Sennheiser electronic GmbH & Co. KG (SOON) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Sonova conference call on the planned acquisition of the Sennheiser Consumer Division. I am Alice, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, I would like to hand over to Arnd Kaldowski, CEO of Sonova. Please go ahead, sir.

Alice, thanks a lot. Good morning, everyone. And sorry for the early somewhat unexpected start to the Friday here, but we have the opportunity to share an exciting news with you this morning of us having signed the acquisition of the Sennheiser Consumer Division. I want to use 15 minutes or so to share with you a little bit background on the soon-to-come new part of Sonova, meaning the Sennheiser Consumer Division. The strategic rationale for this partnership and acquisition and then a little bit the facts of the transaction. Couple of reminders upfront here; a, I think you're all aware, we're in the silent period. We will report out our results in about 1.5 weeks to you. Therefore, all of the comments I'm making and also the Q&A, I would encourage us to keep only to the Sennheiser related topics for now. And we made a PowerPoint short deck available. I hope everybody had a chance to download this or look at it online, and I will comment on which page I am when I'm commenting through. We've asked for the sharp 1 hour, which is necessary because as you can imagine, especially having to welcome many people who are going to join us over time as new company members, there's lots of topics we need to cover during today. But we wanted to get to you early this morning so that you're well informed. So if we're going to Page 3, and that's a little bit of already the lead into why we think or are convinced that this is a good move is really taking a long step back and get back to what Sonova stands for and aspires to do, and that is really to help people to hear better in the right situation and enjoy the life without limitations. Now as you could imagine, not the same words are true for Sennheiser, but I think they would feel that's also a good definition of what they aspire to do. So I think there's a good fit from a vision and a direction perspective here granted, very different segments in the market. And I would point particularly to the difference on where the consumer is on their journey of life and hearing because, clearly, Sennheiser is about great audio performance, is about nowadays with the true wireless segment also about the connectivity to devices from telephony and other interactions, but we are in the world of helping people who have a hearing loss or a significant hearing loss to make them hear better. There's increasingly a focus on audio, but historically, and still today, most important, this is about a speech enhancement and speech understanding. So clearly, similar purpose of hearing improvement. One early on the journey, not yet in the hearing loss environment, the other one deep in the hearing loss environment. But you can imagine from here, if you think about devices, you think about technologies, you think about what people are doing every day, technologically and from explaining that purpose to the world, it's not far parked. Now if you flip to Page 4, the key points of the partnership and acquisition. On that first block, why are we bringing those 2 entities together? We clearly see an opportunity to leverage the strength, Sonova about audiological expertise and technology, Sennheiser about premium sound delivery. We clearly see the opportunity to extend the consumer reach. As I shared, we're on the same consumer journey over life cycle, but with different, let's say, optimization needs. And to some degree from a Sonova perspective, an opportunity to engage far earlier with people who may not have a hearing loss or just have the onset of a hearing loss and over time migrate as they get older towards more severe needs of adhering of a hearing improvement solution. It's also an opportunity for jumpstart our initial steps we've done inside of Sonova already when we were thinking about how do we go about technologies here when it comes to what we call the amplified consumer hearing devices, which I think just come out of the logic that hearables are available, people use them for a couple of hours, but you can bring new technologies into them so that if you are in a noisy environment, you can hear better, not just the music, but also the speaking, right? Clearly, for us, an emerging new segment between today's Sennheiser's world and Sonova's world. And why Sennheiser as a partner. Clearly, a strong portfolio of premium music headphones, known for the superior audio performance, a well-renowned brand, particularly in Europe and in Asia and a premium perception and a strong reputation. The market access for those type of hearables, clearly complementary to what we have on the Sonova side, strong hold in online, but also in-store distribution network. The division, I think, a good size of critical mass in terms of revenue, but also capabilities and capacity with EUR 250 million revenue and 600 dedicated people worldwide. What we want to achieve, I think, was pretty clear already on the outset of my words here. For us, this is an additional platform for growth in the segment where Sennheiser plays today because of strong underlying market growth, particularly on the true wireless side, but also with this emergence of the segment in the middle. We see substantial synergy potential, which will help 2 worlds, on the one hand, obviously, profit expansion, but on the other hand also to free up investment capacity for growth. And we do expect that when the deal is closed, it to be immediately EPS accretive. The key elements of the deal, we have signed a purchase agreement, which values the company at EUR 200 million, which we will pay in cash after the close. We have agreed to brand licensing agreement in perpetuity for the Sennheiser brand. So what we build together in the brand with the products we have and the drive forward will remain a brand which Sonova has access to. And we expect the closing somewhere in the second half of the calendar year. To be explicit, this is a carve-out of the consumer division of Sennheiser. Sennheiser have, in parallel, their professional business, which is more high-end dedicated equipment for the music and entertainment environment, also professional environments, and that remains with the current owners and will be an independent business. We like to be connected via the brand because, as you can imagine, if an Ed Sheeren or Lady Gaga is using the microphones and the headsets, that does matter for some of our consumer segments we're serving, right? And so I think