Demant A/S

CSE:DEMANT

Earnings Call Transcript 2018-Q1

[Søren Bergholt Andersson, Vice President of Investor Relations]

Welcome, everyone. Thank you for participating in this conference call, held in connection with our statement released this morning. The duration of this call will be a maximum of 45 minutes, including Q&A. Today, the company is represented by Søren Nielsen, our President and CEO, as well as René Schneider, our CFO, together with the IR team. I'll now hand over to Søren.

[Søren Nielsen]

Thank very much, Søren, and welcome, everyone. The agenda for today is I'll take you through key takeaways first, then a little more details on the hearing device side of business, the hearing implant, the diagnostic, personal communication, few other matters, outlook and then open up for Q&A. Key takeaways for the year-to-date of the business, very strong momentum in the group continues with substantial organic growth rates across all business activities. It is still, in particular, the wholesale of hearing aids that drive strong organic growth. We have gained significant market shares particularly in the independent channel as well as in U.S. Our hearing aid retail business has seen low organic growth, however, with material differences across individual markets. Hearing implants have seen organic growth in line with the -- our estimated market growth of 10% to 15%. We expect the growth to accelerate throughout the year as the newly introduced Neuro 2 starts to be implemented to more new patients. Right now, a lot of energy is going into upgrading Neuro One patients that were promised Neuro 2 as part of the implantations done last year. Continued positive momentum in the Diagnostic Instruments business with very strong organic growth. Full year outlook maintained, which means an EBIT of DKK 2.55 billion to DKK 2.85 billion before the announced restructuring costs of, round numbers, DKK 150 million. Hearing devices, first of all, an update on the hearing aid market. Most of our data points is related to first quarter and based on that, we maintain our expectation of 4% to 6% global market growth. It is possibly, or at least the first quarter, it was towards the lower end. The U.S. private market grew around 7%, however, Veterans Administration was slightly negative in Europe. We have seen good growth rates in both Germany and France and a number of other markets whereas the U.K. have had negative growth, as demand from NHS, the U.K. National Health Service, have been low and in total then more modest growth in Europe. We assume high growth rates in Asia. We don't have a lot of data points outside Japan, but we believe the Chinese market is growing quite rapidly and have also seen good growth numbers in Australia. We continue to estimate a slightly negative ASP development, mainly driven by geography and also some channel mix whereas the ASP is relatively stable channel by channel. There is, of course, competitive environment, however, all manufacturers launching premium products also positively impacts the ASP. Overall, estimated market growth is in 2% to 4% in value, and it is of course in the slide that we talk about market share gains for the group. Strong organic growth in the wholesale of hearing aids. We have seen the good momentum continue and sure, we have gained market share in value and this has been underpinned by a positive mix changes that up the ASP further, and hence growth. I'll cover little bit back to the unit side, but mix changes have impacted ASP positively, particularly due to strong growth in sales to the independent across the world. But in particular also in the U.S., increasing the share for flagship products from all brands, meaning the latest introductions from Oticon, Bernafon and Sonic still drives the main growth and then again U.S. including the VA have delivered a very strong growth.Solid underlying unit growth, year-to-date, if we adjust for 3 large things. We, still in the first 4 months to 5 months last year, had significant sales to the large European chain that was sold to a competitor to which we have no sales today, and it was substantial unit numbers but at a very low ASP. We have also seen significantly lower demand from NHS than we did same period last year, and we had a few very large orders and very low prices in the first 4 months of last year that have not reoccurred this year. And again, if we eliminate these 3 factors, we also see a solid underlying unit growth in the remaining market. And so in absolute numbers, we are very convinced we take solid market share and value and disregarding these 3 areas, we also move forward and take market share in the unit perspective. Coming to the retail side of the hearing device business, we see material differences across the different markets. We have seen in total, a low organic growth in the first 4 months. However, again with big differences in Europe. We see a very strong performance by Audika in France. High organic growth, good ability to on-bolt new acquisitions and [ uniquely ] grow sales. Poland also contribute positively, where Sweden, due to adverse market conditions have seen some negative organic growth. However, this is a typical Scandinavian high volume model, where the productivity is essential and we believe, we are in good shape to overcome these challenges. In North America, the growth in the period have primarily by -- been driven by smaller on-bolt acquisitions, whereas the organic growth in U.S. have been below the market rate, whereas in Canada, we have delivered solid organic growth.Despite negative market conditions in Australia, which is driven by a worsening of the product mix as more people are going for a free-to-client hearing device instead of topping up, we've seen pressure on the ASP. However, volume have also there gone up. There is some similarities to the Swedish situation and we have managed to improve our productivity. So we fit more clients than ever in our [ hearing aid ] retail and I'm sure that this environment also see some improvement hence recover in the coming periods, also there, we believe that despite a few short-term issues, we are ready for the future. We continue to launch new innovative products in the hearing device side. At the AAA, we showed our RemoteCare solution. It might look quite advanced solution that allow real online scheduled appointments that can supplement a physical appointment in a shop, where you can do a real face-to-face live consultation and counsel the patient and also do live adjustments that can immediately be tried out by the end user and see if things work or what kind of adjustment makes more sense. We primarily have done this, as everyone know, in connection with cooperation with Veterans Administration, where it's productivity issue, where it's about waiting list, but we are sure now, [indiscernible] could bring it out in further test and trials. We'll also see how this can improve the individual or private practitioner's ability to stay in closer contact with the modern connected user that we see more and more. We don't see this as anyway replacing the in-office visit but a supplement to this and that's the reason for the RemoteCare and we see this as part of the overall health care model. We also showed a HearingFitness app, which is an app that track different data points from the hearing aids and correlate them with other data points tracked by typically a smartphone and through some data