Sonova Holding AG (OTCPK: SONVF) Fourth Quarter 2023 Earnings Conference Call May 16, 2023 at 7:00 AM m, eastern time
society participants
Arnd Kaldowski - CEO
Birgit Conix – chief financial officer
Thomas Bernhardsgrutter - Senior Director, IR
Video conference participants
Daniel Buchta - Kantonalna banka Zürich
Christoph Gretler - Credit Suisse
Daniel Jelovcan - Stifel
Maja Pataki - Kepler Cheuvreux
Julien Ouaddour - Valores de BofA
Hassan Al-Wakeel - Barclays
Urs Kunz - scientific associates
Veronika Dubajova - Citigroup
Susannah Ludwig - Bernstein
David Adlington - JPMorgan
Ard Kaldowski
Good afternoon. Here in the Stäfa room. Welcome to the full year results and interested parties on the audio call. I hope you can hear us well.
With me is Birgit Conix, our CFO, who will explain the full year results as well as the outlook. We plan to spend about half an hour there, and then we'll have a fun question and answer session.
And Thomas already told me, there are already incoming questions. So from there I get some people who have already read the material. Just the standard disclaimer.
The presentation contains forward-looking statements, but we do not guarantee future results. And now we see it here in terms of our strategy, our business results and our financial results.
I think if we look at the last financial year, it was not easy in terms of navigating the market environment. I'm sure some of you in the room will remember when we were here a year ago, our outlook for the year was more positive than the market. I believe this is the case with others on the market as well.
I think the big underlying reason is, I think, on the one hand, we underestimated where inflation was going to go, and we also underestimatedthe degree to which inflation is doing to our market. Because historically, when you look at other recessions, rather than a high inflation environment, our market has been more immune. So in that sense, unfortunately, you've seen us spend the year changing our book to some degree, which we're going to share with you because we also had to adjust adjusting our guide.year, unfortunately, in August.
However, given the market conditions we have, we see this year as good strategic progress on what is important to us in the long term, especially on the M&A front.
We also see strong sales performance, driven primarily by acquisitions, some organic growth, relative to the macro environment, and the non-renewal of a large US client.
The fourth quarter was better than the third in market growth, but also in our own sales, which allowed us to finish where we left off. When you look at profitability, the picture is definitely a dim one. Partly due to significant known headwinds mainly from the acquisition of Sennheiser, which had low profitability. We said so when we bought the company. And that created a tailwind in terms of the margin level, but then the macro, as well as if you look at the Swiss franc side, clearly, the significant FX impact between our cost structure and our revenue structure with all parties mobile, the dollar, the euro in the Swiss franc.
But we can also see from the numbers that we responded and reacted especially starting in the second quarter, when it became clear to us that the picture was different from what we thought, both from a cost standpoint and a price standpoint. And we will discuss it.
Strong focus on the M&A side last year with the acquisition of Alpaca and Sennheiser, making good progress towards their integration into our business, creating a new business unit and a business that listens to consumers. But also the possibility of creating a significant footprint in audiological care in China through the acquisition of HYSOUND.
With significant progress on the innovation side, we launched our new platform, Lumity, at the usual two-year pace. And I'll comment on where we are on that journey, but also within the Sennheiser brand, but with Sonova Technology launching the first early listening solution in January.
Now looking at the prospects. I think that if you look at the number, you mentally take away the performance we have this year due to non-renewal. You can see that the number is very much in line with our intermediate targets. We also look at the market and we estimate that the first calendar quarter was a good increase from the previous quarter, but we still see a lot of volatility in the market.
So look at it as a balanced, hopefully appropriately balanced outlook, and not the same challenge that we had last year of ultimately being overly optimistic. But we really believe that this market is not. this year is not a complete step back to the normal growth rates we are used to, but rather a gradual recovery of the market to more normality.
Better results, growth of 14.6% in local currency. Here you see the significant impact of the Swiss franc in the first line, 3.5%. And then to EBITDA, 6.1% in local currency. If you mentally remove the dilution that comes from or the low profitability that comes from Sennheiser, and if you take into account the inflationary headwinds that we have, organically that's a good margin performance.
Earnings per share is significantly better than growth, partly due to share buybacks, but also some moving items on the tax side, Birgit will comment.
Our sales prospects are 3% to 7%. I have already mentioned the elimination of obstacles due to non-renewal in accordance with the intermediate goals that we have set for ourselves. And then you see on the profitability side, a nice increase from a margin perspective, around 50 basis points, due to the activities and initiatives that we have, but also the volume decline.
The strategy remained unchanged despite a quieter year, clearly believing that the strategy worked well for us. And if we're going organic without losing a customer, I think we're making progress in many dimensions as well. Clearly a year of broadening our focus towards consumers.
I want to highlight a few things on the strategy side, starting with cutting edge innovation. We introduced Phonak Audéo Lumity in August 2022. We continue to see good customer response, penetration rates. And what we're measuring in penetration, how many customers have moved, B2B customers have moved from Paradise to the new product, Lumity, is consistent with what we've seen across all platforms in the past. This is always an important indicator for us. And keep in mind that Lumity is priced higher than Paradise, so you're willing to pay more.
