Sonova Holding AG

Thomas Bernhardsgruetter - Head, Investor Relations Arnd Kaldowski - Chief Executive Officer Hartwig Grevener - Chief Financial Officer

Oliver Metzger - Commerzbank Corporates Michael Jungling - Morgan Stanley Romain Zana - Exane BNP Paribas Lisa Clive - Sanford C. Bernstein Peter Testa - One Investments Veronika Dubajova - Goldman Sachs David Adlington - JPMorgan Yi-Dan Wang - Deutsche Bank Keith Lee - Jefferies Markus Gola - MainFirst Bank AG

Good afternoon or good morning to all of you here in the room and on the teleconference call and webcast. My name is Thomas Bernhardsgruetter, I am the Director of Investor Relations here at Sonova.

I would like to welcome you to the full year 2017/2018 results presentation. I hope you had a chance to look at the press release and our comprehensive online annual reports.

The slides of today’s presentation can be found at www.sonova.com. With me today are, our new CEO, Arnd Kaldowski, as well as our CFO, Hartwig Grevener.

They will present the numbers and the outlook before we open up the meeting for questions here in the room as well as on the phone. If there are any additional questions after the call, feel free to reach out to the investor relations team afterwards.

And with this, I would like to pass the word on to Arnd Kaldowski, the CEO.

Thank you, Thomas. Good afternoon, good morning to the ones who may have called in from a different time zone.

We want to warmly welcome, in particular the ones who made their way to join us but also the ones here on the phone. We want to share our results from the last fiscal year, but also the voice of a couple of, let’s say, important elements which you may not find in the written material.

So, thanks for joining here. I am particularly excited for me after eight months in the company, this is the first full year results.

Communication and conversation, now I use the opportunity to just extend a warm welcome also from Lukas, who has been with us until the end of the fiscal year in the role of the CEO. He hopefully will join us as a Board Member.

He will be proposed as a Board Member at the General Assembly in a couple of weeks, but he also wanted to acknowledge that Hartwig and I should handle the presentation today to you. In that regard he is not with us, but he extends his warm regards.

Standard disclaimer with regard to forward-looking statements here, everyone should be well aware. From an agenda perspective, we want to follow similar as we’ve done in the past, highlights on the Group level, then diving a little bit deeper where we share more detail on the individual segments and businesses, Hartwig will come up with a somewhat detail on the financials and then, I will share the outlook and the guidance and open it up for questions.

So on a Group level, you’ve seen those numbers. We published significant growth rates on sales, EBITA and EPS for the last fiscal year, all of them growing double-digits in Swiss Francs on the growth side driven by organic and inorganic means and I will get in more details here.

From a key achievement with regards to technology advancements, the SWORD chip which we launched last summer was the first product which is now going to be part of the conversation how we think about this year, because why we launched with a first step with the B-Direct products, I think there is lots of more potential in the product platform with regard to the technology and how it can lever its connectivity as well as the audiological performance. I think everybody is aware about our strategy of the unique vertically integrated business model.

We are structured in three businesses, two segments as I said, a little confusion potential here where the Hearing Instruments segment, the Cochlear Implants segment. And then, we have a Hearing Instruments business when we talk about business, that’s the revenue towards the wholesale channel, by the retail channel it’s in the retail business, but both of them lead to the overall financials for the Hearing Instruments segment.

I think it’s worthwhile to point out that all three have contributed to growth as well as the margin expansion in the last fiscal year. The summary of the key performance of the organization, 9% growth in LC, set organic and inorganic and then a margin improvement of 70 basis points despite the headwinds, I think in terms of margin ratio due to the still ongoing integration of the AudioNova business and the financials.

That allowed us to drive 12.3% EBITA growth in LC. I think, quite a good performance on the back of that growth.

And then, with some tailwinds from a currency perspective, pretty strong EPS growth here for the year. Highlights on the Hearing Instruments side, growth and EBIT performance very similar to the Group as you would expect, given the size of that segments, I talked about the SWORD, I will get deeper into the AudioNova discussion, but clearly on the financials, a good conversion of products in that channel towards Sonova products ahead of the plan we had at the acquisition.

And then the Cochlear Implants segment, good high-single-digit growth, all driven organically, supported by two significant products additions, we made throughout the year. And then an EBITA pickup relative to the year before of around 50%, all driven by a better EBITA in the second half of the year and we will see that later in the schedule.

Cash flow, free cash flow and a pretty solid balance sheet. A couple of ins and outs with regard to particular where the growth came from, but also how we are making progress in our strategic initiatives which you may remember around go to market new products and these solutions on the go to market, clearly a strong performance in EMEA and HI as well as in the retail business, headwinds in the U.S.

and in The Netherlands on the retail side, they are not new to us. We talked about them half a year ago, but we are in the process of countering them and putting the right measures in place, but still a negative from a growth perspective in the second half.

And then the fourth point here we shared that in the Investor Call around AAA, we have entered into strategic partnership with one of the largest health insurance companies in the U.S. In the U.S., health insurance is interested to add hearing care to their health plans.

Some are further ahead than others are and we believe partnering with one of the largest there who also has a significant private-label business to other health insurances is a good way to participate in that growth potential here over the years to come alongside with its health insurers. That on the counter side and we will get to that when we talk about the financials has an impact on our top-line because, this was one of our customers out of the EPIC business and in that strategic partnership with effect of the EPIC business over to them, but entered into a long-term purchasing agreement, as well as a strategic partnership with specific objectives on how we drive the business in their number of patients of lives forward.

Good growth in APAC and the emerging markets. And then, new products, particular here around AAA and expansion of the features available through the Belong platform, as well as the rechargability to all of our products which is our normal cycle of how we launch products and bring them to market.

We start them in the RIC format and then move them over. So that’s completed for the Belong and we are seeing some good lifts out of that in those product categories and are now working through what’s the next generation RIC products.

Talked about the CI new product sites, on each solutions, we are making good progress to develop our suite of these solutions for the fitting as well as the assessments, the interaction with the consumer towards the audiologist in a “virtual environment” meaning video context as well as uploading of information in real-time. They knew about the VA ones with Amplifon.

We now provide that capability to Amplifon and they like what they get from us here, for our product and important feature to continue our growth in Amplifon with regard to a customer, their largest customer. But now, also having started to a pilot that suite of solutions in independent and a couple of markets around the roads.

So, clearly preparing ourselves to get those into a product type fashion to launch them in parallel when we come out with the next Phonak products and really take a significant step with regard to use solutions in real life. P&L, talked about the 9%, 10.4% on the growth side.

Spoke about the EBIT at 12.3%, you can see, we had a good tailwind in the second half of the year on the EBIT line from the Swiss Francs, if you count in Swiss Francs and then following through to the EPS here at 40% before one-time costs and 14.6% as reported. I am sure, Hartwig will go a little deeper on those later when we get to the financials.

Therefore, I’ll move on to the individual sales components, which are I think, worthwhile to dissect a little bit. Share the 9% overall as reported.

In the middle, you can see the organic for all three businesses together was 3.8% for the year. We see a 6% lift on the M&A side, but you also can see the divestments had an impact here of around CHF 19 million.

This is predominantly the impact of the former AudioNova businesses for Portugal and France, which we have sold to Amplifon and so impacting our growth here by 0.8%. Most of that in the second half from an accounting perspective and the way the business has moved out and when they are hitting the P&L here.

And then the CHF 34 million on the FX side. So, if you take the spin of the Portugal and the French business directly after on the outs, talking about a 9.9% growth rate here from organic and the acquisitions.

How do that look on a half year basis? Obviously, the second half is news to you.

The first half we published already. On the organic side, for the year, the 3.8, we were slower in the second half.

We did expect that to some degree, because in the year before, we’ve been 6.5% in the second half while the first half was very minimal from a growth perspective. That’s the launch of the Belong product with the rechargability which gave us a significant lift.

