William Demant Holding A/S WDH
Q4 2012 Earnings Call Transcript
Transcript Call Date 02/26/2013

Stefan Ingildsen - SVP, Finance: I am Stefan Ingildsen, Senior VP Finance. Today the call will follow the usual structure. In the first part we will run through our formal presentation and in the second part we'll have the Q&A session, and we expect the call to last about 50, 55 minutes.

As usual, the Company is represented by President and CEO, Niels Jacobsen. But today we also have the pleasure of having Soren Nielsen with us. Soren is President of Oticon, and he will participate in order to take us through our latest premium product launch, Oticon Alta. With us we also have Soren Andersson, VP, Investor Relations and IR Manager Morten Lehmann Nielsen.

Finally just be aware as stated in the beginning that the presentation will be audio webcast on our website and it will also be, of course, available on the website for replay later on. And I will now handover to Niels.

Niels Jacobsen - President and CEO: Thank you very much, Stefan. And we have an agenda for this presentation. I will jump quickly through that into the first slide about the global hearing aid market in 2012 not significantly different from previous years, slightly less growth. We see 2% to 3% growth in units and this means that we are as the hearing aid industry is now delivering just over 10 million units on an annual basis to the world market.

In U.S. that is the biggest market in the world, we have seen a 3% growth, a little more in the VA than in private market. In Europe unit growth of 2% and that's below historical average. We have seen a number of different countries in Europe with some subsidy changes and changes in the system. We have seen Switzerland. We have seen some of the Scandinavian markets, especially Norway where they have moved from an invoice-at-delivery system to a consignment system and even as consignment system that delays the invoicing significantly.

In the southern Europe we have seen some decreases in sales due to the economic slowdown, but still not any dramatic changes. In the UK, NHS and the private market was above average unit growth.

The more difficult path that is the global development in average selling prices and as average selling prices is a lot of different elements, it is what markets are growing faster and what markets are growing slower. It is also the mix between mid, low, and high-end products. We have seen, as said before, that especially NHS have seen above unit growth and that has a negative impact on ASP, but also due to the – towards the development have been to the end of the product lifecycles that have also given some negative mix changes to the product sold and of course also many manufacturers most of our competitors they have plan to introduce new high-end and these means that’s been fierce competition of before high-end product introduction with the old high-end products. All together but not being too sure about it, because the price path, price element is difficult, we see that value growth in the market has been flat and maybe slightly negative.

Looking at the group structure not a lot of changes we have added Medical Sonic to our hearing device area, we have added MedRx and Micromedical to our diagnostic instruments and that's the basically the change. This is how we see our group a lot of share functions, where the group are working closely together on back office functions and working with the independent brand in what is directed towards the customers and end users.

Then looking at ourselves not the market then our growth in unit have exceeded the market growth, we have seen revenue growth 5% in our Hearing Device business, 2% in local currency, 5% in reported currency, and our unit growth just exceeded the market growth, so no significant market share in or we could probably argue flat market share development during 2012 and not very unexpected or it was definitely driven by the end of the product lifecycle Oticon started definitely to feel the need for new high-end family towards the end of 2012, and we are happy also to say that says we were ready at the beginning of the New Year in 2013 to introduce Oticon Alta.

We saw healthy growth in Bernafon driven by Chronos, the high-end Chronos family and we also so continued growth from a very low level on Sonic, but we feel that our two second brand, Bernafon and Sonic, are delivering up to what they should do especially in protecting the Oticon brand from heavy price competition.

Our Oticon Medical business also developed well. Sales growth and market share gains in all regions for Oticon Medical and our retail activity, we also saw overall favorable development for the whole year.

Diagnostic Instruments business, significant growth, 18% growth in local currency, most driven by acquisition, organic growth of 2% compared to market growth. They added Micromedical, a balanced diagnostic instrument company to their portfolio and products during the year, and they also added a distribution company especially in U.S. where our Diagnostic Instruments business now have a full distribution system all over U.S.

