Ladies and gentlemen, welcome to the Sonova Holding AG Half-Year Results 2022, 2023 Conference Call and Live Webcast. I'm Alice, the conference 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 one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. Today's call is hosted by Mr. Arnd Kaldowski, CEO, accompanied by Miss Birgit Conix, CFO. At this time, it's my pleasure to hand over to Arnd Kaldowski, CEO. Please go ahead, sir. Alice, thank you for the introduction here. A warm welcome to everybody on the call on this Monday afternoon. Thanks for your focus and attention and participation. It's our regular reporting for the 1st half year, so we will share the results as well as any commentary relevant for how we think about the 2nd half year. I have with me Birgit Conix, our CFO, and the investor relations team in case we need more help during the Q&A. We intend to go through the slides for about 30 minutes and unpack the results, and then we should have ample time for the Q&A. On the first page, on page 2, our regular disclaimer. I assume everybody took a note here. Coming to the high level, on page 3, looking at the 1st half year and understanding the current market circumstances, we look at the results we are publishing today as sound. Particularly on the top line side. You'll see later in the numbers a good growth given the market circumstances. Almost 18%, including the larger acquisitions we've done, but also on the organic side, at 5% across the group. Some pluses and minuses overall, putting us at slightly ahead of the market in total, in our eyes. Clearly on the profitability side, a lot to be understood, as we also had already indicated in the August update with regard to the guidance. The big picture has not changed here. There is a big element of the expected dilution, particularly from the Sennheiser acquisition. There is factor cost element and significant price impact from geo mix, coupled with some headwinds on the FX side. You can also see with the launch of the Lumity as well as the new products on the Sennheiser side, a continued high focus on innovation on our product businesses with a pretty good start on the Lumity as well as on the Momentum 4 and the Momentum True Wireless 3. Clearly a year in which, if you look over the 12-month time horizon, we're significantly expanding our consumer access and our market reach, which is in line with the strategy we've laid out. Good level of bolt-ons on the M&A side for Audiological Care, also in the 1st half year, and I'll comment on the numbers later. Also, a successful 1st half year with Alpaca from how we bring the teams in the United States of America together. A pretty good start with Sennheiser also, not just the numbers, but also the progress we're making on bringing the organization and Consumer Hearing business together. Last but not least, the announcement not yet closed but signed acquisition of HYSOUND, which longer term is very important for us on the Audiological Care side to get more meaningful in the Chinese market. Now, last but not least, obviously the question on how we think about the 2nd half of the year implicit in the overall guidance. The guidance which we have put out in August remains in place. I think the markets continue to be dynamic but also muted. October was not a strong month in the market when we look at the published market data we had access to. In addition, we will comment on where our head is with regard to a large, U.S.-based private label contract, which I'm sure you have seen we put at unlikely to be renewed and therefore with those two things together, still seeing us in the guidance range but at the lower end due to those two comments here. Going to page 5, just on the highest level of the results, 17.9% in LC, you can see from a growth perspective, the FX here for the 1st half year. We'll comment on how we think about the full year and the 2nd half year later in Birgit's section. 17.9%, a good number also, ahead of what we said during the August. Same is true for the EBITDA. A significant FX impact currently, but also slightly ahead of what we said for the 1st half year, showing that the Lumity and a couple of other things we had worked on helped us finishing the half year on a good note. Sales outlook 15%-19% on the sales side, EBITDA 6%-10%, both in LC. If we go to page 6, the ones who had a chance to be with us at the Capital Markets Day, we went through in a lot of detail here. Therefore, I will not read every bullet point. While the market is dynamic. There are headwinds particular towards the EBITDA side. We have continued to invest in our strategic priorities, making good progress along the lines of the six dimensions here. Continued high investment into new product development with very meaningful launches this year for the HI and this Consumer Hearing business. Continue to drive access to more consumers, particularly on the younger side. With regard to the high growth markets, not just the continued investment into digital marketing to indirect consumers, but also on the acquisition side. We see continued good progress on the continuous improvement side. We had a chance to talk a little bit more about that on the Capital Markets Day, and that allows us to invest into the business even in tighter years. Wanna dive a little deeper on three of those priorities. If you go to page 7, there are some new information here because we're sharing what we did on the bolt-on side in the 1st half year. We continued a good higher level on bolt-ons. Keep in mind, we said one year ago, $70 million-$100 million would be kind of the target range. We've deployed $60 million additional M&A dollars into bolt-ons on the AC side in 1st half year, added 70 POS. We have also opened 50 greenfield POS in the 1st half year. Despite the headwinds, and you can imagine especially the greenfields are OpEx intensive at the beginning, we didn't stop those because we wanted to drive our consumer access. Alpaca on a good track from getting the teams together. We have one dedicated management team, half Alpaca colleagues, half Connect Hearing. We're proud that the founder and his key staff on the leadership are committed and are staying with us and bringing the best practices of Alpaca into our joint U.S. audiological care business. China. Christophe at the Capital Markets Day has laid out in more color our strong digital position we have built over two to three years, some early innings of greenfield openings and now double down with the HYSOUND acquisition, which we expect to be closed in the second half of this year after all of the t's are crossed and i's are dotted. Page 8. Other high focus area, leading innovation. We went through the Lumity and shared the content. Clearly a significant step forward from a hearing performance perspective in difficult environments. Then the known benefits out of our made for all phone connectivity. The availability of the world's first waterproof rechargeability, combined with rechargeability, clearly highly appreciated by the consumer. We see particularly around the repurchase rate, meaning, the hearing care professional after the first consumers have used the device, buying many more, getting positive responses from the initial purchasers, and then driving the penetration in the market for us. High-level results, page nine. Just wanna focus on the ones I haven't said yet. Talked about the top line, EBITDA at a plus three in the local currency. The EBITDA margin, 320 basis points down, significant part the dilution, particularly from Sennheiser, and then the quoted input factor and price mix matters. If you go down here, the different businesses, the hearing instruments business slightly above 5% on an organic side. A good number, particularly in the half year before we launch a new product. Paradise still had a good run, and then Lumity came on top here. Significant step up on pricing with list price increases in July and then another increase of price with the Lumity launch, helping us to offset some of the inflationary pressures. Audiological Care. You see the top line CHF 17.3, obviously a