GN Store Nord A/S (OTCPK:GGNDF) Q1 2023 Results Conference Call April 27, 2023 5:00 AM ET
Company Participants
Gitte Aabo – CEO of GN Hearing
Peter Karlstromer – CEO of GN Audio
Peter Gormsen – CFO of GN Store Nord
Anne Sofie Veyhe – Head of Investor Relations, Treasury and M&A
Conference Call Participants
Hassan Al-Wakeel – Barclays
Martin Parkhoi – SEB
Maja Pataki – Kepler Cheuvreux
Martin Brenoe – Nordea
Christian Ryom – Danske Bank
Julien Ouaddour – Bank of America
Hugo Solvet – BNP
Niels Leth – Carnegie
David Adlington – JPMorgan
Robert Davies – Morgan Stanley
Mattias Haggblom – Handelsbanken
Oliver Metzger – BHF
Rajesh Kumar – HSBC
Veronika Dubajova – Citi
Anne Sofie Veyhe
Welcome, everyone, to GN’s Interim Q1 2023 Conference Call following our release yesterday evening. Thank you all for dialing in. It’s great to have you on the call. Participating on the call today is Gitte Aabo, CEO of GN Hearing; Peter Karlstromer, CEO of GN Audio; Peter Gormsen, CFO of GN Store Nord; and myself Anne Sofie Veyhe, Head of Investor Relations, Treasury and M&A. Today’s presentation, which can be found on gn.com, is expected to last about 20 minutes. After which, we’ll turn to the Q&A session. And with that brief introduction, I’m happy to hand over to Peter Gormsen.
Peter Gormsen
Thank you, Anne Sofie. Hello, everybody, and thanks for joining our Q1 2023 call today. Starting on Slide 4 with a snapshot of the performance during the quarter. At group level, we delivered revenue of DKK4.2 billion as a result of strong execution and market share gains across segments and even in challenged market conditions on the Audio side. In GN Hearing, we managed to deliver another quarter of very strong growth this time with 15% organic growth, which is essentially equal to 3x the market growth. In GN Audio, we had a strong finish to the quarter as we delivered 2% organic growth despite very challenged market conditions. Adjusted group EBITA came in at DKK251 million equal to an adjusted EBITA margin of 6%, slightly better than we expected a few months ago. Due to seasonality in cash flow, as expected, adjusted leverage increased slightly compared to year-end. Following the withdrawn rights issue proposal, we would like to give you some more color on the ongoing work with our new finance plan, which we expect to share with all of you in the short term once the plan is finalized.
Let’s move to Slide 5. We have now shifted focus. Instead of aiming to return to our capital structure target in the short term, we are now finalizing a plan with the focus to clear 2024 and 2025 debt maturities. The building blocks we will pursue consist of operational improvements, disposals of selected assets, debt and equity opportunities to meet the residual. Compared to earlier, this also means that we are taking an even closer look at our balance sheet and we are carefully reassessing all assets with the intention to divest more than previously anticipated. With this plan, we aim to strike the right balance between current macroeconomic challenges and future significant growth opportunities. The plan will allow us to execute on both short- and long-term market share aspiration, but the pace of deleverage will naturally be slower than initially planned and our interest payments will increase compared to a DKK7 billion rights issue scenario. And with that short introduction, I’m happy to hand over to Gitte for an update in GN Hearing.
Gitte Aabo
Thank you, Peter, and hello to all of you. The key messages I want to leave you with are once again we had a very strong quarter with significant market share gains across countries and channels. The strong momentum from Q4 ’22 continued into ’23 and was further supported by the completion of the ReSound OMNIA family launched during the quarter. The current strong momentum leads us to upgrading our guidance for the year to 5% to 10% growth from previously 2% to 8% organic growth and we also raised the EBITA margin guidance to 14% to 16%. Let’s have a look at GN Hearing’s Q1 ’23 financial performance. In Q1 ’23 we delivered 15% organic revenue growth as a result of the strong commercial execution across the company driven by ReSound OMNIA. This growth was executed and the hearing aid market growing in line with structural growth rates, which was somewhat better than what we had expected and our growth was essentially 3x the market growth.
The adjusted gross margin increased 1.3 percentage points compared to Q1 ’22 driven by top line growth and pricing initiatives. However, negatively impacted by increasing input costs as well as negative country and channel mix. The adjusted EBITA margin in the core business ended at 9.9% in Q1 ’23 driven by operating leverage with strong focus on the cost base. This was better than expected at the beginning of the year clearly fueled by the better than expected top line development. The EBITA in the Emerging business was negative DKK41 million in Q1 ’23, which is an improvement year-over-year as expected. Nonrecurring items of minus DKK60 million was booked in the quarter primarily related to several operational initiatives in the supply chain, which I will come back to later. Free cash flow ended at negative DKK132 million for the quarter reflecting seasonality, including corporate tax payments.
Let’s move to Slide 8 and some more color on the regional development in the quarter. Beginning with North America, we delivered 15% organic revenue growth in the quarter in a rebounding hearing aid market following a few quarters with negative market growth. We experienced very strong performance across the independent market, VA and Costco compared to Q1 of last year, primarily driven by the ReSound OMNIA family. Moving on to Europe, we delivered an organic revenue growth of 18% in the quarter with particularly strong performance in Southern Europe and the U.K. In the Rest of World region, we delivered an organic revenue growth of 12% driven by strong growth in among other, Japan and China, following a difficult ’22 impacted by COVID-19 lockdowns. All in all, very strong execution across regions and countries. Moving to Slide 9 and our supply chain initiatives. Overall, we expect to incur negative DKK150 million in ’23 to accelerate future profitability.
