Sonova Holding AG

Ladies and gentlemen, welcome to the Sonova Holding AGE Out-of-Year Results 2023-24 Conference Call and Live Webcast. I'm Sascha, the course call operator. I would like to remind you that all participants will be listening most and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing 31 on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Mr. Arndt Kaldowski, CEO, Cisco Head, sir.

Thank you, Sascha, for starting us off here. Good afternoon, everyone. Welcome to the half-year results presentation from us for the fiscal year 2023-24. In the room, I have Birgit with me, Thomas, and Jessica from the IR team. We're planning to voiceover the presentation call in 30 to 40 minutes, and then we have ample time for the Q&A, which we know some already have registered their first questions. Page two is the regular disclaimer, which you're all well aware about. Please take note of it. If we go to page three, before we go into the Half year results, we wanted to use the opportunity to orient us all on the strategy, but also our continued conviction into our ability to drive profitable growth, because on the one hand, we see the opportunity in the market, and secondarily, we've lined our strategy up in line with that. If we move to page four, Not a significant change, but just wanted to reiterate when we look at the market as well as our own position, we do see an attractive value creation opportunity for us as for NOVA. I think attractive market, yes, last year with the high inflation, we had unusual headwinds, which we normally don't see if it's a recession without inflation, but I think it's worthwhile to point out that our market is recovering faster than the general market for consumers. Significant penetration potential, continued growth coming from innovation to hear better, and as we have also shared at UHAR, an increasing recognition now with medical evidence that the hearing loss and the compensation with hearing aids is linked to very important health challenges of our time. particularly around cognitive decline, which all will help drive penetration. So NOVA was a leading market position, first in the broadest and most advanced product offering, but also from our distribution capability, historically on the B2B, but as you see from our M&A, going deeper and deeper also on direct consumer access, which we think is important to have. And then the last one I would point out here, when we look at the strong financials, I translate that into ultimately the capacity to invest organic and inorganic. The strong balance sheet and cash generation, if I compare with others in the industry, clearly a moderate leverage and long-term debt structure at low interest rates, which is quite important given the changes we've seen in an interest rate environment and the consequences for some participants. but then also the significant capacity for organic and inorganic growth investments where we see them supporting our strategy. So then on the market and us, if we move to page five, not a lot of voiceover on the page. We use that now since a couple of years, but it should give you confidence that we trust our strategy and that we continue to march down this path. There'll be adjustments, but on the highest level. were quite confident that we're driving the right things. If you go to page six, I wanted to take a little bit of a step back here together with you. And I think it's fair to do this in the middle of a volatile market, which unfortunately we've seen for many years now. And we hoped after COVID that's over and then we get into last year's new kind of dynamic for our market. But if we look at our ambition, and our conviction, we think we are able to drive our midterm targets, we see them as unchanged, and they are around driving above market growth and margin extension, if you look from a longer term perspective. Recapped here on the left, just as a sign of our conviction around, and our midterm targets is a six to nine percent sales kicker, and the EBITDA being faster than that, translating into a margin expansion. And that against a market which we think in the long run is a four to six percent grower. On the right hand side, and I will go a little deeper on the next page, just on how we've defined our focus and where our growth investment's going. Leading innovation for us falls into two buckets. There's how do we advance the hearing innovation along the lines of the products we know today and the benefits they provide, but also how do we expand the value for the customer beyond the known capabilities of a hearing aid. Clearly broadening consumer access and the B2B more the delivery of commercial excellence and the right coverage towards the customers. And then last but not least, probably not the most important, the next three years, but probably in the five to 10 years, how do we unlock the potential in high growth developing markets? So that's the themes. And if you go to the next page, rather than what we historically do, sharing the one or other example of that menu, we wanted to give you a frame which is a little bit more explicit, where are the big buckets, right? And what are the buckets which drive somewhere penetration, share gain, and value expansion? On the top, you see the five buckets I voiced over. So it's more relevant to go to the lower part, which we call the key growth drivers. And these are our focus areas. This is where most of our investments are going into. And these are the particular topics in which we believe we can drive above market growth. And you get to the first one, we're currently very focused on elevating the core hearing performance by improving the processing power and algorithms. You've heard us talk about artificial intelligence eventually moving into the device in real time. So helping significant improvements on noise reduction for everyone who wears a hearing aid. This is not in the market today. We talk about on the expanding consumer value, The combination of what I would call technology-enabled medical services, keep in mind the tinnitus app we have launched, all of those linked to the insights on comorbidities, no matter if that is tinnitus or cognitive decline, which I think will drive penetration, but also for the one who does it the best, an opportunity to grow share. And then the entrance in the early entry hearing devices, early innings, Not just relevant for the US in an OTC as a pathway to bring people earlier to the category and then move them, ideally, when they are maturing in their need, towards our regular hearing aids. I think not a lot of words I need to spend on broadened consumer access, which drives significant M&A, but also greenfield openings to reach more consumers in audiological care. And we're putting on top of that what's required in our eyes for digitization towards omnichannel. Commercial excellence, clearly the value add we provide to the B2B customers, feed on the street, which we do as we go, and then commercial execution. And then when we look at the accelerate high growth markets, no secret, the largest opportunity is China. For us, there's two opportunities beyond the normal. The normal hearing instruments, we have a good market share, cochlear implants, we have a decent market share, which we need to expand wide. volume-based pricing is going to come. But if we look at the audiological care, most of the value in the Chinese market is in the channels. And in addition, I think with the Sennheiser brand, there's meaningful opportunity on the consumer audio side in China. So if you look at those five buckets, this is where we put our focus and our energy. We do believe that each one of them in the long run has a potential to be creative over markets in the range of 100 million. That's why we raised them here. But we wanted to give that frame so then when you try to decide, you believe that we can grow above market, you know where we're focused. Page eight, last one on the strategy I think here, just a very high level recap on DESG. We've made further progress in the first half year. Three key dimensions I wanna highlight, strong progress of internal and more diverse leadership development. And you can see the numbers here nicely going up on the diversity in middle management and senior management, strong internal fill rate for leadership positions. On the CO2 side, our science-based CO2 reduction targets have been approved and we're on the journey and we make good progress in reducing our CO2 footprint. And last but not least, as a proof point, our continued high ranking in a positive way with regard to industry-leading sustainability ratings. Sustainalytics has reconfirmed us to be in their ranking, the number two out of 200 medical device companies just recently. So ESG clearly a priority for us, not just in mind, but also for us. Now allow me to dive deeper in unpacking the first half year. Many things happening, therefore we will try our best to unpack the most important ones. If you go to the first page here, how we look at the first half year from our vantage point. I think on market, clearly the volatility as we had laid out in May, a slowdown in second quarter, A re-acceleration in the third. If we look at the top 12 markets in the world where we have unit volumes, the sum of the two was about a 5% growth year-over-year. Almost slattish Q2, Q3, a nice pickup towards 9%. Particularly driven by North America and a couple of other European markets. Muted in the summer of Europe, particularly because of France and