Thank you for standing by and welcome to the Cochlear Limited 2021 Half Year Results Briefing Conference Call. All participants are in a listen-only mode. There'll be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Dig Howitt, CEO and President. Please go ahead.

Good morning, everyone. Thank you for joining us for our first half results presentation. Just before we start, we do have closed captioning available that you can access through teams if you wish. But let's start on the presentation. So, obviously, very quick overview of Cochlear as a whole, I think this and you would read through the headlines of the results. So, we'll jump through to give you the results, but just pausing on our mission. Our mission has been critically important for us, for employees around the world as we work through COVID over the last 12 months. And our purpose has actually been central to what we've done and has kept people focused on delivering results. Using our 40th anniversary -- our 40th birthday this year, so important milestone for Cochlear as a whole and a chance to recognize some of the history we have particularly to look forward to our future. So, let's get into the results at the headline level and then we'll go into a bit more detail. I'll give a bit of an overview of some of the aspects of our revenue and SKU. We'll talk about P&L, balance sheet, and the cash flow. But our underlying net profit as you have seen is down 4% in constant currency. We had very good improvement across the half, the first quarter being okay and a strong second quarter. You also see that our OpEx was well below where we been, largely around COVID-related sightings, particularly with travel and conferences. Some significant one-off items in this result $111 million after-tax, so a headline statuary profit of $236 million, with underlying of $125 million. And in that some significant items there of tax ruling on the deductibility of some of our AMF patent litigation expenses. Gains on the innovation fund with Nyxoah listing in September and EpiMinder doing a raising, so it just recognizes the increase in value of those companies in our shareholding. And we've also taken government assistance that was provided to support jobs around the world as a one-off item because we will be repaying that through this half. The majority of that the $25 million is JobKeeper -- $24.5 million is -- $23.1 million received from JobKeeper in Australia in the second half. So, we finished the half with a very strong financial position with good cash flow that Stu will talk to and that's enabling us to pay a dividend of $1.15 a share at 60% payout. We do want to get back to a 70% payout ratio. And I'll talk about our guidance at the end of the presentation. So, clearly, we had a strong Q2 with CI units being down 14% in the first quarter, only down 1% in the second quarter. And when we will look at that by markets, we see some markets performing very strongly, particularly the U.S., Korea, Japan, and China. Western Europe performed well. Up until November, the escalation of COVID cases from November, we saw a slowing in Western Europe and that's certainly nothing like we saw in March and April. But we did see some pullback from the gains that we've had seen up until the end of October. Emerging markets have improved slowly and I'll talk a little bit more about that when we get to talk about CI, but importantly, the new candidate pipeline across developed markets, across all ages has been rebuilding and I'll talk a little bit more about that one. One of the things that we talked about right back at the start of when COVID hit and certainly at our F 2020 full results was that we really saw this time as an opportunity to strengthen our competitive position. We knew we had a strong pipeline of products in our development portfolio. We launched four products in the last half bringing to seven significant products we've launched in the last two years. That combined with a strong customer presence and the service experience we offer both professionals and recipients has helped strengthen our market position and we've seen that in market share gains across many countries through the half. And despite the lower spending, the lower OpEx, we have been able to maintain progress across our major R&D projects. And certainly our growth initiatives while we slowed them in March, April, we have been able to bring back investment in our growth initiatives through the half. Just wanted to cover implant revenue, since it improved quarter two over quarter one and quite a different picture across developed markets to emerging markets, but even in developed markets, some real strengths and some recovering, but recovering more slowly. So, certainly seeing there that with U.S., Japan, Korea, very good unit growth with clients really back to the capacity they had. But also seeing that that growth we saw, particularly in Q2 was a mix of some rescheduled surgeries, some market share gains, and definitely some market growth as well, had for us at the moment, sort of peak. What was the mix of all those that led to that, but certainly all three of those contributed to a strong Q2. In emerging markets, quite different, they're down 30% across the half. We said at the quarter, we were down about 40%. So, you see emerging markets did improve Q2 over Q1. It will take longer for emerging markets to recover the surgery rates compared to developed markets. We think that's as much about the health situation than it is about the economic situation and we're certainly seeing the pullback in the government money going into Cochlear implants in some of these countries. So, that's typically the pretty good volume, but at lower prices and we've seen a pullback in some of those countries on that segment. But I think the thing that we do is stand back and look at this and say, okay, there's ups and downs through the half countries performing a little bit differently, but the broad trend is certainly very solid and clean and momentum building. And all that accounts because we've looked at this and said two things sort of when, when COVID hit us; one, is it's an opportunity for us to strengthen our share, strengthen our competitive position. The second one that we're looking for is, is there a change in people's propensity to treat their hearing loss? Is there a change in underlying demand, remembering that we have this enormous clinical unmet clinical need? So, the vast majority of people who would benefit from a Cochlear implant or an acoustic implant, don't get access to one because there's not aware because there's not a referral path, might be because there's not funding. But part of it is people's awareness and propensity to act on their hearing loss. So, one of the encouraging signs that we've seen through COVID is that combination we think of isolation and of mask wearing has highlighted for many people the extent of their hearing loss. So, people who were subconsciously augmenting poor hearing with lip reading have found that they're unable to do that either through lockdown isolation, particularly through mask wearing, have realized their hearing loss is worse than it was and we certainly see a lot of anecdotes of people who've had hearing loss for some time, starting to take action. So, something we're watching as we go forward, but it does give us some confidence that underlying demand doesn't look like it's been impacted by the impact of COVID and it may be that there's some more encouragement there for people to act. So, that’s Cochlear implants, fairly good, good performance through the half and a strong second quarter, which was certainly pleasing to see. We go onto look at services. Services, as we said, through our updates bit more impacted the new CI system sales because where clinic capacity is constrained, the clinic will favor new surgeries over upgrades and that makes perfect sense, and certainly the right approach. So, we saw a slowdown in services end of last year through Q1, we saw a good bounce back in Q2. In part, clinic capacity freeing up and certainly the launch of Kanso 2 in October across the U.S. and Europe has proved very popular and certainly helping bolster our upgrade revenue. Cochlear Family membership exceeding 200,000, that's a good sign and remembering the purpose of Cochlear Family is that we can connect better with our customers right around the world. Through that connection, we hope to be able to give them a better hearing experience to make sure that they are informed and educated on the features and functions in the system that they have and that we can also keep them informed of upgrades, new technology. And -- so over time, we hope that by expanding our Cochlear Family membership and the connection that goes with it, we can gradually lift upgrade penetration, remembering that obviously there's at least a five-year lag from probably someone becoming a Cochlear Family member and us seeing upgrade revenue from it. We also see that products like Remote Check and more connected solutions give us more opportunity to connect both improved hearing outcomes, lower system cost, but really to improve the experience of people and give them more reason to connect with us. So, services, good performance in the in the second quarter, maintain confidence that services will grow over time as we get through the clinical capacity constraints that have had an impact earlier in the -- certainly earlier in the half. Move on to Acoustics and there's really two different components to Acoustics. Our sales fell by 7% in constant currency in the half. But if we dig underneath that, there's really two things going on. We're seeing a very, very strong uptake of OSIA in the U.S. ForEx continues to grow, it's very well received. We've seen clinics that we're doing [Indiscernible] have taken on OSIA, switching about 70% of their volume over to OSIA. That's part of the -- what we want to do with OSIA, but there's a broader opportunity for us to really expand the Acoustic implant market. And being able to do that because it provides very good power output across a strong broad range of frequencies or high fidelity sound and is also cosmetically very appealing products. So, we see a genuine opportunity to expand Acoustic implants with OSIA. We're early days in the U.S., but some very encouraging signs there. As we've said, we do want to roll OSIA out over countries and it'll take us up to three years to do that. We're getting regulatory approvals. In some countries, we're going to need new reimbursement codes to make sure that the price that we get for OSIA is appropriate. And we will go -- we will make sure that we take a long-term view here and get the approvals, get the reimbursement so that we're really setting up for long-term growth in Acoustic. So, we continue to be very excited by OSIA and what we see. The flip side is on the Baha part of your business which is heavily focused on the U.S. and the U.K. And in the U.K. where -- with CI surgeries have been slower than much of the developed world, even more -- that trend is even stronger in Baha with significant pullback and surgeries. And while they have start to recover, still well behind where they were. So, that has certainly been a short-term drag on Baha. And we're also with Baha 5, several -- late in the cycle with Baha 5, the number of upgrades in Baha has been declining as well. So, all that says some COVID circumstances bringing down the revenue a little bit late in the cycle and upgrades. We have some confidence looking into the future, basically last year, but also there's an important role for Baha going forward and do think that we can get back to really driving growth in Acoustics revenue component of the business. Okay with that, I'm going to hand over to Stu Sayers to talk through our financial results and then I'll come back at the end with our recap of strategy and the outlook.

