Sonova Holding AG

Good afternoon here in lovely Stefan. Unfortunately, not the best weather, but hopefully enough to share on information. One welcome to the people on the call, on the dial-in. I'm here together with Matthias Dullmann, our interim CFO, to guide you through the presentation. You already had a chance to see, but I know more importantly to have enough time for Q&A at the end. Thomas will come up and explain the process on the Q&A when we get there. If we can move on to briefly the disclaimer, I hope everybody took note. Are you clicking or am I clicking? Look, this is not the first time I'm here, but I didn't check out where the clicker is. Standard disclaimer, please take note. Obviously, the fiscal year 2024-25... The last time we were able to share in that breadth and depth our numbers is exactly half a year ago. Lots have happened. And I'm very proud to present on everybody who works with us at Sunova the results of the last half year. Because when I look at it overall, I think it's A, good results, and B, it's a good tee-up into the next fiscal year. Although I think we all have taken note that there are some bumps in the world with regard to macroeconomics, but I think we're in a good position to handle those from a capability perspective, but also from an economical setup for the year. So on the highest level, when you look at the numbers, the way we have looked at them, we have been able to produce solid growth and particularly proud to see market share gains across all four businesses, which is... Holding market share gains at the places where we had them in the first half year and improving towards market share gains in two of the businesses where we weren't. Good growth on the hearing instrument side relative to the market. Audiological key and CH nicely picking up growth versus first half year. I'll unpack a little bit where that comes from. And our cochlear implants business particular, when you look on the system side, which is really the new patients choosing AB for life with a nice market share growth from the instrument side. Looking on the main driver on the product side, given the size of the business, continued strong response from customers to Infineon Sphere. Focus is obviously now more on how do you see that in the numbers versus what is KPI A, B, and C of a product launch. I'll have a couple of comments there. But we hear the continued strong feedback on the significant improvement in noisy environments. We have very positive feedback on the product overall. And I think it is the main reasons why we see in hearing instruments good growth rates. And it also contributed to the audiological care because it's easier for our retail colleagues to put the strong product like this in front of customers. I think there was a second big question mark in the room after the first half year, which was, are you able to step up your profitability so that you get for the year to good place? And some of you have rightfully poked around the number. We explained our logical bridge. Now it's easier to say we did. We have seen a step up in basis points first half to second and EBITDA adjusted by 600 basis points. That's higher than normal between first half, second half. And we were able to realize a 130 basis points in EBITDA margin year over year for the second half year. And I'll cover some of the elements as I go through the presentation. The second half indicated that we did not get a number when we came out of the first half year Having seen some revenue weakness, particularly in audiological care, having seen some areas in the optics in general where we didn't like the momentum in a negative way for the financials with too much optics growth, we have embarked on some structural changes, which ultimately you don't see in the numbers. except for the restructuring cost, because when you start them in Q3, they materialize or the actions mainly implemented Q4. So it just mathematically gives you a far better jump off point from the OPEX structure. So we share the 40 million because that's the number you should have in mind as that's what we have structurally taken out of the OPEX and sets us up for this year. We'll talk about it when we get the guidance. A point we dislike, but one we want to be open and frank about it, I started to talk first about it in early February, is the market in this Q4, our Q4, so January, February, March, has slowed down relative to what it was before. It was already slower than normal. at a 4% growth, but we've seen the global market go to two-ish, predominantly driven by the US. Again, we'll get there. Very important for us to continue to win market share in such an environment, very important for us to have the right cost structure so that we can deliver a good EBITDA growth, even if the market is weaker. And that's what you're seeing here. I think the sum of the parts, meaningful market share momentum, more to come through more product launches and more continued good execution and a relatively better cost structure. Ultimately, we look at this being a good setup for the year, hence our confidence in putting, I think, a