Sonova Holding AG

Ladies and gentlemen, welcome to the Sonova half-year results 2025-2026 conference call and live webcast. I am Matilde, the course call operator. I would like to remind you that all participants will be in listen-only mode 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 star and 1 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's my pleasure to hand over to Thomas Bernhaskröter, Senior Director, Investor Relations. Please go ahead, sir.

Yes, welcome everyone to our half-year 2025-26 results presentation. The slides for this call are available on our website. With me in the room are Eric Bernhardt, CEO, and Elodie Carr, CFO of Sunova. During the call, Eric will take you through the performance across our four businesses and give you a quick recap of all the new innovations we recently presented at the Juha Congress in Germany. He will then hand over to Elodie, who will take you through the financials in more detail and present the outlook for the current financial year. We will then move to Q&A, where those of you who have dialed in over the phone have an opportunity to ask questions. Before we dive into the presentation, please take note of the disclaimer. In short, this presentation contains forward-looking statements and serves for marketing purposes. It constitutes neither an offer to sell nor a solicitation to buy any securities. And with this, I pass the word on to Eric Bernal.

Thank you very much, Thomas, and a warm welcome also from my side. And let's start the business review with the key highlights of The first half, a strong performance in our two larger businesses, Shearing Instruments and Audiological Care resulted in a combined sales growth of 7% in local currencies in the first half. And this is around twice the estimated market growth and resulted in significant market share gains. Growth in the SI business was driven by the success of the Phonak Infineo and Infineo Sphere platforms that we launched in August 2024. The SC business benefited from continued investments in targeted lead generation, resulting in above market growth. On the other hand, our two smaller businesses, Consumer Hearing and Cochlear Implants, both faced headwinds. The consumer hearing business struggled with weak markets and the lack of significant product launches. In the cochlear implants business, robust growth in system sales outside of China was offset by disruptions stemming from the introduction of volume-based procurement in China, so-called VDP, and lower upgrade sales. In terms of profitability, we have made significant progress. The strong growth resulted in substantial operating leverage and margin expansion in local currencies. Unfortunately, the strength of the Swiss franc continues to be a major headwind. Looking ahead, we are excited about our latest recent launches and we are confident that they will contribute to a continued positive momentum in the second half. and I'll talk more about the new products a bit later. In summary, we remain confident for the remainder of the year and maintain our outlook for the full year 2025-26. Before we move to the group highlights, I'd like to address the changes to the organizational structure we announced in conjunction with our half-year results. As outlined in the release, We will retire the current business unit structure for hearing instruments and audiological care, shifting to a four-region model to strengthen customer proximity and regional responsiveness. It's all about customer centricity. And the heads of the four regions will report directly to me. Cochlear implants and consumer hearing will remain distinct entities. Now, looking at the highlights for the group, sales reached 1.8 billion Swiss francs at 4.9% in local currencies. Normalized EBITDA reached a solid 316 million, up 16% in local currencies, which translates into a strong margin expansion of 180 basis points, again, in local currencies. And we confirm our outlook for the 25-26 financial year, targeting 5-9% growth in sales and 14-18% growth in normalized EBITDA, both measured at constant exchange rate. Last but not least, we further built on our innovation and AI leadership with the recent launch of Ultra and entered the growing segments of IT rechargeable hearings with Vietor, which so far is receiving a very strong market response. And I'll provide more details on this later. Let's take a closer look at the hearing instruments segment now. Total segment sales were up 5.7% in local currencies to 1.7 billion. This was largely driven by organic growth, while acquisitions contributed around 40 basis points. The key driver was the impressive growth of 7% in combined sales in our HI and AC business. Based on market statistics and recent competitor results, we estimate that this represents around twice the market growth. This strong development clearly demonstrates that our innovative portfolio helps to drive growth not just in our HI business, but also supports the momentum in AC or retail. On the other hand, growth in the segments was dampened somewhat by lower sales in the consumer hearing business. Normalized EBITDA rose by 16.9% in local currencies to 305 million, and this corresponds to a margin of 18.1%, representing a strong margin increase of 190 basis points in local currency. You will hear more details about the drivers for margin development later from Elodie, our group CFO. Let's move on to the individual businesses, starting with steering instruments. Building on the momentum from the second half of last year, sales increased 7.9% in local currencies, to 880 million, with positive contributions from both Voluum and ASP. Growth was driven by the ongoing success of the Phonak Infineo and Infineo Sphere platforms. And our innovation leadership can clearly be seen in the V8 channel, where Infineo Sphere sales alone are about 35% higher than the hearing head sales of our largest competitors across the entire portfolio. Although this rechargeable IT had only a limited initial impact, as it was launched towards the end of the first half, it contributed to growth in the period's final weeks, reflected a very positive market reception. Growth was further supported by expanding commercial relationships with large US customers. I am truly convinced that Vietor, together with