Gn Store Nord A/S Adr

Hello everyone, and welcome to GN's conference call in relation to a Q2 report announced this morning. Participating in today's call is Group CEO Peter Karlstrømmer, Group CFO Søren Jelert, and myself, Rune Saner, Head of Investor Relations. The presentation is expected to last about 20 minutes, after which we'll turn to the Q&A session. The presentation is already uploaded on GN.com. And with that, I'm happy to hand over to Peter for some opening remarks.

Thank you, Rune, and thank you all for joining us today. In Q2, we executed well and successfully navigated a challenged market environment with uncertain trade policies. We controlled our revenue and margin and have set us up successfully for delivering on our year in line with our guidance. Importantly, we also executed significant changes in our supply chain that will support the margin expansion towards our strategic ambitions. In hearing, the launch of ReSound Vivya is progressing well. With the help of Vivya's strong value proposition and our strong market execution, we gained market share and grew 8% organically. We are very pleased with its performance in markets that are growing below the structural trends. We are also excited by our recently announced new superpower hearing aid, ReSound Enso IA, which will help us to build on the strong launch momentum from Vivya. In enterprise, we continue to see positive seller growth across North America and the rest of the world, in line with what we also saw in Q4-24 and Q1. In Europe, the market continues to be challenged by a weak macro environment and the indirect effects of the global trade uncertainty. Despite the challenges, enterprise has successfully maintained a strong market-leading position, making us prepared to benefit when the market turns. Furthermore, Falcom is continuing to build its pipeline, setting them up for a good year. And in Q2 alone, they contributed positively to the enterprise division with almost 100 million Danish kroner. In gaming, we continue to take market share and deliver 0% organic growth in a gaming gear market challenged by tariffs and lower consumer sentiments. In summary, this was a quarter with strong execution, navigating an uncertain environment and a quarter where we will further have increased flexibility and agility in our supply chain, enabling us to respond more quickly to future uncertainties. While we are not fully there, we are gradually leaving the difficulties behind us and look forward to working with our customers, partners and employees to build a strong future together. And with that, I'm handing it over to Søren for group numbers in the quarter.

Thank you, Peter, and thank you all for being here with us today. As Peter mentioned, Q2 was challenged by the direct and indirect effects of the global trade situation. However, by concentrating on the business factors within our control, GN executed well under these circumstances. Our tariff mitigation plan is well underway and we are confident that it will enable us to ensure a continued strong performance while protecting our margins. In summary, our organic revenue growth ended at 0%, excluding the wind down. Driven by the very strong performance in hearing leading to 8% growth, offset by a negative 7% in enterprise due to the global trade uncertainty. Gaming performed well in a challenged market, achieving a 0% organic growth and taking share. Including the wind down, our organic growth rate was negative 5%. Driven by a combination of broad-based growth, margin improvements and prudent cost management, the EBITDA margin came in strongly at 13%. Our cash flow was solid, coming in at 353 million Danish kroner, excluding M&A, reflecting our earnings profile as well as our favorable development in inventories. Now, let's move to the P&L and cash flow details on slide 6. Despite a flat top line, our gross margin continues to improve, which in the second quarter amounted to an improvement of 3.7 percentage points compared to Q2 of last year. The positive result was achieved despite direct tariff costs in two out of our three divisions, and can be attributed to our strong pricing discipline, favorable business mix, and group-wide synergies from the 1GN integration. Reported EBITDA reached 546 million DKK, equivalent to a 46% increase over Q2 of last year, reflecting our strong gross margins, prudent cost management and no extraordinary costs. Moving to the cash flow, our strong earnings profile combined with our favorable development in working capital resulted in a positive cash flow of 353 million DKK in the quarter. Driven by a positive cash flow and our solid earnings level, our leverage decreased from 4.0 compared to 4.9 in Q2 of 24. Moving to the next slide and our refinancing process. Driven by our strong fundamental operational improvements in recent years, we started to discuss the next refinancing opportunity with our core banking group earlier this year. Following these discussions, we are happy to announce that we have agreed on key terms for a new facility agreement. The agreement is still subject to customary, long-form documentation which is expected to be concluded during Q3 of 2025. This new agreement effectively allows us to refinance up to €1 billion and push relevant maturities to €28 billion with optionality for further two years. On top of this, we have also been able to push maturity of our current undrawn revolving credit facility. The new agreement will provide GN with improved terms and conditions as well as lower interest rates compared to existing loans. As a consequence of the refinancing and the lower general arrival level, this would lead to a significant reduction in net financial items already by 2026. Assuming constant FX and interest rates, we are currently assuming net finances for 2026 in the region of 450 million DKK. With that recap of our group performance, I'm pleased to hand you back to Peter for additional insights across the three divisions.

