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GN Store Nord A/S
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Hello. Welcome all to GN's full year 2020 conference call following our release this morning, Danish Time. Thank you all for dialing in. It's great to have you on the call. Participating on the call is Gitte Aabo, CEO of GN Hearing; René Svendsen-Tune, CEO of GN Audio; Peter Gormsen, CFO of GN Store Nord; and myself, Henriette Wennicke, Head of IR and Treasury. Today's conference call is expected to last about an hour where we'll go through the presentation we have uploaded on our website, gn.com. The agenda for the presentation itself is that Peter will start out with group highlights then Gitte will provide an update on GN Hearing. René will provide an update on GN Audio. After which, we'll go back to Peter for the financial update and guidance. After that, we hand over to Q&A with questions from the queue. And with that brief introduction, I'm very happy to hand over to Peter.
Thank you, Henriette. Good morning, everybody, and thanks for joining our call today. Today, we have released our 2020 annual report, along with our corporate governance report, remuneration report and our sustainability report, which include ambitious 2025 goals. All the reports are uploaded at our website, gn.com. Starting on Slide 4. I'm very pleased to see the performance of GN in a very challenging year. The results are clear as we have delivered on our updated guidance across all parameters with minus 24% organic growth in GN Hearing and 42% organic growth in GN Audio, resulting in a revenue of DKK 13.4 billion. Group EBITA ended at DKK 1.9 billion, which includes a positive EBITA margin in GN Hearing and an EBITA margin of 21.6% in GN Audio, excluding gain from legal settlements and litigation, both within our guidance. EPS ended at DKK 9.72 while we distributed around DKK 350 million back to shareholders in early spring before the pandemic. Despite the severe impact from the pandemic, we delivered very strong cash flows, which drove our leverage down to 1.8x EBITDA within our long-term capital structure policy. So all in all, a very strong set of numbers in a very different year and a good offshoot going into 2021. With that short introduction, I would like to hand over to Gitte for an update on GN Hearing.
Thank you, Peter. Starting on Slide 6 and our financial highlights. I would like to take a step back and share a few reflections with you before digging into the numbers. 2020 was indeed an extreme year. Extreme things happened across the world, in our industry and in GN Hearing. I'm pleased with the internal execution in GN Hearing. We launched a new strategy. We successfully launched breakthrough technology with ReSound ONE, and we completed our product portfolio with our ReSound Key launch earlier this month, positioning us with leading technology across our portfolio. And in addition to these achievements, we took decisive action to cut costs and reposition GN Hearing on the cost side while the pandemic turned our industry upside down in a way that has not been seen before. It was important for me to share these reflections as it's clear that 2020 turned out very differently compared to what we expected when we entered the year. GN Hearing was, as expected, off to a good start in January and February. But due to the spread of the pandemic and the consequences that had to our industry, we saw negative organic growth in the remaining months of 2020. GN Hearing ended the last quarter of the year with a negative organic growth of 16%, leading to an organic revenue growth for the full year 2020 of negative 24%. What an extreme year. But I think we managed to do well on the things that we could control, and I'm really proud of that. Shifting gears. The gross margin ended at 61.5% for 2020, driven by the lower revenue level, fixed cost coverage, onetime costs and mix effects. Despite the decrease in revenue and gross margin, we were able to deliver a positive EBITA and cash flow for the full year due to our cost measures. As our end markets are intact in the mid- to long term, we continued to invest into the business. Consequently, in Q4, we invested significantly in R&D and IT. On top of these investments, we had onetime costs related to bad debt of roughly DKK 30 million in the quarter. While we clearly have taken a prudent approach to the cost side during 2020, I want to stress that we are also focused on being able to drive growth once the markets reopen. And that leads me to Slide 7 and the sales pattern throughout 2020. After the low point in April with a run rate in the 20s of percentages to last year, we saw emerging recovery during the summer. October sales were at around index 90 to last year, but in the latter part of the month, the momentum softened. This softening continued into the quarter as a consequence of the surge in global COVID-19 infection rates. The market recovery continues to vary across regions, countries and channels, all dependent on local restrictions. In North America, the recovery has, in general, been slower than in Europe and Rest of World, but also with large differences across states and across channels. In Europe, we saw a strong recovery, especially in Germany and Southern Europe, while the U.K. remained heavily impacted by continued restrictions during the year. In our Rest of World region, the picture continues to be scattered. We saw particularly strong recovery in China, Japan and South Korea at the end of 2020. But we have now, in the beginning of 2021, seen a resurgence of COVID-19 in, among other, Japan. Now let's turn to Slide 8 and remind ourselves that even though the pandemic has had a severe impact on the global hearing aid market, the market remains very attractive and has the last decade been robust with stable growth rates. Driven by various macro trends, increased wealth and demographic development, the underlying market still looks very attractive in the mid- to long term, pandemic or not. Market estimations call for a CAGR of 4% to 6% unit growth, in line with the historical growth. Furthermore, overall, penetration is still at a low level, especially for less severe hearing loss, making a significant room for penetration growth, and most importantly, a significant opportunity for us to give more people back the ability to hear with their own ears. I am, all in all, very optimistic on the market outlook in the mid- to long term. Now moving to Slide 9 and our full and updated ReSound portfolio. Let me start by giving you some color on the ReSound ONE performance before putting some words around our newly launched product, ReSound Key. The ReSound ONE reception and feedback has been overwhelmingly positive. Audiologists around the world truly appreciate the technological breakthrough and the user benefits that entails. ReSound ONE really performs great in the open market, and I'm very pleased with the uptake across geographies. In the VA channel, the product uptake has been slower than what we had hoped for, and honestly, somewhat disappointing. Under normal circumstances, VA is a channel that easily adapts new groundbreaking technology like ReSound ONE. But under the current circumstances where VA has a backlog of patients and our inability to visit the clinics due to restrictions, the uptake has been slower than anticipated. And now let me put a few words around our newly launched essential product family, ReSound Key, which constitute a full line covering 10 different form factors from custom hearing aids to superpower hearing aids. ReSound Key include a rechargeable option as well as the state-of-the-art streaming options covering both iOS and Android. ReSound Key joined ReSound ONE and ReSound LiNX Quattro in the strongest and broadest ReSound portfolio ever, all products inspired by the -- our organic hearing philosophy and with access to the industry-leading portfolio of accessories and services. The last time we did a complete refresh of our Central portfolio was more than 5 years ago. This is another great example of our continued commitment to innovation leadership, which takes me to Slide 10 and a brief update on our strategy execution. And with this slide, I would actually like to circle back to where I started my presentation. In a challenging year like 2020, I am truly proud of all the great innovations we've brought to market and the portfolio of products we now can offer to customers and users around the world. Our technology is clearly groundbreaking. The launch of ReSound ONE in the autumn, which I'm extremely happy about, came after the accelerated launch of ReSound Assist Live in the spring, which helped our customers through the difficult period of the pandemic. Being able to now add the launch of ReSound Key is really a testament to our strong R&D engine. All the mentioned areas were part of our agenda going into 2020, but I'm thrilled to see the accomplishments amid the severe impact from the pandemic. With 2020 behind us, now let me put some words to our thinking around 2021. As you know, 2020 ended with negative -- minus 16% organic growth in Q4. And we see that '21 begins at the same momentum with continued significant variations across countries and channels. However, spring is nearby and the vaccination programs are running at full speed around the world and we, therefore, expect that market will reset and normalize in the second half of '21 and thereby be on par with the second half of 2019 overall, of course, provided that the pandemic does not bring even more negative surprises to our industry. I would like to stress that visibility is still low, and therefore, we continue to work with different scenarios in our financial management of the company. And with that, I would like to hand over to René and an update on GN Audio.
