accept. This is the journey that we are on in GN Hearing in 2020 and beyond.

And let's move to Slide 26 and our new strategy, where we are embarking on 3 specific strategic themes. We want to excel in individualized customer experiences. We'll continue our innovation leadership and we'll drive an even stronger commercial and ecosystem excellence. I think if you take a step back and look at the stellar performance in GN Hearing in the past years and the reason why the company has been able to continuously outgrow the market, it is closely related to innovation leadership and commercial excellence. So those will also be pillars in our strategy going forward. Now in addition to that, we want to ask and provide best-in-class individualized customer experience. And that is why I strongly believe that our strategy will set us apart in the industry.

Now let's turn to Slide 27. First and foremost, we think it will be crucial to improve and individualize the customer experience of people with a hearing aid. We need to master all the steps in the customer journey based on a data-driven approach. By understanding all the steps even better, we'll be able to drive a much better customer experience. We'll continue to explore digital solutions that will drive a better customer experience. This will be done through solutions targeting both the users and the hearing care professionals, and will cover both prepurchase and post-purchase customer experiences. To do this, we'll use next-generation technologies, including artificial intelligence and machine learning across product and service solutions for the benefit of our end users. By creating an individualized customer experience, we are comfortable that we can increase the quality of life for our users, when combining this with individualized customer experience with our superior sound processing capabilities.

That leads me to Slide 28 and our innovation excellence initiatives. We cannot and we must not forget why people buy a hearing aid. They obviously buy that because they have difficulties hearing. They struggle to hear their loved ones and they struggle to take part in the dinner conversation. We need to continue to focus on our core technologies. We'll continue to deliver innovation that aims for a superior and individualized products focusing on sound quality as well as maintaining our leadership in connectivity. We'll continue to focus on next-generation technologies and partnerships that will allow us to continue delivering first-to-market solutions and setting new industry benchmarks. To deliver on this ambitious R&D and audiology agenda, we'll continue to focus on working efficient across our R&D, including further collaboration with GN Audio. This will allow us to continue being able to deliver ground-breaking products to the market.

Now on my final slide before handing over to René, the last strategic theme that I would like to highlight is commercial and ecosystem excellence. For years, we've seen an unleashed potential in our Beltone business. We've seen some strong underlying improvements being done already through 2019, and we've reduced our ownership in transition portfolio of owned retail with around 1/3 that we also expected. However, we are far from done with the turnaround. We'll continue to expand and refresh the Beltone network. I'm sure that we have the right team in place in Beltone to move it in the right direction. Next phase is now pure execution for Beltone.

We want to be even stronger in our core markets, which includes U.S., but we also want to do better in countries like Germany and France, where we are currently underindexed. The winning formula is not new, but it's all about setting the right channel strategy and deliver best-in-class commercial execution that allows for a continued increase in points of sale but also increase in our share of wallet in the customers we're in.

Finally, we want to build even stronger customer ecosystems by providing structured and improved support. This will also be achieved through even stronger integration with our other ecosystem partners.

With that, I'll hand it back to René.

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René Svendsen-Tune, GN Store Nord A/S - CEO, and President & CEO of GN Audio [7]

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Thank you, Gitte, and before I begin a deep dive into GN Audio's strategy for the coming years, I would like to take you through our view of the markets we operate in, and obviously, not least, our expectations to these markets in 2020 and beyond.

On Slide 31, we have expanded our normal market segmentations a bit in the enterprise segment. We now include 3 subsegments. First, the Contact Center, which we used to call, call center -- call center earlier. The structure of the business is the same as always. We are seeing high margins but looking into a flat to slightly negative market, where we are a clear #2. We have the Office segment, which we call task-based earlier. The structure of this segment is the same as earlier, but we now only include our office headsets in this category. The market is growing very strongly based on the continued headset adoption, and we are the clear market leader in this segment.

Finally, we have now defined a new segment, which we call collaboration. This is essentially plug-and-play conference call and video conference call solutions for huddle rooms, and it includes our Jabra Speak series as well as Jabra PanaCast. This segment was included in the task-based market segmentation earlier. In this market, we have a relatively small market share, but we expect this to be a high-growth segment where we can gain share in the years to come.

And on the right-hand side of the slide, we have our consumer business where we are still seeing strong market growth, and this is mainly driven by the True Wireless market.

If we go to Slide 32, here we have included the dynamics of the core enterprise headset market. The core enterprise market is worth around USD 1.4 billion. This market has been growing 7%, 8% annually in the past few years. Today, the contact center and office headset market are about roughly equal in size.

Moving to the lower left part of the slide. The strong growth in office headsets, specifically is driven by increased penetration, meaning the percentage of office workers who have a headset. Today, we estimate that the growth of penetration is roughly 15%, which we based on input from Frost & Sullivan, expect to double by 2025.

On the top right-hand side of the slide, we have included some trends behind the continued adoption of Unified Communication & Collaboration, including the general requirement for work flexibility, general technology improvements and constant focus on cost efficiencies and productivity gains. All in all, we see very solid and tangible megatrends to drive the enterprise market.

At the bottom right of the slide, we have included a general -- the general entry barriers to the enterprise market as we observe them. This is about integration with software giants. It's a matter of technology leadership. And last but not least, it's a matter of distribution of the products. We think the enterprise headset market is a very attractive place to be with very tangible and robust entry barriers. All in all, we are exposed to strong underlying markets, which we expect will grow around 10% per year in the years to come.