I think everybody is well aware, we have normally a two year launch cycle with new technologies which was the Belong and the rechargability we introduced the B-Direct as an “in between step” because we wanted to get our feedback from a connectivity perspective. But here, the 2.8 is really to be seen in context with the strong growth rate a year before.

And then you can also see that the disposals had a net about the same effect of new M&A we did with regard to buying some more retail leading us ultimately to the 2.7 we’ve published for the second half. By geographies, I think a couple of highlights and then one lowlight, as I would call it, if you allow me to be that frank.

EMEA, clearly, a good growth story also in the second half, if I look at the organic 3.8 here. The performance on Americas excluding the U.S.

while in Asia-Pacific had a good growth rate here, Americas and Asia-Pacific, no impact from acquisitions, and then in the U.S. the continued significant headwinds while we were restructuring the retail business.

As a reminder, we are going down from about 300 towards to a little less than 200 and the attempt to focus geographically on what we called a Sunbelt with a better demographic of their population as well as better proximity between stores, so that we can manage the business in a cluster. And that has a headwind here, but then also competitive pressure from a wholesale perspective and throughout the year, not such a good new system sales in the CI business.

So the U.S. really our challenging environment, the other ones, I would say with good growth rates here.

Briefly by segment, while for the year, both contributed the same growth, very different in the weighting. Cochlear, all organic, the HI benefiting from the AudioNova.

And then, the Cochlear side, relatively equally distributed over the two years. China tender of around CHF 7.7 million last year, at a high weight on the first half makes up about 10%.

So, the effect of a similar growth rate on the Cochlear business. Looking on the gross profits.

Good organic lifts of 70 basis points, pretty much driven by ASPs, productivity improvements, which we have in the manufacturing process, but also in areas which are in the OpEx not as growth relevant, meaning while the back-office and the G&A side of the house and then significant lifts due to the five months of AudioNova here. Now converting that into the EBITA bridge, particular focus here on the middle, the organic lift in EBITA was around 130 basis points.

Again, the ASPs, the productivity side on the manufacturing, but then also, a good focus on OpEx where it wasn’t required for growth in the second half of the year. The M&A, just a small absolute increments in the headwind with regard to the percentage margin, just because the retail business when we acquired it, it came in on a lower OP in percent.

We can see the effects with a smaller impacts and then the one-time costs which we are spelling out and had here that the acquisition of AudioNova relatively equal between the two half years. So not a big impact into the EBITA year-over-year performance.

The half year view, probably helpful to see with a difference particular towards the EBITA performance, I’ve talked about the top-line and then what you could see is that despite the lower growth in the second half was been able on the OpEx side to be higher and careful, does not mean that we have not done the investments on new products which we had planned to and which we will protect in order to get the new product out, but we had opportunities to drive some of the costs lower than it was under runrate. Going to the Hearing Instruments segment, income okay.

Probably, first starting on the new products. As we voiced all of that overall weighting, so probably we can go quicker.

But on the top-line, still a positive product mix and ASP developments for us, clearly for the full year, but on the mix also in the second half driven by the innovation out of the Belong as well as the B-Direct we brought to market. On the AudioNova side, when we talk about the integration progressing well.

Not just the economics, but also what you have to do while you bring those organizations together, we are making good progress there from a product offering, but at the same time, we had specific plans to individual countries where we had more than one retail, not just the AudioNova, but the ones we had, were pretty progressed almost finished in all countries with aligning those organizations. We also are moving in the markets where we have multiple brands to single brands, only exception being Germany given our footprint, we think we can afford two local brands there, but brand consolidation going on.

And then, we’ve created a very small, but required headquarter here in Switzerland to lead our now 3.5 thousand store big retail business from one point making sure that we implement the right strategies from an M&A perspective, but also from an organic perspective. A comment on the platform stores.

We shared that also already around AAA with some of you. No change in the plan.

The next product we expect to come out at the turn of the year and that will be a Phonak product using the SWORD technology. And having full functionality in the form of all of the connectivity using the various protocols required that enables all of the audiological capabilities and also that being combined with the rechargability and with that we are at a point where we can really make that the main products, because with the B-Direct, we knew that it’s going to be just addressing a subset of the market.

The key financials for the Hearing Instruments segments, we can see 2.2% growth, 2.4% in the second half and then similar acquisitions and disposal effects and a good EBITA performance in the Hearing Instruments. It was 150 basis points right, in the Hearing Instruments.

So, we had a 150 basis points operating margin expansion in the second half against a flat performance in the first half. Quick through the product mix, I said, very much driven on the Hearing Instruments systems based on innovation.

So I would look at the negative numbers as a loss here, but a reality still customers moving to the premium products when we are trying to upsell, we can see the premium throughout the year, but also in the two semesters as the one which is growing the most in the Hearing Instruments. And I think that’s credit to the product innovation we have launched over the last one-and-a-half year.

It does help on the price realization side. The wireless communication with good organic growth throughout the year and the miscellaneous, which is parts, warranty contracts and accessories, there is still a good growth momentum, pretty much coming out of the AudioNova business where that’s here is higher and people are driving that proactively.

And now the Hearing Instruments business, so, all of our third-party sales and wholesale and that’s probably the one which is the fairest comparison to a company which doesn’t have retail, has some retail from a growth rate perspective for the year, 4.7% organic and that is excluding anything we do as more shared wallet in our own retail. As you can see the bullet point below, we like to spell that out if you add the growth we brought through more share of the wallet, we sold 7.6% more Sonova products in the Hearing Instrument world and then no impact here from acquisitions and disposables in the second half.

The retail business, we had expected a pickup in the second half. It’s a moderate pickup and the good news for us was that, Q4 did see a better pickup that we’ve seen in the Q3.

So we see a gradual improvement here, a lot of that’s driven by still going through the changes we have to do in North America and in The Netherlands. But also an improving momentum we’ve seen in the German retail organization post the AudioNova acquisition, which is very important to us because that’s about 1000 of all our stores having Germany go in the right direction.

That’s something to say about in the go forward. And then, the here the acquisitions and the disposals balancing out each other.

Quickly turning to the Cochlear Implant segment, good high-single-digit growth. I would put that slightly ahead of markets.

We had all three players together. China government tender CHF 7.7 million for the year, but also strong upgrade sales.

A good improvement in the second half year to the EBITA if I compare it with the first half, but certainly not at the point where we want to be in the long-term. But a good first step and something we want to build on as always the phasing between the two different wallets just given the different size and the fixed cost structure.

So I would expect the 10.4 now as a starting point in the first half year, but our objective is to improve the profitability every year by significant stepping. Talked about the products here, pretty much that I covered, and then looking on the implant systems versus upgrades and accessories.

Upgrades and accessories, what happens on the outside is the processes which get a renewal every five to seven years. A relatively low growth for the year on the systems side, but a pickup in the second half, while the China tender was smaller, so improvement on the developed markets on the system placement perspective the year before, we were very strong with new system placements.

So, to some degree, that’s a consolidation of all acquisitions which we now need to take forward on upgrades, pretty strong year, particular first half because of the large patient base which was ready for a respective upgrade. With that, I will hand over to Hartwig and then I’ll come back.

Thank you, very much, Arnd. Good morning, good afternoon everybody in the room also from my side and on the phone.

I’ll take you through some more information in regards to P&L and balance sheet and earnings per share and we’ll, by that, in large some of the coverage that Arnd already provided. I am on Page 29, which reaffirms our sales and profitability numbers that you have heard, on the reported EBITA.

So, including the one-time cost and margin accretion of 80 basis points, I’ll come back to that in a moment and the reported EPS growth at 14.6% at CHF 6.13 per share. Cash flow continuing to be a solid cash flow.

Even though, I am not reporting an increase over prior year. So I call that as stable cash flow.

I’ll have a couple of comments on that. Still we believe a very good cash conversion, but if you relate it to EBITA and continuing solid balance sheet, the debt leverage ratio now at 0.4, just eyeing CHF 150 million amortization of the first AudioNova tranche, low tranche in October that is already a pretty good ratio and it will further improve.