Thank you, Gitte, and hello to all of you. It's now my pleasure to take you through GN Audio's results for the full year of 2020, and let's move to Slide 12. 2020 was a fantastic year for GN Audio. We continued the exceptional growth of 42% organic revenue growth for the year on top of the 26% we delivered in 2019. We took significant market share driven by our leading growth portfolio and continued strong execution across the organization. The growth was driven by continued strong enterprise demand for office and home office products across regions. The demand was positively impacted by enterprises who invested in supporting their employees who are currently working fully or partly from home due to the COVID-19 situation. The consumer business returned to double-digit organic growth in the second half of 2020, following a first half impacted negatively by retail stores being closed for some time. The year ended with a gross margin slightly below 2019, driven by increased freight and production costs due to COVID-19 and tariffs related to the U.S.-China situation. EBITA increased by 68%, including gains from legal settlements and litigation. Excluding the DKK 114 million gain, EBITA grew 58% compared to last year. This corresponds to an EBITA margin of 21.6% and margin expansion of more than 2 percentage points, which reflects the continued leverage in our business. Free cash flow, including the gain from legal settlements and litigation, was at an impressive level of DKK 1.7 billion in 2020, corresponding to a cash conversion of 86%. All in all, I think a very strong financial performance yet again in GN Audio and a strong foundation going into 2021. Speaking about 2021, let's turn to Slide 13 and an updated overview of our portfolio and market segments. This is a slide you've all seen before, but now updated with market estimates for 2020. Let me briefly touch upon 2 of our growth segments, the collaboration and the office businesses. Starting with the collaboration segment, which is essentially plug-and-play conference call and video conference call solutions for home offices and huddle rooms, and it does include our Jabra Speak series as well as Jabra PanaCast video products. In this market, which is estimated to around USD 1 billion, we have a relatively small market share, but we expect this to be a high-growth segment where we can gain share in the years to come. In the office segment, on the other hand, we are a clear market leader. The market is growing very strongly based on continued headset adoption and new demand from the work-from-home phenomena. So let's turn to next slide, where I would like to give a bit more color on the professional headset market, Slide 14. The current professional headset market is worth around USD 1.8 billion. This market has been growing with around 7% annually in the past few years. However, past year, the market is estimated to have grown around 25%. The growth is both a result of increased penetration in the office worker segment, but also due to increased penetration in new segments like the educational sector, public sector, public administration and the health sector. We estimate that the market will continue to grow with around 10% per year in the years to come and that the penetration will steadily increase from around today's 17% and towards 30% in 2025. This estimate is based on some of the positive acceleration trends, which we have mentioned in the recent quarters. First, the work-from-home phenomena, either fully or in a more hybrid format, we think, is here to stay. We hear from our customers and partners that more and more enterprises across the world prepare for flexible work from -- prepare for flexible work-from-home initiatives to support their employees and their business also after COVID-19. Secondly, as people are working in more flexible ways, the need for privacy and removing local noise is increasing, and people do acknowledge the benefits of high-quality professional headsets and video equipment. And last, people are adapting to new ways of working using the UC platforms in their daily work and life to a much larger extent than in the past, which brings me to the next slide.Slide 15. The amount of people using UC platforms, like Microsoft Teams or Zoom in their daily work and life, has dramatically increased over recent 12 months. As an example, the daily active users of Microsoft Teams are up 6x while the daily active participants of Zoom are up even 30x during the pandemic. The growth these UC platforms have experienced in 2020 are way above and beyond the growth of professional headset market or video markets, which I mentioned we estimate to around 25%. This is huge opportunity for us in the coming years as true business partners for these leading UC providers, combined with our leading product portfolio. And talking about market-leading products, let's turn to Slide 16. The new -- the hybrid new working model, which I have talked to a number of times, calls for superior technology that cater for different ways of working. Different working spaces come with different surroundings and user needs, which our products can adapt to. As an example of this is our -- we have our recently launched, the Evolve2 85. All features of this new product are based on specific user needs. It could be the superior battery, could be the Active Voice Cancellation for the antenna design, all delivering outstanding call quality even though you are at home with a lot of background noise. Product features and design are crucial elements for capturing the market growth going forward as people and corporates realize the benefits of high-quality professional headsets and video equipment as I mentioned. So finally, let's move to Slide 17 and a quick update on GN Audio's strategy execution for 2020 and beyond. From a commercial point of view, it's evident that 2020 has been another fantastic year for GN Audio. However, this has only been possible due to the strong foundation we have built last many years. In 2020, we brought again great new innovations to the market. Evolve2 was launched in spring. And late in the year, we have launched Elite 85t. This is building in Active Noise Cancellation to a strong lineup of true wireless device. We did also work intensely with our supply chain during the year to drive scalability and flexibility. And last but not least, we have taken an important step forward in terms of our sustainability agenda and initiatives. But I'm very pleased with the fact that we now set specific ESG targets for the years to come. All in all, another great year for GN Audio, continuing to build a strong foundation for the years to come. And with that, I would like to hand back to Peter on the financial update and guidance. Thank you, all.