analytics, come back to what can you do to make sure you exercise your hearing so to speak in order to maintain your cognitive abilities and your ability to interact with in social gatherings with other people. Then full connectivity and streaming capabilities for Bernafon and Sonic with the ConnectClip that's now also added to their product portfolio and will further fuel the interest around the product concepts. May 1, we have launched along with other things, especially on the software side, a rechargeable option for Oticon Opn as well as the ConnectClip in the VA system and we of course also expect that that can be part of further strengthening our position in that channel. So all-in-all, good news flow that will continue to make our new innovative products from all brands move forward and I'm sure, we also ahead of us will be able to drive growth and market share gains based on the strong platform we stand on.Hearing implants, we have seen overall growth in line with the market. We don't have many statistics but expect an estimated 10% to 15% market growth. We grow in line with this. The bone-anchored business is still driven by organic growth from the -- mainly driven by the Ponto 3 Super Power. This is in many markets becoming the new norm for bone-anchored solutions due to the increased head room and with that improved sound quality. So still very positive response to that product concept and significant growth driver. Even though, the year is a kind of in-between year with somewhat limited product news flow from on the bone-anchored side. On the CI side, we got our CE marking for the Neuro 2 processor, end of February. We are in full launch mode all the markets where we have access and again, most of the efforts so far have been on upgrading existing Neuro One users to the Neuro 2 processes. A high number of users were offered a upgrade including in their choice of Neuro One already last year and therefore, we have a task that we're in the middle of, which is this upgrade of existing patients. That takes somewhat energy away from new fittings, but we of course expect that to come back throughout the year and therefore, growth accelerating.And it is a very strong new package we have launched. We have the new implant, which is known for its atraumatic surgeries, very good safety when it comes to MRI scannings and very high reliability data, it's small, the surgery is easy. The new processor is very small, the world's smallest, very good aesthetics and with the new rechargeable system that has very good power performance, you really get a cosmetically very, very attractive solution. The BrainHearing technology coming from the hearing aid side deliver significant improvements to speech understanding in noise and again with the Neuro 2, we have even seen some further strengthening of the performance coming most likely from the better ability to fine-tune the system to the individual needs, as the new fitting suite that has been launched have also gotten very good feedback. And just a few more words on the launch. Again, we have upgraded more than 250 patients. We get very, very positive feedback. The upgrade is relatively simple and easy. You simply replace the processor and for only a very few people you have to do further fine-tunings once the image, the map, the setting, it has been transferred from the old to the new processor. People immediately recognize the wearing comfort and cosmetics, the sound quality, the usability and the rechargeable battery solution and are very happy and satisfied with the new look -- solution. Professionals are excited about the easy to fit and the quality of the new Genie software, and we only have very few suggestions for improvements that are all work-in-progress and we look forward to get this out and see a further strengthening of the system. We see more and more clinics show interest in working with the Neuro system and again, the feedback from the upgrades are very, very positive. And based on that, we of course expect that we can accelerate growth throughout the year as we start to enroll more new patients in -- more new patients scheduled for implantations of the Neuro system. Diagnostic assistant, Diagnostic Instruments. Very positive momentum has continued. It is still centered around innovative new products, very strong global distribution setup and the growth from new business areas, parent/newborn screening being the 2 most important one. It has mainly been often -- there has been growth all around the world, but Europe in particular has done very well and so has the Interacoustics brand, that is a strong brand in Europe. So these 2 things are correlated. But all-in-all, very solid and strong performance in the diagnostic group, continues as we saw it last year.On Personal Communication, which is our joint venture, Sennheiser Communications with German Sennheiser, we have seen very strong growth. The joint venture sell into the Sennheiser distribution system and therefore, there's always little bit of stock movement, but if we look at sales out of the Sennheiser business, we see very strong year-to-year growth, and this has -- is reflecting an underlying strong momentum in the business. Right now, under this period has been primarily the gaming and mobile business that have performed really well. The CC&O has been a little more modest, but this is also very sensitive to large scale orders. This is more and more big contracts with larger corporations and therefore, there is a growing sensitivity in the CC&O for the exact timing of these large scale orders.Other matters, our strategic restructuring initiatives continue and follow plan, meaning that we will realize a DKK 200 million saving compared to the 2016 cost base when fully implemented. This is unchanged, no changes there. And we expect the restructuring cost in 2018 should be around DKK 150 million, this is also unchanged.The share buy-back program, we continue to have a very strong cash flow from the business and still expect to buy-back shares for worth DKK 1.5 billion to DKK 2 billion in 2018. So far this year, we have bought DKK 431 million, and we continue to buy-back and will get in the range for the full year.Looking at 2018, and the total hearing health care market, we have no changes to our market outlook. We expect a value growth of 2% to 4% at wholesale level in hearing aids, which reflects a unit growth of 4% to 6% and a slight ASP decline. In the hearing implant market, we estimate, but it is an estimate 10% to 15% growth across the different product segments of which we address the bone-anchored and the Cochlear implants. And then, diagnostic equipment market in the area of 3% to 5% currently, we assume we are in the higher end of that [ interval ], but this is the expected growth rate for the full year.And based on all this, we maintain our outlook for the year, no changes to that with is a expectation of substantial organic growth with negative exchange rate of around 4% and recalculating that based on the latest development of currencies, there's no changes to that. We reiterate our gearing multiples and relative -- of net interest-bearing debt, relative to EBITDA and expect to maintain the share buy-back in the window from DKK 1.5 billion to DKK 2 billion. And the operating profits is also unchanged from DKK 2.55 billion to DKK 2.85 billion, before the announced restructuring cost of DKK 150 million.And with that, I would like to open up for the Q&A session.

