Cherry SE (C3R) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to Cherry's 2024 Analyst and Investor Day. We are delighted for the high number of participants. Thank you for joining. In the room with me today are Oliver Kaltner, our CEO; Dr. Udo Streller, our COO; and Volker Christ, our Interim CFO; and we have also Dr. Anna Wolschner, our General Counsel with us, who is sharing today's presentation. I'm Nicole Schillinger, Head of Investor Relations. Before I hand over, let me briefly run you through today's agenda. Our CEO, Oliver Kaltner, will start with an overview of our current situation and then hand over to Interim CFO, Volker Christ, who will translate full year 2023 and Q1 2024 numbers for you. Then Oliver Kaltner will give you a status report on where we are, revitalizing Cherry and provide an overview of our 3 business units. After a short break, COO, Dr. Udo Streller is going to take over and share with you the transformation update in operations. The presentation session will conclude with the outlook given by our CEO. After that, we will have the opportunity to ask questions in writing using the Q&A button. Please be aware that this session will be recorded and published afterwards. The recording will not include the Q&A session. So let's start. Oliver, the floor is yours.

Thank you, Nicole. Ladies and gentlemen, dear investors, dear capital market experts, dear participants, as CEO of Cherry SE, I would like to welcome you to our company's Analyst Investor Day on Thursday, April 25, 2024. We will provide information on the past financial year 2023, the first quarter of 2024 and our plan for Q2. We all will be available to answer your questions in the Q&A session. Ladies and gentlemen, we had originally planned our regular capital market call for March 28, 2024, to report on the results for the '23 financial year, the first financial year under my leadership as CEO of the company. As you know, we have decided to inform you -- to inform you of the preliminary '23 results in the company announcement on January 31, 2024, and to postpone the Analyst and Investor Day to today. There were a number of reasons for that. We have reorganized our financial processes in depth and are now in a position to provide you with forecast at quarterly level. For the first time since we got listed in Summer 2021, this and the improvement of other processes in accounting and controlling were driven forward, in particular by Volker Christ, when he started working for our company in February 2024. We have also changed the auditor after several years with EY. The auditor, Ebnor Stolz auditing our 2023 annual financial statements in which we have also writ ourself of legal legacy issues. In this context, we carried out an impairment test for this purpose together with the new auditor. As a result, we recognized noncash write-downs mainly on goodwill in the amount of EUR 96 million. The impairment analysis is currently under finalization, while we made a hot news yesterday to fulfill legal requirements. We feel well prepared for the future with this now rather conservative balance sheet. The new auditor has not yet completed its work against this background due to time constraints. So the final audit opinion is still outstanding. We are, therefore, postponing the presentation of the audited annual report to May 22, 2024. The Annual General Meeting of Cherry SE will be also postponed this to July 24, 2024. Our central banking partners come to a positive outlook in the current independently conducted assessment of our business and finance model. Let me underpin that this step also marks the conclusion of the historical assumptions regarding the company's future development and is part of the series of management measures currently aligning the company from competitiveness and future liability. Today, we will therefore explain key lines from the unaudited income statement and balance sheet items. At this point, we provide key performance indicators for 2023 and Q1 2024 on our IR website. In this call, we will also report on the development of the first quarter of 2024 and provide a forecast on the second quarter of this year. Let's move on to the overview of the '23 financial year and its challenges. Volker Christ will go into more detail on 2023 financial data later. With revenues of EUR 126 million, we fell short of our expectations in our forecast. The same applies to the adjusted EBITDA of EUR 2.1 million and the EBITDA margin of 1.6%. These are undoubtedly disappointing results. Ladies and gentlemen, missed forecast and budgets are frustrating for everyone involved. Please rest assured that I as CEO and the entire executive and management team are working hard to sustainably improve the factors relevant to earnings and significantly enhance the quality of our forecast. Corresponding measures have already been initiated and implemented. The reasons for the lower level of sales included a post-corona reluctance on the part of consumers to spend and the impact this has had on our business partners. This certainly also had to do with the well-known geopolitical events, inflation and the drop in purchasing power of private households. Although we will be able to significantly increase our sales in the fourth quarter, in particular, by setting up inventories in the gaming and office peripherals division, this was partly discounted and therefore, had a negative impact on margins. In the segment, we rejected some deal opportunities because the discount expectations were too high against the annual agreements and therefore, unacceptable for us. In the Components division, we measured negative margins in the second half of 2023 as a consequence of technically outdated model and production planning, particularly for switches