the recently launched Infinio Ultra and Infinio Ultra Sphere, will contribute to continued momentum in the second half. Let's have a look a bit more in details at these latest innovations. So what you see here, it's an overview of our latest innovations launched in the past months and presented during the UHA Congress in Germany. In August, Phonak introduced Vieto-R Infineo, the company's first rechargeable in-the-ear device. By combining Infineo's speech performance with a compact custom-made design, And universal connectivity, it no longer requires trade-offs from consumers in terms of performance, size, or connectivity. It blends the look and feel of a traditional hearing aid with the styling of a modern consumer earbud, and it has received a very strong initial market response. And this device positions Sonova to capitalize on rising demand in this 400 million Swiss franc market segment where we previously had no presence. A detail, more than 20% of our sales are in black. So people choose the black color. It means that this product is tackling the stigma. People are proud to show it. And that's the shift from what we've seen before. And then just over a year after the launch of Infineo and Infineo Sphere, we introduced Infineo Ultra, expanding our innovation and AI leadership. And in a benchmark study, Infineo Ultra outperformed competitors in the most challenging listening environment, speech in loud noise. And this is even without taking advantage of the unique speech clarity functionality of Sphere, which uses the power of our proprietary DeepSonic chip that mimics the human brain to extract and enhance voices instantly from all directions. Here, thanks to the continuous training of the Deep Neural Network, we improve efficiency by 30%, which means that with Infineo Ultra Sphere, now this powerful feature can be used all day and not just three hours. Vietto R, Infineo Ultra and Infineo Ultra Sphere all run the AI-trained AutoSense OS 7.0 operating system for better automatic adaptation to different listening environments. and offer a simplified one-step pairing process with phones and other Bluetooth devices. Our innovation extends beyond devices. We also introduced the patented EasyGuard Wax Management System, which helps protect the receiver with a sound-transmitting membrane, simplifying cleaning and reducing service visits by up to 38%. That may not sound as exciting as talking about AI, but this solution removes a very significant pinpoint from both the FCP and the user. So as you can see, we continue to innovate with a high cadence, and we expect these launches to be a key contributor to growth in the second half. Moving on to our audiological care business, sales reached 707 million, up 5.8% in local currencies, clearly outpacing the estimated market growth. And this was largely driven by organic growth. The contribution from acquisitions, including the full year effect of prior year acquisitions, was around 1% and somewhat lower than in past periods. The strongest contributions came from Bolton acquisitions in Germany, France, Canada, and Australia. Our recent product launches, as mentioned before, were a major driver of healthy growth. And in addition, the business benefited from consistent and targeted lead generation. You may remember that when we published our full year results, We also discussed structural cost initiatives, including the streamlining of global and local headquarter functions and the optimization of our store network. The savings from these initiatives clearly materialized, delivering strong operating leverage and providing flexibility to reinvest in growth. Then a brief word on our consumer sharing business. Sales were held back by continued weak consumer demand across key geographies and the lack of major product launches in the first half. As a reminder, last year, we introduced the momentum through wireless for earbuds, which were a significant growth contributor. In summary, sales declined by about 12% in local currencies to $97 million. To address the growth challenge, we are sharpening our focus, concentrating on categories where we have a natural right to play, which includes audiophile and premium headphones and soundbars. One good example of this is the October launch of the HDB630, our first wireless audiophile headphones. great reviews, you can find them online. They deliver high-resolution digital audio with or without cable and 60-hour battery life on a single charge. This means that consumers no longer have to compromise between high-fidelity sound and wireless convenience. While it's early days, consumer and expert reviews really have been positive. I strongly recommend you look online and you'll see it's really great. Sennheiser remains the market leader in audiophile headphones with an approximate 22% share and this category accounts for around a quarter of our consumer hearing sales. So promising beginnings for the HDB630. Moving on to the cochlear implant segment. Sales totaled 132 million. down 5% in local currencies. The development was hampered by tariffs and uncertainties around the introduction of volume-based procurement, so-called VBP, in China. However, excluding China, sales were up 3% in local currencies. We had solid momentum in system sales in developed markets, supported by very strong commercial execution and improved D2C lead generation through our HI and AC businesses. As a result, system sales were up 7% in local currencies excluding China, but declined by 6% overall due to the previously mentioned headwinds in China. Upgrade sales, modestly down by 1.5% in local currencies. Expected, as we have previously flagged, that during this financial year, we expect continued pressure ahead of the next processor launch, as many recipients have already adopted the Marvel technology, which was introduced in 2021. Normalized IPTA reached 11 million, representing a margin of 8.2%, and this was fairly stable versus low. prior year period supported by strict cost control and benefits from the weaker US dollar helping to offset the negative operating leverage in the second. And with that, let me head over to our CFO Elodie Carr who will provide more details on the financials and the outlook and I will of course come back for the Q&A. Thank you very much. Elodie.