Thank you, René. Moving to Slide 19 and the group financial highlights. As I said in the beginning, I'm very pleased to see the performance of GN in a very challenging year. All in all, GN Store Nord delivered an organic growth of 9% for 2020 and an EBITA margin of 14%. Our balance sheet remained sound and we have ample sources of liquidity. As we have delivered a free cash flow of almost DKK 2 billion during the year, we have been able to significantly reduce our net interest-bearing debt. And as a result, our leverage ended within our capital structure policy. This leads me to Slide 20 and the cash flow generation. GN Hearing's lower free cash flow compared to '19 is reflected by the lower revenue level and channel investments, but to some extent, offset by prudent cost control and a positive development in working capital. Due to the lower earnings level, we also experienced less cash flow impact from tax compared to 2019. In GN Audio, we saw a strong development in operating profit, reflecting the very strong revenue and the onetime gain from legal settlements and litigation. On top of this, we had a positive development in working capital. And as a result, we delivered DKK 1.7 billion in free cash flow while we invested significantly into R&D and growth opportunities. Moving to Slide 21 and our capital structure. In early spring 2020, GN distributed around DKK 350 million back to shareholders through dividends and share buybacks. As I mentioned earlier, we have been able to reduce our net interest-bearing debt with more than DKK 1 billion, leading to a leverage of 1.8 despite the decrease in EBITDA. GN has a solid financial foundation, why we intend to propose a dividend of DKK 1.45 per share at our upcoming Annual General meeting, in line with last year. Furthermore, it is our clear ambition to reinitiate share buybacks, of course, subject to AGM approval. Given the current leverage profile, you should expect us to buy back shares in line with the levels seen historically. And we will propose to cancel around 4 million treasury shares. Let's turn to Slide 22 and the midterm guidance. Let me start by reemphasizing that our midterm guidance, as we announced a year ago, is fully intact on all parameters. We will grow faster than the respective markets in which we operate, and we will deliver an EBITA margin across GN Hearing and GN Audio of at least 20% in the midterm. This leads me to our financial guidance for 2021 on Slide 23. First of all, it's important for me to stress that the basic assumptions behind the guidance for '21 remains significantly more uncertain than normal due to the ongoing COVID-19 pandemic. The COVID-19 situation has and will not only strongly impact GN's operational performance in '21, but it will also impact predictability and visibility across GN's markets, channels and supply chain. Please also bear in mind that this guidance is contingent on a gradual reopening of society. Let me start with GN Hearing. 2020 has clearly shown how unpredictable the pandemic is and the severe impact it can have on the hearing aid industry. As Gitte mentioned, visibility is still low and we continue to work with different scenarios in our financial management of the company as we have done throughout the pandemic. Our fundamental assumptions behind the financial guidance for GN Hearing are that the global hearing aid market in the first half of '21 will remain impacted by COVID-19 and the regional and local restrictions, resulting in markets being below the first half of '19 level. As hearing care professionals and end users will have access to the vaccine throughout the first half of '21, the current expectation is that the market will reset and normalize in the second half of '21. Based on the mentioned market conditions and our ambition to continue to take market share, this results in an organic revenue growth guidance for '21 of more than 25%. We expect an EBITA margin of more than 16% in '21, reflecting the expected top line development and continued investments in maintaining our innovation leadership and improving the IT infrastructure. We do expect that the EBITA margin in a more normalized market in the second half of '21 is recovering to our midterm targets of more than 20%. Moving to GN Audio. As René mentioned earlier, we continue to see positive market trends and continued demand for collaboration solutions from enterprises and organizations. We expect the market to grow around 10% in '21. And with our innovation leadership and commercial execution, we aim to continue to outgrow the market. Consequently, GN Audio expects an organic revenue growth for '21 of more than 20%. Based on our current momentum in the market as well as comparison based from 2020, it is clear that the organic revenue growth in the first half of '21 will be significantly higher than in the second half of '21. This will naturally be even more pronounced for Q1 of '21. We expect an EBITA margin of more than 21% in 2021. And in line with our strategy, we will continue to invest across the company in future growth opportunities. EBITA in Other is expected to be around negative DKK 185 million. As a result of the strong growth across the company, we expect to deliver an EPS growth of more than 50% for 2021. With that, I would like to hand over to Henriette for the Q&A.
Thank you, Gitte, René and Peter, for the update. With that, I'm handing over to the operator for Q&A. [Operator Instructions]
[Operator Instructions] Our first question comes from the line of Jannick Denholt of ABG.
It's Jannick from ABG. So first one for Gitte on Hearing guidance. So just to clarify, your expectations of the market normalization into second half of '21, that's against second half of '19. So in essence, is that against the market growth? And also how does that compare to your own absolute numbers that you record back then? So basically, it means that no extra growth from '19 over '21? And then by that, you don't assume any pent-up demand whatsoever this year. We know that some of your competitors have included some kind of pent-up demand into second half of '21. That will be my first question, please.
Thank you for that, and I'm obviously happy to speak about that. So looking at '21, clearly, our assumption is, for the first half, that we continue to be impacted by COVID-19 or continue to see hearing aid market impacted by COVID-19. And then our assumption is that as we move into second half of '21 and assuming vaccination programs run as we expect, that we'll see a return to normal market conditions, meaning that we expect second half to be at the level of 2019. Should we see a significant impact or a meaningful impact from pent-up demand, as you allude to, obviously, that will also benefit us. But our main scenario is that we'll see second half of '21 on par with what we saw in 2019. So that's the basic assumption for the guidance we've given of overall organic growth of 25% for the year.
And that would also include whatever expectation you currently have for the ReSound ONE launch, which you also alluded to is slower than anticipated in VA, so no pent-up included in that either?
Well, I think, I mean, looking at it overall, it's definitely a prerequisite for our guidance also for '21 that we want to grow our share and outgrow the market. So that's also an underlying assumption. Specifically, on ReSound ONE and VA, it's clear that under normal circumstances, VA is a channel we all observe. I mean numbers are publicly available. And it's also, under normal circumstances, a good proxy for how a new hearing aid is perceived in the market. However, this time around, that is not the case. VA has a significant backlog of patients, which obviously means a significant time pressure for the audiologists in the VA channel and also we are completely prohibited from visiting the channel. And then adding to that, that with ReSound ONE, we are launching completely new and groundbreaking technology. So that cocktail just means that the uptake of ReSound ONE hasn't been as we anticipated. Obviously, once markets normalize, we expect that picture to change. And looking outside the VA channel, we actually do see a good uptake of ReSound ONE and are getting really, really positive feedback both from audiologists and from end users. So this time around, VA is not a good proxy for how the product has been received into the market.
Okay. So my second question then that would be to you, René. On Audio growth outlook, obviously, you expect, maybe conservatively, a market growth of plus 10% again for the coming year even though, as you said, you saw, what, 25% growth in the prior year. What is your expectations? So obviously, the office headset is being one, but how do you view the consumer channel as well? And can you talk a little bit about the mix between the consumer element and the enterprise as well, both now but also going forward? Would that, you could say, be even greater? Span across time? Do you expect the consumer to come back somewhat a little bit to, what, prior levels of, what, 20%, 25% of the total sales?
Yes. Thanks for that question. I think starting with the last part of your question. It is evident that in 2020, the enterprise growth was superior. So in that sense, it puts some pressure back in the spread between the two. So where we normally talk about this 25% consumer, 75% enterprise, there was a lower share of consumers, especially in the first half. But also I think relative was, in second half, enterprise outgrew the consumer business. If you look at the consumer market in general, then I think there are 2 things to say. One is that, actually, after a sort of challenged first half, the consumer market has been actually coming nicely back. What is different now is that the true wireless share of that market is very dominant. So you can say what happens with true wireless is more like also defining the consumer headset market as such. It is a very large market today after a couple of years of massive growth, much led by one specific player from Cupertino. But also, of course, others have been able to contribute to that market expansion that we have seen there. I think we don't have much more to say about the market growth in general enterprise. I mean we talked to this 10% that we have talked to earlier. Would it be -- can we create a bigger market? We will try, for sure. I mean you can say, in this space, we have had the opportunity. And I guess also last year because of our ability to scale supply and so forth, we were able to create also the market growth. So of course, we will attempt to play into the market and see if we can drive higher market growth. But for now, the 10% we think is a very meaningful number to work from and try to beat.
And our next question comes from the line of Veronika Dubajova of Goldman Sachs.