good guidance forward. On the numbers you click through, highlight numbers here, 7.6% in local currency for the full year, EBITDA 7.4%. Again, significant change from first half to second. The product launches last year allow us to this year continue on the journey with that kind of technology. So expect some more product launches to happen this year. We will not go in more detail because we don't want to share too much with the outside world. And from an outlook perspective, 5% to 9% on the top line against a more muted market. So continuing market share gains in a meaningful way. Outlook for EBITDA is a complex one. I have a page later on. But if you want to think from your own kind of consensus thinking, you have to take the smaller number because we're making a change on how we want to adjust or de facto not adjust as much as we've done in the years before. So the like for like number is an 11 to 15 to be super blunt and transparent, which still I think is a good point. Margin expansion between 5 to 9 and 11 to 15. The rest indicates that we plan less restructuring in the upcoming year. Now, going into the individual businesses, it's always a little dangerous. We have so many slides that I can't voice everything over on every slide. Otherwise, you hear it three times. But cliff note version hearing instruments, 8.5% growth for the year. That was a 7 in the first half, is a 9.8 in the second. If you take in that we had a slower market in Q4, you see a good lift here, predominantly driven by Sphere and Infineo coming into the different markets. Keep in mind, it's not yet in the Veterans Affairs, at least in these numbers. It is starting off 1st of May, so it is a good guy for the new fiscal year. Audiological care, 8.1 in the second half at a decreasing organic, inorganic, so an increasing organic site. That is driven by the work we did with regard to being more focused and better on the lead generation. I have an extra page on that, but I think we're seeing consistently now a run rate in that order of magnitude over the last couple of months. So we feel good about the ability to deliver that. Consumer hearing. Market was negative in first half, slightly positive in second. There's other things happening, how we got to the double digit. I'll comment on that, but a nice return from a slightly negative into a double digit in the second half year. Cochlear implants a little slower, but that's predominantly coming out of the upgrade side. We have launched the Marvel processor four years ago, and we're getting to the end of that returns order, this upgrade cycle, and we're starting to get into negative territory. So this was all carried by system sales, which were up for the year 16.3%, which I think is a pretty strong number. Again, I will unpack a little bit. So hopefully clear from here, all businesses except for CI stepped up. Puts the eye keeping a very nice growth rate on the instrument side throughout the whole year. Going into the hearing instrument segment, probably interesting to look at the numbers. Growth side you have seen. If you look on the EBITDA, the second half year was 16.2%. increase in EBITDA versus prior year. So you see the lift, particularly in the hearing instruments in the audiological care site, given their size. You can see the different growth rates here. I think the only one which is an incremental information on the chart, the margin expansion here was 140 basis points versus prior year. Looking on hearing instruments, not so much new on the chart. Probably only, again, the numbers. I go to the product launch site. I don't want to go as specific as we do two months after launch because then we don't have financials. So we're trying to explain to you what we think. But at the end, I think the financials show the good progression of the hearing instruments business. On the consumer response, it continues to be at a very, very high rate with regard to the high satisfaction and the strong advocacy of the consumer. That number is pretty much in line with what we did see soon after the launch, so no degradation there. From a commercial success side, the only thing I want to share, not exact numbers, but if I look at units deals for Infineosphere, After eight months, this is a significantly higher number than all of the other three launches before, so it's larger than Lumity, Paradise, and Marvel. We always look at all three. The ASP lift is higher. And the first purchase rate, meaning how many customers at any point of time after the launch have started to buy the new product, is better than all other three launches before. So we've seen a faster pickup towards the Infineosphere technology than the Lumity, the Paradise, and the Marvel. Very positive customer satisfaction of the consumers. So we see continued positive helping us drive, no change in the run rates, no change in the customer feedback. Therefore, I think good platforms for the foreseeable future. Talked about the dynamic first to second half year on the top line. Talked about lead generation being a focus. I'll get to that on the next page. And on the structural improvements, I think there's