On Slide 33, we are discussing some megatrends affecting our environment, our industry and potentially our business. In general, we are expecting an ever-increasing demand for products and services related to communication and collaboration. We live in a society where we communicate and collaborate more and more due to working in offices and spaces across sites, across regions, across continents in national and multinational companies. Companies operate in open offices with flexible workspaces, which calls for solutions that can increase the general productivity under these circumstances.

Last but not least, the amount for a step-up in sustainable operations is evident, being that from society at large, from our customers, all of ourselves at GN, we are all concerned about the impact our businesses may have on the environment.

Finally, for GN Audio to continue to succeed and outgrow the market, we need to make sure that we have the right people, the right products, processes in place to navigate and thrive in this ever-evolving environment.

So on that background, on Slide 34 we set the frame for the overall strategy for GN Audio. And we have, like in Hearing and in GN, called out 3 strategic themes for our strategy in the years to come. First, we want to excel in offering our customers individualized customer experiences. Second, we will continue to drive ecosystem-led innovation leadership. And third, with even stronger emphasis on sustainability, we will focus on commercial and operational excellence. The strategy for GN Audio for 2020 and beyond is very much an execution strategy. We were built on the strong business model and execution capabilities we have enabled so far, and we will do more of it, do it faster and do it better.

If you go to Slide 35 and dive one step deeper then, we believe that we can achieve significant differentiation and upside by shifting from being today mainly a product-focused company, to focus on customer experiences. And if we can drive highly relevant experience all the way to the individual, we can create a niche. GN Audio's brand promise is engineered for purpose, i.e., we innovate strictly towards specific needs across our customer base. We will continue to do that. And under this frame we now -- we have the opportunity now to increasingly leverage capabilities from across all of GN. The recent launch of MySound feature is a great example of that.

To do this well, we will need an ever-increasing set of data to enable user insights and to support our creation of customized solutions and use of adaptable technologies. Along with this, we will build an ever stronger developer community where we empower developers to deliver specific user experiences based on our products and technology.

And this leads me to Slide 36, and our ambitions within ecosystem-led innovation. We are a product solutions-driven business, so our ticket-to-play always starts with great and relevant innovation. GN Audio's current success is tightly linked to our ability to innovate with strong ecosystem partners and jointly bring best-in-class solutions to the market. We will continue to work with existing and new alliance partnerships to co-develop and innovate within selected markets. We will attempt to work even closer with our partners and across the ecosystems.

In support of this, we will need to continue investing into next-generation technology, including artificial intelligence. And finally, we will need to prepare for the future by identifying potential new growth waves, which can be linked to our sound and business processing capabilities and/or our access to the market. A very good example of this is our PanaCast acquisition, which has given us access to a category that fits perfectly into our business model.

So if we go to Slide 37, this leads me then to the sustainable machinery, with a focus on -- the slide says improved focus on creating sustainable commercial and operational excellence. We will have to further develop our best-in-class commercial engine across the segments of the value chain, and we will continue to strengthen our brand with a continued engineered-for-purpose, actually driven by product excellence. The Jabra brand awareness, and strength has increased significantly over recent years, and we want to further stimulate that journey.

Finally, as we mentioned earlier, the need for a sustainable approach to all aspects of running the business will take a prominent place in our strategy and execution going forward.

And with that, I will hand it back to Marcus.

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Marcus Desimoni, GN Store Nord A/S - CFO [8]

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Thanks, René. On Page 39, you see our strategy, 2020 and beyond, as just described from Gitte and René with our 3 strategic themes: individualized customer experience; innovation leadership; and commercial and ecosystem excellence. With these, we will fuel our profitable growth also in the future.

We have an intact investment case based on our historical performance and on our strategy for 2020 and beyond. GN has focused on innovation within the sound processing in selected market segments. We have leading positions in attractive markets with high entry barriers. We operate a very focused growth model. We have developed and deployed a clear strategy, underpinned by deep technology expertise and strategic global partnerships. Our profitability is in line or even better than our peers. And we have and we will deliver strong cash conversion and maintain our asset-light business model.

Let me run you through our ambitious midterm targets now. As said, we continue to operate in highly attractive markets and develop groundbreaking technology, as René said, engineered-for-purpose. That and these groundbreaking technologies are deployed to make life better and focus on the benefits of all the people. Therefore, we can see and we can say that we have the goal to maintain an organic revenue growth above the market growth for hearing and for audio, and that will translate into an organic growth rate of more than 10% on GN Store Nord level. We will maintain a profitability level measured on EBITA as we define it, for GN Hearing and Audio, more than 20%. And the leverage that we have shown you in the past and that we also create in the future will be reinvested into resilient and predictable revenue growth and to feed our business model and our future. And with this, we believe that we can maintain our growth in EPS for at least more than 10%.

Moreover, GN Store Nord expects to maintain a conservative capital structure policy of net interest-bearing debt to EBITDA of 1 to 2x. The excess liquidity will be distributed to shareholders through share buybacks and dividends as we have done so in the past.