significant part coming from M&A. What we see here on the consumer end is an interesting different development than what we've seen during COVID, during the high inflationary environment, and we learned this to some degree because we didn't have these levels for many decades. We see actually new consumers coming and marketing efforts bringing them to the store. We struggle more on the renewal side, interestingly and perhaps understandable if you keep in mind those people have a solution on their ear, and they may just push out the purchase of the new device by half a year or a year in the markets where there's a high share of private pay. That's what we're seeing on the ground. Consumer Hearing business, a good start with CHF 133 million. Keep in mind, the 1st half year is weaker because the Christmas season starts October, November in the channels. Secondarily, there were at the beginning still some supply chain issues in part of the product line which we have come through, but they clearly impacted Q1. Overall, a good start, clearly, with very strong reception on the Momentum True Wireless 3 and the Momentum 4 headphones, driving good growth above market here in those segments. Cochlear Implants, rather lower growth, probably slightly better than market, in line with market. We will see when other people publish. A good continued step up with regard to the profitability, as you will see later. There are significant impacts of shortages in some parts of the world in the hospital, so, the implant rates are still not back to a normal level. On page 10, you see the bridge between the different components of growth. You can read them here. You see the 5% on the organic side. You also see the 2.8% from an FX impact perspective. If we go to page 11, just a couple of comments here. You can read it yourself on the geos. Interestingly, very similar numbers, EMEA, U.S., and Americas, but lots of color around it from a different M&A footprint. If you take Europe, pretty strong markets in Germany, Netherlands, and Nordics are resilient markets. More of a headache or a headwind, not a headache in France after the reimbursement change on a high jump off point. The UK private market we said was rather weak on the 1st half year. Overall, Europe actually in a reasonably resilient position. The U.S., the volumes in the U.S. private market did decline 1st half year in units in the low single digit environment, which is quite different. An element of that was strong year-over-year impact or big jump off point in the year before, but clearly a reaction of the consumers to the macro environment. VA held on better, as you could see from the numbers they publish. Then keep in mind on our number, and that's why there's the 14% Alpaca is obviously a purely U.S. acquisition for us. Then on the Americas side, good momentum, particularly in Canada. APAC, some positives out of the weaker jump off point in Australia, from the year before. We haven't spelled it out here, but China on and off, depending on when a lockdown happens in a larger country, in a larger city. Want to dive a little bit into the hearing instruments. Again, I trust you have a chance to read the numbers. On the commentary side, solid organic growth in the two businesses where we spell out the organic growth here, both with the 5%. Successful launch of the Lumity was driving it on the HI side for the last six weeks and a decent resilience at the back end of the Paradise. Then, on top of the organic here in AC, a strong acquisition component. Profitability, we voiced that over. I'm sure Birgit will go deeper and further into it. On the transportation side and the component cost, particularly on the transportation, we see some signs of improvement. Need to see that stabilize. That should help us into the 2nd half. Also, when you look at the expected dilutive effect we set for the full year, it's 130 to 150 basis points. Keep in mind, Sennheiser has a low revenue in the 1st half, so the dilutive effect was larger in the 1st half year, helping to explain the bridge towards the profitability. Page 14. In addition to the Lumity new launch of the Unitron Insera product on the custom side, which helped drive some growth there, the pricing side and clearly a very strong resilience of our market share position on the VA side with the Paradise. Page 15. Not so much additional to what I said here. I think integration on track for the Alpaca. I was commenting on the headwinds with regard to some of the consumers not coming, or they may come to the store and then don't close the sale. Page 16. I think Consumer Hearing business with the Sennheiser acquisition slightly ahead of what we had mentally written down for ourselves coming out of the new product there. You have to understand, we also need to learn the business new ourselves. TV Clear, the first Sonova product under the Sennheiser brand, and now gearing up for the launch of the first speech-enhanced hearable within the current financial year. That's looking good from the launch and the capabilities of the product. Last page I'll voice over on page 18 on the Cochlear Implants and some more detail as we always share between system sales and upgrade sales. You can see system sales at CHF 3.6, upgrades at CHF 1.8. Keep in mind, upgrade sales are very much driven when we launch a processor, and the launch was a year ago or one and a half years ago. I would say even if it is quote unquote only CHF 1.8, this is on a high level of the year before. The system sales at CHF 3.6, given the challenges in some markets with the staff within the respective hospitals, a pretty good number, I think. And then on the profitability slide, you see that year-over-year for the period, we have grown the profitability in LC by 280 basis points by driving continued efforts on the continuous improvement and on the price realization, even if we only had 3% growth here. With that, I want to hand over to Birgit in the financial section. Thank you, Arnd. Good afternoon and a warm welcome on site. Starting with page 20, the financial highlights, and most of this you already heard from Arnd, so I will not go into all of the same details. Sales were CHF 1.8 billion, and this is an increase of 17.9% and an organic growth of 5%, with the foreign exchange being a significant headwind, which reduced our top line by CHF 44 million or by 2.8 percentage points. Given the substantial change in margin, I will therefore unpack the gross profit in just a minute in some of the subsequent slides. Adjusted EBITDA stood at CHF 398 million. This is up 3% in local currencies with a margin of 21.6%. This is slightly above our expectation communicated in August, and there we said that EBITDA would remain largely unchanged. Our operating free cash flow was at CHF 185 million, and this is a decline of around 45% versus prior year. It was mainly related to an increased net working capital due to lower payables, also lower accruals, and also a build-up in net working capital due to our newly formed Consumer Hearing business. So far, we returned cash to shareholders through dividends of CHF 268 million and also through our share buyback program worth CHF 304 million. Since the cash out of the dividend occurs in the 1st half of our financial year, our net debt position at the end of September went up to CHF 1.5 billion. All in all, this represents a net debt to EBITDA ratio of 1.5 x, and this is at the upper end of our target range, which is 1x to 1.5 x. In the 2.n.d. Half, the net debt position is expected to reduce to be well within the target range. Moving to the next slide, 21. Yes. Our adjusted gross margin stood at 69.6%, down 350 basis points year-on-year in local currencies. This decline can be decomposed in a few major effects. First, what you see is the expected negative effect from the consolidation of Alpaca and Sennheiser, and this we communicated at our full year results presentation. Secondly, the slowdown in certain high-price hearing care markets such as the UK and the U.S, which led to negative mix effects, or in other words, a lower average selling price due to lower volumes in