Germany, not so much a macroeconomics discussion, but more regulatory changes in the markets. In the first half year, and that was expected given some headwinds we have discussed and also flagged when we came into the year, muted sales and profitability development, still a half year of being held back by the non-renewal of a large contract. We had operational challenges in the hearing instruments business. The good news over the course of the first half year, they faded. We made good progress in improving those in the eyes of the customer. And we expect those operational effects to reverse in second half year, allowing us some pickup of market share, even if we're not having a new platform launched this year. If I look at the positive side on what we have accomplished, clearly ASP lift, particularly in HI and AC. I talked about the regained positive momentum in HI. Net promoter scores are improving over the last two quarters. The customer feedback is positive. And then clearly a strong execution in growth. in AC organic and inorganic as you have seen from most likely the pre-rigid. And then the continued focus on executing our strategy to a degree code here for we have not stopped to invest at the areas where we wanted to from our strategy execution perspective. So those positives allowed us to grow in Q1, but just a little bit. despite the headwinds and realize a margin expansion and local contribution margin. But if we now look forward, we want to build on this positive momentum. We do increase our investments into supporting this positive trajectory in HI and AC to accelerate the sales into the second half year while we're expecting to see continued margin expansion. If you go to page 12, that's just kind of the high level on the numbers as always. You see the growth one six, a significant headwind from a Swiss franc development, unfortunately more than what we had predicted in May. The EBITDA are slightly higher in its growth than the sales, translating to a margin expansion of 20 basis points in local currency, but harder hit even on the Swiss franc. A good EPS development in local, in local currency. And then if you look on the right, sales outlook confirmed for the year, given the positive momentum we've seen throughout, as well as the focus drive here from doing the right thing from an investment perspective. You can see a slightly revised EBITDA outlook. What are those investments in our mind? In the current market environment where many retailers struggle with consumer confidence, we have seen that we need to spend more to create lead generation, particularly where we're direct to the consumer, no matter if it's in CHB or if it is in AC, in order to bring new customers to us. And then on the other hand, while we're navigating through this year with lots of puts and takes on price, we are appropriately flexible at the places where we need to in order to keep customers or win customers. So that's the change here in the frame. If we go to page 13, we'll not voice over all many of the numbers I said already, but a soft start into the year, a strong performance in audiological care helping to offset the expected headwinds in HI and CI. Group, I think I voiced everything over. If you go to the hearing instruments, you see the growth minus 4.3 in local currency, but up 2.4 if you adjust for the large US contract. Clearly held back, not just by the contract, but the temporary operational challenges. But as I voiced over, business starting to regain positive momentum. Looking at the consumer hearing, We would call that at market. It's a very different dynamic in the consumer hearing business. We're attached to the consumer electronics. What we see from the peer group is flattish to slightly down. So I put the minus 1.9 at market. The positive news around it, last year we had a lot of product launches in first half year. This year they are coming in the second. So I would say after a strong growth year last year. were holding share in a difficult market, expect help from the new products, which we launched in September and some more to come in the Q4 of our fiscal year. Audiological care, you see the 11 and a half NLC, good growth, half of that coming from organics, so good execution operationally, but also half of it coming from MNA. These are bolt-ons plus high sound. A comment here on HiSound, we're really happy with the first half year. I think obviously we were fortunate buying in December because afterwards the market opened up again, but our growth is clearly above market in the first nine months since we're together. It's a combination of HiSound being a high quality company and at the same time us linking our new generation capabilities in China, which we have created over three years with that company. And then cochlear implants, a little bit of a soft spot here in our performance, down 0.9% in LC. On system sales, we were up to eight, but the upgrades now more than two years after the launch are turning negative because we've gone through most of the patients who were waiting for the processor from an upgrade perspective. Keep also in mind our largest competitor has launched a new product nine months ago, and that's always been for us. Speech 14, just a depiction of the sources of growth. You can see the organic as voiced over slightly negative. If you correct for the lost contract, we were on plus three. And then you see the very significant headwind coming on the FX on the right-hand side of the chart. I'm going to pick up pace here. You can see the regions and key markets. I think if you go through good growth in our key markets in Europe, there is quite some weakness in the US. Keep in mind that's where the large contract was, but it's also the area where we kind of lost the most momentum, but also now regaining most of the momentum on the market share side and hearing instruments. I think Asia, impacted quite some by high zone, but overall still a good performance. In Europe, some markets with very good growth for us, Germany, Belgium, the Netherlands, and Poland. In Germany, mainly driven by our geological care, but then weaker development in France, Italy, and Sweden. If we go to page 17, hopefully helpful how we depict the numbers here. You can see the different growth rates. You've seen them before. I think voiced over the segment sales components already. I think the big positive for me on the chart in addition to the audiological care business and the growth rate is actually the segment profitability with 50 basis points in local currency. We did benefit from lower component costs and last year's pricing initiatives. There is a significant shift mix when we have such different growth rates between HI and AC and keep in mind our AC is It has a good profitability relative to peer group, but it's meaningfully lower than the hearing instruments side. So we needed to make all of that up in productivity, price, and other elements. So I think really impressive results here with 50 basis points, given the shift mix between the businesses. If we go to the page 18, some incremental comments on the hearing instruments business. I think we were very focused in the last nine months to not just improve the reliability, which we were able to do pretty quickly because it was a temporary issue last year, and Lumity was always 30% better than the Paradise. But that then requires a lot of communication if customers are concerned. And at the same time, we had some issues with regard to delivery and others. We fixed those. The net promoter scores are improving, but as you can imagine, trust, is harder earned than lost. So we're on the journey of recovering the trust, but with a good improvement on that promoter score. If we go to the consumer hearing business, which I haven't voiced over as much, I voiced over the performance in line with market despite the new products. Happy to have the early entry hearing product out in OTC early innings, positive feedback on the product. Not a significant revenue because that market segment is still small in the United States of America. Launched new products, including the Xentum Wireless in the end of September, which should help us drive some incremental revenue and expect more growth to come out of new products later in the half year. And then page 20, audiological tier, really a strong story not just on the growth side, but voice over iSound. We are focused working on how do we improve optimization of the store efficiency. Christoph has voiced that over a year ago with you. How do we increase our share of wallet? We have added about 80 POS, the majority in bolt-on acquisition, some of them greenfield. And I voiced over some of the digital omnichannel ecosystem at UR, but all of that going on while we're growing the business significantly. Pitch 22 cochlear implants, I said it, more of a soft spot here, one which we have work to do. Sales, I voiced over the dynamic system sales versus upgrades. If you look at the EBITDA, quite a step backwards in the margin expansion with minus 100 basis points. Unfortunate, not so much lack of price or which we held in our driving, not so much cost structure, but really significant elements of geomix shifts in the sales we have seen. We also had some supply issues, which ultimately delayed some of the sales, but also created extra costs, which we have been through the past due on time delivery is at normal high levels now. but it did impact us throughout the first half year. With that, I wanna hand over to Birgit on page 23 or 24.

