Demant A/S

CSE:DEMANT

Earnings Call Transcript 2019-Q3

[Søren Bergholt Andersson]

Welcome, everyone. Thank you for participating in this conference call, held in connection with our trading update 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, the President and CEO; as well as René Schneider, the CFO, together with the IR team. I'll now hand over to Søren.

[Søren Nielsen, CEO, President & Member of Executive Board]

Thank you very much, Søren, and welcome, everyone. We will quickly get started to make sure we have enough time for question and answers. Very, very high-level recovery since the IT incident is progressing as planned.The growth momentum is building up in the company. And if we look at the wholesale of hearing aids, just to comment on the beginning on the second half, we saw the anticipated acceleration of growth back in June, July and August. However, the IT incident significantly impacted the ability to operate the business. We tried to do it in the best possible manner and protect our existing business. But we could not execute our ambitious growth plan, we had to spend basically all our energy in protecting the existing business. We have seen a flat organic growth in the wholesale business in the second half so far, and we don't believe we have had material loss of existing customers. We have solved most of the constraints we have had in supply chain. There will be a little bit for the remaining of the year in the aging part of our published -- our portfolio. There are some models running at low volume that we have still not been able to fully meet demand on. Despite of the strong product portfolio and the improved sales momentum, the run rate in the remaining of the year is likely to be below what we originally anticipated. However, it is improving significantly and picking up.However, again, we have lost momentum and time and cannot anticipate we will fully get there. It is still uncertain exactly how it pans out, but we are seeing the momentum and run rate improving every day. Material impact in the retail business in September and October. The business has normalized in November, which means that we now operate with schedules and bookings in line with prior to the incident, and as such, operate the business now as if it had not happened. But of course, there was a material impact in September, October. Both the hearing implant business and the diagnostics business, of course, experienced the IT incident primarily in terms of running the central factory and warehouse, to some extent, but due to safety stocks and due to the nature of the diagnostic business, we don't expect any noteworthy commercial impact on these 2 businesses. The implant has so far been uneffective, diagnostic, slightly delayed. In -- a few more details. Key takeaways for the year-to-date is solid growth year-to-date despite of significant negative impact from the IT incident. Growth is driven by modest organic growth year-to-date and positive contribution from acquisition as well as exchange rate. The hearing aid wholesale business growth is -- was, in first half, strong on units, but some negative ASP development due to product mix effects, one of them being selling a lot of units into the NHS, but also a weak start to the year in the premium, but picking up towards the end after the many new introductions. Strong organic growth in second half -- in the beginning of the second half has been offset by the negative effect of the IT incident and thus flat, if we look at second half to date, but now building up. But despite of a few constraints left, we still are very focused on growth and can, largely speaking, supply to demand. The growth in the hearing aid retail business is driven by acquisitions, mainly done in the first half of 2018 and only a smaller part in the second half. We have seen solid organic growth in July or we saw solid organic growth in July and August. As we talked about at the first half, we, for instance, saw a very nice recovery in Australia. But this has more than been offset by the IT incident, meaning that for the year-to-date, we are flat. But for the second half, isolated, we have a slight negative effect. I'm sure you all remember that after the first half, we had 2% organic growth and adjusted for the negative effect of the French Reform 3, and this has now, again, turned into a year-to-date flat development. Very strong growth in hearing aid -- hearing implants, growth acceleration in second half is driven by Ponto 4 and BAHS but also a continued very strong organic growth in CI. So all in all, this business area continue to perform at a very high level and expands at a high growth rate. In diagnostic, we have seen the growth momentum from first half continue into second half, in particular, strong performance in North America and also a number of significant tenders have materialized in other regions. And generally speaking, diagnostic managed to execute much of their service and calibration business, et cetera, but, of course, have been delayed in the actual delivery of already ordered and sold instruments, but are picking up very fastly as we have managed to expand the capacity and quickly reduce the order portfolio that, however, still is above normal level, but we expect to normalize before the year-end. Continued growth momentum in Sennheiser Communication, driven by further pickup in wireless products, in particular, in the Mobile Music. The profit is lower than last year, which is due to product mix changes, meaning a lower ASP, the gross profit on some of the newer models and the Mobile Music is generally lower. And together with increased R&D spend and distribution spend, we see less profit from the joint venture, which, again, is only the R&D and production. Significant year-over-year capacity cost expansions, as expected, we saw -- we will, however, as expected, see a sequential development from first half into second half being much more muted. And the main growth driver being further acquisitions and then, of course, costs directly related to the IT incident. Taking these 2 elements out, we see a underlying flat development from first half into second half as expected. We have also basically seen the impact on the business being in line with our estimates released earlier on, and therefore, maintain the outlook of an EBIT for the year of DKK 2.0 billion to DKK 2.3 billion, against the original adjusted target as of August of DKK 2.65 billion to DKK 2.85 billion. And we see a -- we see negative growth in cash flow from operation for the year but still solid, of course. And now that we have full traction again in the business and overview of the performance, we have today -- decided today to resume the share buyback. We will not fully meet the original target of nothing -- no less than DKK 1.2 billion, but expect to do around 1 billion worth of Danish krone in share buyback. As we maintain or continue the share buyback and don't reduce our net interest bank debt, the gearing multiple will temporarily exceed our targets of 1.7% into 2.2%. However, we, of course, expect the normalization of that during 2020 as cash flow and EBIT are going