[Operator]

Thank you, ladies and gentlemen. [Operator Instructions] Our first question comes from Michael Jungling of Morgan Stanley.

[Michael Klaus Jungling, MD, Head of MedTech & Services and Analyst]

I have 3 questions, firstly on hearing aid wholesale. When you state in your press release in quotation marks that the momentum continues or I should say, continuous momentum gain last year. Does that momentum would suggest that the growth rates are comparable to last year or that in general, your market share gains continue? Question #2, is on hearing aid wholesale, when do you expect the positive mix benefit from Opn to roll over? And question #3, is also on hearing aid wholesale. Your press release suggests no volume growth year-to-date, and I think in the second half of last year, you also had little volume growth. Is that somewhat surprising that you can't do more and perhaps, you can highlight what the growth rates would be if you exclude the 3 factors that you mentioned before NHS and the acquisition made by one of your competitors? Thank you.

[Søren Nielsen]

Okay, thank you, Michael. I will take all 3 questions and help me out if I have missed 1 of them, making notes. Momentum continues, it actually means both, we believe, we take a significant market share in terms of value and it is also a confirmation that the growth rate is -- I cannot comment on the exact date, but is not fundamentally different from what you saw last year. Looking at mix benefits, we continue to see across all brands an improved mix driven by channel as well as product mix and that is of course that more and more products are of the newer kind and with the Bernafon and Sonic, this has further accelerated the Opn, also continue to grow just the growth in the VA, of course, but also the growth with the independent in general. So we continue to see the mix change improve. And on the unit growth side, it is very important to stress that [ we disregard ] the development in NHS, which we -- is a pure demand, high-volume, low prices that often go up and down throughout the year, if we disregard the previous sales we had to AudioNova in Europe and if we disregard these tenders that always coming up and down, we see a very solid underlying growth in units that exceeds the market growth and I would say, importantly exceed. So we see ability to also [ new unit ] to do solid volume growth.