in the MX family to address here MX1. We reacted decisively to this and initiated common measures. We have massively reduced production and sales and decided on the Project North restructuring program communicated to you, involving an assembly partner in China. In view of the pressing problems, we have treated this program with a high level of top management attention. We can share with you that we are ahead of our own implementation schedule. Our COO, Udo Streller will explain this in more detail later. We have set up an initial cost program with a savings volume of EUR 10 million to EUR 15 million, this is 8% to 10% of our total cost in 2023. We have increased our sales strength and market presence with new additional sales partners in key markets, also here more later. With available liquidity of EUR 26 million and net working capital of EUR 75 million as of December 31, 2023, Cherry SE is sufficiently financially equipped for ongoing business operations. Ladies and gentlemen, here is an overview of the implementation of our road map '25 strategy. We have streamlined our product range and will continue to do so, less is more. We are focusing our product range in growth areas such as e-sports and trends such as hybrid working. We have strengthened our sales power and increase our visibility in key markets. We are participating in the health care market and are well positioned to benefit from the regulatory-driven digitalization of the entire market. And we have already seen initial success in Q4 and Q1 of this fiscal year. We had a lot of catching up and we work to do in the area of financial management. In addition to streamlining our annual budget planning and cost control, which we have centralized, we now carry out a cost turnover comparison on a monthly basis. This enables us to take further measures at an early stage if necessary. At the same time, we are reducing our short-term and medium-term debt. This has also been received very positively by our central banking partner. All of this is designed to generate sales of -- up to EUR 150 million with a group margin of 7% to 8% for you, our shareholders for the current fiscal year 2024 as a whole. Now to Volker Christ and the financial details of the 2023 financial year.

Thank you very much, Oliver. Ladies and gentlemen, let me please provide you with some information on the 2023 financials. As announced, we will publish the complete and audited financial statements for 2023 by May 22, 2024. The sales revenue generated in the financial year 2023 amounted to EUR 126.5 million. Compared to previous year, this represents a decrease of 4.5%. A look at the quarters show that within this difficult year, the fourth quarter of 2023 marked a significant revitalization of sales revenue. Compared to the same period of the previous year, we achieved a revenue growth of 9.7%. There were actually 2 main reasons for this. First, there was a sellout of stock in the gaming and office peripherals division in quarter 4. This translated into a sales peak, but did not have a positive impact on our EBITDA margin due to the respective sales discounts. Second, the ramp-up of business with e-health terminals had a more positive effect. The regulatory obligation to issue e-prescriptions has been in force since January 2024. Therefore, we saw a significant increase in orders for our terminals in the fourth quarter of 2023. We expect the corresponding business units to generate further sales growth with a positive impact on EBITDA. The regulator has scheduled the next stage, the mandatory introduction of electronic patient records for January 2025. Here, we do expect additional positive impacts for the Digital Health & Solutions division. Sales in the Components division remained weak in 2023. Oliver has already provided you with an overview of the countermeasures developed by management, which got implemented with a necessary sense of urgency. Based on product innovations, the significant reduction in manufacturing costs and a broader sales policy, Cherry expects to see a positive impact on EBITDA from the second half of the year 2024 and the measures will fully materialize. The EBITDA margin at group level for the full year of 2023 amounted to 1.6% or EUR 2.1 billion in absolute figures. As already mentioned, the strong sales increase in gaming and office peripherals could not be converted into profits due to the discounting of slow-moving inventories. However, if you look at the first quarter of 2024 and the forecast for the second quarter of 2024 versus the last quarter of 2023, the turnaround is already taking place. And of course, I will provide you with more information on 2024 later time. Cherry failed to generate any significant profits for 2023. Nevertheless, I would like to inform you about the company's dividend policy. Cherry SE intends to invest into future profits. This is necessary to increase the company's important ability to innovate and to continue to reduce debt. This will increase the value of Cherry SE. And as a result, there will be no new version of the previous share buyback program for the time being, and no dividends are planned to be distributed to our shareholders at this stage. This proposal by current management was submitted to the Supervisory Board for a decision. Let us now turn to the results of the first quarter 2024. In the first quarter of 2024, we generated sales revenue of EUR 30.3 million. This represents an increase of 5.5% compared to the same period of the previous year. This result is not only above the consensus estimate, but also above our own budget target for the first quarter. In the Digital Health & Solutions division, the positive impact of regulatory requirements is continuing. In addition, demand for special devices in