to improve. And just a few more details on the actual cybercrime incident on September 3. We have so far been limited in our communication to protect ourselves, but can now say that it was a, you could say, classical ransomware intrusion that led to our immediate shutdown of most of our global IT systems across sites and business units. We managed to do this immediate response and very competent response to protect our backups from being attacked and encrypted. And therefore, we have managed to do the full IT recovery on our own and finish that, as earlier communicated, in the beginning of October. And again, the entire financial consequences of the IT incident is unchanged. So a total negative effect of DKK 550 million to DKK 650 million, that includes DKK 50 million of direct costs related to the incident and an expected coverage of approximately DKK 100 million from insurance. The direct cost is split between production COGS in terms of extra payment, overtime payment, et cetera, to catch up and then some consultancy, et cetera, to support the IT recovery. We expect the insurance to be recognized in the year and under other operating income before EBIT. Update on business activities. The hearing aid market is developing more or less in line with expectations. And if it wasn't for the Brexit buildup by the NHS, we would be in the 4% to 6% unit growth. We see around 5% in U.S., slightly more on VA, a little less in the commercial. We, across Europe, see a nice and strong growth in Germany, France. France is somewhat related to the reform and other -- also the further expansion of rechargeable hearing aids that are not in consignment, and these effects give a relatively high-growth rate on wholesale label and a more modest on the retail side. In Japan, we see solid growth accelerate in Q3 and expect or estimate still that we see significant double-digit growth in China, and we still see the overall value growth to be in the 2% to 4% range if we disregard the extraordinary growth in the NHS.Modest organic growth, as I said before, year-to-date, in the wholesale and driven by unit growth in the second half, isolated, we have seen so far, a flat unit growth and a flat ASP development, but, of course, expect increased unit growth and ASP is always difficult to predict. But we definitely expect a strengthening of the run rate in -- towards the end of the year, of course. Opn S have been a key growth driver since the launch in February, we had some challenges with returns of former legacy rechargeable systems. We can now confirm this has been normalized since the end of August, and we do see a very strong demand and continuous growth of the demand for rechargeable products, and we also now see increasing extent in the more mid-priced part of the market. Across regions, in -- across the business, we see flat organic growth in North America year-to-date. We see an acceleration towards the end of first half and into second half after a slow start. And then we have seen growth momentums come back now. But for the most of September and October, of course, we couldn't execute on our plans and, therefore, saw a negative development to the business. Solid growth in Europe, year-to-date, driven by NHS, U.K. -- or in U.K., Germany and France and modest growth here in second half, again, due to the negative effect, but less extent in North America. And then strong broad-based growth in Asia, a negative growth in Pacific due to the IT incident. We were in particularly hard hit IT-wise in Pacific as it was opening hours in Australia and New Zealand and most -- also some of the Asian and, therefore, harder hit when it came to people's own PCs, et cetera, than we were in the rest of the world. Looking at our product portfolio, as communicated in EUHA, we have significantly expanded our portfolio into Super Power and Ultra Power and hearing -- similar hearing aids for children. We see very good feedback on this from the first fitting and a very nice pickup. Of course, these are smaller segments, but we see a product with a real enroll to this market, they are made available in VA since November 1 in VA. It's also a smaller part of the total business, but also there, we expect these products to be able to generate growth. And then here, in November, we are also launching a -- what's called an echo mic, which is for children in school that have profound or severely profound hearing losses mostly for individual use, meaning a mainstream kit, but also available or applicable for larger classrooms with multiple users. However, the primary user group is individual kids that use it, again, in part of their education. And I must say, I'm optimistic for the growth in the business. We have -- this is just the Oticon, as an example, a very, very new and complete product portfolio. The oldest of our new active portfolios introduced this year -- introduced back in August of 2018. And at the same time, custom products and with that, everything else is newer. So we have a lot of strong opportunities and a lot of drivers for engaging with a broad part of the market and also increasing the share of wallet. Year-to-date growth in retail, mainly driven by acquisitions in first half '18. We have, again, as I said, seen flat organic growth year-to-date, a solid organic growth in the beginning of the second half, but negative so far in the second half due to the IT incident. We are normalized and no longer impacted by the IT incident and in -- we have seen negative organic growth year-to-date in North America due to the IT incident, we have seen a flat organic growth in U.S. prior to September and prior to the event, the situation is normalized in November, and we continue our effort to strengthen the U.S. business and have executed a number of initiatives, including adjusting our sales organization and are still on the road to complete the rebranding into one brand by the end of the year. We have seen a solid year-to-date growth in Europe, driven by modest organic growth and acquisition. Countries like France and Poland still deliver positive organic growth in second half despite of the IT incident, whereas a country as U.K. were profoundly hit and have seen very negative development in the second half. Solid organic growth in Australia prior to the incident. As I said, we saw the turnaround and flat organic growth year-to-date due to the very big significance of the IT incident in that region. Continued strong growth in CI and again, the Ponto 4 BAHS business picking up really nicely after the introduction and we see very solid growth rates. Of course, this eventually tend to come down. But right now, there is very high demand and a lot of positive feedback. Diagnostic, not much more to add, only highlighting the introduction of Affinity Compact, which is a key product for further growth in the diagnostic business. And again, Personal Communication, I think it has all been set, slightly lower growth rates on Enterprise Solution and Gaming due to strong comparison, but very solid growth in the Mobile Music this year so far. And with that, I will leave you -- the word to you René to take a few other financial matters.