there's the link why it is good to have a brand used by 2 different companies, but doing this serving 2 different customer or consumer segments. If we can move to Page 5 quickly, just a reminder on the Sonova strategy. I wanted to make sure you see the link at least here, what we think the link is here. You see on the top of the innovation, we always talk about audiological performance and consumer experience. I think it is clear that consumers see what happens in other segments. So "even for a hearing aid," it becomes more relevant to have a better audio performance in addition to the speech understanding. It's also clear that being well embedded into the application spaces of this world is an important element. So this is areas where we think we can learn also from Sennheiser for even our hearing aid side of the house. And then if you look at the 2 on the side, no matter if it's our audiological care network expansion or the multi-channel on the wholesale side, at the end, big important for us is access and reach to consumers. Ultimately, that's the part in the market who pays everything we do. And with Sennheiser, ultimately, I think we're getting a third leg accessing consumers, which may be younger, which may be earlier on their journey, which may not have a hearing loss, but this is incremental to what we have as an excess from wholesale and the audiological care business we have. If you move to Page 6, a little bit deeper here on how we think this market is evolving. And if you go to the graph on the right-hand side and we're depicting here the primary product focus on the X-axis and dividing mentally the market into a consumer device and the medical device focus. You can see the arrow on top, I was talking about the consumer journey, which for the people who have an age-related hearing aid -- hearing loss starts on the left, but over time, they move more to the right. If you take the lower left corner, that's where Sennheiser today is with regard to their premium and audiophile headphones. That's an existing segment. Currently, [indiscernible] from our world. If you go to the upper right, you see the traditional HI market in the CI market, the medical devices. And then in the middle, you see what we think is emerging at this point of time, which is the hearables with amplification. We think about this as incremental additional to the market. I think the ones who follow us closer know it takes people with a hearing loss an average 7 years to get a solution once with a hearing aid. And we're driving this, it's improving slightly, but only slightly. And there's lots of reasons for that. But I think at the end of the day, if you think about the situation on hearing device, which you may wear for 3 to 4 hours as you're used to with your hearable, that would have strength on the speech understanding in there and other things, which technologically are possible. I think you could easily see that the Sennheiser brand would play well there, would have its own segment within the hearable space, most likely being a high price market relative to the regular hearable space. But clearly, it's not replacing the hearing aid because you're talking about situational hearing, some advancements for the ones who didn't go for the full hearing aid. That's the whole rationale here, which we have in mind. And without the emergence of the segment and us bringing a Sennheiser brand and the joint technologies to the forefront, this is clearly an additional growth vector while in addition, we're participating through Sennheiser in the fast-growing true wireless market segment. If you go quickly to Page 7 for the ones who are not that close to the Sennheiser business and the Sennheiser consumer division. You can see here, it's about, interestingly, the same age as Sonova is, the Phonak brand. It's 2 years older, 1945. Sonova was 1947, but clearly, a similar mindset, bringing technology forward, early days, 1945, 1947, to make people hear and share better. Clearly, on the high end in both sides of the house, technologically, but as I said, it all comes back to hearing and on the Sennheiser pro side, also the microphone side. Now depicting here on the right-hand side in the graph, what the EUR 250 million stands for in the consumer division, you can see at this point of time, about 53% in the premium in audiophile headphones. So really the high end of the market from a price and capability perspective. The True Wireless, which Sennheiser have joined recently, about 2 years ago with their first product and expanding the product range they have currently represents 26%. There is other of 21%. A significant part of that is what we call the TV listener, which gets a little closer to the hearing world. These are devices people buy and wear when they're in front of the TV, if they have already hearing problems. A well-recognized brand, as I said, and the complementary distribution channel. So bringing my part to an end here on Page 8. You will see us repeating kind of the rationale and the highlights, leveraging the combined strength is critical for us. We look at this as a joint exercise, a partnership as much as it is a 100% acquisition of the [indiscernible] business. Clearly bringing technologies and expertise together, which we see grow together in the market over time, expanding the reach and the touch points over the consumer journey for us, quite important and something we have been engaged with. We haven't seen that out the outside, but in our thinking as well as actions on the product side, particularly towards this speech-enhanced hearable, we had our own activities, and we're looking forward to bring those things together to make ultimately Sennheiser stronger. One last comment on the branding and the organization side, we will really keep the consumer devices under the Sennheiser brand, and we will clearly keep our hearing instrument products under the Phonak, Unitron, Hansaton brands, and make clear that there's no confusion between these 2 segments. That's important to us. The second one, we think about the Sennheiser business coming to us plus what we had already started with as a fourth leg to our internal structure with regard to business units. So we're de facto creating new consumer hearing business here, organic and inorganic, which again underlines that we think about this as its own business, its own market segment, technologies, which can come together, but ultimately, the different go-to-market and a different representation in the outside, and with that, a new growth opportunity for Sonova, if you think, from a group perspective. With that, Alice, I'm through with what I wanted to share, if you want to open it up for the questions.