Yes. I have 2 please, one on Hearing and one on Audio. On Hearing, can I just kind of get a better sense for the building blocks for the EBITA margin guidance that you've given in particular? I'm a little surprised that if we are going to see revenues that are within a couple of percentage points of the 2019 baseline, at least on my math, we are talking about sort of a compression in margin of 400-plus basis points. I guess I mean that would suggest you're seeing a 100% drop-through on the revenues that we have lost. And I guess, in particular, in the context of lower selling and marketing expenses, less travel, et cetera, I'm just finding that a little bit surprising. So maybe, Peter, you can help us if you can get to that 16% EBITA margin given the revenue guidance? That's my first question. On Audio, René, just curious, I mean, you discussed the 25% market growth and it's curious what do you think that number would have been if there had been enough product available to meet the demand. Any comments you can share on kind of component shortages? I know it's not necessarily in your space, but we're picking that up in terms of some of the electronic components coming out of China that there are some manufacturing delays. Is that something that's impacting you? And if so, to what extent?
So thank you, Veronika. I will actually take the question on EBITA margin. It's Gitte speaking. So when you look at our overall guidance for the EBITA margin for GN Hearing, important points I want to point out, that we are guiding an EBITA margin above 16%. And when we look at the second half where we expect markets to return to normal, it's also our assumption that we see our margins return to normal, if you like, so above 20%. So I guess the way to think about it in the period in between is that, right now, we are kind of running a company that is suppressed on the revenue line due to COVID-19, but we kind of run the company with the capacity built for a higher revenue level. And that entails that we invest into R&D as if we were at a normal revenue level because we think this is really, really important in order to ensure that we are competitive going forward. It also entails that we keep our full production capacity afloat so that we're ready to supply the market once we see the increase in demand. So obviously, that has an impact on our cost level, not least the fact that we continue to invest at a very high level into R&D. So I think that's the way to think about it. And then again, I just want to underline that when we look into the second half of the year, our EBITA margin will be back at above 20%, assuming that market returns to normal, which is our assumption for the guidance.
But like could I just quickly follow up on that before René talks to Audio. Just -- I mean I look at your [indiscernible] for instance and they've managed to -- their profitability is a lot better through the second half of the year than you have. What's the difference, you think? I appreciate the revenue...
We have a hard time hearing you, Veronika. Your line is breaking up right now. Can you try again? Otherwise, we'll just go to Audio and let's see if your line is better. Afterwards, you can follow up on Hearing.
Yes. Why don't we go to Audio.
Thanks for that question. I guess on the supply situation and the market growth of last year, it's evident that we talked to you about order backlog out of second quarter, order backlog out of third quarter and we go into the first quarter with a backlog beyond the normal. So we could have sold more, and the same was the case for competition despite the fact that we actually think our model proved very scalable throughout the -- last year. So I don't want to give a percentage points what more would have added to the 25% growth here. But you're right, there could have been an upside there. On the component situation, I mean, of course, our scalability links to not only manufacturing capacity and logistics capacity and the demand, but also access to components. Of course, in the guidance we are giving, it includes our sort of ability to have -- to secure sufficient amount of components. There is a component pressure in the market now as you can read in the newspapers, as you speak to, and we see that, too. So far, so good. We are able to find what we need. But it's clear that this is something that is a factor that we have to deal with and something that, of course, for sometimes bigger commitments on our side to make sure that we are in the right place in the queue. But it is there. It is fully included in our guidance. And so far, we have been able to secure all the components we need.
And our next question comes from the line of Annette Lykke of Handelsbanken.
My first question will be to Audio. I'm simply just trying to understand the components behind your EBITA forecast for next year -- for this year of at least 21%. If we look at marketing, you increased those to close to DKK 1.6 billion. How should we see that in 2021, it's still hard to travel? And could you maybe say a little bit more about what we should expect of the gross margin compared to last year, so we can sort of compound because I find it hard to just be slightly above 21%. Then on VA, I'd like to follow up, Gitte, on the momentum in this channel. It seems at the start, you have won a lot of market share there with completely in the canal hearing aid. Do you think this will disappear as the pandemic gets behind us and mask is no longer worn? Or do you think this style will continue to be successful in the channel? And would that mean that you will have to sort of rethink some of your launch programs there?
So this is René here. So on the EBITA, I hear your question. I think we start with the margin. I guess the mix we are foreseeing into next year is plus/minus what we know. The -- right now, as you know, the gross margin is under pressure for 2 -- I mean, 2 or 3 reasons. One is that the logistics costs are very high. I'm not able to somehow forecast exactly when that will change or what capacity will come back into the market. So we are assuming right now that the logistic costs will remain high at least for some time. In a similar way, we are still investing in increasing manufacturing capacity and so forth. So for us, supply right now and ability to grow is -- has a higher priority than the last gross margin point. So we are pushing in that sense forward. I think we have said all the time that we think it's a better deal for everyone that if we can find extraordinary growth rather than drive better leverage, it is a better deal. So we are assuming, again, that we will find ways to grow the company and invest in that. We understand the leverage point, of course, too. So -- but this, we think, is a very healthy starting point to -- for the year. So we will invest aggressively again, unless we see something in the market we don't like. And you can say these gross margin points is hard to now say that this will all go away.
And in respect to OpEx or investment in, for example, marketing, would you assume that you could get completely back to normal in 2021? Or will we see some -- less spending in the first half?
We are actually spending in brand building and marketing at a quite high level as we speak. So we have taken the opportunity when there is such a momentum in the business to actually push a bit harder than we have normally done. So right now, the assumption is that we keep a high -- quite high marketing pressure across the segments and also across the world. So don't expect us to somehow slow that down right now.
So coming back to your question on the momentum in VA. So overall, if we look at the results or the performance in January, VA was down 22%. And if we adjust for the number of business days, then it's down 14%, so probably slightly still below the market. So I think we've seen throughout the pandemic that VA has been slower in opening up than what we've seen in the commercial channel, if I can put it like that. And especially on customs rechargeable, there's no doubt that -- I think the custom form factor as such, due to the fact that people need to wear mask, obviously has an advantage. I think also going forward, what we'll see in all form factors is that the rechargeability is a feature that people really appreciate. So I think from that perspective, rechargeability across all form factors is a relevant feature also beyond the pandemic.
Yes. My question is more if you think you need a custom-made rechargeable hearing aid as well or do you think -- and also if maybe customers get used to those from different preferences, maybe cosmetic or something, do you expect [ Starkey ] can continue their strong momentum?
Well, I think if you look at the VA channel as such, I think the ITs have been under-indexed and obviously that is also reflecting that. And then, yes, I think there is a room for custom hearing aids. I guess the ideal hearing aid, if you like, would be completely invisible and with all the features you could possibly imagine. So I guess that's what we all strive to deliver.
Our next question comes from the line of Michael Jungling of Morgan Stanley.
I have 2 questions, both in Audio. Firstly, why did you show such relatively poor growth performance in North America versus Europe? The growth rates really are quite stark. I mean flat growth or flattish growth for the U.S. and sort of 70% growth in Europe. Just to me, that has to be reconciled. That's question number one. Question number two, on the Audio guidance, the organic sales growth of more than 20%. Can I just confirm what you mean by stronger first half versus second half? Do you foresee that your second half will actually grow, that you will show positive organic sales growth in the second half of this year?