Thank you, Eric, and also a warm welcome from my side to everyone on the call. So let's take a closer look at the financials, and starting with the sales development. Eric has already discussed the growth dynamic by business, so I'm going to focus on regional performance. I'm pleased to report that all regions achieved solid positive growth in the first half. Space in the EMEA region was 4.5% in local currencies. This was driven by success of new products and a limited contribution from Bolton acquisitions in Germany and France. Growth in the hearing aid market was . Growth was further supported by expanded commercial relationships with major customers and positive growth in the VA. The Americas region, excluding the United States, rose 4.3% in local currencies, with solid growth across our hearing instrument segment. Standout countries were Canada and Brazil. States in the APAC region grew 0.5% in local currencies, As mentioned by Eric, CI sales in China were held back by the VBP introduction. However, our hearing instruments and audiological care business posted double-digit growth in China and solid gains in Australia and Japan. Excluding CI, APAC grew by 4.7% in local currencies. As you know, Sonova generates almost all of its revenue in currencies other than the Swiss franc. With a strong appreciation of the Swiss franc against all major currencies, and in particular the US dollar, reported sales were reduced by 107 million Swiss franc or 5.8% due to FX translation. Now, let's look at our gross profit margin development. In local currencies, the gross profit margin fell by 80 basis points. Higher volume and ESPs in the HI and AC businesses had a positive impact on our gross profit margin. In H1, we incurred temporary costs related to regionalizing our manufacturing and logistic footprint as we further ramped up activities in our plant in Mexico and in our distribution center in Germany. In addition, lower operating leverage in our consumer here in business contributed negatively to the development. Here, the FX impact on gross margin was 40 basis points. We have a better balance between US dollar revenue and cost due to regionalized production and sourcing, moderating some of the impacts of currency. Moving on to operating expenses. Normalized operating expenses declined by 0.2% in local currency, despite strong sales growth, and that resulted in significant operating leverage. R&D expenses were up 2.4% as we continued to invest in innovation to advance our product portfolio. You heard from Eric about the results of these efforts with the launches in recent months. Sales and marketing expenses were effectively stable in local currencies. Launch investments were lower as we had our big Infineon sphere, Infineon launches in the prior year period. On the other hand, we continued to invest in growth through ongoing lead generation efforts in the audiological care business. G&A expenses declined by 2.7% in local currencies through disciplined cost control and also the benefit from last year's structural cost initiatives. Whilst FX reduced operating expenses in Swiss francs by 3.8%, the impact was less pronounced than on sales, as key functions such as R&D and headquarters are largely located in Switzerland. So, when we bring it all together, let's look now at EBITDA components, looking from left to right. In local currencies, normalized EBITDA rose by 180 basis points, or 16% year-over-year, driven by operational improvements in our two largest businesses, hearing instruments, and audiological care. Acquisitions had no material impact. Normalization totaled 29 million, mainly related to legal costs from patent litigation fees and settlement. As you may remember, we incurred significant legal costs in recent years related to a patent dispute in the cochlear implant business and were temporarily prevented from selling some parts in Germany back in 2022. With this settlement, pending litigation in all jurisdictions worldwide is now resolved. Moving on to FX, I talked about the translation impact on sales, gross profit, and operating costs already. And in sum, adverse currency developments reduce the reported EBITDA margin by 150 basis points. Let me now quickly summarize the key P&L figures. Sonora delivers strong profitability growth in local currencies across all metrics. All regions contribute to higher sales. And all in all, normalized EBITDA grew 16% in local currencies. Moving on to normalized EPS, we achieved a strong growth of 20% in local currencies, including FX movement. This resulted in a stable EPS versus the prior year period in Swiss franc. Now, a note on our cash flow. Cash flow from operating activities was 12%. primarily driven by lower cash outflows from changes in working capital, with positive effects from lower receivables and inventories, partly offset by lower payables. Moving on to operating free cash flow, the lower capex was more than offset by net investments in financial assets, which is related to financial equity investment. During the first six months of the year, Sonova spent 31 million on M&A, reflecting continued bolt-on acquisitions in our audiological care business, mainly in Germany, in Canada, and in the U.S. In summary, this resulted in a free cash flow of $38 million. The cash outflow that you see from financing mainly reflects dividend payments as well as repayments of lease liabilities, and that was partly offset by new financing arrangements. In October, after the balance sheet date, Sonova repaid a 200 million Swiss franc bond and issued a new fixed rate bond of 150 million with an attractive coupon of 0.92% and a maturity of eight years. Now, let's look at our balance sheet, which remains strong. Day of sales outstanding and days of inventory outstanding improved versus a year ago and versus March 2025. This is a good development, reflecting better receivable collection, and was achieved despite some inventory built up to mitigate impacts from trade disruptions. Day payables outstanding remains largely stable. Overall, we saw an improvement in the returns on capital employed, which was to 17.5%, and this is entirely driven by the higher profitability over the past 12 months. The leverage measured net debt to EBITDA reached 1.5 times, down from 1.8 a year ago, but up from 1.2 at the end of the last fiscal year. And with this, let me move to the outlook. So let's look at our outlook for the year and I will start with our assumptions going into the second half. First of all, while markets remain volatile, we continue to expect overall market growth of 1 to 3% in line with what we saw in the first half and reflecting weaker demand from macroeconomic uncertainties and tariffs. Please note that this outlook assumes no significant additional tariffs or other major disruptions beyond those already known at the time of this publication. Normalizations are expected to be in the range of 30 to 35 million for the full year. And based on end-October exchange rates and looking at a full year, 2025-26, adverse currency developments are expected to reduce phase growth in Swiss francs by about 6% each point and normalize EBITDA growth in Swiss francs by 13 to 14 percentage points. So coming to the outlook for the year, with the launches outlined by Eric, including Virtual, Infineo Ultra and Infineo Ultrasphere, we expect to maintain good sales momentum in our hearing instrument business, building on the momentum we had in the first half. Coupled with continued growth in audiological care, and an expected sequential improvement in consumer hearing and cochlear implants, we reiterate our outlook and continue to guide for sales growth of 5% to 9% and normalized EBITDA growth of 14% to 18%, both at constant exchange rates. So with this, Eric and I are happy to answer your questions. Operator, can you please open the line for the Q&A?