Late in '12, we introduced a number of important product launches, partly not only, but also in the Grason-Stadler, Grason-Stadler was acquired some years ago, and it has been important for us after they came into upgrade their product program and that's definitely started well with a significant product launch in late part of 2012.

Personal Communication, the smallest segment, smallest part of our business showed 5% growth in local currency and as we have seen in the last couple of years negative growth in Phonic Ear and positive growth in our headset business, and we have seen that the assisted listening device business out of Phonic Ear are being moved into combined sales of assisted listening devices together with ConnectLine and the hearing aids and by that we see as more moment a business from Personal Communication to the Hearing Device business.

And then revenue by business activity we see reported growth of 6% and growth in local currency of 3% split between the three areas of Hearing Devices 2%, Diagnostic Instruments 18%, and Personal Communication 5%, and that in reported currency gave a growth in our revenue line from DKK8 billion to just over DKK8.5 billion.

And looking then at split of the same revenue into different areas of the world, geographical areas of the world, a flat development in Europe, 4% growth in North America, a small decline in Oceania, that means basically Australia, New Zealand, and Asia grew 7% and other countries, mainly emerging markets, South America et cetera, grew 16%.

This then gives us our P&L statement, and DKK8.555 billion in sales, maintained our gross profit ratio delivering DKK6.1 billion in gross profit. R&D cost only growing by 2% in local currency, 3% in reported currency to DKK652 million. Significant growth in our distribution cost and that's mainly driven by acquisitions. So, the over proportional growth is coming from the acquired companies. We are mainly acquiring companies in at the distribution area and by that you will naturally see that most of the cost being acquired will hit the distribution cost line. Admin cost, up 3% in local currency.

That delivers a operating profit of DKK1,653 million. It is 3% down compared to last year and in line with what we said just after our Q3 report in November. Profit margin are down 2% from 21.3%. About half of that is – just below half of or around half of that is currency and then there is a number of other elements to it both working up and down on the margin. We have seen significant and continuous improvement on the cost of good line we are being better and better in reducing our unit cost. But on the other side, we have also seen more mid and low-priced products being sold especially in second half where we were at the end of the product curve and that of course is working in the other direction.

But and an of course also retail acquisition, distribution company acquisition are also delivering dilution on the margin, but supporting the top line.

Earnings per share down 2% to DKK20.2. Below the EBIT line or on the EBIT line cash flow from operating profit was DKK1.2 billion compared to DKK1.3 billion last year if we adjust for the payout of the settlement or the settling the debt to ETG, the patent case that was actually provided for apart from the interest part some years ago. So that is a one-off cash out in 2012, we actually were able to deliver slightly better cash flow in 2012 compared to '11 despite operating profit being DKK50 million down.

Cash flow from investments was flat from '11 to '12, delivering free cash flow, again if you add the DKK118 million from the ETG case, just above the 2011. 2011 was actually a very good cash flow year also for our Group. We had a number of acquisitions, DKK682 million and we also had including in it financing activities is also the share buyback program.

That moves us to look at the balance sheet. There is no significant elements to highlight here, one is intangible assets as part of the growing acquisitions, we will see continued growth there, but on other assets, there is other assets current or non-current, there is only small fluctuations.

Looking at the liability side, on the equity and liability side, the most prominent change is that we have less long-term debt and more current debt as one of our longer term financing arrangements running out during 2013 and by that move to a current liability item.

Soren Nielsen - President, Oticon: Okay, good afternoon everyone. I will now give you an introduction to a brief overview of Oticon Alta. We are four five weeks into the introduction and even though it's very early days, we have been confirmed that we have a strong product in our hand and we believe it can drive growth in '13, however, we can of course not control the size of the premium market in the world, but we anticipate that this together with other companies launches will have a positive direction on that during '13.

The starting point for the Alta launch is the launch of our Inium wireless platform which is a totally new platform which have significantly improved our (coagulation) power, processing power and yet still reduced the size of our platform and further reduced our power consumption still improving the wireless performance, and we believe we have a very, very power efficient platform that enable us to do very sophisticated signal processing and at the same time maintaining a strong streaming and connectivity opportunities.