Thanks for that. So the second quarter, yes, indeed, we do foresee that we will grow in the second half against what we also understand is a tough comparison base, clearly. So on the North America versus other parts of the world, growth pattern, you can say this UC phenomenon simply is stronger right now outside of U.S. Of course, I guess the next question, did we lose market share in North America? No, we did not actually. So there is a pattern difference also a bit on the consumer side. Actually, we have higher growth elsewhere than we have also in the second half than we have had in North America. And that has something to do with the retail pattern and how that actually works and how we set up online and so forth. So these matters and then, of course, ForEx exchange play a role as well in that overall pattern. Okay.
Okay. Can I just follow up, please, on this -- on your comment around market shares. I mean if I look at what's happened over the past years, it's fair to say that you materially outgrew the market. The Plantronics numbers look pretty impressive, and as a result, you did grow twice the market. Are you assuming that your main competitor, Plantronics, is not experiencing any material improvement in their execution? Could you just confirm that in relation to that 20% organic?
So of course, we have seen -- we saw strong results from competition in the last quarter. That's a reality. I guess we come from different bases. So of course, that's also an absolute piece here that we need to remember. If you compare the sizes of the business, then, of course, you probably have the answer somewhat. But if we have a huge respect for our competitors all the time. We have been doing clearly better, and we intend to keep it like that. But definitely, I totally respect that everybody had a strong Q4 or last quarter.
So your guidance of 20%, does it assume that a major competitor starts to improve more and more? Or that it was more of a coincidence or it was more of a one-off that this competitor showed such strong performance. I'm trying to understand what that 20% twice as fast as the market actually means in relation to your major competitor?
Our assumption is that we are able to take market share in a significant way across the globe. And if I look at second half of last year and look at the share of wallet with key distribution and resellers. We have taken share also in that period as a whole. So I mean it's clear that competition is there and will be doing everything they can to push us. But we think we have the tools in terms of innovation, the products, lineup, and of course, also marketing muscle and channel access to keep taking share. That's our assumption, and it has worked for us so far. And of course, it takes all these 3 pieces basically. It takes the innovation power and the right products in the market. It takes channel access we need to reach the customers and have the pull out there. And of course, the supply chain needs to be fully in shape. And so far, so good.
And our next question comes from the line of Martin Parkhøi of Danske Bank.
Martin Parkhøi at Danske Bank. Then since Michael only asked about Audio, then I will only ask about GN Hearing. Gitte, now you have an ambition of growing your market share every year. So can you talk a little a bit about how that went in 2020? And in that context, maybe you could address a bit the regional growth rate that you have seen in 2020, and of course, particular in the fourth quarter? And maybe you can go a little bit about -- a little bit in detail with your performance in North America where you were down 24% year-on-year, about some 18% in local currencies, which I see is significantly worse than the market. So could you maybe elaborate a bit on the growth in each of your segments in U.S. And you can skip VA, we know that. But in Beltone, in larger chains, Costco, of course, and then in your own independent channel. And then second question, then just on product launches. You are now launching the essential line. That's pretty close to the -- and I would say, a little bit unusual to launch such a line so close to a high-priced launch, which is less than 6 months ago. So can you just elaborate a bit on that?
Yes. I'm happy to do that. So first of all, let me maybe give a little bit of context around how the overall market developed in 2020 and the different regions were impacted. Then I'll speak about our growth rate in Q4 overall and certainly also our market shares. So I think when you look at the market development overall and starting from the region where we saw less -- least impact of COVID-19, that was APAC then Europe and then the U.S. So that's how the market was impacted overall. In terms of market share development, you've already pointed to VA that I didn't need to comment on that. But then if we deep dive on the U.S., I think I've spoken about that also when we announced our Q3 results that when you look at our performance overall in the U.S., we have lost here in VA and we've also equally lost share in Costco. Now keep in mind that VA, under normal circumstances, account for 20% of the market, Costco around 15% of the market, the manufacturing owned retail, 10% of the market and then the commercial market is the remaining 55%. And in the commercial market in the U.S. and the rest of the market worldwide, we have either sustained or grown our share. So that's important for me to underline that apart from VA and Costco, we have sustained or grown our market share in 2020. And then in terms of the growth rate, we see in Q4 where we see a growth rate of minus 16%. And let me maybe add a little bit color to that. When we compare with the Q4 2019, without maybe going into too much details, we are against a tough comparison. And I also want to add that we have consciously decided to end the collaboration with a larger account that is mainly focused on the U.K. and Australia and New Zealand. That accounts for around 1% of our sales. But when we look specifically at Q4, it actually impacts our growth rate with minus -- with around 2 percentage points. So that maybe gave you a little bit color specifically on our growth rate in Q4 and also our market share development. And then with that, I want to move on to your second question on our launch of ReSound Key following the launch of ReSound ONE. I think that, to your point, I mean, it really speaks to, if you like, the productivity and the quality of our R&D engine. That in addition to putting a new groundbreaking technology out there, as we've done with ReSound ONE, we are also, at the same time, able to completely renew our essential line with ReSound Key. And I actually think that gives us a really, really strong portfolio in the market right now and also makes me feel quite confident that we are in a strong position, especially when the market normalizes in -- which we expect it to do in the second half of 2019 -- or second half of 2021.
Okay. Can I just follow up, Gitte, just on key accounts in general. Do -- why have you seen a loss of share to key accounts, of course, including VA, Costco? And I think also your share at Amplifon has been going down. Why do you think that?
Well, I don't recognize the picture you paint there. VA, I'm happy to speak to that again. And Costco, I've also spoken to, but the rest I don't recognize.
You said you are losing share, but you did not say why you think you're losing share?
So in terms of VA, obviously, when we look throughout the year of 2020, I guess until 1st November, our technology was not the newest in the channel. Now 1st of November, we launched ReSound ONE into the VA channel. And as we've spoken to throughout with ReSound ONE, we are bringing really new and groundbreaking technology into the market with the M&RIE and everything. And at this time point, where we cannot visit the VA channel and also where there's a huge backlog of patients putting a lot of pressure on the channel, so that just turned out to be a really tough cocktail that has prevented us from seeing the normal uptake of a new product into the VA channel. So obviously, that is disappointing, especially as the VA channel is often seen as a proxy for how new technology is received into the market. So let me just underline that this time around, the VA is not a good proxy for how ReSound ONE has been received into the market, on the contrary.
I agree. I was just a little bit curious about the other channel as well. But I think I'll go back to line.
Our next question comes from the line of Niels Leth at Carnegie.
My first question would be on the Audio business. Could you talk around the volume and ASP effect on your guided revenue for '21? So would ASP increases contribute a substantial part to the 20% -- or more than 20% growth? Second question would be around the collaboration category. So is it fair to assume that you would -- we should expect kind of a step change in your revenue contribution from collaboration in '21 and that will contribute a meaningful part of the growth for this year?