We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and 1 on their touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only handsets while asking a question. Anyone who has a question or a comment may press star and 1 at this time. The first question comes from the line of Hassan Al-Waqin from Barclays. Please go ahead.

Good afternoon. Thank you for taking my questions. A couple, please. Firstly, if I can ask on the guidance and your confidence around the acceleration in the second half, particularly on the top line amidst broader market uncertainty, do you view the lower end of the range more likely and what are your key assumptions for the top end? And then secondly on Costco, can you talk about your share here given you had expected to get to 25% pretty quickly and had recently mentioned that you didn't think you were quite there. Is that still the base case despite a trial of a potential new entrant into the channel? Thank you.

Thank you, Hassan. So Eric, I will take the second question first. As a general principle, We do not comment on specific customers, but if we talk about a very large account in the US, we have reached a reasonable share, stable, and we believe we have solid plans that we are designing together with this customer. I think what you may see is that now five players are invited at the table. I won't comment any further about what will happen next. I'd say that it was great for Sonova to be back at the table of this large account in the U.S., and things are progressing nicely.

So I will take the question on the guidance. Hello, Hassan. So as you will have seen, in the first half we grew 4.9%. in terms of revenue growth and in hearing instruments and audiological care combined was a growth of 70%. We do expect to benefit from the recent launches of Infineon Ultra, Infineon Ultra Sphere, and as well the entry into a growing new market segment with VR2R successfully introduced in the month of August. And so building on this innovation leadership, We have reiterated our guidance for the year 2025-2026, which remains at 5% to 9%.

And I could add to give more colors about the potential impact of Viettopar over time. It's a segment valued at roughly 400 million Swiss francs. If we reach our natural share of 25% to do the math, it could be an additional 100 million Swiss francs of revenue over time. It's starting very well. We've launched in Levier a few weeks back. The numbers are very promising as an example, but great numbers as well in general in all of the markets where we've launched it. And I won't give the specifics, but wherever we've launched it, it's extremely well received.

That's really helpful. If I could just follow up on the North America strength, 7.4% constant currency growth. How much of that was down to Costco and the VA price uplift piece?

So we won't be as granular as you'd love us to be, but they had a significant share or contribution to this growth. But in general, we've done well in the U.S., also in other large accounts. but the innovations launched a year ago were very well received. So the U.S. market has been very favorable for us, also beyond these large accounts.

I thought I'd try. Thank you very much.

The next question comes from the line of Angela Butinovich from BNP Paribas Exxon. Please go ahead.

Good afternoon and thank you for taking my question. The first one may be on the VA. Eric, last month at the EUHA conference, you mentioned that you have had some difficulties in the channel up until November. Can you please elaborate what these difficulties were and if it was just specific for the VA and how confident are you that these are behind us? And the second one, just on the market share and the products, and maybe it's also a follow-up on Hasan's question earlier, but your outlook assumes significant market share gains in H2. Can you comment if you're seeing any kind of slowdown in the market share gains in the last two or three months? And when we look at Ultra, because it's just a platform upgrade, it's not a new product. Can you walk us through your assumptions of market share gains versus Sphere? Thank you so much.

So I'll start by trying to answer the second question, which is rather complex. No, we haven't seen a slowdown in market share gains. We have kept getting here quite across the globe. If you look at the last three to six months, we gained share in the U.S., We covered that just a minute ago. In Germany, in France, we have less precise data in China, but we know that in HCI as well, our development in China has been very strong. So I think there's very, very good momentum. I'm a bit sorry to hear you describing Ultra as just a small improvement. And let me reflect on that. When Sphere was launched, and it will, by the way, be a good segue to the question you asked about the VA. When Insinu and Sphere were launched back in August 2024, and by the way, I was not in charge of the company, so I'm reflecting on this as an observer, the choice was made to bring to market a product that was not perfect. but it was a product ahead. Ahead because the only one with a dedicated AI chip leading to a much better sound performance, especially when you want to listen to conversation in noise. And even with a product for Sphere that is 20 to 25% bigger than others, it's been selling very well. And this is almost the proof in the pudding, if I can be a bit simple here, that the sound is significantly better. When the product was launched, there were some imperfections. One of them was related to a component called the receiver. The problem is completely solved now, completely solved and for a while. But in the VA, where intensity in a clinic is much higher than at an independent, speed is important. This generated some challenges. And this is what I was alluding to when we were together in Germany. All of this is behind us. And so we are very confident that with all of this being addressed and with Ultra being what? It's a sphere that works all day long, not just three hours, that connects perfectly. It's a bit more than just a platform upgrade because it just keeps increasing the gap with all the other competitors. And what we've seen is some resistance sometimes because of the size of the device. But what we see now is that the word of mouth, when people try it, we sell more and more of the sphere. So Ultra is a significant improvement in many ways. I believe I've addressed both the question of the VA and why we are confident about why we will keep getting here over the last few weeks and few months.