Hi everyone, and also a warm welcome from my side. So we go to the slide number 24. Here, I think aren't as already discussed most aspects. So I will focus on providing you with further insights into the drivers of our profitability, the cash flow, and also the balance sheet. So let's immediately proceed to the next slide that presents more in-depth information on the gross margin progression. So what we can see here is that our gross margin reached 71.6%. And this represents a strong year-over-year improvement of 280 basis points in local currencies and 200 basis points in Swiss francs. And this improvement was entirely due to organic factors. So firstly, the prior year price increases, which were implemented to offset the inflationary pressures. And then second, ongoing operational improvements. Then third, higher growth of our audiological care business, and as you know, at a higher gross margin. And then lastly, continued easing of the headwinds from components and freight costs. And this was then partly offset, as you can see here on the chart, by the currency headwinds with the strengthening of the Swiss franc. So let's then now discuss the progression of the operating expenses on the next slide. So here, You see the adjusted operating expenses increased by 7.2% in local currency to 950 million Swiss francs. And on the previous slide, I presented a positive impact on the gross margin from the shift in business mix due to audiological care. And in operating expenses here, you have the opposite effect because our audiological care business has higher sales and marketing expenses as a percentage of sales compared to the group average. And this effect combined with further investments into sales and marketing to drive growth led to a 4.3% organic increase in OPEX, as you can see here. And then additionally, the expansion of our store network, including also the acquisition of HiSound in China, resulted in increased operating expenses by 3% due to the impact of M&A. Then the currency development reduced the operating expenses by around 45 million Swiss Francs, or by 5.1%, and considering that foreign exchange had a greater impact on our top line, and most notably by 6.7%, the adjusted EBITDA margin experienced a negative influence of approximately 100 basis points. So let's now move to the next slide, which provides details on the development of different components within the operating expenses. So here R&D expenses, you see that they landed at 116 million Swiss francs or 6.6% of sales. So this is largely unchanged versus prior year. And we have maintained our high level of investments in R&D to enhance the core healing performance and enabling us to drive impactful innovation for our consumers. Then the sales and marketing expenses, they increased by 8.2% in local currencies with more than three quarters of the increase attributable to acquisitions. And additionally, we maintained our investments aimed at driving growth. And as mentioned by Arndt earlier, we will continue these efforts to sustain the positive sales momentum and to achieve a substantial acceleration in sales growth during the second half. Then moving to general and administrative expenses, they were up 10.8%. And this increase can be attributed to various factors, including the rise in energy and maintenance costs due to the high inflation, but also due to the harmonization of merit and pension plans following a number of larger acquisitions. And then as a result, the total OPEX increased by 7.2% in local currencies. I will address these adjustments in a moment, but first let's consolidate all the information and look at the EBITDA development for the first half year on the next slide. So moving from left to right, the adjusted EBITDA demonstrated a growth of 2.5% in local currencies. The organic EBITDA margin shows a favorable improvement of approximately 60 basis points. And this can be attributed to the earlier mentioned significant improvement in the organic gross margin, which was then partially offset by the higher growth in operating expenses. And then on the flip side, acquisitions had a margin dilutive impact of 40 basis points. So to summarize, these factors led to a slight improvement in the adjusted EBITDA margin when measured in local currencies. And then the adjustments resulted in a reduction of the EBITDA margin by 90 basis points, and I will discuss these adjustments shortly. And then currencies, as you can see here, remained a significant challenge, impacting not only sales but also profitability, which led to a reduction of 57 million Swiss francs in reported EBITDA and a decrease in margin by 180 basis points. So to summarize, this led to a reported EBITDA margin of 19% when measured in Swiss francs. So let's proceed to the next slide where we will review the key financials for the group. So since we have already discussed the increase in gross profit and adjusted EBITDA margins, let me now shift my focus towards some other items. So both acquisition-related amortization and net financial expenses were largely stable compared to previous periods. Income taxes totaled 44 million, as you can see here, resulting in an underlying tax rate of 15% compared to 15.5% in the previous period. Then adjusted EPS of 4.34 Swiss francs was up by 8.1% in local currencies. And in addition to the business results, the growth in EPS was boosted by the lower tax rate and also reduced average number of shares resulting from the share buyback in the previous year. Although the adjusted EPS experienced growth when reported in local currencies, this increase was offset when reported in Swiss francs, resulting in a reduction of 11.3% compared to the aforementioned growth of 8.1% in local currencies. So now, as I promised, let's delve into a bit more detail regarding the adjustments. Total adjustments recorded were 16.7 million CHF representing an increase from the 6.3 million last year same period. And out of these adjustments, restructuring expenses amounted to 10.2 million and these were primarily associated with our ongoing structural optimization initiatives. And this also includes the establishment of our new operations facilities in Mexico, which is now operational and has commenced production. In addition, we incurred transaction and integration costs amounting to 6.5 million, predominantly linked to the three major acquisitions we made in the past two years, namely High Sound, then either consumer division and also Alpaca. As anticipated, we expect elevated restructuring and integration costs of around 30 million Swiss francs for the fiscal year 2023-2024. So let's then now look on the next slide at the operating free cash flow. So slide 31. So our cash flow progression was equally affected by the strengthening of the Swiss franc. And the first two bars from the left compare operating free cash flow before changes in net working capital at the same prior year exchange rates. And as you can see, this number is at similar levels, namely 341 million compared to 345 million Swiss franc last year. And then the operating free cash flow before changes in working capital then ended after converting at this year's exchange rate ended at 280 million Swiss francs and therefore declined by 65 million of which as you can see 61 million were related to the aforementioned ethics. 8 million were due to higher cash tax payments and some 4 million were related to other effects. Then next, we improved our cash outflow from working capital by 15 million. But here, it's important to note that last year's figure has been influenced by the accumulation of working capital associated with the acquisition of the Sennheiser consumer division, as explained last time. Then CapEx was 16 million lower compared to the prior year period, and that was when last year it included a step up of investments and that was after the reduced levels during the pandemic. So to summarize, this led to an operating fee cashflow of 151 million compared to 185 million in the first half of last year. So then now let's look at the balance sheet on the next slide. 32, yes, thank you. So our DSO stood at 57 days. in comparison to 52 days in the previous year and 54 days at the end of the fiscal year in March. And despite our strong emphasis on collecting receivables, there has been a slight increase in this number. The calculation is based on our trade receivables at the end of the period, and the main contributing factor to the increase was the improved sales momentum towards the end of the first half period. Then next are DIOs to that 162 days, up actually only slightly compared to last year. This can be attributed to the presence of elevated safety stock, partly due to the transition to our new operations facility in Mexico. And then capital employed increased by around 300 million compared to a year ago, and by around 75 million since March. And both the period and year-over-year increase as well as the average year-over-year increase to calculate RSI was primarily driven by acquisitions, mainly higher goodwill as well as an increase in networking capital. And when combined with the lower business results in Swiss franc, This led to a return on capital employed of 18.9% compared to 23.4% from a year ago and 20.8% in the 23-24 financial year. Oh, sorry, no, last year, yeah. And then the net debt increased year on year to approximately $1.7 billion, primarily due to the acquisitions made in the last 12 months and a decrease in cash resulting from the impact of foreign exchange. And then this results into a net debt EBITDA ratio of 1.8 times. This is above our target range of 1 to 1.5 times, and this increase was anticipated and primarily driven by seasonal factors experienced during the first half, which included the payment of dividends. Then our long-term debt has an average tenure of five years with an average fixed interest rate of 1.12%, and our first bond is maturing in October 2025. So then let's take a look at the next slide, the capital allocation, which remained largely unchanged. So our cash deployment strategy of 70 to 100 million Swiss francs per annum for Bolton acquisitions remains in place. So we spent around 60 million Swiss francs in the first half. Then we maintain our payout ratio of around 40% with the most recent distribution being a payout of 41%. And then the leverage target of between one to one and a half times, as I already mentioned, remains unchanged, and we anticipate reaching this target in the second half of the year. And then as announced during the full year results presentation in May, no shares have been repurchased during this reporting period, as our primary focus remains on achieving our leverage target and maintaining a healthy balance sheet. So I will now Thank you. We'll now pass the floor back to Arndt.