And increase in the capital employed by 6%. I’ll talk a bit about that because it’s related to currency.

But all in all, again, double-digit growth on key earnings figures, EBITA and EPS. On Page 30, you’ll see the numbers again.

One number that we haven’t really talked about so much is return on capital employed. It’s not a big thing for us, because the past year 2016, 2017 and a rear mirror view, 2017, 2018, it is of course impacted by the consolidation of AudioNova including the acquisition price and so that is an expected decline just then being an improvement from there.

And else, I believe we are seeing those numbers in large. Let me just quickly go over to Page 31, which is an important page as you have all recognized that we had a successful work on costs in the second half of this year.

And I want to put out here that on R&D, we haven’t been saving much. We have continued to spend.

We have increased by 4.3% in local currencies and continue to invest in our product pipeline. In terms of a ratio to sales, obviously, this number is declining due to the mix with increased retail business.

If you look at S&M and G&A cost, you’ll see stable or slightly increasing ratios, but I am making the distinctive comment here that the increasing ratio in sales and marketing is entirely mix related to the increased share of retail and on the G&A side, that ratio would have been improving visibly without that mix effect. So these are the two brackets where the cost improvements come from and that have been instrumental for us allowing to present the 12.3% local currency EBITA growth.

Just a quick word on the one-time cost related to AudioNova. We had when we acquired AudioNova identified and we would go through two years where we are engaging in the restructuring integration et cetera.

So the 2017, 2018 year was the second and last of those two years and so I am just confirming this to you. We had level of magnitude at the same expenses at about CHF 19 million, compared to CHF 18 million the year before and this year it was rather not on transaction cost, but more obviously on really the integration cost including brand harmonization and as Arnd said, the consolidation of national organizations the back-office and head office organizations, plus, that we restructure, we went through a wave of restructuring in The Netherlands.

We can also call that an alignment. As you would remember, the Dutch market have changed significantly over the last, so-called three years and this was coming for us with the scenario to align our network structure there to be future-proof in that important market.

So, this is the picture on the cost side. You have seen here that the headcount hasn’t moved much.

There is a bit of an exit also from the EPIC disposal, but really we have been rather savvy in adding any kind of back-office resources concentrating to do what we need to do in the field, but also there with an eye on what is really generating value and what can be fixed. Page 32 is taking us through – from EBITA to net profit.

You see the 80 basis points on the second bar as a year-over-year margin improvement on reported EBITA. You see then that we have an increase and acquisition-related amortization taking away 20 basis points absolutely in the frame of what we expected is just the annualization of AudioNova.

The financial results, a very small, in fact a bit better than last year. As you know, people are paying us interest on our bonds rather than we have to pay.

So that’s a known and favorable condition getting us to a profit before tax year-over-year improvement of 70 basis points. And then, we have, this year, a slightly elevated tax rate at 14.9% and this is largely in effect from the U.S.

tax reform where also, Sonova, just like many others had capitalized tax assets that had to be revalued for lower tax rates there getting us to 50 basis points improvement on net profits. Looking at the cash flow, as I said, it’s rather stable this year and we had certain effects in the net working capital and related items that I’ll brief you on in this page.

It was trade payables, trade receivables and the liquidation of the AudioNova legacy LTIs that have given a negative of around CHF 46 million or the lion share of that bucket that is representing working capital changes. So, after a very, very successful cash flow-wise 2016, 2017, there is a side set here, but really for reasons that I understand that we have largely also expected even on the trade payables side where sometimes you have swings in the day-to-day business that are reflected here.

Looking at Page 34, the balance sheet, yes, the capital employed has increased and we want to be savvy with capital employed. We are absolutely shareholder value minded, but really the lion share of this is foreign exchange.

As we have now not only sizable U.S. dollar acquisition assets, but also Euro, since the AudioNova acquisition in particular the Euro strengthening has left its traces here.

And by the way, we are accounting for DSO and DIO also there, let’s say the spike at the very end of the year is showing in the KPIs. But the underlying numbers are very stable.

The DSO would be normalized around 61, 62 just there around and on the base inventory outstanding, if you look at our cash flow statement in the annual report, you would find that we haven’t spent cash on inventory if you normalize it for currency there. Thank you, very much for listening to me.

With that, I will turn back to Arnd.

Thanks, Hartwig. Coming to the outlook here.

I’m sure you guys have flipped forward. Probably the first comment to make, mid-term guidance, we don’t change our mid-term guidance, which is around 5% to 7% growth including 1% from an M&A perspective.

The EBITA 7% to 11% which translates into 60 basis point operating profit improvement. We think that’s a good achievable trajectory here for us.

The guidance for the fiscal year we’ve started now. Looks slightly different and it’s important to understand the different components here.

The first 3% to 5% expected and that pays to some degree credit to the fact that we expect the new product to come by the turn of the year. So we are just going to get lift out of one quarter here.

And the second one was still by the move of EPIC to that health insurance partner, but then also the disposal of the retail businesses in U.S. By the way, I haven’t said that earlier, disposing means we sell them ideally to independents.

So you need to keep the share of wallet of the product revenue, but it still has a significant impact given the value in the channel, which leads us to the 2% to 4% on an organic growth side. EBITA growth in LC, 6% to 9% if you do the math, that represents a 90 basis points operating profit improvement and we talked about the one-time costs, which been planned for two years and we have for two years we don’t expect additional one-time costs from the AudioNova.

So the effect on an as reported basis, another CHF 19 million in improvement here to the P&L given the, also positive FX environment based on May, I think through the EPS side that has an impact here and in the sum we are expecting assuming same FX rates as we head in May 2018 to be in the mid-teens from an EPS growth perspective. A last one I don’t want to voice them all over, but just for your benefit in the back, couple of ins and outs, when you think about the phasing within the year.

We do not provide a half year guidance and we don’t intend to do so. But we always want to give a little bit of a guidance on the different elements we are seeing here, clearly the big one, the next generation Phonak product for the last quarter and a year.

The other ones neat each other out to some degree. And so, we expect the second half to be around 100 basis points growth faster than the first half year.

To find the sensitivities on exchange rates in the back as we normally have them, but I want to stop the presentation here and move on to Q&A and ask Hartwig to join me. So, it’s a difficult one from the financials, so I’ll go his way.

Thanks for listening and open for questions.

Hello. Thank you.

Actually, it’s Credit Suisse. Maybe no stopping off now since you joined now as the new CEO on the 1st of April.

Maybe, could you expand a little bit on what you see as your highest priority is now over the next 12 to 18 months? That will be my first question.

The second question is, just on the balance sheet, I mean, you inherited a very strong balance sheet and what are your intentions with the use of that potential here? And then, I guess, I’d leave it with that at the moment.

Yes, thank you. So clearly, the highest priority if I think in terms of the P&L and the balance sheet to top-line.

And if I think through what does it means for the next 12 months, making sure that we get the London out and the London, A, has all the things we wanted to have and at the same time, this come with the right marketing support as we launch it. I think the second one is, when you look at the very – almost bifurcated performance in growth, I think we have a couple of markets in wholesale and in retail which are growing really well.

So, I want to make sure they continue to grow well which we are not in the way, but then clearly, we have a homework on the U.S. side, which is not just product, but it has also things we have to do from the retail realignment and a couple of things on the commercial side.

So, these are intense focus areas not just for me, but also for the management part. But clearly, the growth side is the highest priority with those elements here.

I think from a balance sheet perspective and the use of the balance sheet, we’ve shared that intending to increase our dividend that’s one piece of cash. We do have a down payment due on the first tranche of the AudioNova investment.

And I think, in due time, we will need to take a decision on what’s our cash uses post those two steps here. Clearly, M&A is important, but right now, that’s I know in the plan it’s CHF 50 million to CHF 70 million.

The dividend is important and then, we recognize the situation, but I think we have still a couple of more weeks and months to come out before we want to go from here.