Thank you, Søren. Let me start with our hearing division. In Q2, we executed strongly in a market which grew below structural trends, where we gained market shares across geographies and channels driven by recent VIVIA. In total, we grew organically 8% in the quarter. This was on top of the 10% growth we had a year ago in the same quarter. Our gross margin came in slightly lower than last year, primarily reflecting our disposal of Dansk Hörde Center and the regional sales mix. Sales and marketing costs decreased by 9% compared to last year, driven by prudent cost management and our general group-wide cost program. As a result of the strong top-line development and solid operating leverage, our divisional profit margin ended at 36%. Let's move to the next slide. As mentioned, Vivia is the main reason behind our ability to drive market share gains in the quarter. Around four months into the launch, we are pleased to share that Reason Vivia continues to outperform previous major product launches, such as Nexia and Omnia, in terms of its launch metrics. Our launch schedule is progressing as planned, and by the end of Q2, Vivia was available in most leading hearing aid markets. From a regional perspective, we did see solid organic growth in North America, especially driven by very strong growth in the independent market and VA, while our comparison base at a large US retailer was challenged in the quarter. In Europe, the launch of Vivia had a significant impact on our performance. In total, we delivered double-digit organic revenue growth in Europe, with particularly strong growth and market share gains in Germany and the UK. In the rest of the world, we continue to do well despite several markets that were performing quite weakly, including China, Japan and Australia, and they all grew below the structural trends. In addition to Vivya, we are pleased to announce the launch of ReSound ENSO iA, our newest superpower hearing aid. ReSound ENSO is our most powerful and most compact superpower hearing aid, which delivers clear sound even in the most noisy environments. This is the industry's smallest rechargeable superpower product and Enso is our first product introduction in this segment for more than five years. This will help us to strengthen our value proposition to hear and care professionals and further support our growth ambitions going forward. With this, let's move to the enterprise division. In the quarter, the enterprise division was, as we anticipated, challenged by the direct and indirect effects of the global trade environment. As a result, enterprise delivered 7% negatively organic revenue growth. As I mentioned in the introduction, Falcom continues to build momentum and contribute over almost 100 million Danish kroner in the quarter. Despite the challenged top-line development, the gross margins in the enterprise improved by almost 2% to 56%, reflecting pricing discipline as well as impact from group-wide synergies. Sales and distribution costs in the division grew by 4% in the quarter, reflecting good cost control and targeted product launch and market investments. Divisional profit margin ended at 34%, positively impacted by gross margin improvement, but offset by the development in the top line and sales and distribution cost. Moving to the next slide. To provide some additional insights into the enterprise revenue development in Q2, let's look at the regional performance. Our sell-out growth continues to be better than our sell-in growth across the three regions. In the quarter, sellout was positive across North America and the rest of the world for the third consecutive quarter, supporting a gradual return to growth for the enterprise market. In Europe, sellout continues to be challenged due to the weak macro environment and uncertainty of the trade environment, making several companies hold back investments. In North America, sell-in was impacted by a deliberate decision to limit certain product variants in the U.S. in the first part of Q2. In the rest of the world, we saw healthy sell-off growth as well as selling growth. Despite the market being under pressure for a longer time, we continue to believe in the long-term attractiveness of the enterprise market, driven by hybrid working and the ongoing upgrade of collaboration tools to create a seamless and high-quality experience, allowing hundreds of millions of people to communicate in a natural, undisrupted and clear way. Let's move to the next slide and our gaming division. In Q2, the gaming division was challenged by low consumer sentiment and an uncertain trade environment, which led to a declining gaming equipment market. Despite these headwinds, SteelSeries performed well and continued to gain market share, leading to an organic growth rate of 0% on top of last year when SteelSeries grew with 12%. When including the successful wind-down of our Elite and Torque product lines, overall revenue growth for the division was negative 29%. In the US market, gaming was negatively affected by a deliberate decision to limit certain product variants due to elevated tariffs in the quarter. This was, however, to some extent offset by our implementation of targeted price increases, which supported the revenue of SteelSeries. In Europe, revenue was challenged by low consumer sentiments and a high comparison base, while we grew strongly in the rest of the world. Our gross margins ended at 32% in the quarter, supported by pricing discipline and the effects of the group-wide synergies, but offset by some incurred tariff costs. Sales and distribution costs decreased 36% in the quarter, driven by consumer wind-down and prudent cost management under our group-wide cost program. All in all, divisional profit came out at 12%, excluding the consumer wind-down, reflecting the positive development in our gross margin and our operating leverage. It should be noted that the direct impact from tariffs was limited in Q2 for gaming, as we took advantage of the existing, already declared inventory. In the quarters to come, we will start to see a more negative impact from the direct tariff cost. We will mitigate this with price increases and operations improvements related to our 1G strategy. With that overview of Q2 performance, let's move to the next slide where we'll give an update on our tariff mitigation plan. In Q1, we presented a comprehensive tariff mitigation plan to protect our margins in response to a fast-evolving and highly uncertain trade environment. The plan involved a combination of acceleration of our existing supply chain diversification, commercial initiatives, and a group-wide cost program to control the cost base and protect the GM business. A few months into this work, we can confirm that we are executing these initiatives well and that the plan is working as intended. In enterprise, we have already diversified production significantly and are on our way to a setup where close to 90% of our volume shipped to the US can be produced in more than one location and outside of China by the end of 2025. In gaming, we are also making good progress and will reach a position where close to 90% of the US volumes can be produced in countries outside of China by the end of the year. Related to this, we are pleased to share that these production moves have worked very well without any meaningful production disruption or quality issues. On our commercial actions, our price increases for gaming and enterprise in the US market are well underway and have generally been well understood and accepted by our retailers and partners. As for the impact of the tariffs and our mitigating actions, we estimate that we're having a 1% negative EBITDA margin impact this year, while around 0.5% of this are more of one of nature. We will continue to work across our full set of levers to mitigate this in the coming years. And with that, I will hand the word back to Stern to conclude our presentation with an update on our guidance.