[Operator Instructions] The first question comes from the line of Daniel Buchta with ZKB.

Maybe 2 questions from my side. The first one on the strategic ambitions beyond what you have acquired. I mean, obviously, there is not such a huge jump anymore from expanding Sennheiser into personal sound amplifiers, which are already on the market. I mean is that the first step, how you want to use it and then, I mean, ultimately, I would assume that the OTC regulation in the U.S. will be passed this year. So I mean, now you have a well-known consumer brand. Is it your ambition then also to go for that segment with the Sennheiser OTC hearing aid? And the second question then on the purchase price. I mean, when I saw how much you're paying, what the amount of revenues you are getting, I'm surprised that the multiple is so low. Is that because of a quite low profitability, Sennheiser maybe even loss-making? Or what am I missing here because I see, for example, where Logitech is trading, it's certainly well above 1x sales. Maybe you could elaborate on the price and the profitability as well [indiscernible] business.

Thanks for your question. On the strategic rationale, I think I would slightly disagree. I think that the -- we're at early innings with regard to the speech-enhanced hearables technologically in what they deliver. And for us, the focus right now with Sennheiser and overall is really how do we participate in what I call the situational hearing. So I think it's not to be confused on what's under the OTC discussion, which, in my eyes, is more kind of an early entry device, which you can wear a whole day. But I think there's more runway there on the speech-enhanced hearables. I think the second one, all the time, clearly, you can have discussions if there's other functionality coming to the hearables, and around hearing aids, we also had discussions about sensor technology and other stuff, but later to come in our road map work together. But clearly, focused on the hearables here, not at a position to talk OTC. It's not, let's say, regulated at this point of time. And I think we're all waiting for what the regulation will bring and what will happen in the marketplace. On the purchase price, without commenting on it being high or low, but your implicit question with regard to profitability, we can share that the business is profitable. I would call it in the mid-single digits environment. I think as you heard me say, from a synergy perspective, there, we see potential. So I think our ambition is to, over time, drive efficiency productivity also with new functionality, ideally, even higher prices. But we do expect that we have a good pathway here to improve the profitability but profitability is certainly an element which has an impact to valuations.

Okay. And maybe just to confirm, the mid-single-digit is on EBIT level, I would assume.

It's EBITDA comment from me.

The next question comes from the line of Michael Jungling with Morgan Stanley.

Great. I have some questions or at least 3 questions around Sennheiser. Firstly, can you comment on what this business achieved over the last 3 years with respect to organic growth? Secondly, how do you see this business growing over the next 3 years, again, on an organic growth basis. And then if I look at the composition of the various segments, the 3 segments, is it fair to assume that the key growth driver is going to be true wireless? And if that is the case, and I look at some of sort of the IDC data, how does one compete against companies like Apple, which have 60%, 65% market share and are gaining market share in this space as well as Samsung? How do you intend to compete against the handset manufacturers who can pair up their true wireless devices in a very efficient way versus someone like you who don't have that privilege?

