GN Store Nord A/S

CSE:GN

Earnings Call Transcript 2018-Q1

[Peter Justesen, Vice President of Investor Relations & Treasury]

Good morning all. Welcome to GN's Q1 2018 Conference Call following our release this morning, Danish time, of our Q1 reports. Thank you all for dialing in. Today present on the call as always is Anders Hedegaard, CEO of GN Hearing; René Svendsen-Tune, CEO of GN Audio; Marcus Desimoni, CFO of GN Store Nord; and myself, Peter Justesen from IR and Treasury. Today's conference call is expected to last approximately one hour. We'll do like we always do, we will go through the presentation you have seen on gn.com. The agenda will be as always. Marcus will start with group financial highlights, Anders will walk us through GN Hearing, and René will walk us through GN Audio and then we circle back to Marcus for an update on guidance and then we go to Q&A.And with that short introduction, it's my pleasure to hand over to Marcus.

[Marcus Desimoni, Chief Financial Officer]

Good morning, everybody. It is obviously my pleasure to talk with you about a fantastic, strong start into the year. We've had a very good Q1, and as I mentioned, a very good start into the year. Starting on the top line, where we have had double-digit organic growth. We also have been able to increase the guidance on Audio. We have a strong leverage across the line items, down to the EPS of 11% growth and a strong cash conversion of 50% on the group level. Please bear in mind that it is including tax payments, bonus payments and, of course, the dividend payment, but if you compare the first quarter at '16 and '17 to '18 year-over-year, we have increased it. All in all, a very, very good and strong start into the year. If you then look on the cash flow, as I mentioned, it's very important because the cash flow is the only matrix that is not lying. In Audio and in Hearing, we have been able to improve it in absolute terms as well as in relative terms. And we have been able to make everybody happy, shareholders, investors as well as, of course, our own employees and the tax authorities. If you look into the distribution, we continued the dividend increase in relatively decent growth and the share buyback continued as we mentioned it last year that we want to have a DKK 3 billion share buyback over the time frame of 3 years. And today, this morning, we announced that the second tranche of DKK 1 billion for the next 12 months is launched, and today we're going to start buying back also our own shares. With this, I'm going to hand it over to Anders.

[Anders Hedegaard, CEO & President]