In Q1 ’23 we incurred nonrecurring items of negative DKK60 million. The nonrecurring items were related to supply chain investments and more specifically focusing our product portfolio, simplifying supply chain, design for manufacturing, automization and digitization projects. We are progressing very well with these initiatives and no further nonrecurring items is expected for next year. Let’s move to Slide 10 and our upgraded guidance. As a result of the stronger than expected performance in Q1, we yesterday announced our upgraded guidance. We are now expecting organic growth rate of 5% to 10% compared to our prior guidance of 2% to 8% organic growth. To reflect the stronger than expected top line, we are also narrowing our EBITA margin guidance to the high end of our prior guidance. We are now expecting an EBITA margin in our core business to be between 14% to 16% for 2023. The guidance on our Emerging business and nonrecurring items is confirmed. But as mentioned earlier, we currently expect to conclude our investments and hence nonrecurring items during the year.
And with that, I would like to hand over to Peter Karlstromer for an update on GN Audio.
Peter Karlstromer
Thank you, Gitte, and hi to all of you. Despite challenged markets, we are very happy with the execution in the quarter that led to positive organic growth of 2%, which is better than we expected a few months ago. Let’s start on Slide 12. Q1 ’23 was a quarter with continued challenging market conditions where in spite of this performed very well. The best performing business in the quarter was SteelSeries delivering a strong 22% organic growth driven by the well-received new product lineup and promotional activities to balance our inventory. Jabra Consumer also did well with 9% growth driven by a few large deals and promotional activities to balance our inventory. Enterprise performed strongly in challenging market conditions with a negative 3% organic revenue growth. We managed to gain share, which is the testimony to our strong product portfolio.
Gross margin ended at 41%, which is 4.5% just below the ’22 levels. A few comments on this. FX had a significant negative effect on our margins in the quarter with around 4%. We also had negative effects from promotional activities in Jabra Consumer and SteelSeries to balance our inventory. The revenue mix in the quarter also put some pressure on the gross margin. On the positive side, the price increases we have made in Enterprise have been well executed and we also see positive effects from lower logistics cost compared to last year. The adjusted EBITA margin ended at 7.0% reflecting the gross margin decline as well as some offsetting effects from OpEx improvements. Nonrecurring items amounted to negative DKK18 million related to severance costs as part of our rightsizing initiatives. The free cash flow ended at negative DKK304 million reflecting the earnings level, reduction in inventories and normal seasonality including payments of corporate tax. We continued to reduce our inventory in the quarter. We have now reduced inventory with approximately DKK0.5 billion compared to Q3 ’22. This remains a focus and we are working to reduce it with a further DKK0.5 billion by year-end. Let’s move to Slide 13 and the regional development in the quarter. In North America we delivered a negative organic revenue growth of 8%, which was impacted by challenging market conditions across Enterprise and Consumer. However, SteelSeries experienced strong growth with its updated product portfolio, which is partly offsetting the negative organic growth in the region. In Europe we delivered solid organic revenue growth of 8% driven by strong performance and positive growth across Enterprise, SteelSeries and Consumer. In the Rest of the World region, the organic growth was 6% driven by strong performance across Enterprise, SteelSeries and Consumer.
Let’s move to Slide 14 and a snapshot of SteelSeries. First of all, as mentioned, SteelSeries delivered a very strong organic growth of 22%. The gaming gear market is continuing to stabilize. Most of our growth though is likely through outperformance of the market, which is a testimony to the strength of our business. Our product lineup is strong. We continue to experience outstanding product reviews especially with our Arctis Nova Pro headset lineup, which we launched last year. Our strong progress also helped us to reduce the SteelSeries inventories, which I touched upon earlier. We have taken further steps in our integration and have now integrated support functions, retail sales and supply chain. Our next and final step is to move to a common ERP, which will further support our business. We’re excited about the prospects of SteelSeries going forward and remain confident in our strategy and execution in the gaming sector.
Let’s move to Slide 15 and the long-term growth drivers. We showed this page back in February and the reason for showing it again is quite simple. The long-term attractiveness of our industry has not changed, but neither has the short-term uncertainties. Even though Q1 came in better than expected, we’re still seeing uncertain markets ahead of us. The world continues to adapt to hybrid work and enterprises globally are continuing to deploy in productivity enhancing tools. We believe there’s significant more growth to be expected in the future as we continue to demand a better quality of experience in our communication. Our confidence is also present in our expectations for the long-term growth and attractiveness of the gaming gear market. To summarize, we expect our market to return to healthy growth when the current macroeconomic uncertainty is behind us. While our markets are strong, the level of uncertainty remains high for ’23 with less visibility to end customer demand and less predictability in channel behavior than normal. This means that we have prepared our company for a range of outcomes. Let’s move to Slide 16 to explain our cost base and some of the initiatives we are taking. The challenges I have addressed today of course impact our financial performance, but we have and are continuing to execute a wide range of initiatives to restore profitability. Most painfully, we have had to relieve almost 10% of our valued and skilled employees in the last few quarters, which has not been an easy decision for us. Related to this, we’re also reducing consultants. In some cases, we converted consultants to own FTEs, Software development is an example of this where we have an increase in FTEs, but we have a reduction in our cost for software development.
In addition to headcount optimization, we’re also taking a closer look at discretionary spend, including marketing spend. Discretionary spend will vary between quarters, but our overall ambition is to keep it lower than normal to manage the uncertain situation. As for the gross margin, we have executed our price increase in Enterprise in the beginning of the year and we are seeing the positive impact already in this quarter as mentioned earlier. We’re also gradual shipping more products via seafreight instead of airfreight, which will also support our gross margin going forward. Depending on the market development in the rest of the year, we have other measures in store and will take actions as necessary. Let’s move to Slide 17. In Q1 GN Audio launched several new products showcasing our strong innovation. As a continuation of the Jabra’s market leading Speak lineup of professional speakerphones, we launched the Jabra Speak 2 line during the quarter.
