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Ladies and gentlemen, 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 1 hour, 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.
Thank you very much, Søren, and welcome, everyone. And welcome to this quick walk-through of our presentation. Let me start with highlighting our vision to make a life-changing difference to people with hearing loss. This is what drives our business, our multi-business set up where we address all aspects of hearing healthcare.Key takeaways for the year-to-date, this is a year-to-date update. We'll try to give a little bit flavor to how we have come into the second half. We see, year-to-date, all satisfactory development with significant substantial organic growth in addition to some growth coming from acquisition, mainly in the retail area.We continue to see strong organic growth in the wholesale of hearing aids, exceeding the growth rates and value in the market, we sure we take value market share. We have an industry-leading product portfolio, and we see, in the later part of the period, a significant pickup from our new product introduction that have significantly expanded our portfolio.Hearing aid retail growth, primarily driven by acquisitions and with lower organic growth. We expect the organic growth rates for the full year to be in line with the organic growth rate we saw in the first half of the year.On medical. Our implant business, we see significant growth in many markets, mainly of the newer markets where we have focus. We continued the rollout of the new cochlear implant system and get positive feedback, good results, but we are negatively impacted from our own decision to reduce our activity level in a number of selected markets where the historic business was quite big, but where pricing does not allow us to make significant money and therefore, we have chosen to focus more on the forward-going business and building up in Europe and above other international more attractive markets. This means that we are likely to generate lower growth in the second half than in the first half, looking across the total implant business.Our diagnostic business continued to do extremely well, strong organic growth, significant market share gains, broad-based across the world and different business activities, I'm going to come back to that a little later.Strong performance in Sennheiser Communications driven by high growth rates in gaming and mobile music and a more solid growth, in line with the historical pattern in CC&O enterprise solutions. And based on this, we maintain our outlook for the year of an EBIT of DKK 2.65 billion to DKK 2.85 billion, before restructuring cost of DKK 120 million.A little more on hearing devices. The global hearing aid market year-to-date seems to develop in line with our expectations. We see growth rates in North America, in particular, in U.S., in the upper end of the 4% to 6% unit growth we, in general, expect for the world. Europe, in the lower end, 3% to 4%, driven by France, Germany where we still see a negative impact from the large public channel in the U.K., the NHS, that's still not delivering the units that we have seen in the past. There is fewer people coming through the public service system in the U.K.We have seen solid unit growth in Japan and Australia, even though Australia, especially in the third quarter, have showed a showdown, which is also part of the explanation for our limited organic growth in Australia, in retail.And then very high growth rates in China, that we still believe is probably the fastest growing market, at least, among those with substance in the world today.We estimate a flat to slightly negative ASP and thereby, an overall value growth of 2% to 4%. Retail ASP is, generally speaking, in the individual channels, relatively stable. When things are changing at retail level, it is more due to a different mix of countries and channels.We have, in the hearing aid, wholesale of hearing aid, significantly expanded our portfolio. And I would say, we have the most complete and comprehensive portfolio across brands, across styles, on a new and very competitive platform. It all started with Opn in the spring of '16. And now, we have full freights product portfolios across all 3 hearing aid brands in the higher end with Opn, Zerena, Enchant. And now also, with custom products, and then we have added the complete essential product categories in all 3 brands as well.We announced it late August, we spent most of September, beginning of October, on introducing it worldwide. We are now out all around the world, and see a good impact here in fourth quarter, and are seeing both the custom product as well as the essential product picking up important business and supporting the overall strength and growth momentum in the business.The HearingFitness app is our addition to the general trend of further engaging the end user in using your product, making sure you better understand what goes on, how much is used and how you, in consultation with your hearing care professional can get a better outcome and basically, also document and track that you do expose yourself to various sounds and make benefit and use of your device. Very positive