Thank you, Marcus, and thank you, everybody, for attending the meeting today.And I'll start on Slide 8 with the financial highlights. In Q1, the positive development is particular driven by the launch of ReSound LiNX 3D. Organic growth in the quarter was 5%, while revenue was -1% with -7% impact from FX and 1% from M&A in the quarter. The organic growth in the first part of 2018 reflects a very strong performance, in particular among the independent customers. And as you will recall, when we had the Capital Market Day back in 2016, we did highlight that the independent market is an opportunity for us because we are underpenetrated here with -- compared to our global market share. So I'm pleased that we now see some effort -- some impact of all the efforts we have done. Our strong performance in the independent market was in Q1 partly offset by the development in certain larger accounts. These temporary headwinds in Q1, I expected to reverse in the rest of '18 among others as some of our customers will have to fulfill their commitment for the year.All in all, after a solid Q1, we can confirm the full guidance for the year, with more than 6% organic growth. The gross margin in Q1 was rather constant in the quarter, which was driven by the continued increase from ReSound LiNX 3D, offset in the quarter by a strong performance in lower ASP countries like China and India. The EBITA margin increase of 1.4 percentage point reflects operational execution in channel mix. And finally our free cash flow continues to be strong. And in Q1, we generated a free cash flow of DKK 103 million, an increase of 20% compared to the Q1 last year. Cash conversion was 39%.On the next slide, I would like to give you some additional information and call out to the organic growth in the quarter. Overall, we had a very strong quarter in the independent market, which was a clear growth driver in the quarter with the growth twice the market growth, this was partly offset by some temporary headwinds that we do expect to reverse during the course of the 2 of the year. If we, as an example, look at VA, Costco, Amplifon and NHS as a whole, we had negative growth in those. So as you can see, we did deliver a strong growth in the independent market that will support the company going forward. In North America, our growth in Q1 was driven by a strong performance in the commercial independent market, where we saw stable sales in VA as you all have seen for the monthly figures that is public from VA. In Costco, we have experienced a satisfactory development considering that there was recently being launched in new Kirkland Signature by one of our competitors. As usual, we see a dip in sales of branded parts following a KS launch, but we already experienced a few weeks after that launch a return to a much more positive trend of branded products. In Europe, we continue to see solid growth in the independent market but, of course, overall, Q1 was affected by some of our larger accounts having lower sales in Q1. In our rest of sale -- Rest of World sales region where we cover emerging markets Asia-Pacific and South America, we have once again delivered a very strong growth in Q1. It's worth mentioning, China and India and distributor sales that all 3 have delivered a strong double-digit growth. And more encouraging as well is also to mention Japan, where we, over the course of last few years, have seen little growth or maybe more stable development, and over the course of Q1, we have seen a very positive development. A sign of the market going the right way but certainly also our performance going even better.As we have updated you since the launch, and I'm now on Slide 10, the KPIs of ReSound LiNX 3D launch have consistently surpassed the launch of ReSound LiNX2. And have in mind that we are comparing here a product launch of ReSound LiNX 3D that is being launched in a much more competitive market compared to the ReSound LiNX2 a few years ago. We continue to see a solid sales uptake over and above what we saw with ReSound LiNX2. We also see a continued like-for-like price premium. We increased the share point of sales, and we also increased the number of customers who have signed up for our online services. Not only signing up for the online services, we are also getting overwhelmingly positive feedback on the usage that gives us very encouraging information and feedback to the future of this new service. As we mentioned back at the Capital Market Day in 2016, the independent market is truly an opportunity for us. And we have since then executed on the activities. And on the next, Slide 11, we have included some of the details of these initiatives. First and foremost, a prerequisite for strong performance with the independent retailers is a strong and innovative product portfolio. ReSound LiNX 3D offers documented superior sound quality and audiology solution that is unique. Product and technology is not enough. It is a ticket to the game but what you need to do is to target your marketing and communication messages around the superior product. We have worked a lot on strengthening the marketing messages and make our positioning more clear for the retailers and this is clearly coming back with improved perception of our products, when it comes to sound quality and speech in noise recognition. And this is not only appreciated in words but we also see the ASP development going in the right direction.Next, we have expanded our sales force. Among others in U.S. but in many other countries, we have done that over the past few years but recently done a significant investment in sales force improvements over the course of the year 2017. On top of expanding the sales force, we have significantly improved the sales execution by implementing a much tighter sales management across all countries. This is the core of our strategy pillar called commercial excellence. We see the results, among others, in the double-digit increase in number of new customers and also the share of wallet with existing customers. This is the result -- this is the effort that has resulted in the organic growth to go up in the independent customers and we do expect that trend to continue during the rest of the year.On Slide 12, I've provided an update on the rollout for ReSound LiNX 3D. As you all know, it was launched a year ago and we've subsequently rolled it out in almost all countries and we just have China -- that we do expect the launch in China to happen within this year and hopefully shortly. So all in all, we are ready now with the product all around. It's performing extremely well, and we have expectations that this product and our efforts, in particular in the independent market, will drive us to a growth as we have guided 6% organic growth -- above 6% organic growth.With that, I would like to hand over to René.

[René Svendsen-Tune]