The new lineup has excellent sound and voice pickup and other features significantly enhancing the hybrid work and collaboration experience. We also launched the Elite 4, a new entry level true wireless with strong sound performance and features. Finally, we launched new additions to our world-leading Evolve 2 portfolio. The new additions are built for ultra flexible hybrid work. With our current road map, we believe we are well positioned to continue gaining market share in 2023. With that, let’s move to Slide 18 and our guidance. With the continued economic uncertainty with little clarity on what to expect in the remainder of the year, we confirm our guidance. As for revenue, we expect GN Audio to deliver organic growth between 10% negative to 5% positive in ’23. The guidance for adjusted EBITA margin is between 10% and 15%. The broad [span] in margin guidance is driven by the difference in business volume. In all market scenarios, we assume that we will continue to gain market shares. So the variance in performance is driven primarily by variances in macroeconomic conditions affecting the growth of the markets where we operate. We expect nonrecurring items to be around minus DKK150 million for ’23 as a result of the cost reduction measures we’re doing to rightsize the organization. Our business is robust and well managed. Across our guidance range and scenarios, we continue to expect positive cash flow for 2023. As you make your assessment for Q2, I’d like to highlight that Q2 last year was strong. We also this year had our ordering system closed for 2 weeks in early April related to our ERP upgrade, which is putting some pressure on Q2 this year. As a result, we believe our business will show a year-over-year decline in Q2 while showing a sequential quarter-over-quarter growth compared to Q1 this year. And with that, I’m happy to hand it back to Peter Gormsen.
Peter Gormsen
Thank you, Peter. Summarizing on a group level, GN delivered 7% organic revenue growth and an adjusted EBITA margin of 6%. The adjusted EBITA ended at DKK251 million for the quarter explained by increased input costs, impact from FX as well as ongoing promotional activities in the Consumer oriented businesses. Free cash flow, excluding M&A, was negative DKK578 million mainly driven by the earnings level and seasonality in working capital. Total nonrecurring items were negative DKK78 million reflecting the initiatives to restore profitability across Hearing and Audio. Adjusted leverage ended at 5.8x by the end of the quarter. The leverage reflects very strong execution in challenging market conditions especially in GN Audio as well as the cash flow seasonality. Let’s move to Slide 21 and our cash flow for Q1 ’23. GN Hearing’s cash flow was positively impacted by the business performance, but was offset by continued R&D investments especially related to the finalization of the ReSound OMNIA family. Furthermore, GN Hearing experienced seasonality in working capital including corporate tax payments. Even though we managed to bring inventories down in GN Audio during the quarter, the overall change in working capital was negative reflecting seasonality of discounts and customer rebates as well as payments to suppliers. The seasonality in other liabilities in Q1 is in line with earlier years. Moreover, in Q1 we also had the corporate tax payments. We are continuing to execute on our sustainable cash improvement initiatives. These efforts include group-wide review of commercial payment terms. Secondly, we are running a very structured process to keep a continued focus on reducing inventory levels.
A good example of this was Peter’s comment earlier on some large deals at the end of the quarter on the Consumer side where we managed to decrease inventory at reasonable ASPs. Lastly, all employees entitled to a bonus in GN will also have a cash flow metric to drive behavior through targeted incentives. Moving to Slide 22 and our current maturity profile. It is worth noting that with DKK700 million of cash on the balance sheet and a fully undrawn RCF, we have no liquidity issues. The focus is on meeting our future debt obligations. We have roughly DKK7 billion in debt maturities in 2024 and then we have our term loan in ’25. For ’24, we need to be able to come to DKK7 billion and we have different options to do so. As mentioned in the beginning of the call, we will come back in due course with our new financing plan. We have an advanced plan, but we want to make sure that we can present a final fully fledged plan. Regarding the term loan maturing in ’25, we are having constructive dialogs with our core banking group to explore the opportunity to address this maturity. Let’s move to Slide 23 and a recap of the financial guidance. Peter and Gitte already went through the guidance across Hearing and Audio so I will keep this short. To conclude for group level, after the upgrade of the GN Hearing guidance, we now expect organic revenue growth of between negative 5% to plus 7% for the group, which will result in further market share gains in expected challenged market conditions. EBITA and other is expected to be around negative DKK200 million. And with this, I’m happy to hand back to Anne Sofie.
Anne Sofie Veyhe
Thank you to Gitte Aabo, Peter Karlstromer and Peter Gormsen for the updates. With that, I’m handing over to the operator for Q&A. Please limit your questions to two at a time.
Question-and-Answer Session
Operator
[Operator Instructions] We’ll take our first question from Hassan Al-Wakeel with Barclays.
Hassan Al-Wakeel
I have two please. So firstly, could you talk about why you haven’t chosen to raise guidance in Audio despite the stronger results and is the upper end of the range now more likely? And then secondly, could you talk about share gains in Hearing, where this is coming from and at whose expense and how much of this growth is explained by Costco? And maybe just a follow-up on the overall hearing aid market. Has your assessment of market growth for the year changed and are you seeing less deferred replacements and could this be sustained for the full year?
Peter Karlstromer
I start with the guidance here of GN Audio. We’re obviously very pleased with the Q1 coming in stronger than what we anticipated in beginning of the quarter. At the same time, we see a lot of remaining uncertainty in particular in the enterprise market which, as you know, is our largest market. So we think it prudent at this time to keep the broad range. Also when we look in comparison that I talked to in particular now in Q2, it’s tougher comparison and also throughout the year. So I would say you should see this broad guidance as more a reflection of the continued market uncertainty we see. And depending on how the market develops in the rest of the year, that is likely what will determine where we land within the guidance. In terms of where we most likely end, I mean we’ll refrain from answering that question specifically. But we have the guidance in place to make sure we’re covering all possible outcomes.
