Sonova Holding AG (SOON) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the full year 2020-2021 results presentation conference call and live webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] and the conference is being recorded. [Operator Instructions]. At this time, it's my pleasure to hand over to Thomas Bernhardsgrutter, Director of Investor Relations. Please go ahead, sir.

Good afternoon, good morning to everyone. Welcome to the full year analyst and investor conference call. And with me today is Arnd Kaldowski, our CEO; Hartwig Grevener, our CFO. And it's my pleasure to also welcome Birgit Conix, who will be our new CFO starting on July 15. She will later introduce herself to you. And with this, I would pass the word on to Arnd for the presentation.

Thomas, thanks a lot. Welcome, everyone, and I hope you have a good day. I also hope you're all healthy and well given that we're still in the COVID environment. You have seen from our publication this morning that we are in the fortunate position and have the pleasure to share what I would call a strong second half year result for our business as well as a forward-looking positive guidance. I want to use the opportunity, particularly together with Hartwig here for you to have us unpack the information because there's always lots of ins and outs. And I think that's important, but we want to reserve sufficient time for the questions I'm sure you have on mind. Everybody has seen the standard disclaimer here. I assume that's read, and I want to move to our Page 3 here. I think when we look back at the last fiscal year, I think we're really proud of Sonova on how we have managed the last year and what we have achieved. I think we had to navigate an unprecedented situation. And I think that's a fair description. You may remember our first calls when we got into COVID and where we only had 40% of our prior year revenue in April, and where the first quarter was 40% lower than it was in the year before. I think having gone through that 12 months with the results, but also what we know we have done on strengthening the organization, we feel in an even stronger position than a year ago. With that, a couple of highlights, which I think you will see coming through the presentation and the voice-over. We see a sustained positive momentum at this point of time in the market. If I look at the global market, there's clearly differences by geography. But the sum of the parts, there's a sustained positive momentum, which we're seeing, which we have properly and over proportionally participated in, and which allowed us to show a strong second half year sales and particularly a strong earnings growth. Looking at the detail we have on the 12 largest markets, we're confident that we have continued to win share on the hearing instruments side, reflecting, on the one hand side, the strong showing of our Phonak Paradise, which we launched in August, but also the strong execution of the sales and marketing teams on the field. I think the CI follows a different trajectory as a market. And unfortunately, we, given the quality issues we had 15 months ago. But it's worthwhile to note that at the end of the year in Q4, particularly, U.S. started to open up more. And with the new product launches on the voice-over in a second, we changed in a mindset from our customers towards us where we had to explain why we had quality problems towards what they like about the new product. While we will have certainly discussions about the bottom line and to some degree, that's set by good work on the cost side, I want to leave you with the confidence that we have not allowed the cost adjustments we made to be at the cost of the important growth investments we're doing. So from a strategic investment perspective, we have, in the last year, added even more incremental OpEx to our growth investment initiatives, one of them being R&D. And you will see that we even in the COVID year have increased our R&D spend, which I think is consistent with what we said throughout the year. But I think when we go through the numbers, you will see we actually did that. I think with regard to the cash distribution back to our shareholders, our Board of Directors is planning to suggest to the AGM to go back to a cash dividend. And at the same time, we have announced with today that we're going back to a share buyback this time for an annual targeted program up to CHF 700 million. So we feel really well positioned from the market but also from the Sonova performance coming into this new fiscal year here. When we go to the 6 block of -- unpacking the numbers a little bit feels 6.6 in local currency on the growth side, a little bit better than the midpoint of our guidance. Please don't miss the point when we guided. That was before wave 2. And I think it's credit to the momentum we have, that we still come out a little ahead of the midpoint while we had a wave 2. I think it's also important to note that the first quarter was minus 40, first half year was minus 20. So to get to the 6.6 shows a lot about the resilience of the market, but also how we were positioning ourselves. Looking at the EBITDA side, clearly, a strong showing with the almost 34% in LC, which allowed us to lift the full year into positive territory with almost 6%. Again, keep in mind, the first half year was minus 28%. Clearly, a strong rebound here. I talked about the Paradise. It continues to be a well-off giving for us with regard to being able to convince more customers to join us and win competitive accounts. This has not changed over the last couple of months, so we're really pleased with the momentum there. Going to the sales outlook, 24% to 28%. Always hard to make too much sense out of the large numbers because you have to compare the prior year numbers and whatever. So to make it really easy, if you take the midpoint of our guidance, this would be a 2-year CAGR of 8.2%. Clearly, again, showing, we believe the market is coming back to where it should have been in the first place without the COVID, secondarily, us winning share over a longer period of time here. I'm sure there will be questions about how we think about the high market share position on VA. And I'm sure we get the question, but just as a heads up here, we understand that we are at a very high point. You would not expect us to plan in our numbers to stay at the all-time high for 12 months when other people come with new product. So rest assured, we have factored this into our sales outlook. From an EBITDA perspective, 34% to 42% on top of the strong performance in the prior year, I think it's a two-sided story. On the one hand, I think our continuous improvement efforts in which we improve processes to get more productive in a sustainable way. And then last year, the accelerated structural improvement clearly have paid off and have allowed us to have a new cost structure in a sustainable way. But on the other hand, we use quite some of this ammunition to invest into growth. So while I talked about that we stepped up the incremental OpEx on the strategic initiatives last year over prior year, we're going to go even a lot higher in this year, at least that's the plan. And this is factored into the numbers to accelerate those growth initiatives. And you know some of them, new product development, lead generation factory, feet on the street on the wholesale side to just name some of them. We have the capacity to do that, and we have the organization to do that. A quick view here. Because with the kind of confusing half year perspectives on how we went through COVID, just wanted to give you a couple of, let's say, graphical insights here. And if you look on the revenue side first, while the first half was in a strong negative territory, you can see that the second half was a 6.6% coming on the back of the 6.5% in the year before. And yes, there was some impact in March. But overall, you can see this was the highest revenue half year ever for Sonova, and we have good momentum here. I think the profitability speaks for itself with the 28% here. So overall, the second half of the year was, by far, the most successful economical year for Sonova despite us still being somewhat in COVID, right? It should bode well to the momentum in the organization. If you look at the EBITDA margin at the bottom, you can see the improvements over the last 4 years, which we always have talked about, while we continue to invest in the business. Keep in mind, in most of the years, we had headwinds from an FX perspective. We have been able to take them on and continue to expand the margins. If we quickly go to the strategy. We said that half a year ago, our prospectus has not changed. On the highest level, the strategy we have is a good strategy and serves us well. Served us well to take the right decision throughout COVID, to keep the focus on the areas we want to invest into, to find the ways to fund that. And I think with the step towards Sennheiser, also putting a little bit of an explanation mark after leveraging M&A to accelerate growth strategically. So the strategy remains unchanged because it has proven to be effective in the times before COVID as well as during COVID in our eyes. It doesn't mean we don't revisit it every year, we always think about it. But right now, we believe this is on the right strategy. One pillar of the strategy, which is very important in our industry, is leading innovation. As said, the Audeo Paradise continues to be well-off giving, continues to allow us to win customers over. But we also followed our normal pathway of half a year later, launching the Paradise technology for the Unitron brand. And the Hansaton brand, we also have started to roll the technology into other form factors on Phonak. So we're right on the plan we had for the road map. We follow the same playbook. We had strong receptions for Paradise. We now have 2 weeks of very positive feedback on the Blu platform in Unitron and also on the Hansaton side. I think the other one, which really is important, particular, obviously, for our CI business is that we were able to move apart the technology from the Marvel, which was until Paradise, the most successful product in hearing aids, into the CI space. And so you have the same chip technology on there. You have the same improvements to speech. You also have the need for a phone now, available integrated into the processor. And that has a very positive recognition we have of the speech improvements. It has a very positive response because of that direct connectivity even to Android phones. It also has a positive, the audiologists who are part of the decision-makers on what technology to take no model as a name because it had such a strong showing. Going quickly over to the Sennheiser side. We had discussions 1.5 weeks ago, I just want to reiterate. For us, this is a step into a new growth vector, which wasn't with the company before. We clearly reached that branching out of the classical, medical space for the hearing instruments here. We like the Sennheiser brand, we like their positioning. We do like their products, and we think it is a growth opportunity, particularly on the true wireless with the Sennheiser products. But as you can see in the graph here, particularly in the middle with the merchants of hearables, we do believe that the form factor, a hearable for a 3- to 4-hour hearing situation offers opportunity for people who get improvements to their hearing and noisy environments, while they're not ready yet for full hearing aid. So that's the strategic rationale. Obviously, the closing is we said in the Q4, nothing has changed -- calendar Q4, nothing has changed about that. We will know more as we go through the carve out. It's not reflected in the guidance, but I think it is a good example on how we deploy not just the OpEx, but at some time also, parts of the balance sheet in order to make our offering