higher price markets. Thirdly, we saw continued headwinds from elevated transportation and component costs and as well as wage increases. We saw positive signs towards the end of the reporting period, which we expect will give us a lift in the 2nd half. Lastly, and I already said that we have a further FX headwind of 70 basis points, leading to a gross margin decline of 420 basis points in Swiss franc. Then our adjusted EPS was at CHF 4.9 per share, and this is an increase of +7% in local currencies. Again, given the substantial foreign exchange headwinds, our EPS is almost flat in Swiss francs. Let's look at the separate EBITDA components on the next slide. Here, going from left to right, our adjusted EBITDA in local currencies was CHF 419 million, representing 3% growth year-on-year, and as I said, slightly above the indication we gave back in August. To a large extent, our EBITDA growth in local currencies was driven by the acquisitions of Sennheiser Consumer Hearing and also Alpaca Audiology, in total adding CHF 10.5 million EBITDA. Given that these businesses currently come as a lower than group average EBITDA margin, our recent acquisitions have a dilutive effect of 210 basis points on our adjusted EBITDA margin in the 1st half of the year. The organic EBITDA contribution, as you can see here, was CHF 1.6 million and reduced the adjusted EBITDA margin by 110 basis points. This was mainly driven by the pressures that I talked about on the previous slide. Currencies were a major headwind here, reducing the adjusted EBITDA by around CHF 20 million and the EBITDA margin by 60 basis points. Moving to the next slide. Here you see our operating expenses increased by 17.2% in the 1st half, and it's important to understand that around 75% of this increase was driven by acquisitions, and I will explain that later. Before that, let me quickly briefly touch on tax. Our underlying tax rate was 15.5% compared to 14.5% in the prior year. This is in line with our indication that the tax rate is expected to move towards the mid-teens, also in the midterm. That is what you see here. Moving on to slide 24 to take a deeper look at the increase in OpEx. Here important to flag is that we attained a high level of investment into innovative products and solutions, and you can see that the R&D expenses were CHF 119 million or 6.5% of sales, allowing us to drive impactful innovation for our consumers. Sales and marketing was up 22.7% and was the largest driver for the increase in operating expenses along with G&A, which was up 8.9%. Important to mention here is that both these OpEx lines show this level of increase mainly as a result of our M&A consolidation effect. Here you see that it's listed here. Around 70% of the increase in sales and marketing was mainly related to the acquisition of the Sennheiser Consumer Division, Alpaca Audiology and AC bolt-ons. The remainder, 30% of the increase in sales and marketing was largely driven by a shift in the business mix, and this is due to the continued expansion of the audiological care business. As you notice, audiological care business has a larger or higher ratio to sales percentage for these customers than the rest of the group. The development in general and administrative expenses was almost exclusively driven by acquisitions. In line with our well-known principles of strict cost control, the organic increase in G&A was very limited, and that is, I believe, a good indicator for our strict cost discipline. Finally, touching on adjustments of CHF 5.5 million in the 1st half. These declined from CHF 11 million in the prior year periods, and were related to restructuring transaction and integration costs as well as litigation expenses. Moving to the next slide. As mentioned in the beginning, operating free cash flow was at CHF 185 million and declined by around 45%. This was mainly driven by increased net working capital. Let me try to explain these drivers here in more detail. First, starting with the CHF 65 million net working capital increase. From this bucket, nearly half of this was related to lower payables due to a safety stock buildup at the end of the previous fiscal year 2021-2022. The orders acquired in the previous fiscal year was related to accounts payable transferred into our current financial year. Once these bills were paid, the payables position reduced. The remainder was largely due to lower accruals. I can give some examples of those. For instance, timing of prepayments associated with various larger R&D and IT projects. Also a decrease in accruals for share-based payments due to the lower 2022 stock price and also, for instance, a non-repeat of prior period accruals related to fees for larger acquisitions. Second, going to the next bucket of around CHF 28 million. This is related to the acquisition of the Sennheiser Consumer Division and represents a normal buildup in net working capital. It's due to the setup of this new business as we acquired these assets, excluding any receivables or payables. The last effect of around CHF 33 million mainly relates to other items, such as increased lease payments that comes naturally due to the network expansion in Audiological Care, the movements in financial assets and also lower financial expenses. A further normalization of the CapEx level should be expected more towards the previously communicated 3%-4% of sales. Compared to last year, the normalization reduced the operating free cash flow by a further CHF 30 million. Moving to the next slide, the balance sheet. Here, you see our net debt of around CHF 1.5 billion translates into a net debt to EBITDA ratio of 1.5 x, which is touching the upper end of our target range of 1x to 1.5x. The main drivers for the increase were our share buyback worth around CHF 300 million, the dividend payment of CHF 268 million, and then cash considerations for acquisitions in an amount of CHF 86 million. Let's shortly touch on DIOs. When I led you through the increase in net working capital, I mentioned the decrease in payables due to the increase in safety stock prior to the end of fiscal year 2021, 2022. If you look at the DIO here, which are flat year-on-year, this may seem a contradiction. If you, however, look at the DIO at the end of the fiscal year 2021, 2022 in March, there the number was at 171 days, and the reduction to the 148 days is related to process improvements since then. However, important to note, the current DIO level is still higher than pre-pandemic, and albeit really to a lesser extent, it remains impacted by the mentioned buildup in safety stock and also product launches. Moving to the next slide. Total shareholder return and capital deployment strategy. The strategy remains unchanged. We maintain our level of investment into bolt-ons of around CHF 70 million-CHF 100 million. Arnd already said that as well. We have a dividend payout ratio of around 40%, and then our leverage ratio will remain between 1x and 1.5 x to maintain a healthy balance sheet. In line with our capital allocation strategy, we are continuing our current share buyback program, and that is obviously in the absence of large M&A. Finally, let's touch on the outlook and related to the assumptions for the remainder of the financial year. Considering the development in the hearing care markets we saw, and also with a weak October month, we saw a slow start into H2, signaling we did expect that, a sequential market slowdown versus the 1st half. We believe inflationary pressures will stay with us for a longer while. They will continue to negatively affect consumer sentiment. This implies a limited market growth in the 2nd half. As you have seen, we face high volatility in the market and therefore to be noted that the uncertainty currently remains high. What exactly does this mean for our results in the 2nd half? Let me decompose our current guidance. As a positive year-over-year development, we are confident that Lumity will support our market share gains and further lift our average selling prices, so beyond our announced price increases. We also are confident that we successfully continue to expand our audiological