Thanks, Niels. On the ASP side, actually, the reality is that for quite many years, there has been a certain contribution from ASP to the growth of the company. So we are constantly designing and launching products into the market with somewhat higher price points. And we did that also this year -- I mean, in 2020 with the Evolve2 product line. So -- but it's not dominant. I think -- so we should understand the business is mainly driven by volume growth. But there is an element, and I guess, with the shift of classic Evolve and into Evolve2, we will see some element of that also in 2021. But it's nothing new. So it is as it normally is. On the collaboration side, we have promised the market that at some point of time, we will broaden the category. We have not shown our hands yet. So everybody will have to stay tuned on that. But it's clear that our ambition is that we can do more in this space. As we have written, we did well. I mean we saw not only, you can say, the video market in general pick up, but actually also segments like education was a very good segment for us and somehow saved the day as the huddle room phenomena was in dire straights after the closedown or the people were sent back home. So basically, we will expand the portfolio and, with that, aim to make this a bigger business.
And can you elaborate on how much collaboration accounted for of your revenue in '20?
We have not said that. So competition is getting all kind of stuff, so I don't want to give them too much help here. So it is -- it didn't -- it is meaningful and with very strong growth, but we have not given a number.
And our next question comes from the line of Christian Ryom of Nordea Markets.
This is Christian from Nordea. I have 2 questions, one for Audio and one for Hearing. So first, on Audio, when we look at your Q4 sales and compare to Q3, I would assume that part of the increase in revenues are due to seasonality in the consumer business. Can you elaborate on whether enterprise revenues increased from Q3 to Q4? Or whether they were -- yes, whether there were an increase in enterprise revenues? And my second question is to GN Hearing and whether you can elaborate a bit on the gross margin here in the fourth quarter also compared to the third quarter? So we can see the gross margin is down by around 2 percentage points despite revenues being up relative to the third quarter. What explains this development?
So René here. So I think on the specific question on enterprise, Q3 to Q4, we did see higher revenues on enterprise in Q4 than Q3. If you remember that in these 2020 quarters, the revenues are, to some extent, supply-driven because we were working on this backlog situation. But we increased the output in Q4 and it's higher than Q3. And there was, of course, some seasonality on the consumer side as always, but less so, you can say, on the enterprise where there has been a different year.
So in terms of the slight decline in gross profit margin or the decline of 2 percentage points, it's actually driven by a mix effect. So it's a combination of geography, of channels and of products that lead to that change in the margin.
And can you just maybe elaborate on the product side because the -- one could speculate here, of course, that you're seeing higher -- or lower high-end sales and that, that might indicate weakness for the new ReSound ONE product. So what is exactly this product component in the mix that adversely impacts the gross margin?
Yes. Well, actually, I mean, in that regard, we are benchmarking the uptake of ReSound ONE compared to when we launched ReSound LiNX Quattro. And we actually see the same share of our revenue going to ReSound ONE as we did with ReSound LiNX Quattro, which I also believe I shared in more specific numbers on -- when we looked at the Q3 results. So we see that same mix. But obviously -- that's the overall comment. But obviously, there can be variations from one quarter to the next also in terms of tender supplies and so on. So that's more how to think about it.
Our next question comes from the line of Carsten Lønborg of SEB.
Another question to the U.S. performance, Gitte, in Hearing because I think this is not the first quarter where we're discussing this. It seems to be sort of a returning topic over the last couple of years with the -- with us having an impression of GN not performing as expected in the U.S. market and part of drilling further into the organic growth rates, et cetera. So then what can you actually do about this? Is this just a matter of hoping that ReSound ONE will serve anything for you? Or what else will you change in terms of priorities in the U.S. market to get back into gear? Also for Hearing, I was just looking at administration costs in Hearing, they are at a very high level. In fact, you can say it's the only cost item that's at all-time high levels, which to me doesn't make so much sense in the terms of during a pandemic. Maybe R&D cost would make sense, but not the administration costs. So what's going on here? Then final question to Peter Gormsen on the share buyback intentions. If it has to be at the same level as what you have done historically, then what will you do with the rest of the money? Because we -- on the back of the guidance you're setting out for the company, EBITA would be much higher in '21 than '20 and bring back your leverage -- or bring down your leverage significantly and there should be room to increase the share buyback further than historical levels, I would say.
Thanks. So let me start out with commenting on the administration costs. We are in the process of implementing a new ERP system in GN Hearing and we paused that actually in Q2 when we saw the impact of COVID-19, and then we reinitiated that in the autumn. So what you see really impacting our admin cost in Q4 is IT investments. Now in terms of U.S. performance, I think I've already addressed the VA performance. So let me speak to the commercial market. And you asked also about Beltone, and I guess, ReSound outside Costco. So in the commercial market, which is more than half of the market, around 55%, we have, again with the caveat that probably one should be careful speaking about market shares in these times, we have actually either sustained or grown our share in that part of the market. We have, for a very long time, been struggling in our Beltone network and retail and I think, finally, we begin to see that our strategy is working as intended. As you know, we've been diminishing our own retail and actually got to a point around 100 retail stores as we exited the 2020. And we probably would like to take that a little bit further down. But that is, I guess, between 50 to 100 retail stores is the magnitude of retail stores you will see us own also in the future as we consider this ownership in transition. And we really see and have seen good performance in our Beltone network. And I certainly expect that to continue and further solidify as we go into 2021. So I actually think in terms of the commercial part of our U.S. organization, we are doing well.
Carsten, this is Peter. So you are right that we are in a very strong cash flow situation. And as I also said, we have room for doing a share buyback, still subject to AGM approval as stated. You're right, if we did that at the same level, there will be room for more cash. And I think as we have stated earlier also, we are looking at opportunities and let's see if something comes across. But for now, we, of course, we would like to keep it this way and have the flexibility.
And our next question comes from the line of David Adlington at JPMorgan.
Just a couple of questions. Just circling back on Audio on Michael's question around the Q4 growth in the U.S. Just wondering any sort of color in terms of really what was happening there. It sounded like there was some channel shift -- not channel shift, but shipments, stocking shifts, whatever you want to call it. Was that a pull-forward of stuff from 2021 into -- sorry, from Q4 into Q3? or should we expect there have been some delays in Q4 into 2021? Just to get some further color on that would be useful, please. And then just some boring modeling questions or housekeeping questions, please. So I just wondered if we could get your thoughts around foreign exchange headwinds and then below-the-line items, interest and tax, please?
So René here. On the North America thing, I don't think I can give a lot more details on this than I already did. The phenomena is stronger outside. There is some allocation matters also on where we send our products. There is an FX matter here. So I mean we have to play with the tools we have, and this mix has worked best for us basically. So there's no -- you can say there is no sort of orchestrated shift other than, of course, when you are supply restricted, there is an allocation part as well.
Hey, this is Peter. On the FX, of course, looking into 2021, the key currency we look at is, of course, USD. And we expect to be, of course, continue to be negatively impacted in the first half and then let's see. Right now, we expect second half to be more limited. So overall, around 2% negative impact is what we're looking at right now on the top line.