stronger and better. I wanted to touch briefly on the ESG side, partially because it is important to us as individuals, but also the company, but also because we get increasingly questions from more and more of you on what is Sonova doing about it. So just putting it in, take as a signal, it is important to us and we're doing a lot about it. We are well ranked in all the different indices we participate. We tend to be in the 5%, 10% slot on the upper side, on the positive side. But we're also at a point where we have decided over the last couple of months that we will intensify our efforts, particularly around 2 elements of our Sonova intact program, which you can see on Page 11, and this is on the upper right. What we do with regard to our talent, to our diversity and inclusion because we think that ultimately is making us stronger when our talents are stronger and more diverse. The second one where we're intensifying our commitment and investments is on the lower left with regard to the ecological side. We've committed to become carbon neutral in our operations by the end of this year. And we have committed to live up to the standard of using a science-based approach to emission reduction and contribute towards the goal of the world to not get warmer than 1.5 degrees Celsius. And I know some of you have departments who will be in close discussions with our teams on how we're tracking this. And -- but I wanted to make sure you understand, that's the game plan, and that's what we're driving as a company. So a couple of highlight figures on Sonova Group results here. On the group, I said most of the numbers already, 6.6% in LC second half. Our structural optimization, fully delivering to plan. I'm not going to go into a lot of detail there. But we used less money on the -- slightly less money than the lower end of the restructuring cost, and we're exceeding what we wanted to save on a run rate basis, which was one of the reasons why we saw a strong margin improvement in the second half. There's certainly still some COVID effects in there. And I'm sure when we unpick the OpEx and the guidance, we'll have some of those discussions. But clearly, 600 basis points, quite a strong number. From a hearing instrument perspective, slightly south of CHF 1.5 billion. We were almost 5% lower than prior year, but a good 6.1% pick up here. And as I said, Phonak Paradise and the commercial execution, important elements on that journey. Audiological care. While the first half was a little weaker, keep in mind, they're very Europe-centric there so we don't benefit from Asia that much. In our AC business, a nice return to 6.9% in LC second half. And continued focus and investments into the lead generation elements from the lead generation factory here in Europe, the one we have in the U.S., but also what we do with regard to online channels for accessories as well as our China activity there. And then on the Cochlear side, clearly a different picture for the year, partially the mark, which is starting to come back. U.S. is ahead of Europe, but then also with our field correctors action, clearly, in the first half year, we were losing market share. But with the new products and the work we've done to regain trust on the customer side in Q4, we're clearly seeing a change to the sentiment and a significantly stronger momentum. So I think we're well set up to regain a big part of the lost ground here in the coming year. On the Sonova Group level, results for the full year, you have spotted all of them already. But you see the gross margin was slightly up despite the lower volume and the headwinds on freight cost, which is a global issue right now. So below that, if I go into the factories, quite some good work with regard to labor productivity. OpEx, clearly very tight, which translates into the high EBITDA of the 5.6. Now coming to the adjustments. And on Page 14, we wanted to make it easy for you that you have a chance to unpick them. Probably the first positive information while in '19/'20, we had negative 66. This year, we have positive 60. So if you look at our adjusted number where we try our best to correct for onetime items, we had more positive onetime items. So at least we're proving the point that we do both the positives and the negatives, ultimately translating to very high reported EBITDA. The 2 biggest items on the sheet were the CI patent claim where we did win a long-term outstanding item, which was worth at the end, around CHF 125 million in positive and the restructuring at a negative CHF 40 million for the year. 15, you see the breakdown on the sales component, probably most important yet to see the 7% on the organic side, but then also the 4% we had on FX. It was worse somewhere in the January time frame. It has improved slightly, so we currently have a little bit of a more positive outlook for the full year. We go to 16, the geographical split of the growth. If you go to the far right, you see for the full year, the only region which did grow positively was Asia Pacific. Probably more encouraging and more relevant for you as a new information, when we look at the second half year, all regions were in positive territory, somewhere mid-single-digit and then Asia Pacific in the 20%. A couple of highlights here, looking at the HI business, especially in Europe, it's really kind of depending on the country and the infection rates and their lockdown scenario. So we had a solid recovery with positive growth in France, Germany, Nordics and Switzerland for the full year on HI. We had good momentum in AC in the major markets, although the U.K. and Germany were moving slower, in particular, the U.K., despite the vaccination rate. It's a little bit of an odd scenario, still a lot of holdback because the government was holding lockdowns pretty long in place. If you look at the U.S., HI is obviously a big business for us there. Clearly, when we look into the different channels, the way we interpret the data is that we did win share in all channels and we did see a faster recovery on the independent side. So I think Paradise really at play in addition to the commercial execution efforts we have there. And then if you look to the other, again, focusing more on the HI because the biggest part of the other bucket, strong rebound in Asia Pacific, China, Korea, New Zealand. But then muted developments in the Americas in which we have the Brazils, the Mexicos and also the Canadas. So I don't think a major surprise here in the stack ranking by geographies, but hopefully helpful for you. On the EBITDA component, a big organic lift, I don't know if the -- on the structural side, you see a big number on adjustments in LC. In this case, positive. I did tell you on Page 14 is the explanation to it. And then quite a negative on the FX side, the CHF 60 million negative. Again, it was even more pronounced in January, we have a slightly positive environment. Page 18 unpicks the P&L for the second half. So looking at the middle here, a good performance on the gross profit, where we grew gross profit faster than the top line. So you can see the productivity coming our way, despite of the freight cost and a couple of extras we have to do for COVID. OpEx, still year-over-year shrinking. And then on the EBITDA side, you see the 34%. You see a 28% on the EBITDA margin side. I said it before, I think there are some elements still in there where lower travel does help. There's not a lot of extra government subsidies, about CHF 4 million or so, that's probably not a big item here. But clearly, we will need to gain productivity in order to stay or increase that level over this jump off point here. Moving to the Hearing Instruments. As overall, because you can see the profitability here at 6.5% second half. I will focus on the second half. Again, the 600 basis points. So this was pretty much carried by the 2 businesses, Audiological Care and wholesale. The return to growth is probably the main items to watch out here. Want to spend a little bit more time on the Hearing Instruments business. So on Page 21, that's what we call wholesale, so don't be confused. The segment is AC and wholesale, this is the page only for the wholesale business. And again, focusing on the second half, 6.2% growth, 6.1% organic. Here, many positives. I talked about the Phonak Audeo Paradise, which is important in the wholesale business. Talked about the commercial execution continued focus. We did have a positive ASP at the beginning of the year, particularly driven by mix of higher-priced [ geos ] also more premium product in average. We're seeing a little bit of a headwind in the Q4 in it, partially because of the French reimbursement change, which is a big market for us. It's the #2 market after the U.S. right now. And also kind of a rebalancing of the mixes by geography and product line. Clearly, a new high on the VA, which ultimately, we had the high point at 57%. And then we renewed our private label contract with a large U.S. hearing aid retailer, which was important for us because it gives us this very important base business we have there with a nice growth they produce normally as a channel. And I talked about the new products in Unitron and Hansaton. Audiological Care. The 6.9% I commented on, most of that is organic, just a little acquisition. We did actually not do acquisitions in the first half of the year. You can probably understand that given that we were in low revenues, and we were first trying to figure out how we manage the balance sheet. We have restarted our activities there in the second half. So the second half was more of a normal second half was, probably even a little faster because we want to increase our activities there. But what we also did is when we came into June, July, when the first quarter was over, we did see the demand coming back. We put the full foot on the gas with regard to the lead generation from a marketing perspective. And we allowed ourselves, in some cases, to say even if the market is not fully there, let's just do the normal marketing spend to get the leads because we have the infrastructure. So incremental revenue is relevant for us. That's what I wanted to cover here. On the Cochlear Implant segment side, this chart needs a little explanation on the numbers. While you see an 8.2% in the second half, the recovery is slower, the market recovery is slower. So one thing to note, you may remember -- some may remember, in the year before, as a consequence of the quality changes, we made an adjustment to the revenue, which was sitting on the AB side. So in reality, what is an 8.2% in real terms, because we made this adjustment, we were not yet in a positive territory. So we're still at a low revenue level for this kind of business with CHF 100 million. But clearly, the February, March, we're starting to get strong months. April was also a strong month. So I think the recovery simply comes 6 months later, but we're in the middle of getting it. And the benefit is we have spent significant time with the customers to make them more comfortable with our quantity. 95% plus of the customers who bought implants from us, buying implants from us right now. And I think the new process has really changed the conversation because of the strong benefits. And the excitement always when you have new product, the best answer to some concerns in the marketplace is coming with new products. On Page 25, you see the implant systems and the excess and upgrades and accessories. In general, the upgrades and accessories fared a little better in the first half year. In the second, it looks not as good. But keep in mind the quality corrections were all on the system side. So again, I think in the second half, we saw better upgrades in the accessories, as you would expect when you have an installed base. With that, I want to hand it over to Hartwig for the financial information before I come back on the outlook slide.