[René Schneider, CFO & Member of Executive Board]

Thank you, Søren. So just on Slide 19, a brief commentary on our gross profit margin that has been slightly lower than last year as measured year-to-date, and it is obviously an effect of the IT incident, having a significant impact on sales, but not a corresponding impact on costs due to a largely fixed cost structure, both on cost of goods sold, but also on other capacity costs, such as R&D, distribution and admin. As Søren mentioned previously, capacity costs have increased significantly year-over-year, predominantly due to decisions made in 2018 on increasing our R&D efforts and also due to taking over a company in retail in the first half year of 2018. When looking at sequential development in cap cost from first half year into second half year, it is much more modest in growth. We estimate low single-digit growth as expectations, driven by acquisitions and costs directly related to the IT incident. This means, organically, we see a flat development from first half year into second half year. In terms of acquisitions for the full year, we now expect it to be slightly below the level seen in 2018. We continue to see opportunities, however, in all parts of business, but predominantly still in retail. As it is with acquisitions, now expecting to be slightly below the level of '18, it is obviously very binary in nature. So there is some uncertainty to the actual completion, but this is our current expectations. For some of the expected acquisitions in '19, it is taking full ownership of assets in which we have previously held a noncontrolling interest. As also communicated, we have resumed buying back shares as of today, we now expect to buy back worth DKK 1 billion for the full year, meaning around DKK 400 million, in addition to what we had prior to stopping the share buyback. This means that now, for the full year, we expect our gearing multiple to temporarily exceed our general aim of being at 1.7% to 2.2%. But this is a direct consequence of the IT incident. With regards to IFRS 16, this is housekeeping, but we are still in line with our expectations and thus proceeding to the outlook for '19. And as a result of the negative impact of the IT incident, we do now expect to generate organic sales growth in line with the market growth. Previously, we expected above the market level, we continue to expect a positive exchange rate effect of 1% on revenue. We continue to guide for reported EBIT of DKK 2 billion to DKK 2.3 billion of EBIT. We have adjusted our expectations for cash flow from operating activities, where we now expect negative growth, previously substantial growth. This is, of course, a direct consequence of the lower profit. And buying back shares, I already mentioned, and also the fact that we are likely to exceed our guidance range of 1.7% to 2.2% on gearing. So I think with that, we will jump to Q&A.