care business, and that the consumer hearing business will show a lift from the seasonal contribution during the Christmas season, and that we will see a gradual easing of supply chain constraints and transportation costs. As a negative year-over-year development, we take into account a subdued market development, as mentioned earlier, and especially given the slow start into the 2nd half. We also take into account a suspension of an existing private label contract since October, and also the fact that a renewal of a large contract with an individual client in the U.S. seems unlikely at this point in time. Moving to the next slide, which is the outlook slide. Here, as we also already communicated, our guidance remains in place, and we are expecting to reach the lower end of the fiscal year 2022-2023 ranges. As a reminder, these ranges are a sales growth of 15%-19% and an adjusted EBITDA growth of 6%-10%. These are both measures at constant exchange rate. The current fiscal year proves to be impacted by the current macroeconomic challenges, which are hard to predict. On the other hand, we firmly believe that the hearing care market itself remains attractive given its underlying growth drivers and also the innovation that we bring to our consumers. We therefore remain confident about our midterm target of 6%-9% growth in top line and 7%-11% in bottom line. Let me finalize with a short summary on the foreign exchange development. Simulating our top and bottom line using the October month-end exchange rates would indicate that our sales growth in Swiss Francs is negatively impacted by 2 percentage points and the adjusted EBITDA growth by 3 pe rcentage points for the full fiscal calendar year. However, we continue to expect a high degree of volatility in the exchange rates. The simulated top and bottom line results based on October month-end rates are favorable versus the indication we gave just one month ago during our Investor Analyst Day. The situation clearly improved since the end of October, but if we look at our current FX rates, then it reverses again. It is just a volatile environment, and we will continue to update you during conversations with you. This brings me to handing back to Arnd for the closing summary. Before we get to the Q&A, as you can tell, quite dynamic environment, and with it, lots of ins and outs into our numbers, so one can get easily confused. Allow me to try to make a quick summary how we think about the numbers before we move into the Q&A. Looking at the 5% organic growth in the 1st half year, I think we did reasonably well. I think at the end, if you calculate it through, a little bit ahead of the market, so winning share while the Paradise came to an end of its life cycle. I think looking at the 2nd half year guidance, if you calculate it through with the caveat of the unlikely renewal of a large private label account or contract, but at the same time also what we said a step down with regard to the market dynamics which drove our August update, I think it will end up at a place where you also see us winning share, and that's what we're confident about. Won one contract. I think clearly good progress on the M&A front with the investment into Alpaca and Sennheiser and good initial work with the teams, but also the longer sought-after step into China. As you heard, good cost control, but on the other hand, continued investment into the most important growth drivers from a growth perspective. When we look at that, we're in a high inflationary environment, not an easy one to read. That was new territory for us. If we think beyond the high inflationary environment and think to a more moderate inflation environment, we feel confident that the market will return to the place where we were, and we will return back to what we shared as our, in our eyes, attractive midterm target. I think taking share, being able to take share minus a big contract which comes and goes, and the right focus on where we expand from an M&A perspective. With that, we would like to open up for many questions. I'm sure there are, which there are, on the line. Alice, if you help us with the questions. We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and one on the touch-tone 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 two. Participants are requested to use only handset when asking a question. Anyone who has a question or a comment may press star and one at this time. Our first question comes from the line of Daniel Buchta with ZKB. Please go ahead. Yes, thank you much. Taking my two questions. Maybe the first one on slide 29, where you mentioned the sequential market slowdown compared to the 1st half. I mean, your capital markets day is just a few weeks ago. What has changed in the market overall that you expect even slower markets now in the 2nd half? Is this maybe yes related to down trading or what are you seeing there in your relevant markets? Then the second question on the large contract renewal, as you call it. I mean, is it fair to assume that this would be normally, I would say, 5% of group sales, and that nothing for that comes in the 2nd half anymore? Actually, what are or where the issues in the talks? Is it more price or was it really this rechargeability issue that you mentioned as well in the past? Thank you very much in advance. Daniel, thanks for the question. I think the step down is more a step down when we looked at the 1st quarter and then Q2 was softer in the markets. Our Q1 was still a pretty good number, but in Q2 the markets were more flattish, and that's what we're also seeing here baked into the numbers. Don't read too much into capital markets. I think it had started in our fiscal Q2 and we assume the same for the remainder of the year. With regard to the large customer contracts, a little bit lower than 5% of group. With regard to the rationale, we're still kind of in the back end of the discussion, so we haven't yet gotten a full download and debrief from the other side. I think these contracts, as you can look in the past, tend to be renewed, most of the time one round. Mm-hmm. I think in reality, we're kind of sitting at we would have hoped for another renewal or so. It's a little hard to read how much of that is a procurement strategy versus, too much price ask relative to what we were offering, but not clear to us at this point of time. Okay. That sounds uncertain. Thank you very much for the details you could give so far on. Thank you. The next question comes from the line of Hassan Al-Wakeel with Barclays. Please go ahead. Thank you for taking my questions. I have two, please. Firstly, could you talk about your preliminary thoughts on next year, given your outlook for flattish market growth in the 2nd half, the KS contract loss, and whether you can comment on consensus expectations of 6%-7% organic growth for next year. If you can help us think about price share gains within that context, that would be helpful. Secondly, could you please talk about the launch of Lumity and how meaningful this has been to the month of October? How do you benchmark the Lumity launch versus some of your prior launches in terms of reordering patterns and ASP? Thank you. Hassan, thank you. Next year we're not at a place yet where we give a guidance on the next year. If you think about it, I think market depends on how the market evolves over the next couple of months, what we see from an inflationary environment. We'd rather wait a couple of months to lay that card. Secondarily, you heard me say one of the things we're seeing is people are pushing out purchasing decisions on the renewal side. I think we will need to wrap our head around is there for, at some point of time in next year, even some element of pent-up demand in the existing customer base. I think we also have other products we launch, which will make an influence or an impact into the next year. Not just bringing Lumity to other brands and other form factors. You also heard us talk about the Speech Enhanced Hearable. I would leave it here. Certainly, we will have an extra headwind on that customer contract for another half