feedback to this app around the world, and we see this as part of a general trend, again, of engaging the end user further in the use of one's own product.We have seen strong organic growth in the hearing aid wholesale. We have seen market share gains supported by the ongoing rollout of the new products. Strong momentum in North America and high growth rates in both Canada and U.S.In U.S., we still see our VA market share continue to expand. We don't know October numbers yet, but soon, we will. And we have launched, also, the custom products as of November 1 and expect to see further uptake based on that.We have also seen, of course, increased competition in the U.S., in the independent channel. A lot of new products are being introduced, a lot of activities, but the same from us, and we still seem to be able to meet up with competition and Opn continues to do well also in the independent channel.Solid organic growth in Europe led by France, Spain and Italy where again, the products we have launched and the custom play a significant role. We also see organic growth in Germany, typically comes a bit later, work quite a lot with consignment stock, and therefore, you always see the realization of the uptake with some delay compared to a number of the other countries.Very strong organic growth in Asia led by Japan and China. In both country, we see a very, very positive development.So we're maintaining a leading position. Oticon Opn still delivers a superior performance for people that are hard of hearing, superior sound quality. We have successfully rolled out the new products across all brand, and we continue to see heavy investments in R&D.There's been a lot of discussions about the mix between ASP and units. We talked about a balanced mix underlying in the first half, and this is what we now see in realized numbers in the second half, not exactly the same, but the -- on the unit side, a solid unit growth in line with what we saw in first half. The main factor still affecting us is a little bit in the NHS, but the remaining business develop very positively in terms of unit and ASP.Factors increasing the ASP year-to-date are increased sales to independent channel, higher share of premium products and better product mix in all brands and basically, all around the world. Strong growth in North America, U.S., in particular, and then we still see the trend of more and more accessory sales to the device itself, whether it's rechargeability solutions or connectivity solution, which, of course, both adds to the ASP development measured by revenue per unit but also to growing production costs as we highlighted in the first half of the year.The 3 factors that gave a very -- high ASP, low -- or the negative unit growth in first half, were the loss of sales to the large chain in Europe that were taken over by a competitor, that was only a first half effect. Two large low-price tenders in the comparison period, and then some negative growth in the large U.K. public channel, the NHS. And again, 80% of this was only related to first half and therefore, the underlying unit development that we saw in first half has continued into second half, and we, in general, see a good strong unit development in the business.Retail, driven by acquisitions, low organic growth, is still with very big differences around the world. And in our picture then we painted at the half year report, North America still mainly growing by acquisition, but the organic growth in U.S. has improved gradually as we already commented on at the half year result. And this continues as we predicted and expected, still below market growth rates but at a steady improvement week-by-week, month-by-month, so we feel we are better in control of the U.S. retail business.Retail in Europe continue to grow well, mainly driven by France, but also a number of the smaller markets but again, show that good consolidated large-scale operations can deliver a very solid organic growth as well as growth from acquisitions.Australia had been negatively impacted by, you would say, low efficiency in lead generation, but we have had to adjust our marketing mix and our marketing messages after we have been met with regulation and have had a fine, as you would have all seen, and this have not yet been able to fully make up for the lack of efficiency coming out of that. So Australia is actually the main reason for the less than expected improvement of the organic growth in the second half so far.And therefore, all, we expect organic growth for the full year to be in line with the 1% organic growth we've seen in the first half, still these, of course, been very sensitive, so this is a rough guidance we are giving here.Hearing Implants, significant growth in several important Neuro markets. We continue to activate new clinics and see, again, a positive takeup of Neuro 2, especially in Europe, but have a negative impact from the decision to reduce activities in a number of lower-priced markets and therefore, the balance between the 2 is so that the negative impact is bigger, still than the positive, but much higher growth rate in Europe.We have almost completed our upgrade of existing Neuro 1 users to Neuro 2 in all the markets where we can do it, where