[Operator]

[Operator Instructions] The first question comes from the line of Michael Jungling from Morgan Stanley.

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

I have 2 questions. And I guess, so firstly, on wholesale. Could you be more specific what the organic growth rate is year-to-date? I mean, you gave some qualitative comments, but a number would be quite useful. And question number two is on your organic sales growth guidance, which I think applies to very much wholesale, in line to be with market growth, is it fair to say that given your performance year-to-date that you are guiding more towards the bottom end of that 2% to 4% market growth range for this year and that the upper range, meaning the 3% or 4%, is not possible to achieve?

[Søren Nielsen, CEO, President & Member of Executive Board]

Thank you, Michael. I think we cannot give numbers than we would have done. But the organic growth rate is in wholesale also expected to be in line with market, if anything, in the highest end of the 2% to 4%.

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

Okay. So if I look at this on a sort of half year reported base, I mean, you've given us around 6% wholesale growth in the first half, then you had a blip. It seems to me that you should be already at a 3% run rate maybe or so without doing much, maybe in the second half. Is that correct? Is that a reasonable comment to make?

[Søren Nielsen, CEO, President & Member of Executive Board]

No, no. For wholesale, we are flat in the second half so far, not including November. And we expect with a strong November and December to be able to build up a full year organic growth rate, as I said, in line with the market, most likely in the upper end of this interval of 2% to 4%. I think that's as close as I can get. Again, still some uncertainty, of course.

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

Okay. And a follow-up, in the remaining 2 months of the year, are you expecting some large retail customers who you've not been able to deliver to, to honor their annual commitment and perhaps give you more business than they intended to in November and December?

[Søren Nielsen, CEO, President & Member of Executive Board]

There's always many things that come into building growth, but no underlying, this has to be done by the general business improving significantly and live up to the potential that lies in our strong product portfolio.

[Operator]

And the next question comes from the line of Christian Ryom from Nordea Markets.

[Christian Sørup Ryom, Senior Analyst]

I have 2 questions. My first is to your retail business, when you updated guidance on the 26th of September, I think you mentioned that you expected approximately half -- or slightly less than half of the DKK 600 million to DKK 700 million of sales impact to be in your retail business, which would suggest around DKK 300 million of impact. And my question is, have you seen -- is that also the hit to your retail business that has actually materialized? Because when we look at your commentary about flat retail sales year-to-date, that would suggest a quite substantial underlying organic growth in the retail business here for the first 4 months of the second half. And then my second question is to the wholesale business. So when we look into the last couple of months and consider that you had a fairly weak into the year and last year. Is it possible that we could see growth rates above the level that you saw in the first half for your wholesale business? Or is that not feasible at your current state with -- given the IT incident?

[Søren Nielsen, CEO, President & Member of Executive Board]

Thank you, Christian. First of all, I'll take the retail. Yes, the impact is in line with what we said. And I think I'm not sure I got -- I'm afraid I misunderstood your last part, or it was a little unclear. Year-to-date, retail is flat. First half 2%, excluding or including the French Reform, disregarding or adjusting for the French Reform 3, then make it easy to see how second half to date have done. And of course, we should see a normalization of the growth rate in the remaining months into this interval of 2%, 3%, 4%, of course, always going a little bit up and down, and that constitutes in the year.

[Christian Sørup Ryom, Senior Analyst]

Okay. Yes, I think I got it. Just to make sure the -- so you're saying you've had 2% organic growth in the first half and then you're essentially saying flat for the subsequent -- for the full year, which means that the subsequent 4 months have been say, low to mid-single-digit decline.

[Søren Nielsen, CEO, President & Member of Executive Board]

Exactly.

[Christian Sørup Ryom, Senior Analyst]

And that's where we should -- where we should calculate from the negative retail effect of these approximately DKK 300 million?

[Søren Nielsen, CEO, President & Member of Executive Board]

Yes. And the wholesale business, yes, you are correct that the main uncertainty for the, let's say, the entire business, of course, not solely, but to some extent, relate to our ability to reinstall growth in the remaining period of the year. And yes, a likely outcome of -- not likely -- a potential outcome of that is also growth that exceed first half year growth rate.