But now, in April, we're launching 2 more, let's call it, Lumity-powered form factors or brands. At Unitron, we introduced a RIC device called Vivante, powered by Lumity. So this is usually a good step into Unitron territory. And then we launched Phonak Slim Lumity. It has similar content but a very different shape, which we think appeals to some consumers just because it looks different and looks different behind the ear.
Good news in April, 2 product launches, certainly not on the same order of magnitude as the first Lumity, but always in our experience a good second step towards organic growth.
Another point to lead innovation. You'll see on the right what we launched in January on the soft-launch motors, we're going into full production this quarter and then we have to ramp up the demand, but we launched at CES what we call the Sennheiser brand story: upgraded headphones, that really deliver giving people the opportunity to have the device they want for just 2-3 hours, in a noisy environment where they are not yet hearing aid ready.
A little more color around expanding consumer access to the hearing care network. Continue advancing in high-profile acquisitions and opening of new commercial premises. The acquisition of HYSOUND gives us this entry into China on a more significant scale with 200 POS. But in addition to that, during the year we acquired another 140 points of sale in our target markets. And we continue to work on new business on the audiology side of care. Thus, our network grew to 3,900 POS during the year.
New news, which we have not shared before. I wanted to share that today because it's relevant to improving our footprint for many reasons. We have launched an installation for America and Mexico. We are making good progress there. We expect the first production to start in the second half of this year. Here we are.
It will eventually serve hearing aids in the cochlear implant industry, a key advantage, especially for the custom-made products that often come from Vietnam to the US today. This cuts at least 2 days out of the supply chain and fast delivery is becoming increasingly important to our consumers.
It's obviously a place in the world where costs are pretty low and you have a highly skilled workforce, a lot of medical device companies have moved to Mexico and created a pool of brains and talent that we can tap into.
And then in light of the supply chain uncertainty in recent years with our strong presence in Asia that we built about 10 to 15 years ago, I think we're advised to be more balanced across regions and geographies.
Significant effect from a year in advance, some investments, Birgit will talk about this in her section.
ESG highlights, I don't want to cover them all here.
But first, if you look at the rankings and the metrics, we rank very, very high, in terms of our ESG footprint and the activities that we do. Every year we carry out the 3 different pillars. The highlight in Environmental Protection was the commitment to science-based targets, about a year ago, and now that we've moved into Scope 3, we've already had significant actions in Scope 1 and 2.
Social, strong emphasis on employee engagement. Because it's getting harder and harder to bring people into the industry and keep it. Therefore, commitment is very important. But at the same time, diversity and inclusion, you can see here that we have more than 50% when it comes to the leading people in the organization are women. And then further progress in building more and more management departments, which we believe pose significant sustainable risks to our suppliers in terms of rating, but also of the long-awaited Human Rights Policy.
Let me move on to the business and financial results. He already commented on sales and EBITDA. If you look at the EBITDA margin, it's 190 basis points lower than last year, but if you go to [indiscernible], you'll see and I think Birgit will later.
On the organic side, if you exclude dilution, we had positive margin expansion despite the macro environment and lower growth than we had in prior years. Headphones, whatever you say, fixed in local currency, 0.2%. If you correct for the non-renewal, it's in the region of 4.1% in local currency as a growth rate, not what we saw before the market went quiet. But I think it's a decent number for this year. Lumity helped as did the price hikes.
A business that listens to consumers, news to us, news to you to some extent, revenue of CHF 284 million came from Sennheiser's product lines. The first full year of consolidation, we are making good progress in terms of organizational integration. We are also progressing well against our profitability expectations, which we achieved in the first year. We don't plan to share the number all the time, but we do monitor it internally and make sure we're on the path we've laid out for ourselves. Market share growth, significant increases in market share because we had a lot of successful product launches.
The two biggest were the True Wireless headphones, followed by the Momentum 4, Bluetooth headphones, which are the largest category in which Sennheiser operates.
Hearing care, significant growth, 15.7%, organic products, 4.5% same store, followed by mergers and acquisitions contributed 11.2%. And last but not least, our cochlear implant business, I have to unpack that 2.8% external loan number. But if you separate the instrument side and the build side, there are stories to be told. I'll get to that here in a few minutes.
From a growth perspective, composition 2, 3 organic mental adjustment for the lost contract, you had 4.5%. You see 12.3% and you see a significant FX impact here.
Looking at performance by region, focusing here on full-year results. If you go from top to bottom, Europe, the Middle East and Africa and then quite a few. On the market side, we have seen positives from countries like the Netherlands, Austria and the Nordic countries, which seem to be unaffected by the macro economy.
Unfortunately, the biggest ones, Germany, France and Great Britain, have gone to a more peaceful environment. Great Britain, especially given all the macroeconomic challenges in the country, France, to a degree, because it had a lot of growth the year before it came out of the new compensation and a small step down.
If you go to the US, yes, we had Alpaca. But on the one hand, we had the opposite of a customer contract. On the other hand, we saw that the American market fell even further below the European one. There was always a source of discussion. Now we have seen a recovery in the fourth quarter into better territory. But overall, if you look at our second and third quarters, it was actually much more muted than it was in Europe.
AsiaPAC, very positive number here, 40% growth. There is a 3 month supply of HYSOUND. Sennheiser also has a significant presence in China, but also in many countries that were still in lockdown last year and are still in the recovery phase. Maximum level in P&L. I've given you all the numbers for the entire year, so it's probably more interesting to look at the first half and the second half dynamically on this chart.