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It seems like, sorry if anybody can hear us, it seems like somebody can hear us, at least that's what I'm told right now, but there seems to be some issues with at least the telephone line where we are sitting. And maybe we should just continue because I get a lot of messages now that active people can hear us speak right now. So I guess let's just continue for now. Please text me if that's not right. But with that, let's continue with Søren and then let's see whether we can get our sound working in the studio as we speak. But Søren, please continue with the financial guide.

Thank you so much, Rune. And thank you, Peter. We are today reconfirming our guidance for the year. With the divisional performance we have seen in the first half of the year and with our expectations for the second half of the year, we are narrowing the Group Organic Revenue Growth Guidance from minus 3 to plus 3 to now minus 2 to plus 2. The underlying assumptions include a hearing business which is likely to end in the lower half of the original assumptions due to the lower than expected market growth. In enterprise, we are currently trending in the middle of the growth assumptions provided back in April. For gaming, we are currently trending in the upper half of the range we provided in April. For our EBITDA margin and cash flow guidance, we are confirming these. To provide with some direction in the second half of the year, we do expect the Group EBITDA margin to be a bit soft going into Q3, as we expect to see the full amount of tariff costs impacting margins in gaming While we also do certain commercial investments across our divisions in third quarter that will support our businesses in the important fourth quarter. This should also then lead to a strong IBT margin in quarter four reflecting higher volumes in fourth quarter as we have normally seen it. That concludes our update on the business and I'm happy to hand you back to Rune.

Thank you, Søren, and thank you, Peter, for the updates. A quick practical remark before hopefully we get the Q&A up and running. We will invite you for the OIA presentation again this year. This will take place in Nuremberg on October 23rd at 9 a.m. Official invites will be sent out in due course. So with that, I'm hoping at least that we will be able to hear the operator and the Q&A. So fingers crossed from my part. If you're going to hear me, please read the IELTS back. Yes, we can hear you. We seem to be having this day, we're waiting for the operator.

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Thank you. All right, operator, I think we can hear you now. Operator, are you online?

Ladies and gentlemen, we established a connection back with the speakers. You may proceed with the presentation. Thank you.

Conclude the presentation. Let's just move to Q&A, please.

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We can hear you. Can we start with the Q&A?

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Okay, ladies and gentlemen, we established the connection. Let's try again, please. From the speaker's line, can you hear us?

Q&A, please.

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Can you hear this? We are ready for the questions.

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Then let's get ready for the Q&A, please.

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Absolutely. So ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press star N1 on your telephone keyboard. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star N2. Our first question. comes Carsten Lundborg Madsen with Danske Bank. Please go ahead.

All right. Thank you very much. I don't think we got the entire presentation, but let's start with Q&A. I was wondering about the Falcom and the pretty large impact you have here in Q2 from Falcom of 100 million coronavirus. So if we look to our sources and our intel, then there hasn't really been any tenders of this size in 2025 or Q2, etc. So I guess my question is, what is this? What will be the run rate for Falcom going forward? And will you say that Falcom now finally has to sort of make the breakthrough we have been waiting for for many, many years?

Thank you, Karsten. Let me soon come to your question. Can I just ask kindly, explain to us how much of the presentation did come through? Can you just clarify that, Karsten?

I think it ended something like 16, maybe.

Okay, so just before the guidance section, as you've done. So we take this question... I didn't hear anything about guidance. So maybe what we will do is, if we can come back to your question, Karsten, maybe we'll let Sir and you ask to conclude briefly on the guidance and then come back to your question.

Okay, we'll go back to slide 16, where we, on the financial guidance, we're here today confirming our guidance for the year. With the divisional performance we have seen in the first half of the year and with our expectations for the second half of the year, we are now narrowing the group organic revenue growth guidance from minus 3% to plus 3%, now changed to from minus 2% to plus 2%. The underlying assumptions include a hearing business which is likely to end in the lower half of the original assumptions due to the lower than expected market growth. In enterprise, we are currently trending in the middle of the growth assumption provided back in April. For gaming, we are currently trending in the upper half of the range we provided in April. For our EBITDA margin and cash flow guidance, we are confirming these. To provide with you with some direction in the second half of the year, we do expect the group EBITDA margin to be a bit more soft going into third quarter, as we expect to see the full amount of tariff costs impacting margins in gaming, while we will also do certain commercial investments across our divisions in third quarter that will support our business for the important fourth quarter. This should also then lead to a strong EBITDA margin in the fourth quarter, reflecting higher volumes in Q4 as we have normally seen historically. That concludes our update in the business, and now we can move back to the Q&A.

So Karsten, thank you for helping us here and sorry everyone here for a bit of disruption on the technical side. Hopefully we have come across clear and can move now to the questions. So as for your questions on Falcom... As you know, we have been building this business for a longer period of time, everything from a product portfolio to the way we approach the market to engaging in many, many conversations on franchises and tenders. I mean, it started already last year. We started to make good progress on securing more franchises participating in tenders. Last year, though, that the orders were relatively small. This year, the order volume has been building up a bit. And in this quarter, we are communicating now it's a little bit less than 100 million just to help you also to get the right understanding of the business. It's not only one customer. I think we have a couple of larger things happening here in the quarter. And we are not normally disclosing customers for any of our divisions. And we'll not do it here either in Falcom. But I can just say that we continue to build pipeline, continue to build progress. And hopefully we can continue to have a second half quarter of this year, also with some good momentum on Falcom. And when this business becomes stable enough and large enough, we can, of course, more share the numbers on a regular update. They still do fluctuate quite a bit, but we're trying to call it out here to both talk about the good progress, but also help you all to understand our business in the right way.