Interest and tax expectations?
Sorry. Once again, David?
Any expectations -- any guidance around interest and tax?
Sorry. Yes. On tax, you saw this year we lowered our tax rate. And of course, we're not guiding on tax per se. But I guess right now, we're looking at a somewhat similar level for '21 on the tax.
Our next question comes from the line of Kit Lee at Jefferies.
My first one is just a follow-up on GN Hearing. I think 4Q in Europe, sales there declined by 14% while the market was flat. I know you mentioned the termination of a partnership with one of the retailers. But I think the gap there is still pretty wide versus the market. Can you just explain what are the factors? Is this mostly a function of your country mix? Or is there any other reason for that gap in performance? And my second question is just around the freight cost. Freight costs increased. What was the impact on gross margin for 4Q '20?
Yes. So in terms of European performance, I think when you look at the performance overall, clearly, as I pointed to the account with which we have consciously terminated our relationship. And maybe I should have added at the time that we've done that because we are -- we do no longer feel that we are strategically aligned. But that obviously has a more heavy weight towards Europe. And then in addition to that, actually, Europe overall has seen quite a different development from one country to the next. And I think one of the markets that has done really well in Europe is Germany where I wish GN was stronger, and we aim to be. But obviously, that kind of skews the picture a little bit when you look at Europe overall. U.K., at the other end of the scale, obviously, was almost in lockdown the entire year. And obviously, that had a significant impact overall on the U.K. market.
This is Peter. So on the freight, as René also alluded to, it's still a very tight freight market we are having. So of course, it had a big impact on our 2020 and it was approximately 2 percentage point impact on the gross margin in 2020.
Our next question comes from the line of Oliver Metzger of Commerzbank.
Two, I have. One is also a follow-up on a ReSound Key essential technology. You said that it has also some the meaningful technologies like streaming. So how do you avoid cannibalization as, in particular, the availability of features like streaming as the one-off differentiator of the industry between the different hearing aid classes? That's the first question. The second one is also on the hearing aid business. So the pandemic acts as the catalyst for alternative distribution channels. So in the beginning of the pandemic, you talked a lot about remote opportunities. Now we haven't talked on that for a while. Is it an indication that the progress you could -- you have achieved is not so big as you had expected before?
So I'm happy to talk about that. So on ReSound Key compared to ReSound ONE, I guess, that's kind of what is built into to the question. I think what really sets the ReSound ONE apart, not only from ReSound Key, but from any other hearing aids in the market is 3 things. It's our All Access Directionality, Ultra Focus and the M&RIE. And with this technology, we are bringing a hearing experience to the user that is far better than what we've seen with our previous Quattro technology, but certainly also far better than our competitors in the market and that's also what is documented in our clinical trials. So I think really that puts ReSound ONE into a league of its own. So what we want to do with ReSound Key is basically renew our essential assortment, and also with that, provide a basic charger. So we are actually now able to provide the rechargeability based on the Quattro technology in more price points. So I do believe that, that has a really meaningful impact in -- I was going to say our not -- I mean not our larger markets, but in global distributor sales and so on there. ReSound Key really has a meaningful impact. So -- and in terms of -- so I actually see the 2 of them kind of supplementing each other and really ensuring that at the top of the scale, we really have a hearing aid that stands out with ReSound ONE. And if you like, at the lower end of the scale, we offer also really great quality with ReSound Key. In terms of remote and ReSound Assist Live, I mean, if I look at it in percentages, we've had an amazing growth in that kind of opportunity. And I think, overall, we've seen online sales and online opportunities pick up in the hearing aid industry. I mean is it at a level where ReSound Assist Live has a meaningful impact on our sales yet? No, it isn't and also we didn't expect it to. But we do believe that also as we look forward and also as we look past the pandemic that this opportunity to be able to serve customers both in the clinic and at home is something that will continue to be valued by the end user and also will continue to be a meaningful offering also way past the pandemic.
Okay. Just a follow-up on my first question. So I'm completely aware that the audiological technology of ONE is much better than the essential line. But if you -- for a typical hearing aid user, he's not so aware of technology. He looks about what he can get. And if he sees features like streaming or like rechargeability in this line, he might opt for hearing aids, which are not so good. So my question is, have you thought about this potential negative effect?
Yes. Well, I think, actually, I obviously understand your question and concern. But I think more so, it really puts us in a strong competitive situation in the essential category because, I mean, whether it's supplied by GN or one of our competitors, there is a need, if you like, for more affordable assortment of hearing aids. And I think with ReSound Key, we really put a very competitive portfolio into the essential assortment. And then -- I mean, then we have, obviously, our leading product, ReSound ONE, with an amazing audiological experience. So I actually think we're really well positioned to grow share during '21 with this very strong new portfolio.
And our next question comes from the line of Issie Kirby at Redburn.
Mine are on Audio, please. Firstly, just looking at the market longer term, I was surprised to see that the penetration rate expected on Slide 14 for headset was still to increase to around 30% by 2025. I believe this is in line with your prior expectations before COVID and all this work-from-home disruption hit. If you could comment on that and whether or not you see it actually potentially reaching 30% or even higher by 2025, that would be great. And then, secondly, on Audio. If you could talk to your ambitions in extending the Audio franchise beyond collaboration and perhaps into other areas, including gaming. I think there's been some discussion about that in recent months. That would be great.
Yes. Thanks for the questions here. So on the penetration rate, I mean, these numbers we are showing here are actually what we collect from the outside. So we try not to put our own the numbers in here. The reality, of course, is that this year, we have seen a blip. But it hasn't fundamentally changed the -- so I mean a number of million extra headsets have been sold and the market would otherwise have absorbed. I think what is the opportunity out there, of course, is that the adoption of the platforms has gone up so dramatically. And in that sense, the adoption of headsets or speakers and video equipment up against the platform has gone down. So you can say we have a relatively lower endpoint adoption now than we had a year back up against the platform users. So there is -- I think you have a point there. So there is an opportunity we need to sell into and exploit over the coming years. But these are the adoption numbers that I think are somehow consensus in the market, and we concur with that. Sorry, I lost the second question. M&A and gaming, sorry. I mean we have talked about M&A for long and have not really executed last year. We are always outside to find something that is part of the future and not part of the past, and that would include gaming. We have not found a good way to get into gaming yet, but we also have acknowledged that this is an interesting space to play. But it will require like the M&A for us to get a meaningful position in that space. So question is relevant. We have not the solution at hand.
And our next question comes from the line of Markus Gola of Stifel. Okay. It seems Markus may be having technical issues. So I'll move to the next question. That is from the line of Chris Gretler at Crédit Suisse.
It's Chris. Actually, 2 questions left. The first is on the Hearing side. Could you actually discuss ASP development and units, particularly for Q4, given the launch of the new product and all these geographic mix changes? And the second question relates to Audio. I noticed that you got sued by VARTA and I was just wondering kind of whether you could discuss that complaint? And what's actually the worst case since I understand that it would impact quite a few of your products, essentially older wireless Elite headsets.