Our financial guidance for 2020 is comprising the same pillars. GN Hearing, we expect to have an organic growth rate of more than 6%; in GN Audio, of more than 14%. Profitability measured on EBITA, as we define it, for GN Hearing, more than 20%; and GN Audio, more than 20%. With the segment, what we call Others, of roughly expected cost of DKK 185 million shown in the P&L. And that will translate to an EPS growth again of around 15%.

Now let me make one disclaimer. It is, of course, important to stress here that this financial guidance does not include any impact from the Coronavirus outbreak. Based on our current knowledge, we expect to see an impact on our Q1 financials. Provided that the situation resolves during February, we assume to follow guidance.

If you take a look on Page 43, it's a very unfortunate situation, and we think every day about the people, our employees and their families, and the impact of the whole world. Specifically on the Coronavirus, we have extended the holidays for our employees until February 9 and in parts of the Xiamen factory until February 12. Materials and components for our products are partly sourced in China. Safety stock has been built outside China, not only to accommodate for Chinese New Year, as we always do. On the revenue side, we generate a low single-digit share of total sales in China in both businesses, Audio and Hearing.

And with that, I would like to hand it back to Morten for the final remarks, and then for the Q&A session.

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Morten P. Toft, GN Store Nord A/S - VP of IR & Treasury [9]

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Thank you, Marcus. Just a few practical remarks before we move to Q&A. We are happy to invite all of you to our Investor and Analyst Meeting in connection with this year's AAA on the 2nd of April in New Orleans. We hope to see many of you there.

On page -- on Slide 45, we are happy to announce the date of our Meet the Management Event this autumn, which will take place on the 28th of September in London. We will send out formal invitations in due course, but please mark your calendars now.

And with that, we are ready for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from the line of Veronika Dubajova of Goldman Sachs.

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Veronika Dubajova, Goldman Sachs Group Inc., Research Division - Equity Analyst [2]

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I have 3, please. My first one is for Gitte. Just curious about the hearing aid growth rates in the U.S. in the fourth quarter. Looking at the reported revenues, they looked fairly flat. So if you can provide any insight, Gitte, into how your business performed on an organic basis and the competitive dynamics that you're seeing in the U.S. market, that would be helpful.

My second question is for René on the enterprise momentum in the fourth quarter. A very impressive growth rate for Audio as a whole, but maybe you can disaggregate for us how enterprise performed and how you're thinking about the sustainability of that growth rate into 2020. And my final question is for Marcus. Can you help us understand what's driving the significant growth in the Other expenses in 2020?

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Gitte Pugholm Aabo, GN Store Nord A/S - CEO of GN Hearing [3]

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Thank you, Veronika, for your question. On the U.S. performance, it's obviously important to keep in mind that we look at our results in '19 that -- as I also mentioned that we see headwinds from the loss of one key account impacting the overall year with 150 bps. In addition to that, it's also important to keep in mind that we are up against a very strong Q4 in 2018 where we have just had launched our ReSound LiNX Quattro and, therefore, saw a very fast and impressive uptick in the market. And that, I think, is -- although we continue to see strong growth in the VA channel, it's obviously less than we saw in Q4 last year, last year meaning '18. And then finally, I'd like to point out Beltone, which actually had a very strong Q4 in the U.S. market.

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René Svendsen-Tune, GN Store Nord A/S - CEO, and President & CEO of GN Audio [4]

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So René here. So on the enterprise momentum into Q4, I have to say it was strong and completely aligned with what we had seen earlier in the year 2019 and despite the fact that we had a strong base of '18 to a strong comp there. But no change in momentum, and I think with the guidance we have given, it's clear that we expect to continue to take market share. And we think, as I just spoke to, the market is very solid, around 10%. And that should be a good room for us to deliver well on top of that.

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Marcus Desimoni, GN Store Nord A/S - CFO [5]

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Yes, on the third piece of your question, the slight increase in what we report Other from DKK 155 million to DKK 185 million next year, it's mainly driven by increase in head count, increase of shared services, mainly for the activities to shield our business better. As we mentioned over the last 3 years, we increased the IT security program. We enlarged it with the piece over the next 3 years with infrastructure investments to shield the company against any potential cyberattacks and other activities. At the same time, we need to build up also for the infrastructure, in particular, as we're much more technology driven. And then we have some more minor activities in Strat Comm, the committee that we have and that you -- what you see in the development part of that. So for me, it's relatively normal, and it's pretty much in line with what I would expect here.

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Operator [6]

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

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Michael Klaus Jungling, Morgan Stanley, Research Division - MD, Head of MedTech & Services and Analyst [7]

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I have 3 questions. Firstly, when it comes to Hearing, can you be a bit more specific about how you see the organic growth trajectory between the first half and the second half? And is the second half very much driven by a new product cycle?

And question number two is on capitalized R&D. I think if you look at 2019, your margins may have benefited by about 100 basis points because of the increase in capitalization versus the amortization. Is my calculation correct? And how do you see the capitalization impacting your margins in 2020?

And the question number 3 is, 2020 is probably the first year where Audio is larger than Hearing. Have you checked -- have you spoken with MSCI whether you will or run the risk of being reclassified in 2020 away from being a medical device company? I mean as far as I understand, MSCI uses revenue as a key determinant on sector classification.