year, right? Because de facto, the surprise to us relative to what we said in August was that the revenue wasn't there in the Q3. Therefore it's a quarter earlier out of the year-over-year comparison next year. On the Lumity side, the October numbers were good with regards to in particular the repurchase rate, also on the penetration of the accounts. We see the impact we're expecting from a new platform from a share gain perspective. Hard to give an exact percentage around it, but we normally have a strong growth of our business above market in the independents, particularly when we launch a new product. Keep in mind, on top of that, we have done two price steps. One was an inflationary adjustment and the list price for all products. The secondary was Lumity centered. We feel good about the HI market share development 2nd half, but also getting into the next year minus the customer contract we talked about. That's very, very helpful, Arnd. If I could just follow up on the first, and I think you mentioned that Europe was relatively resilient in the 1st half. I mean, is this a function of reimbursement to your mind? And to what extent do you worry about a meaningful deceleration or at least down trading into next year in Europe? I think we clearly see more resilience where there is a meaningful contribution from a reimbursement perspective. I think that does help. That's in my eyes, why Germany is doing well in the 1st half year. I think the jury is out ultimately how the inflation develops, because I think in Europe it is actually more driven by energy prices, and that's quite a volatile topic, I think, right? I don't want to put the best estimate around the energy prices in Europe, but I do think Europe was more resilient, particularly in the markets where you get a meaningful contribution on reimbursement. Very helpful. Thank you. You're welcome. The next question comes from the line of Maja Pataki with Kepler Cheuvreux. Please go ahead. Yeah, thanks. Arnd, also coming back on the private customer contract and looking at next year. I mean, typically, you know, we've talked in the past about losing the private label contract, but then gaining share on the branded side. Now, out of experience, do you have a feel for how fast you think you could see a pickup on the branded side and like, you know, the demand for your products from the audiologist side, it's still like your product. What would you anticipate? And my second question is, I'm not sure whether you can comment on that, but if we look at the retail price in that private customer for your Brio product, it's meaningful above what competitors are selling at. Would you consider moving in line to be able to grab share in that segment? I think you always need to be careful how you use brand at certain price points in a market. I think given what we have seen, price points of other branded product, we will need to think very carefully on what strategy we would choose. I think you heard us say that with the Lumity and the price increases we have driven in the market, we picked up in two steps. Therefore, I think it's unclear for us at this point of time and not reflected in the numbers we shared as our expected outcome for this year, anything on the branded side. Thank you very much. You're welcome. The next question comes from the line of Christoph Gretler with Credit Suisse. Please go ahead. Thank you, operator. Could I come back? Good afternoon, Arnd and Birgit. Could I come back to these price increases that you mentioned? Could you actually also discuss, you know, what kind of now discounting you see in the market and whether these, you know, price increases really stick? What kind of price increases you actually encounter on the retail level? That would be my first question. Hi, Chris. Thanks for the question. I think if you look at the wholesale side of the house, the price increases stick to the majority of what we're putting out in the independent environment and call it the smaller chains. It's a very different discussion and the customer-specific discussion if it comes to large chains, right? There also, the timing is different because you have either an annual contract and every two years contract. I think it's fair to say that the ask for higher prices where we have with Lumity made significant innovation is something we're also pushing in larger retail accounts. Perhaps not to the same degree as we get it on the independent side. Yeah. On the pricing side, on the audiological care side, we are able to realize higher prices. We do that also through increases of list prices, call it in the low single digit environment. If I take the average in some markets more and others less. Depends a lot on your service level you provide and your ability to also tap into kind of a more affluent base of private pay environments. In general, we do get price realization in the order of magnitude of low single digits right now on the retail side. Okay. My second question relates to your midterm guidance and, you know, this client loss that you mentioned. First of all, just, you know, kind of to reconfirm that you didn't have any sales in Q2 for that customer. Was that my correct understanding? The 1st half year was normal. The 2nd half year is without. Okay. On that, basically, should we assume that then, you know, next year will be also kind of a year below the midterm targets, you know, in terms of earnings growth? Is this reasonable to assume given, you know, there's no headwind that, you know, will weigh on the company? Or is there enough, you know, other measures that, you know, you have, you know, in the back, you know, kind of to make it up? I think it's really hard to say, Chris, because it comes to question when do we see normalization, particularly in the U.S. market? Keep in mind, we shared in August that the bigger headache was the U.S., and that has quite a significant impact on our profitability, right? If you would be in a world where, call it in four, five, six months, you see the inflationary pressure on the U.S. get back to a better environment. If you also see probably share prices go up, keep in mind our target audience is 70 average, and in the U.S., 401(k)s are often in equity. I think you would see a good recovery in the U.S., which will help us from a profitability on top of the top line, right? As you can tell, we could go now down other geographies, but it's really hard in such a dynamic environment to already comment on where our guidance for the next year is. If the markets would start to normalize, particularly in the U.S., if we see continued improvement on the freight side, I think there is recovery on the profitability, which can help us out relative to a half year loss of that customer contract. Okay. I appreciate the comments, and, you know, looking forward to seeing tomorrow. Same here. Thank you, Chris. Thank you. The next question comes from the line of Julien Ouaddour with Bank of America. Please go ahead. Thank you very much for taking my question. First one, a bit big picture question, but the hearing aid industry is highly consolidating in wholesale. Do you think we might see further consolidation in the market going forward? What would be the impact for Sonova, let's say, if two other large manufacturers combine their business just few years after the Sivantos Widex merger? Second question on consumer hearing. You mentioned that you expect a significant higher sales during Christmas season for this division. However, most of your competitors stress that this year the usual seasonality, let's say, is not really expected. Like the question is, do you start to see some uptake in revenue for this business yet? Can you confirm if you believe that you can grow sequentially? Also how big the upcoming speech-enhanced hearable will contribute this year for this business? Any comment, let's say, also about the profitability in H1 and what you expect in H2 would be super helpful. Thank you very much. Thank you, Julien. On the consolidation side, I don't wanna add to the discussions in the marketplace right now, given certain people taking