Thanks Dig. Morning everybody. On the P&L Dig has already mentioned revenues, so I'll make a couple of comments around gross margin and OpEx. You know that gross margin; we have dropped from 75%, down three points to 72%. There's really three factors driving that. The first is, at the beginning of the half, we did have some significant COVID disruption to the manufacturing plant having to run shifts week on week off, those companies run their plant at a much less efficient rate than we would normally do. There was very much early in the first quarter, but did have a significant cost impact of the COGS line. The second is, as Dig mentioned, we've launched quite a few new products and some of those have incremental COGS costs in their first year, a good example of that would be Kanso 2, new sound processors, such a great product, but every clinic that is servicing customers or fitting customers with that product also needs a troubleshooting kit that has a working Kanso 2 device in it. So, that's a device we make that, but we don't sell. That offset the COGS line. And then thirdly, while we're launching the new products, we still have a big tail of legacy products that we're servicing and maintaining and we have a lot of inventory that goes with that. And a lot of lifetime buys given the age of some of that stock and some of that -- so there's products, and we periodically look at do we need to expire or obsolete into that stock, and in which case we write it down and we did that in the first half as well. So, all of those three suppressed gross margin have been in the first half. If we move down to OpEx, you'll see we're down 9% in the half $33 million, less than last year. The biggest contributor was travel and conference spends, that shows up in the sales marketing line, but that's not the entire difference there. Obviously, that pretty much went to zero in Q1 and very close to it in Q2, but also a significant number of small cuts across the business and that's things like not replacing open roles, not hiring new heads, looking at reducing the amount of contract labor we had for a period in the business, lots and lots of small cuts that add up to a significant drop in OpEx across the Board. And FX was of assistance here as well. Those reductions in OpEx were heavily weighted in Q1 and that was really a test to then where the outcome was most uncertain. As we saw that revenue started to come back and actually come back quite strongly, we shifted that orientation to more -- much more focusing on growth and chasing and driving growth in year and into F 2022. And we'll see that continue as we move into half two. The one line bucking the trend on the reduction in OpEx was the admin line. You'll see that's up 13%, 14% in constant currency, the single biggest and by far the bulk of that increase was insurance and within that D&O insurance was up to 300% year-on-year, that's by far the biggest contribution there. There's a small impact there as well from those gross investments. There's some IT expense also coming through that line. Last thing on this page, I think it's worth touching on is just the hedging line not because it's big, but actually because it's so small, the contract gains and losses in the first half of just $400,000. The reason that's so low even though we've had big currency movements is we effectively had wound down the short-term hedge book at the start of the half. We didn't have enough certainty on cash movements to be really confident of what we're going to be hedging, so we wound that book down pretty close to zero. And that's why that FX line is so small in the first half. If we move on to cash flow, a couple of things to note here, we pride ourselves and always pride ourselves on being a strong cash generating business and half one was really no exception to that. You see that the $175 million of the EBIT line and despite paying out over $104 million in the last of the AMF payments, we're still strongly cash generating and $44.9 million better cash position at the end of the half than at the beginning. One other things to call out here is the CapEx line, you see that $35.3 million, we expect we're going to do about that again in the second half. So, we'll be roughly $70 million CapEx for the year. For the last couple of years, we've been slightly higher than that, just up over $100 million and that drop is a function of two big projects, the Chengdu and Denver offices completing. And as those have roll down -- rolled off, that's causing that drop from over $100 million down to $70 million. We think looking forward, $60 million to $80 million is probably the new normal for us for CapEx for the next couple of years. In terms of capital employed, we'll note that the big move here was inventory, $27 million down and that was really the function of two deliberate decisions. The first was that we actually chose to increase our inventories around the world going into the half so that we had some buffer in case there was any supply chain disruption. We really didn't see any material disruption and so we're able to wind back some of those stocks over the course of the half. And second thing, as we've already mentioned, the writing down of the obsolete and expired stock also hits that inventory's line. The other big move here, you'll notice is that other net assets line from negative $76 million, climbing $152 million, positive $76 million. And that's really three big factors, two of them AMF related and one FX. So, first off, this is where we were keeping the AMF provision on our books and as we paid off those payments and paid off the legal fees, that provision has wound down. It's also where the tax asset shows up that we get for -- as Dig mentioned, the ITR ruling that lets us get tax deductibility on that AMF payments. So, those two things drove a significant lift there and then the third and smallest of the impacts was then just marking to market our current FX book. And then, last, but no means least, really delighted to be returning to paying a dividend for the half. We have traditionally aim to pay 70% of underlying net profit; we're going to be paying 60% for this half. We do want to walk back to 70% over time, but we think 60% is a good reflection of the fact that there is still a degree of uncertainty in the outlook. At 60%, it's $1.15 a share, it is going to be unfranked. Because of the AMF-driven losses last year, our franking credit balances have been depleted. It's going to take us at least a couple of years to build those back up. And so in the next couple of years the dividends are going to be unfranked. So, those are the headlines and with that, I'll hand back to Dig.