Yeah, that's very clear. Thank you.

Thank you. And, you know, I could add to this that really, really, talking about AI is certainly more exciting than talking about wax. Path. EasyGuard really addresses one of the the worst 10 points that both the HCP and the user have been facing historically. And this is a door opener for our sales teams, and this is going to help us enter new accounts. I'm sure it's a great entry point, and it really addresses a significant pain point, which, by the way, we are able to monetize.

We now have a question from the line of Veronica Dubajova from Citi. Please go ahead.

Hi, good afternoon, Eric and Elodie and Thomas. Thank you for taking my questions. I will keep it to two, please. One, I just want to understand sort of your, I know this question has been asked by Hassan, but I kind of want to decompose it maybe a little bit. I think if I look at the sort of 8% growth that you did in the first half of the year and In wholesale, there's about two and a half points in there from the BA. You don't want to comment on the large customer, but let's assume for argument's sake that that's kind of one to 200 basis points, which is, I think, what your ambition was at the time of the guidance. What that leaves the wholesale business growing at excluding that is an above-market number, but not a meaningfully above-market number. It's sort of a 4% growth rate against a market growing at 2%. I guess, are you satisfied with that momentum when you think about it, excluding those two big tailwinds that you've had? And as you fast forward to the back half of the year, what do you think that number could look like given the things that you're launching with Roto and the ultra upgrade? So that would be my first question. The second question is a little bit of a financial one around the gross margin. Pretty meaningful compression there. Obviously, I appreciate that. ethics played a role there, but Elodie, I don't know if you have any guidance for the back half of the year and whether there's anything you can do to improve the profitability in the short term, or is this kind of the new normal given the changes you have made to the manufacturing footprint more fundamentally? Thank you so much.

Elodie, thank you. So, I will take the first question. So, yes, we're happy because I've got numbers that I cannot share in details in front of me, but it's clear. that beyond the VA, beyond a large account in the US, we have gained share very nicely in France, in Germany, in Canada, and in US commercial in general. So it's been a very, very solid past quarter and first half as far as getting shares are concerned. And again, we are confident that B2R, Ultra, and no longer any issues around the receiver like the ones we experienced after the launch back in 2024 of Infineon, this is gone. So we are confident that in the HR space, we're going to keep growing very, very nicely.

And I will take the question on the financials. Hi, Veronica. So you were asking on the gross profit side and generally on the margin side regarding the second half outlook and what the expectations are there. So from this perspective, I would say three different impacts. One is obviously operating leverage. That really comes from the revenue growth and that should, as you've seen in the first half, was also a positive element there. So we expect that also to continue in the second half. Second is the cost improvements that we have seen in the first half coming from the initiatives that were taken, structural initiatives that were taken in previous year. So obviously these will also continue in the second half. And then last but not least, as I explained, we talk about some temporary costs relating to some regionalization of some of our manufacturing footprints with the ramp up in Mexico and the ramp up of the distribution center. and the expectation there is that this should also drive further improvements in the second half.

The next question comes from the line of Oliver Metzger from Otto BHS. Please go ahead.

Good afternoon. Thanks for taking my questions. The first one is, a little more general about the hearing aid market, and this has obviously also some impact on your guidance. So you assumed a continuation of a 1 to 3% market growth, which is still, compared to what we have seen, a more muted, a continuation of a more muted development. So history has shown, and Eric, you are for multiple years in the hearing aid industry, so that's Normally weaknesses are more of a temporary nature and I completely understand why your guidance is set and your market assumption are very are. But what do you think about, we're talking about six months for the second half, when do you think that we might see also growth in hearing a market back to the north of free towards the 4% level? That would be great to hear. The second question is about your cochlear implant business. So even excluding China, it's not doing well. And it would be great to have your view. What has changed over the years? So we saw it was growing steadily over multiple years. Have been there any changes in reimbursements, less willingness of copayments, or what do you see behind this structure slowdown? see now for quite a while. Thank you.

All right. Thank you, Oliver. So I will start with the second question of your implant. As you know, you have two types of revenues, systems and upgrades. And if we are fully transparent, our latest innovation was brought to market in 2021. So we are slow to innovate versus our competition. In 2026, we will come to market with a great innovation that will allow us to sell not only systems but also upgrades that will be very relevant. By the way, a change that we have put in place in our organization is to have one head of rnd supervising both what was called hi and what is called ci the speed at which what is developed for healing heads gets into our implants is not satisfactory for me discovering solova from the inside and this explains most of the weakness behind the numbers but I will repeat that if you put aside China not having anything new to offer to still grow at 3% is the testimony that from a commercial standpoint the team are doing a great job and this is something that we will keep in the future but they expect us sometime in 2016 to come up with a brand new solution that will allow us to get back into growing both systems and upgrades. And by the way, by then we will have absorbed the bumps and the challenges coming from the VBP deployments in China. So I'm positive about what we will see from from the cochlear implant business unit sometime later in 2026. About the markets, and I'm sure you've heard that from other players, we cannot neglect the impact of, in Europe, inflation, only tariffs. and the impact of the volatility of financial markets for retirees in the U.S. for its 401K plans and so on and so forth. So what we think is that people have waited and that at some point we're going to see the markets bouncing back. The question is when. Is this going to be towards the end of 2026 or second half of 2026? I'm talking kind of the year. Is this going to be early 2027? That I honestly don't know. So we are working with the assumption that the market activities for the next six months will keep growing at around 3%. And by the way, one has to be careful behind the 3% because France, was a very large contributor of the global growth and is a bit of an outlier, growing at a much faster pace. So we are conservative as far as the market growth is concerned. And I will repeat what we've described. Leveraging our innovations, we expect to grow at a faster pace in DHI segments.