Core elements in Alta is a three-fold, it is a very important improvement in the performance in the most difficult listening situations. I'm getting back to what causes that, but at the same time further reducing which is one of the main benefits we saw from Agile, the effort that the end user have to do in listening a good alignment with the brains ability to pick out signal from sounds and therefore, enable users to feel they have to use less energy in listening to even very complex listening environments.

Then we have put quite a lot an effort in improving the personalization element of the fitting process, of course to get the best possible fit to the individual, but also to work on improving the individuals buying to the solution they are getting. We have a very interactive and intuitive fitting nephrology around that that we believe will support dispensers in selling in premium products to end users.

Main element in Alta is a strong improvement on the audiological side driven by a range of new features, of which there were best or most important to mention is the improved version of our Speech Guard system that I'll get little bit back to, a further enhancement of our ability to present the most Spatial Sound picture, a strong, strong element of ground personalization and then a completely new feedback system that have a unique ability to maintain a high frequency sound, gaining high frequencies or ability in sound quality and still eliminating both more dynamic as well as more static feedback situation.

The core element in Alta is Speech Guard. Speech Guard has this unique element of maintaining very, very good dynamic – or the full dynamics of the very small elements of the speech signal even in noisy environments where you normally would get a lot of compression, where we are able to keep the dynamics and the dynamics of the speech signal, which gives a much better and more holistic sound picture to the end-user and we kind of move the compression to the areas where there is no speech present which gives a much fuller and natural sound picture, which users have confirmed give a more natural and easy to understand and easy to listen to a sound picture.

Combining that with our Spatial Sound philosophy with very extended bandwidth, strong binaural signal processing, very open fittings and RITE Solutions, strong emphasize on RITE Solutions then we all-in-all have a very, very natural and a high-performance speech processing that enables this ability to do very, very well in most complicated listening situations and still maintaining a ease of listening that to our opinion is not available from competition.

NEW (in) Alta is the philosophy of making the product very dedicated to the individual. We have quite a intact fitting process, which enables our dispensers of a very high level of interacting with the end user, taking the more subjective elements into the fitting of the product and with that moving, you could say, beyond what is available in a normal audiogram and we already now have positive indication from dispensers that this gives this more interacting and engaging process. We do, of course, hope we can with processes like this further reduce the resistance of, especially the first-time users in engaging and getting hearing solutions.

So, in summary, strong improvements on performance, reduced listening effort and improved personalization and we have no doubt this delivers a significant improvement to end user satisfaction, which is confirmed even for users of Agil and therefore we are positive and look forward to the further rollout. So far we, of course, mainly talked to our good and well known customers and time will show the products' ability to move into newer customers.

On the more hardware side, we have strong improvement on the whole speaker system for RITE solution. It's a very comprehensive RITE program we offer, both in types of hearing aids that goes – are available with a RITE solution, but also the range of RITE solutions and new very small speakers have been released.

Also, on the custom hearing aid side where you don't need to talk (too many) to know that we might not have had the strongest position in the past. We have with this new Inium platform enable us to shrink the wireless system significantly and being able to build much smaller cosmetically attractive products that maintain the full benefit of our wireless performance.

Moving to connectivity, we have launched a new – totally new ConnectLine system that is much more robust as a new elegant design and further enhance the number of applications that are supported by this one solution fall. We have improved solutions for office phones; we have improved solutions for Voice over IP; we have T-Coil and FM support and all-in-all, the most user-friendly and easy to interact with system available in the market place. So with this, we have started the launch of a new platform that we of course over the coming years will use to give a general upgrade on our product portfolio in total.

I would also give a few words, even though I'm not deeply into it on Bernafon and Sonic. On the Bernafon side, the growth that we have seen in '12 and which will continue into '13 is driven by is basically the Chronos family that delivers a good performance, as well as the more priced competitive and easier products.