And just to confirm, you are expecting sort of, of course, this will be lumpy, but you're not expecting, for example, zero in revenue for Q3 and Q4. You are expecting sort of a meaningful, sustainable contribution from Falcon for the rest of the year.

Yes, we are. I think that as we see into the pipeline and orders, Q3 probably going to be a little bit smaller. And if things go well, Q4, a very nice quarter again for Falcom.

Great. Thank you very much.

Thank you.

Our next question comes from Hassan Alwaker with Barclays.

Please go ahead. Hi, good morning, and thank you for taking my questions. I have two, please. Firstly, on hearing, it is clear from the results that there are some strong share gains. which at least to us are not obviously explained by the VA data that we track. So can you talk about the split of hearing organic growth price versus volume, please, and how the other channels and regions are performing and where you see the most share gains from? And then secondly, on margin guidance, a much stronger result in the bag for the first half than expected. And appreciate there is still a second half ramp, but you typically have a stronger second half versus the first. So what are the drivers for not raising guidance and what are the key risks to your mind? And if you can quantify the uptick in commercial investments year over year. Thank you.

Thank you so much. Let me start and then I hand it to Stern for your second question here. So if we look first on the broader kind of both growth momentum and likely share gains, I would say in the US, we did perform well, particularly strong in the independent market. which we saw very healthy growth in, and thanks to the strong appreciation of Vivia. We also did fairly well in some other channels, but this was probably the channel that stood out. And also then geographically wise, it was really Europe and the rest of the world supporting the growth in the quarter where we launched Vivia. and I called it out here in my opening. In particular, we grew very strongly in Germany as well as in the UK, but there were actually several other international markets we also did very well. I think that if we look back also, last year is a good example where we grew very strong in the US in the first half and then very strong in the rest of the world in the second half. So I think we have seen this over periods. One region is being a little bit more the growth driver Another quarter can be handed over to another region. But overall, we do expect this year to be a year of healthy growth and good market share gains essentially across geographies. Then the question you have on price and volume. More general terms, I can say that in the quarter, the volume growth was slightly higher than the value growth, indicating some level of ASB pressure. I think that's predominantly driven by channel mix and geographic mix.

And thank you for the question on the margins. It's clear that we're also pleased with the second quarter here. But also, if you look at it in sort of in half-term years, right, we are sort of just about 10% after the first half of the year. And we've set out and reconfirmed the guidance here for 11% to 13% on the full year. And, of course, the midpoint would lead you to the conclusion that In the second half of the year, we need to be stronger than evidently we've been in the first half and even on average stronger than what we've been in the second quarter. What we're just paying your attention to is that what we do expect is a third quarter that will have some headwinds on the tariff, especially in gaming, but actually also that we do invest in our business and part of that investment actually comes in the third quarter in due course for the fourth quarter where we are also expecting to launch new products so so in many ways this is this is how we see the world and and we do expect also as we normally see as i said that the fourth quarter on top line is higher in the fourth quarter and as such you will have some leverage due to that So think of it as there is a clear bias towards the fourth quarter when it comes to the earnings profile. Then you asked on more of the commercial investments. I think here, and of course, it is a little difficult for you guys, right? Because we've actually also been winding down the consumer last year, which actually also had a meaningful commercial full year impact. Of course, you need to deduct that. So trust me that in our minds, we are... still investing in sales and marketing to support our business. So you cannot just take it one year over the other, at least without adjusting for the consumer in terms of sales and marketing costs. I hope that answers your question.

That's very helpful. Thank you.

Our next question comes from Martin Brindle with Nordea.

Please go ahead.

Hi, Søren and Peter. Thank you for taking my questions. I have two, if I may. First of all, on enterprise, if we take out the Falcom impact, I guess that you saw a double-digit decline in enterprise underlying. So, we'd just like to hear whether this is also including – we also think that you have taken market shares in here – And maybe a little bit why that is happening when you have easier comps with the speakerphones and not being such a big headwind as it has been in the past. And then the second question on that would be heading into H2, how confident are you? speaking strictly about enterprise demand, not about the Falcom part. How confident are you that demand is going to hold up, given that a lot of companies are speaking about delayed impacts for tariffs, holding them back a little bit on investments, et cetera? So it would be super helpful to hear where you get your confidence from. Thank you.