[Michael Klaus Jungling, MD, Head of MedTech & Services and Analyst]

Great. So can I just confirm then that, so for 2018 year-to-date, we are looking at organic growth rates for the whole of hearing devices of around 8%? That seems to be a correct statement, if you could just please confirm that?

[Søren Nielsen]

No, I will not confirm any numbers today

[Michael Klaus Jungling, MD, Head of MedTech & Services and Analyst]

Okay, all right. And then just a follow-up question, please, on the pricing side or the mix benefit, if you exclude the mix in terms of channel that you sell into, but you just clearly look at mix benefits from Opn, are you still experiencing positive mix from Opn technology or has it now been exhausted sort of 18 months in after the first launch in June, July of 2016?

[Søren Nielsen]

As the product mix continues to improve, meaning, we simply sell a bigger and bigger share of the [ Neuro ] technology platform, where it's open from Audika or Zerena or Enchant, that has a continued positive mix effect and ASP effect.

[Michael Klaus Jungling, MD, Head of MedTech & Services and Analyst]

And finally, when do you expect this to roll over, this Opn technology mix benefit for your 3 brands, are we on the cusp of it, sort of being absorbed now in the base or do you say that, we've got another 6 months or 12 months left of positive mix from Opn technology?

[Søren Nielsen]

I think, you'll continue to see a positive mix effect from the [ Neuro ] technology, eventually all our products will be at the latest technology platform, so that mix change will continue, where it will continue to positively affect the ASP. It's so difficult to judge because it's also mixed up, whether it's happening in U.S., whether it's happening in Europe or whether it's happening in Asia. Opn has just been able to get into the Chinese market. So right now, we see a positive mix effect there, but that's still at the -- our price point in the U.S. So the ASP is a very mixed and blended number that is difficult to give guidance on.

[Operator]

Our next question comes from the line of Christian Sørup Ryom of Nordea Market.

[Christian Sørup Ryom, Senior Analyst]

I have 3 questions, the first is on your cochlear implant business. Can you give some commentary around when you expect to have worked through these upgrades for the Neuro One system? So these Neuro 2 processors that you are now handing out with any revenue impact. And then secondly, you a few days ago released that you will be launching the -- a rechargeable version of Oticon Opn into the VA. Will this rechargeable version be priced at the same price as the existing rechargeables in that channel? And then thirdly, on your U.S. retail business, can you comment on whether you had positive organic growth in this business in the first 4 months of this year, and how the growth rate compares for that part of the business to the second half of 2017?

[Søren Nielsen]

First of all, the CI, it's not that we don't do anything else until we approve, but all clinics would like to see 1, 2, 3, 4 users in and they all have upgrade patients. So we are a good way into it with the [ 250 ], we are far from completed. We expect it to continue throughout this year and potentially even into next year for some, and we will be very focused on now also starting to see further implementations, but it is exactly what makes the CI business, let's say less predictable than the hearing aid business where there is a continued flow. We are the new kid on the block and we have to for each and every clinic win not just the heart and mind of the surgeon but the entire treatment team, the audiologist and so on and this is what we're in the middle of, and we are very positive that based on the good and strong results we see from the upgrades, we will also manage to see an acceleration of growth and of course more invoiced units than we see in the first 4 months. VA, the rechargeable solution, is in this context, an accessory. We sell it as an addition to the hearing aid on a new element in the contract, and we have continuously been a little hesitant to comment on exactly how it would come in because we didn’t know. Now we know. It is a new category and -- of accessory and this has a price tag on its own. U.S. retail business, we can only comment that we are growing below [ Maico ] and I would not comment on the exact organic growth for the U.S. business as we don't do that for any of the other businesses, country-by-country. The main issue in U.S., remains to be to consolidate the many units, we have far in the roll-out of IT systems, see great benefits of better insights and ability to manage the business. It is still obvious that the many brands put limitation to the effectiveness of the marketing effort and that is right now our key focus also to improve there.

[Christian Sørup Ryom, Senior Analyst]

Just a quick follow-up. Can you comment on what the trend is for the U.S. retail business compared to the half of '17, so whether the growth there is accelerating or decelerating?