Thank you, Anders, and thanks to all of you for attending our call here today.So it is now my pleasure to take you through the GN Audio results of the first quarter of 2018. So we had a strong start of the year and we succeeded to take the strong momentum of last year into 2018 and we were able to deliver 17% organic growth on the top line. The strong growth continues to be driven by our seasonal business within Q1 delivered again such double-digit -- strong double-digit growth rates as we saw last year. Revenue growth was 9% after around 8% negative impact from foreign exchange. There was no impact from M&A as the M&A impact of our VXi acquisition has annualized by -- out by now. Gross margin was up almost 2 percentage points in the quarter and this reflects a favorable product mix. Consequently, our EBITA increased 22%, which implies an EBITA margin improvement of 1.5 percentage points compared to the first quarter of 2017. The free cash flow continues to be strong and we delivered, again, excellent cash conversion of 79%, which is slightly up from last year. So all in all, as I said, a very strong start of the year across all financial parameters. And based on this very strong performance, we increase our financial guidance for the full year to around 9% organic growth when -- and this is up from the earlier communicated guidance of more than 7% organic growth. We do see meaningful leverage in our business, the strong organic growth means that we also in relative terms have higher earnings and our EBITA margin guidance is deliberately open-ended. But I do want to point out, however, that we do reinvest confidently in the business to maintain our leading momentum, be it products, marketing, sales or company infrastructure like IT. Hence, our EBITA margin guidance is unchanged. We are winning across the board and we want to make sure it stays that way.On the next slide, Slide 15, we dig a little bit deeper into the development in the seasonal division, which I guess as you all know, accounts for more than 80% of the total GN Audio revenue. And in Q1 2018, seasonal continued to deliver strong double-digit organic growth rates across all three regions and we have further strengthened our position in the seasonal market. North America was a strong market for us again. In this quarter, our strong product portfolio and our commercial excellence initiatives allowed us to, again, win many new customers for GN in the U.S. In our home turf, Europe, we saw, again, very strong double-digit growth during the quarter and we have strengthened our position throughout most countries across Europe and Africa. And in a similar way, in our Rest of the World sales regions, we delivered strong double-digit growth, and this growth was also here well balanced across countries in the region.Moving to the next slide, I would like to talk a little bit about a very important product launch, namely the launch of Jabra Engage with 6 products which we launched in the first few days of April, i.e. in the second quarter. We are one month into this launch and it looks promising. Jabra Engage is the most powerful headset in the market and it is addressing all needs for the call-centric part of this market, where people are dependent of a high quality headset. Jabra Engage is expected to drive continued strong -- develop in this call-intensive part and high value part of the market. And until now because this is a replacement activity especially the Jabra process has done remarkably well in the segment over the last many years. Jabra Engage has the potential to be most important product launch in GN Audio since the introduction of Jabra Evolve some years back. But I do want to stress, now we have to follow through with strong commercial execution and the new products are obviously part of our planning and guidance for 2018 and beyond.On Slide 17, I'd like to just spend a few minutes on a press release we sent out earlier this morning. So we have made a minor but strategic acquisition in India, where we have acquired a controlling equity stake in our current distribution partner Innova. We have entered into this strategic partnership to accelerate our go-to-market in the Indian market. The new company will adopt, where we take over around 100 people, will adopt GN Audio's global model and we will go to market now in India under the name Jabra Connect. The market in India is currently worth around USD 20 million, the market has been growing double-digits over the last many years and they expect this to continue in the years to come. Innova has been distributing Jabra products with success over quite many years and has experienced growth significantly above the market growth. The current successful management of Innova will continue to lead the company under this new shared ownership.So in summary, GN Audio had a very good start of the year. We have delivered 17% organic growth. We have, as a result, upgraded our full-year guidance. We delivered 22% increase in EBITA, and our free cash flow increased by 27%.So with that, I hand back to Marcus.

[Marcus Desimoni, Chief Financial Officer]

Yes, thanks René. On Page 19, you see our guidance for 2018. Basically, we have left it unchanged. We're executing against all parameters. And as René said, due to the strong start into the year, we have been able to upgrade the top line guidance for Audio for around-ish 9% organically in fiscal '18. As I said, all the other parameters stay the same so that you can also calculate the EPS increase on that year that we also calculating roughly double-digit again.With this, I hand it over to Peter and then we start the Q&A.

[Peter Justesen, Vice President of Investor Relations & Treasury]

Thank you very much.Operator, I leave it to you to run through the queue. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Michael Jungling of Morgan Stanley.

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

3 questions please. Firstly on Hearing. Can you comment on the sustainability of the EBITA margin improvement in Q1 for the rest of the year? Clearly, when it comes to Hearing, again, your organic growth of 5% on a comp adjusted basis is the weakest reading since 2011. Why should I not be concerned that your product cycle is aging and that you will not be able to grow above the market going forward? And question #3 is on net financial, can you provide some guidance for the full year? Q1 obviously came in quite more negative than we thought, so some guidance for the year would be very helpful.

[Anders Hedegaard, CEO & President]

Thank you, Michael, for your questions. I will take the one about organic growth and then Marcus will take over from there. What we have seen, since we launched ReSound LiNX 3D is a significant improvement in market shares and in growth in those accounts who have received ReSound LiNX 3D, and we see the product performing over and above what we did with ReSound LiNX2. What we have -- we are also in the early part of the launch phase because we have only been one full year in the U.S. market, where there are several of the European markets and Asia-Pacific markets that are still -- that didn't get the product before well into the autumn. So we do believe that there is much more in ReSound LiNX 3D, and the sign we see with the growth in the independent market is a pretty good sign for us that we are going in the right direction, giving us confidence to stay on our guidance.