Thanks a lot for your questions here. So maybe I repeat a bit on what I said in the introduction and provide some further context on it. What is encouraging with enterprise business is that we are seeing sell-out growth in North America as well as APEC, rest of the world, in the quarter, but it's actually for both regions the third quarter in a row where we see this. Then when it comes to Europe, here we have not seen the market turn into growth from a sell-out perspective. And the reason we're talking a lot about sell-out, it's really the leading indicator. It's essentially end customers buying. And in between there, of course, we have the channel. I think that the explanation for Europe EMEA I think is largely what you said in your question. The macro environment is uncertain. There are many companies that are having quite strict cost control and investing a bit less, which is impacting how much they spend on enterprise equipment. We do believe that, over time, this will, of course, stabilise. So, over time, we will, of course, see Europe in growth as well. When it comes to our own numbers, I also indicated that our sell-in has been weaker than the sell-out. It's a difference with around 5% in the quarter. So that means actually that the underlying demand for our products is a bit higher than the revenue, which we have here around the negative 10, as you highlight. And then for the second half, I think that the way we see enterprise is that normally Q3 is about the same absolute size as Q2. And we believe it will be this year also. You don't need to factor in the Falcom order I mentioned here in the opening, which then of course needs to be compensated for. But that is how we're seeing the business building. Towards the end of the year, Q4 is always a bit of a stronger quarter in enterprise. Also comps are becoming a little bit easier towards the end of the year. And here also we are now gradually launching products into the enterprise segments. We are shipping now a video product, P40, and as we have talked about before, we are planning to gradually launch new headsets also towards the end of the year. So we are planning the year for a bit of a stronger finish and a Q3 that is... a bit more in absolute terms the same as q2 with a adjustment for falcon essentially hopefully that's helpful and then giving you a little bit further insight into it i will just round off with recognizing is that it's of course been a longer period of time where we've been seeing pressure in enterprise but but again i think it is encouraging that the two regions with a bit of stronger macro data. I mean, both the US and APAC. Here we're starting to see the growth come and hopefully we can soon see that on a global basis. So thanks a lot.

Thank you very much for taking my questions.

Our next question comes from Martin Parkway with SAB. Please go ahead.

Yes, Martin Parker from SED. A couple of questions. Just back to hearing, Peter, maybe you can elaborate a little bit more on Germany, because As I recall, it has not been a very strong, historically it has not been a strong GN market. So what kind of position do we have there in the market? I don't expect you to give market shares at least with a digit, but in round numbers, how big are you in Germany now and what kind of opportunities do you see? Do you also see any positive spillover from you that the other larger manufacturers, of course, the latest, the Daemon, are quite active in forward integration in the German market. And then maybe for CERN, just if you look at the... to give some building blocks for the margins in going into 26, not that I expect to get real margins, but... But, of course, we are seeing movements in the U.S. dollar, giving at a certain level, current level, what kind of positive margin impact will that be in 26, given your exposure to components in U.S. dollar. And then, of course, also with respect to tariffs. And then, lastly, just, Peter, on enterprise side, you mentioned the product launch, new headset platform. Do you think that it will be a meaningful contribution in the fourth quarter? the enterprise.

Martin, thanks a lot for your questions. Maybe I do one or three first and then hand over the second question to Søren here. Yes, we have seen a very healthy growth in Germany that, as you know, is a large and meaningful hearing aid market. Our market share, as you indicate in your question, is a starting point at relatively low, so we do believe we have some room to grow there. and see this as very positively. We're holding ourselves a little bit back to give exact volume data per market, but can say we're encouraged by this. We have taken quite a lot of initiatives on how we work in the German market. And I think now also with the help of Vivian, I think it's really helped us to have new conversations, more conversations, and essentially opening up new possibilities for us. It's not happening overnight, so I see it's a team making gradual very good progress and hopefully can continue in the year with a good Q3 and Q4 also. And then if I comment on the enterprise side and the launches, I think that the products which we will launch hopefully will be very meaningful. We are very excited about the products, and it will be some launches this year, and you see us making more enterprise headset launches next year. It's essentially a range we're building up where launches will come over time. In Q4 alone, it will positively contribute. It will not be very significant. It takes some time before you're building up the full volumes around the launch. So I think you will see more of the impact coming into next year, but some impact in Q4.

Yeah, Martin, then I think you're asking me for a little bit of a crystal ball on the U.S. dollar. Maybe not directly, but I think it's important to sort of it's correct that, of course, the dollar has come down and normally that, of course, also assists us. That's actually true, but there are also other currencies where we actually do sell meaningfully, whether it's in the UK, in Japan, or in Australia, that probably has a headwind to us also. So I think it's a little early to speculate in whether or not the U.S. dollar will help us in a meaningful way. Let's see where we end the year. I think most of us will remember when we reported out in February for last year, Q1, for 24 right suddenly the dollar was really high and now it's really low so i would i would suggest at least that we currently do not speculate much but of course normally it is a little tailwind for us with the dollar but you need to bear in mind that other currencies actually going in the opposite direction so so i'll not log it in yet that's probably also what you will hear me say thank you

Our next question comes from Veronica, Dubai of our city. Please go ahead.

Hi, guys, and thank you for taking my questions. I have three, please, if that's okay. Hopefully, they're pretty short. But the first one is just would love to get your thoughts, Peter, on the current market conditions in the hearing aid market, especially what you're seeing when you look at July and August. And I guess in particular, sort of your assumption that the market improves in the back half of the year a little bit. Is that driven by what you're seeing on the ground? Is that driven by kind of, you know, just speculation? And maybe as you talk about it, you can also comment on it. some of the comments we've heard around Southern Europe and whether that's a region that matters for you and if it's getting any better. So that's my first question. My second question, I was hoping you could quantify the hearing aid growth in the U.S., excluding the large customer where you've lost some market share or at least give us a flavor for the sort of impact for that. And then the final one, probably better for Soren, is just can you break out the contribution from price to the growth in enterprise and gaming and whether that improves further as we move into the back half of the year? Thank you, guys.