share positions at other companies. If you look at the market overall, I think over the last three years, we went from six to five. I think more interesting, if you look at the market share developments, you also did see that there was more of a bifurcation of two which are smaller and three which are more on the larger end. We're in a good position there because if we do the math, we're the larger amongst the three larger. Yes, I think you will at a minimum see people having to figure out what is their overall strategy if you're just a third of the size of the larger ones, right? You could go with a niche strategy, whatever you want to do from there. Clearly there's a little bit of a separation of the field, which I find more relevant than the question if there's another step of consolidation of one of the smaller. Now, if a consolidation would happen, we would not worry about this. I think we have what we need to develop the broadest product portfolio. We have the momentum in the P&L, as you've seen, from the ability to step up our R&D over the last three years by 45% and still having the highest profitability in the marketplace. I think there's something to be said about it is good to have all of your products on the same chipset. That's the most efficient way to develop product. We do have that between the Phonak, the Hansaton, and the Unitron business, which did take us many years, right? We don't worry about an element of consolidation there. We're not in a position to comment if this would happen or wouldn't happen. On the Consumer Hearing business for Christmas, again, we're new to this, so we're not the most detailed on consumer electronics. Keep in mind, this is a far bigger market with far more different segments than our Hearing Instruments. We were encouraged by the October sales on the Consumer Hearing business. We're encouraged by the momentum we have in November. We do expect a meaningful step up quarter-over-quarter from the 1st half year in the Q2 towards the Q3. We don't have the exact number yet because it's beginning of November, not yet end of December, but clearly we will see a step up there, which will also help us to contribute some meaningful profitability to the Sonova business, at least from an absolute Swiss Franc amount. On the speech-enhanced hearable, I think we're excited when we launch it. We think it's a good product for a need of customers, which is not fully fulfilled today. We don't think it's going to be a huge revenue contributor. Keep in mind, this is a new product category in the market and for us, and that's on that new brand. I think it's really getting going and building that business quarter- by- quarter. Yes, there will be some revenue in the Q4, but not in a very big effect as we have when we launch a new hearing instrument platform, and everybody's waiting for the new Phonak product. We'll be comparing it with our plans, but it is more kind of an S-curve over time, which we have planned there. Thank you. Thank you very much. Just maybe on the profitability, can you give us a bit more color on what you did in H1 and also what you expect in H2? Yeah. Thank you. You mean for the Consumer Hearing business? Yes. Yes, absolutely. We were for the Sennheiser. You need to understand, when we commence Consumer Hearing business, it's the Sennheiser business plus our development of speech-enhanced products and other early entry devices, right? I think if you look at Sennheiser standalone, there was a slight positive EBITDA contribution to the house, so it was accretive, the acquisition. We expect this to be more meaningful in the 2nd half. If we add the product development cost for speech-enhanced and TV Clear without a revenue, the sum of the two was negative, right? That's really more of an investment into new product categories we're in the process of launching. Thank you. Thank you very much. You're welcome. The next question comes from the line of Andrej Levak with Stone Creek Global. Please go ahead. Hello. Thank you for the opportunity. My question is related to potential funding opportunities for those who are not investors. The opportunities when you would work on additional capital on levered stock. Previously, you mentioned drop of operating cash flow. We'd already clarified the reasons why that happened. For the purpose of potential motivation to participate with non-recourse capital, I'm asking, how does your welcoming of extra capital currently look like? When could the candidate reach out on that topic? To whom and which contact information could be used for that? Thank you in advance. Yeah, I think the best to contact is Thomas Bernhardsgrütter, and you can find all the information on our webpage. Mr. Bernhardsgrütter? No, Thomas Bernhardsgrütter. He's the head of Investor Relations. Yes. On the webpage. He can guide you to the right person. Yeah? We will do that. Thank you for advice. Thank you, Andrej. The next question comes from the line of Veronika Dubajova with Citi. Please go ahead. Hi, good afternoon, and thank you for taking my questions, please. I have three, if I can. The first one is just, I was hoping, Arnd, you could help us quantify the contribution from price to the wholesale organic growth in the 1st half. Out of that five points, what was price mix versus volume? And what your expectations are on price mix as you move into the 2nd half of the year, just so that we're all on the same page in terms of what you're expecting. My second question is just to confirm. Is your expectation that you will not be participating in the branded segment of that large customer, where you've lost the contract? Would you expect to be maintaining some revenues, but maybe not at the same level as what you've earned, before? My last question, maybe for Birgit, if you can help us, with a little bit of gross margin bridge for the 2nd half of the year, that would be really helpful. Thanks. Thanks. Yeah. Hi, Veronika. Thanks for the question. On the pricing side, I would put it at in the 1st half year, the price contribution was smaller than the unit volume contribution. Keep in mind the list prices came in 1st July, so there's a little bit of a mix element in there. Keep in mind that larger contracts can't be moved that quickly. I think in the 2nd half you're probably looking at a 50/50 or so. Hard to tell exactly, but going up, and if it's just because the price increases of Lumity and the July are then in the full period. With regard to the branded, I would not plan with it for the remainder of the fiscal year. I think if you would move into a branded position of meaningful size, you would need to go through the negotiations and you would need to define the brand you use. You would need to define the value proposition and the price, which I think are process steps we would need to go through. We're open for that, but certainly not right away because we need to think through the branding side, the pricing and the value proposition. Yeah. Hi, Veronika. On the 2nd half, the gross profit. We expect an improvement in gross profit. First element would be, as just mentioned, price will be a bigger bucket, obviously, because it's the full 2nd half to be taken into account. On the freight and components there we do see an easing. We do see that in the past month that is coming down. There we believe we will have an upside as well versus the 1st half. We also will see a lift from the Consumer Hearing business in the 2nd half also because of the seasonality, and also the development in sales that we see. We, due to a kind of, let's say, a mix shift due to the uncertainty around the, let's say larger contracts, that would also be a lift in gross profit. You could expect like around, let's say 200 to 300 basis points or that we would increase. Okay, that's very helpful. Thank you. Yeah. It depends on of course, how we see freight and components and the rest developing. Yeah, that's what we are aiming for also, including continuous improvement and so we see other elements. The next question comes from the line of Graham Doyle with UBS. Please go ahead. Good afternoon, and thank you for