Okay, thanks Stu. Let me close off with a recap of our strategy and the outlook. So, reminder on our strategic priorities to retain market leadership. So, that's been a significant focus through the COVID period. We saw an opportunity there, I think with our product launches, our service we executed well on that; growing the hearing implant market, as Stu said, we pullback some investment, we're putting -- turned that investment back on into driving growth, as we've seen the revenue recover, really trying to set ourselves up for continued growth into the future. And we do want to deliver consistent revenue and earnings growth has been a challenge over certainly the last 12 months. And we have more confidence that while there is still uncertainty out there, we can -- have seen more stability looking forward than we certainly had over the over the last 12 months. Let's spend a minute on our market leadership position. It really is driven by the breadth of our product portfolio, but also the service and support that we offer both to professionals and to recipients. And that service and support is something we've worked on for a long time and strengthened over the last few years in particular. But we do have a very strong product portfolio. Apparently, our competitive advantage rests in our ability to -- through scale to be able to invest in all of the aspects of the system to advance the overall performance of the whole system and experience for both professionals and for clinicians and customers in helping people to hear, but also that service element of being responsive, being fast and the more that we bring out connected solutions, like Remote Check, more we are able to lower the overall cost of care for people, improve the convenience of care, and improve the overall experience that people have. So, quite a comprehensive portfolio of products and services and to hold the market significant market position we have we think it's appropriate that we continue to invest in building out all aspects of this portfolio. Okay, looking forward for the rest of F 2021, we are and have become over the last six months increasingly confident of the resilience in the hearing implant business. That hospitals have clearly found a way to continue to do surgeries at good rates across most of the developed world and normal rates in some of these countries. There is certainly short-term uncertainty. We expected that in the second half the developed market units will be about in line with first half. We have had a slower first six weeks of the half than we saw in Q2 and that's largely around COVID-related impacts in some Western European countries, a couple of states or sub regions in the U.S. were locked down more restrictive. There's been a pullback in surgeries. So, little bit slower start to this half, again, we're confident that that is a shorter term issue rather than any anything of concern over the over the medium term. Emerging markets recover that as I said earlier that government money has pulled back in some of the countries. Think it will come back, the demand and the need is very clearly still there. But I think it will take longer focusing, it will take longer than developed markets to return. As Stu said we have investing. We are going to lift our investment in the second half. But in our OpEx, particularly, both in R&D and in our growth programs, that's really important to make sure that we are set up well for going into F 2022 and beyond. So, we'll see an increase in OpEx through this half. Our underlying net profit, we’re guiding between $225 million to $245 million from where we sit now, that does factor in the slower path through January, February that I've talked about. We're also basing this on a $0.70 exchange rate for Australia and the U.S. that lift from $0.72 in the first half does have a significant impact on our net profit. And as Stu said, we do want to get back to paying a $0.70 payout ratio as we see conditions improve and the stability continue or get more stable in that surgery trends into the future. Okay, so with that, we'll wrap-up the presentation and turn over to questions.

Thank you. [Operator Instructions] Your first question comes from David Low from JPMorgan. Please go ahead.

Thanks very much. Just maybe if I could start with guidance, you guys had that memory that historically, certainly under as you've been the CEO that when guidance is given, you tend to spend to meet it. So, if the revenue line runs ahead, the OpEx then tends to go up. Now, I recognize that it's not something you can do in the last month of the year. But should we assume that that sort of pattern is likely to continue or return the current environment?

Yes, David, good question. A few thoughts on that. So, certainly, we do obviously try to sort of regulate our spending a bit to make sure that we're really delivering appropriate level of profitability. One of the reasons for slightly like a larger range for our guidance for the year, given where we are in the year, is that if we do see COVID-related slowdown in surgeries, that's more than we anticipate in the half really don't want to pull back spending because we're investing in -- we know that the surgeries will come back. And so we do want to continue to invest through this half to see ourselves up for the future. So, we'll be -- I think, short answer to that is we will moderate the spending less in this half than perhaps we've done previously, if there is a change in the sales because we believe -- based on a change in sales during a short-term COVID-related issue rather than anything longer run.

Yes, I think my experience that if you tend to increase it rather than decrease it, because sales often -- peak up. Hopefully that'll be the case again this time.

And there are limitation on how much we could increase spending over four and a half months.

Yes.

Of course. The other question I have is share gains, I see that comment there. We certainly heard feedback out of the U.S., but gains have been quite material in some things at the expense of that over advanced bionics, but could you talk a little bit to what you've seen in terms of share movements and how much it is between markets please?

Yes, it's always hard to quantify share gains in the in the short run because there's ordering patterns and -- we know ourselves how to get a handle on our competitive sales in a short period of time. But definitely, the U.S. stands out as a market where we have gains here. I think historically the U.S. is -- the share can move around a bit faster than some of the other markets and we have performed very well both in terms of our product portfolio and our service, so that's helped lift. But we're doing well from a share perspective across several countries at the moment. And in part of that is the strength of our product portfolio. But it's also through COVID because we were financially secure; we could say to our teams that their jobs were safe. The role was to support our customers and so they've been very present with clinics, albeit mostly virtual. And I think that's reinforce our strengths and the support we can provide that combined with the product portfolio has helped us lift share across a whole range of markets. I think the U.S. is one where we moved share more than some of the others. But we have seen some good gains in -- I think, across the board and across a broad range of countries.

Great. Thanks very much.

Thanks David.

Thank you. Your next question comes from Steve Wheen from Jarden. Please go ahead.

Good morning Dig. I just wanted to drill down on in terms of your revenue profile, what the patient profile have looked like in terms of a rebound. Is there certain cohorts that are responding faster than others?