In the first line, the first half, almost 18%, in the second half 11.6%. Again we see the impact of the contracts, but also the slowdown in the market. On the other hand, if you look at gross profit performance and profitability, you can see that actions that we took sometime in the second quarter started to have an impact.
Price increases on the one hand, discontinuation of Lumity, some reduction in cost pressures, not all loads are still higher, but not as high as 6 months ago, also on the component cost side and then a focus dedicated to drive certain cost initiatives.
So if you look at the second half, it comes to mind, whatever you say, just a 60 basis point drop in profitability. Note that the dilution was significantly higher. So, in fact, in the second half of the year, despite the lower sales volume, we managed to achieve a good improvement in profitability compared to last year.
Let's take a few minutes to unpack our work.
For those of you who don't listen as often, we share below-industry-level earnings results from several companies, but not hearing aid segment profitability.
Overall, you can see that 15.7% and 2.3% organic growth are very different stories last year. Hearing care 15.7%, 4.5% organic. It would put in the area in the previous market, a good inorganic contribution. But it is also possible from the organic side. The consumer hearing business, as I said, is experiencing significant growth year over year. We don't report it organic because this is the first year with the company, but Sennheiser actually grew 16.6% based on product launches, as well as a quarter and the year before when we had lower sales. But the dominant part of the 16.6% was a growing part. And then on the headset side, with the dynamic between buying slower and losing a lot for just that 0.2% here.
Just now for the background. I expressed them throughout the HI on hearing aid dynamics, I mean positive, but also negative, which ultimately led us to 4.1% if you include contracts, but only 0.2% if you look at the actual number.
Consumer Hearing Company, I think there are 2 more comments. We opted: a) to create it as an independent business unit. So you have a whole management team made up of people from Sonova and people from Sennheiser. It also includes some Sonova engineering capabilities due to the early devices we developed.
We went through all this alignment of our organization. They have a common roadmap. They also have a roadmap of how they want to get to the top and to the bottom. So in that sense, I think we're in a good position every year to operate as one place and one place in our organization. As can be seen from the launch of the first Sennheiser brand products with Sonova components.
Hearing Care, I don't think there's much more to say about M&A. I think there are two points that I want to make in relation to mergers and acquisitions. We continue to make good progress in what we call the Digital Lead Generation Hub.
When we were in the capital markets, Christophe said it more. I think more and more you have to deal with some digital consumers and then take them through the call center process to your own retail store.
In the ideal case, you already said the on-call appointment, and it should be in 2 days, not 5 days. Otherwise they might go somewhere else. We started it in Germany. We've now set this up to serve 5 of our countries and it's helping us drive additional growth as well as in-store usage as we're able to target potential customers where we have open availability on the calendar.
Second, we launched what we call SilentCloud, our first step toward more medical services, what we call enabled technology. It is a one-sided app that you can download to your iPad, phone or computer that guides you through how to navigate tinnitus as an individual and how you can help yourself, it is deeply integrated into the sales process. A significant number of people go to audiologists to treat tinnitus, and hearing is part of the solution. So we're thinking about how we can do more with a hearing aid and how we can do it in a technology-enabled way.
Last stage to cover the section on cochlear implants. I said 2.8% in local currency from a growth perspective. But if you unpack it, you have to look at this business in the sale of the system, which is the implants and the first processor. And then 5 years after the first or implant, people in most countries have the right to get a second processor. And that has a very different time dynamic. Correctly? So selling instruments or systems, implants, actually build your installed base, if I may use that term, right?
5.1%, but unfortunately, we had an order in Germany for half a year, we see that the order was removed from the legal discussion. But in the first half we broke this minuscule German income. If you're right about that, it's in the high digits in terms of system sales, which probably isn't a bad number in this market over the past year.
Update sales minus 1%, but we introduced the Marvel processor 2 years ago. And what people do is save and wait for a new processor to come out and everybody jumps on it. So having the same level in year 2 is actually a good return, but you still have a small reduction in your growth rate.
So overall I think the outcome here is fair, I feel good about selling the system without the mandate.
From an EBITDA perspective, we improved the margin by 150 basis points despite lower revenue growth. Unfortunately, we also see a significant impact from exchange rates here. So we have "only" a margin of 12.5%. We still have the ambition to go much further. But not so much an organic effect, but rather, again, a matter of routine.
With that I want to invite Birgit.
Birgit Conix
So welcome here in Stäfa today and to the guests, welcome too. So I'll walk you through a few slides, and I won't dwell on finance too much, as Arnd has covered most of them already.
Let me dive right into gross margin growth in what you see here. And you see 180 basis points below an operating basis, and FX is a theme throughout the presentation. So here you see there is another 60 basis points against the currency here. And let me explain just 180 bps. As you can see, the main effect is the dilutive effect of the Sennheiser acquisition. Then we also saw weaker market performance in high ASP markets, which affected our ASP. At our average ASP, which we offset with price increases across all of our businesses.
Then we have the impact of transportation and component costs, but we offset that with continuous improvements, initiatives, and also structural improvements. So this is what you see on the left. You can see that we organically improved by 40 basis points. And what's important to note because we talked about this for the first half of the results is that we see a 230 basis point sequential improvement from the first half of the year to the second half of the year.