the approvals are in place, it's almost done, and we therefore, primarily now focus on new patients, new implants, and we have more than 1,000 users out with Neuro 2, with very positive results.We, of course, continue to expand the business both in terms of R&D and global sales. We are fundamentally building up totally new distribution, especially in Europe. And this, of course, loads the expense side but that's, again, to make sure we build the right forward-going business, and we have focused a lot of our resources also essentially, on the expansion in the higher price markets as well as the preparation for the FDA approval for U.S., which for mid to long term, is a key, of course, to growing a profitable business.Bone-anchored systems, we have seen modest market growth, very few new product introduction, which historically have always taken the market growth down. It's a very small segment in the market, it's very sensitive to whether there is new things out. We're still pretty sure we take market share with Ponto 3, we have strong contribution from North America driven by U.S., but again, a slowdown that we think is temporary and will improve when there come new products.All in all, hearing implants is likely to generate a lower growth in the second half than we have seen in the first half due to the development, overall development in the CI business. But again, we are happy and satisfied with development in the forward-going markets.Diagnostic Instruments. Very strong organic growth, continued market share gains in a generally healthy market. Clearly, in a leading position, the growth is happening in North America, Europe, Pacific, very strong with our e3 distribution system in the U.S., which is the specialized instrument dealers that sell devices to doctors, to general practitioners, ENT doctors, all kinds of people engaged in the testing and screening and diagnosing hearing loss and see a really good uptake in the marketplace. We also see internationally, expansion of the balance business and in U.S., a -- is the good, strong momentum in the newborn screening business we have built up.So a very successful multibrand business, executing well all around the world and really, delivering a lot of growth and progress and improved contribution to the group.Personal Communication, especially here to mention, the Sennheiser Communication, the joint venture with German Sennheiser. Very high growth rates in gaming and mobile music, as I said, initially. Still solid growth in CC&O Enterprise Solutions. Even though we saw quite a lot of growth second half last year, this business is performing very well and developing well and adding a solid contribution to the group. We are still on track for the separation in 2020, effective January 1, and are building up the necessary infrastructure, et cetera, and have gently started on that now. But during '19, of course, we'll spend more time and energy and focus on -- we are preparing well for that.Other matters, mainly our strategic initiatives and share buyback. The strategic initiatives, restructuring is according to plan. We have guided on an annual saving of DKK 200 million compared to the '16 cost base when fully implemented during '19 with the full year effect there. We expect DKK 150 million savings -- million in savings full year '18 compared to DKK 100 million last year, and our restructuring cost for 2018 is expected to be the DKK 120 million, we also stated at the first half year.Share buyback, we have bought back shares for DKK 1.447 million (sic) [ DKK 1,447 million ] year-to-date. We expect to buy back between DKK 1.5 billion and DKK 2 billion and currently holding approximately 2.3% of the share capital.Outlook for 2018, or what is remaining of it. The total hearing healthcare market is still estimated to have a value growth around 5%, the 2% to 4% in the hearing aid, the 5% -- 10% to 15% in the implant business with somewhat lower in the bone-anchored business for the year, and then diagnostic equipment is expected to see a value growth of 5% to 7%, which is a little more than the normal guidance.We maintain our expectations to generate substantial organic sales growth in '18 with an expected exchange rate effect of minus 3%, including impact from exchange rates hedging. The share buyback is still in the range of DKK 1.5 billion to DKK 2 billion, as I just said, and with a gearing multiple of 1.5 to 2.0, measured in net interest-bearing debt relative to EBITDA. And we maintain our full year outlook of EBIT between DKK 2.65 billion and DKK 2.85 billion before restructuring of DKK 120 million.And with that, we will open up for Q&A.
[Operator Instructions] We go to Annette Lykke at Handelsbanken.
My question is mainly in regards to the retail business. With a decent, fairly robust growth in the retail market, but William Demant still just grown below this target. Have you initiated some new plans to sort of improve? Or what is the time frames for you to see a much better performance for the U.S. retail business? My second question is also on the retail, it's on the Australian situations. What are the time perspectives of this, if you say -- less success of your leads there, what should we expect when we go beyond 2018?