Gitte Aabo
And regarding the questions on the hearing aid market and our performance. Let me start by underlining that even if we exclude Costco, we would still have double-digit organic growth in our core business on the top line. In terms of the market development, we probably see Q1 where we see a more normalized growth in the market. So we see in the high end of the 4% to 6% volume growth and the traditional headwind on the prices. So probably value growth around 4% to 5% in the quarter. We see U.S. market being especially strong coming back and less growth in Europe, but also positive growth in Europe. And in Asia, we see also strong growth following the fact that last quarter 1 was impacted by COVID. So what I want to point out though is that across the 3 regions, we are outgrowing the market and also across channels, we are having improved performance and gained market share compared to Q1 last year. And that is obviously what makes me especially happy with our results because they are really broad-based and are really confirming the strong performance of ReSound OMNIA.
Hassan Al-Wakeel
And just on the point around if you’re seeing less deferrals of replacements, then how you think this could potentially be sustained over the course of the year, please?
Gitte Aabo
So I think we see especially U.S., we see a big change because what we saw in the last half of ’22 was actually the market growing negatively for the last 2 quarters and now we see positive growth in the U.S. And I guess our expectations for the full year now is that we will see a normalized market development.
Operator
We’ll take our next question from Martin Parkhoi with SEB.
Martin Parkhoi
Martin Parkhoi, SEB. First on Audio to Peter. Could you talk a bit about the contribution from video in the first quarter and how you expect this to evolve over 2023 in light of the upcoming product launches? And then for Gitte, could you maybe elaborate a bit on the price/volume composition in Q1 for the core business and how sustainable you believe the 18% growth is in Europe that you generated in the first quarter?
Peter Karlstromer
Starting with video, I mean the video business has been growing faster than the business in total so in that way, it has contributed. But it’s still on a relatively small base compared to the total business so it’s not materially impacting the outcome here in the quarter. We still have very high ambitions with video. We are developing products and taking initiatives to build a market-leading position here. We are in the process of strengthening the portfolio and in particular the Video Bar, the Android-based system which we’re launching here in the mid of the year is where we think we will be able to really accelerate some of the growth opportunities we see. So in terms of the year, we probably expect a stronger second half on video than the earlier part of the year. With that said, we’re already doing fairly well. So as you know, we’re not revealing the detailed I mean financials at this point yet, but hopefully that gives you a bit further guidance.
Gitte Aabo
And in terms of what is behind the growth when we see 15% organic growth in the quarter, the main driver is volume as a driver to our growth. Then there’s obviously different channel mix, we see strong growth in Costco among others. Then you talked about the growth we see in Europe where we had 18% organic growth, whether we think that is sustainable growth. Well, the market development in Europe was positive in Q1, less than what we saw in the U.S., but still a positive development. And I actually think that also in Q4 we saw very strong performance in our European business. And again given the strong momentum we see with OMNIA, we actually expect that or I expect that to continue also as we move forward.
Operator
We’ll take our next question from Maja Pataki with Kepler.
Maja Pataki
Just one question with regards to your commentary around the financing plan. You have said that you’re looking at potential disposals that you haven’t looked before. Can you indicate or can you tell us whether that has reflected any change in your view about splitting up the company? That’s the first question. And the second question with regards to the Enterprise business U.S. versus Europe. If I’m not wrong, you’ve seen a couple of quarters of a weakness in the U.S. Enterprise business. Why don’t you anticipate this to swap over into Europe? Are there any structural fundamental reasons why it’s less likely to happen or is it something that we might see down the road?
Peter Gormsen
So on the financing, what we are doing, of course, as I said, we are taking a much closer look at our balance sheet. We’re looking at our assets, but I can make it very clear, we are not looking at divesting some of our core parts of our business. So we are not — certainly not splitting up the company, we are firmly believing that we see increasingly strong synergies collaboration very closely together across the two businesses. So that’s a [Indiscernible]. But we are taking a closer look. We’re looking at all the buildings as we’ve discussed before and also shared with you. We have our Portuguese retailer. It’s moving forward nicely, and we look forward to sharing more about this in the very near future with you.
Peter Karlstromer
On U.S. versus Europe, we still see a bit of a more difficult market in the U.S. And you are right, we have been doing this for a couple of quarters here. We are seeing some of this also coming into EMEA and APAC. But at this time, we still experienced more headwinds in the U.S. I mean, obviously, as all companies, we’re asking ourselves, I mean, what can we do here to counter this and what are the initiatives we can take. And so we have a lot of initiatives going on to take actions, of course, in the U.S. to see if we can counter some of the development we’ve been having in the last few quarters. But also speaking to the industry and our channel partners and distributors, there is something around the market development that is a bit uneven at this time. In terms of your question sort of spillover going forward, as mentioned, we see some of that already. It’s very difficult to say. And I think it speaks to the uncertainty of the market here, which I talked about a little while before is that there is less visibility than normal and there are a little bit of difficulties in each region. So that also is reflected in the broad guidance we are giving here.
Operator
We’ll take our next question from Martin Brenoe with Nordea.
Martin Brenoe
I have two questions, if I may. First of all, Gitte, congratulations for the strong quarter. Could you perhaps give us some color on how the quarter transpired for you? Did you end the quarter with an acceleration or did you feel the competition getting more fierce as your peers were launching products into the channels? And the second question is to you, Peter. The SteelSeries growth was quite impressive and much stronger than the sell-out growth that we have seen displayed in the industry overall. How do you see the sell-in compared to the sell-out for the quarter? Have you been helped by inventory ramp-ups in retailers or how should we think about that?
Gitte Aabo
So in terms of the development over the quarter, we actually saw three months in a row that were very strong. And in each month, we outgrew the market. Also, I guess, important to keep in mind that we also launched new products in the middle of the quarter and added five new products to the ReSound OMNIA family, not least the ReSound Mini, which is the rig version with a smaller housing and that is already doing really well in the market.