[Søren Nielsen]

No, we don't do that. But no doubt, we gave you the -- they were very busy at the end of the year. And there is always, of course, also maybe a little spillover effect that you see then a few more returns than you expected and so on. So the start of the year was soft and of course, we are managing the business and then throughout the period, see some improvement of it. But there's also Easter that is different this year than last year, and so until we can find many reasons why things are there, but the underlying is around the marketing effort and continuous flow of patients into the shops, and that is our main focus right now.

[Operator]

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

[Maja Pataki, Head of Med Tech Devices Sector]

I just like to understand a bit better the unit growth. I mean, last year, you were giving us an indication on what's the AudioNova impact was in the second half. Could you just comment whether it was a similar impact that you saw in the first 4 quarters if we were to annualize it? And then it will be really helpful for us to understand if you could rank the impact from the 3 sources that you've given us like is AudioNova the biggest hit you took on volumes and what would be #2 and #3?

[Søren Nielsen]

Thank you very much for your questions. First of all, the monthly run rate in that business was relatively stable, so you can compare the first 4 months basically to the 6 months we lost. However, there was a little bit of sprint of getting what they needed at the end, but it was marginal. So you can see it I think very much in line with the second half, last year. Of the 3, AudioNova is the biggest, but also these large tenders that were in particular, 2 very substantial ones in last year. Obviously, they had the majority, but the NHS is also a significant negative organic growth in that due to negative, you could say, market or channel development and we are by far the biggest supplier, so once that market is a little bit down, we immediately see it on our unit growth, but the 3 together is substantial unit numbers on a 4-month basis, quite substantial and that's why, it can bring, almost take all unit growth away. And if we disregard them, as I said to Michael, we are still seeing solid unit growth in the remaining month.

[Maja Pataki, Head of Med Tech Devices Sector]

Great. That’s very helpful. Just to understand something on the tender business. I guess that has no impact on the remaining 2 months of -- or of the remaining 2 months of the first half, that was really just in comparable...

[Søren Nielsen]

Pure comparison, we can also get 2 big ones the next 2 months. You don't have a long lead time on the number of these. So this will always flex up and down and I'm sure, when we come to the half year, we would be able to show more numbers on the exact split between the ASP and the unit sales we have done in the past 2 -- the half year and the full year of '17.

[Operator]

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

[Veronika Dubajova, Equity Analyst]

I have 3, please. My first question is, given the mix of growth in the first half of the year, in particular the ASP strength, I wonder, Søren, if you can comment on whether you are more comfortable in the lower or the upper half of the EBIT guidance range that you've communicated for 2018 and whether the progression has been in line with your expectations on the ASP [ fund ], that would be very helpful. My second question is, appreciate the NHS is weak as a market. But are you seeing any share shifts here that would explain why you're maybe doing slightly worse here than some of your peers? And my last question is a bigger picture question on M&A. There are couple of assets that are being [ removed ] as up for sale and I wonder, Søren, if you could comment on your willingness to pursue larger or smaller transactions and what in terms of, is it retail, is it wholesale, is it incremental channels like managed care. What is the #1 biggest priority for you in terms of M&A?

[Søren Nielsen]

I think, on the hearing aid wholesale in general, we are doing slightly better than planned. It's, I think, obvious from the statement on the retail side, on the contrary, we are little less according to plan, but all-in-all, we are following plan for hearing devices. So you can read it that there we are doing very well continuously on the wholesale and delivering both a very solid ASP improvement and again if we disregard the 3 kind of -- single 1 out, then we are doing very solid on the unit side. The NHS, there is no share loss. This is a demand decrease. There are some hospitals that seem to have decreased their fitting rate a bit, whereas because of savings or whatever it is, we don't have full insight to that. We can just see that by hospital the demands is down, and our market share seems to be stable and solid. And lastly, on the M&A, I cannot comment on specific and we don't have like 1 target. I think, we have continuously said that we look at everything that people want to sell, including what is made publicly for sales and there are a big case out there right now. I think, everybody aware of and we of course get the information we can get and then relate to that and we will come back, if things happen.

[Veronika Dubajova, Equity Analyst]

If I can just ask a follow-up on your last answer. I guess, my question is more theoretical, if you assume all the assets that you potentially might want more for sale, what's the #1 priority for you, is it retail, is it wholesale, is it new channels. Just help us understand, what you think, you need the most for the business to progress the way that you would like for it to?