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Marcus Desimoni, GN Store Nord A/S - CFO [8]

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It's me Marcus. And thanks for your questions. I think I can recall the third question from the last call. Let me start with this. Of course, we see the composition of the different indices, but no, we have not talked and we're not talking to which basket you want to belong into. We believe that we are a fantastic innovation growth company. And then it's up to the others in which basket they want to throw us in. However, we are focusing very much in terms of our valuation and, of course, on the -- our shareholders.

In terms of the R&D capitalization in Hearing that you mentioned, that there is an increase on the year-over-year base of roughly DKK 100 million, that is correct. And that was as you quote -- or as you have seen a buildup in the second half of the year. So obviously, with the increase in R&D activities, more headcount, more activities, and as the programs are running, then we have pro rata also a higher capitalization. And that is partly driven by, as I mentioned, the general growth in R&D activities and partly often increase in programs. And that could hint or can't hint into any launch activities that I can't, of course, comment.

The last piece on that one, as you have seen in our annual report, we also have stated that we have been able to win in the fourth quarter last year the first tender in FalCom, and applying the same accounting rules to all of our businesses, and we also started to capitalizing that. And that's why we had also a slightly increase in Q4 out of that activity. But as this business is operationally right now, then it follows the same accounting rules.

And the last question was on the Hearing organic growth rate.

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Gitte Pugholm Aabo, GN Store Nord A/S - CEO of GN Hearing [9]

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Yes. Let me comment on that in the sense that the formula for success in GN Hearing is bringing new innovation into the market. So that has been the case in the past. And obviously, that will also be the case in the future.

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Michael Klaus Jungling, Morgan Stanley, Research Division - MD, Head of MedTech & Services and Analyst [10]

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Okay. But if I look at your statement that it will be more second half loaded, can you comment why that is? Is it purely based on sort of comps? Or is there something else that you can point to?

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Marcus Desimoni, GN Store Nord A/S - CFO [11]

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Michael, yes, of course, it's clearly a comp topic as well. As you have seen in Q4, that was Veronika's question also that Gitte answered, the Q4, the North America was a little bit softer than the average of the year because of the high baseline from the VA. And we see a further softening of the comparable growth rate, that's why the absolute revenue should still continue. So it's a big topic for us in the first 6 months on the comp rate. And then, again, as Gitte said, we can't and we will not comment on potential product launches or not.

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Operator [12]

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Our next question comes from the line of Annette Lykke of Handelsbanken.

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Annette Lykke, Handelsbanken Capital Markets AB, Research Division - Medtech Analyst [13]

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My question goes to René. In terms of all this incremental spending you have made in Hearing and Audio, can you share with us a little bit of the -- in particular, within innovation, what are the time lines or so of payback before we should sort of see all this fueling into the top line?

My second question would be on the tariffs in the U.S. Are you still -- I think you -- I recall you said it had a negative impact on your EBITA margin for 2020 of around 100 basis points. Are these included in your guidance? And maybe a little bit of a view on how you see this.

And then my final question to René is, during the last 2 years you've made quite a number of upgrades during the year. How certain or uncertain do you find yourself now? Or should we expect a pattern like the last couple of years? Or is there any reason why you would not be able to make the profit upgrades then?

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René Svendsen-Tune, GN Store Nord A/S - CEO, and President & CEO of GN Audio [14]

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So René here. On the spending, I think we have talked about it earlier. So we are right now increasing our spend along with the business into both R&D and the market creation out there. So in that sense, of course, as long as we have the momentum, you will see the spend run a little bit ahead of the curve. So the spending we have is going into our sort of next phase of product development and technology development. I cannot give you any launch dates on exactly when this will hit the market and so -- and what we are talking about. I can say that the Altia, of course, acquisition has some impact on this because we're accelerating the spending into this technology after we now got it into the building here. But you have to show as long as we can keep this momentum and drive this growth forward, we will also increase R&D spending as we have seen last year.

When it comes to the capitalization itself, I just said that this happens according to very, very strict rules. There is no way we can play around with -- if it's capitalized or not. So the auditors and we follow a very strict set of rules. And in some quarters will be a little bit more, some will be a little bit less, exactly depending on what -- where in the cycle of activities we are. Some will be spent/expensed, and some will be capitalized and according to strict principles. So just to make that clear.

On the guidance, we always guide what we can see. I understand the question. I don't have any sort of pre-upgrade guidance. So obviously, we are ambitious people -- can we do it better, we will. But this is the guidance we have now for the market. We think it's ambitious and strong and fits well to the market and the -- you can say the competitive edge we have. So this is where we are.

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Annette Lykke, Handelsbanken Capital Markets AB, Research Division - Medtech Analyst [15]

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And on the tariffs, are they included the 100 basis points negative...

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René Svendsen-Tune, GN Store Nord A/S - CEO, and President & CEO of GN Audio [16]

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Yes. I apologize. So yes, the tariffs are included in our guidance. And of course, based on what we know, and that means the tariffs as they are today.

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Operator [17]

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Our next question comes from the line of Martin Parkhøi of Danske Bank.

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Martin Parkhøi, Danske Bank Markets Equity Research - Senior Equity Analyst [18]

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Firstly, to René, on the quite -- it appears, of course, that the consumer growth, again, in Q4 accelerated, and then it was higher than enterprise growth, which also reflect in your gross margin. With this accelerated performance in consumer and the fact that you will launch the Active version of 75t later this quarter, should we then assume, at least in the first half of 2020, that we will see consumer growth again be higher than the enterprise business? And how should we, in that way, besides the tariff impact, of course, look at the gross margin development in 2020 assuming that there will be some kind of further product mix change?