Annette. I think, first of all, let me comment overall, I think comparing retail to the general unit development of 4% to 6% would imply that own retail is expanding greenfield at a similar level as the general businesses. It's not because you will see 4% to 6% more people coming in to each shop every year. You would have to hire more audiologists, expand your network. That is what, in all markets, generates the growth. No doubt, right now, we are more focused on improving what we have than opening shops. And also do acquisitions, and you can say there's a little bit of technicalities in whether you spend the money in greenfield, which will hit you on the profit short term because it will take a period to build up or whether you do it with acquisitions, and we still feel, especially in the U.S., that it's better to do onboard acquisitions than do a lot of greenfield. U.S., we are very focused on the integration project, converting a number of small business acquisition -- acquisitions of small business into a larger scale entity, run and operated retail store network, which includes rebranding of shops, includes building up a stronger back office, covering marketing, call centers, et cetera, and this is still the ongoing process in U.S. Again, we have seen a steady and constant improvement throughout the year, and we see this continue. So how long and what is the end goal? I will not be more precise, but I'm happy to see the continuous improvement in U.S. It is Australia that have been the tailwind for the period since last -- no -- not tailwind, headwind since the -- the period since last and this is still out of the whole focus in Australia on free-to-client versus copayment. We have had to change incentive structures and now we have also had to adjust our marketing. It is a regulator that interfere significantly with the way the business are to be run and operated. And of course, we work hard to adjust this to get the response rate up to the marketing, we do improve the top op ratio, et cetera. I can also there not give any specific guidance on when I expect that things are different. I think we have tried to do that before and not been always that successful because it is not just in our own hands. We have seen some slowdown to the growth in the Australian market, in general, and that, of course, also impact us in the retail business.
Can I just follow up on my questions to the U.S. So I think in your answer, I hear you saying that you're happy with the development in the U.S. Is that correct?
That's correct.
We now go to the line of Michael Jungling at Morgan Stanley.
I have 2 questions, please. Firstly, when it comes to the competitive environment in wholesale, can you comment on whether your wholesale business has seen already some impact from the recent launches of Starkey, GN and Sivantos? Secondly, when it comes to volume growth or the unit growth and your commentary about the second half showing positive unit growth, can I just clarify, is that under the same definition as in the first half, meaning, we make several adjustments? Or having have you now -- or are you now experiencing unit growth on an absolute or, if you like, reported basis?
Michael. First, the competitive situation. No, I don't see any fundamental significant impact on the competitive launches. We are in a competitive market, we are fighting for things. What we say is we can see, in general, that the marketplace is more intense and the competition is more intense but no, I cannot see a dramatic or significant impact from any particular of our competitors. We can just see the activity level being higher, also from our side. On the volume growth, it is on an unadjusted basis. What I'm trying to get across, we see real unit growth, and we see it in line with the adjusted underlying growth that we saw in the first half.
Great. And then a follow-up, then, on the development in the second half. The price and mix benefit that you had in the first half was really quite significant. Can we assume that in the second half, that price/mix relationship is carrying on? Or is it lightening up, meaning, it's becoming less favorable for you?
No, it's in general, more balanced between the 2. And I would say, as you saw, more balanced between unit and ASP in the first half. Exactly where we are on the overall growth rate, I cannot comment more precisely on than already done.
We now go to the line of Ian Douglas-Pennant at UBS.
So firstly, on the U.S. retail business. Can you just comment on the speed of the changes you're making there. It seems like they continue to drag on and you're managing down expectations a bit there? And maybe you could just comment on whether something more structural is happening. Basically...
No, Ian. Please continue. Sorry.
Sorry, I had a second one. And your margin commentary, more generally, there seems to be a lot of stuff on costs that you've been talking about and also in your release. Is your intention with this release to try and bring down consensus expectations, either on the cost-saving or relative to the guidance range?
Let me start with U.S. retail. No, it's not structural. It is the hard work of integration, changing brands, building up infrastructure necessary, getting HR to function, make sure you have people in the shops, et cetera. And there is a difference between a high number of independents running their own business and making a large operations like we now do in the U.S. We see good, steady improvements and I would rather see good, steady improvements for a while, than too many ups and downs. So we are focused on a more evolutionary continuous improvement. On the margin, no, there's no particular intention in guiding differently. I think we tried to highlight some of the same things as we highlighted at the first half, and you should not expect fundamental differences looking at things in the second half.
So if I just follow up, with that in mind, and given your stock price change today, and also what happened with your similar release 6 months ago, are you reconsidering this format for how you talk to market at the Q1 and Q3 timelines? It just seems like it's difficult to get your message across.
No, we are still are under the belief that there so many significant differences that adjust between the quarters that in numbers, it makes most sense do it in half years. And then we then try to provide you best possible addition in this trading update that we do in between the 2 half-year results.
We now go to the line of Kit Lee at Jefferies.