Yes. Thank you very much, Arnd, and hello, everybody. And it's my pleasure to do this the last time, but it was a great pleasure to also contribute to the broadcasting of this very, very nice results. And on Page 24, which also summarize the cornerstones of the financial results. You see that besides the operating financial metrics, also EPS the was up even on an adjusted basis quite nicely by 15.5% in local currency, reflecting the earnings growth, but also some benefits on the tech side. We had a strong operating free cash flow of CHF 602 million, so very close to the EBITDA. And this was down 5.7% in the condition that we entered the year on a very low revenue level and left the year on a quite significantly higher revenue level, which determines, obviously a higher level of receivables. Else, we are very, very satisfied with how the cash flow performance has turned out. We have a dividend proposal out there, as you have heard, back to, let's say, the normal corridor of just over 40% of payout ratio at CHF 3.20. And we have put out -- we are restarting the share buyback at this point, announced at a volume of up to CHF 700 million for this fiscal year. And as you know, our leverage is close to -- getting close to 0 and giving us a lot of financial flexibility. If you move on, we've mostly talked about those numbers on Page 28, notably, also the return on capital employed has improved by 300 basis points, including around 180 from the else normalized cochlear implant damage payments received from our competitor. And so in general, this is a very satisfactory situation overall. I want to draw your attention again that in the past year, the currency development took away notably -- notable growth portions of our growth. And now as Arnd said, you can see here again that the adjustments kind of even out year-over-year. Looking a little closer to the operating expenditure on Page 29. After we have looked at the P&L as a whole, we can see here that really that we are investing strongly in R&D. And this is a combination of traditional increase of resources and agreements with contractors, but it's also an effect of earn-out expenses from a technology acquisition that is entirely reflected in terms of those expenses in R&D. Sales and marketing and G&A, both down by double digit. And also on the -- looking at the G&A side, a stronger reduction than in sales and marketing, reflecting that we all have been working on the cost structure. And against the ongoing investment in IT, in particular, in our IT platform in the Audiological Care business that we have also mentioned in prior years, where we are, I would say, in the third year of rollout activity in the interest of best possible multichannel marketing and integrated value flow within the company. We've talked about the adjustments before. So I guess that's all fine here. Moving on to Page 30 to just walk you through the bridge from adjusted EBITDA to net profit. So we've talked about the adjustments. The acquisition of amortizations are stable in line with prior year. The financial result is a little more negative than in prior years as a combination of, what we call it, higher debt, but it's a combination really of interest paid for the debt that we have taken but also interest paid for deposits that we are placing. And obviously, the returning cash to shareholders will, over time, help us with the latter. Then looking at the tax side. We have an underlying tax rate this year of around 12.5%. I guess it's broadly in line with what we have indicated, probably a little lower. And we have nonrecurring benefits of around CHF 60 million here, of which we have normalized CHF 28 million because they are a lumpy item normalized in the prior schedules and relates one more time to the Swiss tax reform. And while for most of the analysts this is kind of an IFRS technical item, let me just note that, ultimately, those items will be cash saved for the company. So I would say, ultimately, we have fared well through the Swiss tax reform, getting to a new base here that is relatively well sustained for getting us to a 25% net profit margin as you can see here. As we look at the cash flow, we have already touched on that. We have a strong pickup of profit before tax of CHF 98 million. That's obviously reported, including the CHF 60 million of, on an EBITDA level, adjustment benefits, D&A and income taxes. And then you see the working capital change, of which more than CHF 100 million relate to the buildup of receivables through this significant swing between what was March 2020 and what is now March '21. And the rest is inventory mostly as the swing fills up to here, to CHF 180 million. And you see a very low CapEx amount for this past year as we have obviously been very careful to not overextend in times of uncertainty. Some balance sheet information here. You -- we're seeing here the DSO is more or less stagnant in the way that we measure it here, but on a much higher level. DIO has increased as a reflection that we have allowed on a component and finished good level to have a little more reserve, given uncertainties both in the manufacturers of components and also in the supply chains. And we had no interruptions at any time within the year and no significant backlogs either. Capital employed, affected by the receivables. We have talked about ROCE. Net debt, now very much down to around CHF 80 million. So by the time we speak now, you can assume it's kind of 0. So a very strong balance sheet to start from as we're going into the phase of continuing, again, the returning cash to shareholders. That concludes my report so far. Back to Arnd for the outlook.