Okay, great. Thank you.

We now have a question from the line of Urs Kunz from Research Partners. Please go ahead.

Good afternoon. I have one question, again, about cochlear implants business. And where do you take your positive expectations of having a better age rule there? When you were hinting at new products in 2026, I guess that's a new process. Is there more than a new process that we can expect? But even then, this would have no impact, I guess, in the current fiscal year yet. Correct.

It will have no impact in the current fiscal year. That's going to come next fiscal year. Absolutely.

And where do you take then the positive expectations of having a better H2 in the cochlear implants business?

I don't think I mentioned that. Maybe I wasn't clear. That's not what I suggested. What I explained is that when we come to market, with a new processor, then we will see a different pattern in our growth, and that will come sometime in the next fiscal year. Sorry if I wasn't clear.

But the problems in China, do you think that should be something that we can expect to be better in the H2, or is that also something that we have to keep in consideration?

Yeah, I'm hopeful that towards the end of H2, we will see a normalization of our business in China, but there's still a bit of work to be done in that space.

Then my second question would be on share buybacks. I see that NetApp APTA level is at 1.5 now. which would allow at some point relatively soon to come back on that question. Is there anything to mention from your side?

So we are, in fact, at 1.5 net debt EBITDA, as you mentioned. Our capital allocation strategy, as discussed in May, is still relevant, and we are not considering a share buyback at this point in time.

Then next question, short question about acquisitions that were on a really low level in H1. Do we have to expect that there will not be a lot more in H2 or did you already do something that you can say H2 should be a bigger impact?

So in line with the capital allocation strategy, we do expect an envelope for what we call bolt-on acquisitions. So basically in the audiological care business. So there was about 31 million in the first half. We do expect to ramp that up in the second half, but to come in line with your whole envelope that we have previously talked about for the year.

Okay. Then my last question on this new organization structure that you start to implement now. I guess there's no significant restructuring cost involved, is there? Because otherwise, I guess you couldn't stick to your normalized EBITDA guidance.

Absolutely no restructuring cost. It's about creating regions, reporting to me directly with region heads, supervising both wholesale and retail. It's about making sure that we meet the specific needs of customers which are very different from China to the US, from Europe to the US, etc. So it's all about customer centricity and being very close to the market needs. And it follows something that we did not comment about, but I can share, that for already a few weeks, both the head of R&D, and I explained he's supervising now both killing instruments and copier implants and the head of quality reports to me. So if I summarize this very briefly, to win in this industry, you have to keep innovating and you have to be on quality on time. And this is why both R&D and quality reports to me directly. And the second step is to create the four regions. so that we are clear on what needs to be delivered for the specific needs of customers, which are very different region by region. And coming into Sonovar, I see, for instance, real significant opportunities in Asia-Pacific.

The next question comes from the line of Martin Rula from Jefferies. Please go ahead.

Hi. Good afternoon, everyone. I hope that you can hear me okay, so I would have two questions if that's okay for you. The first one is that I just wanted to circle back on the UHA-related discussions that we had. It's my impression that patients equipped with the Infineon products can get the Ultra software upgrade for free. So I was wondering if you could comment on the commercial strategy for the Ultra versions. Will these be priced in line with the classic versions? Will these be priced higher than the classic versions? And or will clients have access to both the classic and Ultra version at different price points? These are kind of the questions I'm asking myself at the moment. And I'm asking that because if I understood correctly your comments earlier, during UHA, so your new wax management system is something that is only available on the Ultra version so far, and that is something that you intend to monetize. This was the first question, so maybe I can give you some time to answer this one before asking the second one.

Okay, all right. Thank you for the question. So, yes, indeed, for existing wearers, the upgrade to Ultra is available for free. Well, assuming that the HCP is offering it for free. However, for new wearers, Ultra is priced at a higher level from us, so wholesale price. Again, I've addressed that question already at Juha, so there's nothing new there. For the EasyGuard, first point, we can monetize it, and it's going to be available beyond Ultra of a time.

Okay, that's perfect. Thank you. And for the second question, it was about the momentum in consumer hearing and cochlear implants. So I would appreciate any comments that could help us do the modeling stuff for these two divisions as the momentum has been pretty bumpy and that ComBase differences makes it even harder to get a proper view on what could look like when it comes to the second half of this year.