taking my questions. Just two for me. In terms of prices, you talked a lot about raising prices, rising ASP, particularly in the 2nd half. I just sort of struggle to square that in the sense that we're also looking at slowing volumes, right? It just makes me slightly concerned. Are you potentially at risk here of having this trading down dynamic, and you've put all this price up on the higher priced products, but because your independent audiologists can't pass that on, they then are not re-incentivized to sell them because they may make less money on them. That's just a question about one, how do you counteract that? Just question two, and it should be a quick one. Can you just confirm again you're not expecting any of these, this U.S. customer revenues in the 2nd half of this year? Effectively for next year when we're thinking about taking that customer out of your numbers, it's really just a 1/2 worth of hit. Thank you. Graham, thank you. Yeah, it's obviously you need to balance, and you need to have the finger on the pulse on what you do from a pricing and a volume perspective. When we talk about price increases, we first talk about list price increases, and then we navigate from there. We still see a good ASP lift. We also watch carefully if we're winning or losing market share in markets, and we have seen a market share gain, even in units coming out of the Lumity launch. We're carefully navigating it. Obviously it also depends on what the competition is doing because at the end of the day, there's few players and they have also at least a shared list price increases coming into the 2nd half of the year. On the clarifying question, yes, our outlook here does not include revenues in the 2nd half of that large U.S.-based customer. Therefore from a year-over-year, it would be maximum a half year impact. Okay. Just a super quick follow-up. In terms of the guidance for the 2nd half, is it fair to say that you're not assuming that the European region faces similar pressures to what we see in the U.S.? You're essentially assuming it's going to be more resilient for the reasons you outlined earlier around reimbursements. I think what we're assuming is that Europe is kind of a mixed picture as it was in the 1st half year. Keep in mind some markets and meaningful size markets like France and the U.K. were in negative territory. Other ones were in slight positive territory. We would have said similar as we've seen the Q2. Perfect. Thank you very much for taking my questions, guys. You're welcome. The next question comes from the line of Urs Kunz with Research Partners. Please go ahead. Yes, hello together. Maybe also a confirming question about the ASP. For example, in hearing instruments, this 5.2% organic growth rate, you said, part of it is volume and part of it is price and a little bit more volume than price. That means that in the end, the total negative effect from the mix in country and channels is kind of overall turned by higher, by your price increase, by Lumity bringing on the market. The second question turns around return rates. Do you experience anything increasing in increased return rates, or could you elaborate a little bit on how they evolved in the last 36 months? Thank you, Urs, for the question. You catch me at a good point when we talk price and units. My comment to the question, I think it was from Graham before or from Veronika. Was more within a market. I did not factor in the geo mix. If I factor in the geo mix, the unit side is significantly higher because the slower market was the U.S., right? My comment was more if I think in country, in the 1st half year, we've seen a contribution ASP in average, but a higher part on the unit side. I think the geo mix makes it more complex. On the increased return rates, I think we had a phase where we've seen somewhat increased return rates, not in a dramatic way, but we had certain things which, I think, required some countermeasures in some more simple things like, variances in cables, in charger manufacturing and things. You were asking 24 months. I think if you look over product cycles, which is 24 months, the Paradise was significantly more reliable from the return rates, like for like against the Marvel, 40% less returns. We now had a phase of a couple of months where against this low level, we had a slight increase. We're seeing this come down right now after the countermeasures are implemented. I would put it at manufacturing variances more than anything else, which we have countered, but against the significantly lower repair and return rate than what we've seen in the product, one generation before. Thanks. Maybe one additional question about the consumer side and hearing instruments. This CHF 133 million, would you share with us how big the growth rate was on that? Yeah. If you compare the business, Sennheiser like for like with the product lines, you would be looking at a low single-digit growth for the period. Keep in mind I said in the 1st quarter, we still had some supply issues from product, or from components. Secondarily, I think the consumer device business is slower year-over-year than the hearing aids. From there we deduct that we had market share gains with Sennheiser with the new products. Low single-digit, while we still had some supply constraints in Q1. Thanks. You're welcome. The next question comes from the line of David Adlington with J.P. Morgan. Please go ahead. Hey, guys. Thanks for the questions. Most have been asked already, but maybe just one point of double-checking. Just this, that you said that the 2nd half gross margin will be 200-300 basis points up on the 1st half. The second question is, I know it's very early days in the VA, but would you go and get any sort of early feedback you've got into the market acceptance of Lumity there, and also any potential headwinds from, I know one of your competitors has also launched. And then third one, just a slightly different one. I know that the renewal rates of hearing aids is about three to four years in the U.S. historically, and five to six years in Europe. I'm just wondering if rechargeability and specifically the deterioration of the rechargeable batteries, how would if that changes any of those replacement rates at all? Thanks. Just, David, what extra clarification did you want on the gross margin? Where I said? Yeah, I know you've missed it because the line dropped out, but I think you said 200-300 basis points. Yes. Improvement in the 2nd half. Yeah. I said. That's a good first off. Yes. Correct. I say that on a low H1. Because H1 was impacted by freight and component costs, also didn't have the full H2 on the price included. If you take already these two components, that is already a lift. The Consumer Hearing business will see the seasonality. There you also have a lift of gross profit there on the back of a lower H1 profitability in our Consumer Hearing business. I said in the event of the private label larger private label contract, then there that would also give a lift. Mind you, David, I'm seeing this based on the current assumptions that freight indeed continues to ease. If there is a shift in one of these components, of course, that may change. Otherwise, you should see such a lift in the gross profit. That doesn't mean it's always, I mean, the same in EBITDA. It's not a complete fall through on all of the components. Yes, you should see a decent lift from H1 to H2. David, on the VA Lumity, too early to measure because this is only 10 days or so since this is in the channel, but very positive reactions of the audiologists when we had an opportunity to demo the product in October. Which is not a surprise because it's a very audiology-centric channel. They don't worry about price, and so at the end, they're really liking hearing performance improvements. Also, keep in mind many of the veterans have higher hearing losses. On the renewal rates. If I understood your question right, do we see changes in how long people hold on to their devices? I think in general, I said earlier, yes, because some of them are pushing out the purchase and it's most relevant where