Thank you, Birgit. Just one more page to go before the Q&A. On the outlook, particularly when we have significant swings between first half and second, we like to provide a little bit of a list of rich items. I've got it that way. And that's what you see here. I will not go through all the bullet points. You can read them. The recap for the first half year, I think I voiced them over, important for us that on the one hand we see acceleration in the market Q1 to Q2 and a good October, and at the same time an improving momentum in our hearing instruments business. Looking on the considerations for the second half, I think we have the foundation for the positive development in the market, There are still uncertainties in this macro environment. We do expect market share gains in hearing instruments, driven by the operational improvements. Worth to note the large client contract has annualized the loss of it. We do expect continued solid momentum in AC, organic and inorganic. And then on the consumer hearing side, benefit out of the new product in the second half. And then last but not least, to support this growth, the higher investments in AIDS-AIDS.

Ladies and gentlemen, please hold the line. The conference will begin shortly. Thank you.

Operator, are we still online?

You're online, yes. You may continue.

Did you hear my voice over on page 35?

Yes, it's interrupted. Can you repeat, please? Thank you.

Okay, so last comment here. You see the guidance for the 2023, unchanged on the sales growth, revised by 2% points on the adjusted EBITDA growth. And then our conviction towards the mid-term targets. With that, I want to open it for questions.

Ladies and gentlemen, we now begin the question and answer session. Anyone wish to ask a question or make a comment, may press button one on the touchstone telephone. you will have a turn to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use all handsets while asking the question. Anyone with a question or comment, press star 1 at this time. The first question comes from the line of Daniel Buchtel with ZKB. Please go ahead.

Yes, thank you very much. Two questions from my side. The first one may be on product news flow. I mean, obviously, at the Juha, two of your competitors launched new products. You have launched in August the power and patriotic version. of the Lumity. Can you say a little bit on how you expect things to go here, especially given those product flows from competitors and also, I mean, demand is still performing reasonably well with their hearing aid platform? And then the second question on the market environment. I mean, if I remember correctly, Q4, calendar Q4 last year unit volume growth, which would speak probably of being a very good quarter for the whole market now. Is there anything you're seeing why that may not be the case, or is it fair to assume that Q4 should be a very strong market momentum? Thank you very much.

Daniel, thanks for the question. On the product news flow, Yeah, it was what we all have seen at Juha. I think we continue to see good growth on the product extensions we've done. We also see that that continues to allow us to get back into some of the accounts where we have lost some share of wallet. I think not a significant shift in momentum from the new product launch there, with all due respect. And then the demand one was launched more than six months ago. That's normally then leveled in the regular growth side. I think what we have seen on the market side is still good numbers in hearing instruments sell in. What we do see, hence also our comment on the required investment, it is more work and therefore more investment to get new consumers into the stores predominantly because of the, let's say, crowding out of other people trying to get the marketing space. But no significant change to the trend lines. Europe slightly improving. France had the first month of a positive number. Germany is picking up. You could probably say North America may slow down a little bit from the high numbers they had.

Very helpful. Thank you, Arndt.

You're welcome.

The next question is from Abakil Anderson with Barclays. Please go ahead.