more detail here when we talk about what did we do to get the growth side, particularly the same store, organic growth side into better shape. No magic. But good work of the team to focus the advertising spend and be more thoughtful that first, we don't drive it up in one month, drive it down in the other. In retail, you need a consistency. We would all agree to it, but you need to do this across 3,600 stores. So you need to have a good focus on that. We're pushing the envelope where we can generate leads and lead channels which are less costly than others. The most expensive is digital. You obviously need it if you don't get a lead otherwise, but we continue to work on getting more access to ENTs, to have more local events, bring people to the store. That's the main focus here, but I think with Oliver now in the lead since nine months, who's a new management board member for the business, who has 15 years with the company and knows the ropes, I see more systematic approach to doing this with a concept globally and then making sure every country follows the same logic on the lead generation side. The second big block for him was the structural cost improvements. Again, no magic, but we had opportunities to streamline and not so large, but still larger than needed team on the headquarters side. which they did pretty quickly. By the way, for the ones here in Stefa, we had an office in Steinhausen. We now moved the colleagues here. because that also gives more proximity, and perhaps it's okay to do that for the first five years of a new business unit, but by now we believe it's better to have more proximity between the AC business and the hearing instruments, but it also saves some money. We have in the countries, country organizations where the team went through and said, where can we make streamlining efforts? And then we went through and identified the stores where the volume was not sufficient to feed the store, but it was close enough to another store. So that's kind of the simple things we did ultimately led to a reduction of the OPEX run rate at 40 million. And we also had a more stable lead flow and a nicely growing lead flow, although still a lot of money spent on the leads. That is a consequence of the market dynamic right now. I think in a market where the market is not growing as much at the end, there's more people competing for the same leads. So Our best countermeasure is getting better and more efficient in the lead. Sometimes they go up if the market's going the wrong direction. Consumer hearing business, not so much news to report. I think the number helps from a return to a nice growth year, clearly driven by our what we call premium audio segment. There we have two main product categories. They make up 60% of the total revenue of consumer hearing business, one is the true wireless earbuds, the other one is the Bluetooth headband. We have a particular focus right now on the Bluetooth headband. That's because that market is more attractive. There is continued efforts going on in how we further improve the gross profit. It's not a thing we can do in a year. In some moments, this has something to do with supplier changes or we're insourcing repairs or whatever, but we're making good progress on that agenda. If it comes to Bluetooth headband, we haven't shared that as much, but our biggest revenue component is actually the Bluetooth headband segment. We have AudioFi, which makes up about 20% of our revenue, but this one here is larger than that. Our lead product is Momentum 4. It's been launched two years ago, a little bit further behind, even longer. It's still going very strongly based on its unique capabilities. One of them is sound quality. The other one is the battery life. What is helping us there is a significant change in purchasing behavior of consumers over the last three years. The true wireless segment has gone to flat or negative territory market, and more and more consumers are comfortable to run around with those for the whole day or on the street or whatever else. So this segment here has doubled as a market segment in the last three years. You can see that must have been 20% growth rate. Fortunately, we have a higher market share closer to our audiophile home base than True Wireless. We obviously do both. This is also a product where we have more gross profit than in the True Wireless segment, which is more commonplace. higher competitive intensity, if you want to call it that way. Launched the Momentum 4. We have adapted a strategy where we continuously refresh. You see even certain brandings or certain attachments to different characters which sell in certain markets really well. That's an easy way to get a little bit lift in a channel. We have also refreshed They lower the momentum for the two lower priced here. So that's how we're keeping the product alive until we come out with a new one. But this is a big, big help for this whole Bluetooth headband for cross-profit moves as well as growth. Cochlear implants said most of the words about it. You can see the numbers here. I would say particularly on the system sales side, 14.6 second half, 