you have only private pay or significant private pay. The U.S. is more vulnerable to that effect because you have many people with pure private pay. They also have renewed earlier, as you said. That's where we're seeing more of the pushout. Maybe just a quick follow-up on that, Arnd. I mean, is there an expected timeline in terms of how far those people can push out those replacements? No, unfortunately not. This is an effect we see since a couple of months. I think at the end, it's really more of a decision on how they think about their household economics, most likely, right? The moment they feel they're not as much under pressure on the inflationary environment, perhaps their stock accounts have improved. Eventually, they come back. A new product always helps, but we don't have statistics on that. All right. Thank Thank you. You're welcome. The next question comes from the line of Falko Friedrichs with Deutsche Bank. Please go ahead. Thank you very much. I have two questions, please. Firstly, Arnd, can you share your latest thoughts on your level of visibility on when it comes to generating sales? How long is this visibility really in this environment at the moment? Secondly, can you share your expectations for this uptake in the OTC market in the U.S. now, especially in this inflationary environment? Thank you. Hi, Falko. Visibility on the retail side until sales is relatively good. We have about a month of lead generation and first meetings with the consumer, and then depending on market, one to two months until you can realize the revenue because people have rights to give the product back, right? That gives you two to three months visibility. We see the funnels generated. On wholesale, it's a lot shorter term because we ship when they ask for more. On the audiological care, we can see market trends two to three months out until revenue realized. On the OTC side, our perspective has not changed. I think it's interesting to see who's launching which product and at which price point. If there's one learning, the price points we see, at least from meaningful manufacturers who have more of technology available to them, is rather on the higher side than what was set, call it a year ago. I think there is a lot of incremental discussions on hearing aids. The positive is there's a lot more marketing going into hearing aids, and so many of the people still ask an audiologist. The downside right now, while this is new to the market, is it takes a little longer to convince people to buy one with full service. I couldn't tell you the net effect, but in general, yes, there's more interest in hearing aids, and yes, the fitter has a little bit more work to bring the people over to a fully serviced model. No fundamental change in our eyes. I think long term, if these devices work for people who haven't come to the category before, that will be positive because more people come earlier. I think the ones who really need a hearing aid and want to have full services, you can't mimic that with a self-fitting device. Okay. Thank you. You're welcome. The next question comes from the line of Daniel Jelovcan with Stifel. Please go ahead. Yeah. Good afternoon as well. Two from my side. The first one is your wholesale and retail disclosure was pretty similar with a bit north of 5%. Is it fair to say, I mean, quite logical, that the U.S. was much less and Europe, even including France, was much better. But is it fair to say that the U.S. grew still positive for wholesale and retail or the more light you can shed, the better it is. Then, of course, it implies your guidance when you talk about more moderate consumer confidence. Do you bake into that a declining European mood or you believe in an ongoing negative mood of the U.S. and a good momentum in Europe? Thanks for your question, Daniel. No, it's very different organically between U.S. and Europe. Keep in mind, the Alpaca acquisition, which we have shared to be about $100 million for Audiological Care, give or take, annualized, is purely U.S. If you back that out of the U.S. number, take half of that, a little bit less probably for the 1st half year, you would see that the U.S. was significantly lower from a growth perspective in the HI segment. That's in line with also market data we have, where the U.S., I said it earlier, was a declining market in unit volume 1st half of the year, while Europe was a positive one. Going forward, it is dynamic, but we believe the U.S. is probably the market which will start to recover earlier, while Europe is probably still in a difficult environment. Relative to each other, probably a slight improvement in the U.S. and a slight decline in Europe would be relative to the 1st half year sentiment. Okay, thanks. The second question, just on Cochlear implant, a small one, but this preliminary suspension of the injunction, I mean since when didn't you sell in Germany? I mean, what's the impact that they had with the- Yeah, the impact was a significant part of the 1st half year. I go off memory probably four months or so. Was the whole 1st half year. Thomas is correcting me. We then at the European Patent Office have achieved a win relative to the validity of the patent. We're working through the German court system to get that into hopefully not just preliminary ceasing of the injunction, but right now it's only preliminary. The judge is still thinking about the matter. That takes how long? Should be a matter of weeks until he agrees that it's completely lifted or he has a different perspective. Okay, thanks a lot. Thank you. The last question from Holger Frisch on the line here. Yes, Mr. Frisch, your line is open. Yes, thank you for taking my question. You experienced a significant investment in your working capital in the 1st half of the year, so partially also attributable to your Consumer Hearing business. What can we expect for the full year for Sonova? Is there a full reversal of the net working capital investments possible? Then the second one would be on your leverage. You're already at the upper end of the targeted range, net debt EBITDA of 1.5%, and now you're guiding for reduction for the full year. What will be the main driver for the reduction? Will it be a slower execution of the buyback, or do you expect a significant improvement in cash flow beyond the levels normally seen in the 2nd half of the year? Thank you. Yeah. Thank you for your question. For the 2nd half, net debt to EBITDA will naturally come down because, as you say, the share buyback, given the low price it is, the low share price, it was relatively accelerated. Mind you, it's a fully mandated program, so we do not influence. But given the lower share price, it has been accelerated in the 1st half. We had a dividend payment in the 1st half, which we do not have in the 2nd half. This Sennheiser, the working capital effect by taking on the new business will disappear in the 2nd half. That's the CHF 28 million that you will see. No, that will balance out. We had some other larger components like for instance, our bonus payments typically are in the 1st half, not in the 2nd half. That will naturally disappear. You had a question on the cash flow, but it's actually related when you think of it, that's working capital. The negative that you see from them as I said will disappear. Normally, I would expect an improvement for the 2nd half versus the 1st half. That's what I can say about it. Thank you. Thank you. There are no more questions at this time. Back to you, Mr. Kaldowski, for closing remarks. Yeah. I think I did the closing remarks before the question. Thanks for the interest and the many questions. Thanks for going through with us while we were unpacking the results. As I said, we're looking at good market share again 1st half year. We expect them in the 2nd half year minus this large customer contract. We feel in a good position with all the investments we've done in the business, and the M&A will help us to build Sonova for the long run. With that, thanks for the attention. We wish a good rest of the afternoon to everyone. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.