hygiene-sensitive areas has developed very positively, particularly in the U.S.A. The business with hygiene optimized keyboards and mice in hospitals and doctor surgeries, but also in the public sector is benefiting sustainably from the change requirements of the post-corona era. In Gaming and Office peripherals, we refrained from special sales programs in order to protect our profit margin. This translated into only a slight revenue increase versus the previous period, but at the same point in time into better contribution margins. Effective from April 1, 2024, we have initiated a price increase on the majority of our SKUs in that business segment. In Components, as expected, we did plan for a reasonably conservative revenue development in quarter 1 and quarter 2. We do expect our growth in this segment to accelerate in the second half of the year in conjunction with the overall market development and based on our innovative and competitive MX2 switches. This picture is reflected in the bottom line results. The EBITDA adjusted margin improved by 7.4 percentage points compared to the same period of last year and exactly from minus 4.6% to a positive 2.8% in quarter 1 2024. Expressed in euros, this was an improvement of EUR 2.2 million following a loss of EUR 1.3 million in the same pre-period. Cherry SE succeeded in generating a positive EBITDA adjusted in the first quarter of the current financial year, which was better than the forecast of next year or of breakeven. In addition to the business divisions, this chart also displays now a corporate division. To improve transparency, we separated corporate cost elements from the results directly generated by our divisions. This also allows for better cost control. Cherry SE is starting the 2024 financial year with a significant focus on cost. The measures introduced in 2023 will all take effect in 2024. Together with new measures turning into a cost savings program of around EUR 30 million, corresponding cost reduction measures have been introduced for exactly that purpose. The relocation of parts of MX switches assembly from Auerbach to China has already been discussed. This corresponds and is a major part of the agreed personnel cost reduction of 105 positions across all areas in the international Cherry Group. I would also like to mention that cost savings in the selling, general and administrative area, SG&A are basically important. Those cost reductions to improve profitability can quickly be realized by simply eliminating nonessential expenses. Cherry SE and material savings of a similar order of magnitude compared to production cost savings in 2024. Cherry SE also focuses on cash management, especially on working capital management. So for instance, the company continuously reduced inventories without jeopardizing customer service levels. We will continue to free up cash for debt reduction. We plan to again cover Cherry's CapEx by our free cash flow in the year 2024. Ladies and gentlemen, this ends with the overview of Cherry SE's key financial data, back to our CEO, Oliver Kaltner.

Thank you, Volker. The Cherry brand can look back on over 70 years of history. The Cherry Group consists of 3 business segments. Components, which essentially means keyword switches of various types. And we have gaming and office peripherals like end products such as keyboards and mice for computers and the digital health and solutions here, electronic devices are operated in the medical sector. This refers to readers for health insurance cards and therefore, electronic prescriptions. Excitingly, our cloud-based terminal management service is used here, which promises continuously recurring sales. There are also special keyboards in areas with special hygiene requirements. We have also bundled special offers from military and security applications here as well as the production of control electronics, the business of the now fully integrated Cherry Embedded Solutions, formerly known as Theobroma Systems located in Vienna, Austria. A long history sometimes also means that companies neglect their ability to innovate and their willingness to continuously change. To be honest, when I took over the mandate of Cherry SE last year, I've got exactly that impression. The introduction of the revolutionary MX1 keyword switch in 1983 had given Cherry excellent market position. 39 years later, it became a real issue. The lack of innovation has cost Cherry to lose some of the market share of 50% in individual markets. Today, we are at around 10%. With the MX2 generation switches, Cherry has been able to regain proud in the market and with our OEM partners. The design advantages of the switch, it's durability and quality, it's pricing as well as the available switch variants meet customer requirements. On top of that, we are encouraged by the fact that the next generation of switches, the MX3 will be launched in 2025. This means we have significantly accelerated our product cycles and adapted them to market reality. We have identified many challenges and complexities at all management levels as well as in our internal and external processes, which require a great deal of management effort. We extended all management levels and set a new organizational courts. The management teams in the United States and France were redesigned. In APAC, we have installed a 4-person management team. The [ M&A lead ] position got eliminated and responsibility was transferred directly to me. We have recently transformed Theobroma Systems into Cherry Embedded Solutions now also carrying our brand. On top, our aim is to reduce the number of legal entities from 13 down to 9 to minimize complexity and to increase efficiency. We responded to the permanent absence of the CFO by appointing Volker Christ as Interim CFO reporting