[Søren Nielsen]

We don't think the business that way. We have to look at what's for sale. I could make all kind of clean scenarios with strong consolidation on the wholesale side, implant assets for sale. Retail consolidation, there is so many positive scenarios of consolidation, but due to ownership structure et cetera, they are just unlikely to happen and therefore, we don't relate very well to them.

[Operator]

Our next question comes from the line of Lisa Clive of Bernstein.

[Elisabeth Decou Bedell Clive, Senior Analyst]

First question, just on your retail business on Australia, it sounds like it is continuing to struggle, which is frankly a very different message from what Amplifon has been saying about that market. So is there a particular reason your business is not doing as well down there because it doesn't seem like the market itself is particularly unstable. And second of all, just seeing it for the past 4 years, you've been reporting an ASP in the negative 4% range and in H2, you posted plus 7%. Clearly, you have been able to pursue a very significant amount of price on the back of the Opn launch given how differentiated it is, but also there's been a lot of changing channel mix, particularly increasing with the U.S. independents, if we were trying to divide up that 11% swing between channel shift and just pure pricing, how would that roughly split, is it sort of 3 quarters pricing or 1 quarter channel shift or the opposite. And then lastly, rechargeables, that was a more recent launch in terms of the line extension for Opn. Should we think of that specific form factor as a major contributor to price uplift or is the positive pricing, you are continuing to see just on the back of the Opn platform more broadly?

[Søren Nielsen]

Let me start with Australia. The Australian market in terms of volume is developing positively, so is our business. Our retail business has experienced a negative development to the product mix, meaning more free-to-client hearing aids and that comes on the back on 1 of these typical TV shows that question why anybody have to pay themselves. And some of our clinics in particular was highlighted at this hidden camera kind of TV campaign. And therefore, I have no doubt, we have been hit a little harder than it seems like some of our competitors, but we have seen a very positive productivity improvement, meaning that we fit much more than we have ever done and see nice unit growth but at a worsen product mix, things like that will improve again over time and I am comfortable, we will also be able to do so.ASP is I would say, it's not pricing, as such. The pricing of Opn line-by-line or product category by product category is not in particularly difference from what we saw -- have seen in the past, but the product mix have significantly improved, meaning our share of Opn 1 is very high compared to previous launches that power these 3 price ranges we talk about. Remember, Opn covers from the absolute premium [ ball ] is down to the middle of the range and we have seen a substantial increase of Opn share of business also comparing to all these 3 price points, but an even stronger mix between, let's say, price point 2 and price point 3, and price point 1. And this gives, of course, a significant ASP effect market-by-market and channel-by-channel. Then we have seen a substantial growth with the independent providers and seen a decline with the large retail chains in particular, of course, in Europe with AudioNova which also is very significant and then we have seen a very positive geography element coming from, in particular U.S., some extent, France and due to our big sales to the [ gears ] business, AudioNova business in Germany, much less from the German market and that in itself also adds up. I cannot give you exact split between these 3 factors. But it is product mix, channel mix and geography mix. So yes, it is driven and ignited by the launch of Opn, that technology, but it's the entire business that is improving, it's mixed basically on all 3 parameters. And that trend continues, that is also what we have seen in the first months of this year. Furthermore, we have been able to add Bernafon and Sonic to the equation and they definitely had a tough time before they got new products, basically, haven't had anything for 2 years. So there is also a very significant ASP improvement for those 2 brands, everything else equal and compared to last year.The rechargeable has a premium. It is an accessory kit we sell. And we typically sell it for $200, $250, of course, varying from country-to-country. And that of course adds revenue, but I wouldn't see it as a price increase on the line-by-line. It is, I think, you can math out, that is more or less is the cost of normal batteries for the lifetime of a hearing aid. So more is the replacement of battery sales for many dispensers, and therefore, they also typically charge a premium for the rechargeable solution.

[Operator]

And our next question comes from the line of Martin Parkhøi of Danske.

[Martin Parkhøi, Senior Equity Analyst]

Also a couple of questions. First regarding to the rechargeable going in to -- to VA. I heard from your competitors that they have been a bit concerned about supply chain from the [indiscernible] small supplier to the battery. Do you have any concerns of any kind of limitations or risk of running into a supply issue, if there should be a significant demand by the VA? Then secondly, I just want to understand on Oticon Medical because you're quite precise in guiding, saying that [ your 2 vehicles ] have been in line with the market, which is more precise than you do for the other business. What kind of signal do you want to send there that, that it has been slower than initial expected and that the market should be little bit cautious on expectations? And then, finally, could you give some -- of course with the significant driver, ASP driver, then that's normally quite positive for margin and [ profitability ] in general. Will we see any kind of difference in the EBIT distribution in the first half and second half of this year compared to what we saw in 2017?