If we go to the Sonic side, we are now – for Sonic in the move of renewing their product range as technology are being made available to them. In '12 they launched the Flip which is a receiver in the ear product range, and over the change of the year they have launched the Bliss products in both BTE and custom products on the two price categories and in '12 as well, they released a lower priced called Pep 20 product which will drive growth in export and more low-priced markets. Thank you.

Niels Jacobsen - President and CEO: Okay then I will come back and talk about Oticon Medical Business highlights. Oticon Medical have been a success story for us. They have basically been in the market for three years now and have gained significant market share all over the world and of course, especially and only in those markets where they have introduced the product but they will and have each year continue to expand into new markets and in each market, they after a period are delivering a very nice market share gains.

Four out of five we have made test and independent trials. We have seen that four out of five prefer – users prefer Oticon Medical Solution compared to competition and of course this is the main sales driver that people try the products and listen to the products and by that become very confident in what to choose. But also our audiologist and surgeons out there are getting the message that the product improvements compared to competitions are adding significant value for their patients.

Also on the implant, we have introduced a new and innovative implant system that is making the implant process easier and quicker. We will in the coming years continue to expand the Oticon Medical business into new markets and the model we have where Oticon Medical is building on both the technological backbone and the distribution infrastructure that Oticon have all over the world is delivering very nice results.

With this, I will move into the outlook for 2013. In '12, we've had a year just before the introduction of our new high-end product from Oticon meaning a flattening out of the development that delivered very high growth in '10, '11. We expect to be back on the gross target as a natural part of this high-end introduction. We don't see any significant changes in the environment. We expect the hearing aid market to deliver modest value growth. The whole pricing is difficult. There are a number of positive elements to the pricing side and that is mainly driven by many, if not all, manufacturers introducing new high-end products, but also on the negative side we see some of the markets, especially in Europe where we have seen public tenders and other being more focused on mid and low-priced products and that will, of course, take some of the upside out for the market.

We as a company expect to grow our market share with about one market share point, as you'll remember, we have been able to grow between 0.5 and 1.5 percentage point market share in most years since year 2000 and we expect to be back on that track in 2013.

Our retail business expects to deliver organic growth rate on par with the underlying market. Our Diagnostic Instruments business expects to capture market share in 2013 based on the organic business and operating profit will be better in 2013 than in 2012.

The last part will be our capital side where we expect to maintain our aim to have a net interest-bearing debt between DKK1.5 billion to DKK2 billion. We ended the year at DKK1.8 billion and we will continue to make share buybacks to secure our net interest bearing debt in the range of DKK1.8 billion to DKK2 billion.

So what is the – what you could call the uncertainty here is our success rate on new acquisitions. We will continue to search for good value creating acquisitions and the rest of the cash flow will be delivered back to shareholders through the share buyback program.

Looking at the total revenue, you should also note that acquisitions taken place in 2012 was delivered about 2.5% spillover growth into 2013.

Then some upcoming events, we have two days where we can meet investors. One would be the presentation for investors, analyst and journalist in at the AAA Show in Anaheim, in California on Thursday the 4th of April at 3.00 pm at the Anaheim Marriott. Then we will host The Capital Markets Day for investors, analyst and journalist in London on the 19th and 20th of June in 2013.

With this, we will open up for question and answers.

Transcript Call Date 02/26/2013

Operator: Justin Morris, Bank of America.

Justin Morris - Bank of America: First question just related to your EBIT guidance for 2013, I just wanted to confirm whether the guidance is based off the DKK1,653 million reported EBIT for 2012?

Niels Jacobsen - President and CEO: Yes, it is.

Justin Morris - Bank of America: Would you be able to walk us through the one-off effects that you've had in 2012 that we should be adjusting for, such as hedging losses or any of the effects in Norway that might not repeat?

Niels Jacobsen - President and CEO: I think it will be too much to try to take all one-offs pros and cons into to help you on the guidance. I think we have elaborated on those we want to mention in the annual report we have a general tendency that we see all cost of the income as normal. That doesn't mean that we don't explain what's happening out there in the marketplace and we could see other markets next year having some changes. We try to deliver our P&L based on the (IFSR) regulations, where we take all cost as cost and all income as income and that's where we are coming from when we are guiding.