Hi, thank you for taking my questions, this is Arnabakil from Barclays. I have three, please. So firstly, on guidance, you're not signaling the lower end of the range. Can you talk about the bridge to 8% range? top-line constant currency growth for the second half from around 2% in the first, which is what is implied at your midpoint. How much of this is from an EU recovery, share gains, and pricing, if at all, and what was underlying H1 growth ex-Costco? Secondly, on pricing, you obviously took pricing last year, and you've been vocal about not raising price this year, given some of the share changes. share issues that you had. How do you see pricing over the coming year, and are we seeing a reversion to the normal pricing pressure in the industry, and could you be more aggressive on pricing or discounting to support share gains? And then finally, can you talk about the margin bridge from the first half to the second half, given some meaningful margin expansion is expected on a reported basis, and whether the lower end of this range is more likely? Thank you.

So from a guidance perspective, Bob, I think we keep the guidance where it is. Therefore, the midpoint is mentally the midpoint. If you look at the bridge, you're going from five to 8% at midpoint. 5.1 is what I shared corrected for the contract loss. So you need to bridge about 3% points. I think there is a good change on the hearing instruments quarter over quarter. which does a significant part of that list. We do expect some improvements on the consumer hearing side, and we do expect, I think AC to be in the same zip code. Keep in mind last year, Q3 was weaker, Q4 was stronger. So that's probably a wash there. On the pricing side, I think we feel we're at a good place with the general prices we have. I think we will decide in specific account situations if that gives a significant advantage, but we don't feel disadvantaged right now and rather focus on the value discussion overall. I think we've seen other people increase their prices step by step in the last six to nine months. not a lot more to be said at this point of time, but as you heard me say, we're willing to be sensitive for the right situation. On the margin expansion side, I think first, volume will help. We always have the second half being meaningfully stronger in revenue, particularly on the audiological care side, also on the consumer hearing business side. So you will see quite meaningful fall through there. Otherwise, you see our continued effort to drive productivity. So in that regard, it's really predominantly a volume fall through discussion with regard to the margin expansion. And it's not an unusual one for us between first half and second half.

That makes sense. If I can just follow up, you mentioned you've seen some good quarter over quarter improvement in HI. It'd be helpful if you could just talk a bit about the share picture in some of the key markets and channels and where you're seeing gains, stability, or losses, and how you think that will trend into calendar 24.

Yeah, I think I would lean as far out to say that we're seeing a good recovery in the U.S., and otherwise I would not like to go into single country discussions. That's okay.

Perfect. Thank you. You're welcome.

The next question is from Oliver Metzger with Oddo. Please go ahead.

Yeah, good afternoon. Thanks a lot for taking my questions. I have two on China, please. So basically, you consider China as a high growth market. So can you dive deeper on the market dynamics? So for years, we have seen very fast growth and these opportunities. Now we hear even some more cautious comments on the Chinese developments. So the question is, what do you see as the general macro happened in China, or is there any impact on the hearing aid market? And the second, you made a comment on the volume-based pricing in China that you expected to come. Can you give us more details about your expectations, timeline, et cetera? Thank you.

Hi, Oliver. Thanks for the questions. So on China... We spent a lot of time thinking China through before we made the acquisition of HiSound. And I think there's two very significant drivers over the next couple of years. And keep in mind, China is at best at 3% penetration of people with a hearing loss. And over the next 10 years, we expect 65% more people above 60 years. And at the same time, we expect 60% more people above an average household income of 30,000. That's just based on all of the statistics existing. So I think we're less focused on the GDP being six or seven or three to four, whatever the number is. I think we focus on our target audience and their significant potential. Keep also in mind that the Chinese government is very focused on what they call quality growth and they translate that into better healthcare and at the same time helping the elder population to be longer productive. So I think all of that is a positive environment for us. I think for us collectively as an industry and us as a player to unlock the potential, you need to be close to the consumer, you need to drive awareness. You need to offer a good service offering in the channel, and you need to have the hearing care professionals. And I think with HiSound, we have the ability to build that over the years. I think the next one, two, three years is in the normal growth rate. I would venture to guess if we do the right things, we can probably accelerate the growth when those elements are in place. On the volume-based pricing, Probably the first comment from all we see, this is only relevant at least from all the information and all indications of the government for our cochlear implant business, which is not unusual because he is mainly focused on the government reimburse and on the hospital based side. We have the advantage here that A, our cochlear implant business is not so large. And secondly, we are underrepresented in the Chinese market. We always played more on the private rather than the governmental side. So our exposure is Sonova overall is significantly below a percent of our total revenue is CI China, right? So put that in perspective. Now, if you wanna get our read on what's happening there, it's a question of timing right now. The government has planned at the end of this year, this may slip by a year, that they introduce volume-based pricing. The price points are not clear, lots of arm wrestling and discussions going on, but I think eventually we are going to see the public side of the cochlear implant market under VBP. We will then need to decide how do we play the private versus the public side. So there are volume potential given that we're underrepresented in share, which can which can help out on the price pressure out of the VVP. But big picture, a small number for us on a group level in revenue exposure.

Okay, thank you very much. So you don't see any impact on hearing aids or any... It's there.

We have no indication on that in any discussions we were involved so far. And the mechanism is from our vantage point more on governmental spend hearing aids in China are to a vast, vast degree out-of-pocket pay.

Okay. Thank you very much.

You're welcome.

The next question comes from the line of Farhubo Salvet with BNT Arriba. Please go ahead.

Hi, thank you. Thanks for taking my questions. I have three. First, Anne, can you give a bit more color on the phasing for growth throughout H1? You mentioned a good improving business momentum in October. Just wondering what has been the phasing for both sales growth and margin and what the exit rate for Sonova in October. Second, on the long-term guide six to nine percent and inorganic term as you could demonstrate six uh five to seven percent uh this is probably one percentage point uh just above uh the the market and uh less optimistic than some of your competitors ambitions so can you share some thoughts here on why you would only be able to outperform the market by one percentage point and uh lastly uh On slide seven, just want to spend a bit of time on the key growth drivers, 500 million in combined sales. Can you give us some timing to realize that? Which ones you're most excited about, and are they included into the long-term guide of 69% growth per year?