Thanks a lot. Thank you for your questions here. I believe that we have talked about the market being below its structural growth, and several of our peers, I think, are indicating the same things. And to our understanding, we probably observe the same markets and talk about them in similar ways. Our assessment is that with the current momentum we have, I mean, we are... I mean, 1-2% below what we normally see in market growth. If we look for the second half, we have taken planning assumptions to see similar kind of patterns in the second half. And as we indicated here in our guidance section in the written part, we are saying we're trending towards the lower half of the planning assumptions for hearing, and that is only due to the market assumptions have slightly changed. If there would be a more normal market, we would likely be able to grow slightly stronger this year thanks to the good launch we have with Vivia. And then if I comment a bit on the US retailer, and I should first say the launch we have With Vivia or it's Sola, the Jabra brand there, of course, it's going very well. So we're very pleased with the continued collaboration. We feel very good about the partnership. I think that it is, of course, now a situation with four players instead of three players. And that is naturally putting some level of pressure on our business. So we did see some level of pressure in the partnership. in the quarter. For a hearing business in total, there probably is around a percent organic growth, which I would say headwind, in the quarter. But I would say that the other channels have performed very well, and we also feel good about the way we're working in this retailer.

And then on your third question... Sorry, Peter, is that... Please.

Can I just clarify that... That's one point for the U.S. growth or one point for the group growth?

No, for the hearing division growth. Hearing in total. Perfect. Thank you. Thank you.

And then with the final question on pricing, we also spoke to it a little bit in the opening, right, that we have actually taken price improvements in both enterprise and gaming, and they were also positively contributing in the second quarter. But bear in mind that when you look into the rest of the year, Then in gaming, we took advantage, as we said, on the inventory we did have that was declared already. So there you don't see the same impact in quarter two of the negative side of the tariffs. And that's one thing. The other part is that it was not during the full quarter necessarily. We took the price improvements in the second quarter. So I think you should... Think of it as in gaming, it's probably a little better coming out of quarter two because of the inventory. And when it comes to enterprise, it's probably more balanced in terms of the price improvements. But of course, we still remain open to continuously seeing this as a lever, as a mitigating plan to the tariffs, as we also said, coming out of first quarter. So that would be my guiding points for the second half.

Great. Thank you, guys.

The next question comes from . Please go ahead.

Mr. , your line is open.

Maybe your line is on mute. All right, so we continue with our next question from Maya Stephanie Pataki with Kepler Sovereign. Please go ahead.

Yes, good morning. Sri, if I may, from my side. First of all, you've talked about the challenging macro conditions in Europe that were a challenge for the enterprise growth. I was wondering... What is it, from your perspective, that needs to happen? you know, calming waters when it comes to tariff talks, or is it really a GDP growth that needs to pick up for you to see enterprise growth returning in that segment? The second question, when we talk a little bit gaming, have you seen any change in order behavior from an inventory perspective in Q2 from your customers? And then lastly, maybe that's a very general question I'm not sure you can answer. The hearing aid market has been very volatile over the last few years. 2025 seems to be another challenging year. What do you see as the main reasons for the subdued growth or also for the volatility because it has been seen as a very defensive market and I see that there is still growth. Still the kind of volatility is unprecedented. Thank you.

Thanks a lot for your questions. For the European enterprise business and the comments on the return to growth, I think it's a combination of the two factors you laid out in your question. A bit stronger general macro environment, getting some macro growth in Europe, What we also hear is that several larger companies are of course also trying to adjust to the environment of tariffs and uncertainty over that. And several larger companies have been having a different type of cost programs in place, restricting investments and capex spend basically. So we believe it's a combination of those two. And hopefully here in the coming periods we will see some level of turning here driven by these two. Then the second question on gaming. No, I don't think we have seen a real difference in order behaviour or inventory management practices. I think it's actually been a period of very close collaboration in the US between our teams and the larger retailers. There was a period where we were a little bit unsure on how much... I mean, supply we could support given the whole difficult and uncertain trade environment. I think there's been a strong collaboration to prioritize what products to promote, what products to sell, and how to do this. I think that's probably what's been a bit unusual in the period in terms of inventory management, ordering behavior. It's been fairly normal, I would say. Then the last question on the hearing market volatility. I think we recognize this also. I don't think we can pretend we have the answer to it. But I mean, our humble observations is that And we saw that particularly early this year is that the consumer sentiment, in particular in the U.S., really affected the way that hearing aids were purchased. It's essentially in many cases elderly consumers hesitating a bit on what is a fairly big purchase. At the same time, we still believe it's very resilient over time, the hearing aid industry. It's, of course, supported still by an aging population and a population that like to live a full life until later in their lives. So we do not... downgrade in any way the kind of belief on the growth on the hearing aid industry over time. But we recognize it's been a little bit more volatile than normal, but still we believe the structural growth over time is certainly there. And finally, as you say, and that was probably a bit implied also in your question, there's also been periods of growth above normal growth trends the last few years. So it's been slightly on and off. But if you take an average of this, it actually looks fairly stable and in line with historical kind of trends.

Thank you. And may I just add a follow-up here? Since you're calling out consumer sentiment, can you give us a bit of a qualitative feedback on how your OTC division has been doing Q1, when it was really, really bad, the consumer sentiment, versus Q2? Has there been a change? And how is that business performing for GNC?