Yes. On the outlook side, you may have seen that when you zoomed forward. We want to give you a best read on the current market conditions where we have published data on a monthly basis. So the 3 countries, and this is wholesale data, but ultimately, also reflecting the retail world because the products need to go somewhere or come to the consumer. These are the 3 countries where we get monthly data. As I said, there's 12 which report, but 9 of them are quarterly. And I understand fully that you're as interested as we are on what the latest trend lines are. So what we're showing here, particular in the blue box, is what's the 2-year CAGR of the unit volume in the market, right? And so the U.S., you can see was pretty flattish for many months since they came out of the first wave, but still below the prior 2 years ago. And we can see that in March and April, we were coming up to a 9% 2-year CAGR unit volume, which goes nicely hand-in-hand with the vaccination rate, and we look as a leading indicator of the population above 65. At the moment, this got to 30%, 40%, 50%, 60% by now in the U.S. We clearly see a significant impact. And you could argue, there's a pent-up demand in there. But on the other hand, the 9% CAGR is also not unheard of in our industry. Looking on Canada, you see similar, it's a little bit more bumpy, the curve. And I think the government had different phases in how they were managing lockdowns. But clearly, March and April was in the 7% 2-year CAGR. And then as a contrary view, you see Germany, which was earlier already above the 100% with a slight growth. But right now, they're still struggling to get there. And then the people who follow the German lockdown scenarios and all that, it is still confusing for the consumer to put it lightly. And so we still see some holding back of the consumers coming back to the stores. Now if I would put the 12 countries out, and the vast majority of the countries, we see positive territory. Therefore, we see the market in a good recovery on a global level. Hence, we also feel that with the increasing vaccination, we're looking towards a continued steady recovery of the market on a somewhat expedited curve. And I think you all follow the vaccination rates. But for us, that has proven to be the most predictive in the last 3 months on how countries develop differently. One exception being U.K., because they have a high vaccination rate but still had for a long time lockdown scenario, right? It's those two we look at. Clearly, the market still remains dynamic. But we've seen strong rebound in many of the markets. And we think with the vaccination rates going up, we will be in a more steady environment than what we've seen in the wave 2 and 3. And that's fundamentally basis to our guidance here. Going to the outlook side. I shared the numbers before. Keep in mind, the 24% to 28% is 8.2% 2-year CAGR, which is a composition of us expecting the market to get back to normal, including making up for -- it felt like lost ground last year. And we're pretty confident around that. If some markets start a little slower, other ones have some pent-up demand. That's how we think about it. The 8.2% should also represent our expectation that we continue to win market share, given the momentum we have on product and execution. And then on the bottom line, I think the way to think goes through, the 34% to the 42%, yet some costs will normalize a little bit, particularly on the freight side. But on the other hand, there will be quite some fall through from the volume. There's still an annualization benefit out of the structural improvements, which we started to do in Q2. We're probably at the peak in Q3. And we have baked in significant increases in our growth investments as the projects are progressing well, and we have the financial flexibility in muscle here. Last comment on the currency. We, at current rates, would see a plus 2% in Swiss franc over the LC and the plus 4% from the EBITDA. We all know it's quite volatile. But at least starting on a positive, a better start than starting on the negative as we did last year. A quick recap on the TSR here. Not a fundamental change, but I said it earlier, I think acquisitions, if they are the right strategic things to do, our priority of ours. We have increased the team on the ground to do more bolt-on acquisitions in the markets where we are in retail. Hence, we're expecting more CHF 70 million to CHF 100 million in bolt-ons. So far, we were targeting 50 to 70 strategic and technology acquisitions, Sennheiser being 1 example, could be other things, then going back to the dividend. We're still off the mind of keeping a healthy balance sheet so that we have flexibility for positives, like M&A or negative. But I think the CHF 700 million up to as a share buyback also, obviously, is a fair representation of us having a strong cash position, which we want to at least work off over time here. With that, I want to give Birgit 2 minutes to say a quick word of hello before we move to Q&A.

Hi, everyone. Thank you. And I very much look forward to start working at Sonova and to be part of Sonova's continuous growth strategy. I am a Belgian, and I worked a bit over half of my finance career in health care and pharmaceuticals and in medical devices and most of the rest in consumer-related industries. I'm currently in my onboarding program, my 6 weeks onboarding program, and I have 2 weeks behind me. And my goal is to onboard as quickly as possible. And I also look forward to meeting you all very soon when travel permits. Thanks.

Thank you, Birgit, and welcome on board. With that, we want to open it up for questions from the audience here.

[Operator Instructions] The first question comes from Patrick Wood, from Bank of America.

Perfect. I have two questions, please. The first one, you guys seem to have done a really, really good job on the productivity savings and the margin structure of the group. I'm just curious, '22, implicitly with the guidance, will be a very, very good year for margins. And you kept your midterm guidance with EBITDA growing faster than the top line. Is it the writing's [ reputation ] from us that you think that margins, even after '22, should be flat and going up? Or is there any kind of a normalization back down as volumes sort of normalize a little bit? So I guess some help around where you see the ceiling for margins of this business would be great. That's the first question. And second one, just very quickly on the Sennheiser business. How are you guys thinking about investing in that platform? I appreciate the comments around hearables. How are you thinking about where you want to put your OpEx and really what you want to do on the product development side?

Patrick, thanks for the question here. With regard to the margin outlook, I think we're in an accelerated margin expansion, which is unique. And you heard us say this over the last 2.5 to 3 years that we had structural opportunity, which we wanted to go after. I think afterwards, and afterwards is probably when we're getting out of 2022 here -- or the FY '21-'22. We go more into a normal in which you will see a normal profile of investing into growth and getting some margin expansion out of simply the fall through, and then we'll decide where the fall through goes to investing or bottom line. I think we see continued opportunity from continuous improvement. It's well-off giving, at least when I look at companies like Toyota and others. But the structural side, I think, will be behind us. On the Sennheiser side, I think we believe that there's an opportunity to help Sennheiser to continue and to invest into their product lines and into the channels while we teach them a little bit on what we have learned on how to improve the productivity. There's also a couple of areas where we can benefit out of common sourcing. Think about logistics costs and stuff like that. I think you will see us making more investment than they would have because they would have not thought by themselves about the hearables with an amplification, let's say, capability. We were on that journey by ourselves. We said that 1.5 weeks ago that we had some organic developments going on. And I think we will continue the R&D effort there because that's going to be a new product line or product category, and that's the organic growth investments. But I think overall, over time, you'll see us improve the profitability there. The Sennheiser stand-alone will improve because we know how to do that, but I think there's more investment to come on that amplified hearable.