Michael, thanks for the question. So on the growth, if you look backwards here over the last couple of years, you're more in a flattish environment. A part of that is a product mix discussion. I think the stronger growing part of the business is the true wireless. Sennheiser entered this around 2 years ago with the first product. They're now expanding the product line by different price points. One big step was last fall year with the second price point. I think on the other side, sum of the -- in the sum flattish is that, I would say, the wired type of devices have some headwinds out of the true wireless market segment growing faster. But I think from a mix perspective, we will expect we're getting into positive territory. There's also an important element about product launches. As I said, the entrance of true wireless and now with a second price point, directly certainly a third one to come, but also some important product launches in the last couple of months and planned for this year in the other segments. From an outlook perspective, allow me to say, clearly, we expect the business to grow organically, but not attach a number to it at this point of time. We clearly have a model, but we want to spend sufficient time also with the Sennheiser team to think our joint strategy going forward through, and we will share the outcome of our thinking at due time there. With regard to the -- and by the way, also one more comment. If you look at certain segments like the audiophile headsets, they are growing. So please don't take away that only true wireless is growing, there's different segments. And currently, we see good growth pretty much across the different products as a note that we're not only relying on the true wireless. How do you compete on the true wireless side and the hearables there? I think when we look at the market, we think in different segments, and we do see that there is a segment, which is on the one hand side, a high audio performance. So we call them the audiophiles, which Sennheiser stands for. The premium part of the market, you need a good brand recognition as well as good technology, which Sennheiser does have in their products. In some moments, that also requires higher component prices, if you think about transfusers. So it's not just the brand, but it's also what you do, which may not be that attractive for more of a mass player. Secondarily, I do believe that we move into adding technologies around speech enhancements and doing things, which we do technologically, either way on the hearing aids will help to sustain growth in that high-end segment of the true wireless hearable market.

The next question comes from the line of Veronika Dubajova with Goldman Sachs.

I have 3, please. One is just I want to understand kind of your thinking on this speech-enhanced hearable market. Sort of what do you think is the size of the opportunity here? What would be the kind of target customer that you're thinking about? And I guess, if you can comment on things like ASPs and distribution? It's obviously always been something that I think we've talked about in theory, but it seems like you've now made a commitment here. So it would be great to understand whatever you can share on that. That's my first question. My second question is, I just want to make sure I understand the ability that you have to co-brand and use the Sennheiser name. In particular, I'm curious, would you ever consider creating a hearing aid that would also carry the Sennheiser brand? And are you able to do that if indeed you would choose to do so? And my last question is just to understand manufacturing footprint that you're acquiring. And is this mostly an outsourced production? Or does the company manufacture in-house?

Thanks for your question. So on the speech-enhanced side, the way to think about it, for me, is people who at the onset of not hearing that well when they're in a more noisy environment. So perhaps an easy way to say if people don't come for 7 years until they have a hearing loss part of that segment, and maybe even earlier, because when we talk about the 7, it's self-defined as a person with a hearing loss, it maybe even a couple of years before, right? So -- and people who are annoyed by always having to lean forward when they're sitting somewhere and people are talking and it's noisy. And I think it has to be people are comfortable wearing a hearable in the ear, because if not it doesn't work. So I think from a consumer base, they're probably -- and I have not done this mathematically, you're probably talking about similar size is what we have in the hearing aids, probably more. So that's kind of the order of magnitude. I haven't done it in revenues, but if we can leave it here until we come back with more. I think on an age that puts you more into -- and this is highly fluctuating when people have their own set, you know that we always give you an average, but you're probably in the category where you're somewhere in the -- in probably 40, 50, 60 or so. There may be people who are younger, who are seeing a benefit in the noisy environment, but clearly younger than what we are used to. On the speech-enhanced side, yes, for us, this is a commitment to move forward. You heard me say organically, we've had some activities in bringing technologies together we have access to. So we didn't start completely without an understanding here. But with a brand and a channel access, it clearly becomes something we can do better and faster. On the ability to co-brand, we would be able to use the Sennheiser brand also deeper into the hearing side. We have no intention to do that at this point of time because we do believe that when we think about how to use a brand and how to position a product and the company, I think the consumer market is quite distinct that you own from the medical market. I think on the medical market, people expect certain levels of service and they are further in accepting having a problem on the consumer side and looking for many other things. So at this point of time, no, possible, absolutely the way we have agreed this with -- with Sennheiser on the brand usage. On the manufacturing side, the normal things you would expect to be outsourced so putting pieces together and getting electronics done is outsourced. We do get a factory in Ireland with a transaction, which is focused on the transducer technology, which is quite sophisticated and unique for the high fidelity audio performance. So I'd say the core element, which is a differentiation is with Sennheiser as an asset and comes over to us. It's a dedicated factory, which only does this, but the rest is with some regular people who have low-cost bases.

And can I just follow-up kind of how are you thinking about what you need to do to create the speech-enhanced hearable market? I mean, it seems kind of sensible, but I'm just kind of curious how much investment and kind of brand awareness and education you'll need to do to try to create this market?