Peter Karlstromer
And when it comes to the SteelSeries growth, we believe that the sell-in and sell-out is approximately balanced. What is worth though to highlight is that we are doing 2 things to drive the growth. One is to benefit of the very strong products we launched here earlier that we are able to — I mean, they’re selling really well, and they are selling at good price points. So we’re very pleased with that. But the other thing is, of course, on SteelSeries, we have a significant inventory. So we’re also making sure that we’re taking the actions with promotions to deplete that inventory. So you can say that the 2 together is building up the growth here. And of course, over time, as we have depleted inventory, we will do less of those kind of aggressive promotions and more benefit from the high-quality portfolio we have at good price points.
Martin Brenoe
Just a quick follow-up. It sounds like you are quite bullish on the SteelSeries performance. Do you see it continue at the same level? Or is there anything that could hamper growth from here on?
Peter Karlstromer
I think it’s a lot about the market here also. The gaming market had quite some difficulties last year. It improved towards the end of the year, and we’ve seen also a fairly stable market development here in the first quarter. If the markets continue to show stability or even growth, I think we will perform well in this market. But we have outperformed the market here for a relatively long time. And I think to believe on a strong growth story for the coming periods, we also need to see a bit stronger market, but I feel very good about the business in general.
Operator
We’ll take our next question from Christian Ryom with Danske Bank.
Christian Ryom
I have two as well. First one is for you, Peter Karlstromer, on GN Audio. Can you help us a bit with the outlook for the OpEx space relative to the DKK880 million that you have here in Q1. You mentioned that there will be some variations in discretionary spend over the quarters. But I’m curious whether we should think of Q1 as a variation on the high side on the low side? And to what extent we should expect further benefit from cost savings? And then my second question is to you Gitte, and this is on the outlook for the gross margin in the hearing business. What the trajectory that I should look like for the next quarters and whether there is some potential upside from mix or whether we should expect potentially more headwind from input cost inflation?
Peter Karlstromer
As for the OpEx, I think that the base we have here in Q1 has affected most of the headcount-related measures we have taken. So they’re not so much further to expect from those initiatives. So I think that what happens going forward is, of course, a little bit how we decide to run the business also. We’re trying to find the balance here to, of course, protecting profitability in the short term but also make sure we’re making the appropriate investments to develop at the mid-term to long-term growth here. Discretionary spend will vary. Another thing that will vary between quarters that is relatively low in Q1 also is the R&D-related cost, in particular, those we do as the depreciation. And those will also vary between the quarters. So if we do not take further measures, you should probably more see this as a baseline, don’t expect it to significantly reduce at this point in time. It will probably fluctuate around this, but also some quarters likely it will be a bit higher.
Gitte Aabo
So on the gross margin and how that will develop over the year, obviously, as you know, we are not guiding on the gross margin. But I guess one way to think about it is that if you look at our gross margin in Q4 compared to Q1, you’ll see that we had a slight decline. And although Q1 was high growth is obviously reflecting the seasonality that Q1 is normally the lowest quarter. So with an even higher top line, we will have an even better leverage also on our cost of goods sold because around the quarter of them are actually in essence, fixed costs. So that’s a way to think about it. And counteracting that, I guess, is what you pointed to as input costs impacted by inflation. And I think also important to keep in mind that when we launch new products, we launched in the highest price point and then later on, they trail down in lower price points. I hope this was helpful.
Christian Ryom
Yes, just maybe on the last point. So what you’re saying there is actually that there might have been some benefit from new launches on the gross margin this quarter that should dilute over the next quarter? So how should I understand the last comment?
Gitte Aabo
Well, I think if you look at the ReSound OMNIA family, and I would still consider that new, both with the new products we launched, but also from launching back in August. Normally, we — I guess, we renew every second year, and we start in the higher price point and then over time, we drill down into the lower price points.
Christian Ryom
So all things equal, you have sort of a lower mix development as the cycle matures?
Gitte Aabo
I think that’s the way to think about it, yes.
Operator
We’ll take our next question from Julien Ouaddour with Bank of America.
Julien Ouaddour
I had a couple. The first one on GN Hearing. So you’ve taken market share this quarter, guidance was upgraded and as well as outlook for the market growth, which is expected to be a normal year. Looking at the new guide, the midpoint implies basically no further market share gain over the next 9 months. So my question is just how are you confident to continue to gain market share like you did over the past couple of quarters, which would basically imply being more in the upper end of the receiving guidance? And second question on the capital structure. Just could you comment on investor feedback post the EUR7 billion rights issue withdrawal. What they expect from the new capital structure plan that you are working on? And just to confirm if I understood well, 2024 maturity is more likely to use equity, cash flow and disposals and 2025 more linked to debt refinancing?
Gitte Aabo
And in relation to whether we expect to gain market share over the remainder of the year, that is definitely our aim. I do want to point out, though, that we are obviously up against a very high Q4 last year when we come to the latter part of ’23. And also, I want to point out that in Q2 last year, we had an extra income from our collaboration with Cochlear that we, at that point, disclosed to have an impact of around 2 percentage point of our growth. So obviously, we need to take that into account and that’s what we have done in our upgraded guidance.
Peter Karlstromer
So on the financing plan and the capital structure, of course, we talk to a lot of the investors and reflected on the rights issue, how that landed and have spent a lot of time with the management, board and our advisers and coming up with a good plan that we look forward to sharing with you. And as I said, it has these three building blocks. We are, of course, first and foremost, looking at all the initiatives we have been running for a while now. How fast and how much will that impact our ability to deliver more cash? I think it’s coming along nicely, and we see the improvements. So that’s good. On top of that, we are looking at disposals, as I said. We are looking closer at that than we originally planned to do. And I think there are some opportunities on that also and then, of course, lastly, we have our equity and debt opportunities we’re also looking at. But of course, we are not ruling out that for the 24 maturities. And of course, we’ll come back and provide the more detailed balance of — and the mix between the 3 building blocks.