The next question comes from Daniel Buchta from ZKB.

Two questions also from my side. The first one, maybe coming back to the margins until the year 2021, 2022, I mean obviously, very strong guidance. But could you say a little bit more about the drivers behind -- I mean obviously, into volume recovery and you have your efficiency programs. But how is the cost base now? I mean is there still a lower amount of travel expenses, marketing expenses, so things that should then be back to normal in the second half of your reporting year or latest then, I would say, in 2022, 2023. So that's why margins maybe still might be a little bit inflated due to the lower cost base but the strong recovery and top line momentum? And then the second question on the general market trends, and you elaborated a little bit on that already on one slide. I mean based on your guidance, what would you expect how the market is by the end of this year? Is it above the 2019 levels already? How much pent-up demand do you still expect or do you see on the ground? So how are the trends here?

Yes. Daniel, Hartwig here. On the margin question. So looking at the new fiscal year as a whole, there is obviously a compound of better volume, no subsidies that we had prior year, the structural improvements -- the annualization of the structural improvements, I should say, potentially smaller additional structural improvements, and there is the travel and entertainment piece there. And last not least, there is the investment into growth. So as Arnd has said, we are not taking all the structural improvement and continue to improve -- continuous improvements to the bottom line, Swiss franc for Swiss franc, but we are increasingly investing -- even further increasingly investing into growth. And so the compound of all that is what we are guiding here. In regard to travel and entertainment dynamics, when you look at the -- at the pre-COVID run rate for a year, that would be at a magnitude of just over CHF 50 million. Then you can say during the COVID year, we saved about 2/3 of that, and we have assumed that in the new year, we will still save 1/3 of that. And whether this is a recurring saving, I believe some of that it is because we have now also understood to interact with our consumers and customers increasingly on a digital way rather than face-to-face. And whether this is coming back because ultimately, you want to travel when travel is possible, but there will be a mix of those. But it's no longer in the midterm. It's no longer a strong, let's say, nonrecurring item, I would say. It's important when you look at the cost dynamics that obviously, there is a much stronger year-over-year margin improvement in the first half than the second half. You have not asked that question. I'm just referencing this for completeness sake. Arnd, do you want to go to the market?

Yes. Daniel, thanks for the question. On the general market trend, I think we expect the second half of the year of our fiscal year to be, as a market, clearly above the same period in 2019. I think we expect that we will also have 1 share relative to that 2 years ago, continuing our progress there. But I think the market will be clearly higher than 2019. I think we will work through the markets which need to recover. I think there will be some pent-up demand. We do not believe that everything which was not purchased last year will be purchased this year. I think some people will come and some will not, and that will help us to smoothen the curve for the year. But the fundamentals are there. We have the same incidence rate. People are getting older. People have more money. And even in the financial crisis, we're seeing it does not really -- it's not that severe to the, let's say, more senior population because they get their retirement money. Share prices stayed high. So I think we're going to go back to normal at the moment the COVID is over, and you really have to start from how many people do need a hearing aid and don't have one yet.

The next question comes from Veronika Dubajova from Goldman Sachs.

I hope you can hear me okay. I have 3, please, if that's okay. My first one is just on gross margin. And I would love to understand, obviously, very impressive performance in the second half of the year. I suspect revenue and geographic mix had a lot to do with it. But Hartwig, if you can talk to sort of some of the structural changes that you've made to your manufacturing footprint. And to what extent those carryforward even assuming a more normalized geographic and product mix? And how kind of we should be thinking about gross margin both in fiscal year '22 when maybe things are not fully to normal and then more long term on a sustainable basis, that would be great. That's my first second -- first question. My second question is just your kind of increased M&A ambition. Obviously, Sennheiser kind of, I suspect, sits outside of the CHF 70 million to CHF 100 million. So I would just love to understand what are the opportunities that you're seeing in the market. And then I have a follow-up after that, if that's okay, once we tackle those 2.

Yes. Veronika, good to hear you. Thanks for the question. On the gross margin side, yes, there is always this interplay between ASP and volume effect and structural and continuous improvement. And so we have -- working on the structural improvement side, we have been quite satisfied with our successes in a mix of roof consolidation, offshoring, to the best part of our network, which generally is Vietnam and process improvement, sourcing improvements, freight cost improvements. And so the yield that we have seen so far in the funnel also going forward on both structural and continuous improvement gives us enough fundamental -- also buffer of a mix-related ASP -- or let's say, the absence of mix-related ASP benefits and even also ASP pressures that could return to the market in the next fiscal year. So it's really the interplay, but we believe we have done our homework well there.

Veronika, I'll take the second one, on the CHF 70 million to CHF 100 million, I think, think about them as bolt-ons in markets where we have retail. And sometimes, they come at [ onesies or twosies or threesies ]. Sometimes they may come with 20 points of sales of 30. And I think the "magic" to why did we take up the number, we have, in the last 12 months, made progress in building more capability in the individual countries. And you can imagine these are the Germanys, the Frances, the Canadas of this world, the Brazil of this world, where we have significant footprint and opportunity. And so have built up those people so that on a local level, they find the opportunity, cultivate the opportunity and bring more home. But that's what we have in mind with the CHF 70 million and CHF 100 million. It has nothing to do with Sennheiser. If there would be a large market where we're not active with retail and we make an entry investment, most likely, that would come at a larger number of POS that's also outside. But this is really the bolt-on somewhere in the [ 1 to 40 ] POS where we are already active.

Okay. That's very helpful. And Arnd, what's the competition for these assets like? Because obviously, you're becoming more active. Amplifon is fairly active. Are you seeing sort of a significant degree of competition around that.

I think it depends on the market first. I think there are at least 3 of the players who are of reasonable size if you take the Amplifon, the Demant and us, and everybody has a different footprint. I think everybody has the interest where they have a meaningful footprint to increase their share. And so yes, it could be depending on the country that we're competing with one other player. And when comes to the question who was earlier close to the asset, who has a better relationship, we do have a, let's say, systematic advantage relative to somebody who doesn't have wholesale because we happen to know the people since a long time. And often, that helps. In some cases, you're by yourself because you had a good relationship and you were cultivating. So I would not say we're seeing a significant increase in prices or, let's say, heat. I think it's really more us being on top of our game and finding the opportunities where we have a chance.

The next question comes from Oliver Metzger from Commerzbank.

I have 3. The first one is on the reimbursement change in France. So over the years, your French business has gained in scale. So could you specify your positive contribution on organic drop on wholesale and retail? That's -- and also, how long do you expect this some positive contribution? My second question is on your guidance. What's your view between the 3 segments? So wholesale, retail and CI, with regards to growth dynamics for the next year, just a ranking. And finally, last week, Bose's self-fitting hearing aid was published. So what are your initial thoughts on that also with regards to pricing?