Justin Morris - Bank of America: Should we be reading anything into the fact that you haven't called for double-digit EBIT growth like you have done maybe in some periods in the past or is that reading (as you) mentioned to the statement?

Niels Jacobsen - President and CEO: You can argue that it's not very precise and it's open ended and that's true, but it is a reflection of the uncertainty we see if we were very precise in our guidance, we would indicate to you that and we had a very precise that it was easy to deliver a precise number going forward and that will not be fair. It is a lot of uncertainty; we have just introduced our new high-end product. We have good confidence in the product and we have a number of acquisitions coming in from 2012, so we have good confidence in a growth year, in a very uncertain world. So we are confident that we will deliver growth in earnings, in revenue, but it is too early to reduce the uncertainty on where we expect to land for 2013.

Justin Morris - Bank of America: Sorry to press the points a little bit, but just looking at the consensus EBIT for 2013, it seems to be above DKK2 billion which implies over 20% growth on what you've reported today. Can you give any kind of color on whether that could be achievable given your top-line guidance?

Niels Jacobsen - President and CEO: I think it would be totally unfair for me to start commenting on consensus. I think the guidance we have given is as precise we want to do it. As I said, we will deliver growth in EBIT for 2013 and it is open ended. So I cannot be more precise than that.

Justin Morris - Bank of America: I was interested in the pricing commentary on the market and both yourselves and one of your competitors have called for pricing to be in 2013. When historically when companies have launched hearing aids the pricing has gone up. Are you expecting reimbursements cuts in enough markets to offset the pricing increases with the product launches?

Niels Jacobsen - President and CEO: I think what I said was that when you are looking at the positive side, that the new high-end introductions will deliver to the market. You also have to look into the possible negative parts of it and that is there are number of markets where reimbursement structures have – for instance in Denmark, for instances in other markets where the publican are not willing to give full reimbursement for high-end products and that can affect the market. So, we have also seen in 2012 that the U.K. market that have very low prices are growing faster than the average (world) market and that of course also have a dilutive element. So when you look at ASPs, it's not pricing – we are not concerned about pricing on comparable products, but we will see in some markets, especially the more commercial markets where the high-end share of the total market will grow and by that support positive ASP development and there will also be other markets that will grow other parts of the world – other channels and markets that are selling below average and by that are reducing having a reductive element to the ASP.

Justin Morris - Bank of America: One, last question if I may, just looking at our Diagnostic business, it seems to have been negatively organically in the second half, and one of your competitors has had very strong growth. I was just wondering if there is any market share loss you think you are having there and whether there is any products you are about to launch if you are end of the product cycle there and that sort of could accelerate in 2013?

Niels Jacobsen - President and CEO: No, I think the Diagnostic market is quite different from the rest of the market. Yes, as you said, we are introducing and have been introducing new products in the latter part of 2012 and then the different between the hearing aid market and diagnostic market is that there are some very big tenders compared to size of the market. So if player are winning a bigger tender that is enough to give a picture as you are painting.

Justin Morris - Bank of America: In terms of product launch, is there anything you think that would have a material impact on 2013 or is it just tender driven.

Niels Jacobsen - President and CEO: No, it is not only tender driven, but I'm just saying that there are big tenders in this market that from time to time can influence significantly a single players development, yes.

Operator: Michael Jungling, Morgan Stanley.

Michael Jungling - Morgan Stanley: I've three questions. Firstly on the Alta launch, you mentioned in the annual report that the feedback has been extremely positive. Can you define the components of what you mean by positive? Is it the anecdotal feedback that customers like it or are you actually referring to a very nice uptake in orders from the customers that have been trained on it? Question number two is on the largest sales channels. Niels, you mentioned at the EUHA meeting that there was a strategic focus of focusing more on larger accounts, higher volumes but low price. Can I get a sense of how that is progressing for the year 2013? Do you have a significant pipeline signed up for some of the larger customer I think which we will know who they are? Then the last question I have is really on accounting on provisions. If I look at Page 61 of your annual report, it seems that the provisions that you've got today versus last year are lower and hence you may have had a 100 basis points of margin improvement purely based on how you're running your provisions. Can you explain to me why you would have lower provisioning when total sales and so forth have gone up?