So I will pick up that question. Looking at consumer hearing, we do expect a stronger sales in the second half than what we saw in the first half. I think a part is really driven by the introduction of our new product, the HDB630. I don't know if you've seen, but it's a very exciting product. It's the first wireless audiophile product, and the reaction in the market has been very positive. So we do see better growth on the consumer hearing compared to the first half. I think there was something cochlear implants as well. So cochlear implants, as Eric has mentioned, I mean, you have two sides. One side is the VBP situation in China, which he has already mentioned. And the other side is the weakness that we have seen in upgrades versus systems. So while systems have been strong in all areas except China, Upgrades have been lagging behind because of the fact that the product there is starting to be quite aging and the new products will come in the fiscal year 2026. So that's currently the underlying business assumptions that we are taking.

Okay, that's perfect. And just a quick follow-up still on the consumer hearing business. So I got it that you should grow the sales on a sequential basis, but what about sales growth for consumer hearing on a year-on-year basis?

As I said, our assumption is to be on a stronger sequential basis and more That should come, as I said, from the new products and stronger momentum there. And then I will not give specific number year over year.

Okay. That's perfect. Thank you very much.

We now have a question from the line of Susanna Ludwig from Bernstein. Please go ahead.

Great afternoon. Thanks for taking my questions. I have two, please. I guess first I just wanted to follow up about your comments on the opportunity in ATAC for Sunova. Maybe if you could just comment a little bit more on what it is that Sunova needs to do differently in that region to take advantage of the opportunity. Does this require sort of different products, different brands, or a different go-to-market strategy? And then second, just following up on the question on gross margins into H2, I guess Could you maybe quantify of the sort of 80 basis point headwind this half? What percentage of that comes from the temporary costs from the ramp and the regionalization of manufacturing? And then is that expected to fully abate in the second half?

Thank you for the question about Asia Pacific. I spent more than 20 years of my life across Japan, China, Singapore, et cetera. So your question is, what does it take to win bigger than currency for Sunova in Asia Pacific? Well, you've seen that we are creating a new role of heads of Asia Pacific, excluding China, knowing that China already reports to me directly. And this head of Asia Pacific X China will be based in Asia, in Singapore. That's the first change. Managing Asia Pacific from Switzerland is probably very challenging, irrespective of the quality of the leader. Then, awareness, access, affordability, consumer journey. this is what you need to tackle if you want to grow in this category. And in Asia, it's particularly acute. You need to be able to bring products at different prices and yet keep profitability at the same level. So here you're talking about more simple products, maybe difficult products, and not just selling in Asia what you have designed for Europe or the US. Then there's a lack of qualified professionals. So you also have to think in terms of more simple solutions for dispensing. So products, price points, and certainly as you've touched on, brands, presence on the ground, China for China, if I speak about China in particular, this is what we need to get our fair share of Asia-Pacific, which I believe we do not have today. This will take time, and it's giving you some insights about one of the dimensions of the strategy we will be talking about when we go into next year. but certainly very good opportunities for the group in this part of the world.

Great. Thanks for the comprehensive answer. And I guess just on the gross margins.

Yes, I will gladly answer this one. So you were asking about the gross margin and specifically the impact of the ramp-up costs for the regeneration of some of our manufacturing footprint. So as I mentioned, we ramped up activities on the manufacturing side in Mexico and also with our distribution center in Germany. We did absorb some ramp-up costs in the first half. Those transfers are now in the completion stage, and so we do expect a sequential benefit, half over half, to come from cost improvements in these areas. but I will not give a specific number.

Okay, great.

Thank you. The next question comes from the line of David Edlington from JP Morgan. Please go ahead.

Hey, guys. Thanks for taking the questions. Most of them have been answered, but maybe just to pull you up a little bit further on the second half implied guidance for the top line. Obviously, you know, that implies at the top end sort of 13%, 14% growth in the second half. I just wondered... Maybe another way, why not narrow the top of the range down a little bit just to make things still very, very wide range. And then secondly, just on the Section 232 probe and scope of tariffs, I just want to get your thoughts on the tariffs and what mitigations you might be able to put in place if they do come in.

Thank you.

I will pick up the first question on the guidance, so we stick to our range. and 5% to 9%.

So I mentioned we grew... May we ask you to go on mute because there's noise in your background. Thank you very much. Go ahead.

Yeah. So as I mentioned, we achieved 4.9% in the first half. We said 7% in HI and AC. And we do expect... some growth in the HSI based on the new products. So Infineo, Ultra, Sphere Ultra, and Delta R. And that allows us to basically keep to our range in the second half.

And about the tariffs, as you know, we are currently exempt from U.S. tariffs based on the NERB protocol. if you are referring to the sector 2, 3, 2 if my recollection is correct investigation as a matter of principle we don't comment on ongoing investigations it would take time anyway if we were really in a difficult situation we have facilities in Mexico, in the US in Canada and we would be agile about the adjusting the way and the location where we manufacture.

Understood. Thank you.

We now have a question from the line of Michel Bujla from Zurichia Cantonal Bank. Please go ahead.

Yeah, hi. Do you hear me?

Very well.