I think on the technology side, you need to start to kind of elevate the algorithms on a hearable further. Not sure if that requires the next set of a chip. I'm sure some things can be done now. Other things may require a new chip. Yes, you're talking more about standard chips rather than customized as we have it on the hearing aid. I think from the marketing side, I think in the digital world -- I don't want to make it sound too simple, but I think it is less difficult. And we certainly have done our testing before we acquired the Sennheiser consumer division, do we think the brand has the reach and do we tap into the right people. So I think, first and foremost, you need a device and the right message around it. And I think in the digital aid, that kind of is credible after the first people are using it, I think you can drive in that direction. So it's less of a step function change in investment. I think the product and technology has to speak for itself in the performance and then it needs to kind of accelerate that, believe in the market.

The next question comes from the line of Issie Kirby with Redburn.

Congratulations on the deal. I have 3, please. Firstly, could you possibly give a breakdown in the Sennheiser business between the percentage of revenues that are these wired headsets that are facing the headwinds versus the true wireless, particularly in the audiophile category, the larger category there. And then secondly, I appreciate this is a slightly longer-term question. I'm just thinking about how the consumer will transition from an audio device into a hearable and then into a hearing aid. I appreciate there won't be any overlap certainly at the moment in branding. But how are you thinking about ensuring that a younger user of the Sennheiser device will eventually transition into an older user of a traditional Phonak hearing aid? And then finally, can you talk in a little more detail around the distribution network that Sennheiser has, particularly of revenues are currently sold online versus physical retail? And is there any opportunity here for you to distribute either your own products or Sennheiser products by your own network or vice versa?

Thank you for the question. On the -- let me start off on the audio to hearable and hearing aid. I'll do come back to share wired to true wireless in a second. I want to make sure I have the number right. I think with the separation of the brands, I think there will be options, and we will learn that as we go, where we do references to brands over time, if that's the right thing to do. So I think there is a chance to do those. I think clearly, particular in a digital environment, it's most important that you have access to the database. And so from a lead-generation and database-mining perspective, that's, I think, going to be usable right away. But again, I think on the branding side, you really -- we need to see how these segments emerge and what happens technologically and see how we reference to each other or not. I think from a network perspective, Sennheiser today has about 40% of their revenues on the consumer division being online and about 60% through partners and retail stores. The online side is a significant focus of investment over the last years and will certainly be that also with us. And so I think you will see that move more and higher on the online side. With regard to our own opportunities and our products are cross-selling in the channels, I wouldn't attach a huge number to it. But clearly, if somebody comes to a care store in Germany from us, particularly, it's a world of hearing, where we offer lots of different technologies. There's an opportunity. I'm sure the TV listener is an opportunity. So I think, clearly, there is some incremental to Sennheiser. I think on the online side, which Sennheiser is more on their way. I think you may have heard us at the capital market, Christophe, our Head of Audiological Care talked about that we're moving particularly accessories and other elements, but also hearing protection products more into the digital channels. We had started that, for sure, we will benefit from each other on that side. So I think there is channel benefits between the 2 assets. I would not put it as being the highest part of the synergies, but there is an opportunity here. Between wired and true wireless products. And I think one needs to understand that a headset, which is over the head, it's either wired or wireless. And then the true wireless as an earphone is obviously too wireless, but there's also ear buds which have a wire, right? So please don't confuse ear buds and headphones, both of them are wireless or wired. And the shift goes to more wired on -- wireless on both. I would estimate right now, and I'm looking to my colleague here, that we're probably in a world in which I would put it at 60%, correct me if I'm wrong, on the wireless side by now with regard to the units sold. So I think Sennheiser is in that transition. We do believe that for the higher-end headsets, in particular, when you talk about an audiophile consumer who wants to consume the music and home next to a high-end stereo system, for many of them, the wire is still appealing. Those are not moving around. And many of them believe that gets them to better output, right? So I think some of the market on the lower end is moving from wired to wireless. But on the high-end side, there is a "residual" part of the business, which will stay for a very long time in a wired environment. But today, probably 60% wireless and 40% wired.

No, that's very helpful. And just a quick follow-up, if I may, on the synergies. I appreciate it's early, but if you could give us any indication as to sort of the scope and the scale of the synergies that you see and the extent to which they are more on the revenue versus the cost side?

I think there is a -- we are -- synergy, but against our newly created organically consumer hearing business, where you heard me say, we were working on devices, but we haven't launched them yet, where we will benefit from the Sennheiser brand versus having created our own brand. We expect that to be very significant reductions of lead generation cost. We've done some testing around it. But again, it is against the business plan, not an existing running business, still very important to us. I think if I look on the Sennheiser side, we see especially opportunities if it comes to areas like manufacturing, distribution cost, indirect cost, all the things where you would expect becoming part of a well-run larger entity. We have opportunities, not so much on the marketing and R&D side where we plan to use some of the money we save from the synergies to drive the top line.

The next question comes from the line of Chris Gretler with Crédit Suisse.