[Operator]

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

[Maja Pataki, Head of Med Tech Devices Sector]

Søren, my first question is could you elaborate a bit more in detail what it is why do you still face some supply constraints that are impacting your wholesale operations? I'm afraid I'm still not getting quite why still dragging on. And the second question is, have you started any promotional activities in wholesale to kind of get new accounts in that you were hoping to get initially?

[Søren Nielsen, CEO, President & Member of Executive Board]

Maja, thank you. Let me first take the supply chain. Generally speaking, we -- our output is higher than it has ever been, and we produce very significant and grow the global inventory significantly. So largely speaking, we do not have supply chain constraints. We can have a little bit day-to-day, but nothing material. The issue we are still working with towards the end of the year is the long, long tail of older models that are all running in relatively lower volume and can only be produced on equipment with some bottleneck effects. This is a very small proportion of the portfolio. And as everything has to be revalidated we have put priority on purpose to making sure that newer products and modern portfolios are produced to the maximum possible extent. And this was successfully have recovered the business in the fastest possible way. So it's old stuff that remains to be a challenge.But again, in the bigger picture, a very small, but for some, especially in emerging markets or if you've got a big tender in an emerging market, you could have a substantial part of such an order being some of these older products and therefore, some limitations. But in most of our sales company-based countries, this has less and less effect every day. And on promotional activities, we, of course, do everything we can, including all kind of promotional activities as our competitors to attract business. And yes, I would say we are now at full speed in all sales companies on that account. It's not like, it start from one day to the other. Of course, you balance the capacity and the ability to actually deliver. But in September, October, it was simply to take better -- the best possible care of existing customers, but we are now fully fledged out and filed for share and also promote the many new introductions we have done. So full speed.

[Operator]

And the next question comes from the line of Kit Lee from Jefferies.

[Nyeok Lee, Equity Analyst]

I have 2, please. I guess, firstly, just on your Philips launch. Can you just talk about in how many countries have you launched the brand? And is it fair to think about this as mostly incremental sales? Or did you have some overlaps with other brands in the channel where you launched Philips? And then my second question is on your capacity cost. Just looking ahead, into 2020, how should we think about the development of the capacity cost versus what you already have done in 2019?

[Søren Nielsen, CEO, President & Member of Executive Board]

Let me take Philips, first. I cannot comment on specific number of countries, but it's growing. Of course, we also lost a little bit of momentum in getting that rolled out in new countries and ringing a lot of doorbells as supplies were also limited on Philips. So some setback on that as well but progressing nicely. It is, as you say, primarily incremental. However, in some channels, for instance, you saw Bernafon being active in a given channel, and now it's more promoted by Philips. So of course, you have some cannibalization. But largely speaking, we are talking about building up a new brand with incremental sales.And then capacity cost, we cannot comment as such on second half. But of course, we try to be very clear in our priorities, where expansions are necessary, but for instance, the medical business, we'll still see significant cost growth rates into 2020. We are building up the business and is very foreseeable. We'll need further expansion in that. The wholesale and the retail, of course, take good care. Now things have been set back a little bit, not to be too wild and crazy. But of course, we will still see an effect -- knock-on effect from acquisitions, and these will be the primary parameters. But other than that, we cannot -- for now guide on expectations for 2020.

[Operator]

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

[Martin Parkhøi, Senior Equity Analyst]

Yes, Martin Parkhøi, Danske Bank. Actually, I have one question left, just on the Sennheiser business. Could you discuss a little bit -- elaborate a little bit on how the growth momentum are for the business that you will fully consolidate from the 1st of January, because it seems like the drivers are not updated within that area? And I know you will not comment on 2020, but if we -- just, again, could just remind me how much you expect the Sennheiser consolidation will dilute your EBIT margin from 2020?

[Søren Nielsen, CEO, President & Member of Executive Board]

Thank you, Martin. First of all, things are always going up and down with new product introductions, and there have been a very strong portfolio of new wireless products coming out of Mobile Music. That's a key driver for growth. We saw 2018 being crazy on gaming due to this Fortnite effect, and therefore, less growth this year. Enterprise Solutions had a -- have had more introductions here in the second half, and we definitely expect the growth rates to pick up there as well. We don't for now comment on dilution effect or anything. I think we -- overall a pretty detailed piece of work to be done. When we start the guidance for 2020 when we also, of course, know how the business is performing and what cost elements will take over. René, you look like you have an additional comment.