Yes, thank you. We can confirm that this part of our business has also been affected in the US, largely due to the consumer sentiment here also. In the quarter, we saw some level of growth in Q2, but on a relatively low level. Q1 was a little bit more difficult. So this is a segment that is fairly sensitive to the consumer sentiment, so I can confirm that. But at the same time, in other periods, we've seen very high growth. So it probably follows quite a lot the pattern we just spoke to here.

Thank you.

Our next question comes from Nils Granholm with DNB. Please go ahead.

Thank you. Now it works. Firstly, could you talk about your distribution cost in the quarter that dropped about $100 million? To what extent is this driven by cost curtailment? Or is it something that we would only see for this quarter? Secondly, could you talk a little bit more about the... expected market response to the price increases that you have implemented on the U.S. market? What are you hearing? Are you expecting end-user demand to be affected by these price increases? Thank you.

Hi, Els. Good that you came through here in the end. In terms of its distribution, I think we have actually seen some cost savings during the quarter. And of course, we are still focused on ensuring that that is a pattern we also can see going forward. It, of course, also follows how our goods are shipped around. And in many ways, here, the second quarter was, of course, a little bit out of the normal with the tariffs we've seen. But, of course, we are satisfied to see that we are having improvements in distribution costs and then, of course, are aiming to a future good level also for that.

So you expect a level of below a billion per quarter is recurring?

I would say that in terms of setting a level of, when you say sales and distribution, I mean, of course, it says a marketing within which we have distribution. So in that sense, it was a lower quarter. Bear in mind also that we actually deliberately said coming out of first quarter, that we would put in place cost containments as part of the mitigating plan. And that's also what we have seen work. And of course, now we also have the opinion that we have it in good control, know where things are going. And here we also reserve the right, of course, to invest in the places where we would like to invest. And that's also what I said before in coming into the third quarter. And actually, of course, fourth quarter is also our high on sales. So it's really a combination of the sales and marketing and distribution cost, right? So we're following the plan. We were cautious in quarter two. We now think we have a good plan and also a good idea of when we are moving the operations around in Asia. So in that sense, we are still expecting a higher sales and marketing cost to actually support the growth of the company. So I think that was probably more your underlying question. That you can, of course, confirm.

And, Niels, if I take the second question here on price increases, we have increased prices in the US with around 10% for enterprise and around 10% for gaming. The enterprise price increases have taken effect a little bit earlier than the gaming ones, mostly due to the way it works in our contracts and the mechanism to increase the prices. So on enterprise, where we have a bit more... what should we say, weeks of observing how it's been working, I can say that it's been working well. It's likely driven to some kind of reduction in volume, but in total, these price increases should give some level of support to revenue growth, and, of course, perhaps even more important, to protect our margins. I would expect it to play out similarly for gaming, but we don't have a full set of data to observe it yet.

So you would expect a volume decline due to these price increases in quarter trees. Is that a fair assumption?

I mean, there are many factors. So, I mean, to the price increase alone, yes, but then there are other things that are driving volume increase. There is an underlying volume growth in the market. So, how the total play out, I'm not sure the total will be a volume decline, so to say. The gaming market here, as I said in the opening of our call, has been in decline and quite significant decline in the last quarter, where we certainly have seen some kind of volume decrease. I'm not sure that this is related to the price changes, though. It's probably related more to the general consumer sentiment.

Thank you. Our next question comes from Angela Pozinovich with BNP XA. Please go ahead.

Hi, good morning. Just two questions. First one on hearing. So on Vizia, again, a successful quarter with market share gains. Can you share with us any feedback from the audiologists on Vizia versus the competition, like specifically Infinia Sphere and the AI feature? and any drawbacks of the product that you're hearing if any exist. And the second one is an enterprise. So now that you're seeing three quarters of positive sellout in the rest of the world and America, do you feel more confident that you will be able to successfully guide an enterprise going forward because it has been very volatile on the macro concerns and tariff concerns. Do you feel like now the situation is calmer and you will be able to guide more specifically? Thank you.

Thanks a lot. I mean, starting with Vivia, and I prefer to talk more about what we hear about our hearing aid and a little bit be careful on how to talk about our peers' products. But I would say that generally what the hearing care professionals are saying about Vivia, which they really appreciate, is that It's building on the very strong performance of Nexia in terms of hearing in noisy environments and then adding the AI capability to this, which is essentially helping them even further when you turn on this program to reduce the noise level in the noisy environments. So it is essentially taking a very well-performing hearing adnexia to the next level. And still we're doing that with almost no compromises. It's still the same small form factor, the good battery lives, and it's easy to work with. And while there is a price increase, it's still seen by many hearing care professionals as a reasonable price increase for the strong value they're getting, basically. and then continue to get good feedback on how the quality works and the whole experience of working with Vivia. So I think it's really the totality of factors making it a very complete and appreciated hearing aid. Then, of course, the alternative from our competitors that have slightly different characteristics, but I think it's quite clear from us that what we're offering here with Vivia is appreciated and supporting our growth here. Then for your second question on enterprise, I think it's a great question, and you're highlighting it's been a market with more volatility and uncertainty. And we've seen that this year, of course, we got an added kind of element of this with the new trade policies coming in in the U.S. I'm hopeful we can get less uncertainty over time, And if we get that, I think what you imply in your question is very fair, then I do believe it will be easier for us to guide in a somewhat more narrow way and help you all understand how this evolves. But what we've seen in Q2 and the actions we have taken, I think we have left quite a lot of the uncertainty gradually behind us. What remains now is one of the earlier questions we just answered, is Europe and the macro uncertainty in Europe. And hopefully that can also soon stabilize and we're getting all to all in a more stable environment. So we of course look forward to that also. In the meantime, I do like to highlight that our teams, I think they're doing a very good job on controlling everything they can control. we're working on the new products we mentioned before i also think the execution in the market is good so maintaining healthy market shares and margins making us ready to benefit at the time the market turns perfect thank you so much and if i can squeeze in just one uh short follow-up if you can give us an indication of the outcome uh profitability Yes, I'm not sure. We are not giving exact numbers, but I think you should think about it as similar gross margin profile as we're having in the enterprise division. And that is also the ambition we have as we move forward.