So, in -- Steve in markets where the clinics have been back at pretty much normal capacity, say U.S., Japan, Korea, the age distribution there is pretty much the same as it was pre-COVID. So, that’s very encouraging, but particularly the over -- people over 65, which in the U.S. is the majority of our -- sorry, the largest segment of our sales, back at the same level as it was 12 months ago. So, that sort of plays to this point of talking about the we haven't seen any decline in the propensity of people to act on their hearing loss, even if they're older. In markets where it is restricted, as you'd expect, we're seeing a higher proportion of children because the children get, obviously, and should get priority for surgical slots. But all that -- and what we also see in our DTC pipeline is the age distribution that reflects what we saw pre-COVID. So, all of that gives us confidence that extent there are some disruption in the age distribution, it's a short-term issue rather than a longer term structural issue.

Yes, got it. Can we just switch to the system's revenues? And there was, at the time of your first quarter, quite an obvious slowing within the processes, which was completely at odds with the influence? Are you seeing that that deferral of processor upgrades is more related to people's deductibles within their policies, or they're sitting on their hands waiting for a new product?

Sometimes it's confusing, Stu might want to come in on this, obviously, there's a lot of noise on the upgrade services side is that we did say in the first quarter, lower clinic capacity through COVID. That increased into the second quarter and the launch of Kanso 2 also help lift and the older people probably -- some people getting some knowledge of Kanso 2 ahead of time. So, there's probably a bit of deferral there. But Stu if you talk a bit.

Yes, absolutely. So, partly clinic capacity and partly patient propensity to come in. So, we saw a noticeable difference that if you weren't coming in actually a high proportion of seniors were still coming in to get a new system than we had expected. But we really did see a significant drop in the number of existing recipients who wanted to come in and have their annual checkups. And so those kind of things that are then quite caught off in a trigger for the upgrade process. So, in combination of clinic capacity, propensity will actually go into the clinic in the first place from the patient's perspective and then possibly a bit of slowdown ahead of Kanso 2. But we're seeing that that's rebounding pretty strongly in Q2 and obviously, the nice thing about it is everyone you don't get this month to someone, you can still get next month.

And so we did mentioned deductibles in there, which is a issue specifically in the U.S. We did see earlier on so it’s a pullback of people having -- had not having because they have at home hadn't used up their deductible and we're deferring a little bit less of that more recently.

Yes. Great. One final one for me to use to if I can. On the gross margin for the second quarter, sounds like that’s going to be more of a cleaner gross margin than what you've outlined for first quarter. Can you give us sort of any insights as to what that looked like so that we can, I guess, extrapolate for the remainder of the year?

Yes, sure. So, looking forward into the second half, obviously, we don't expect to see a repeat of the COVID-related inefficiency, which still we'll see a bit of the first year of launch stock and the write-down, so we'll need to take a look again at the end of the half, probably not quite as high as we had at the first half. So, I think confidently better than 72%. I don't think we'd be back near 75% yet. So, that's probably in that sort of 73%-ish range better for the second half.

And remember there'll be an FX impact that comes through also stronger FX impact in the second half.

Actually you're not disclosing your FX hedge book profit this half, is that -- where is that sitting? And why the change?

Yes, no, we've actually made that change in past. So, we do it at the full year not at the half year.

Okay. Yes. Okay, got it. Thank you.

Thanks Steve.

Thank you. Your next question comes from Sean Laaman from Morgan Stanley. Please go ahead.

Good morning, Dig and good morning Stu and congratulations on the appointment. I have a couple of questions on the newer products Dig. So, the first one is Remote Check. I don't know if you could give us a bit of granularity on the in-market experience with that product and how that might have been freed up some of the channels if you like? And the follow-up question would be on the Custom Sound Pro software and is a real-world experience that you can kind of push those feeding practices out into more retail based channels? Thanks.

Yes, thanks, Sean. So, first on Remote Check, certainly we’re pleased with the rollout so far. And this is a product that takes a bit to roll out because it links into clinic IT systems and so that raises concerns of cyber security, because there's patient data that gets transmitted from the patient to the clinic for the clinic to review. So, it takes a bit of work upfront to actually get all -- we've done all the work to show we can do that between -- or each clinic or hospital requirements. But as we do that, we do see the good adoption from the patient perspective. Out of that, we're seeing sort of 85% to 90% of the checks that are being done; don’t need a clinic visit follow-up. So, there's no issue that needs a face-to-face appointment. I think we've done enough to see that that level should continue and clearly that's better for patients and that lowers overall healthcare costs. So, certainly moved to sort of enable the system to be more streamlined and free up clinic capacity for new implants as well. So, certainly pleased with what we're seeing, but it will take some time to roll remote checkout, given clinic-by-clinic process and we also want to do it across countries and are doing across the countries and languages. Custom Sound Pro, they are well-received and given the software changes is a pretty significant change to clinical practice and we're hitting our internal targets for the rate of rollout and adoption on Custom Sound Pro. And training clinics for that actually being able to -- in many cases, being able to be physically present and that's gone very well. The Custom Sound Pro is certainly set up so that the -- I think more traditional way of programming where lots of individual tuning can be done as possible, but there's also more automated way of doing the programming as well. So, that more automated way does, we think, enable broader reach for Custom Sound Pro in terms of the numbers of people who can access, says use it confidently and get good outcomes with patients. Early days on that, but certainly good -- well-received so far. And obviously, one of the things that we want to do is to enable simplification of the mapping, the programming, both from a capacity perspective and a convenience perspective. And what we're seeing so far is good, but it is early days in that launch.

Great. Great. Thanks. I might just squeeze one more in and sorry, is this has already been touched upon, but you have to give us a bit of granularity on what you're seeing on our new pipeline versus catch-up surgeries?

Yes, so -- it's hard to unpick, but in the countries that are going well, Japan, Korea, U.S., for example, where all new surgeries, the catch-up was all done. Now, obviously, given the some parts of the U.S. are going to have a little bit of catch up to do from where we are at the moment. Across most of Western Europe, we saw that hitting into the -- sort of the end of October, most of that catch-up was done, there's probably a little bit of a backlog building in a few -- or there is a bit of a backlog building in a few countries now. So, we're headed when things free-up, it should come back pretty quickly. But I think the vast majority of the surgeries we're seeing now are new surgeries rather than catch-up. Certainly, in the last half, there were catch-up.

Great. Perfect Dig. Thank you. That's all I have.

Thank you. Your next question comes from Andrew Goodsall from MST Marquee. Please go ahead.