So if we look at the cost of doing business and we look at the operational part, we're going to see almost 15% growth. And if you look at it organically, you'll see 2.3% there, and that's exactly 2.3% organic sales growth. So, and that really reflects our disciplined cost management. And that's despite inflation and a changing business mix with the growth of hearing care.
So we have headwinds. And then lower sales than originally expected due to the market environment. And so you can see the effect of constant improvement. And then you see the growth is mostly driven by our acquisitions, so the expansion of the air conditioning network and again, the consumer division of Sennheiser. Because that was actually 80% of the operational part of OpEx.
Then if we look at this slide, you'll see that research and development is up 6%. And as research sales 6.5%. This shows that we maintain a very high level of R&D spending in order to invest in innovation. And then when you look at the next slide, that's also the biggest spend in terms of the increase, a 19% increase.
Here you see that 75% is related to acquisitions. And then if you go to G&A, it's all related to acquisitions, the growth there, we saw 6% because if you look at it organically, we're down even in terms of G&A as a percentage of sales and also in absolute terms. terms.
Then the CHF 31 million adjustments, I'll come back to that on a later slide. So how does this come together? Here is the EBITDA component that grew by 6.1%. And operationally, it's minus 190 basis points in EBITDA margin. And you can see the results below.
So organically, as Arnd already said, we increased the margin by 30 basis points, and that reflects all the cost discipline that we had.
And on top of that, you see the CHF 20 million contribution from M&A, which had a dilutive effect of 220 basis points. Then you see the settings. That's another 100 basis points, and I'll end here, you're looking at CHF 38.8 million. On the previous slide you saw CHF 31 million, but that was part of the operating costs of the adjustments and the total cost. And here again you see a very negative effect on FX, which is 80 basis points, which brings us to a 21.4% margin.
Then the next slide, financial fundamentals, and I've already touched on most of that. Let me briefly highlight the amortization associated with the acquisition. So CHF 54.9 million, mostly related, again, to acquisitions.
And then on the tax line, you'll see that we had a base tax rate of 9.7%. That's much lower than we originally expected. Because we, and last year, for... I mean, last year it was 14.5%. And that is due to the delay in the implementation of the global minimum tax rate. And then, and actually for this fiscal year of 23/24, we expect a 15% tax rate again.
Alright. So here, the settings. You can see that this is split into 3 containers, like we always have. So first of all, restructuring. And here Arnd already mentioned one of them, which is: investing in infrastructure. So in Mexico, the operational facility is one of them, but there are other structural improvements.
Then the transaction and the consolidation, as you can see, of Sennheiser, Alpaca, HySound, and then the legal fees and it's kind of an ongoing patent dispute with MED-EL. And then the tax, I already talked about it, which affects the EPS here.
And then the evolution of cash flows, which you can see here. In fact, operating free cash flow before changes in net working capital is affected by higher tax payments and also by a reduction in long-term provisions. And then when we move to the net working capital part, you see the CHF 30 million that we talked about, which is a consequence of net working capital accumulation from consumers. We already talked about it in the first half. You can see it here too, so CHF 30 million.
And then if I move to the other bigger ones, it's a capital investment, so we're back to normal levels. So post-COVID we still had to catch up. So almost 50 million Swiss francs is related to -- you can break it down into tangible and intangible assets. Tangible again. So the plant and the investments in Mexico mainly, and then the intangible investments in the AC network and also in the digital ecosystem. To give an example, the implementation of CRM in our hearing care business. And then the rental payments are related to the expansion of the Audiology Care network.
Then if we go to the balance sheet, then DSO is stable, as you can see here. So we continue to have a strong collection of accounts receivable. And then the DIO fell due to reductions in safety stock. That's a 15% reduction. The net debt will then amount to CHF 1.5 billion. This mainly applies to buybacks, dividends and also share buybacks. And then you see we have 1.5x financial leverage, so net debt to EBITDA.
Again, our capital allocation strategy here in order of priority. So first, incremental acquisition. So you appreciate encouraging acquisitions. So here we did it for fiscal '22/'23, come CHF 260 million, which is higher than our initial guidance of CHF 70 to 100 million.
Here come HYSOUND and screws, after an attractive dividend. So you're looking at a 5% year-over-year increase here. So here we show that we can sequentially increase dividends significantly.
And then a healthy balance. You can see here that our goal is a healthy balance sheet or a moderate leverage ratio between 1x and 1.5x and we are currently at 1.5x. So, the top of this guide.
And then the stock market here. So we announced the program in April 2022 and bought around CHF 420 million in shares. And then given the balanced approach that we have, we see that our target is a moderate leverage ratio. Therefore, there are currently no plans to buy back shares in fiscal year 23/24. We believe this is a balanced approach given the rising interest rates and the still volatile environment that Arnd described.
Let me now turn to the outlook for '23/'24. So, as you can see, sales growth from 3% to 7% and EBITDA growth from 6% to 10%. Let me repeat that if you look at the market first. This is the left side of this slide. We continue to see that, and we really strongly believe that the fundamentals remain intact, so low penetration and obviously innovation is driving growth.
And then we still see some uncertainties in the macro environment. So, for example, in the month of April, when we look at just the market data from the key geographic areas, we see that it's weaker compared to the previous quarter. That's where we saw the increase. So this is still volatility. But we continue to believe that consumer confidence will develop gradually. We saw a big pick up in consumer confidence last quarter and we think it will improve as the year progresses.