Yes. Oliver, Hartwig here. On -- I guess your question on France was about the reimbursement dynamics that we have there and...

Yes. And also the impact on your business.

Yes. So France is the second largest market by now.

In wholesale.

In wholesale -- yes, in wholesale. And it is a smaller market for us on the retail side. We have a net positive impact from the reimbursement change both on profitability as a whole, so profits and top line. The margin there is -- the relative margin is more neutral. It's the volume benefit there, but there is an ASP degradation from that. But obviously, overall, we value that dynamic positive. It will be temporary in nature to a certain extent and -- but there will be also a remaining benefit that ultimately, this market will have a higher penetration as a result from the change.

And Oliver, on the guidance and breaking it down, I think for the current fiscal year, if you're in the 24% to 28%, smaller differences between markets and fundamentals are not that relevant. So I would say that probably all 3 are moving directionally the same. I think you could make the argument that on CI, there's more potential given that the market was lower. But on the other hand, it's starting a little later but it's rebound -- it's not fully in rebound yet. So I would say for this year, it's kind of the same go forward. I think -- we think about wholesale and retail as the same chance to win market share. But on the retail side, the bolt-ons come on top. So if we go to CHF 70 million to CHF 100 million, it should be a little bit more than the 2 to 3 we have historically said. I think on the CI, the market is fundamentally growing faster. So I would use what we have shared in the midterm guidance as a direction longer term. I think for this year, I would expect directionally the same and then CI will depend on when the European market is opening up. On the Bose side, I think we have recognized with interest that they have now shared a product. I think we all know that 1.5 years ago, they already kind of shared they're going to have something. So let's appreciate they have one now. I think it looks pretty much like a hearing aid. It's interesting to recognize that it's not connectable and it's not rechargeable. So I think we will see how that sits with the consumers, but we assume that OTC is younger generation. And so I think connectivity and rechargeability is relevant in that segment probably more so than in the average. And I think you've seen the price point at $850 for a pair, at least what they are marketing right now. Keep in mind that's without service. So probably positive on the price point they're shooting for, not going very low here. On the product side, I think it's not -- it doesn't have some of the functionality you would expect in any hearing aid at this point of time.

Okay. Potentially one follow-up. Do you think that price point is too high that such an approach might be successful in your view?

I -- interestingly, I personally believe that's the personal opinion, and I'm sure there's lots of other opinions out there. I'm not so sure if this is all about price. If it is about in which channel you find people and how you motivate them to think about something because I think you guys are following Eargo as much as we, and they are at the very high price relative to anything which was discussed for OTC. So I think clearly, in minimum, there is not a transparent price point out in the market. I also believe that it's more a question of a convincing product offering for the need and the channel you're using over pure price point discussion. So I think we will learn more as other people show their cards after Bose, and we will see whether prices will sit at the end. But it's really hard to say $850 is high or low. I don't know.

The next question comes from David Adlington from JPMorgan.

I just might revisit the margin, which you -- some of which you've answered already, but maybe just push you a bit further. So the margin you pointed towards this year is about 400, 450 basis points higher than peak margins. I just wondered if you could sort of split that out between how much the pent-up demand is driving to extra operating leverage. How much is from the continued, i.e., structural OpEx savings? And then how much is due to lower COVID cost and you saw COVID -- or some -- a third point, but just a split between those 3 buckets would be -- I think would be useful. And then just a sort housekeeping one. You called out in the release a legal provision offsetting some of the bad debt write-backs. I just wondered what that legal provision related to.

So on the margin side, just trying to start off with a stack ranking side, if you look at a growth of 24% to 28% and a CAGR of 8.2%, you would expect that the volume leverage is a significant contributor because you don't need more factories. From a continuous improvement perspective, we get more products out of a factory every year and we get more product out of the operator every year. That's why we [ call it ] continuous improvement. So I think that's a significant contributor. I think from the structural improvements, we announced them at the beginning of Q2. We said we were 2/3 done by end of Q2. So I think you can almost guesstimate from there on how much benefit there is still to come. It will show up in the P&L year-over-year in the first half year, but it will be a significant positive. That's -- I think the big items. If you look at where we keep costs down, some of those buckets are things where we've learned that we don't need the cost. Because if you go through a whole set of indirect cost and you're having to call everybody to being tighter, you don't allow everything to grow back. I think clearly, there is a travel element in there. Put that at a range of an increase of CHF 20 million or so. Not all of the travel will come back because as we have home office discussions, we also have more virtual discussions, but it's probably -- the third most important is the negative in the other direction, but it isn't that dramatic. I think the bigger one is volume and then still benefits out of structural improvement. Hartwig?

Yes. On the release of bad debt provision and legal provision, the comment -- you remember that last year, we built about CHF 21 million -- CHF 20 million to CHF 21 million of extra receivables provisions in lieu of the COVID impact on the market. We have released to the mid-teens level to that -- from that. And this is, however, P&L-wise or G&A cost-wise, largely offset by higher legal provisions that we have for certain reasons. It's not out of normal for the company of our size, but it wasn't there before and it will not be there next year to the best of our understanding. That's why we're making this connection between those 2 same magnitude size items.

I'm sorry. Hartwig, just to follow up. I mean that legal provision, is that related to anything in particular, patent case, things like that?

No. Nothing -- not lumpy. It's a handful of different cases that have accumulated.

The next question comes from Markus Gola from Stifel.

So the first one is on your midterm guidance. During the last CMD, you alluded to a potential revision of these targets once the COVID-19 situation normalizes. And today, you have confirmed this guidance where at least the low end of the sales growth corridor is structurally not very ambitious. But I understand, on the other hand, you recently did a meaningful acquisition and you have a new CFO started at your firm. So is it fair to assume that you simply have postponed this revision to your next CMD? Or have you indeed abandoned the idea to have a fresh look on these targets? And my second question is on China. Could you provide us with an update on your web-based initiative there with your partners as well as your experience with SHIFT, the self-fitting hearing aid? And lastly is a question on reimbursements. This year, we should also see some impact from the anniversary of the reimbursement change in Germany. Have you baked something into your guidance from this tailwind? And would you expect that Germany could surpass France and wholesale this year from this tailwind effect?

Markus, thanks for the questions. On the guidance side, honestly speaking, I look at it more as a postponement of having to revisit. I think we're really still in an environment where wrapping our head around full year is quite a handful. And so we wanted to make sure we've done a real good job on the full year. I think we're going to see still some springing up and down on what is pent-up and not to leave us with a little time here until we get back on the midterm guidance. I think in general, we look at the market as attractive and the fundamentals well in place. I think on the China side, with regard to the activity we have there from a lead generation perspective, we're very pleased with the sheer number of followers and leads we're generating through our activities on WeChat particularly and then to some degree on the Alibaba side. I think we see a positive benefit in the wholesale partners who participate in that lead generation when a consumer is interested to find a retail store. I think on the self-fitting side and then, to some degree, your SHIFT question, which is a product we have launched there, we're not yet at a place where we see a lot of pickup for that. There are customers who are buying it but nowhere in an order of magnitude where this would be material and relevant. So I think we have to continue to optimize how we guide them through the selection process. And there's lots to be learned when you build this up. Secondarily, I think we have to learn how to optimize the product offering. And I would still say the jury is still out for self-fitting devices. So more work to be done, happy with the front end side of the lead generation there. I think on the back end towards the self-fitting, not so certain yet. On the Germany side with regard to the anniversary of the reimbursement change, we have not expected this and I think it could be a positive. On the other hand, you heard us say that we do have some still a slower demand side in Germany. So I would say it's not going to be a material changer to the 24% to 28% on a global level.