Niels Jacobsen - President and CEO: The last one could be I am not fully sure and if it's not correct we will come back to you, but it could be the payout of the provision for the ETG case, the patent case. But I'm not sure whether that's the case, at least that out of my head one I will say that we have provided for the damage payment that we paid at DKK118 million or yeah DKK94 million we had provided for the patent case that was paid out just before year end. But coming back to my comments, at the German Congress and Soren will come back to you on the Alta question. I think what we said at EUHA was that we want to build up the Bernafon and the Sonic brand to be able to support larger accounts and accounts where the audiological support, training is not as important or at least they are not willing to pay for, but where they will like to have good, high-quality products from us in a Bernafon and Sonic brand or unbranded. We're ongoingly developing those two brands to beat the price factors for us in the marketplace so that we are protecting the Oticon brand in taking those price fights. Of course, the aim is to get higher volume sales in the segments in the markets where the pricing is low, we cannot continue only to focus on the high-priced segments to continue to gain market share when you are in the 20s with your global markets here, you can only take market share while you don't have it and that's why we are beefing up our Bernafon and Sonic program to take that fight. With this, I will give the word to Soren and he will come back on our confidence level on Alta.

Soren Nielsen - President, Oticon: The feedback you mentioned is primarily anecdotal from good customers and our own feeding of end users, however, uptake is in line with our plans so far but we are only talking about four-five weeks, so it's very early days.

Michael Jungling - Morgan Stanley: Perhaps a follow-up question on two things, firstly Niels, when you mentioned that Bernafon (indiscernible) being used in larger chains, do you have specific targets signed up for 2013? I mean one of your competitors has been very successful in the U.S. with one major retailer and our thought that there is a level of urgency perhaps to also make some inroads in those customers?

Niels Jacobsen - President and CEO: I don't know whether it's Costco you are talking about, but if it is, then Bernafon has a significant share of its business in the U.S with Costco, so if that's the case then that's the answer. In general, we have all customers around the world as our targets and we are working diligently with very detailed lists on where to go in with what products, with what brands, so it's an ongoing process and that will also account for 2013.

Michael Jungling - Morgan Stanley: Then for Soren one follow-up question please on your comments about Alta. We've only had a small number of interactions with audiologists who have been trained by you in the United States and there is no doubt I think it's a good product but some of them have asked the question is we're not quite sure what the unique selling point is here, is this just unlucky would you say that there has been a little bit of a lost message to customers when you first marketed Alta and is there a need to tweak some of the marketing messages?

Soren Nielsen - President, Oticon: That I would see as coincidental. I would see that as coincidental. I was participating in our launch for 900 customers in New Orleans four weeks ago and I believe we gave a very clear message on the products' uniqueness.

Operator: Martin Wales, UBS.

Martin Wales - UBS: Firstly, could you little bit more (say about) what reimbursement changes you're seeing in Europe this year? You had demo, but anything else specifically? Secondly, I think one of the previous question was asked about P&L hits. You highlighted a DKK40 million hit from Norway. Have you recognized that in 2013 yet? How should we think about Norway going forward? From hedging perspective, I think you highlighted DKK100 million more hit in your Annual Report in 2012. You gave us the sensitivity for '13, but today's exchange rates were (indiscernible).

Niels Jacobsen - President and CEO: Okay. About reimbursement system, of course, some of the changes that were introduced mid or late '12 will have impact in '13. Denmark, Holland are some of the places, but I'm not saying that's all coming back to Norway, then (Oticon) system changed during 2012 and having 35% to 40% of market share in Norway it, of course, hit us more than anybody else. The consignment system works in a way where not only are we going to deliver the products upfront before we can invoice it, but also the customer, the end user will have to be fitted and accept it, the product at meaning after trial period before be allowed to invoice and that puts a quite a long delay. So, of course, the invoicing will come, but compared to '11 it hit us with the DKK40 million in '12.