And then also to Gitte, I will not ask you to comment on whether you will come new product or not. But the products you have, which is now where you have the asset profile, do you expect to see that when this Android solution is rolled out in more and more Samsung phones during 2020, that we should actually see that as driver for higher growth in the second half than the first half based on the products you have today?

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René Svendsen-Tune, GN Store Nord A/S - CEO, and President & CEO of GN Audio [19]

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So René here. So on the consumer growth relative to enterprise business, it is correct that in the holiday season in the Q4, the acceleration of consumer was stronger than we saw on enterprise side. And of course, it goes with the -- partly with the launches but also with the sell-through effect on -- in the gifting season and the holiday season and so. And a lot of the marketing machinery there was very effective, and we had a good solid Q4 and drove the mix in that direction.

As we look through the year, as you can see, we think that the balance is actually there. We will have probably again a higher share of consumer products in Q4. I have not -- and exactly as also as you mentioned, we have launched new products into the market recently, and they are sort of replacing existing successful products in the market. So in that sense, there is a natural sort of stimuli of the channel growth there. So our assumption is that it will bounce back. But you're right, it was strong in Q4.

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Gitte Pugholm Aabo, GN Store Nord A/S - CEO of GN Hearing [20]

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So thank you for your question. And commenting on the (inaudible) solution, and you're right, I mean, it's -- we already see it in the new phone from Google and now also in the new phones from Samsung. And obviously, as -- the uptake of the new phones, the increases in the market, it certainly further enhances our leadership in terms of connectivity. So clearly, that will be one of the strong arguments of why to buy a hearing aid from GN throughout the year.

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Operator [21]

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Our next question comes from the line of Carsten Lønborg Madsen of SEB.

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Carsten Lønborg Madsen, SEB, Research Division - Research Analyst [22]

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First, for René, when we look at the '17 to '19 period, you have had a massive number of new launches. You also had consumer wireless category taking a big lead in momentum plus a competitor that -- what looks like a meltdown. Into a new strategy period, if you just focus on offices or enterprise, as you say, do you have any pockets of growth in terms of the (inaudible) and headset business where you say you're not particularly well represented here, here is an area where we can -- where we have below par market share? So do you have some easy win that you could outline for us?

And also a little bit in the same direction. When I read your annual report on your new strategy, there's very little focus on consumer. You have 4 lines about the consumer segment. Is this a sign that this is just hard to predict because we know [it's a lot of time]? Or is it a sign that you're actually defocusing your resources away from consumer, maybe not in 2020 but longer term?

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René Svendsen-Tune, GN Store Nord A/S - CEO, and President & CEO of GN Audio [23]

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So thanks for that question. I would say there are probably no easy wins. And if there was, I wouldn't disclose them right here because then I would hand them straight over to competition. The range, of course, is that there are still -- let me put it another way. We have succeeded over recent years actually launching product into pockets in the market where we were able to expand the market. We will keep thinking like that, that if we can see pockets in the market in the domain we operate where we can launch products that expand the market, we will do so. Obviously, we don't -- anyone upfront what the ideas might be, that be on the headset side, that be on the video collaboration side and that be also on the voice collaboration side.

Beyond that, you can say the classic headsets here, of course, that our focus, as we have discussed earlier, that other people are asking us, are we going into gaming? Are we going into other things? We have not launched any plans of that nature. But it is clear that the technology is expanding into different domains, and we will follow where we think it's relevant for us, like we did with the PanaCast into the huddle room. And you can say when we acquired a stake in audEERING, we moved into the voice analytics space and so forth. we will continue working like that. And of course, at the moment, we see these pockets, so we are active in these pockets, [we will disclose.]

On the privatization of enterprise and consumer, you can say the -- we talk more about enterprise. It is the larger part of the business. It is, as you know also, the more margin-rich part of the business. We drive a lot of work across the business in terms of platform work. So we are leveraging technologies across the 2 businesses more and more. And that's what we're going to have our focus. We are not planning to exit the consumer business. We have a very good run, and it feeds our professional business very well. And actually, also I think it feeds this experience, thinking that we are now launching for the overall GN business very well.

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Operator [24]

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Our next question comes from the line of Maja Pataki at Kepler Cheuvreux.

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Maja Pataki, Kepler Cheuvreux, Research Division - Head of Med Tech Devices Sector [25]

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I actually have 2 for René and 2 for Gitte. René, to start with you, there seems that there is quite a high number of [total guarantees] on the consumer side, distributed sales (inaudible) service but obviously does not have an impact on your performance. But can you maybe give us a bit of a feel for the market? And the second question is if we look at the MySound system, basically the (inaudible), do you ever think about this being -- driving price [up close]? Or is it something that you're actually using just to differentiate and gain market shares?

And then for Gitte, just 2 questions on your general (inaudible). And I know you have talked about distributors being very loyal and market share gains or losses are heavy to pursue. Now to be very critical, you have not made any -- enough inroad in the independent segment over the last couple of years. This has been moderately increased but we haven't seen a game changer there. So I'm wondering, what makes you confident that you can actually improve the market share there? Second of all, listening to your comment about the importance of teleaudiology and (inaudible) remind today the added value of servicing, shall we see that as a general comment of GN Hearing not being interested in the (inaudible) going forward?