Thank you for taking my questions. I have two housekeeping questions.

One is, you’ve mentioned repeatedly the ASP impact throughout the years, that would be great, if you could tell us what’s the overall ASP impact was on new growth? Second of all, you said that Germany recovered in the second half in retail.

Could you give us an indication, whether that is in positive territory or whether it was still negative? And then, lastly, you just mentioned the growth is the key priority, and we’ve seen now two years with quite volatile growth rate, and part of it is probably due to the fact that your product portfolio compares to what is out in the market wasn’t strong enough.

Is that an approach? Coming from a different angle, do you think that may be in the market where it’s moving now and with a kind of marketing efforts behind and open, for example, that has been pushed for two years upgrading the products that’s creating a brand recognition in the markets.

Same would link that your decision a couple of years go to put names to the form factors was actually putting you in a weaker position right now, because the difference of what’s your new product or your new platform is bringing is actually just added to the platform and that doesn’t really speak out in the name. Thank you.

Thanks for your questions. On the ASP side, we don’t publish the FX numbers, but it had a significant contribution to our core growth.

So, part of it is units, part of it is ASP. On the third question, let me go to the fourth question and then Hartwig remind me of the second question On the growth profile, I think yes, it is very spiky if you look by product-line and segment and are very much driven by innovation giving you significant lift and then you kind of dwindle in a bit from there.

There is an over portfolio effect which we have, but given the importance of our most important Phonak products, you still see that in the curve. I think there is some things which will naturally help to get to launching each solution since you have launches of those on a faster cadence.

But going back to the question on the marketing side, I am not for sure how much is the name of you give to the products, but I think, there is more you can do between two significant product launches to reemphasize the benefit of your products. I give you an example out of our world, which we are currently working with.

We looked at the rechargeable success one-and-a-half years ago. We now brought rechargeable to all products and in parallel created more data points on how successful that is, what the reliability improvement are and have wrapped around a rechargeable campaign with the marketplace.

So I think you need to get better from a marketing perspective to really have in our off-year, more of a revisiting of the benefits and making the story strong. I would argue some of the competitors have done.

So, it’s probably not the name. I don’t know, I’ll take that back, but clearly an opportunity to improve the marketing within the off-season.

Remind me of the middle question.

Germany.

Oh, Germany. Yes, from a retail perspective, we’ve been in positive territory from that perspective.

And what that’s? I mean, you don’t count for the majority of retail revenues, you had like 1.6% growth for the second half of the year, was it below that or above that?

It’s a little hard, because there is phasing issues between Q3 and Q4, but it was a bright spot of an improvement based on more efforts with regard to each generation in Germany, which at the post of the acquisition wasn’t done as much, while we were bringing the organization together. We do have a new leadership in the German retail organization revenue general manager as well as a new finance partner we picked up and drove the business nicely in Q4.

My question is regarding the Cochlear Implant business and the system sales in particular. If I am correct, if you exclude the China tender, system sales were down year-over-year.

Can you elaborate a bit what’s going on there? What are the issues there?

I think the first one to start off with, I think we are actually exceptionally high in the growth rate in the year before and I think, as you would expect in a competitive marketplace that triggers a certain phase reaction on the other side, in our market particular from one significant player who I think has upped their game and even their investment level and published data with regards to sales and marketing activities. They, as well as we are getting more active in reaching potential recipients directly and then help move them through the sorts of being already mentally branded.

We have our own activities on that and are booking the required investments for the size of our business behind it. But, I would say, quite some competitive reaction mainly on the commercial side in those markets which we have seen.

One comment on the Cochlear Implant plans for this year, we have in addition to focusing on the, how do we get to a better EBITA also spend a lot of time on how do we use some of those funds which are coming our way and what’s the right focus. And so, particular for the developed markets which are important for the volume, but also for the higher priced business.

We are more active and putting more money aside in order to drive good products we have to as many customers as possible.

Hi, it’s Oliver Metzger of Commerzbank. My first question is on the hearing aid market in general.

What are your underlying assumptions this year? And also, how the recent merger of Sivantos and Widex changed this environment in your view?

My second question is about an understanding on the growth dynamics in the Hearing Instruments market. So, you mentioned already as you had a quiet positive impact from that and could you specify, if this was mainly related to the hearing rechargeables, Hearing Instruments, or was it more of a – you are having some positive portfolio effects?

On the market, the last year, despite a data we can get our hands around from a published perspective was a little slower than the year before. I would say, probably ten or so and that’s in the mid of the range we share and others share that reached 5%.

So, a little bit slower market. Without having any additional information, I would expect probably about the same, kind of the mid of that market growth.

I think the years before have benefited from significant product releases of different players. From a impact of a potential Sivantos and Widex merger, still needs to go through the regulatory discussions.

I think, probably the first statement, it’s not one which makes us very nervous to put it into some frame. And you look at the short-term and that was your question, big acquisitions have opportunities as well as success.

So in that regard, I think, for us this year, we have not seen that as something which has changed how we think about the development of ourselves and the economics of our business in the current fiscal year.

And on the ASP? For the rechargeable ASP?

Oh, yes. So, we have seen a good lift for the rechargeable, but we have also seen a lift from the B-Direct in the connectivity, which people valued as an incremental capability.

So I think, it is true that if you add significant capabilities and functionalities for the customer, we are able to drive price increases while it’s sitting at equal product, equal capabilities, you are probably looking more at a downward trend.

But could you confirm that rechargability was the biggest driver?

Yes, we said that last year and a half year, rechargability had a bigger uplift for us than the connectivity also rechargability had a bigger impact into the absolute growth driven by the two different products. I think you’ve seen the mix shift which comes on top of the ASP discussion.

So, I think also when you bring out new capabilities in addition to ASP with those new higher features, we see an opportunity to upsell towards the higher end. But rechargability was a bigger effect for us than the B-Direct.

But both profit us.

I have a question concerning the outlook and you said, you will not have extraordinary effects from AudioNova. Will you have some others?

Then about the tax rate, you had special effects in the last year. How does it look for the current year?

And the same with CapEx, how do you expect CapEx to develop and the same with the financial results? And finally, could you give us any hint on the currencies – the currency stays as they are at the moment and how positive or negative would they influence sales and EBITA for the current year?

Thank you.

Thank you. You might have to help me to make sure that I get all the five or six.

No, AudioNova one-time is next year. No other one-times next year that we would be aware of today.

Then, I guess, you said, tax rate and financial results. Financial results very stable.

Tax rate, we had been, year back saying that it takes two years until AudioNova with their tax structure fully digested that second anniversary is in September of this year. And so, generally, we should then be able to trend back to kind of the rate there we had before, which was around 13% margin.

I am – that’s kind of the lay of the land. We’ll need to keep on the horizon that the Swiss tax reform is in progress where we have a lot of good cards to be, let’s say, again a top player in this condition afterwards, but we will have to watch this a little bit in order to kind of not miss an important let’s say development that is somewhere in the radar where we yet don’t know how it will unfold.

Forgive me, the – what the FX? Now we were coming to FX.

So, you see on the – on one of the last pages here, you see the FX, average FX from last year, which you obviously know some other sources and so by May, even though that has softened again, almost over the weekend, but when we close this document, you’ll see that we were climbed a bit better. So four cent on the Euro, and it should take on the sensitivities on Page 38, you’ll see obviously that we have a positive impact there, which drove us to identify to you a mid-teens impact on the EPS as an expectation for next year.

Does that help you? Reconfirming that.

And influence on sales would be around 2%, 3%?

Yes, as you can see, if this worth 5%, it’s not, it’s like 3.5% on the Euro, but 5% would be CHF 53 million and so if you could do the math and obviously that changes every day. But you need to use those numbers that we have normally not done the math for you because it might change every day.

But rather in the summary statement I would like to reemphasize on an EPS level, good prospects to get to the mid-teens.

And finally, on other income, you had some profit on other income of CHF 7 million. Part of it was, it could reduce liabilities due to a recall of products.