16.3 for the full year. That's a really good number. Keep in mind, we have not launched a new product. We introduced remote a year ago. That does help us. I would also say that customers are very comfortable by now with the quality of our product. Most of you will remember, unfortunately, three years ago, we had a few corrective actions. That is more and more out of the minds of the customers, which is really important. And you can see on the segment profitability, we were able to gain 180 basis points. I would say still opportunity, but it's a good number relative to the year before. One highlight I wanted to bring to consumer cochlear implants is not product. That wasn't a big thing changing. So how do you get to the number? One of the things is a continued good progress on the collaboration between our audiological key and our hearing instrument side. And that's the first time we share these numbers as broadly, I would say. But by now, and you can see a nice step up year over year. We get in North America, where we work closely, particularly with the hearing instruments colleagues, and where we have built a provider network, which ultimately are audiologists, independents, who, if a patient would benefit from a cochlear implant because the hearing aid isn't good enough anymore for the loss of performance of the ear. uh we collaborate with the independents and by now about 38 of all of the leads we need for implants come to us from a direct to consumer approach in the hearing instruments partners in germany where we have a big retail footprint by now 35 of all of the recipients who get implants from us do come out of our own retail a lot of work involved. You always think this is easy. Why don't you do that right away? Let me tell you, you need to spend still a lot of work where somebody needs to go through the database, you need to talk to the patient. Normally you have to talk to them more than once. So you need to find a way between the hearing care professional who wants to sell hearing aids and the help of advanced bionics coming to the store. And then also compliantly, every country has different regulations. So it takes a while to put an engine like this together. The team is working on this since many years, but we're getting more and more into a place where this becomes a more and more relevant part of the revenue we're able to capitalize on. And then I would say it's number two in retail as the number one in wholesale in the world. It's probably a strategic advantage for us. But this was clearly one of the reasons why we have so good systems growth. Remote was another one. But that was helping us and is well in place and will continue to be used. Briefly, ESG, you had a chance to read the material. It is very important to us. Therefore, there's a big report which some people in your organizations will take a deep look on. We make continued good progress on the ecological side. We're on track to the science-based targets we have committed to on the scope one, two, three emission targets. We're making good progress bringing more hearing care to people, and we have committed to certain numbers who are in middle-income countries. We're making good progress on the social side. You can see our rankings are very proud, but don't stand still on how positively we're seen relative to peer groups and medical device companies from an ESG perspective. With that, I want to invite Matthias up for the financial information, and then I'll come back for the guidance.

Thank you, Ant. So first of all, I'm very happy to be here. For those of you who don't know me, Matthias Dörmann, Interim CFO here at Sunova. So let's, after the good things Ant talked about, look a little bit more into detail into the figures. Let's start with some financial highlights. Ant already mentioned 7.6% growth in sales. In Swiss franc, 6.6%. So the ethics headwind was 1%, but well within our guidance. On profitability, strong pickup in the second half year, bringing us to 7.4%. Growth of EBITDA in local currency. And the growth in the second half was 16%. Earnings per share also increased to about 11%, and we also saw a strong cash flow improve compared to last year. Our net debt to EBITDA ratio is well within our target range with 1.2, significantly improved to last year, and we get to some balance sheet figures also later on. So let's start with the sales. I will not, or we'll try not to repeat everything on set. Overall strong sales results, 7.6%, growing in every businesses, picking up in the second half year, which you also see 6% growth in the first half year and an age to 9.2% growth and an ethics headwind of one percentage growth. And you also see from the 7.6%, 6.4 comes from organic growth. The gross margin, we have improved by 30 bps in local currency. And then we have a headwind from FX 0.2, so 20 bps. So in total, it's relatively stable with a slight improvement. There were some headwinds, there were some tailwinds. What were the headwinds? Some ASP pressure on older platforms. But there were also some tailwinds. For example, the lift of the ASP aren't already mentioned in the newer