Perfect. Thank you so much.

Our next question comes from Martinian Rula with Jefferies. Please go ahead.

I hope you can hear me okay. Thank you very much for taking my questions. I have two. So the first one on hearing, so obviously you now expect the hearing division to lead to the lower half of the 5% to 9% range. I know you've commented on softer than expected markets, but I was wondering if that was also triggered to some extent by the current dynamics you're seeing at Costco. and or also from the fact that one of your competitors is on the verge of introducing a new product. And I'll let you some time to answer the question before I ask you the second one, if that suits you.

Yeah, no, thank you. No, as we mentioned here in the guidance section and the planning assumption, it is due to the market growth. When we set our guidance here, I mean, we did factor in that we believe there will be some kind of changes from free-to-force suppliers in the large U.S. retailer. as well as we did factor in that we did expect some of our competitors to launch products in the year. So I think it's solely due to the market dynamics and growth we are indicating the lower end of that planning assumption.

Okay, perfect. Thank you very much. And for the second question, I appreciate the comments that you've made on the tariffs impact being roughly one percentage point and half of that being kind of in a temporary nature in the sense it's related to the relocation of production and so on. But I guess my question is, should we expect you to continue diversifying your manufacturing footprint in the future? And if so, would the cost related to that could be a meaningful drag to your mid-term margin guidance?

We laid out this strategy around two years ago to diversify our manufacturing footprint and essentially did it to have more resilience and flexibility for possible shocks coming. And the way we're set up now is essentially in most cases for most product lines to have production in China and one more Asian countries. We feel good about the setup we have today. At the same time, we should not rule out that we might make further changes over time if we find locations and partners where we see that's beneficial for our business. It's nothing we have planned today. The set-up we have now, we think it's a very good set-up, providing a lot of flexibility for us. Flexibility, of course, for tariffs, but flexibility for other types of scenarios as well. The 1% impact this year on margin, where half a percent are more one temporary nature, I think it's essentially what we see now. We will for sure continue to work on the full set of levers to continue to improve our margins. That is still a very important kind of priority for us as we're developing into the future.

Okay, perfect. Thank you very much.

Our last question for today's call comes from Susanna Ludwig with Bernstein. Please go ahead.

Great. Thanks. Good morning, and thanks for taking my questions. I have two, please. First, could you just provide your current expectations for the tariff impact on margins in 2026? And I guess what are sort of the assumptions behind that expectation? Do we stay at sort of current levels? And then second, could you explain what's driving the sharp jump this quarter in receivables from Associates, which looks like they were up around 300 million Danish kroner? Are we correct to assume that those are largely receivables from your Beltone network?

Okay, thank you so much. First, for the margins for next year, we are not yet guiding next year in terms of margins, so I'm a little bit refraining from how precise to be here. If we look on the tariffs alone, as I just talked to, it is having an impact around 1% this year, where half are more one of nature's. But there are also quite a large set of other levers we are working on to improve our margins. So essentially how our margin, how we will guide for next year, we will come back to that a bit later. But we certainly have the ambition to increase our margins coming into 26.

I guess just to rethink about the tariff headwind goes down between 25 and 2026, or is the tariff headwind sort of similar? I guess that's sort of if you could directionally... you know, give us a sense because obviously you'll have sort of a full year of tariff impact in 2026 and different rates. So just trying, and you won't have these temporary costs. So just trying to think about directionally what we should be thinking of as the tariff impact sort of incrementally from 25 to 2026. Is it positive? Is it negative? Roughly the same.

I would probably more think about it because of timing effects here. The tariffs were announced, of course, in April. They've been implemented and changed many times this year. So I do think it has been a quite evolving situation this year, as we know. I think you should more think about it. The way we are leaving this year is probably with a kind of a residual tariff effect around 0.5%. That doesn't mean that we are not thinking through additional ways to manage that, but it's probably what we see today. But again, we will work on everything we can to see how we both can improve margins and lessen that impact.

And then when it comes to... When it comes to your second question, let's get back to that offline. It could be the way it's reflected in the report. So let's clarify that offline to make sure that you're looking at the right numbers.

Okay, thank you.

So, ladies and gentlemen, this goes to our last questions. I hand back over to the management for any closing remarks.

Thank you very much, operator, and thank you for the call. And sorry for all the mess with the line today. Hope everything went clear in the end. See you all on the road.