Could you expect small amount also in the next couple of years?

Well, obviously, we are trying to size the provisions appropriately and there is always an attempt to be on the sales side, but IFRS gives us quiet firm ties to really state true and fair. We have been – seeing releases over the past few years.

I acknowledge that. I believe that provision is appropriately sized.

Even though, there are some assumptions in there, for instance, minors after coming into an adult age will handle that case that could turn out positive. But I don’t want to speculate here and believe it is an appropriate provision for now.

[Indiscernible] Two questions. The first one for the U.S.

wholesale. I mean, you mentioned second half was weaker on comps, but I am sure it’s not down on the region, I guess, it’s more related to the lower adaption of SWORDs in the U.S.

relative to Europe, if you can elaborate a bit on that? And then also in the U.S., on the retail, I mean, the sunbelts where that you say is very logical, but I guess, you are not the only one.

So, I am a bit afraid, a lot of the big wholesale is now a focus on the sunbelt in retail, I mean, your rival here in Europe also mentioned a similar tendency. So I am a bit concerned about an overkill in the sunbelt, let’s say?

And the second question is, AudioNova, helping with the share of wallets, because now I guess, it’s probably 90%. So in other words, going forward, the nice remark you made that your Hearing Aid business sales including sales to all retail was growing 6%.

So, let’s say, it’s 300 BPS higher than you report organic growth. I guess, the 300 BPS is mostly due to this higher share of wallet in AudioNova logically?

So in other words, in the next year, that is going to diminish. I mean, why you say that, your remark was correct that’s compared to competition, you should probably take these 7% but 6%.

My comment is that, the other companies didn’t really have a lot of share of wallet increase, so, let’s see how that sorts out this year.

So, the AudioNova will not repeat itself. That’s correct.

We do some bolt-ons, but the AudioNova was for that transition here. We are above 90% that’s where you would expect it in some markets, people needs are for more than one manufacturer as a product including ourselves.

I think from the sunbelt strategy, I think for us, while we are – we started off at the 300 store network. And we said let’s get to a place where we have a network based on the assets we own which we can prove to ourselves that we can grow same-store and do that on a profitable side, it made sense to focus on the sunbelt.

We had good assets there. We looked at all of the assets.

We also don’t see a limitation in those markets where we are operating today to drive more volume, even if certainly other people know where the older population is in the U.S. but where we drive good lead generation.

We still have an opportunity to grow same-store. So I think for now, that’s the good place to start.

I think, we also have learned that we need to have a meaningful size of a business and proximity, because if not, at least as a retail chain, you are going to struggle in U.S. mainly because there is a high voluntary turnover in audiologists and all of the retail chains that’s not just an issue we have.

So you really need to be close to each other to balance when somebody is not there. Yes, so, in that regard, I would say, sunbelt is a good place for us.

Is it the only place which could be good, I wouldn’t see that. But clearly looking at our own network and looking at the demographics, it’s a good place to prove your model to yourself and implement a functioning system which can drive profitable growth there.

From the U.S. on the wholesale side, I think a couple of “challenges” and you can go through the Vas, you can go on the Costcos and then you follow those closely, if you look at the VA, our market share has come down a little bit.

Interestingly not in the RIC product where we launched the B-Direct in VA that’s where we picked up some, but our market share went down in very high markets here in the BGE, as well as lithium ion rechargeable where we are the only one in town. And other people have launched products in those product categories and I think it’s fair to say if you look at what was available to Vas, there was more new products coming in the last season at VA, particular in those.

On the Costco side, we had a very strong growth for the last – for Q2 in the year before and Q1 last year that isn’t as strong there anymore. We took advantage of bringing our technology to Costco and had a good lift.

But if I look at what other people have launched, other people have also brought new products. So, I think there is new product launches at different channels and the Costco as well as the VAs are markets which are competitive given where we stand in our large cycle and what we brought out.

We didn’t get the same growth rate we had in Costco before and we lost some share on the VA side. I think on the independents, there is lots of dynamics there.

I think some of it you can probably count the products, but then there is other movements and changes in that world going on where people are driving captivities through buying groups and other elements. So I think that’s a good market topic there.

There is a couple of actions in place to counter that. I don’t want to go too deep here, but I think the U.S.

it’s a sum of commercial things where we have opportunities, but then also product launches not just the B-Direct, but channel-specific ones we’ve seen. I think you had another question and I should actually take note, but did I answer all?

Okay.

Hi, thanks for taking my question. One on the EPIC sale, I just wanted to clarify the 1.8 negative impact you said, if this is including the new partnership you’ve done with the insurer?

And then, the second question maybe adding at another one. You had quite some investments on the net working capital impacting the operating cash flow.

What do you expect for the next year including any changes in capital expenditures?

So, let us split those. I’ll answer the EPIC and net working capital side, if that’s okay.

On the EPIC side, the revenue model at EPIC was comparable to the retail model we realized prices to the end-consumer. And so we now moved the business over to our partner where it’s relevant for them.

So we are losing all of the margin lift there, which is a impact we talked about. We expect good growth there because, that partner, there is a couple of tens of millions of patients – lives under management and just a small part of that with a hear aid plan at this point of time.

But that’s something we have to develop over time. None of the big health insurance is one company in the back-end.

All got together through significant acquisitions. So, I would say that we have high expectations with regard to the mid-term growth rates here in instrument sales, but for the year, we are really giving up pretty much the margin to the end-customer price.

On the cash flow side, I try to articulate that, what we see here was a bit beyond what I would normally call, ordinary swings and so that we had certain factors that were a bit out of that corridor. But we are on a normal right now.

And so, going forward, we should neither have, I don’t expect for this year to have a significant adverse payable swing nor, we have this AudioNova long-term incentive liquidation. So, which gets you kind of close to zero impact there.

On the CapEx side, no change there. We have generally always spoken about around a 3% ordinary CapEx progression.

We have a small facility project here in Switzerland that – the people carry out in this fiscal year and next fiscal year. But it will not be ultimately moving the needle for you.

So, you are pretty safe with this 3% rule of thumb.

Maybe just one follow-up. On the stock-based compensation, especially where you confirm this is a big part of the company’s strategy.

Do you plan to introduce this as well by any significance?

Stock-based compensation in terms of the management team?

Yes, already outflow is here.

So, do we have a long-term incentive plan to couple of hundreds people in the company participated on the lowest tier that’s all stock on the – about top 200, that’s a mix of stock options and RSUs and then for the management board, we have now moved to a model where we have stock options on the one side with a hurdle, with a threshold of a rosy target and then on the other side, we’ve converted some RSUs to PSUs with a longer vesting this year. So I think we are appropriately incentivized and in line with the expectations of the shareholders, especially the more we move up to the senior management and we’ve gotten good, let’s say marks from the advisors in the Swiss market on us moving the right direction making that even more attached to the stock performance.

We had a couple of questions on the phone. So, Thomas?

Yes, operator, we are ready for questions on the phone.

Great. Thank you and good afternoon.

I have three questions. Firstly, on the next product cycle, why should this next product cycle perform better than the B-Direct and would you agree if this product doesn’t perform, that you face the risk of a multi-year below market growth rate?

And question number two is on cost savings. May I ask why you decided to focus more on cost savings in the second half, rather than taking some of the savings and reinvesting in driving the top-line from an organic sales growth perspective?

And thirdly, a question about innovation, I read your annual report this morning, and I noticed that the word innovation popped up a lot. So I decided to do a bit of a word counted innovation of this annual report to last year and indeed it’s up 80%.

And I’m a bit curious as an outsider why you feel so excited of that innovation when really over the last three or four years you probably have lagged the industry for instance the MFI solution, it was two to three years late, the MFA solution produce, I would argue immediate results in the first six months of launch. So, can you please explain your comments in the annual report as to why are so excited about the word innovation and what this means going forward?