Julien Ouaddour
If I can squeeze a very quick follow-up, just on — my last question on GN Audio and the U.S. market. I mean, have you seen any change in the competitive landscape since Poly acquired — since HP, sorry, acquired Poly last year? Is it may be one of the reasons why the U.S. is also a bit — like a bit weaker for you or not at all?
Peter Karlstromer
No, we are, of course, observing that and any movement in the market. We don’t believe that is the reason for the differences in the markets as the way we talk about them. We actually see HP Poly more operating on a global basis. And in particular, they have been — they’ve been active actually across the region, but there is a lot of competition in each of the regions. So I don’t think that’s a major explaining.
Operator
We’ll move next with Hugo Solvet with BNP.
Hugo Solvet
Two follow-up on my side. First one, consumer and GN Audio. You mentioned a few large deals. Can you quantify that? And what would have been growth without there? Second, on China, which has been a major driver for GN Hearing. Can you remind us probably what’s going on there, the recent development? And lastly, on the capital structure and that should be on shortly. Should we understand that any announcement will be dependent on the timing for the sale of the Portuguese assets, which China is probably less in your end than for refinancing and the rest? And can you remind us the size of the Portuguese sales please?
Peter Karlstromer
If I start with the Jabra consumer, I think there are 3 things going on here. It’s normal business. Secondly, we have promotional activities to make sure we are depleting our inventory. Then thirdly, these large deals, it’s actually not large deals with distribution of retailers, it’s actually been large and customer deals. We are selling to a lot of retailers more for their own use like the frontline workers and mostly they’re buying non-consumer products for that but some retailers, they also like true wireless part of that offering to them. And there have been a couple of those larger deals coming in here in the quarter. I don’t think we can give you an exact number without it, but it has a material impact on the quarter. And we will likely see quarters where we see negative growth in consumer again this year. So it’s not like it’s been changing the trajectory of our development here, unfortunately, at this point in time.
Gitte Aabo
So in terms of GN Hearing and our performance in China, I mean, in APAC, we are showing organic growth of 12% in the quarter and it’s driven by Japan and China. So actually, we also see very strong performance in Japan. In China, when we look back in Q1 last year, China was still quite impacted by COVID and COVID lockdowns. So that’s obviously part of driving the growth that China has now put COVID behind it, and we see a normalization of the market.
Peter Gormsen
On the capital structure and the timing, we say short-term and short-term cost means certainly before our Q2 release in August. And in terms of size on disposal and specifically the Portuguese retailer, we will not share those details, but remain patient, we’ll come back and share those in the near future.
Operator
We’ll take our next question from Niels Leth with Carnegie.
Niels Leth
Two questions on your debt financing plan. Peter, Gitte, I understand you correctly when you mentioned earlier that the ongoing negotiations with your core banks would be related to refinancing the term loan expiring in 2025. That’s my first question.
Peter Gormsen
So I think the — what we said is that it both concerns ’24 and ’25. So yes, it also includes the DKK25 million.
Niels Leth
So we should expect also the loans to expire in ’24 to be potentially replaced with new loans?
Peter Gormsen
We will come back, I said and give you all those details, but all the good dialogue we have concerns both the DKK7 billion in ’24 and the loan in ’25, yes.
Niels Leth
So when it comes to the interest rate to be applied in our forecast models, I guess that the interest rate on your most liquid bond, which is the EUR600 million bond expiring in November ’24 currently yielding 8%, 9%. Is that a good proxy for the interest rate that we should build into your new loan facilities in ’24, ’25?
Peter Gormsen
I think that’s a very good question, Niels. We will not share those details now, but you’re absolutely right in terms of our existing loan that is at that level. And of course, that’s part of the good discussions and negotiations we have with our banks. I think with what we have said before is probably mid-high single-digit level, and I think that’s as close as we can get to it.
Niels Leth
And then just finally, if I may, the DKK500 million release of net working capital that you’re referring to, should we expect that predominantly to materialize here in quarter 2? Or will it come more towards the end of the year?
Peter Gormsen
I think what we say is that will happen between now and the end of the year. And I think probably fair to say a bigger portion in the second half.
Operator
We’ll take our next question from David Adlington with JPMorgan.
David Adlington
But maybe just on hearing, Gitte, you pointed out in Europe that the U.K. and Southern Europe have been particularly strong. I just wonder what you’re doing so or why you’re doing so well there? What are you doing any different to anywhere else. And then the second leg in terms of enterprise price of 10% of the list. Just wondered how much of that was actually sticking into the realized prices?
Gitte Aabo
I think when we look at our European business, Southern Europe and the U.K. to some extent, has our stronger holes of GN than, for instance, France and Germany, where I think I’ve spoken to previously that our market share is not as high as I would like it to be. So I think if you take a country like Spain, we are already in a very strong position. And then obviously, when we are then coming out with a product like ReSound OMNIA that is being received so well in the market. I think that gives us further ground for strong growth.
Peter Karlstromer
And when it comes to the enterprise price increases, you’re right, list prices we have increased with about 10%. It’s not a blanket increase everywhere. We’ve been more targeted, some items more and some less. In terms of what we expect to realize kind of flowing through is about half of that.
Operator
We’ll take our next question from Robert Davies with Morgan Stanley.
Robert Davies
I have a few left. Just in terms of the growth print within the hearing business, the 15%. I know you gave some disclosure earlier on volume versus price. But just be kind of curious in terms of the benefit from the cost focus, the ReSound OMNIA launch, are you able to give any color on that particular split just within the 15%, if that’s possible?
Gitte Aabo
Yes, thank you for that question. I guess the way to think about it is that if you look at our organic growth of 15%, 14% is in the core business and in the core business, we will still have double-digit growth even if we disregard Costco altogether.