A déjà vu this morning reminded me of the Phonak headsets we had a couple of years ago, but obviously kind of clearly a better brand for consumer now. And the question is actually kind of how do you differentiate consumer versus professional? Because, I guess, there is at least some that believe there's going to be a convergence in these headsets over time. So basically, how does the deal with Sennheiser works where kind of you differentiate the kind of businesses, professional versus consumer? Does it prevent you from going to the professional headset business at all? That will be my first question. I have a second actually.

Yes, Chris, it's good you remind us on the headset in terms of Phonak. This was before my time, but I obviously have heard about it. And I think it underlines why going together with Sennheiser is actually very good thing. I think when you go back to our headset attempts, when we compared our headset with other people's headsets, we felt that's a good headset. But we didn't had a brand, and we didn't have channel access, right? So in that regard, we always felt that various technological links which one can even use to do better devices. But we learned ourselves, and I think that was about 10 years ago that without a brand and without a channel, it's really hard, right? So thank you for helping me [indiscernible] as to why the strategic rationale. On the consumer versus the professional, I think what's important to understand on what we call the professional for Sennheiser, this is not in the -- and I don't know if that's where you're going, Chris. This is not in the work environment. This is really in the concert hall, this is with the musician, this is in other types of entertainment, this is microphones and high-end headsets and the whole systems behind it. There's an element of certain microphones heights and some speakers, not so much the headsets, which are also provided to professional setups, but it's less of a, let's say, hearable headset-type stand-alone business. And so I think it can clearly separate it by the type of products, and then your sales channels. If you would be a consumer who bought their hearable and uses it at the workplace to connect it with their PC or with their cell phone, that would be coming then from us in the future. If somebody has an installation, I don't know how many tens of thousands of dollars it is in those rooms, that's not with us. We're not the installation people then.

Okay. Yes. No. We understand professional maybe a bit differently when and following the other companies.

Yes, yes. The other companies you are following, which are also in our space with one of them being the GNs and the Logitechs of this world. That's a different solution. We're talking about professional really in a -- more in an entertainment and music environment.

Okay. Got that. And the other question is just in U.S., kind of you mentioned in your prepared remarks that it's obviously a well-recognized brand in Europe and Asia. But I guess, in the U.S., not that many people have heard of Sennheiser. So what's the strategy kind of mid- term to get this into the U.S.? Is there a strategy at all in the business case or kind of too early to tell?

Yes. Today, about 20% of the revenues of the Sennheiser consumer division are in the U.S. So there is a segment of the market we're serving. I think it's still stronger on the audiophiles. So if you segment the consumer in the U.S., Sennheiser, it's for the audiophile users who really "needs" is well-established and has a good recognition and also a high credibility as a brand. It's less so in the more regular mass market, right? So I think there's a footprint to start off from. The good news from the DoC we did, Sennheiser is on a good level. It's not at the same level as the top 3 or 4 brands in the world, but is on a good level from a brand recognition, but always interesting to see the credibility of the brand with the people who know the brand is significantly higher than the people around Sennheiser from a recognition perspective. So I think you have clearly a positive connotation of the brand for the people who know. And I think that's a good starting point. And if you then come from the audiophile side, plus that higher credibility for the ones who know, I think you can decide how much you want to invest and after which channels you go to build it up over time, but you're clearly starting from a highly reputable brand, that's why we use that word. And you can do more there if you want to. And we will find ways to do this over time.

Next question comes from the line of Falko Friedrichs with Deutsche Bank.

So my first question is on the cyclicality of this business with regards to the pandemic now, meaning I have many customers use some of their, let's say, disposable income on these Sennheiser headphones over the last months because they couldn't travel, they couldn't go to restaurants. Did you see an increase in demand here over the last few months or last year? And is that potentially a bit of a risk that you are then now running into pretty tough comps over the next year, and that could turn out to be drag on growth rate. So it would be interesting to hear your thoughts on this. And then secondly, you just kindly provided us the revenue split from the U.S. Could you also tell us how the remaining 80% of split between Europe and Asia.

Yes, Falko, thanks for the question. So on the cyclicality of the pandemic for the consumer hearing devices industry, from the research we've done, it was clear that last year, that market was not negatively impacted by the COVID pandemic. I think there was good growth momentum. It wasn't a spiky up and down from what we can tell. I think Sennheiser was participating well in the growth there, but we don't have indications: a, because it wasn't as cyclical; and b, we're seeing continued good momentum that we would be now worried about the comp in the second half of the year or the next year. I think there's a big underlying trend, which was probably accelerated by COVID that people use devices more in a virtual way, no matter if this is at the home office or other things. So I think there is an element of this being "the new normal." And clearly, not as spiky in the ups and downs as the hearing aid for other industries. I think from the revenue split, about the 3rd of the revenue is in Asia Pacific and then the remainder is in Europe. So Asia Pacific is stronger for the Sennheiser brand then it's U.S., which I think is a good thing because, especially with China, India, where Sennheiser has a very high brand recognition, and people are willing to spend, a significant part of the population are willing to spend quite some for good brands. I would look at the 1/3 in APAC. A big part of that being China as a good footprint from a growth perspective.