And then we see the potential support from pent-up demand as users start to renew those who have deferred renewing. So volatility and uncertainty is what we're still seeing, although we think it's going to be positive throughout the year.
Then on the Sonova side, this is the right hand side. So we have a high baseline in the first half and that will loosen up in the second half. This is an important point, but as you already know. So in the first half of the last fiscal year, the last fiscal year of 22/23, we still had large accounts in the US and in -- this fiscal year, the first half, we didn't. That has about a 4% impact on revenue. And then you can easily calculate.
So we think the cost pressures are easing, and we're seeing that, we'll see it throughout the year. We have already seen cost pressures ease. And then we also have continued improvements, and we'll see more of that in this fiscal year. We would also like to highlight the restructuring and integration costs of around CHF 20 to 25 million also for the fiscal year '23/'24. That means the first half will be significantly lower than the second, and that goes without saying with the numbers I just described.
Then to FX, and it's still a tailwind. We have just calculated the exchange rates for May, but of course this can still change as we see currencies change all the time. But if we calculate the rates in May, we see that the peak could potentially be affected by 4 to 5 percentage points or 4% to 5%, and then EBITDA by 8% to 9%. That's what we're seeing right now, but as stated, that could easily change.
Let me go to the last slide, which gives you a brief overview of the upcoming events. So, starting tomorrow, we will do a road show. And then on June 12, we will have the annual meeting, to which all are welcome. Then October 18-20 is the EUHA conference in Germany and that will replace our Investor Day, and we will be able to meet with investors, buyers and consumers there as well. And then on November 21, then we will also meet for the results and that is for the publication of the results of our semester.
Let me conclude this presentation with that and start with the questions and answers. So, operator, if you could open the question line, please.
questions and answers session
A - Thomas Bernhardsgrutter
I think we'll start with some questions here in the room before we talk to the people who are on the phone. Raise your hand.
Daniel Bucha
ZKB's Daniel Buchta. Maybe 2 questions from me. First in Lumity. I mean, if we look at what your competitor friend from Denmark reported with Oticon, it works very well. And that my understanding has always been you and the request to put the greatest emphasis on the highest quality. I mean, how do you see this performance of your competitor? And what does this mean in reverse for Lumity? And then maybe in the market environment. You just mentioned April, which was smoother again after a very strong March. What do you expect, on average, by the end of the year in terms of market growth, a normal year, 4% to 6% or so, yeah, how do you see that, Arnd?
Ard Kaldowski
That. So when it comes to performance against individual competitors, it's certainly interesting to watch individual players. It's clear that the demand, I would say, has developed well in recent quarters. I'm not sure if this is just the product. I think there are other things that work well.
As for the appearance of the Lumity RIC form factor, we like our performance. There are other products that we have in the product line. To cite one, if you look at the year, we are currently at a disadvantage in terms of not having Bluetooth and charging on the same device. So I wouldn't worry so much about the Lumity, because I can tell. I think there are some pain points in our portfolio that we are working on. But it's not related to the player either. We analyze our performance relative to the market.
In terms of the market assumptions that we have, I think in general we're more mum in our views than I've seen from some competitors. I think there's another competitor that's similarly muted, and we're looking at the prospect of, I would say, 2% to 4% in units. That's kind of the mental foundation for our leadership here.
And that is in line with what we said. Yes, we did see some progress in the first calendar quarter. We probably saw that it was a bit in our favor. We also looked at the April numbers before commenting. Note that they also have a different phase, as they had a January to March period in the fiscal year, which was a solid quarter. But I think for our fiscal year 2 to 4 is the underlying assumption behind our guidance here.
cristobal gretler
I'm Chris from Credit Suisse. Maybe a question about his ASP growth and whether he can beat that against his mixed component, so that would be nice to know to get a better idea of the underlying growth of the unit in the second half. And I think you mentioned that the fourth quarter was much better than the third quarter, if you could also clearly indicate, let's say, that relative momentum. And the second question I had was about profitability in the consumer business. Is this also a bit ahead of your plans? Or is that basically also in the plan?
Ard Kaldowski
Chris, thanks for the questions. ASP Unit: We launched a strategy where we said we had to offset some of the price inflation. Other people may have driven something different or at least not as clean as us. As for the increase that you saw in the second half, we have a nice contribution from the ASP side. We have positive unit growth if you fix the lost contract.
But clearly, part of our growth is coming from the increase in ASP, which we've seen. Q3 to Q4, I don't want to give you our numbers, but it's not much different than what we've seen in the market. I think the market fell by an order of magnitude in those 12 countries that were tracked 2.5% to 3% in the third quarter.
The fourth quarter was more in the range of, say, 4% to 5% across all geographies, the Americas and Canada were stronger. So obviously it was better year-over-year, but similar quarter-over-quarter growth.
And then the last question about the profitability of Sennheiser. We did a little better than we planned for the Sennheiser product lines in the business that we didn't take significantly, so we didn't make a huge move toward what we said was a medium-term goal in the mid-double digits. . . I think we are off to a good start given the calm in the market. I think it's a good performance. But balancing what we do on the cost side versus what we need to do on the development side.
Daniel Jelovčan
Daniel Jelovcan with Stifel. First with a major business client in the United States. Have you heard that something is coming back?