to me. In just a few months, Volker Christ has succeeded in realigning the finance team and carrying out essential process work in finance, controlling and accounting, which already enables us to report on Q1 2024 earlier than ever before. In particular, he is tackling the topics of optimizing internal and external financial processes, ensuring position and resilience in all financial data and strict cost management with a precision, order and efficiency. With Nicole Schillinger, we have a well-respected and highly valued new colleague in the Investor Relations position, which is also important for you as shareholders and capital market experts. Under the leadership of Anna Wolschner, we have set up a 4-person general council team, which enables us to map the complex legal matters of Cherry SE as a listed company using internal resources. We have appointed Tanja Knahn as our new global branding and marketing manager. Tanja has been with the company for more than 20 years. Overall, we have increased the proportion of female talent and management positions from 0 to 30% within 1 year. This is also corresponding with the European Commission requirements. We were particularly focused on attracting top talent, which we have done very well, meaning quarter expectations is an additional aspect to consider. Following an employee survey last year, we identified the necessary areas for development and optimization together with the People & Culture unit, and we launched a far-reaching and comprehensive Cherry Culture Program, which included the Executive Board and the first management level in Phase 1. We are now rolling out the program further into the organization. This program is intended to create a new stable backbone for the culture of Cherry over the next decade. At the same time, we initiated a staff reduction of 105 FTEs in 2023, which will become fully cost effective from summer 2024. After full implementation from August 2024, we expect savings of EUR 5 million, of which EUR 2.5 million will be in the Components division. The redundancy program is costing us around EUR 6.2 million in 2023 instead of EUR 11 million as originally calculated. This is due to a very linear and constructive negotiations and fast and efficient execution. A major contribution comes from the partial relocation of assembly activities from Auerbach, Germany to our external production partner in China. This will enable us to significantly reduce our personnel and production costs without compromising on quality. This mainly concerns the MX2 switch for use in third-party products, which are also mainly assembled in China. So we are, therefore, moving closer to our business partners, reducing delivery routes and delivery times and minimizing logistical costs. The inner mechanics of the switches, so this is the metal and the contact parts will continue to be manufactured in Auerbach for all our MX products. Udo Streller will explain the details in his part later on. Ladies and gentlemen, we described the 2023 financial year as a year of transition and reported to you on restructuring measures that have already been taken. We are aware that our repositioning and restructuring program must be a combined by tight capital and liquidity management. We can confirm that this is receiving a great deal of management attention. Currently, we are reducing our debt and have started to reduce our liabilities to our banking partner in Q1 and Q2. This was achieved by using liquid funds, which has led to a reduction in our cash position. At the same time, we have reduced inventories significantly. Overall, net debt amounted to around EUR 25 million as of December 31, 2023. Let's take a look at Cherry's business segments and their growth prospects. Starting with Components. As you know, we have a wide range of switches and buttons in our program. Today, we have produced and sold several billion switches. Our most successful switch in this category today has been the legendary MX1. I don't think that there is a keyboard manufacturer or gamer in the world who doesn't know this name MX1. However, this chapter is closed. And so with our latest MX2 with gold-plated contacts, we have once again succeeded in setting the standard in the market. The MX2 scores points for its particularly long service life, thanks to the superconductor gold contact service. The range will soon be extended to include the next generation. The MX3 Series makes contact inductively and can trigger 10 different signals. This was furthermore set another standard for speed in the gaming sea. At the same time, our Low Profile Switches, which are very popular for a wide range of applications. We are used for gaming keyboards as well as laptops. There is also very quiet switching version that is used in office applications and hardware. Our high-quality ultra-low profile switches, ULP which are installed in many demanding gaming laptops and keyboards are the top of the range in the market. Then from the customer list, Corsair, Dell, Medion and from the fourth quarter, also Hewlett-Packard. We are currently talking to other big OEM parties in the office and gaming space. The next generation of these switches will be even thinner while keeping maximum performance standards and therefore, even more attractive for many manufacturers. We continue to equip Cherry's own products entirely with production from all over Germany. I'm talking here about all MX, LP and ULP switch channels. However, in order to optimize production cost Tier 2, we work with a high degree of automation. By the way, all of our producers part of its energy requirements itself using its own solar field, an important effort in times of climate change and ESG. We expect demand for keyboard switches to pick up before the end of