Michael, thanks for the questions. On the first one, with regard to the next product, I think, when we launched the B-Direct, it was clear to us that this is addressing the subset of the market and by the simple logic even we didn’t have the rechargability and the connectivity together.

So at the end of the day, customers would need to choose are they going for rechargeable, are they going for connectivity. I think, we also shared and I think we’ve discussed that even one-on-one that some of the audiological features which people like about the high-end on the Phonak side, we did not realize because that requires certain proprietary protocols in the communication in which we in that time couldn’t realize.

So, I think it’s safe to say that the B-Direct serves the customer need for a sub-segment of the market. And so, knowing that, we are going to complete all of those, knowing also that we are adding incremental innovation on the audiological performance side and adding these solutions, I would, from that logic, simply derived that it will have a far more significant impact.

So that’s how I think about it. If I thought about what does it mean, if it doesn’t have the impact, I haven’t.

I think you are always in a world where if you have a high likelihood that you get to something which is going to make a significant difference you are not necessarily planning your – of a down scenario. So, I am sure you guys will look from that outside do that more fast than we do that for ourselves.

I don’t believe it. So, that’s probably the statement to make.

I know what we are working on and I am not concerned about that site here. I remember your innovation question, the second one, Hartwig is now taking notes.

Well, on the cost side, look, it wasn’t a deliberate choice between gross investments and what we can do to the bottom-line. I think we are well aware on being in the off-cycle year and having to drive the top-line.

So, to give you two specific examples, on the lead generation side where lead generation can be turned with incremental OpEx and you get a good contribution on the top-line. We actually double down in the markets where we had capacity in the stores.

And we had those discussions and we allowed the team to spend more than they had budgeted for it and clearly more than that in the year before. Now, I think the same is true on the new product development side, particular with regards to the London project, R&D, or ahead of R&D no topics in my opinion if more resources can help secure the timeline and the feature content, he doesn’t have to ask.

So, I wouldn’t see it as the one or the other, but if you look at an organization with 14,000 people, there are some people we can help on the top-line and some people have other duties to perform which don’t impact the top-line if they get done or don’t, you can go more to the operations side, the manufacturing side and some of the back-office environment. So, I like to not drive a dilemma out of does every margin improvement crowd out investment on the top-line I think it’s up to us to decide.

What we can improve, what all that do give to the bottom-line and what all that do we put into growth investments and you will see us come back over the years where we say, hey, we are driving productivity, X, we think we are well advised to put some of that incremental money into growth, because it has a good return. So, please don’t read that into it.

It did not drive us in the decision-making. We also went through every time in the conversation of any sales territories open and if you can accelerate directly.

So, I wouldn’t read that. The word innovation in the annual report, I admire the hint, I did not do that, I should have probably.

I am looking at Thomas who helps us writing that. I think, I was reading to that, if I want to be on the positive side, that we still like to drive innovation.

We still know it’s important and we are still committed to it. Now, 80% versus prior year, perhaps it comes out of some formatting change and some way we wrote differently, I don’t know what it is.

But at the end of the day, rest assured, we understand that in this industry, innovation drives the top-line. I think that’s hardcore product innovation as innovation is about what we call e-solutions, as even innovation and your go to market, but innovation will make the difference here in the top-line.

Great. Piece of follow-up on the next product cycle.

So, if I understand this correctly, the reason why the next generation product will do better is because it comes with the rechargeable option? Secondly, you are also improving ear-to-ear communication.

Will that be a fair summary?

I would say more in it, but it allow us to keep that a little bit to ourselves. I know that many people are following our conversations and there is other improvements we are working on.

Some of them being unique advances on the products, but I don’t want to give much heads up here to our fellow competitors.

Okay, thank you. Thank you.

Yes, good afternoon and thanks for taking my question. I have three remaining.

The first on the reception development cuts. The percentage of sales allocated has decreased over the past three years.

Is that mainly resulting from the increasing proportion of retail or could we see an increasing ratio ahead of the next product platform, for example? Also, Hartwig, if you can please quantify the proportion of capitalized R&D for the last fiscal year.

Second question is on Hearing Instruments and retail business in particular, the organic growth as seems can be slowdown last fiscal year impart was the market-driven and part was company-specifics. How fast do you think you will be able to fix the remaining company-specific issues?

And would you do another way, how many years do you think you need to return to the 4%, 5% target for the mid-term? And last on working capital increase, the increasing proportion of retail business contrast a little bit with the last fiscal year increase, because it was supposed to be less working capital intensive was rather one-offs each year and can we fairly expect to catch-up next year?

Or is there something else I am missing? Thank you.

So, first, Romain, on the R&D ratio to sales, absolutely, it’s a factor of having additional retail business in there and there is no change in the pattern that we have in terms of capitalizing R&D. I should say, development cost which we only do for the Cochlear Implant business, because required by IFRS due to the longer product cycle.

I must submit I was a bit uncertain with what’s the second question, whether it was about retail, I don’t know Arnd whether you call it well?

I can first go to the working capital, yes, it’s true that once you have a well integrated retail business within an integrated set up like we have it at Sonova from the wholesales side and the retail side. It’s not especially working capital-intensive, and so we are working on this sort of supply chain integration.

There is minor improvement opportunities still out there. But I guess, what you see this year in the working capital profile is something it has to do with the payables with the legacy incentive plan from AudioNova that we liquidated.

And so, these are, in the payables side we had a swing last year to this year we realized that later in – early this year, the last year was a bit going to outstanding amounts that we hadn’t actually fully planned for. So it has nothing to do with the integration of AudioNova.

But it’s a mix of those items that I mentioned. I hope that’s helpful Romain, and if so, please can you repeat your second question if you don’t mind?

It was a little bit hard to understand.

Yes, yes. My second question was on the retail business and I was wondering how fast do you think you will be able to fix the company-specific issues and in that way, how many years do you think you will need to return to the 4%, 5% organic growth targeted for the mid-term?

So, on the specifics, two areas which are holding us affect the most. The realignment of the U.S.

retail network is by now well progressed with businesses moving out. And moving out to independents, we expect that to be completed by June and then from there, have a positive contribution on the same store.

So, one needs to do the math in that bridge. But we are pretty confident about those two elements, the disposals being done and the turning back to growth on a same-store basis.

The Netherlands, we have done a second round of store closures, because we still, relatively speaking, over exposed with stores in The Netherlands to the market size after the reimbursement changes. We implemented those and communicated those at the end of Q4.

It now takes a couple of months in The Netherlands until people roll-off of your P&L, but also by the middle of the year, we should be in the go-forward structure. But then have that, let’s say disposal effect in there, but from a same-store should be seeing growth on a same-store basis in The Netherlands from the middle of the year.

And I think that’s the key driver to get us including what I said about improvements in the Q4 which we expect going forward to get to what’s a range of a mid-term guidance here.

Okay, thank you.

Hi, good afternoon. Three questions.

First, how far along are you in downsizing your U.S. retail footprint?

I guess, it was from 300 to 200 stores and in that process, have you been able to sell the assets on or have you just had to shutdown locations? Second question and I think this has been asked in a two different directions, but just given that your organic growth was only 2.9% in Hearing Aid wholesale, particularly given that you said there was a positive mix in ASP development in the period.

Is it fair to estimate that your unit growth was flat or even slightly down. So it appears you’ve lost share somewhere.

What are the channels where this has happened? And then, lastly, just a high-level question for Arnd, as a new arrival into this industry, you seem to have joined at a time of unparalleled disruption, both negative and positive an OTC category that will become part of the U.S.

market in 2020, the increase in insurance coverage for Hearing Aids in the U.S., new business models like CVS hearing. How do you think Sonova is positioned for all these changes?

I suppose, what are the issues that you are confident about and where are you perhaps more concerned about the future?

Thank you for the questions. On the U.S.

retail side, we go down from 300 to a little bit south of 200. With every few closings of stores, at this point of time, single percentage of this total 100, the reason why it takes a long as we need to find the right buyer who has the right plans because to keep the stream there.