[Marcus Desimoni, Chief Financial Officer]

Thanks. In regards to the question about EBITA margin level, well, the first quarter's obviously historically always the lower margin level. And starting with 19.2%, I think, it's a damn good quarter into the year. In Q1 '16, Q1 '17, we have been around 18% margin levels, so it is an increase on -- for the first quarter. Secondly, as we always have improved it over the year, I also expect that we not fall below the 19.2% in the other quarters. So the margin is going up for the rest of the year. It is a reflection basically on the top line and the composition of the top line and the prudentness around the OpEx. And you have seen that the OpEx was, in reported terms, lower than the one or the other might have expected, but there's an impact of FX translation, but secondly also again of the mix of the top line, what Anders said and what we reported that we've had strong growth in low OpEx countries and channels like distributor sales, China and India, and a very good growth the in high OpEx countries like the U.S. and the independents, but from the FX translation, that is not following one-to-one through. And this is the reason why the EBITA margin was higher than in previous years. But again, you would also expect this to continue with an uptrend in the other quarters. Second question you've had was on the financial items, that I have seen in some of your comments that was a little bit higher than you expected in the first quarter, yes, it is correct. I would not multiply the first quarter with a factor of 4, that is clearly far too high because we've had two 1X in there. In general, financial items is constituting in bank payments, bank interest fees, credit cards fees, and of course, also the noncash convertible bond accounting. And we have been in the first quarter closing, due to the good performance and interest rates swap that have had a negative impact of roughly DKK 15 million. So that is basically off the books and it's not being repeated in the other quarters. And in previous years, we've had the positive effect of burn sheet reevaluations from the FX that we don't have in this first quarter, and this is the two swings. But as I said, you don't have to multiply the first quarter by 4.

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

Okay, Marcus. And a quick question on the margins again. Because you grew the margins by 140 basis points in the first quarter, and it seems the mix or so that you're experiencing is not materially changing in the first quarter versus the other quarters to follow, is 140 basis points plus or minus the right way of looking at it for the year?

[Marcus Desimoni, Chief Financial Officer]

We have been guiding that we will have more than 20% EBITA margins, #1. #2, we also always said that Anders and I are aiming for a higher margin level than previous years. So I think that is what you can expect and, therefore, I would like to leave it to you how much do we outperform the level from last year as a starting point, but that obviously implies that we have a margin increase.

[Operator]

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

[Nyeok Lee, Equity Associate]

I have 2 on Audio base. Just firstly on your new Audio guidance, it still implies only 7% organic growth for the rest of the year. So are you expecting any changes in product mix, pricing or that -- the dynamics of the business or is this just you being conservative again? And then my second question is on the consumer business. Can you comment on how the business has performed in Q1 please?

[René Svendsen-Tune]

Right. Thanks for this question. So on the guidance, I mean, we have now done first quarter, which is the smallest quarter in the year, and we have sort of close to 80% of the business left to execute on. We have sent the signal that we have very firm ground on our feet on this 9% plus, minus and that's where we leave it. Real life is out there, competition, et cetera, et cetera, we have to execute through that. Could it be better? We'll have to see. Of course, there is a lot that can go well but this is where we feel very comfortable at this point of time. Then on the consumer side, I mean, it's -- you know we are in the middle of a product in transformation so we are leaving the sort of accessories part of this -- the mono business and so forth, and we are launching into the market music and voice headsets. We have launched the -- what we call the Elite product line late last year and through Q1 here, that's 16 products in the market. They are hitting the street, as we speak. So some of them have been in the market. This Elite 65t, a true wireless product has been in the market, we've been shipping through Q1 with good results, rest of them have had no impact on the business yet. So we are executing against the plan we have talked about for some time and the proof is in the pudding. But it looks okay, and we are following the plan exactly as we have laid it out. On the Q1 effect directly, we had a single-digit negative growth as we have had a couple of quarters and that's where it stands.

[Operator]

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

[Elisabeth Decou Bedell Clive, Senior Analyst]

Three questions for me. First of all, on Audigy in the U.S., since you took over that asset, how has it performed? Specifically around membership, has it stayed the same or increased and decreased? And just in thinking of your momentum in the U.S. independent market, how much has Audigy played into that? Second on the U.S. market, a few years ago there was a lot of turmoil in Beltone, clearly, turning around that division has been a big priority. Where are you in that process? Is it now being managed optimally or is there further room for improvement, and I'm thinking particularly around margins? And then third question on China and India, your commentary on the lower gross margins. How should we think about the EBITA margin impact from growth in those markets? It's clearly headwind to the gross margin, but at EBITA, is it -- is that also likewise a headwind?