The next question comes from the line of David Adlington with JPMorgan.

Yes. Just on the brand license fee, please. Just wondered if you could help us sort of speculate in terms of size. And that mid- single-digit margin you've talked to, I presume that's ex the brand license and what the brand license takes you then to a loss-making position. And then I mean just to confirm, you'll be reporting this business separately as a line item on the P&L?

Can you repeat the second one? I missed the second one.

Yes. Will you be reporting this business as a separate line item on the P&L?

Not wanting to get into an exact percentage on the brand license, but you're seeing it up nicely. So if the EBITDA was mid-single digit, this will not get us close to the 0 line. So it's, I would call it, more customary brand licensing fee we pay there, perhaps a little on the low end. I don't know the exact benchmarking, but I think it's clearly not something which worries us when we think about the profitability of the business over time. It also has a certain structure that over time it steps down. It is slightly different for different product categories. But overall, I think, a pretty fair deal in most directions. Keep in mind, and that was part of the discussion also that when we grow this business, it obviously adds to the brand equity of Sennheiser, right? And so that's a little bit the rationale because ultimately they'd like to have many consumers having the Sennheiser brand in their ear, and that will help them on the pro side. With regard to the reporting, not a firm commitment, but pretty much leaning towards reporting this business out as a separate business, which would be in line with what I said earlier that we think about this as another, let's say, vector to consumers, but that's where our head is right now. And for us, this would mean certainly towards the revenue line, not for sure, on the profitability, but that's across this bridge. But clearly, from a revenue perspective, we have the wholesaler in the Audiological Care has separated. This one is so different, you would expect us to talk about it.

Next question comes from the line of Kit Lee with Jefferies.

Just a clarification question on the organic growth for the Sennheiser consumer division. Did you say it was flattish over the last 3 years? Just wondering what's the historical organic growth there?

Yes. Thanks for the clarification. Yes, I said it was over the last 3 years flattish.

The next question comes from the line of Niels Granholm-Leth with Carnegie.

Will the deal allow you to enter the gaming headphone market? And if so, would you be interested to enter the gaming headphone market? And then a second question, could you just talk about the 600 people that you are taking over? How would they be distributed between development, admin, selling, et cetera?

Thanks for the question. So on the gaming side, this is not a focus of ours at this point of time. I think we will keep clearly, initially, our focus on bringing the people from an audio hearing to the ones that need a hearing improvement in that consumer journey together. It's always an option to think about things over time. But I think for us, it's more clear from a strategic rationale that we do the consumer journey from an audio to speech enhancement, and that will be the focus here at the outset. I think there's always options if you would be interested in the segment to ultimately go after it. But again, short term, it's not a priority. On the 600 people, I think a significant part in the countries where Sennheiser is active with their own entities in something like 15, probably 18 countries. I think it comes with a significant R&D "footprint" or number of team members here, which is in a high double-digit number. And there is all other functions you need from a marketing to G&A perspective. And then [indiscernible] factoring I said earlier in the Ireland factory that is obviously quite some footprint there.

The next question comes from the line of Maja Pataki with Kepler Cheuvreux.

I have 2 questions to start with, please. Aren't -- since you have been working on internal projects already, can we conclude from that, that as soon as the deal is concluded, we should see the first product hitting the market, i.e., we should still see -- we could see something coming out late 2021? That's the first question. Second question, we're seeing how the several -- various players are actually going down the route of a hearing aid in a hearable format. We know that GN is trialing something and Nujira has a 510(k) for hearing aid hearable. Is that the next step what we should expect from Sonova? And it would be great if you could give us a bit of a time frame. And then a follow-up question. We're talking about mid- single-digit margins now. Is it reasonable to assume that over the next 3 years, that should improve meaningfully reaching the teens?