I mean, I guess, KS is what I've heard of them. But you're not on the brand either, at least I don't see it on the web. Are you here? Or are you - is it possible to be there? I mean, can you imagine being number 1, not being on the biggest commercial channel in the US, so...
Ard Kaldowski
Yeah, there's no KS that was like last year's surprise. I think it's based on their decision on how they want to ultimately manage their portfolio of brands. And probably differences in the price of brands vs. non-brands.
I mean, no, we're not on this channel today to answer your specific question. And yes, I think we will eventually have that conversation. But often it has to be seen from their end: what is their strategy, how many vendors do they want, when are they making changes. It is clear that we have good technology and a good product.
I think the latter was a conscious choice on our part. We had a Phonak product in the canal for the non-RIC side. We decided to take it out, it was a small source of revenue, but the prices on that channel wouldn't compare well to what we offer as independent brand prices from Phonak, would it?
And as you can see, there's a conversation that needs to be had at the right time, and I don't want to get too deep into the business discussions that we're having there. But yes, there will be a debate about customer choice if they like the value proposition between brand price and technology.
Daniel Jelovčan
And the second question, actually, retail is pretty good, I think, organically. Invoke the fact that you're pretty strong in Germany and Germany was pretty soft. So is it going to give us a little bit more of a taste of the US in retail and the Germans in retail?
Ard Kaldowski
I think we have seen good results in recent years in the creation, within GEERS in Germany. I think it started 2-3 years ago, we were more active in establishing the GEERS brand with marketing above the line.
People will know here in the room that Mr. Gottschalk is something of a figurehead for us with GEERS, which fits the target audience very well. And it was a conscious choice that we had to make to improve the winners without the help of the brand, but also to improve the recognition of GEERS in the market a bit, which a few years ago was not in the same place in terms of price, performance , quality. So this is the place.
You've heard us talk about the Lead Generation Hub that we launched in Germany, as that's our biggest market. And that's a nice contributor to the growth that we're seeing because we're bringing more new people into the category. And I think the team is doing well. Thus, over the last year, we have witnessed a consistent outperformance of the market in Germany.
In the US, I think the market is more difficult, as I said, that goes for hearing care as well. We're seeing continued good growth in the same store in what's coming from our end with the hearing connection.
You may recall that 4 years ago we restructured that network and scaled it down significantly to have a good footprint with stores close to each other that continue to do well with good same store growth. I think that in the integration of Alpaca and the other chains that we have bought, I would say that half of them are doing well.
There is no change in the performance of the entire entity in most of this world. We have to adapt to the culture and mentality, which has led to some wear and tear. But some we're very happy with how they're performing in the US, but they're not running at full capacity yet. Because if you bring... if you go from 160 stores to 450, you have to integrate brands, you have to integrate marketing and lead generation mechanisms. There will be setbacks in the first year, right?
But it's a good start to what we'd expect in terms of integration efforts, but there's certainly more to come.
Thomas Bernhardsgrutter
I would suggest we change it up a bit, maybe answer some questions over the phone. Operator, can you?
Operator
The first question on the phone comes from Maja Pataki from Kepler Cheuvreux.
Take it
I'll keep it at three. Arnd, can you help reinforce my comments that you had positive unit growth in the second half of the year? Is it only on the wholesale side or for the whole group? This is my first question.
Another very quick question on Costco, are you thinking about how you're going to play on that channel and has your guidance for this year been adjusted to reflect the departure of Costco? Will we read that he will provide updated guidance on if and when he will enter Costco this year? Or do you think it won't happen this year? And then very quickly to the new jobs you've had this year. Can you remind us how long it takes for an open store to contribute to gross revenue growth?
Ard Kaldowski
In terms of unit volume, unfortunately my comment was that it's a complex model between a large contract and wanting to see if and how we're getting participation, yes or no.
So, I was excluding the big contract and then I looked at unit volume for the second half, excluding that contract, and I said, look, there was positive growth in unit volume, but most of our growth outside of that was on the of the price.
This was supposed to be for wholesale business. Hearing care had more just because we have significant inorganic growth, but also organic growth.
As for the big contract, we don't think about staying a little longer on the planned side of life, no input from there to our leadership. If it would be a meaningful contribution and if it would be stable and if we know when the shipping dates are, we'll definitely update when we get the results for the semester and know or if it's such an impact that we'll have to get guidance up.
So please be assured that we will update it at the appropriate time, but not necessarily in line with business negotiations, if it does not change the impact of the guidance, but it is not included in the guidance.
Regarding the store, I assume your question was about the opening of Greenfield.
Take it
Y.
Ard Kaldowski
In Greenfield it depends a bit on the geography. But you can get to a new store, that's open, by adding what we call a local contribution margin so that the cost is less than your revenue, call it year 2.
In the first year, on average, you have more expenses than you receive in income. But in year 2, early in year 2, you can hit a positive contribution margin. The challenge is always starting without a database. That's the difference in the purchased store, which comes with an existing customer base that represents 50% of the revenue, right?
But the second year should be where you become dynamic. I think in year 3-4 it should be at the normal rate above the local contribution margin.