I have 2, please. Just firstly, on your full year guidance, I think the range is still fairly wide, even though we have only 2 more months to go. So is this reflective of the uncertainties you are seeing? Or if there are any other reasons for maintaining that range? And then I'll follow up with the second question.
We still feel the DKK 200 million is actually a relatively narrow range. We don't have October under the belt yet when it comes to profit. So no, it's actually more narrow than we had tradition of doing because we, at first half, felt that it was right to eliminate DKK 100 million off the bottom.
Okay. That's great. And then just secondly, on cost efficiency. Just given that the current program is almost complete, what major opportunities do you see in the next iteration of this cost efficiency program, just trying to get a sense of what areas do you think you can still make substantial savings on?
Yes. We don't continue the program. I think that's the most important, the program now finished. And this is because we had a number of large things, single large things, where there was a significant element of employee impact. Therefore, we needed a longer perspective on things to be able to communicate these changes in a good, proper manner. We will continue to do efficiency gains and restructuring of the business. We do that each and every day, but it will now be a number of smaller initiatives rather than big ones like turning or shutting down R&D in Bern, closing down the factory in Denmark, closing down production facilities in North America, et cetera. It is more ongoing continuous improvement, I would say, but it's still -- there is still a significant drive and effort to lower, especially within supply chain and operation, our overall cost structure.
We now go to the line of Christian Ryom at Nordea Markets.
I have 2, please. My first is with regards to Q4, and what we should expect in terms of growth because if I hear you correct, you say that you are now in the process or have, over the last couple of months, been in the process of launching your new essential and custom products. So should we expect them to accelerate growth towards the end of the year? And how should we think about the comparison period for the year, for the remainder of the year? That's my first question, and then I'll come back for the second.
Yes. And I think, definitely, we expect an acceleration of the run rate. We have a full quarter with the new products out. So of course, we will see the runway go up, but we also had a very strong quarter last year. So that's, of course, needed and expected. But yes, we'll see a much stronger run rate of the business in the fourth quarter, generally speaking. That also applies typically for both retail, diagnostic and medical that there is a element of finishing the year on a high note. So yes, growth will accelerate, but that's not that's different from last year.
Okay. And my second question is more broadly to the second half, and the considerations around the gross margins. So can you talk a little about -- a little bit about the pushes and the pulls of this increased unit growth because when I think back to the first half, you talked a little bit about how your gross margin was actually pressured by the decline in units.
Yes. Of course. More units, in general, everything else equal helps. We have more units to carry the overhead, that was one element we addressed in the first half. But more importantly, these days, and much more impactful is the accessory element. This ConnectClip and ZPower rechargeable batteries that are sold on the side, but at lower margin than the rest of the business. We continue to see a big demand, a big growth in rechargeable hearing aids as one element, and no doubt, everything else equal, the way things are done today, this puts some pressure on our gross margin.
Our next question is of the line of Ole Bang at ABG Sundal Collier.
I only have one question. So back to U.S. retail. I assume that you had quite fixed -- quite high fixed cost with all these retail stores there. And now, the organic growth is under pressure. And I assume that -- in addition, sorry, and in addition, the accessories you're selling now is at a lower margin than general hearing aids. So what I'm wondering about is with the declining or maybe lower-than-anticipated organic growth and the margin dilutive accessories you're selling, could we see the EBIT margin come under pressure for 2018? And could we maybe expect a smaller EBIT margins going forward, into '19 and '20?
I think it's very different effects you talk about. The retail, the mix between the size of our retail business and the side -- size of our wholesale business, of course, as we have said many time, impacts the overall margin. And retail, everything else equal, have a dilutive element. If you talk about U.S., in particular, we have a good solid contribution from our U.S. retail business. Of course, you need to do some efficiency gains in the fixed part of the cost base, but there is also a quite big variable. It is important to grow organically because we have a number of shops where we believe we can get more through the same shop and that will, of course, improve the margin when this happens. So it is important to grow organically, no doubt about that. But again, it is more, the mix between the 2 types of businesses. The accessory element has a little impact in the retail side. It is more a wholesale side where the margin, the gross margin element, is different than when you look at it in the retail business. So that's more wholesale issue.
Yes. I understand that, but does that mean that we could see some EBIT -- margin pressure going forward, that it's maybe lower than what we've seen so far?