It's actually not Michel. It's me, Daniel. Glad you're here. Just a question on the ASP uplift. I'm not sure if it was already answered, but when I look at the great 7% local currency growth in the heating instrument segment total, can you talk about the unit growth there or the other way around the ASP uplift? It must have been quite an impact, right? First question.

Okay, so of course without being too granular because this becomes, you know, a competitive information, if you look at HI versus AC, so wholesale versus retail, a rather good balance in the wholesale business with both growth in units and some ASP increase. more skewed towards volume than prices. And if you look at our retail business, it's the opposite. We had both positive impact, but more skewed towards price increases than on volume. And this is a reflection of the fact that our own retail stores are able to drive, create value growth out of the innovations that we brought to market. So a good balance if you look at the combination of both.

Okay, good to hear. And the second and last question, I mean, with your background at SELOR, you know, at the OIHA, we all tried this great eyeglass with hearing aids. Is that an idea for the future as well for you, or is it too far away? Just a...

First, what's great when you see such initiatives with large organizations, with marketing power, is that they help us increase the awareness of the importance of good hearing. I would not comment about whether we're going to go there or not. I won't make any comments about it.

Okay. Fair enough. Thanks.

We now have a question from the line of Niels Granholm-Leds from DNB Carnegie. Please go ahead.

Thank you for taking my questions. First one on the launch of Virtual R. So would you expect any cannibalization from this CIC form factor on your other form factors? And perhaps you could elaborate on the amount of sales that would come from your CIC category now. So where could this category actually go as percentage of sales? We know that it's about 10% of the market. And then secondly, We have had this discussion throughout this year about these five-year reimbursement cycles and to what extent it has affected the overall hearing aid market this year. So do you prescribe to the idea of market growth being under pressure this year because of less people, fewer people renewing hearing aids now five years after the shutdown since 2020? Thank you.

So I'll start with the last question. We believe there's a longer repurchase cycle for the last few months. So, yes, I think it did increase. So first question. Second question, Vito R. So, again, we estimate that this segment is about 400 million Swiss francs per annum. And so, you know, take a fair share of that segment. At some point, we hope to reach the cruising altitude of 100 million, which we see as incremental. We don't see a risk of cannibalization. What we see is that we are entering, you know, new accounts and that we are reaching to new type of consumers. So we don't see a risk of cannibalization maybe marginal, but for us, we really see it as incremental. And I will repeat what I said in my introduction. What's very interesting is to see that black as a color is more than 20% of the sales. And that's really something new. We've never seen that otherwise. And when I'm wearing it, when I see people wearing it, the reflections you get, it's really cool. It's really different. And I think this product is helping us not only within the industry to get into a segment where we have no right to play because we have no rechargeable solution. And by the way, we were not best in class for custom products. And then we have significantly improved. But we're also tackling the stigma in a new way. And that is very, very exciting. By the way, what I mean by we were not that great in the custom segment is now with the new way we tailor the product with this process called the right fit, which is using AI. You get really to an optimal fit and acoustic performance in the smallest possible size. It's really the smallest of all. and the returns are much, much lower than what they were before. And we mentioned that at Juha, but now we have a bit more – we have three, four more weeks on top of when we met at Juha. And so it's a very promising category for us.

Great. So you would expect your CICLs to – you would close the gap to the market, which is currently at around 10%. We believe so. Thank you. Very promising.

The last question comes from the line of Sibylle Bischoff-Berger from Fontobel. Please go ahead.

Thank you very much. Good afternoon, everyone. As a first question, in the past on the outlook slide, you always mentioned the midterm outlook. Now it was not mentioned anymore. So is the goal still valid? This is my first question.

All right, so yes, indeed, we are not sharing the midterm targets anymore. Why? And I'll be very candid and straightforward here. You have a new management team, you have a new chair, and we are currently working on updating our strategy and our strategic ambition. And so sometime in the first half of 2026, we will be very specific about these updated, upgraded mid-term targets. Is there anything you'd like to add to this?

Well, I'd just like to add that we have strong fundamentals in the industry. You have an aging population in the world, and in that sense, the industry is an industry that will grow because more and more people are getting older and more and more people will need some year-end aid. So in the scope of that, I will say, and now with the focus on the regions and growing in those markets, these are the strong fundamentals we can talk about.

Don't expect our ambition to go down. The market growth has slowed down over the past few quarters, but demography doesn't change. The world is aging, aging very fast, and so demand for searing solutions will increase. But again, we have now started the process to refresh in depth our strategy and our strategic ambition and so expect us in the first half of 2026 to come back with probably a capital day to be organized to present this to all of you.

Thank you. And then my second question, you several times mentioned your market share has gone up. Could you give us a hint how large is your market share now?

Do we share that, Thomas? I'm not sure, you know, so.

No, we don't generally share that, but I think, you know, historically we've always talked that we had more than a quarter, and you can imagine that it has gone up from there, but I wouldn't go beyond that.

Thank you anyway. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Eric Bernard, CEO, for any closing remarks.

Well, thank you very much for all these questions. We will talk not too long down the road and looking forward to further calls and meetings in person over the next few weeks and few months. Thank you very much. Bye-bye.

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