Thank you. I need to look on the note here, phasing H1 growth in sales in EBITDA. I think clearly the Q1 was meaningfully lower in top line and therefore in bottom line than the Q2. And in that, we've seen the pickup of A, the market, as I shared, at least on the published data for the top 12 countries, it was quite different with 0% growth and 9%. And we did see some pickup on the back of that. So even more pronounced in our own numbers. And then that has an impact from a fall through because the cost structure has not dramatically changed. I think on the long-term guide, this is what we shared, I think, two years ago. We wanted to make sure it doesn't get forgotten. I think from a growth perspective, I would look at this, if you look at the four to six, which we showed below, that we're going to be one and a half, two-ish percent above market. So in that regard, I look at that as an average commitment to grow above market. I wouldn't be in a good position to comment on why other people see higher numbers. Maybe that they have a higher market growth in there. but I would focus on the delta between our midpoint market versus what we think we can go do. Keep in mind, this is with bolt-ons and green fields, but not with larger M&A, right? That wouldn't include an alpaca or an high sound. That single items, we can't predict those. On the 500 million, I didn't call it three to five years. Is that reflected? Yes. I think you need those drivers in order to grow. If it's 2% above market, it makes it 10%. So you're getting close to our 4 billion and the 500 million or so if you take a five-year horizon. So I think leave us some space in the execution of those to also sometimes exceed our own targets. Yeah. But in the sum, these are the big ones. You asked what we're most excited about. We're excited about all. But if you would ask for where's the biggest kind of lift, I think strong innovation is one. And the other one is just based on the green fields and the bolt-ons we do on the consumer access, right? That's the two biggest ones amongst the five.

Thank you very much.

You're welcome. Next question is from Veronica Dubaiova with Citi.

Please go ahead. Hi. Good afternoon, Aron Thurgood and Thomas, and thank you for taking my questions. I also have three, please. My first one is just apologies. I'm going to push you because I think all of us are trying to understand, because you report only half yearly, just the degree of improvement that you're seeing in your momentum. If I look at your peers, if I look at the numbers we've seen out of GN, if I look at the numbers we've seen out of Demond, frankly, their growth rate second quarter to third quarter of the calendar year doesn't seem to change dramatically, yet you're telling us that your momentum is improving. I don't know, Arndt, if you're comfortable sharing sort of what the wholesale growth was in the second quarter of your fiscal year or maybe the run rate that you're seeing in October and November to date. It's just quite hard for us to see given the period, but I would appreciate some color and maybe just related to that. Where do you think those share gains are coming from, given that the GM and Demont growth rates still seem really robust at this point in time? My second question is on Costco and your desire and likelihood of returning into that channel in the foreseeable future and how those conversations are progressing. And then if I can, third one for Birgit on the free cash flow. Still, I think, thank you for the explanation in your prepared remarks on sort of the DSO dynamic. But given the fundamental strength in the retail business, which obviously has a much lower receivable and inventories requirement, I'm just a bit surprised by the working capital movements this half year. I'm curious if you can give us any insights into what your expectations are for the back half of the year and when should we see some improvement in the free cash flow generation in business. Thank you, guys.

Hi, Veronica. Thanks for the questions. So I'm not so comfortable with the quarterly growth rate because we don't publish that. I mean, I can say that out of the... So on this five largest markets, we move to winning share in four in the Q3 over Q2, and that does include the US. So it is interesting, obviously, to observe our competitors. Keep in mind that half of the universe you don't see, which is the WSA and the Starkey, I don't see either. but we need to keep in mind that there's also different participants. I think mechanically what we see is that we have a meaningful number of customers come back who have reduced their prices with us or went back to not purchasing for a period of time. So it's clear to me how that is linked to the improvement from a net promoter's perspective. Therefore, I think I know pretty well how we're doing with regard to that pickup and that this really has to come from somebody else, right? But it does come from different competitors, right? I can't tell you how they are doing amongst each other. I think from a Costco perspective, nothing has changed relative to when we were at Juha and what I am able and willing to share. I think we have said clearly They are a large customer. They're also having attractive growth and they have ultimately an attractive margin because it's a US based pricing. And as much as it's a wholesale, a large customer, it's still attractive from the profitability fall through. I think ultimately they don't like our technology and they like our capabilities, but we're not at a point where there's anything we would share beyond that. working capital side.

Yeah, so here Veronica, so it's also a bit based on the calculation, so it's actually the resources are calculated based on really one point in time, I mean the end of September, and then divided by the 12 months rolling. But if I look at prior year and I look at the pickup in sales, and it is both audiological care and HI, then there is a significant, I mean, if I compare the two periods, then it's almost the same. double the increase if I look at it so that's really where it's coming from and you're right if AC has a larger proportion then that helps us on the DSO but even including that impact that was the majority of the explanation actually

And thanks, Birgit. And would you expect the working capital to come down as we move into the back half of the year? I guess, do you have any guidance for what we should be thinking about in terms of DSOs for fiscal 24, year-end, or fiscal 25?

Yes, it is really one of our focus areas, and actually we're making some improvement, but not yet how... I'd like it to be, so it will further improve during the course of the second half. And if you look at our cash conversion, it's typically lower in general in the first half versus the second half. But that's just what we always have seen. So, yes, the expectation is that we see an improvement.

Great. And apologies, because your audio was slightly unclear at the beginning. You said... You don't want to give the quarterly growth rate, but you want share in four out of five geographies. Is that right?

Yeah, in four of the five largest countries. Oh, okay. Because I said earlier the U.S., and then I said I don't want to say more countries. So I was trying to go to, okay, if you take the five largest, in four we move from share loss towards the share winning.

Okay, brilliant. Thank you, guys.

You're welcome.

The next question is from Susanna Ludwig with Bernstein. Please go ahead.

Great. Good afternoon, and thanks for taking my questions. I have two, please. I guess first I just wanted to follow up on price a bit. Are you able to quantify what the impact of price versus volume was on both your wholesale and your retail business in H1, and then how we should think about it in H2? Two, particularly given it sounds like you're considering selective discounting in the wholesale business. And then second, just thinking about your next product launch, one of your competitors has now introduced an LE audio-enabled device. How are you guys thinking about the transition from made-for-all to LE audio? Is this something we could even see in the next cycle, or is this something more we could expect in the 2026 product cycle?