Robert Davies
And then a couple of follow-ups I had. One was just on, I guess, the outlook for the enterprise business and just what would take you to the sort of lower end of the guidance range within the audio business. I guess, what would need to sort of go wrong there? It seems to me that you’re more likely to land in the upper than the lower range, just be kind of curious that in terms of your current discussions with customers, what’s sort of keeping you more nervous? And then the final one was just on, I guess, the kind of financing all the potential rights issue that the company is looking at. If that doesn’t happen in the next few months, is there a sort of broader range of assets within the portfolio that are not currently kind of the first ones out of the gate. Is there a kind of plan B in terms of asset disposals or kind of a broader pool that you would have to look at then?
Peter Karlstromer
Let me start with the outlook here on audio. I mean maybe I take stock in the Q1, which was very strong across the 3 businesses. In terms of what to expect from the remainder of the year is that gaming, as I’ve mentioned in some of the previous questions, we are very confident in our position, but this level of outperformance is probably not what we expect throughout every quarter in the year. Consumer here, as we highlighted, is high because of a couple of large deals. So that will likely be a business having difficulties getting to the growth for the year. And then I think the biggest kind of delta between a good outcome and a less good outcome is really enterprise. And there, I think it’s back to the market uncertainty. What we see today, which makes it more difficult to predict is that there is — if you take the largest customers where we are in direct contact, it takes longer time to close deals. There is more uncertainties on the deals we have in the pipeline. I think that normally happens when it’s more uncertain economic times. So the deals do not disappear, but it’s more uncertainty. And then in the channel here is also less predictability. Some of our channels and distributors are more careful on how to hold inventory. Some of them are hesitating to stock up our products and so on. And then I think that ultimately, all this can move in one way or the other depending on the overall economy and how it’s developing. So I guess it’s a long way to say that the range will determine on the external environment. And we believe it’s prudent to stay with this range at this point in time. And depending on what happens in the economy, we will likely land in one end or the other, so to say.
Peter Gormsen
And on the financing and the timing of this, I think, again, it’s important to underscore, a, we do not have a liquidity issue and the first debt that will expire in Q2 of ’24. So in that sense, we do not have an urgency, you could argue. But of course, we would very much like to come back and share the plan with you that we are working on. I think we are coming up with a solid plan that will serve really well for GN’s future growth, and that we’ll come back and share with you.
Operator
We’ll take the next question from Mattias Haggblom with Handelsbanken.
Mattias Haggblom
Yes, Mattias Haggblom, Handelsbanken. First question for Gitte, and the 20% plus EBITDA martin target for ’24 for hearing with consensus close to 17% for that year. What in particular with regards to the margin leverage opportunity do you think the investor community [underappreciate] at this stage and what metric will be key to build confidence in the target? And then secondly, is it correct to assume that we should think of a permanently higher tax rate now for the group, given that previous R&D tax relief scheme in Denmark is no longer expected to be prolonged?
Gitte Aabo
I think in terms of getting back to the 20% EBITDA margin, we have a number of very concrete initiatives to bring us back to that. And a lot of them or maybe let me put it like this, there are sort of 3 main building blocks and that one is around top line growth. So clearly, when we see strong top line growth and our ability to outperform the market as we see now, that combined with a strong focus on cost control and containing our OpEx, we obviously see leverage. And I think we saw that in Q4 last year. And obviously, that’s an important building block. In addition to that, we have a number of initiatives to improve our gross margin and improve our cost per unit. That includes a design for manufacturing. I think traditionally, we’ve very much focused on design for innovation, but also design for manufacturing. It includes the combination of piggybacking on the many units that are produced in audio and ensuring that our scale in hearing — actually, one of the things we’ve done recently is that we have combined the supply chain team in hearing and audio into one team. And just to put that into perspective, the units produced and sold in audio are bigger than the hearing aid industry altogether. So as you can imagine, that gives a lot of scale into our business in terms of freight costs and so on. And then we continue having a very strong focus on our OpEx and are actually overall set up with an OpEx base as we were back in 2017. So it’s top line growth, is really focusing on optimizing our unit costs. And then it’s containing OpEx that will get us back to the 20%.
Peter Gormsen
On the tax rate, I think it’s a fair assumption. That’s where we are right now. I know there is a lot of dialogue on continuing these tax incentives and it has served a lot of innovation-driven companies really well. So I think there’s good dialogue ongoing. But for now, I think it’s the right assumption to assume that it is at the high level.
Operator
We’ll move next with Oliver Metzger with BHF.
Oliver Metzger
I have basically two left from my side. First is a comment on the recovery in consumer. So potentially, I missed it, but can you just comment whether this recovery was more driven by an improved overall market environment or just because of recent launches? Second question is on the self-fitting hearing aid. It’s basically now also officially reported in the statistics as expected, it’s just a niche. But essentially you are the most progressed player in that field. So can you tell us whether you see from the users who buy them, it’s some cannibalization or is it more an expansion of the market what you see right now?
Peter Karlstromer
In terms of the consumer, we do not see a materially changing markets. Of course, Q4 that was even more promotions is usually where most of the promotions happen there in the end of the year. But it’s been a very promotions-driven market with quite some price competition in consumer here also in recent periods, which is difficult. It’s difficult for the margins, but it’s also difficult for growth because we do not want to sell at any margin, so to say. So the market is still challenging. I think Q1, it’s a bit about the base last year and then these large deals, which I talked about, that explains the growth in the quarter. I unfortunately do not think it’s a change in the trend at this point in time.
Gitte Aabo
And then to your question on the OTC hearing aid market. And as you point out, volumes are still relatively low in the market. So obviously, the data point I have in terms of the users we reach are not as broad as I would have liked it to be. Nevertheless, we are actually seeing that the users on Jabra Enhance Plus is on average in the late ’50s. And if I compare that to our hearing aids where people are in the mid-70s, I think it’s definitely confirming that we see an expanding of the market. This is not a cannibalization, but rather an expanding of the market. And I think the expenses is on the expense of the PSAP market.