platform. improvement in reliability, bringing down the service costs, and obviously also some productivity gains, also driven by higher volumes in the second half. And also when you look here, the first half, second half, first half, we were at 71.9%, second half, 72.9%. Also here you see an improvement, and obviously we want to continue that positive trend. On the OPEX, we were growing 8.4% in OPEX. Obviously, that's larger than the sales. So we also mentioned that already. We had some targeted cost initiatives. We have some more structural cost initiatives. So we are bringing down the OPEX growth from above 10%. down to 6.2% in the second half. So there you see already a significant improvement, which is also on top of the accelerated sales in the second half, the other driver why the profitability has gone up in the second half significantly. You see the R&D relatively stable, also due to the fact that we have now concluded to develop two platforms. Sales and marketing going up by 9.6%, driven by more sales activities, by lead generation, by feet on the street, but also by acquisitions, obviously, in the audiological care business. And G&A up 11%, driven by higher IT investments, by some non-recurring benefits in the prior year, but also by rising labor costs around the world. EBITDA, we mentioned already 7.4% up. I think very relevant. I know it was an onslaught already, but if you look at the H1 compared to H2, H1, we had a margin of 18.2%. In H2, we are at 24%, so 580 bps improvement. And I think this is a very strong result in EBITDA in the second half, bringing us then to the 7.4% growth for the full year. 58 million adjustments. We will get to that later, but mainly driven by restructuring, which will bring us in a better position for next year, which is also helping us for the margin expansion you will see in our outlook. Here you see the adjustment. I think you're used to that slide. On the first two buckets, transaction integration, litigation, this is lower than last year. Seven and a half in transaction integration. This is mainly for the bolt-on acquisition, so to integrate them. Litigation, this is the Medell case in the cochlear implants. So I think there is no surprise. It's a little bit lower. Restructuring, this is higher than we originally communicated. We on purpose did that to bring us in a better position for the future. It's mainly driven in the audiological care business, but also to ramp up in production in Mexico, which will both help us and then some other structural improvements contributing to the 44 million. And then we have, again, the impact on the EPS on the tax reform. If you go on the cash flow side, our cash flow, operational free cash flow going up by 7.2% from 539 to 578, despite a 20 million headwind on ethics. Where does it come from? Improved, obviously, profit. Then less additional consumption of the working capital, despite having invested 10 million more in CapEx. So overall, I think also on the cash flow side, pretty good achievement. Let's look at some balance sheets, KPIs, DSO, unchanged, DPO improved. That's also contributing to the picture before. So we actively worked on payment terms with our vendors, with our suppliers, bringing the DPO up. On inventory, relatively stable, improved compared to September where we were at 180 days. Now we're at 175, but still three days more than a year ago. However, we also tactically and strategically use that to build up certain inventory in case of certain trade disruptions. Getting to a ROSI, which is improving by 30 bps. Also here we have about 50 bps of negative ethics headwinds. So without that, we would be more on the range of 80 bps improvement. And driven by a lower net debt, the leverage ratio going down to 1.2, well within the range where we want to be of 1 to 1.5. Let's look at total share and return strategy. You're very used to that slide, you know that. That's also a good sign. So we reconfirm our TSR strategy. I think that's good news. That's important for you. Let me still repeat it. First of all, we invest the money into acquisitions. We regularly do bold on acquisitions, 70 to 100 million per annum. Last year we did 77 million, but we are also able to do strategy and technology acquisitions whenever they arise. And secondly, we are paying an attractive dividend, about 40% payout ratio. We now propose for the last fiscal to increase the dividend to 440 compared to 430 last year. And then we want to have an healthy balance sheet. For us, this means a target net debt EBITDA ratio of 1 to 1.5. We are now well within that with 1.2. And then last but not least, obviously, we are investing in share buybacks. We just concluded a program 22 to 25. We don't foresee a share buyback in the first half of the year because, first of all, we will pay out the dividend in the first half, which will bring our leverage a little bit up. And then also due to the current market uncertainties, we will not foresee a share buyback in the first half years. With that, I hope I could give you some more insight into the financials. Handing over to Arndt to talk about the future. Thank you, Matthias.