It actually had its peak impact last year. So it is already mostly behind us.

Okay. But even if it would be still in the pent-up demand, I don't think it's going to be a big needle mover for our total business.

The next question comes from Christoph Gretler from Crédit Suisse.

Welcome, Birgit, to the team here. I actually have maybe 2 questions left. The first is maybe just out of curiosity, could you share a bit kind of some details about the dynamics between Q3 and Q4? Is it fair to assume that Q3 was -- I mean your fiscal year Q3 was more like kind of a very low single-digit growth and then a rather higher mid-single-digit in Q4. Is this the right dynamics to think of or...

Christoph, good to hear you're here. I'm going back to the pages which may be helpful in the discussion here. I think what we've seen was a still good momentum in October, November. We felt that the January and February was slower in most of the markets. And I think we've seen some markets getting even more aggressive on lockdowns, probably -- people probably a little bit more depressed on the consumer side. And I think it's fair to say that what you see here in the U.S., on the chart, Page 34, and Canada is more kind of the general dynamic we're seeing that March was particularly strong. April was good. So I think it really goes with the vaccination. Without the vaccination curves, I think we would have stayed more in a difficult environment.

Okay. Good stuff there. And then just to come back on this gross margin discussion, obviously, kind of a very strong performance in the second half. Is there kind of any hint you can give us with respect to how that would have looked with a normal kind of channel mix. So kind of assuming kind of VA or Sonova and Costco and the like would be more at normalized level. And I think you mentioned that ASP started to kind of soften lately. Maybe just to give us a bit of an indication of kind of how significant that would be as a pressure on your gross margin. Or in other words, kind of -- if I look at your guided margin expansion for fiscal '22, what percent or what part of that is gross margin related at all? Or is it all kind of leverage on OpEx?

Yes. Christoph, the -- let me take that. So it is -- the next years and the continuing margin, let's say, homework that we are doing or opportunity exploitation that we're doing is, I would say, 2/3 OpEx and 1/3 gross profit. And so we're going to go -- as I said, there is continued opportunities there. For the -- if you look at the 74.4% that we turned in for the second half, it could be like 100 basis points of ASP pressure in there from the mix. I guess that would be a reasonable magnitude. It's not an exact science there as there is many factors amalgamating, but that's kind of the magnitude that we are thinking of. More of the question is that in general, in our markets over the years, we have seen times of, let's say, a rate of 100 to 200 basis points of ASP pressure in general that were then kind of caught up with and offset and even turned to the negative by new innovation that turned in like made for [ all phone ], et cetera. So we wouldn't say that the -- that there is a general pressure, but there could be some cyclical impact for us for the coming year given that one competitor has out a newer product than us and again compounding with those general effects.

Okay. I got that. And maybe kind of last question if I have you. You mentioned kind of -- your tax rate is actually kind of running at the low end of your indication at least in the past. Is there any reason why we should take down in all that rate in our model for the midterm? Or are you still sticking to kind of increase on a midterm basis?

Yes. Chris, again, thanks for at least one interested into this. It's...

Interested.

So we want to be a bit careful here, but I'm signaling that the outturn, how we've managed the Swiss tax reform that was -- generally make us expect that the long-term average of around 12%, 13% tax rate would go up to like more than mid-teens. And at the moment, we're looking still at the 12%, 13%. But we just need to be aware that in the longer term, there's also other tax liberalization -- I should say tax internationalization development from the OECD. So you don't have much more visibility than the next, let's say, 4, 5 years. But for this kind of horizon, we might be a little favorable over the 15%. That would be the mid-teens.

The next question comes from Tom Jones from Berenberg.

I just have to add at the start that it's only peculiarly Swiss that tax reform could result in no change in the tax rate whatsoever, but I guess that's unique characteristics of being in Switzerland. I find that somewhat interesting. Look, we've had a lot of questions about the margin and short-term costs. But I wanted to ask a sort of much bigger sort of longer-term structural question really regarding margins. If I look at the margins of your company over the last 10 years -- and this was true for much of the hearing aid industry, they were remarkably steady. It was stuck in a 19% to 22% corridor. And that was largely because companies like yours and everybody else has pretty much invested everything they could in maintaining the top line growth, and it was costly to deliver top line growth. You had to invest to do it and that naturally limited margins. But it seems from your commentary and some of your competitors are at least, 1 or 2 of them, that, that relationship between having to put all you can into costs and to keep the top line growing has decoupled somewhat because certainly, in your most recent second half, costs went backwards and revenues went up. And your guidance for 2021, '22 suggests much stronger revenue growth and cost growth. So my question is, why do you think that sort of relationship between revenue growth and cost growth is decoupled? And if you don't think it's going to recouple, why not? What's changed? Why won't we go back to a situation where you basically have to just spend all your incremental operating leverage to defend your top line? What's different? And what's changed, do you think?

I think I can just comment on how we think about investments into growth. I think we're identifying the areas where it's clear to us that more people -- more investment translate into revenue. So we will not hold back adding more salespeople if we can't reach all competitive accounts. We are increasing our R&D right now every year by more than 10% because we think that we need new technologies in addition to hearing performance improvement in applications as well as on the sensor technology side and other things will come. So we go the approach where we say what's needed to drive the growth. And then we have a significant activity here which says how do we get productivity out of the more transactional things we do and how do we improve our cost structure. We do not feel that we're under pressure to overinvest into growth where it's unclear to us on how we get there. So in that regard, I wouldn't follow the macroeconomical argument to some degree between the lines here. Well, the competition will force you to invest, and I think we want to be very clear on where do we get the growth. And at this point of time, we do get the growth out of the investments we're doing.

I mean I guess my point is you're expecting to grow your revenues above market. And clearly, that means you're taking share for somebody else, which means your competitors have got 2 choices really, the rollover and take lower revenues or invest more money to recapture that revenue. So what I'm trying to understand is why -- I can understand why, for a short period of time, revenues might grow faster than cost. But given how competitive the hearing aid industry is and with new entrants coming in, I'm just struggling to understand why the amount of cost you have to put into your business to achieve the same level of revenue growth won't go back up on a medium-term view. I'm just really trying to work out whether the step-up in margins is a permanent thing or something that's going to get competed away with time.

I believe it's more on the permanent side. I think if I look at our output in innovation and touch points with the customers, we're able to sustain good growth year-over-year. But we do have fundamental structural opportunities in the company, which we have started to work on. And we have opportunities to improve the output of our operators every day, every week, every month, every year. So we believe we can run this for a long period of time. And keep in mind, we do have a scale advantage. So as long as we leverage our platform tightly and well, our skill advantage would help to have a higher profitability level than other people in the marketplace.