We are clearly above 50% of agreements in place and are in discussions for the remainder with appropriate partners. So I think we are well progressed by now here and a significant number of them being closed and off the P&L by now.

With regard to the 2.8 or 2.9, I think, they are still unit growth here in that number. Price wasn’t if positive, in the second half year-over-year, keep in mind that the rechargeable came in already last year in the second half year.

So we had unit volume growth there, which were positive. With regards to the – what you called unprecedented, let’s say, turmoil in the U.S.

market and how we think about those, it is – there is a lot of changes which one needs to navigate in the U.S. I think on the OTC side, still in the how the regulation will fall out.

So we are in general friends of getting more meaningful hearing care to more people. So, as long as we stay in an environment where this is a properly regulated medical device and we think that’s a good thing and this is a thing where we potentially participate depending on how the regulation works out and how the channel – what the right channels are from a product offering is, but no decision taking at this point of time, because we want to wait until the regulation is more clear to us.

But that in general, somewhat of a positive, if it falls the right way, because there is an opportunity to reach more customers. I think on the managed care sites, I like where we are.

We’ve been in managed care with EPIC earlier that others that can debate why do you then move it on, but I am a strong believer that aligning for the big part of that opportunity with one of the largest health insurance is a long-term good strategy. I know there is other models in the market.

Some call them discount models and they were available at some point of time, but I feel better about a solution in which you are directly intacting with the health insurance when they are serious about a managed care plan, because in the long run, I would look to dental and if I would look to the optical industries, where the insurance have said they should be part of our core business and it gets relatively difficult as an intermediary. That’s my personal point of view.

The teams share that. But in that regard, we have a good opportunity to drive what we have started with EPIC now in a different set up and we still have opportunities to grow through other means in the managed care environment.

So, I look at them as positives. I think, the retail side, they haven’t asked for that, but I’ll say that, the U.S.

market is different than the European market. Now, I talked about the attrition of the audiologists, many different models at play in the U.S.

We really right now want to see that for the assets we own, we can operate them properly. I think the next step for us is to decide how do we have more closer to the consumer.

And what’s the model. Don’t want to say, we have not taken a decision.

Therefore, this is not a decision I communicate, but there is people who would have a franchise model. If you look at the Amplifons of this world and I think to some degree that isn’t that easy to run a store network in the U.S.

with that high attrition. So, I like our focus right now on making it work and you could call it significant size experiment and I think from there, we have choices on how we drive it, but I think getting closer to the consumer is still an important element of our strategy.

Okay, thanks.

Hi, thank you. Three questions please.

Firstly, I just wanted to understand, if you looked at the half two mix by sales product groups and Hearing Instruments, how much of the positive element to premium was still related to building out the AudioNova premium range footprint in that half and maybe some thoughts as to why the divergence in the categories? Then on Cochlear, it’s very good profit in H2 you mentioned obviously the seasonality of sales, what do you think the sustainable margin improvement that you saw in Cochlear is and how should we think about that as a base going forward?

And then, thirdly, just on the U.S. I was wondering if you could give some thoughts as to your efficiency of your dual-brand strategy and in particular whether you need to give a different role to the Phonak brand in the U.S.

Thank you

So, on the first one, there was no significant impact, anymore on the shift to the premium in the second half, that’s really product mix indeed in the open market which comes from the effect to upselling to higher value products. On the Cochlear side, I think if you run the numbers if you could from the last year numbers towards this years, it’s somewhere between 150 basis points to 200 basis points for the second half.

I think that’s a good start. I think, we have higher aspirations.

I think when we get asked about where you want to stay in three to four years, we were talking about high double-digit operating profit and I think we need to find ways to get there. The I know I was blinking on one question.

The last one is about the dual-brand strategy in the U.S. Unitron and Phonak.

We do have both strategies. We’ve done some work on segmenting of the marketplace, particular in the U.S.

and in Canada and we found some interesting, let’s say different segments by store owner and audiologists which supports the pieces that for certain mindsets of customers. The Unitron brand with its Flex product offering and service offering is actually a better solution.

So, as we go steeper there, but really believe that there are customers whether Unitron brand with a whole offering is more meaningful. So, I would expect we stay to those two brands, but for refining that positioning and to some degree the go to market there.

Yes, I was also asking whether you felt in particular that the Phonak brand needed to take a different more prominent role in the North American market and in which segment?

I would not say it doesn’t have a prominent position in the marketplace. I think the Phonak brand, if you go to the – I think that the independent audiologist itself in high regards in general, we see that out of the brand work we do.

So, I wouldn’t say, given everything we’ve done on deals, we see that we have a disadvantage there from a brand positioning, I think we are okay.

Okay. And if I can ask one last one, just looking at the margin development going forward, you mentioned your headcount is up just over 1% and I was wondering whether you had any different thoughts on headcount growth going forward as a way of developing operating leverage to the business?

Yes, we don’t have a forward-looking guidance on headcount. But, I think, as Hartwig pointed out, some of the 1.1 also came from the disposal of EPIC.

So I think overall it’s probably higher than the 1.1. I think, if you want to drive operating profit expansion, ultimately, you need to have your headcount growing slower than your top-line.

So that will be a good starting point. And you want to focus that on the manufacturing environment, as well as on the G&A side.

The lack of growth.

Yes, okay. Thank you very much.

Good afternoon gentlemen. Thank you for taking my questions.

I’ll keep it to two, please. My first one is, Arnd, I am curious what your degree of confidence is meeting the launch schedule that you’ve communicated for the next platform.

I believe at the AAA call, you discussed turn of the year. I know that there is quite a lot of complex moving parts to an MFA 2.4 gigahertz system that has some of the attributes that you were looking for.

So if you can give us an update and how confident you are in the statement that this product is commercially available by the time when we get to the end of the third quarter for you? And then my second question is a financial question for Hartwig, can you give us an update on where you are with the AudioNova synergies?

Even if you can provide a number what would be helpful to get a sense for is, whether you are 50%, 80% or 100% realized of the opportunities that you had outlined at the time of the acquisition? Thank you.

Hi, Veronika, thanks for the questions. On the confidence, we are making good progress, even in the time since we spoke.

We are at the place from a product development where we should be entering into the validation phase. I think so far, so good.

I think it’s a complex product. So, I would put the disclaimer that it’s in the normal range of a risk profile for a project of that scale.

But, we are marching full steam ahead and reasonably confident around it.

Veronika, on AudioNova synergy realization, the replacement of the product portfolio by Sonova products was basically getting almost full runrate in late summer last year, early fall and so, since then we are kind of in flight level there, minor refinements to reserve. On the synergies in regards to the field force, the in-market set-ups we are done with most of the markets.

There is two markets, Germany and Belgium where the existing structure, legacy Sonova were larger and that’s where we are still doing some work. I would say though, overall, if you take out what we have disposed, we are about 75% done, 80% done there.

Okay, that’s very helpful. Thank you both.

Thanks, guys. Again questions two please.

So, firstly on the Cochlear Implant business, where nearly what post-acquisition was still sort of barely profitable. I know you kind of a light on the top-line growth there, but you said the same for the last few years.

Just wondered, I think you mentioned, some three to four year timeframe to get into that I think high-teens profitability. Is that purely reliant on acceleration in the top-line and leveraging the cost base that you got currently?

And then, second question just on the return to the balance sheet, which does look under levered, given the fact you are being paid to have debt. I just wondered why you don’t get a little bit more aggressive in terms of levering out to increase shareholder returns.

Is there anything that’s holding you back there? Thanks.

Thank you, David. On the Cochlear Implant side, no, it’s not just relying on the top-line growth.

I think, as we were doing some homework in the last six months, we found a couple of things we can improve from a process as well as from a procurement perspective. And so that’s helping us in the next 12 to 18 months already.

And I think as we put the focus there, not of the top-line driving people, but the people we have for those activities, it will be a balance between what the top-line will bring us as well as what the, let’s say productivity, no matter if it’s indirect material, if it’s direct material or if it’s just manufacturing productivity. So, good opportunities there.