[Anders Hedegaard, CEO & President]

Okay. Thank you for the questions. To the -- I'll take the U.S. related questions and then Marcus will take the latter, the last one around China, India. On Audigy, overall, Audigy is performing in line with our business plan. It's contributing to the overall growth, and it's actually going very well. We have seen a very positive integration into our company, at the same time, we have managed to sustain the group as -- Audigy Group as an independent entity within the group but overall the relationship, the work together with Beltone and ReSound in U.S. is working very, very well. On the number of members, if you count on member -- number of members, we are more members today than we were when we acquired Audigy. But there has been some members leaving and luckily more members joining. That was all accounted for in our business plan and we also saw immediately after we acquired Audigy that a couple of large members left us, but we knew that already before and so it was all accounted for. But the good thing is that Audigy has a very, very professional and strong recruitment process for getting new members, and we are actually seeing the growth of members being very encouraging. When it comes to Beltone, the -- we saw in 2017 that we, for the first time in many, many years, saw our growth -- we actually saw a growth that was above the market growth in U.S., so that was very encouraging. So we clearly see improvements in the organization but let it also state, pretty clear for everybody, there is a lot of room for improvement. We are on the right track but we also see that we can improve in many ways. We have seen Beltone having a strong brand asset. We can do more with that. We can do much better in supporting the network members, and we can also better in running our corporate marketing activities. And so we are improving on numerous of levers in the Beltone. So yes, there is room for improvement but we also have seen that it's getting into a much better trend that we saw in the past.

[Marcus Desimoni, Chief Financial Officer]

On your question, China, India, obviously the ASPs in these countries are differently than the ones in Japan or North America. And therefore, you have what we all talk about, lower gross margin contribution. However, India and China in particular have also lower OpEx in comparison to the overall group and, therefore, contributing -- beneficial to the bottom line. On the margin level on EBITA, I don't want to disclose that, but clearly contributing a positive EBITA number.

[Operator]

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

[Veronika Dubajova, Equity Analyst]

I have three, please. The first one is on the hearing aid business. I noticed, Anders, that you stated in the press release that the growth in Europe wasn't as strong as it was in the other regions. Can you help us understand what's going on? Is this a market issue or a GN-specific issue and what you are doing about it? My second question's on the VA and what your expectations are for your market share for the remainder of the year, especially once the rechargeable product is included on the contract as of May 1? And my last question is for Marcus on currency. Simply any guidance that you have on the top line and bottom line impact from FX for the year given where rates are right now, that would be helpful.

[Anders Hedegaard, CEO & President]

I think, first to the European parts. Europe is a mixed bag of countries going up and some other going down. We see a positive development in countries like France and Germany just to give you the slice of it. But as I -- we also said we have some larger customers in Europe that contributed with less or negative growth that's -- so even when you caught the piece in Europe, in general and independent and major accounts, then it was clearly in the independent, we were overall growing, so of course when we also look overall on the European market, it is slower than the rest of the business. So there is certainly a market part of it as well but be careful always to go too much into details on market growth per quarter because it is -- has to be seen in a broader perspective. When it comes to VA, we have had a stable market share. There are months where it's up and then other months where it's a little bit down. But all-in-all for a relatively long period, we've stayed at around the same number. We expect to improve but we have -- also have to realize that we have reached a level where we have around 20% market share at VA, which is significantly above our global market share, so we are clearly over penetrated in VA compared to our past to -- compared to the rest of our business. We have an internal target that is above what you see, but I'm not going to disclose that and I'm not either going to disclose the details of how we will get there, but it is our expectation to grow also at VA.

[Marcus Desimoni, Chief Financial Officer]

On your question on FX, I think Q1 should hopefully not be represented for the full year. And you have seen, as a key indicator, U.S. dollar-euro ratio on picking 1.25, now we're on 1.20. You can talk to the Techies and they have every day different view, I personally hope from the business perspective, yes, that we're running into the range below 120 that would clearly help us. Because what we have seen in Q1 was that we've had on the top line FX translational effect after hedging as we reported roughly DKK 160 million headwind. This is an absolute number that is gone from the revenue when it falls down to the lines in the P&L. In Q1, we still have had a negative EBITA number. It was negatively clearly for Hearing, it was positive after hedging for Audio, but overall for the group, it was still negative. So we would expect for the rest of the year, a smoothening of that, a, because I don't believe that the 1.25 will remain for the rest of the year as a ratio; and secondly, also the hedges that we have placed now until the end of the first quarter '19 are coming through. So I would expect, as I mentioned, far lower top line headwind and smoothened effect of the bottom line, which is basically in the same magnitude where we are today, slightly less beneficial on Hearing, unfortunately, and a plus, minus on the Audio side.