Take it
Alright. Exceptional. Can I speed up? Because you talked about your wholesale price increases. And as I understand it, there's always been an argument that it could be -- we shouldn't get full price increases on the wholesale portfolio, but maybe 50%, which could be in the mid-single digits. But if I follow your logical fit for Costco and all, it looks like the price impact in the second half of the year or the ASP impact in the second half of the year would be less than 3%. What was the negative impact on your ASP mix that offset your price increases?
Ard Kaldowski
I think the biggest, big 2 are: and, when we put those numbers out, it was in the independent market. Because the largest clients have a term of 1 or 2 years. Second, we had a significant shift between geographies. Because the US as a market has traveled lower than Europe, and Europe is priced lower. So those are the 2 items where you see a smaller drop than the numbers we listed.
I think when we made the offer we were sure that probably half of the market would be affected immediately because the other half are larger, longer-term contracts. But I think you shouldn't forget the change in the mix, which we saw from the US to Europe as a bigger share, as you can see from the growth rates.
Operator
The next question comes from Julien Ouaddour of Bank of America.
julien wardour
I have a pair please. The first is that this year you will be the first player to really talk about the limited demand feature. I think what we've seen since COVID is that the expected limited demand hasn't really materialized. So what gives you confidence that it will happen this time? Let's say, if inflation remains high? And can you try to quantify that?
The next is the price. So, are you starting to hear a backlash from customers when it comes to price increases? It seems to have been a little more aggressive than its peers, and only the guidance includes more price increases for 2024?
Ard Kaldowski
Regarding high demand, we apply a specific logic. I mean, what we saw in COVID, and it's confirmed by our own retailer, that it was the young consumers that didn't fit the category. But they all got a hearing aid back because they felt comfortable despite the masking concerns because they knew our audiologists. And knowing our store, they knew they would be taken care of from a security standpoint.
Quite the opposite in the last 12 months. We are seeing normal growth in new clients. We're spending a bit of marketing on it, but it's in line with what we expected. [indiscernible] But in reality, the lowest revenue we see in the market is coming from people who just delay their purchase after 5 years.
And so we're applying some logic saying, look, if someone normally waited 5 years now, now they've waited 6, they're more comfortable with their finances. They will return. Whereas if it's a new customer, we know how much hard work we have to put in through the audiologist and marketing to get them into the category. So we were less optimistic.
But to test this, we do not model a meaningful demand curve. We just see it as a possibility. I think that's still built into what we said, part of volumes 2 through 4 and the revenue guidance that we gave.
Price wise, if you raise prices in an industry where it wasn't the standard for an existing product, yeah, people will comment on that, right? And then there is the question of how many of them you can convince to accept it and go along with you.
I think we also had a clear objective to neutralize some of the winds. We also wanted to set a precedent in the industry that prices can be raised. I think other people have chosen a slightly different strategy. I think they all went up in price, but we were probably on the higher end. I think going forward we assume some price hikes, not to the same extent as last year.
I think last year was a clear year where inflation grew a lot. There were also light fights. I think we want to continue to look for more value, probably more than we've had historically, but not at the same time, let's say, increase year-over-year as we did last year.
julien wardour
It was very clear. If only you could answer my last question about Costco real quick. Would you perhaps consider introducing Sennheiser as a brand at Costco, perhaps to compete with more consumer-oriented brands like Philips or Jabra?
Ard Kaldowski
We can take a lot of things into account, but the way we think about our brands, obviously we have medical brands and then Sennheiser, we like to have them with us because it's more of a consumer brand. And if we want to play in the early entry device market, and people get into the non-hearing care professional category, then we think different brands are required.
That would confuse the architecture we wanted to aspire to, right? So in that sense, it's not as likely on our part, because then we end up with a different medical brand, we end up with a confusion between medical and consumer devices. So from that point of view, it's not very likely.
Also, I don't think it offers much benefit, whereas the Sennheiser brand is a well-known brand in the United States among those of us who call ourselves audiophiles. It is a strong brand in Europe and China. So I don't see that big appeal of the Sennheiser brand funding OTC, not for OTC, but for a regular hearing aid in a channel like Costco.
julien wardour
Alright. Perfect. So I guess we're stuck with Unitron.
Ard Kaldowski
It's a brand we definitely use [indiscernible]
Operator
The next question comes from Barclays' Hassan Al-Wakeel.
Hassan Al Wakeel
I have 2 please. First, going back to the dynamics of the market, can you talk about the dynamics of the stocks in the second half? Especially in the fiscal fourth quarter, as comparable companies posted high single- and double-digit growth in the third quarter, and even higher in the fourth quarter. What do you attribute the stock losses to? And could it be permanent given the dynamics of the production cycle elsewhere?
And secondly, tracking Lumity, can you share some data that you're tracking about the progress of the release and how you characterize that against Paradise? And why do you think it hasn't resulted in some of the stock gains you expected?
Ard Kaldowski
Our fourth quarter stock results are, I have to say, pretty vague because we don't publish quarterly numbers. I think if I look at our unit volume in the fourth quarter relative to the market, again let me take that contract back, I would say we did well relative to the overall market data that we have. It's also fair to say that there were 1 or 2 players who were better than us.
Now if you do the math on that, and I'm sorry to go into the math, you have to add up our side's loss and the other side's gain, because what we lost in the big deal, someone else gained, right? So in that sense, we're not just talking about a 4% impact, you've got to do something on the other side because our 4% went to probably 2, 3 sellers, right?