I so I think for the work we've done on the inside, now this is a road map discussion towards the Sonova team. I think 2021, later in the year as a first thing to look at is a reasonable assumption. I think on the hearing instrument in the hearable format, we're currently not going as far as specific, let's say, fitting things we have to do on a regular hearing aid. So I would really keep it more mentally right now in something which is easy and simple for the operator to do themselves, and that's when we talk about the speech enhancement. I think then you are in an environment, which is a nonregulated device, hence the comment on the consumer device side. We're not contemplating right now. Things can change over time, obviously, to now also have full hearing aid and the hearable. To some degree, you can say we have this in our IT format. So you can obviously make changes to those. But I think with the Sennheiser acquisition, we're really focused on enhancing the capabilities, including better speech understanding for non-medical devices. And on the margin side, I think we have been proven also with the acquisition of retail in AudioNova that we have ways to improve profitabilities even if something comes into the business, which comes at a lower level. I think we will deploy a comparable logic and playbook here also to the Sennheiser side. Again, I don't want to give an exact number. But I think, clearly, the direction has to be that this business moves into the double-digit EBITDA margin over time. But I'm not going to give you an exact number. We're in the double digit.

Understood. And maybe just a quick follow-up on the segmentations where you're playing in, so keeping it as a hearable with an augmented hearing. From talking to the various smaller players in that area, the feedback was always that it took them quite some time to understand which are the right other parts to promote those kind of products online and to actually really get the momentum going. Do you feel that you have sufficient in-house knowledge to push this product forward from an online perspective?

Yes. I think we have, on the one hand side, a benefit that we are in the business of people where there is a hearing loss. And as you can imagine, over tens of years, we're scratching our head on how we get people to start earlier, right? So I think we do have quite a psychological understanding of the consumer base, but also now audiological. So I think that will be beneficial -- I think the other one on the digital side, I think Sennheiser has a significant part of their business on the digital side, and they move revenue there. And at the same time, if you look at our audiological care and some of the things we've done on even the wholesale side, we have engaged quite a lot on digital because to give you an example, in audiological care, more than 25% of our leads are digital needs, right? So I think there's quite some understanding on the tools you need and how you do this. So we feel reasonably good that if we have the right product that we're able to go digital with it and convince people to buy those.

The next question comes from the line of Julien Ouaddour with Exane BNP Paribas.

And Alice, I just want to highlight. That's the last one I can take because I will need to run for internal reasons here. So if other questions come our way, there's ways to reach Thomas Bernhardsgrutter afterwards, which everybody on the call knows. So let's take this question here or those questions, and then I need to draw it to close.

So just a quick follow-up on organic growth. So you said that you were quite flattish in the past 3 years and probably like true wireless is the main growth driver here. But could you quantify maybe how -- we need a lot of investment, I would say then to get back to growth. And if you can just like detail -- I guess, it will be marketing and like R&D, but do you have any amount in mind or anything that could help us?

Thank you. So I think we're in a better position than having to do extra investments, we can always do them, but I was trying to share that when we talked about kind of the last couple of quarters, we have seen, not in the 3-year time horizon, but in the last 12-months time horizon, quite some positive momentum on the wireless and the wired side and the headset and the earbuds side. I think part of that was the work the Sennheiser team has done over the last 12 to 18 months to really build one management team around the business, which they didn't add before, and I'm a strong believer that does help to drive the business. And so that's in place here at Sennheiser prior to the spin-out since 12 to 18 months. There was also a shift strategically to focus not only on the wireless, but also on other product lines, particularly the audiophile, which is really a high-margin market segment they're playing with a high market share. And they had already started to ignite the product roadmap, which was important to us when we thought about the acquisition. So in the last 6 months, they launched significant new products, more to come in the next six. So I would say there is good momentum from all we can tell and we've done quite some work. And we do believe that, that will translate into good organic growth in the next 12 to 24 months. And then I think afterwards, obviously, we bring the 2 teams together, and we think what else we want to do and how much more we can do. But for now, please, rest assured, we're convinced that there is positive growth in the business, which is quite attractive for the, let's say, next phase until we bring the 2 pieces together.

Okay. Okay. And just if I may, just a follow-up question, do you confirm that this market is growing like double-digit or maybe strong double digit, maybe 20%, 25% per annum? Or this is like a bit high?

I think you need to segment into the different segments we're talking here. I think if you're in a true wireless earbud environment, you're in that range you are sharing here. I think if you go to the regular headset business, you are more in the mid-single digit, perhaps a little bit above that. And then again, you have clearly a separation between the wireless and the wired side in all segments, but I would say, take away the headset business or the headphone business, it's growing in the mid-single digits. I think the true wireless is clearly on a high double-digit growth rate at this point of time as a market. Okay. Sorry for cutting whoever has more questions, I hate to do it. Thanks for your interest. Please reach out to Thomas, who is available as normal. And thanks for your interest. Have a good day.

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