[Søren Nielsen]

Let me first comment on the rechargeable, Martin, and thank you for your questions. The rechargeable in VA, it is a small supplier. They have expanded dramatically over the past 12 months and we are in very, very close collaboration with them on that. It's in particular these battery doors that are manufacture specific and we even do some of the stuff or help the supplier do some of the stuff to make sure there is a strong supply chain. The VA demand is in this context, very small compared to our global size of this. So I have no fear, we can supply VA with even a very successful launch there and we have a very strong ramp-up plan ahead of us. We have also seen shortages from time-to-time between demand and what we get. But it's not that the output is not growing, the demand is just very, very high. And we work very closely with the supplier and see week-by-week growing supply at very high level. So we are comfortable, we can also handle additional sales to the VA channel. Oticon Medical, year-to-date and why did we write like we did. Well, we saw a very high organic growth rate last year of 27% and we simply felt that, we had to give you a little more flavor on what's going on in the medical business and it is normally, so in the hearing aid business once you launch something new and it's better than what you have then sales immediately accelerate, and we can just see that our work clinic-by-clinic and the upgrade program does actually, take a little bit of how quickly you get a lot of new patients implanted. Surgeons and the whole care team, just want to see the results first and the best and easiest way to do so is to upgrade some of the existing patients. So that's, that's what happens right now. It is all very positive. We have already done 250, all very good result. So the general mood out there around Neuro 2 is extremely positive and that's why we're still comfortable. We will see a acceleration of growth, once we see more new patients being implanted. So that was what we wanted to get across and nothing more than that. Then EBIT distribution, then -- no doubt that the AudioNova, of course, and the tendering and all that were in the plans and guidance. We have a no commitment on margins and I cannot comment exactly on how things will flow between the first and second half except that we maintain our full year guidance based on what we've seen in the first 4 months.

[Operator]

Our next question comes from the line of Chris Gretler of Credit Suisse.

[Christoph Gretler, Managing Director in Equity Research]

Just, I wanted to you, and you mentioned a fewer times that you did now some acquisitions on the U.S. retail operation, in the overall context, now could you give us kind of an indication, what we have to expect for first half in terms of M&A contribution?

[Unknown Executive]

I think, our M&A is in the normal flex level of I think we have said before, DKK 400 million on an annual basis, and that's still was happening. The only thing we say is, right now, it's primarily happening in U.S. and then some in France in the remaining markets, we see very little opportunities to do acquisitions and that's why things are as they are. Again the U.S. market, our retail operation in global point of view is large, but there's also no doubt that it is still a very small part of the U.S. market so that's why there is still opportunities to buy smaller entities and add to the existing business.

[Christoph Gretler, Managing Director in Equity Research]

And the other question is on the ASP effect. I mean, if I remember right, you had some time like 3% in first half, last year and then 7% in the second half, last year. Would it be fair to assume that we basically have kind of an average term level of that in first half this year?

[Søren Nielsen]

No. First of all, we don't comment on the numbers, but again the ASP is extremely fluctuating and that's also what we try to describe for you, last year. And now we have seen a lot of the high-volume, low price units not being there in the first 4 months and therefore, you would, if you saw the numbers, you would see, they did not go through the roof, but very high, but that is because it's simply a calculated matter. If you look at it channel-by-channel, we still see a positive mix effect from more sales of the high priced products. We see it from geography, U.S. and we see it from growing sales to independent, but of course, the ASP in each channel is relatively stable and price point by price point, there is competition that put a little bit pressure on, but as long as we are able to win market share then the total still goes up as the market for these products are bigger in the markets with the better pricing.

[Christoph Gretler, Managing Director in Equity Research]

Maybe a bit -- last question, just a bit, you know, a surprise. I mean, everybody if I listen to [ Tian ], Sivantos, now you guys basically indicates that you know they are gaining market share in the U.S. independent channel, is -- what kind of comment would you have on that, is everything coming from Sonova or [ Stocking ] and do you see really any accounts that switch suppliers here.