I think you will always see that when these technologies are new, the cost is higher than when they mature more. So we definitely believe that, over time, we can get a better relationship between the ability to also increase the ASP and the sales price based on this new technology and also, at the same time, lowering the cost of goods sold. It's a little bit similar to what you saw in the very early days of connectivity back in '07, '08 where in the beginning, the technology was more costly than it is now, 10 years later, where it's significantly improved.
Our next question is of the line of Veronika Dubajova of Goldman Sachs.
I also have 2. One, just curious, Søren, given your comment on a more competitive U.S. market, whether your thoughts on when you need to bring out a new product offering or a new platform into the market, sort of Opn 2.0, have changed all? And if you can maybe share more broadly how you are thinking about what comes next from you and what are some of the, sort of, big features that you're focused on from an R&D perspective, that would be very helpful. My second question is a very quick housekeeping question. It'd be great if we can get an update on the impact of currency, both on the top line and on EBIT, given how you guys are hedged for the full year.
Thank you, Veronika. I think the tradition is, we don't talk a lot about when things come, and I will not do this, this time either. We feel very strongly about the portfolio we have right now, and don't feel we have lost a significant edge. Opn has proven to deliver such a strong improvement that, that still seems to hold against competition. But of course, we spend a lot of money on R&D, we have a strong pipeline and of course, we have exciting stuff for '19, as well, no doubt.
And Veronika, on the FX assumptions. They are unchanged compared to our guidance on -- when we released the first half year. We still expect this minus 3% on the top line and a slightly negative effect on the EBIT.
That's great. And can I just follow up, Søren. The Philips collaboration, when might we see some results of that?
Sooner than ever.
We now go to the line of Yi-Dan Wang of Deutsche Bank.
Just have 2 questions. First of all, a bigger picture question on the subject of innovation and the scope for pricing. If you could give us your outlook for, I suppose, the industry as a whole, what would be the key elements that would come through in the form of innovation? And how we should think about pricing of that innovation going forward? And then secondly, housekeeping, could you tell us what the impact of acquisitions should be for the year as a whole? And whether there's any spillover into the next year...
Yes. I think innovation will be still centered around improving the experience for people that are hard of hearing. And of course, we will see instruments that contain more and more sophisticated signal processing, benefiting from AI and all these good, fantastic things we have. We will see further expansions in connectivity and the benefit of a connected device. We have talked about the potential for utilizing different kind of sensoring in the device and so on. So these are the expectations or the innovations that I think it will center around. ASP, I think, it's not that hearing aids will fundamentally become even more expensive, but the product mix, we've just shown, I think as an industry, for the past 2 or 3 years, that new innovation brought in that significantly increase the end-user benefit positively affect the product mix. Whereas the period before didn't have this same -- to the same extent that, and we saw kind of a decline of the product mix. So the product mix is a very good indicator for the value of the innovations brought forward. And I think we have seen a very positive development or at least we have, but it seems like the market have experienced a positive mix changes in general, during the past 2 to 3 years. And then the acquisition element, we are talking about a 2% to 3% for the full year.
And the spillover effect into '19, if you could comment at this stage.
That, I cannot do at this stage.
Okay, we are now over to Berenberg and Tom Jones.
I have 2 questions, it's a lot to kind of go a little bit off piece a little, if I may. The first is just on something you got quite excited about a couple of years ago that's gone very, very quiet, and that was your kind of technology push into the If This Then That network arrangement, and you kind of -- all the stuff around the Internet connectivity of hearing aids. We've seen connectivity improve, but we don't seem to have seen the second derivative effect of that. Connectivity hasn't gone much beyond listening to music and making phone calls. So what's going on in that space? Is there anything you're doing or what's your outlook there? And the second question, around the margins, and when I talk to a question on returns. The last 10 years, we've seen, across the industry, returns on capital come down. You've had an R&D arms race where each progressive cycle has cost more and yielded less. This is not a comment for you, this is an industry-wide comment. The industry as a whole have poured an awful lot of money into retail acquisitions, which arguably, is a somewhat defensive strategy. First question, do you think returns are kind of bottoming in the industry now? And how are you thinking about driving your return on capital back up? Or do you think we're now reaching a steady state where the return on capital has reached a bottom, but it's kind of going to stay there as a mature industry?