[Elisabeth Decou Bedell Clive, Senior Analyst]

That's great. And Anders, can I just follow up? I just want to clarify your comment on the VA. Should we look for an improvement in your market share after the rechargeable product is introduced or there are other things that you're working that you expect will help you in the medium term but not necessarily in 2018? I just want to get clarity around that.

[Anders Hedegaard, CEO & President]

The only clarity I can give that is -- we do not expect our -- we will not have our rechargeable solution in VA as of yesterday. We will drive our VA activities through our commercial activities, support and service that has been a very important part of our past history and success with VA, and we will also work with ReSound LiNX 3D and do our best effort to make sure that VA receives it as positive as we see in the independent market. The ReSound LiNX 3D performance in the independent market is second to none when it comes to launches and we see no reason why it shouldn't have the same reflection in VA. We haven't seen that yet, so that is what will drive our activities.

[Operator]

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

[David James Adlington]

First one for René. Just wondered how much of the growth is down to the market, I'm understanding, so market acceleration maybe on the back of U.S. tax reform and U.S. corporate spending -- CapEx spending. So it looks like Plantronics recovered a little bit in the last quarter, reporting out as closed last night as well. And then secondly, just wondered if somebody could talk to the opportunity with FalCom. And yes, just walk me -- help us go down the opportunity there?

[René Svendsen-Tune]

So on the market question, René here, so I think the market in general is solid. I think if you look at the markets quarter-by-quarter over a certain period, it plus, minus, same, but probably a little bit stronger here this quarter here, very much so in Europe actually and -- whereas you can see the development in North America is probably more in line with the earlier quarters. So some effect but not dramatic, but there is something there. I think on the FalCom, I will let Anders talk to that.

[Anders Hedegaard, CEO & President]

Yes, on FalCom, we have submitted to 2 tenders in the U.S. market and we have also -- after we announced the arrival of this new product and the new organization, we have carried -- we have established around it, we have managed actually to open the doors in several others units within the U.S. military in order to start testing and a dialogue of this potential new product. We have -- so right now, we see the product being tested, we are in dialogue, no final conclusions on -- that we are ready to announce yet, but the team we have established around, which is actually a well-experienced team in the military selling setting, which we are operating in, is actually generating a lot of interesting leads and discussions. The product is being tested right now, so we will come back. We said when we announced it back in January that we do expect to come back in second half and that is still our expectation. So no more precise and concrete data points at this time.

[Operator]

Our next question comes from line of Niels Leth of Carnegie.

[Niels Granholm-Leth]

A couple of questions on the Audio business. So could you talk about what proportion of sales in Audio that the Engage product will be addressing? I know that it's going to take over from your Pro product line but what proportion of revenue is this product representing? And secondly on the Audio business, given that some of your competitors have now established a more broad-based exposure to this office equipment market, would you consider to enter the gaming or the conference segments?

[René Svendsen-Tune]

Right. So the -- to the question on Engage and the -- so the -- I mean, the professional business, as we had talked about, not directed -- is directed towards 2 segments; the office segment supported by the Unified Communications phenomena and then the call-centric space. If you look at the market and also our position there, the call sending has been the bigger part of the market and actually still is, if you look at the global market, and has been the same for us. We are just about the point where the UC or the office business takes more space than the call-centric does. And that means that, in very rough terms, you can say that addresses, at this point of time, around half of the business, of the professional business. These two markets are growing at very different rates. So of course, when we are in the call-centric part, we have to win share to grow because of the fully penetrated flat market and we are winning share, whereas the office space is a rapidly growing market where there's a lot of market-making going on and, therefore, be expanding the market as we go. So around half and assuming that we will have lower growth rates in that space than we have in the office side. And the second question was now -- there was gaming, yes? So we are not in gaming business, as you know, today. It is an attractive market as such, growing well. It sits, you can say, on the consumer side of the space, meaning that you have to be confident that you can execute in that space well. I cannot say we will go there or we will not go there. It's clear if we go there, it would like to have to be through an acquisition. But don't speculate in that because that's -- I'm just telling how it would have to be because you can't build that from an -- from scratch anymore. But there are no imminent plans to go there but we cannot rule that out. And the last point you asked was what?