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Morten P. Toft, GN Store Nord A/S - VP of IR & Treasury [26]

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Maja, it's Morten here. So the line is breaking up a little bit on our end. So what I hear you say was, first, 2 questions for René, one being on consumer, how he would define the competitive situation there with a lot of launches from a lot of players in that space. And then secondly, in terms of MySound, I heard your question was around the application or the perspective in that technology. Is that correctly understood?

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Maja Pataki, Kepler Cheuvreux, Research Division - Head of Med Tech Devices Sector [27]

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Yes. Actually, I'm just trying to want -- to summarize whether MySound is going to be a differentiating factor for you, focusing more on unit market shares rather than on increasing pricing. So how shall we think about it?

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Morten P. Toft, GN Store Nord A/S - VP of IR & Treasury [28]

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All right. Thank you. And then the second part was for Gitte, questions around what is going to drive the market growth in the independents going forward. That's the key question, right? So with that, René ...

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Maja Pataki, Kepler Cheuvreux, Research Division - Head of Med Tech Devices Sector [29]

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Yes. This would be the key question. Putting in comparison to the past and then obviously on the OTC.

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René Svendsen-Tune, GN Store Nord A/S - CEO, and President & CEO of GN Audio [30]

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So thanks for the question. So on the launch sort of cadence into the market recently, it's no secret that the true wireless space, of course, is very attractive for us and drives a significant part of the revenues nowadays. We have launched recently -- I mean, in September, we launched a classic version of the 75t. And now in January, we launched the Active version of 75t into the market. The response has been very strong. And actually, we see the product matching very well the leading -- there are many true wireless offerings out there, but there are very few actually sort of that stands out. And you know a company from Cupertino with a white product. Of course, he's, to some extent, setting the rules of this market. And we are competing not necessarily with Apple but with the other ones around. And in that space, we seem to be -- the product is received well. It has very good reviews. And the listing is where it should be and so forth. So we feel comfortable that we have launched the product into this environment, again, that can stand its ground.

And the other questions -- and the MySound feature is exactly to your point, it is a feature that helps us differentiate our products. It is not necessarily a component itself that will drive ASPs. But of course, what drives ASPs is the summary of all the -- I mean the hardware and the software and the experience we create with the product and in reference with whatever happens out there in the market. So this is the differentiator. For now, we are not adding a price to that. And it is hopefully a first of many variants of that nature.

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Gitte Pugholm Aabo, GN Store Nord A/S - CEO of GN Hearing [31]

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In terms of the questions to Hearing, I just wanted to comment on those, the ones who -- was on market share gain. And I think if you look at the historical performance of GN Hearing, we have in several years actually outgrown the market and, therefore, also taking share across different channels, including the independent channel -- that will obviously also be the case for us going forward.

And in terms of our theme of providing individualized customer experience, maybe it's a good opportunity for me to be clear that this does not mean that we want to enter into retail. Here, we maintain our strategy of not going into retail, but certainly, we want to enhance the experience, both for the health care professional and in collaboration with the health care professional with the end user. And again, our aim is to grow our business in all the channels, including the independent channel.

In terms of the OTC market and whether or not we see that as an opportunity, well, we obviously follow the FDA regulation closely, I mean, in the sense that we are waiting for it to come out. But we follow it closely because there's around 40 million people in the U.S. with a mild hearing loss, and today, very low adoption of any kind of device to amplify their hearing. So again, depending on how the regulation spans out, this is potentially a big opportunity for the company. And I certainly think that we in GN is especially strongly positioned with audio and hearing under the same roof, again, depending on how the regulation actually spans out.

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Operator [32]

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Our next question comes from the line of Patrick Wood at Bank of America Merrill Lynch.

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Patrick Andrew Robert Wood, BofA Merrill Lynch, Research Division - Director in Equity Research and Head of the EMEA MedTech & Services Team [33]

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Perfect. Actually, I have 2 left, please. The first will be on the hearing aid side. Can you give us a sense of, in Q4, roughly, the proportion of hearing aids sold that were rechargeables versus non- and how we should think about the implications of the rechargeable mix reaching maturity over the next couple of years? That would be helpful. And the indications for growth of that.

And then the second would be, obviously not asking you to comment directly on Poly and the environment there, but the competitive environment in audio seems to be transitioning and remaining quite a lot in flux. I mean the product set there seems pretty good. Why do you think the competitors are struggling? I mean is this an execution in the market issue? And how do you think -- or how should we think about the risk of them becoming more competitive over the next 2 years or so? That would be helpful.

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René Svendsen-Tune, GN Store Nord A/S - CEO, and President & CEO of GN Audio [34]

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René here. On the Poly situation, I mean, I don't want to have a strong view on the Poly situation as such. It's quite evident that we are taking share away from competition across the board. As we speak, I think this question needs to go to Poly. We have a lot of respect for all our competitors out there. And we are basically fighting every day to make sure that our products are the chosen ones and -- both by the channel and, of course, also by the end customers. So we will continue trying -- attempting to strengthen our offering and be competitive in the future should competition also be steeper than it is perhaps just now.