Thanks very much for taking my questions. Just actually just picking up on that last comment just to segue to I guess, unmet demand. I guess some of the calls we've done as well pick up the referral channels sort of hasn't entirely kicked back in, I guess, country-by-country scenario. But do you sort of think that there's still a bit of a demand in there. And I guess, perhaps trying to get back to what you think is sort of an underlying growth rates that you might expect?

Yes, good question. So, we had to put a number on what the underlying growth rate will be. I think we're actually seeing in our DTC pipeline, building quickly and which was very pleasing. So, that's certainly one channel. Then there was a channel of referral and hearing aid referral, or CPN referral, which is particularly a U.S. issue. There's other countries as well and we're obviously trying to build more referral networks as we go forward, because that is one of the keys to our growth. Certainly, some of that referral is gone a bit more slowly. Although I will say, on the CPN side, we had quite low expectations going back a few months, because we thought that the channel was slow down and we've actually been a bit surprised against our lower expectations that the referral is working better than we had thought. But it's still not accepted across the whole developed world, referral is not back to where it was. But again, we got confidence that it will get back there when we look at sort of the behavior of people and propensity to act on their hearing loss. So, it's really hard to pick part in the short run, but we're not seeing a longer run issue and I think you're recall saying it's a big step that we're seeing too, but overall, still quite positive in what we're seeing.

In terms of -- in front of you, I guess, that probably gives you a bit of propensity for multi-year sort of recovery. If I think that like that -- I was just kind of been focused on emerging markets, obviously, not all uniform and you've commented on some that are coming back down 30%. And just -- I mean, just how quickly do you think that all sort of, -- do you think that will rollback with some confidence, or is that sort of more related to roll out effects and things like that?

Yes, it's a tricky one, it is variable. So, there's some really strong performances in there that India and Brazil, the government money or the government programs have virtually stopped or significantly slowed. And that is as much about the government health care systems being caught up with COVID-19 and is financial -- it's just how much funding is available. So, I think both of those things, I think, will take some time to play out because rollouts of vaccines in many of these countries will take several years, I think and the economic impact of the slowdown will also take some time to play through as well. So, the emerging market is much -- it's hard for us to have a good view of the time at which they'll recover. As an overall part of our sales, it's obviously relatively smaller paths. What we are seeing is that the private pay segments in those markets are performing quite well. So, some -- in some of those countries, that private pays probably substituting for some of the government surgery. So, the people who might have been -- going to get a government funded implant are realizing that that's now not going to happen, and so they find the money for to pay themselves. So, there's a little bit of a shift from -- to bolster the private pay segment. And -- so, I'm not sure if that helps too much, but it is complicated.

No, I've just crossed out roaring back.

I think definitely crossed out roaring back in emerging markets., yes

Yes. And just a final quick one, just any issues around clinic capacity, we did hear a couple of weeks sizing down, but you're just looking at your numbers today that sounds like they are at fringe.

Yes. Yes. Certainly, you look at the U.S. particularly kind of capacities in bounce back quickly, getting slowed up a little bit in a few places now, but it will come back. So, yes, some short-term issues on capacity, but we don't see anything from a medium term outlook concern on the clinic capacity.

That’s fantastic. Thank you.

Thanks Andrew.

Thank you. Your next question comes from Saul Hadassin from UBS. Please go ahead.

Good morning Dig, good morning Stu. Just a relatively quick question from me. The growth in units versus revenues for Cochlear, Cochlear's unit sales look like that was at about 10% benefit from ASP mix that you call out on the call. I just wanted to ask so what's the rough price differential in a high level sense between developed - business developing markets and the rights to the ASP per unit, can you give us any guidance on that?

Yes. So, Saul, I'll give you a little bit without getting too specific, partly because in emerging markets, we all have -- we -- as we've talked about before, we have priced tearing, so our latest system in emerging markets will typically sell at the same price as that system in the develop market. So, in India, what Kanso 2 and CI632 implant will pay pretty much the same price that you pay in a developed market. Then we have the tearing below that and then the government purchases that talked about a really that the area that's really slide up is typically the lowest price segment, because it's all from the tender type volumes. So, it's that is -- really what we're seeing is that that low end pricing as the back part of units has come off quite a bit. And that's why you see that the average ISP move -- cutting that that lower price volume off lifts the ISP. There's nothing more underlying that change than that.

So, maybe just to pressure a little bit more on that. So, I mean, if we're thinking at 25% to 30% average price differential, does that sound about right in terms of--

As you talked it’s a bigger range from sort of the lowest price government tenders to -- which probably sort of few generation old technology to the latest premium system with the Kanso 2 bigger than that 25%, 30%. I'm not going to guide you on exactly how big.

Sure. And if the math is wrong, I think it implies that the units from emerging markets were about 50%, 25% as its developed.

So, that was 30% -- off by 30% just saying what's the proportion when you say keep on what we disclose that our emerging market revenue is around 20% of our total revenue develop market being 80% that the implant volume is higher than that 20% because the average system prices is lower. But we haven't given out a specific number on what proportion of the overall implant sales goes into emerging markets.

Okay. All right. Thanks.

Thanks Saul.

Thank you. Your next question comes from John Deakin Bell from Citi. Please go ahead.

Hey, Dig, just following on kind of a similar line, I was just hoping to focus on the margins going forward, the more the EBITDA or starting at the net profit margin and the EBITDA margin because pre-pandemic, you kind of found the business is being around 18% net profit margin, which translated for several years to be about 28% EBITDA margin. Now, this year is a bit different amount both consensus before the day was similar for FY 2022 back at that 28%. Is there any reason while that wouldn't be the case, I know that SG&A, it's moving along that path by FY 2022 for example, should we be thinking about the business in the same terms as we were back in 2019 with respect for EBITDA margins?

Yes, John, broadly yes. Just with one caveat, is that Australian dollar has reason, obviously, very quickly and significantly, that even with some hedging puts pressure on our margins. So, we've got a decision there as to what extent do we continue to invest in longer run around gross versus preserve that 18% margin. I think Australian dollar stays up where it is now, it makes sense for us to probably pull that margin off a little bit in the short run to make sure that we can continue to spend on future growth.

Okay. Thank you. That’s all I have.

Thank you. Your next question comes from David Stanton from Jefferies. Please go ahead.

Morning team and thanks for taking my questions. Just to sort of follow-on on John's excellent question. Wanted to understand the second half of FY 2021 operating expenses. Note that travel has declined and the like. But you've got -- in terms of your guidance, you still got what implied signed to lower profit going forward? Why won't -- why will operate -- it's taking up operating expenses increase going forward please?