[Niels Granholm-Leth]

That was about the conference segment.

[René Svendsen-Tune]

And the conference segment. I -- you can say the way we look at that is that the UC part of the conferencing, the personal conferencing is where we operate with a high success. When it comes to larger conferencing systems and, of course, you allude to now companies coming together with a broader portfolio -- it is not a rapidly growing segment. And in that sense, we would be very careful how we enter that. But the personal conferencing space and collaboration space is a very attractive segment for us and we will keep working in that domain.

[Niels Granholm-Leth]

And when it comes to the Engage CC&O headset, is it fair to assume that Engage would be priced at 10% to 15% price premium compared to your Pro headset?

[René Svendsen-Tune]

Yes, we have not communicated -- the prices set are going up because it is a more complex product. Market prices at the end of the day will be, for sure, higher. I don't want to give exactly -- numbers here because other people are listening in. But they -- it will go up.

[Operator]

[Operator Instructions] Our next question comes from the line of Maja Pataki of Kepler Cheuvreux.

[Maja Pataki, Head of Med Tech Devices Sector]

I have a couple of questions with regards to Hearing. So just to get a better understanding on what has been happening in Europe, you said that there are some larger accounts that we've seen, some -- just some priming issues basically that you expect to see orders come in throughout the rest of the year. My question to that is could you give us a bit of a feeling of how much that actually accounts for your European revenue, so we get a bit of a feeling of how much the upside is. And then the second question which relates to the potential margin development, how much of the lack of those orders had actually had a positive impact on the margin of development in Q1 and how should we expect to have a bit of a softening not -- a tiny bit of a softening impact in Q2? That will be my first (sic) [ second ] question. And then just clarification, did I get it right, did you confirm that you're not entering the VA with a rechargeable product? And if that is correct, could you please explain to us what the rationale is behind it?

[Anders Hedegaard, CEO & President]

As to -- yes, it's Anders answering it. We're not going into all the financial details on splitting in Europe between a, b and c and how much is lacking out, but point being that we have seen a very healthy growth of the product in the independent market. We see some accounts that had a lower purchase pattern in the beginning of the year. We do expect them to catch up. All of it to deliver what we -- their part of what we have guided for the group. It's also clear that as a matter of a general rule that independence do contribute better to the margin development. To the VA, the question was, do we have a rechargeable product by the 1st of May? At VA that means, did we introduce a rechargeable product yesterday to VA? And the answer was no. There are many reasons and discussions going into that, that goes into portfolio management and also some other considerations which we're not open to share in an open discussion like this.

[Marcus Desimoni, Chief Financial Officer]

Maja, it's me on the -- Marcus. In regards to your margin question from the impact. As we have stated, there is obviously a mix impact on the top line. And countries like China, India, distributor sales or 1 or 2 very big European key accounts, they have a different ASP, therefore, a lower gross margin profile than, for example, the independents in U.S. And when I see Q1 that we have been super strong growing in U.S. independents, super strong growing in China, India, distributor sales, then that has a mix effect and that is then, by the sheer size, overshadowing the impact of what we have seen from the different momentum in Europe. So even though you are theoretically absolutely right, there should be an impact in the gross margin. Yes, it is impact in the gross margin. It -- as Anders said, France and Germany are growing and maybe someone else is not growing but the magnitude of U.S. and the other 3 is much bigger and, therefore, you don't see the impact to the external on the gross margin, but if you slice it, then you see it.

[Operator]

And the final question in the queue, so far, comes from the line of Oliver Metzger from Commerzbank.

[Oliver Metzger, Analyst]

I have 3. But first one is a follow-up on -- for GN Audio. So you mentioned that there were some positive FX impact on EBITA level. Could you potentially specify the magnitude of that? My second question is also on GN Audio. So SG&A went up by 120 basis points in the year despite this very strong top line momentum. Potentially, can you comment on that? And the third question is just a final question on ASP at the GN Hearing. So you specified that's a like-for-like up, but could you also comment whether this was some positive effect including the effect of channel mixes. And so the direct -- so basically in -- for some it was still positive?