I think with regard to the balance sheet size, I think we hear this on a regular basis. I’d like to stay to the statement I did earlier, where we – as you can tell, we are having those conversations, I think we don’t see we are exactly at the point where we have to move.

But, I think in due time we will take the appropriate decision here.

Great. Thank you.

Thanks very much. I have four questions.

The first one is on the ASP developments. I mean, historically, we’ve heard companies say that the market growth is negatively impacted by low-single-digit ASP pressure.

That statement is still being maintained by, I think all companies, but, all the listed companies have been reporting ASP growth, I mean, some more than others. So, for you guys, and also if you have a view on the market, how sustainable do you think this will be going forward and why?

And the second question is on the phasing of the wholesale growth. I am slightly surprised by the delta that you’ve given between first half and second half, which would suggest that you would be at the low-end of your range.

And so, please correct me if I am wrong that would not be a reasonable level for us to start the year on. And the third question is, on retail, can you give us some scope for – some indications on how much scope there is for further improvements in Germany to drive that retail improvement that we are seeing the first – in the second half?

And whether there is still additional weaknesses in the U.S. and Netherlands that we need to absorb that?

And then, the final question is on guidance. If you do end up at the low-end of the range, you would miss your kind of mid-term target range this year.

Should we expect you to make up for that in the subsequent years or each year is on a standalone basis and that mid-term target is what you aspire to, but not necessarily able to deliver on a cumulative basis? Thank you.

So, on the ASP growth side, I think, improving ASPs is sustainable if you have meaningful, I’d say, new capabilities you bring to the market. This market isn’t driven by a high price elasticity, if I can and adds meaningful benefits and we are in phases of meaningful benefits, no matter if you take the rechargeable, the connectivity of these solutions and hopefully over time.

More applications available for the hearing aid, I think for the right customer, you can charge for that and there is some that’s going to help you out. So, I believe it’s sustainable with a right innovation level.

Why the second half lower from a growth perspective, while that low, I think in the first half, we still had a positive contribution from the rechargeable side year-over-year. If you look in the phasing in the year before, it was right the opposite, even more pronounced.

So if you would run the two year growth rate and I know that’s not the only way to look at the world, you would have looked at the two second half, added together exiting better to the first half. Again, I think the other one we are in the second year of our major platform launch cycle in Phonak since it’s on a last year which tends to be the lower one for us as a company.

And on the retail side, with regard to Germany and I think it was around the sustainability, I think the German market on the one hand has picked up at least in the first quarter and published growth in the market, which I think everybody benefits from. And then at the same time, I think it’s fair to say that, we went through a year of integrations of, not just AudioNova, but we had multiple brands in Germany with multiple different country heads and we’ve gone to a model where we had one country head, one organization which leads the two brands, which we now have Vitakustik and Geers.

And I think, getting through that phase was important for us, but now allows us to focus on lead generation and how we run the stores efficiently. So, I feel good about where we stand and the momentum going forward here.

I think on the guidance, that’s a good question. I would not look as the mid-term guidance as the sum of all the years in between.

So, I think, clearly, we have the potential to get to that growth rate, but I wouldn’t like to pack already the guidance for the next fiscal year here in this audience. So, let us go through the first half of the year and then I am sure, we see how we are doing.

Okay, just a follow-up from the Wholesale Group. The question was really based on the delta which is 1% faster growth in the second half of your new fiscal year versus the first half.

I think, well, anyway, it would suggest that you would end the year at the low-end of the guided range that you’ve given, is that a reasonable assumption in a further time of the year? Or do you have any the ability for better performance than that?

We are just saying that the – we have a full year guidance and within that full year guidance, the second half will be stronger than the first half. And so, what the first half is weak that was being make up by the second half, if that is your question?

No, that is not my question. My question is, if you look at the guided range of say, 3% to 4%, 3% to 5% organic sales growth, looking out what you’ve exited the year with in the second half of this year, and accounting for some additional competition in wholesale market.

I would say, you would start, you probably end up with second, first half growth rate slower than what you did in the second half of the last fiscal year. If I add 1% to that, then you would end at the very low-end of the range that you guided and the question is, is that reasonable?

Well, it’s not just only the wholesale side, when you look at the retail side, we had a – not exactly great performance on the retail side last year, we were integrating. Now this – the pieces have been coming together.

We are talking positive about couple of markets that we haven’t been talking so positive before. We just talked about Germany.

So, we have reasons to say what we say.

Okay, thank you.

I have two questions please. So, firstly, can you just comment on your B-Direct and the rechargeable performance in the second half of last year and in particular after the mix of your sales of the audio platform from these two products respectively?

And then, secondly, on your EBITA guidance, what are the key initiatives that you are working on to generate the required margin expansion? I guess, from your top-line guidance, I just don’t see much room for operating leverage.

So, I think that has to mainly come from your cost-cutting initiatives. So if you can shed more light on that, that will be great?

Yes, so, on the B-Direct and the rechargeables, I don’t want to be too specific here, but we’ve seen the B-Direct since its launch in about the similar percentage for the total Belong platform and we shared around 12% to 15% I think as the range. I think the rechargeable where we have it available on the RIC format is slightly north of I think 20%.

So, I think a good 35% to 40% of our product being either rechargeable or the B-Direct on the Belong platform order of magnitude. No, it’s not so much cost-cutting.

I would look cost-cutting more at places where you don’t need people anymore which you needed before. I think a big driver in our business is what you do from a productivity on the product side as your indirect and your direct spend, which are all areas which is specific focus and initiatives.

There is also a couple of improvements we can do to our infrastructure. You can imagine that after the AudioNova acquisition, we have more, I’d say labs and logistics points in the system than what you need.

And while we integrated the country organizations, we didn’t go yet on the supply chain side. So, I think, very specific initiatives, which we have, less so, on a headcount in a G&A perspective that’s more an environment which we want to keep constant.

Directionally speaking, but really on the materials side, the logistics cost and the supply chain cost overall.

Thank you.

Good afternoon and thanks for taking my question. I have two if I may.

My first is a follow-up question on wholesale in the U.S. And it seems that their competitors are taking some market share from your independent business.

And I was wondering if this is fully driven by product preference, price and go to market missions by competitors you mentioned, or did you also lose some sales staff to other players in the recent past in the U.S.? And my second question is on product launches, you have been quite vocal that your new hearing aid will be launched at the end of this year.

So, do you expect material inventory sell down of your current product by your customers ahead of the launch? And is this has been already baked into your guidance?

I think on the wholesale side, it’s a multitude of things. I think you see a change in the marketplace where there is in the U.S.

particularly more “captivity” of independents, no matter if this goes through launch which are given in an appropriate form through buying groups and their influence on the purchasing decisions. And then there is a product component.

And I would say three of them might play. All three of them have different counter measures on our side.

But I think as much as product and that’s probably why you see a more pronounced headwind on the growth side in the wholesale in the U.S. Do you want to pick the second one?

Yes, Markus, whatever we identify guidance and plans forward, do our budgets, we obviously plan in any effects that we could have and rollover of platforms. And so, yes, we have planned that in.

We have never seen it to be really a huge effect, at least not in the six years that I am looking at it. But we consider it.

Okay, thank you, Hartwig. And just a follow-up question to my first question, so, just to confirm, have you actually lost sales personnel, also to your competitors, because they are addressing the U.S.

independent market and I guess, there are not so many talents in this market and you have one of the biggest platforms. So has there been significant moves of talent out of your company towards other players, particularly in the U.S.?

We watch that carefully, but I wouldn’t say that there is a particular move of talent from us to others. There is always the one or other in such a size of a sales organizations who looks for new opportunity, but not in the ordinary for us here, right now.

Okay, thank you very much.

I think, with that, we’ve gone through all of the questions on the phone as well as in the room. Thanks for coming.

Thanks for the questions as always. And with that, we want to close the session.

Thank you.