So first one, nothing has changed on the strategy. It's the same chart. We go down the same pathway. I think as long as we're able to grow above market and produce on bottom line, we're probably on the right track. We also go through the process every year. in many different conversations, board management, deeper in your organization, we think that's the right direction. I will not voice over in detail. I want to get back to the slightly confusing changes in how we are guiding. And I want to be explicit. Some of the room have asked me over the last two years, why do you not get to a more simple model? in which you're not showing the restructuring all of the time as I'm surprised and you have to deduct it, right? So we understand the ask. And I think from a more conceptual level, I think we have learned in the last years two things. First, we find continued opportunity, particularly in a world where there's changes and you have to adjust your structure. Five years ago, we would have probably said we believe there's X and not a lot more, but we now have found continued things we can do and we also have the need to do them, partially because we need to change our footprint. and be more agile and be probably more regional, hence Mexico and other things. But at the same time, we also have a constant friend with a Swiss franc, which creates consistently some headaches for us. So in that regard, we're moving mentally to structural improvements are with us, sometimes a little lower, sometimes a little higher, but... Therefore, ultimately, you can argue, hey, as part of doing business and you need to factor this in and that's what we're doing here. But we're now getting to the transition, which needs to be explained. Go forward. We will talk about normalized and that's what we're guiding. And normalized includes things like integration after an acquisition, things we couldn't foresee at that point. It will include legal items and litigation, which is hard to predict. But everything we do on restructuring, we are having enough insight coming into the year that we can budget with it. Therefore, we budget for it and we include it in the normalized guidance and we give you an indication of it. Now, in the transition year, we obviously have adjusted. You have a consensus against adjusted and we have a guidance against adjusted and now we're changing. Therefore, this year is going to be a little bit more complex and you need to follow us. We're guiding on normalized. That includes a certain assumption, which is on the guidance sheet on how much restructuring we have factored in. But we're committed to the normalized guidance. And the restructuring we have to handle. So that's the transition here. I hope that's clear. Gets us the complexity on the next page. There's two EBITDA numbers. But see that as a. recognizing the reality that this is with us. I think that's fair in a changing environment in an FX which seems to be a consistent headache. Sometimes it's minus three, sometimes minus four. At the end, we as a company simply have to be more productive and driving more productivity. That's the answer I can give to FX. With that, I come to the guidance side. I'm sure people have reread the material. We don't have a crystal ball on market, but we need a basis for the guidance. So how did we get to how we think about market as an underlying for the budget and the top line build up? Very simple. We did two things. And this is our best estimate for the year. And there's lots of things which are happening from consumer confidence, people introducing tariffs and whatever else happens in life. But the last quarter, Globally was a little bit lower than 2% driven by the US being lower. Secondarily, when we looked at 2021 and we looked very carefully in the curves, we had a compression down to 1 to 3 for a period and then it bounced back. In 2021, it's very hard to say what is a comparable, but at least have a comparable 2021. People did see higher inflation. That's what consumers expect right now. It's not there, but they're expecting it. So that may have an impact. And there was concerns on GDP and others. That was about the number at that time at the low point. Our market has not gone down 2021 more than that. But we said the right approach for our guidance is we assume one, two, three. It's a likely outcome. It's not the only. You could be better. You could be worse. But that's the underpinning of this guidance. From there, you can look to the top line on the basis of that market growth. And by the way, in consumer hearing business, we assume a little bit less positive market because consumer confidence in the younger population is a little bit more heavy on the consumer devices. With that in mind, we have a guidance from 5% to 9%. That's obviously what is our guidance. But you can see that we do expect a meaningful market share growth for the full year. Where is that coming from? We have good lift still in Ingeniosphere. Keep in mind that only came to the market, let's say, at midpoint last year. So first half year, I have a good guy there. There's good news on the Veterans Affairs where the contract has been renewed. We have opportunities with new launches. I will not share details, but with new launches in the summer. And we do believe that the improvements we made on the audiological clear side particularly are sustainable from a lead generation perspective. With that, we are confident in the market share gain we're indicating here. Wanted to be explicit on the normalization. Excluding restructuring, we're normally in the 10 to 15 million. Just assumed that in the numbers. And then we have mentally baked in 25 million restructuring costs stepping down from 44. But there's still opportunities for chasing an AC in another place. We still need to finish some stuff. So that's just the planning assumption. I think in the order of magnitude is the right number. So that then leads to the guidance on the EBITDA in the adjusted to being 11 to 15, if we would adjust out restructuring in last year and this year. If we don't adjust for the restructuring, it would be a 14 to 18, obviously benefiting, and that's where the delta comes from that the restructuring causes stepping down. But you can see that even for the adjusted over the like for like, you have a good margin expansion on the EBITDA. We're confident in that because of the work we've done on the cost structure. But that's where our head is from a guidance perspective. With that, I think Thomas is going to help us on guiding through how we get to Q&A. And I'll ask Matthias to join me.