[Anders Hedegaard, CEO & President]

Maybe I should just take the ASP in Hearing first. On a like-to-like, we have launched ReSound LiNX 3D with higher price level and -- but then when you go to the quarter, there is a lot of moving parts in ASP. And we've seen China, India, distributor sales, as I mentioned, being up and they have usually a lower ASP. The independent, as a rule of thumb, has a much better ASP than some of our larger accounts. So it is a little bit that there's movements on both, but the general trend is upwards.

[Marcus Desimoni, Chief Financial Officer]

Then on the FX. All about -- it's me, Marcus. I said that we've had negative EBITA contribution on Hearing based on the FX translation and the hedging. And on Audio, we have seen in the first quarter a slightly positive FX contribution from translation and hedging, but that returned into a negative over the next quarters. And that's why I said for the year guidance it's around plus, minus 0.

[Oliver Metzger, Analyst]

Yes. But could you specify the magnitude of -- for GN Audio for the quarter, which is...

[Marcus Desimoni, Chief Financial Officer]

That just is -- that is just a few million. It's not much. It's just -- give me a little bit of tendency.

[René Svendsen-Tune]

The third question was on spend level in the first quarter. And it's clear that we see strong demand in the market and there's a lot of stuff we can do and, therefore, it's natural for us to try to fuel the momentum best we can. We have done that. It's typically in the beginning of the year. We actually -- we have more programs done on average. What I tried to say in my commentary is that to the extent we see opportunity, we will keep doing that as we go forward here. So yes -- so it -- we will let that follow the market and the momentum we can create out there basically.

[Operator]

And we have one further question coming to us from Yi-Dan Wang of Deutsche Bank.

[Yi-Dan Wang]

I have one question on Hearing and one on Audio. So on the Audio question. René, can you give us a bit more color on the growth that you reported for CC&O? How that has trended for the contact center segment versus the office segment, whether -- if you can, whether the contact center segment is growing faster than the office or just some rough idea of where we are on the different segments given your various initiatives there? And then on GN Hearing, Anders, can you give us some sense of what the growth is excluding India, China and distributors? It seems that if we make some simple assumptions, then it would appear that all of the outperformance versus market would come from those areas. If you could put some comments and color around that, that would be great.

[Anders Hedegaard, CEO & President]

Thank you. Let me start with -- I take the -- your last question for Hearing first and I can certainly put some color on that one. The growth of when I -- we talk independent is to a large extent driven by the commercial sales in U.S. The commercial activities in U.S. is paying off with increased sales force, the increased focus and a lot of the efforts we're doing there and it's -- when our commercial business in U.S. is doing great, it has a very positive effect in the entire company. Then on top of that, we have had a very positive development in the three markets you mentioned, but it's certainly not where the majority of the growth is coming from.

[René Svendsen-Tune]

So, René here on the growth question. I think the comment that I can give you is that both segments are growing, but clearly the office segment is growing faster than the call-centric part. So that goes for the market and that goes for us as well. So we are outgrowing both segments, but the office segment is clearly growing the fastest.

[Yi-Dan Wang]

So just to follow up on that, so the contact center segment, I think, started to grow -- outperform the market quite relatively recently. Do you think there's further scope for that to accelerate, presuming that the initiative have started but you haven't had the full benefit of that -- of those initiatives? Is that fair?

[René Svendsen-Tune]

I think we -- I mean, as we have said earlier, the contact center market is fully penetrated. The call center is a fully penetrated market, meaning that you have to take market share to grow in that space because it's a flat market basically. We have done that, we're taking initiatives to try to do that more, but I don't think we shall expect a fundamental change in the dynamics in that space. It is a slow-moving market because there's a lot of stable, more classic infrastructure around it and that means that replacements are more comprehensive and you dig into that market in longer cycles, in a sense.

[Yi-Dan Wang]

And can you at least say whether you're growing double digits in that segment now?

[René Svendsen-Tune]

No, I said that anywhere -- how we split that, I'm sure competition would like to understand what it looks like, but we haven't said it.

[Operator]

And there are no further questions on the line, so I'll hand back to our speakers.

[Peter Justesen, Vice President of Investor Relations & Treasury]

Perfect. Thank you very much, operator. And thank you very much most of all for the people on the call and much appreciated. And thank you to Anders and Marcus. Have a nice day. See you on the road. Bye.