Martin Wales - UBS: Sorry so you have or you have an invoice in Norway at all yet?

Niels Jacobsen - President and CEO: No, we started invoicing in I think October, November but at a lower pace than – we are still at lower pace invoicing than we are filling up the consignment stuff. Currency hedging, you also had a question about that. Yes, we had a loss on that, that was DKK101 million for 2012 and due to the changes in the currency environment, hedge contract will now (add) compared to it, but to a lower level of currency, to lower currency level the basket have reduced. Compared to the fall of 2012, the currency basket that we are trading in have reduced in value, but that, of course, then are protected to some extent by the hedging we did in '12 for '13.

Martin Wales - UBS: In today's exchange rates what would be the impact on '13?

Niels Jacobsen - President and CEO: It's extremely complicated with all the ups and down with the currency, so today there is a – at the end of the year, there is a gain about half the size of the loss last year.

Martin Wales - UBS: One very quick follow-up, I think you indicated that you've launched ultra 2 price points, so you've seen us, at least two of your competitors launch more price points in the last six months, not just launching new high-end products. I mean you are fairly robust in your views on that strategy versus your strategy at the European Union Hearing Aid Meeting. What are your thoughts now?

Niels Jacobsen - President and CEO: So that's unchanged, we have a introduction strategy and a pricing strategy that we think is the right and we still think is right. So, no change in that.

Martin Wales - UBS: What do you see is the risk of your competitor strategies?

Niels Jacobsen - President and CEO: One comment to that, you have to remember that, at least for some the cost that are being paid is that these families are not complete. So what they are going to spend the next period on is completing. Some amazing, they are RITE styles, other amazing other parts of their ranges. So you could either chose to go from top to bottom and then fill up across the style or you can take a full style range and then take it from the top and we definitely prefer the latter.

Operator: Maja Pataki, Kepler Capital Markets.

Maja Pataki - Kepler Capital Markets: I have actually three. First of all, you mentioned in the Annual Report that you share with the VA did not really develop as successfully as you would have hoped. Could you give us some more explanation, what has – what is going on that site? Second question, also with regard to the Annual Report, I believe you've mentioned somewhat that the higher distribution costs in 2012 are partly due to the acquisitions and also partly due to putting more money behind the launches and I was wondering what kind of levels should we expect for 2013, just to get a feeling for where are you in your launch costs? Then the last question is on guidance and I'm sorry if I'm going to be a bit picky here, but you are guiding surprisingly this time on local currency growth for the hearing aids business compared to the market with so many moving parts. As Michael has highlighted, you have been plugging your strategy going into in different kind of channels with Bernafon and Sonic which will imply a strong growth, but a negative ASP development most likely. At the same time, you have a new high-end device which should promise a positive impact on ASPs and profitably some market share gains in your existing independent markets. Can you give us a bit of a feeling on what or how you see your revenues being consisting of for the year or is it a bit up to chance, so shall we read the guidance a bit like we'll see where we can generate the growth?

Niels Jacobsen - President and CEO: I'm sorry that it is as uncertain for us as it is for you, how successful we are in each of the channels; it's not easy to predict. What we try to do is to give you some flavor for where we are focusing our efforts and you know from history how successful we have been with our focus in the different areas, but of course we don't know competitor reactions and so on. So it's not much easier for us to qualify our guidance significantly better. We feel that if we are very precise, we are indicating to you that it's something we know precisely and we don't. But we feel confident that we are able to gain market share with around one market share point in 2013 with a non-predefined mix, but hopefully and expectedly Alta will be the main driver of that. Secondly on the distribution cost, yes, a significant part of the over normal growth compared to sales growth in distribution cost is coming from acquired distribution companies, and of course, we know the companies we have already acquired but we don't know what we haven't acquired yet for 2013. So it's also difficult to us to guide you precisely on that. But we are very cost conscious. We are focusing on reducing the cost development you have seen that in our R&D spend, you have seen that in our admin cost development that is actually also including some cost from acquisitions. About the launch cost, of course, there is up to just before launch of (a size) of Alta, there are launch cost being spent and most of them will be spent in December, January and February. So we have expensed some launch costs for Alta in December but there will also be some to come in January and February. Then I think Soren will comment on the VA situation.