this financial year. This assumption is based on the knowledge inventory levels on the customer side have now been reduced following the [ peak caused by the Biden ]. In addition, many gamers are now back to purchasing replacements that were last purchased during the pandemic and have now reached the end of their usage cycle. Sales in the Components division amounted to EUR 10.5 million in 2023. Based on our market assessment, and the assumed recovery in demand, we expect sales to increase to EUR 18 million in 2024. For 2025, we anticipate a further increase to $31 million with a significantly higher market share than the current 10%. We assume that new technologies such as the latest chip generation, i.e., from Intel or applications based on artificial intelligence will trigger the renewal cycle for notebooks on the entire market. Cherry will benefit from this as a component supplier to well-known manufacturers. Let's move on to the gaming and office peripherals unit. In the gaming and office peripheral business segment, we have reallocated our resources more effectively and are concentrating more on our focus markets in Europe among other things. These are the German-speaking markets in the so-called DACH region, France, the U.K., the Netherlands and Spain. Regionally, we are focusing on China and the United States. In future, we will only produce market-specific keyboard designs for smaller markets on demand and no longer as a standard as in the past. This will reduce costs across the board from product planning, marketing, sales, manufacturing, logistics and finally up to inventory. The fact that we have entered into new sales partnerships in the defined key market is particularly noteworthy because it is relevant to sales. This will increase our visibility in the market, increase sales pressure and generally improve the positioning of the Cherry brand. Sales via Amazon, we are talking about a volume share of around 50% in our total e-commerce business will continue in parallel and without restriction. At the same time, we have reestablished contact with former corporate customers such as Logitech and Razer. As you can see, we are working hard and focused to regain lost brand. In-house, Cherry still has an excellent reputation as a quality brand among other customers, our sales partners, the industry and, of course, among the users. Statista estimates the sales volume for keyboards at approximately USD 5 million in 2024. China is expected to generate the highest turnover in the market for keyboards in 2024 with approximately USD 1.2 billion. With the tight production capacity and competitive prices, China remains the leading manufacturer and exporter of keyboards. So in general, the market outlook is good. The volume of the market for keyboards and mice is expected to grow by 8% from 2023 to a volume of USD 2.2 billion by 2032. Here is an insight into some details in the gaming sector. The market for gamers is and remains promising. Take Germany for an example. Almost 40% of all Germans play computer games at least once a week and almost 40% also spent 10 or more hours per week doing so. These gamers also made no compromises when it comes to the quality of peripherals and equipment. German manufacturers are right at the top of the popularity list as GfK found out. Gaming and office peripherals is Cherry's strongest selling, growing and profitable division, although the margin in gaming is somewhat lower than in the office sector. However, thanks to Cherry's in-house development and production, we are able to develop hours to an acceptable level. In China, the gaming market is dominated by local low-cost producers. In addition, the high-volume market is already very well developed and is therefore hardly growing at all. The U.S.A. is different. Demand for high-quality mechanical gaming keyboards is increasing in the world's second largest market. We see growth opportunities for our high-quality products there. With Josh Philipps, we have attracted a new promising Managing Director in this market. He's very familiar with the gaming and office hardware peripherals business from his previous activities. The third largest market is Europe. Even though we are strong in Germany, we still need to shape and raise our profile and make our German engineering better known as a quality criteria. In principle, the global market will continue to grow strongly. Statista estimates the global CAGR for computing equipment at 11% from 2023 to 2028 per year, and we clearly intend to benefit from this trend. Let me go into more detail about our markets. As Cherry, I tell that we are still a sleeping giant. Everyone knows at least one of the components of the company's products. However, considering our product portfolio, we are still underrepresented in terms of market share. That's why we want to become a strong #2 alongside Logitech. We can achieve that if we do not diversify too much, streamline our portfolio. I've already mentioned that we will reduce our product portfolio and a number of our SKUs over the next 2 years. As planned, expand new distribution partnerships in Europe concluded with MediaMarkt/Saturn, Fnac&Darty, Elgiganten, make perfect use of e-commerce via Amazon and others. Focused on increased brand awareness and visibility in retail in the core markets, Germany, France, U.K., Iberia, Nordics and Benelux. And we need to swap from push to pull in non-core markets. Further, focus on cordless products with higher margins. Complete the strategic shift from POS equipment, card readers and keyboards to omnichannel and consumer focus. In U.S. we need to capitalize on our superior technology expertise and our brand heritage. As you know or might know, the company was founded by the Cherry family. So it's not an artificial