[Søren Nielsen]

I again, I have the same data points as you have. But there no doubt, you have seen a good market growth in the private sector in first 3 months, Q1 and I think also it is fair to say that most independent see a positive mix effect. This is the channel that most quickly see improvements in mix once there's new innovative products out and that's exactly what's happening in our customer base. We are gaining further market share by winning our customers, but I would say even to existing customers, that already have a high share of wallet, you see a growing ASP, you see a growing value and whether you then gain market share in value, whether the rest of them do, I can't comment on, but I'm sure that our growth rate is significantly above any estimated market growth.

[Operator]

Our next question is a follow-up from the line of Michael Klaus Jungling of Morgan Stanley.

[Michael Klaus Jungling, MD, Head of MedTech & Services and Analyst]

And 2 more. Firstly on the OTC FDA developments. When we met last time in AAA, I think, you sort of mentioned, it could take up to the full 3-year term before the FDA makes a decision. And have anything changed that would allow a meeting or a decision by the FDA this year. And then secondly, on hearing implants, all your comments indicative so far that your organic growth achieved in 2017 of 28% is unlikely to be replicated this year.

[Søren Nielsen]

First of all, OTC and FDA, a full year, sorry a full 3 years still intact. I have no news at all compared to what we said at AAA. On the CI, I will not comment on the full year. We'll have to see. It is -- a lot of things can happen, but it will not be for the first half, I think, I will say that much.

[Michael Klaus Jungling, MD, Head of MedTech & Services and Analyst]

And on the FDA development. A couple of sort of commentators at AAA suggested that there was a meeting coming up by the FDA in June, July with very specific requirements in 180-day comment period. Is this something that you're aware of, or is it just not relevant for the purpose of trying to work out what the FDA is willing to set out in terms of [ reliance ]

[Søren Nielsen]

Main interaction with the FDA happen through the American Manufacturer Organization, here. I cannot state that there is not a meeting where they are called in and their representative is not coming. As an individual company, we are not engaged in meetings beyond that. That process is running, there could be a meeting, I cannot say that.

[Operator]

And our final question is Annette Lykke from Handelsbank.

[Annette Lykke, Medtech Analyst]

Just a final 1, I was wondering in connection with the VA, you are now present at I think around half of the clinics there and you have a market share of around 15%. If you gradually, over time, successfully penetrating the remaining of the clinics. How much more should we expect in terms of market share? My question goes, are you right now in the most likely clinics to use your systems or could we actually see almost double market share once you are fully penetrated in the VA?

[Søren Nielsen]

I think our ambition should be to at least double our market share. But it will take many years and there would be obstacles. We are only selling into approximately half but even 1 clinical had multiple fitters and you can have a 100% share of wallet with 1 fitter and 0 with another one. So our main focus remains to be to grow share of wallet at the clinics we are already in, simply getting more fitters to have preference for the Oticon brand and for sure, the ability to connect to all phones, as well as the rechargeable and some of the other improvements we come with will further improve that, but we of course also everyday try to get new clinic started. But it's not like 1 clinic, it is actually almost by individuals that you may about who has a preference for what and what we are primarily seeing so far is fitters that for many years have been familiar with the Oticon brand and have fitted less because the products were not of their preference, of course and however to drive further market share gains, we will have to grow the number of fitters that have Oticon as their primary choice, whether that is existing clinics or hospitals or totally new hospitals, I don't have those data points.

[Annette Lykke, Medtech Analyst]

No, but my question is maybe also is it normal, I mean, is it the same for the other producers just to be present at around 50% and this is simply just because 50% has a preference for you or is there a chance that you could actually increase that share?

[Søren Nielsen]

I'm sure that Sonova Phonak that have the highest market share in the system are basically in all clinics and with all fitters one way or the other, they have a stronghold in Super Power for instance, that makes them very difficult to fully kick out and I think, that's how it is the bigger suppliers have the biggest footprint. That's the same with us in the National Health Service, where we are the biggest and we come from a corner and that is around half of the clinics by now, and we'll continue both to gain clinics and also increase share of wallet with existing clinic. So you always have a starting point from which you fight your way forward.

[Søren Bergholt Andersson, Vice President of Investor Relations]

So thank you very much. This basically concludes the call. Just before we hang up, just a little bit of marketing. So we are on the road the next couple of weeks and of course also we hope that many of you will join us in London at our Capital Market Day on the 12th of June. If you today have more questions, feel free to reach out for [ Matiaz ] and myself and we'd be happy to answer your questions. So thank you very much for participating. Have a fine day bye-bye.