Susanna, thank you. On the AC, we're in a pretty steady progress on pricing. Call it low single digit every year. No drama, no issue. We're not going higher than that. We do get a little bit more money per customer because we start to have higher tie ratios from accessories. So you have a little bit of a higher growth in there coming from a broader product portfolio, really just another, I call it, 1% or 2% expansion per out-of-pocket from the customer, but call it low single-digit. On the hearing instruments, we were more in the mid-single-digit, given the price increases last year with a list price increase and the innovation price increase for Lumity. So that's going to move more predominantly on the being more thoughtful on some customers, but at the same time also the product not getting a lift anymore. That's going to be more in the clouded potentially negative low single digits. Hard to say exactly at the end, but when you're getting to the second half of your product cycle, you always have a little bit of an erosion relative to what you had before. That's on the pricing side. On the LE Audio, we are not too concerned about LE Audio, honestly speaking. I think if you look at what you get with made-for-all phone, It's almost all of the functionality of LE Audio or AuraCast, and it works for every end device. So yes, we have the chip technology to do LE Audio and AuraCast at the right time. We could hit these kind of timelines you're raising, but for us at the end is going to be the question, do we have a device which works for all phones And there's one functionality missing, which is not as important than direct connectivity and other things we have now with MFA. So I think people underestimate how long it will take until the majority of the end devices are ready. One of the concerns we would have today, connectivity is almost the biggest headache as a hearing care professional. because we spend a lot of time helping people to connect devices, and we hear that that's what they really don't like. We rather help them with the fitting of the hearing aid. But it's a lot of time drain, and so I don't think we're well advised to convert at a point of time in which it's a hit and miss, right? And we're not missing a lot of functionality. see us being in the good position that we can choose when we want it to be, but not something we think is required in a year or two years from now.

And is that, I guess, forward-looking in the sense that the next device will last people sort of four to five years, so you're thinking of sort of what the AuraCast rollout is across end devices and then sort of thinking a bit backwards in terms of, you know, when people are going to care about having it in their devices?

I would say the lift of AuraCast over MFA is marginal in functionality. So I would think that whoever buys the device wants to have their connectivity when they buy the device. And the somewhat incremental functionality is not that important in year three or four or five. There are ways, and we're now getting very technical, where you can enable it chip technology-wise, and then you may be in a position where you can change the mode. Not something we have shared, but technically, you're going to see us earlier to chip technologies in a hearing aid, but we still run the MFA. Okay, great. Thanks. That's very helpful.

You're welcome.

The next question comes from the line of David Adlington with JP Morgan. Please go ahead.

Hey, guys. Thanks for taking the questions. Most of them have been asked already, but maybe just it would be good to get your thoughts, Birgit, on any thoughts around the tax rates going forward, giving pillar two. And secondly, just on the balance sheet again, obviously above the top of your range in terms of net debt EBITDA, Just wondering how you might alter or slow down potential M&A with respect to just getting that back down within your range, or could you see a potential for changing that range? Thanks.

So I'll answer the last question first. So now we reconfirmed that that is our range, so one to one and a half times. And actually, as we progress through the second half of the year, we expect to be within that range, and that wouldn't be through slowing down M&A or bolt-on M&A. We keep on progressing as planned, actually, so that will be a natural evolution. Typically, we also have the dividend payments in the first half, so that's why you see the spike to the 1.8 times, but that should naturally come down. And then on the ethics, oh, I wish I would have some insights on where it is going. That would be good. But unfortunately, we can only rely on the data that we have today. And so here we say we keep on seeing like 6% to 7% on the top line and 12% to 14% on the bottom line. But it really is very volatile. And when you look at it from month to month, which we, of course, monitor closely, and you look at the end of the period, then end of period September, we thought, ah, this seems to be better for our mix. And then going then in October, it was again slightly worse. So just concluding that it's volatile. So that's the assumptions that we took at the moment. The question was text rated. Oh, tax rate. Oh, I thought exchange rate. Sorry, I didn't hear it well. So tax rate, sorry to answer another question then. So tax rate is 15% currently from 15.5% that we reported previously. And the improvement is actually due to a percent, a lowering of 1% in the Swiss cantonal tax rate. And that's what you then see at group level, basically. So that's it. And then tax rate going forward is your question. So for Switzerland, normally the 15% would normally be implemented beginning of january 2024 but there is still some decision spending in switzerland uh being taken on the 22nd of december so let's let's wait for that but um when it comes to effect for us would be fiscal year 24 25 and then we still have some leeway until 2029 because we also also still have um deferred tax assets. So there is still under the Swiss tax regime still some leeway until 2029. So it will not be a major shift for Sonova. Sorry to have answered the wrong question earlier. I didn't hear it well. No problem.

Thank you.

The next question is from Urs Gunz with Research Partners. Please go ahead.

Yes, hello. Thanks for taking my question. I have three, only short ones. First of all, you hinted, Birgit, that restructuring will be about $30 million for the whole year. Is that correct? And then the question is, do we have to expect some restructuring also for the following year? Then on the margin side for cochlear implants, that went down to 9.5% when you still have this promise of high teens margin in the medium term. Would you still go with that or do we only see that high margins when you bring new products while competitors are not bringing new products? And then the last short question on M&A. You said the 70 to 100 million a year that you would do in bolt-ons, you already have 60 in the first half. Can we read into that that we are on the higher end this year with M&A?

On the restructuring, on the 30 million. Keep in mind, some of that's not restructuring. It's integration cost on the high sound and still on the alpaca side where we're merging two equal size organizations. We don't foresee because there's not a larger acquisition. Also, we're somewhat higher given the Mexicali. So I would expect from everything I know at this point of time that we're meaningfully lower next year, if at all. From the margin on the CI, one good news in the P&L over the last two years is that you may remember we have R&D capitalization in CI, and we are meaningfully paying that back given the processor launch. So our margin in cash terms is actually better than the 9.5%. But most of the deviation this year, yes, there's lower volume, but there's also geomix. So I think 15% is still a good number. And I think we need to get back there. We were at that number for half a year, I think. It's not dependent on new product. I think we do grow this business. You see the processor now being a little bit of a headwind, but the system sales are coming up. That should drive the required volume there. On the M&A side, If we're at 60, I think it's fair to assume we're going to be at the higher end or slightly above because the bolt-ons come pretty much at a steady pace.

Okay, thanks a lot.

The next question is from Robert Davies with Morgan Stanley.

Please go ahead. Thanks for taking my questions. Most of them have been covered. I just had a couple left. Just first one was on anything you've kind of learned from some of the competitor product launches over the last year in terms of additions to your current platform. I'd just be curious, what are the key focus areas in terms of things you don't think you have at the moment that you would be potentially looking to add in future? And then the second one, who's just on some of the dynamics you mentioned in the copy of business around the new processor. Do you have any plans to kind of bring something similar to market at some point in terms of new processor or upgrade, or I guess just to kind of step the scene a little bit in terms of what's going on there? Thank you.