Yes, David, there's couple things there. One, the OpEx in the first half and particularly the first quarter I would say was very depressed, almost sort of artificially low. So, marketing and sort the travel and [Indiscernible] was literally almost zero. But then, as I said a bunch of other restrictions that we put on the business just while we were still more uncertain on the outlook. And so going into the second half, we're not expecting massive return and travel and conferences, but there will be some and particularly in some markets where Korea has been a good example where that country is largely operated as if it wasn't an impact for last part of the half. But also then we are looking at, we're seeing more confidence in revenue and more confidence in revenue growth in half two and into 2022. And so there are things we want to do now around R&D, around some IT that enables some of those R&D things and around some activities directly with customers and building out the pipe more that we think warrants investment now to drive that growth into the half and into the 2022.

And following up on that, just apologies, you've written this down somewhere, but can give some idea about R&D spend as percentage of sales -- percentage of revenue for second half 2021?

So, again, David, we still want to hold R&D around 12% of our revenue. Over time, it'll move around a little bit on that as we see opportunities to put a bit more in. And so that's a bounce, I'd probably push a bit higher than that, I think, into the second half. But [Indiscernible] we see going into this year is we are in a strong position. It makes sense for us to invest into the future. And now that we've seen that revenue coming back and that's what we'll be doing into the second half and through into 2022.

Yes, that's worth noting too. R&D dropped a little bit in first half, but it was almost all just reductions in travel and was to try and keep that momentum going.

Understood. And so and final one for me, again, I haven't seen this any way, you should call it out tender sales, Chinese tender sales the first half push?

Negligible -- the government ran a very, very small tender, not even not -- not even worth commenting on, the 300 units or something. And as we were talking a while that the visits in shires really shifted to the strong private pay and more money at the provincial level and that that can be through either provincial tender, or a form of reimbursement that support some of the private pay, and much, much less through the central government tenders. And so -- well, navigating back five years that central government tender was a very significant part of our China business, it's now negligible. And the private pays are much, much larger proportion and also in absolute terms. I know, the next five year plan will be released in the next month. And then that will probably get some insight into both what the government tends to plans are for heavy loss and Cochlear implants and how they tend to implement that whether it's through tender roll-through or through provincial level.

But we should assume it probably going to be much lower than what it was like five years ago going forward?

Yes, yes. So we were saying, we're very focused on the private pay business in China, we've been investing significantly to strengthen and build our team there. And that's certainly, working in terms of the results that we were seeing in China, in terms of the market growth and our growth.

Understood. Thank you very much.

Thanks.

Thank you. Your next question comes from Chris Cooper from GS. Please go ahead.

Hi, morning. Thank you. So a slightly longer term question for you, Stu. You commented in your prepared remarks that you don't believe that underlying demand from impacted by COVID and may have actually improved? Can we deduce from that comment that your estimate of Cochlear Implant units in fiscal 2022 is equal to or higher than the expectation you have from prior to COVID? Is that a fair interpretation of what you're saying there?

No, I wouldn't -- I wouldn't use that from it. Just a couple of points, first of all, the impact of COVID is that it did hit growth. I don't think you can draw a line through the growth rate pre COVID. And just see a sort of a one year or 18 months and everything will be back on that growth. We've pulled back some of their spending, clinics were closed for referrals were down, all of that. So we'll put up some hole in that price. So I think that what I'm saying here, though, is that one of the concerns going into COVID is that people particularly older people would get down hesitant to get health care, their hearing attended to because of fears of COVID or other health issues. We haven't seen that happen. We have seen some encouraging signs of it. People who haven't acted on hearing loss have acted. That certainly an opportunity for us and hopefully that continues beyond COVID in terms of raising awareness and propensity to act. So it does give us some optimism about the potential for growth. But in 2010, we won't bounce back to, you know, a straight line through where we were heading pre-COVID.

Well, and also remember, 2020 season, a four and a half months away in emerging markets as a long way from being fully recovered, and even the developed markets, we're still seeing significant disruptions that are at a sort of a district level and potentially country level too. So there's still some -- carbon effects that are going to play through on 2022 as well.

Okay. Let me put it another way. I mean, is there a year in the future, when you expect to get back to your pre COVID expectations for that particular year? I guess, what I'm trying to get to is, is there kind of a proportion of patients that were differed or discouraged in some way through COVID. That won't be coming back at some point in the future, in your opinion?

I think yes. I see -- going Chris. I see -- it's sort of hard to know -- what you're saying it is there because of a gap in referral a backlog that will come back into the future. And I think yes, they will come back in the future. What's not clear, though, is because we there's -- there's not a great referral path, there isn't a great referral path. However, there's not a referral path at all in some places. And we've got to build that the effort to bring those people back couldn't attract from other people who are unaware, be made aware and brought into the referral path. So I think while they'll come back, it might surprise me if there are people who are sort of pushed out forever, in a sense, or delayed forever, rather than just a quick, quick bounce back. So I think it's too early for us to call, but uncertainty we are modeling our future on the basis of a really quick bounce back. But we do think there's an opportunity to continue the awareness activities we're doing on the back of COVID, because there is heightened awareness. And hopefully, that does help our growth rates into the future.

Got it. Thank you. And just -- just lastly, I've actually lost track of how many -- how many consecutive quarters now it's been that you've been reporting share gains, anything you're seeing, near term, midterm, long term, which might lead you to believe that kind of impressive performance, you've had a market share might change in some way, going forward?

Certainly, we don't anticipate share gains continuing on forever. And we've got we have very good competitors, they will launch new products. And we do see shear moves on new, new product launches. And it's why we don't have a whole portfolio on why we're strengthening our service offering to try -- make -- make -- make that share moves a bit less susceptible to launches. But that will still be there. So it's very hard to project Florida 30 very pleased with the work that we've done over the last 12 months or 18 months from a strengthening our competitive position, and that our competitors are good. And we'll bounce back with something and you know, that will, at some point, certainly moderate the shear gains that we've had, but we want to make it as hard as possible for them as we can.

Correct. Thanks for the help.

Thank you. Your next question comes from David Bailey from Macquarie. Please go ahead.

Yes. Thank you very much. Good morning. Just relation to the candidates. So any visual feedback you've received that people paying out of pocket for -- out of cycle? And then should we think about the Canada as being more material contributed to the service component or is the consideration for new recipients as well?