Tom. First of all, I would comment on the technology element. Yes, we have promoted this If This Then That a lot, and it's actually still active, but I think it's also an example of early move. No doubt that things are getting more connected, and you'll start to see more benefit. These years, there's a lot of discussions and solutions out also from us on remote fitting and so on. This is only possible because it's a connected device. And these intelligent homes and what-have-you, I think it goes for all of it that it still needs to turn smarter and more automatic before a lot of people will start using it. But there are more and more things coming without asking. Your car starts to tell you what you should expect to drive to work because it thinks that you are actually on your way to work because this is your normal driving pattern at a time of day, et cetera. So yes, AI systems, et cetera, will make some of this more intuitive, and the If This Then That was an early indicator of that. And then the return of the capital employed. I think we have seen, coming from a very high level, 10, 15 years back, into a more flattish development, basically hovering around 20%, which has been stable for quite a while. And so you could discuss whether this is spot mild, and it will improve. I think it has to do with the size of the business and everybody being involved in retail, et cetera. And you can say that's the consolidation that, to some extent, have taken place in the industry. Now we will have to see what happens on further consolidation, but I don't think you should expect a dramatic differences to this in the coming period. There's still a significant arm race going on, on R&D and technology. This is not just our industry, but all industries' products are turning more intelligent, more sophisticated and I still think this will go on in our industries for many years to come.
Right, we're now over to Danske Bank and Martin Parkhøi.
Martin Parkhøi, with 2 questions related to medical. Firstly, you have previously stated that the EBIT margin burden for medical has gone -- is around 1 percentage point drag on the margin. Previously, it was 1.5%, but now with the rather sluggish development of medical in the second half, are we now actually starting to see it go the wrong direction, again, being a further burden, given that costs maybe are growing faster than what you're expecting for this year? And then secondly, one of the reason for the lower growth is, of course, that you've pulled out of some markets. When will comps become easy again, will that already be in the first half of next year, or do we have to wait till the second half?
Martin. We're still at the same level of drag. It is exactly low profit sales we are seeing reduced and we are replacing it with more profitable sales, that's exactly the journey we're on. So no major changes to that overall effect. And yes, already in first half '19, we will see comps being free of these markets in which we have reduced. If it's still changed, it's because new ones are coming up, but we don't have any on the radar that -- where we have significant saves today, and we expect not to have it going forward.
Can you actually quantify the effect from the markets that you pulled out of?
No. We might be able to come back a bit on it for the full year, but not at this stage. But it's markets where the -- with a -- where our historical business have been significant, where it will not be significant -- it's not significant in the world market, but it's significant for us with the historical customer base we had.
And so we are not really willing to quantify it, however, we can say that we have, at least, in the markets when you exclude these 2, we've actually done better than the general market. So we are actually delivering a nice growth outside these 2 in the CI business.
Before we go back to the line of Michael Jungling at Morgan Stanley, [Operator Instructions]. And Michael, back to you.
A few more questions from me. On the OTC solution, will you launch your own de novo? Or are you intending to piggyback off Bose with a 510(k)? Secondly, on the VA, post the November window, do you expect to continue to take market share gains in that segment? And then thirdly, the lithium ion rechargeable solution, will this be in your next rechargeable family that you will launch?
First of all, OTC, no, we have no plans of changing our OTC strategy. We have seen this de novo announcement by FDA, we still haven't seen any product. We still firmly believe it makes sense to see a hearing care professional. We also believe that's what the consumer would like to do. So no changes to our strategy. Yes, we expect we should be able to continue to grow our sales in the VA channel based on the addition of the custom products. We feel we stand strong and are in good shape in that channel. And I will not comment on when or if we will bring in a lithium ion solution in our product range.
Okay. At this stage, as there are no further question currently in the queue is any -- can I please pass it back to you for any closing comments.
Okay. Thank you all for dialing in and asking questions. This will conclude the call and feel free to reach out to IR in case you have additional questions afterwards. As you can see, we're also on the road the next couple of weeks, which can be seen in the presentation. So have a great day. Bye-bye.