Thank you, Robert. On the key focus areas on product, I like or we like the elements of the Lumity product particularly if you look at connectivity, we would put ourselves as being ahead. I think we've introduced certain things like waterproof recently. That's still kind of unique to us. I think on the form factors, we now introduced the slim. I think we're good there. I think it is always a discussion with the next launch, how much can you elevate the speech performance, right? We do think we can do a very meaningful step next year, but that also does take time. It's not something you can easily accelerate. It depends on how you use the chip technology and significant work on algorithms, but also in validation and verification there. I think not to be sheer what timeline, but at some point of time, our ITE product needs to be improved because that's an area where we're not having the same size as other people, which holds us back in that important but smaller category. On the cochlear implant side, I think we launched two years ago. The product is still seen as very strong because it has the Marvel technology, which in cochlear implant territory is seen as very strong. We're now launching, as we speak, the remote care product. which is nicely attached to the made-for-all phone. Keep in mind, we're also the only one with made-for-all phone connectivity on the cochlear implant processors. So from that angle, we have a leg up there. I think the remote is more important in cochlear implants because people come far more often for adjustments, and secondarily, come from further away because the density of hearing care professionals is significantly lower, right? So we do see a lot of positive expectations for a remote. Nobody has remote today as a full remote. People can get some data out of their processor, but we are the first one who can really program the device from a distance, which, again, is the model technology and the made-for-all phone, and we can do it for all phones. So that's an important one right now going on in the CI business.

Understood. Thank you.

Thank you.

My first question is where do you see the main risks for this significant acceleration that's implied by your guidance for the second half? And then secondly, where do we stand in terms of profitability of your communications business and how has that developed? Thank you.

Hi, Falco. I think we're still sensitive on market, most importantly. And I think we had our surprises. That's why we call it a volatile environment. I think the improvements in the hearing instrument side where we need to see improvements from a net promoter are quite steady by now in the eyes of the customer, and they come every month a little bit better. I think on the audiological care side, you're more depending on how you can generate leads. And then if you look at the CI and CHB, they're not as big to the total picture. With regard to the communications business, we do not share profitability. So individual product lines, but in general, I think our communications business, particularly the Roger always has been a strong differentiator for our hearing instruments because it, so nicely connect. Secondarily, it's quite a profitable business. It's above the fleet average in its profitability.

Okay, thank you. You're welcome. The next question is from the line of Maja Pataki with Capital Channel. Please go ahead.

Hi, thanks for taking my question. I have two general ones and then a bit of a clarification. Arne, can you talk a bit about AC growth in the US in your press release and also in the presentation you highlighted that you had some solid unit growth in the European markets, but you didn't mention anything about the North American market. Is there anything to call out or was that in line with market? That's the first question. Second question, can you talk a bit about the profitability in the consumer markets I remember last year there were some positive profits coming through. Has that been impacted by growth this time around or are you making improvements on the profitability? And then just two clarification questions. I believe you said that you're expecting a negative ASP impact on wholesale in the second half of the year. Is that net-net, so a slight positive impact from a rollover of price increase and mix impact, but the impact from discounts or price concessions integrated? And then lastly, sorry, the line was really, really bad. Can you confirm, are you saying that you have been growing above market in Q2 in five major countries? Thank you.

On the AC growth, we're slower in Q1. In the U.S., we're picking up in Q2. It's part of the alpaca network where we have some, call it, voluntary attrition on the hearing care professionals. So that's why we highlighted Europe where we were stronger traveling than in the U.S. relative to market. The good news is we're getting more stability and seeing growth coming back. It's also an area where some of the marketing investments have to go. On the profitability CHB, I don't want to go into business unit reporting here. I think some puts and takes there in the P&L The lower volume makes it harder. I think at the same time, we've seen more on the true wireless in revenue in the first half year. It was a mixed headwind. We're making some progress in the improvements we're doing on the operations side there. On the ASP year over year, I think we did the price increases with the Lumity launch and in July, they are now annualized, right? We have not done other list price increases. And we talked about that in certain accounts, we're dialing it back. So you would expect that the ESP year over year is flying somewhat lower in the hearing instruments than last year at the same period. Hence, I was commenting on some year over year headwind on the pricing in that low single digit environment. On the growth side, I said we're moving quarter over quarter to winning share. That may not mean year over year yet because we had, including the contract, some losses over the 12 months. So what I was trying to express is that in four out of five of the largest regions where we track, we're seeing market share gains from the Q2 market share to the Q3 calendar market share number.

Got it. And maybe just the last one, if I may squeeze it in. You've mentioned that part of the investment, additional investment this year, sorry, are in investments in lead generation as you see good growth opportunities. What makes you confident that this is a temporary situation and not that the growth opportunities that you see will call for longer term or longer lasting investments into lead generation?

So I think we are learning as we're getting better and measuring those things. we have less advertising and promotion per revenue than what we had last year. We would expect that it, even with the increased investment, we would expect that it improves further if the consumer confidence in the total market, not just for hearing instruments improves, because at the end, the pressure comes from higher cost for the same ad. because more people are going after the space in the ad environment. We do see very low no-show rates, which was last year elevated. So we've seen a good improvement that people who have an appointment do show up. So it's in reality really supply demand in marketing spend relative to other people who wanna get the space. And I would believe if the regular retailer see more pick up of revenue ultimately they are not over driving marketing but we don't have evidence for that good news it's lower than last year but we had hope for a better improvement great thanks a lot you're welcome any closing remarks Arne no I would say We said everything. I think we are encouraged by the momentum we have in the hearing instruments business. We do definitively like the good performance of the audiological care site. We do expect a good pickup in growth first half versus second, not unexpected from how we thought the year will play out. There's certainly some volatility in the market, but as you can see also from what we shared today, We're making sure we provide the right investment level, even if that takes us to a place where the profitability goes down a little bit. Still want to see the margin expansion, but want to make sure we really do the right things from a top-line perspective.

Thank you very much, Arendt. Unfortunately, we couldn't take all the questions, so feel free to reach out to the investor relations team if you have any further questions. And with this, we end our call.

Ladies and gentlemen, the conference is now over. Thank you for participating in the conference. You may now disconnect your line. Goodbye.