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Marcus Desimoni, GN Store Nord A/S - CFO [35]

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It's me, Marcus, yes. So on the question on terms of rechargeability, the main driver for the rechargeable units that were sold was clear again in the high end. It was a top and a little bit in the plus segment, how we define it. So top and plus have been the drivers. Unit-wise, of course, the volume is in the other segments. But therefore, from the value perspective in terms of the revenue generated that was -- on a year-over-year, a nice increase also in Q4, and the majority of the units sold in the top segment have been rechargeable.

Going forward, on the second part of your question, of course, we believe that it's a trend going to rechargeable units is unstoppable. And as we see the majority of the units sold in the top segment being rechargeable, we also believe that trend will continue over the next years and that will also falling down depending on the price development into the lower segments. And that will drive -- and we do the utmost, of course, of taking costs out and having attractive product proposition towards the customers, drive the customer experience, as Gitte have explained, what is our focus and how can we make life better for everyone out there in the world.

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Patrick Andrew Robert Wood, BofA Merrill Lynch, Research Division - Director in Equity Research and Head of the EMEA MedTech & Services Team [36]

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So that's helpful. I mean if I were to assume, I don't know, 60%, 70% of units sold are rechargeable, would I be wildly, wildly wrong? Or is that generally the right ballpark?

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Marcus Desimoni, GN Store Nord A/S - CFO [37]

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Well, I don't want to speculate, but I think I gave a good indication that the majority again of the units sold in the top segment is rechargeable. And on a year-over-year -- in revenue and in units, it was an increase in Q4.

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Operator [38]

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Our next question comes from the line of Kit Lee at Jefferies.

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Kit Lee, Jefferies LLC, Research Division - Equity Analyst [39]

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Just one for me, please, on Audio for René. Just sticking on the Altia acquisition and the launch of PanaCast, how would that contribute to your midterm guidance? And if you can give some color on sales mix in [3 years'] time on contribution to growth for the overall Audio business, that would be great.

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René Svendsen-Tune, GN Store Nord A/S - CEO, and President & CEO of GN Audio [40]

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I think the -- first of all, this becomes part of the organic second quarter because we acquired the company in March of last year and will have a contribution this year. We have not disclosed how much. As I said earlier, we hope that we are capable of taking market share in this space. Price points are pretty high relative to other components we are taking to market. And we are investing significantly into this space. It is a high growth space. So obviously, we think that there is a nice contribution coming from this domain in the years to come, but we have not quantified it. But we think it's a good place to be.

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Operator [41]

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Our next question comes from the line of Sebastian Walker at UBS.

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Sebastian Walker, UBS Investment Bank, Research Division - Associate Analyst [42]

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Two as well, if I could. Just on the midterm guidance. So for both organic growth and EPS growth, you're guiding the same at both above 10%. Is the -- I'm trying to reconcile why we wouldn't be seeing more EPS growth. Are you trying to message that bottom line development will be better than top line? Or should we expect those to be equal? The second question is just on PanaCast. I think there is some stocking at the end of -- I think perhaps in Q3. Could you maybe comment on how that developed through the quarter and what your expectations are going into 2020?

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Marcus Desimoni, GN Store Nord A/S - CFO [43]

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It's me Marcus. In terms of the growth rate, so the growth rate for Audio and Hearing, for the midterm targets, we say we grow above market. And the mathematical impact, how we see the business developing and the market development is leading to -- that we're confident that GN Store Nord in total where we have a revenue growth of more than 10%. As we said, yes, we have leverage, and therefore, with the margin targets, I mean, we should have at least more than 10% EPS. And we just didn't want to put in any other number more than 10%, put anything from what we have been delivering over the last 3 years.

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René Svendsen-Tune, GN Store Nord A/S - CEO, and President & CEO of GN Audio [44]

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So René here. On the PanaCast, rightly so, we said after third quarter that the revenue mainly was filling the channel. And that's what we did. Now we are working and the channel is working, of course, with the end customers out there. And whatever revenue came out of Q4, you have to see a sell-through, basically. So the channel is now selling to the market, not in big numbers but as we had expected. And so we are now in the execution phase, but with, by design, modest numbers.

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Sebastian Walker, UBS Investment Bank, Research Division - Associate Analyst [45]

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And maybe just following up on that, can you talk about whether you've seen an acceleration in end-market sales for PanaCast in line with expectations or below or above?

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René Svendsen-Tune, GN Store Nord A/S - CEO, and President & CEO of GN Audio [46]

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Yes. You can say we have -- like I said, I'm not disclosing them, I say we have met our plan exactly. And we are selling out week-by-week, more and more.

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Operator [47]

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Our next question comes from the line of Oliver Metzger of Commerzbank.

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Oliver Metzger, Commerzbank AG, Research Division - Equity Analyst of Life Sciences [48]

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First is also on PanaCast. Could you give a comment whether the underlying growth at PanaCast in Q4 was accretive to the overall Audio growth? My second question is also on Audio. Can you give us an update on visibility in the consumer space? Historically, you've said that it is comparatively low. Are there any changes to this view, which are also reflected in your guidance? And my third question is basically addressing both segments. How big is a step from the Jabra MySound solution to a potential OTC solution in the hearing aid space?