[René Schneider, CFO & Member of Executive Board]

Yes, we have previously commented on the actual 2018 numbers and how they would look if they were consolidated into our group, and that would correspond to approximately 1% on the EBIT margin negatively impacted.

[Martin Parkhøi, Senior Equity Analyst]

And there is nothing for me to believe that, that has changed, given that you -- I can see that your profit level is -- cost going down significantly as you at least from year-to-date on associate income. So is that having any significant impact on the margin dilution impact?

[René Schneider, CFO & Member of Executive Board]

All right. Søren -- as Søren mentioned, when it comes to guidance for 2020, I think we would save that for the actual reporting on '19.

[Operator]

And the next question comes from the line of Carsten Lønborg from SEB.

[Carsten Lønborg Madsen, Research Analyst]

Just regarding France and Poland, where you stated that you have had the organic growth despite the IT incident. Is this because you had -- you were able to serve these 2 countries despite the incident? Or has the comeback just been fast and very positive with superior growth after everything was recovered? And is there anything we can learn from that in relation to other larger countries? And number two is in Hearing Implants, in particular, the CI business. You mentioned a very strong organic growth. Does this mean that we can more or less assume that the 17% organic growth seen in the first part of the year has been carried into the second part of the year?

[Søren Nielsen, CEO, President & Member of Executive Board]

Thank you, Carsten. Let me comment very quickly on France and Poland. Generally speaking, our Polish business has, for quite a while, grown quite substantially. And that underlying growth rate have masked the effect of the IT incident. And yes, the recovery there was good and fast. In France, we were actually never hit out in any of the shops. So the shops could operate and we managed to supply with sufficient products and therefore, so literally speaking, no effect of the IT incident except in the headquarter in France. On the CI business, you should expect a further acceleration into second half for the implant business in total as the bone-anchored is obviously picking up quite nicely.

[Carsten Lønborg Madsen, Research Analyst]

Okay. What is sort of the indicative split between CI and bone-anchored for you?

[Søren Nielsen, CEO, President & Member of Executive Board]

It has always been around 50-50. And of course, with the size of the business, it does relatively, of course, change in the first half where base is flat and -- flattish, and the CI is above 25%. If you assume that the CI stays in that ballpark and the basket is very significant, then you would see the 2 being 50-50 again, largely speaking, round numbers.

[Operator]

And the next question comes from the line of Tom Jones from Berenberg.

[Thomas M. Jones, Analyst]

The first one just relates to VA, you said you expect an uptick in volumes as we go into the back end of the year. Do you expect that just on the power products? Or do you expect some improved momentum on the RIC and rechargeables? And if so, what gives you that thought? And then the second question was, I guess, it is about 2020, but it's much more about the baseline from which to think about growth in 2020. Should we be thinking that the more appropriate baseline is the actual 2019 figures? Or should we be thinking of figures for 2019 actually IT incident as being the more appropriate baseline or perhaps something in between? And if it's something in between, some indication of which end of that spectrum is probably the more appropriate would be helpful.

[Søren Nielsen, CEO, President & Member of Executive Board]

Okay. Thank you very much. Let me first comment on VA. There is -- the predictability of VA after you see new introductions here at November 1 is, of course, not very good, so don't hear me say I expect us to grow. What I do expect is, of course, that sales in the segment for Super Power, Ultra Power will grow. And this is still less than 5% of their business. So materially speaking, it will not be huge, but it's one of the reasons why we will get back in, and hopefully, it could have some spillover effect to our other products, but we don't know. On the other hand, we haven't seen or don't expect very material new introductions. I know 1 or 2 of the competitors, but not the key drivers of growth are bringing in new stuff. So we'll have to see.On the baseline, this is, of course, complicated. We see unaffected on diagnostic and implants. So that's '19 is the baseline. In retail, it's a one-off effect, so you can compensate for the IT incident. And then you have a baseline on wholesale, it's different. We have lost a bit of growth momentum, and we will have to see how we pick that up, and that's why we are very cautious and cannot guide until what is exactly the baseline for the wholesale business going into 2020. Just taking the 2019 will be too modest, taking the full incident out is too aggressive and where we are in between those 2, I don't know at this stage.