Stu, do you want to talk on that one.

Yes. So look a very well received with lots and lots of pre orders for candidates. Oh, and a combination of private pay and people using utilizing reimbursement. I think it's hit that sweet spot of the freedom and convenience that you to hear from not having something on your ear. We know that's a big detractor for a segment of our population. And in the streaming benefits that that you get through that you were only able to get through and seven, so it's we know it's a highly attractive device, and that's causing lots and lots of demand. Sorry, your second question was

Just in whether it's, you know, as we think about it being a more material draw for the services or upgrade components versus, you know, the Cochlear Implant component, I'm sort of wondering, is that to give us a consideration for new recipients?

It's certainly a consideration for new recipients as well. And so I think, again, it's the same features that make it attractive for an existing recipient, make it attractive for a new candidate as well. Yes.

Yes. Okay. And then just one final one is in commentary there around market access. Just wondering, if there's been any change -- if there's any change in terms of market access that's been some changes come through Europe and searing in Belgium. But have you seen a change or an increase or any change in the rate of reimbursement, expansion or criteria relative to more recent use?

There have a number of smaller ones in recent time, so that by Belgium was down about not about 18 months old, sort of that last big one, there was expansion and the reimbursement for Baha upgrades in France. And we’ve certainly seen a lift in Baha upgrades on the back of that. There's some changes in Singapore. So Singapore is very small market for us, but all that helps. So we continue to work on that. But access is, it is long run projects to build the data and then to influence governmental payers to demonstrate to them that we have is a very cost effective. Health outcome was a very competitive market for healthcare spending. So, certainly an area we’re working hard, number of smaller changes hasn't been in the last 36 months, not a big change like the Belgium one.

All right. Thanks very much.

Thank you. Your next question comes from Lyanne Harrison from Bank of America. Please go ahead.

Good morning all. And Dig, thank you for taking my questions. I wanted to come back to the net profit guidance. And you made some comments there that expected in January and February trading. Can you talk a little bit the trends you're seeing, perhaps whether it's week-on-week, especially given some of the key market during that period, the COVID caseload any hospitalizations are reducing?

Yes, Lyanne, to talk a little bit of like a specific cases, and what's happening week-by-week. We'll say -- as we said that we've -- it's been a little bit slower over the first six weeks of the half and it was in Q2. From what we can see that is it is COVID related, for example, Southern California, pretty much in lockdown parts of upstate, New York are in lockdown. So that obviously has a direct impact on surgeries. Similarly, parts of Western Europe, some of the countries, they're still quite heavily restricted to the UK, although the UK does look like it's starting to free up certainly the COVID infection rates have come off a long way, the vaccines rolling out. And so there's still a level of uncertainty, which influences our guidance. And we’ve also certainly seeing I guess some slightly slower -- certainly slower in that first six weeks than we saw in Q2. But again, look, this is -- it's a short-term issue. I think the timing of the recovery of these surgeries, so they all recovered before the 30th of June or to some go into next year that we can't tell from here and that just makes us a little bit cautious.

Okay. And then I think you’re right like because it’s covered another four months, 4.5 months ahead. Does that guidance factoring or seeing any further COVID disruption in that period? Would you assume that given caseload and how hospitals are coping with coronavirus that there'll be steady improvement?

We expect it to be effective, it is steady improvements as we said our Cochlear implant systems in the second half in line -- developed markets in line with what they were in the first half. So, we've got in there some allowance for what we're seeing at the moment, but if there was some major -- significant major outbreak break that had a material shutdown, I don’t think that's going to happen both in the upgrade market, don't think there's going to be a major shutdown like we saw previously, then obviously something like that's not factored in. But I think we put -- before I’d say, we put reasonable balance around what we can see happening at the moment. And we expect to have the CI units in line with the second half and the first half in the developed markets. We expected emerging markets will continue to show recovery through the second half. So, therefore, put more units in the emerging markets in the second half. So I hope that answer to some sort of obviously level of global judgment there as to what we think the COVID impact will be

Okay. That's helpful. Just one last question in terms of the key markets you talked about in detail and more broadly Western Europe, but can you provide some color on what you're seeing particularly in Germany entering the adult market there and clinical capacity?

Yes, Germany is, Lyanne, look in Germany, we are seeing strong performance through to the end of October. We then saw that Germany imposed some restrictions from November on and we certainly seen that have an impact on our sales in Germany that they haven't -- that come off a little bit. They haven't sort of fallen to zero or anything like that. So, definitely a bit of a slowdown. And I think give what should read about caseload in Germany, the impact on lockdowns, we've seen that reflected in our sales, but again expect that to come back as those restrictions are raised.

And also the adult mix in that -- fairly large market.

Sorry, the adult mix -- yes, that has been, again, I’ll talk in October was in line with what we were saying, pre-COVID for strong…

Okay. Thank you very much.

Okay, Lyanne.

Thank you. Your next question comes from Gretel Janu from Credit Suisse. Please go ahead.

Thanks. Good morning. Firstly, just in terms of the guidance are you able to quantify the FX impact that you expect for second half of given current spot rate?

No, we haven't done that. It is significant for us average of $0.72 in the first half and $0.77 in the second half. Clearly, that will -- and we do guide on with very little hedging in the second half. So you can sort of -- we haven't provided the exact number, but you could probably estimate it from that.

Yes, sure. And then the just going back to the market share gains, you've given us a lot of color on that, but I guess your key [ph] has recently launched some new processes. So I guess are you seeing this as a risk in the short-term? Or do you think that you'll be able to continue to make kind of more shared gains over the next six months to 12 months?

I think we're certainly optimistic on our share looking forward over in this year, two significant competitors both launched products, one bit earlier, one just now. Often there's little moves on a new product launch. Look, we’re very -- we have a very strong portfolio. And I think what we're seeing coming out is our competitors will be trying to catch us with these launches, or catch aspects of what we offer with those launches, it's probably going to have some impact. But I don't -- it’s too early to call it significant -- well, I don't expect the significant impact. But I do -- as I said earlier, we have good competitors, and I will be fighting hard to win share back from us. We got a good portfolio. We’ve a very, very strong sales team to work very hard to support customers, and we'll keep doing it. So I don't want to give an outlook for what's going to happen to our market share, because I think it's probably not very helpful. And I don't know that we can do it very accurately other than say, look, we're in a good position now and for what we know, we have a good product portfolio and pipeline as well into the future and strengthen our position.