Oliver Metzger
One follow-up regarding this category. So there are not so many players in the field. So can you give us a rough indication where your market share is?
Gitte Aabo
No, I don’t think it’s — it’s too early to do that.
Operator
We’ll take our next question from Rajesh Kumar with HSBC.
Rajesh Kumar
Just thinking through the commentary you made that retailers do the stocking is not the main driver for this outperforming. How do you see in terms [Technical Difficulty] —
Gitte Aabo
Could you repeat the question, please, you are breaking up. Try again, please. I think we have to get this question. Apologies.
Operator
We will move next with Martin Parkhoi with SEB.
Martin Parkhoi
Yes, Martin Parkhoi, SEB, just a follow-up question. I’ll do that for [Indiscernible] maybe just to celebrate that maybe will be last, so I think you should get the last two questions. Just on the R&D capitalization, which is still high in audio and with the video bar being launched midyear, can you talk a little bit what we are baked into impact on more higher amortizations in your margin for audio this year? And then secondly, Peter, also on the debt side, we know in Denmark, there are some limits for how much interest that is tax-deductible. One of the limits that you — is seeing and are you looking at bringing debt out of Denmark?
Peter Gormsen
So on the capitalization, I think if you look at the historical pattern, it is sometimes a little higher, sometimes a little lower. And of course, it’s dependent on — in what phase we are with our development programs. I think your point on the video, yes, we are investing heavily, as Peter also mentioned by design because we firmly believe that will serve us well. And exactly, as you mentioned, when we launch, then you see the amortization starting to impact the P&L. But — at the same time, you will also see inflow of revenue, obviously. So if we do that well, which we prepare and plan for, then that will, of course, be a nice contribution to the P&L in the second half. And I don’t think on the debt, you’re right on the deductible and the ceilings, but I don’t think we can share those details yet, but we will certainly come back on that.
Operator
We will take our last question from Veronika Dubajova with Citi.
Veronika Dubajova
Three questions from me please, if you can. One just on the refinancing processes, I’d love to hear your thoughts on, what’s the trigger, if you think about the balance of [Technical Difficulty] what is sort of financing [Technical Difficulty]. If you can just give us a little bit of sense of where you think [Technical Difficulty].
Gitte Aabo
Veronika, sorry to interrupt you there. Could you think you can repeat that question and maybe a little slower, please?
Veronika Dubajova
Yes, of course. Let me try again. I would just ask, in terms of the mix of debt versus equity when it comes to the refinancing, just trying to understand what the interest rate is a [Technical Difficulty] as a more attractive instrument versus debt, as you think about that down into those solutions. That’s my first question.
Peter Gormsen
So it was on the financing and the mix between debt and equity and of course, the interest rate depending on that mix, I get the question. And I will unfortunately have to repeat what I’ve said before. We will come back and share those details. We are looking at debt, we are looking at equity, we are looking at our own ability to impact cash, including looking at the balance sheet and remain assured, we will come back very soon to share more of this with you.
Veronika Dubajova
That maybe conceptually, I guess, Peter, what’s more attractive or more [Indiscernible] in the current solution?
Peter Gormsen
Yes, I get the question, Veronika. I mean, we are looking at, of course, the pros and cons of each of those instruments. And as I said before, we will come back and give you more color on that.
Veronika Dubajova
And then if I could ask one on audio for Peter. Peter, I look at the historical seasonality in your business. And I just [extracting] from the Q1 revenues that you’ve delivered, that would imply absolute revenues for the full year somewhere north of $12 billion [Technical Difficulty]. Just curious how you better you feel comfortable with that assumption based on what you’re seeing in [Indiscernible] if you can comment on that.
Peter Gormsen
And it’s a good way to look on the business, of course, and we do as well. But as you know, when you’re looking on different years, seasonality is a bit different between years also. So it’s difficult to think about it as a point assessment. But definitely, we will factor that in when we’re making our guidance. I’m not sure I would like to — from that lead to a single conclusion, anything on that. I mean, there are many factors to take into this, including what we hear from our customers and channel as on, which we have factored into the guidance.
Veronika Dubajova
And then final one for Gitte, please. If I look at the run rate in the business that you have at the moment and just assume that you can maintain that momentum through the rest of the year, I didn’t get to the top end of the revenue growth guidance that you’ve issued. Just curious what are the risks that you see as you think that second half that are obviously leading that maintains momentum at the very top end of the range? Now, we see as a substantial downside, but suggest that you have concerns around our ability to maintain momentum.
Gitte Aabo
And I understood it to be as what are the things that we take into account in our guidance range and what would take us either to the top or to the lower end of the guidance range? And I think, is that correct? Yes. So I think that when we look to the rest of the year, I mean, now we have changed our outlook for the market or our view on the outlook for the market growth and are actually now assuming a normalized market growth. Obviously, if that changes again, if we get back to what we saw in the second half of last year, where we actually saw, as an example, U.S. market decline and actually in Q4, the whole hearing aid market decline, then that has an impact on our ability to grow as well. Obviously, we’ll still beat the market. But in that case, it will be from a lower point of view. And I think the other thing that is obviously an uncertainty is if and when Sonova comes back into Costco, I mean, currently, we obviously have a benefit in Costco from Sonova not being present in that channel. So there are bigger swing factors like that. That is why we keep a relatively broad range on the top line, although we are now 1 quarter into the year.
Operator
And this concludes our Q&A session. I will now turn the call over to management for closing remarks.
Gitte Aabo
Thank you, operator, and thank you very much, everyone, on the call. We appreciate your time today, and we’ll see you on the road. Thank you again.
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