company name, it's a family name. 83% of U.S. employees consider good technology to be an important success factor compared to 76% worldwide. The source for this is OWL Labs. We, as Cherry, we must take advantage of this favorable market trend. With a market size of USD 700 million, the U.S.A. is the second largest market worldwide for office peripherals. The increasing demand in the United States for higher-quality mechanical keyboards is being met by 70% of online sales. We are also strengthening our growth in China and APAC through increased penetration into new markets such as South Korea, Taiwan and Japan, an attractive portfolio with new products, capitalizing on the trend towards high-quality keyboards as gaming users grow into the business world, the disproportionately high market share in the technology and quality, superior management segment and by leveraging the previously underpenetrated of the segment. So let us turn now to Digital Health & Solutions division. We also expect growth in the Digital Health & Solutions division in the current financial year and beyond. Since January 1, 2024, the use of the e-prescription has been approved by the regulator with a time delay as we all know. In the sense, political regulation promotes business. This has already triggered an upturn in demand for our e-Health terminals and PIN-Pads in the fourth quarter of 2023 with effect from November onwards. These Cherry solutions will be installed in doctor surgeries, hospitals and pharmacies. From today's perspective, we will exceed the sales of 25,000 terminals previously envisaged in our plans. The customer, CompuGroup Medical alone, which purchased a total of 6,000 terminals in 2023, has already ordered a further 4,000 units in the first 2 months of the current fiscal year. A further 10,000 units are planned. Internally, we now expect 35,000 to 40,000 terminals to be sold. As you probably know, the mandatory introduction of e-prescription from January 1 this year will be followed by a mandatory electronic patient records on January 1, 2025. Cherry will also benefit from this change with its offering to the market while '24 will be the year of increasing our installed base in the market significantly. We are very proud that both the Cherry and Terminal and the associated PIN-Pad have been certified with all [ firm releases ] by the German Federal Office for Security. The Cherry Terminal has been certified for use by the BSI. This underlines our technology and technological expertise and our efforts to offer our customers protection against cyberattacks. The terminals can be used for a wide range of applications. You can see some examples in the diagram. The basis for obtaining the certification is, among other things, access protection to the production side and the secured supply chain to the end user to prevent the infiltration of manipulated devices. Second, the protection of software sources and software production through a block-chain light process to prevent manipulation of the software. And third, the secure authenticated transmission of data using the broadway encryption methods to prevent an attack on the transmitted data streams. Four, the storage of key material in the special hardware component and the hardest assurance that only the correspondingly authenticated software can be executed. And five, protecting the hardware itself with mechanical elements that deactivate the terminal in the event of an attack e.g., to prevent card data from being read by means of hardware manipulation. We also offer our customers our terminal management service, TMS. This is one of the first results of our in-house software development. TMS includes online maintenance and repair of our devices. For the customer, this means time and cost savings. For Cherry, this means continuously recurring sales. On the overall market and the outlook, demand for medical peripherals, medical -- mice, keyboards and Active Key hygiene products is still on the rise. We see that as a lasting consequence of the pandemic, which has led to increased hygiene awareness. While we have planned sales of EUR 6.7 million in 2023, this ultimately turned into EUR 7.6 million. The market has thus increased by a good 35% since 2022. We sold 600,000 units in the U.S. alone in Q4, including around 50,000 of the high-margin, high-end keyboards. As you know, we bought the division 3 years ago and has since succeeded in integrating it perfectly, both from a business and organization perspective. There is a perfect fit with our existing portfolio. With increasing demand and a market share of over 30% in the segment in Europe, our focus markets will be in the DACH region as well as the U.K., France, the U.S.A. and Southern and Eastern Europe. We also see good opportunities in the North American health care markets for medical keyboards and mice with sales of around USD 225 million by 2027, as confirmed by initial orders from the United States where Cherry is perceived as having the best quality price ratio. Cherry has a market share of over 75% in this area. Moreover, the market size will not decrease in the foreseeable future due to replacement and renewal requirements and the fact that we are leading both by technology and design. And as I said before, Cherry took over Theobroma Systems. This has now been fully integrated and is managed by Cherry SE under Cherry Embedded Solutions. In this area, we also produce system for the security sector, the German Armed Forces and the U.S. Army are among the customers for all products. We have a multiyear contract with HP with a volume of over EUR 11 million. The product core here is in the area of software and hardware solutions for control systems. These so-called PC boards are used in various areas of application.