Soren Nielsen - President, Oticon: The VA situations as we have said many times is waiting list system with a lot of pressure on efficiency and fittings, while the access to talk about products and (others) is very limited, and we almost see the same situation in VA as we experienced in the National Health Service in the U.K. that the habits of fitting the number of times you are fitting a given brand creates a very strong tie-in for the larger brands that are difficult to get out. My take is we have seen Sonova take a little bit losses. We have seen Starkey get back. They have a strong history with the VA and then Siemens seems to have loss of market share, and then basically everybody else in there and in various areas, whether it is product or geographical areas have some success and go up and down around a 10% market share and thus it is difficult to get from that position and earn. We will, of course, try to take advantage from Alta and our new custom range there. There is a lot of custom products fitted in the VA among us a little larger custom products with the 13 size bandwidth and so on which we did not have in our current portfolio and we hope we can use that to generate further growth in the VA. But it's not just about products, it's difficult to get access.

Stefan Ingildsen - SVP, Finance: Stefan speaking here. Just a brief follow-up on the distribution cost. When you assess these costs and the 12% increase in reported currencies on a reported basis, 5% was currencies and then acquisition accounted for another 3%, so only 4% left what you can call the organic increase and distribution cost which is short of relatively modest and then I think time is running and we will take the last participants questions please.

Operator: Klaus Ortoft Madsen, Handelsbanken Capital Markets.

Klaus Ortoft Madsen - Handelsbanken Capital Markets: Getting back to the mix on the growth into 2013, I was wondering if you could give us any qualitative indication on the growth of the Oticon brand versus the Bernafon and Sonic brands as we see somewhat more similar growth rates here despite the Alta launch. Then on the cost side, you already touched a bit on it, but would it be fair to assume similar underlying growth trends on the operating cost components into 2013 and will there be a net positive impact from the efficiency initiatives that you have been implementing at least over the past few quarters into 2013 and then my final question relates to the organic growth rates per geographic region, I guess the numbers you gave in your presentation material are local currency rates, so if we could get the underlying growth that will be great.

Niels Jacobsen - President and CEO: That was a lot of questions, I will whether I can get back to all of them, percentage wise growth between Sonic Bernafon Oticon, I think is difficult, but in material a lot of the growth will come from the Oticon brand, it is by far the biggest brand and by that with high-end launch, we should expect Oticon to deliver a significant share of the growth in our wholesale business. On the cost side, there is no reason to believe that there is any significant jumps in the cost base compared to the organic cost growth you have seen in 2012 and we will continue to improve our efficiencies and it's – we don't do those big projects and then certainly it's finalized and then we get a lot of benefit from that. It's a continuous improvement basis, where we continue to improve, we continue to restructure, we continue to move facilities together to reduce our total infrastructure cost and the cost and the benefits on a continuous basis. So you shouldn't expect any jumps, but this will of course support the ongoing growing profitability whether it is on infrastructure cost side or it is on the unit cost side. No, we cannot – we don't see any significant differences in the growth rate, if we look at the global development, we see this 2% to 4% unit growth in most markets. We have never been able to predict which markets are growing faster and which are growing slower in the beginning of the year. So we get our share and that's why we are guiding on top of the market development, we get our share in the markets and we will gain our market shares in all markets, that is our expectations. So we will develop our business in line with how the global market will develop.

Stefan Ingildsen - SVP, Finance: Regarding the question on growth in regions on Slide 8, the missing part here is, of course, the acquisition impact and we had 1% positive impact in Pacific, other and also in Europe and North America was 5% impact and Asia was 2%. I think this concludes today's call thank you everyone for listening in. We are going to meet most of you in the coming couple of weeks. Looking forward to that. Thank you for now.