Right. And then just finally sits outside of the COVID elective surgery restrictions, all that volatility, I guess, what do you think it's the biggest headwind to recovery over the next six to 12 months? Is it more on surgical capacity restrictions where Cochlear Implant not given priority or more capacity constraints in the audiology clinic?

Look, I think still the biggest headwinds for us is awareness. That's the number one issue is that people don't know that there's a solution there. And that's why consumer wears, but also professional wears that people with hearing loss who are seeing many audiologists or even ENTs are not who are Cochlear Implant. So, clearly Cochlear Implant criteria not getting referred on and that's addressing that's the core of our growth strategy. And that will be is the major headwind. That will be the major headwind as we see some recovery coming out of COVID.

Excellent, Thanks very much.

Thanks, Gretel.

Thank you. [Operator Instructions] Your next question comes from Lisa Clive from Bernstein. Please go ahead.

Hi, there. Questions for me. Just touching on the last question you answered I guess 2017 you made this Sycle acquisition, can you give us a bit of color on how that changed your positioning in the US market? Is it helping grow the pipeline of elderly patients and educating the audiology community better? Seconds, given how well you've managed through the pandemic in hindsight, the capital raise really ended up being necessary, is there any potential for a buyback or other potential uses of that cash? And then third, you mentioned that 200,000 people in the Cochlear family, what are the tangible benefits from this? Are you seeing faster upgrade cycles due to more engaged patient? Thanks.

Okay. Thanks, Lisa. So on Sycle we bought Sycle one of the biggest barriers is there isn't a clear referral path from hearing aids onto Cochlear implants, even though there are many people in the hearing aid channel who would get better outcomes with cochlear implants. So quarter -- one of the things we're doing is trying to build that referral path. The acquisition Sycle gives us opportunity to really learn and understand that channel better to go through Sycle, through some education on the criteria indications for cochlear implants and who's a potential candidate. So we have seen -- and that's a long-term program to do that. We have seen an increase in the number of referrals that we've had from Sycle clinics, it's still small numbers, but it's definitely growing. So we're encouraged that we're on the right path there. But now is a hard turn it can take sustained effort to get referrals happening routinely. Look on the capital, our bounce rates are very healthy, strong position. That's a really good position to be in now. There is still a level well for all -- the recovery we have seen there's still a level of uncertainty. So at the moment we are quite comfortable sitting with more cash than we normally would while we just see how this plays out. And as we go through the next year, we'll talk more about depending on where the recovery goes, we'll just think more about what options does that give us. And finally on Cochlear family. As I said earlier, it's a long-term project, in terms of making a difference to our upgrade penetration, because when -- typically when someone becomes a family member, particularly if it's when they get their first system, they're not eligible for an upgrade for five years. That connection I think will give them better experience more reasons to engage with us and stay engaged, or that's going to help them have -- we think have a better experience, and hopefully also more likely to upgrade when they're eligible.

Great. Thanks.

Thanks, Lisa.

Thank you. Your next question comes from [Indiscernible]. Please go ahead.

Good morning, Dig and Stu. And I'm also a long-term shareholder, so sort of we are in two hats here. You talked about the R&D, and I was wondering what happened when you reduce -- when the employees redeploy overnight put on job cases? And secondly, how you use to ramp up or down R&D activity?

Yeah. Brian, good question. So now we didn't do reduce the employees in our R&D, that spending, that the R&D probably was as Stu said largely around travel and conferences, and not around our core projects, and certainly not around our people. One of the things we said going into the capital raising was we wanted to make sure we maintain our people are very valuable, make a significant contribution, particularly right across the business and R&D. No exception to that we wanted to keep them all employed and working on a very strong product pipeline that we had. In terms of flexing our R&D spend, it is -- there -- we can move it around a little bit in the short term, but it's hard to swing it too much in most of the majority of that R&D spending is on -- is on engineers on people, so it's hard to move that too quickly.

Okay. Thanks. That's all.

Okay. Thanks, Brian.

Thank you. [Operator Instructions] Your next question comes from Kate [Indiscernible] from Morgan Financial Limited. Please go ahead.

Good morning. It's Kate Painter [ph] from Morgan. Just wondered a question on your R&D there were some notices on the exchange over the last couple of years about an investment. It's an unlisted company looking at implants. I think it was related to breathing. Have you got any comments? And can you tell us what your interest is there, please?

Yes. So that company Kate was Nyxoah. It was a startup company and that's a startup company that's doing an implant to treat sleep apnea. We have made a few investments in an Nyxoah. They did conducted an IPO in September of the year we put €5 million into -- investment by €5 million in the IPO. And part of the one-off items in our profit -- statutory profit was a gain on our investment in Nyxoah. So on paper, we've made a good gain there, but the purpose of us investing in companies like that is that there are potentially things we can learn from the technology that they've got. And there's certainly knowledge that we have that may be valuable to those companies. Now, we're very careful not to put our IP in but some small investments. Let us understand those fields more without taking -- distracting us or taking significant risk.

Thank you very much for that.

Thank you. Your next question comes from Matthew [Indiscernible] from Enlightened Capital Management. Please go ahead.

Good morning team. Just a question. Just following up on those questions on R&D. I mean, just in terms of like a marginal spend of R&D at cochlear, what do you think the timeframe for a payout from R&D spend is? And how do you think about that internally? Obviously, you're investing over different time frames, but if you would just spend a $1 of modular R&D today, do you see that as sort of a one year, two year, three year payoff as a weighted average what would you think?

Yes, actually, we don't think about R&D that way. Our thinking about R&D is how do we -- do a few things. How do we improve the hearing outcomes for our customers? How do we improve the convenience? The lifestyle options for our customers? How can we change how care is delivered and simplify will lower the cost of care? And what new indications could we go into? Like the osteoimplant. We've said we've set aside 12% of our sales for that because it's -- that’s about the amount of R&D that we can do and actually push all the way through the organization in terms of the regulatory approvals and clinical and launch and so on. We do obviously think about what short term projects and what our longer term projects, but it's not as specific as if we put $1 in here, we expect to get X dollars back in three years. The business is far too complicated to put a simplistic put A in and you get three A out on it. It's more about the judgment of what's the full portfolio and how does that enable us to compete and how does that enable us to grow?

Okay. That's very helpful. Thank you.

Thank you. There are no further questions at this time. I will now hand back to Mr. Howitt for closing remarks.

Okay. Thank you all for joining the call today. And we will obviously talk again in six months' time we obviously do wish now we have gotten this out there and we won't be doing the regular market update that we did through the last half. Obviously that’s something significant changes, but thank you for joining.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.