Yes. So in terms of price development and in relation to ReSound ONE and development in units, so when we launched ReSound ONE, we took a price increase compared to ReSound LiNX Quattro, I think more or less in line with what we did when we launched Quattro at the time. So I think we are bringing here completely new and groundbreaking technology into the market. So I think that is absolutely justified that we've taken a price increase. And then in terms of the development in units, when we announced the Q3 results, I did show a graph kind of showing how the unit development has been over the first 50 days in the market. And as you may or may not recall, we saw strong uptake in Germany and in Japan, actually significant above ReSound LiNX Quattro. And in the U.S., we were more or less on par with the ReSound LiNX Quattro. And that picture, more or less, remains and is the same development that we continue to see in terms of unit uptake.
Actually, I was referring more to the overall business because, I guess, there would be a bit positive product mix effect not from what you described, and then on the other hand, kind of a negative geographical mix effects. So I was just wondering, so essentially kind of on a year-over-year basis, did ASP in the overall portfolio move much or -- and is the decline over volume greater essentially kind of...
Yes. I think that if you think of the ASP overall, and sorry for misunderstanding your question, I mean as we -- what we've seen throughout the year is actually the U.S. or North America being more heavily impacted by the pandemic compared to Europe and APAC and U.S. traditionally have higher ASPs. So therefore, obviously, that has led overall to a slight decline in our ASP based on the geographical development.
That was not offset by increased product mix in Q4, for example? Pulls through higher priced product?
No. It wasn't because we also saw other things impacting in terms of geography and tender business and so on. So there were a lot of different impacts happening in Q4 impacting the ASP and similar to what I spoke about on -- in terms of our gross profit.
So this is René here on the VARTA claims, that would be patent infringement. It's correct that there is a case now on going in North America. I think what I can say to this, of course, is with essential components, we have multiple suppliers, at least dual supply. When we enter into a new supplier or take a component, I mean, we have careful due diligence that these are somehow -- that we have all the IP right and no issues as such. We have our own people. We have external parties looking at this. We think we have a good case. There's nothing to come after here. But of course, the case is on. I guess while it's -- well, of course, it is a problem, I guess, in this industry, it is a bit business as usual. We are a little bit bigger now, of course, a more visible player out there. So this is coming -- we are very confident that there's not a problem here, and we will fight this off.
Okay. We'll watch that.
And our next question comes from the line of Maja Pataki of Kepler Cheuvreux.
Yes. Two questions for me as well, please. First of all, on Hearing U.S., you have been very helpful in trying to understand what's going on in the VA and how you think this will develop going forward. Now not a lot of things have been said about Costco and how you are expecting -- or if you are expecting to reverse your market share losses in that channel, which is quite an important channel for the U.S. So it would be great to get your plan or strategy to turn that business around. Second of all, I've seen in the annual report that, maybe I've misread, but that Beltone has actually started an online shop in June or something like that. Is it a full-fledged online shop also selling the Beltone hearing aids online? And if yes, can you give us just some feedback on how that has been perceived both by customers, but also by the open market?
Yes. So let me just start out with Beltone. We did open an online shop and what it sells is basically our accessories. So it doesn't provide a full online shop for hearing aids, but for all our accessories. You can buy them online whether you need accessories for the television or whatever. So that's -- and we wanted to put that out there in June, again, to make it easier for our end users during the pandemic. Now in terms of Costco, now we are normally not sort of discussing a client -- one single client in details, but I guess I've already started that myself by speaking about our market share development in Costco. So clearly, the overall aim we have as a company is to grow our share and that does also apply in Costco. So clearly, we have different plans on how to do that. And I think for competitive reason, I would defer from maybe going into detail with that, but maybe just leave it at we have had for many, many years, a very strong relationship with Costco and we continue to have that. And clearly, it is our aim to grow our share.
Understood, and I appreciate that you don't want to talk about a single client. But now it's 15% of the market. So it's a bit hard to see it as a single -- it's a market segment. Maybe asked from a different perspective. How confident are you that you can turn around your market share losses at Costco? And if you think maybe you can't turn it around, do you think you can stop the bleeding?
I am 100% confident we can turn it around.
Our next question comes from the line of Michael Jungling of Morgan Stanley.
I have 2 further questions. Firstly, on sector classification. Have you had discussions with MSCI about needing to reclassify GN from health care now that consumer electronics or service is vastly the bigger business and it's likely to be the bigger business for the foreseeable future?And secondly, when it comes to ReSound ONE, is it possible in due course to release a next-generation product that is able to increase the amplification in -- with the M&RIE technology and therefore expand the addressable markets? Coming quite clear talking to audiologists that 70, 80 dB is not enough if you want to cater for the entire patient population. It would be nice to get it to 90 or 100. Is that possible? And is it possible to do something like this, this year?
Michael, it's Gitte here. On the MSCI, no, we have not had those discussions. And no, we don't intend to discuss that. So I can confirm that is not the case. So thank you for the question on ReSound ONE. I think in terms of the M&RIE technology, it is clear that it has a limitation in terms of amplification so it is not currently fitted for the more severe hearing loss, as you also allude to. And without going into details now or our further sort of R&D road map, I guess, one way to think about it is that all the customers or all the users that we convince or win over on ReSound ONE with M&RIE and that is still, by far, the majority of the ReSound ONEs we sell that is with the M&RIE technology. So keep that in mind. I have a strong feeling that they are there for life because once you get used to that kind of hearing experience, it's hard to go back. So clearly, that also influences our thinking for future generations of hearing aids.
Okay. But if I look at the amplification position that I was just referring to, does the current chipset allow you to do more sophistication in a way to suppress the feedback as you go up the amplification curve? Is it actually possible to do so with the current chipset?
I think -- I mean you are spot on. The limitation, if you like, is feedback suppression because, obviously, when you have the microphone and receiver sitting close to each other in the ear canal, there is, with our current technology overall, without sort of point to one specific part, a limitation to how far -- or how high we can go in terms of amplification, which means that M&RIE is not for the more severe hearing loss. It's obviously one of the things that we would like to address going forward because, again, we really see this -- we really see the user response on the M&RIE technology is just overwhelmingly positive because people really get that much more organically and much more natural hearing experience than they do with a traditional RIC.
And our final question comes from the line of David Adlington at JPMorgan.
A follow-up just on Hearing, actually. You talked about the market being, I think, 90% indexed in October. I presume that got worse in November and then worst in December. Just wondering how you're thinking of -- what you've seen in January and how we should be thinking about the first quarter?
Yes. So thank you for that question. I think if we kind of combine or look at Q4 overall, you saw our sales being down with 16%. And I mean, unfortunately, no magic occurred New Year's eve. So I think that's also the way to think about our going into January and going into Q1. So we actually -- and that's also a general assumption in our guidance for the year that we expect to continue to see a first half of '21 impacted by COVID-19 and for our start of the year, I think a good way to think about it is what we saw overall happening in Q1 -- or in Q4, sorry.
Thank you. And as we have no further questions at this time, I'll hand back to our speakers for their closing comments.
Thank you very much, operator, and thank you, everybody, on the call. So with that, we appreciate your time today. See you on the virtual road. Thank you very much.