Perfect. Interesting thoughts. And then just one quick question on the current trading performance. We've heard a lot about potential pent-up demand coming back through the P&L. But a lot of your customers have not had many alternative spending options in the last 3 to 6 months. It's been largely kept up but maybe still have the same level of disposable income. To what extent do you think any revenue -- and on top of that, most hearing aid companies have been spending quite aggressively on lead generation. So to what extent do you think there might have been some revenue pull forward in the last perhaps 3 to 6 months, basically yourself and the industry?

I don't think that there is a lot of pull forward here. I think we are all -- we were all focused on making sure that the existing customers who come up after 5 years for renewal are well attended to. And if you look at the unit volumes, that was pretty steady over the 12 months here. Probably the first 2 months were a little weaker, but then everybody got back to -- we can cycle them through every 5 years. I think on the lead generation side for new customers, we've seen it a little bit more difficult. We needed to spend a little bit more, but ultimately, we got too good volumes. But for me, that's not so much of a pull forward. We always try to pull forward, and I think that's always a focus of ours. So I think on the new customers, it is the people who are ready to engage with the category. We need to reach them. But I don't see a lot of pull forward in any shape or form.

The next question comes from Daniel Jelovcan from Mirabaud.

Three questions from my side. The first one, you haven't talked about Paradise 2.0, but you said when you launched Paradise in August that it should follow probably a year later, so soon. So I guess you're ready for that so that you are going to also include that in the VA window in November. Is that the correct assessment? And the second question was more about white-label KS10, if you can elaborate a bit on that product, how it develops in the market. And the third one is that -- I mean Demant reported very strong Q1 results mainly because of their new premium product, Oticon More. And I just wonder how -- do you see them already in the market? Or is it too early to tell? Or if you can add some granularity there.

Thank you. On Paradise 2.0, we do stick to our road map, which foresees improvements to the Paradise in the fall season. I'm not going to go into what the improvements are, but we're -- as I said earlier, we follow our road map. And so far, we've delivered everything on time despite COVID. On the white-label product with a large retailer, it's well-received as a product. It has a lot of strong functionality. And we continue to have a very good market share within the channel. It's relatively new in there. I think they changed their product in April. So I think early innings, but all indications would say we have a very good product at that price point in that channel. I think on the Demant question, we took note that they launched a product. As you may imagine, we hold Demant in high regard as a player in the marketplace and with their capabilities. And yes, our sales force comes across them. We're still confident in our Paradise sales momentum and our ability to, as we go, convert one other competitive account.

Okay. And just on Paradise 2.0, I mean I totally agree that Paradise was a good success but a bit unlucky with COVID. So -- but now when you launch it in fall -- hopefully, this bloody pandemic is over and -- is the 2.0 big enough, significant enough that you have much more tailwind with the launch because of -- COVID is now off?

I would say market share-wise, we had very good tailwind with the Paradise 1.0. So I do not worry about it from a timing of the launch. I think it was actually a good thing to create more interest on the audiologist side. I think we will see that Paradise 2.0 brings some good improvements to the product, which are noteworthy for people to try yet another product, and that's what the intent of the 2.0 launch is. But I think it will allow us to sustain our momentum.

The next question comes from Kit Lee from Jefferies.

Two please. My first one is just on the Paradise launch. I'm just wondering if you did manage to achieve any price uplift versus Marvel on a like-for-like basis. Just appreciate the last 12 months was a bit of a unique situation. And I'm just wondering whether you did manage to achieve the price uplift that you were always planning to do so with the latest launch and whatnot. And from here, how should we think about that pricing level in the next 12 months for your latest products? And my second question is just a clarification question on the structural improvement. You mentioned that there are going to be additional savings from that for fiscal year 2022. Is that just from the annualization of the benefits? Or are you finding more areas for efficiency in 2022?

Yes. On the price lift side, with Paradise, we did get a positive improvement relative to what the Marvel was selling on. I think we've seen that in the regular markets where there are no significant changes from reimbursement or so being pretty steady. I think there is the French situation, which changes our average. But if you go country by country, I think we're holding on to the price increases we have put in place with Paradise at this point of time. On the structural improvement, what we commented on was predominantly the annualization, which plays a significant role in the margin bridge year-over-year here. I am sure we will find one or other structural improvement which we will put in place in the next 12 months. It's not going to be at the same order of magnitude than last year. I think last year was an accelerated year, and we will be far more targeted. But for the model side, it's really the annualization.

The next question comes from Maja Pataki from Kepler.

Two questions from my side, please. Arnd, could you talk a bit about your KS10 offer? I understand it's a rechargeable solution. I somewhere read that it also offers some remote services. Can you provide us some feedback whether -- the fact that you can get KS10 that literally has all the high-end -- or many of the high-end features from the private market, whether that has caused some of your audiologists to call up and say like, "What are you doing?" That's the first question. And my second question is with regards to your structural savings going forward. You've just indicated that there are small pockets of structural savings going forward. And there have been a lot of questions with regards to your margin levels and how to think about that going forward. So shall we just think about Sonova having seen a step-up in margins, and going forward, the investments and structural savings plus the business mix are going to result in moderate margin improvements on the guided 2021, 2022 levels?

Maja, thank you. So on the KS10 discussion, it's not a fundamental change to what was the products in the channels between the model and the predecessor to the KS10. I think it was more important when we changed our strategy on that channel that we get out of the branded side. We don't hear a lot of noise of the audiologists if the product has a different brand and a different housing. They're more worried about the consumer having full transparency, which they don't. So we haven't heard a lot of noise around it, and we're comfortable there. On the margin side, yes, I think you're going to see smaller improvements to the EBITDA margin coming out of more standard things like volume fall-through and continuous improvement exercises and activities, trying to balance price at the one side and what you have to invest into growth. But I think there will be some increment of that pool, which drops to the bottom line. But I think this year is the year where we're achieving an exit run rate, which will have the majority or the vast majority of the structural improvements of Sonova from the last 3 years factored in.

Understood. Can you please get back to the remote services for KS10? Has that been -- is that part of KS10 that there is some optionality to do some remote [ fine fitting ]?

Yes. If you would go to Costco, Costco has started to engage on remote service for some of their stores because they're also interested to provide choice to their consumers. And so in that regard, you would find the product with a remote service offering. It's, I think, not offered for all of the different sites. I'm not that close there. I would expect a similar slow adoption as we see in other parts of the market.

Do you believe that based on the fact that you could basically cut down the visits to Costco if you take up the remote fine-tuning, over time, Costco could become -- could take greater market share within the U.S.?

I think Costco still has a pool of consumers which are their loyal consumers, which they can penetrate more. But I don't think it depends that much on the price point. I think nobody goes to Costco who is not a loyal Costco customer. Not a lot of people are going there because of the hearing aids. That's at least my read. I think in general, ultimately, they're penetrating their customer database and the people who go into Costco either way. So yes, sadly, we're coming to an end point here, timing-wise. And I know there are still 2 open series of questions. I would ask the colleagues to reach out to Thomas, but we have to move on to do a different event here. I want to thank you for your interest and the questions and wish you a good rest of the day. Thank you.

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