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René Svendsen-Tune, GN Store Nord A/S - CEO, and President & CEO of GN Audio [49]

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So on the PanaCast growth, I guess, for both Q3 and Q4 relatively -- I mean, year-over-year, of course, we didn't have a year before. So it was 100% growth element, but not part of the organic growth. So it's not shown there. It is shown on the M&A. So you can say reference point, we will have only when we get into second half of next year from an organic perspective. I don't know if I answered your question, but that's basically the way it is. We started revenues in Q3, and we have added revenues in Q4 and selling through the channel basically.

On the consumer side, we have set out an ambition that this is a stable part of sort of the mix. We like this mix, 20%, 25% consumer business. As we have come back, it's probably closer to 25% than it is to 20% now. That mix is a good one for us. And so far, we seem to be able to execute on that pretty well. On -- if that was the question, otherwise you can correct me.

And then on MySound, yes, of course, MySound is a signal that we can do this kind of thing. And we think it is a very attractive feature for headset users that you can actually take an imprint of -- because we hear like our fingerprints, every person has a unique hearing. And we can now compensate for that because we have these competencies across the company. Could that be exported in other dimensions and in other markets should they come? For sure.

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Oliver Metzger, Commerzbank AG, Research Division - Equity Analyst of Life Sciences [50]

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Okay. Just a follow-up regarding my second question. You disclosed roughly the share, which I appreciate. My answer was more towards the visibility on upcoming or on growth. How visible -- how attainable is growth in the consumer space?

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René Svendsen-Tune, GN Store Nord A/S - CEO, and President & CEO of GN Audio [51]

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You can say the -- you have 2 different dynamics. On the enterprise, we have a significant runway. We acquire customers, and then we sell to customers over time. So you build up a runway through the channel. Of course, to create a runway on consumer side, it has a lot to do with the listings you get and your placements in retail and whether you have sort of right marketing momentum behind it and so on and so forth. So you don't have these kind of one-offs. And of course, in that sense, we are in a totally different situation today than we were a couple of years back where our consumer business was more lumpy.

Can you anticipate a runway in the consumer exactly the same way as you can in enterprise? Probably not. But can you count on retail across the world? If you have the right listing, the right marketing machine, the right in-store execution and so on, to be more of a runway, I think so. And then, of course, we have -- you can say the dynamics of products being launched into the market, specific products like something from Apple, they create immediate effect, and so do we.

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Operator [52]

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Our next question comes from the line of Veronika Dubajova of Goldman Sachs.

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Veronika Dubajova, Goldman Sachs Group Inc., Research Division - Equity Analyst [53]

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I just had a couple of quick follow-ups, if that's all right. My first one was just on the FalCom tender. I'd be curious if you can give us a little bit of insight of how big of an opportunity that is. And I noticed you mentioned in the annual report, there was a couple of other upcoming tenders. How you're thinking about those and what's included in the hearing guidance from those, that would be helpful.

And then my second kind of question is a little bit sort of a follow-up on PanaCast. I know you can't tell us what the sell-through is, but just curious, can you help us understand how you position the product versus the leading solutions that are out there in the market? And is that positioning resonating with the customers that you have? Is it a premium? Is it a discount? How are you thinking about that?

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Marcus Desimoni, GN Store Nord A/S - CFO [54]

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This is Marcus. Let me take the first one, FalCom. So we have stated 2 years ago as we started this business activity that we want to focus on 2 bigger tenders in the U.S. In these 2 tenders, we have not been qualified or that was postponed. And what we have shown in the appendix of the presentation is a rough market estimate, how we see the market. So the market is developing into activities where you can win contracts, but the value is much smaller than the big 2 ones that we initiated we are thinking 2 years ago. So saying that means that there's a little bit in our budget and, therefore, on the guidance for 2020 included, but that is clearly, yes, not material at all, I would say.

In regards to the tender that we have been winning in 2019, while we're following our policy not to disclose any customer or contract details, and we just wanted to state that we are in the business and that we take that business very serious. I think this is how you should read it, not that you expect a big boost this year. It's not the turbo that I have in my engines. But of course, there's a market and maybe in the future, you're going to get the [6 or 8 cylinder] out of that. Thank you.

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René Svendsen-Tune, GN Store Nord A/S - CEO, and President & CEO of GN Audio [55]

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So René here. On the PanaCast and the reception in the market. I think as we have progressed with this, taking this to market, taking it to channel and taking it to end customers, I am totally convinced that we acquired the right technology. This panoramic view that we get with the, you can say, multi-camera solution we have acquired and that technology fits perfectly to these small [reaching rooms,] where if you don't have it, you log out people, you can't see them basically.

So the reception is strong. It's clear that we are coming into the market with one product only, and our competition has more than one product in different variants. There's no product disclosed announcement coming here. But it's evident, as we have said all the time, we are investing in this technology. And we will have a broader impact in the market when we get there. But the reception is very good, and the technology sort of has been very hard to do exactly what we wanted.

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Operator [56]

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And there are no further questions at this time, so I'll hand back to our speakers for the closing comments.

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Morten P. Toft, GN Store Nord A/S - VP of IR & Treasury [57]

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Thank you very much, operator. Thank you, everybody, on the call. We appreciate your time today and all your questions, and we look forward to seeing you all on the road. Thank you very much.