[Operator]

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

[Veronika Dubajova, Equity Analyst]

I will keep it to 2 as well. My first one is actually on the sort of revised contribution from M&A in terms of your guidance. Just curious, what's changed versus your prior plans? Is it that you've de-prioritized acquisitions? Why do you expect to end up with a sort of slightly less M&A spend this year than prior? What you assumed in your guidance previously? And then my second question is just a follow-up onto Michael's question. I want to clarify some things. So, Søren, your expectation is, at this point in time, that the wholesale business will grow 2% to 4% for the year, which I guess would imply if you are flat in the second half so far that you'd be growing high single digits in November and December. Just trying to understand, are you seeing the type of momentum right now? Is that what gives you the confidence? Or it's just based on some expectations that you have in terms of tenders and contracts that you have visibility on? Any color that you can share on that would be helpful.

[Søren Nielsen, CEO, President & Member of Executive Board]

Thank you, Veronika. The acquisition is just timing. And these things should never in control of yourself, what succeeds and what's the timing. So we always try to give our best estimates. And now it's a little less than instead of a little more. This has no -- nothing to do with plans or execution or anything, this is just how things come in. On the wholesale, we are still dealing with significant uncertainty on exactly how things will pan out. But it is correct and I will restate that we do expect to come in for the full year, in line with market growth, which means in the interval of 2% to 4%. And as I said to Michael, most likely in the higher end of it. What that implies, of course, exactly what you say, high single digits. It is the underlying business that I expect to perform like that. But again, there's many moving parts. On one hand, you can say we have some weak comps. Other says, this year, the Christmas is not very good placed. And so the uncertainty remains, and we cannot be more specific than this until we see the full year.

[Operator]

And the next question comes from the line of David Adlington from JPMorgan.

[David James Adlington]

Two, please. So firstly, just on the OTC draft guidance, obviously, some commentary in the market about some delay there. I just want to get your take on what the latest situation was on OTC. And then secondly, just on the share buyback, I'm sorry if I missed this, but the reduced amount that you're now spending, is that purely because of a timing issue or because you're bumping it up against your debt targets?

[Søren Nielsen, CEO, President & Member of Executive Board]

Thank you very much, David. We only hear rumors, there are no official out. But originally, it was intended for -- estimated for November. It has not materialized yet. We don't expect it. It could run into next year. But there is, of course, a backdrop that they have to meet, which is during August, and we still expect the FDA to live up to that. The share buyback's timing, we put it on hold. We have started it again. There are, of course, also some limitations for how we can execute such a program. And therefore, our best estimate that we'll manage to buy worth of DKK 400 million, round numbers.

[Operator]

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

[Oliver Metzger, Equity Analyst of Life Sciences]

The first one is also on the implant business. So could you tell us whether you experienced since the launch of Ponto 4 higher growth at bone-anchored implants versus your cochlear business? My second question is on the now-launched Super Power device exceed -- Super Power and Ultra Power, which share of the market is addressable for this enlarged category, please?

[Søren Nielsen, CEO, President & Member of Executive Board]

Thank you, Oliver. I think you would say that we only have a few months. But the 2 businesses are growing more or less in line with one another. But it fluctuates a lot from month-to-month depending on comparison figures and so on. But we see a very solid pickup, a solid run rate and a lot of interest for Ponto 4. But again, the actual growth rates are also very sensitive to year-over-year growth and the comparison numbers last year. Super Power, Ultra Power we don't have statistics in the world that helps us answer that question. But I would say it's definitely less than 10%, more likely 5% or something like that. It is more dominating emerging markets and hearing -- or markets where health care is not as developed and whereas in the Western world, much more people with those type of hearing losses will get a cochlear implant. So the share is quite different across the world. But in a global units perspective, around 5%, I would say, is probably the most likely.

[Operator]

[Operator Instructions] As there are no further questions, I'll hand it back to the speakers.

[Søren Bergholt Andersson]

Okay. So that concludes today's call. Thank you very much for listening in and participating. Feel free to reach out to the IR department after this call. And yes, we're also on the road for the next several months. So have a nice day. Thank you.