But then again, I think some players have done well with their channel strategies and products. We are satisfied with the performance of the purchase of the unit. We know it's a published market and that's where I would leave it here. Regarding Lumity, I said it before, I think you need to separate the portfolio a bit first. I don't want to go product by product. But clearly, in the IT product, we're struggling right now in terms of not having what other people have and what people are looking for, that's something that needs to be addressed on the product development side.
There are other sectors in the portfolio that did not do as well. I think from the RIC side we are fine with the execution. And we see in Lumity, and that goes back to his question about the metrics that we track.
Our most important metric is how people adopt the product compared to existing products, especially when it has a significant price increase and the price increase or price delta is in the mid-single digits. And we are, whatever, very close to the same penetration curve that we had with the Paradise model to customers, who are our loyal customers.
So we're not that concerned about the product in our eyes. I think they are different parts of the portfolio. This is probably more the case in competitive accounts in a market environment where prices are more sensitive. But it's not penetration that people convert from one product to another.
Operator
Let's go back to the questions in the room.
Urs Kunz
Urs Kunz of Research Partners. My first question about cochlear implants. We did see that 12.5% margin, which would have been much better without the currency impact. I'd still assume you're in the mid to upper mid teen range in this area.
Then on the share repurchase, if you don't have, if you don't plan to have a share repurchase this year. So, it's fair to assume that you're not going to. you're not going to get to CHF 1.5 billion in the next 3 years, and maybe you're going to put it off for the long term.
And the last question, I guess I'm correct in assuming the sales guidelines are 3-7% like a normal tack tax.
Ard Kaldowski
So in cochlear implants, if you look at the numbers, we're making progress on profitability in local currency. Unfortunately, we do not control the currency. So I think we're still making progress, right? And there's no reason why we shouldn't go into this business at -- which you're quoting somewhere around 15% to 20% EBITDA, right? Hopefully the coins will help at some point too. But if I look at myself the way I am, we're making progress even though this is only a 2.8% year, right?
As for the bolt, yes, bolts are present, with a small growth rate. I think we run it. We expect Thomas to help me in the range of [CHF 40 million] or so in income here. So you would probably translate that to a presenter coming in from the sidelines.
Would you like to comment on the share buyback?
Birgit Conix
Alright. So the stock market. So yeah, it's the CHF 1.5 billion that we talked about earlier, but then in order of priority, if you look at the capital allocation framework, a healthy leverage ratio is a higher priority. And there, we say that it is moderate. This means between 1x and 1.5x. And because we also have, as you know, dividend payments right now, and we're operating at the highest level. Therefore, we think it is important to say that we are not currently planning any share repurchases.
As I said before, given the rising interest rates and the volatile environment, this is how we set our priorities.
Ard Kaldowski
I think it's worth noting that we've done more M&A than last year, right? So we come to this 1.5 and the way we set it up is based on roles, right? And we wouldn't feel comfortable going below 1x and above 1.5x. That is why you see that we are attentive. I think it depends to some extent on what happens on the M&A side. correctly?
But if you do the math this year, you want to go to, say, 1.2x leverage, that's quite a bit of cash flow work, given that we're paying a dividend and taking on some liabilities. But think about the role basis, I think we really need to look at the impact. With that advantage in mind, that's what we've shared with you. If we had to change our leverage assumptions, we would tell you.
anonymous analyst
[indiscernible] I have 2 more questions. The first concerns restructuring costs. Actually, can you tell what you will use it for from CHF 20 million to CHF 25 million this year?
And the second question is around this escalated conversation here, can you talk about how it's been received by the market since you released it in January?
Birgit Conix
So first in the structure or restructuring, so it will be a continuation of the business in Mexico that was not mentioned at the beginning of the presentation. So this is the place. And then we have more structural optimizations even in the hearing care network, but also across the company. And that's just to figure out the cost basis. So it's more of a continuation of what we've already started.
Ard Kaldowski
As for the voice-enhanced headset, we launched it at CES as a product in January and started selling it. Gets good responses. We have not fully committed to this commercialization as we need to increase production, like we do in Vietnam. Therefore, higher product availability and then higher marketing investment is expected in this quarter.
And I think the initial responses are that speech amplification is quite powerful in a positive way for people. Because they were not used to this kind of speech enhancement before. Because we have, like in hearing aids, that's where we focus.
And then you hear someone in the restaurant, 2 tables next to you, very clearly. Correctly? So, very positive for those looking for this performance. They like the overall music and sound performance, right? I think so from users who have used it and who have used it and who have really sought this benefit.
They say, wow, that's impressive enough for what it looks like, but we don't have the full data based on the really significant marketing behind it and now we're seeing it work through the system.
Thomas Bernhardsgrutter
We have, I think, 3 more questions on the line, and then I think we'll end the call.
So, operator, can you ask us any last questions over the phone?
Operator
The next question comes from Citi's Veronika Dubajova.
Verónica Dubajova
I'm Verónica. I have 3, please. First, I just want to go back a little bit about the performance in the second half. I think when you gave us guidance in November, you were talking about a near-flat market. I think it ends up being a point or 2 better than that.
However, he definitely missed consensus expectations and I think his guidance from an earnings perspective. So I'm trying to understand a little better what you think went wrong in that second half of the year. Is this price the realization? It's something more? It might give us an idea of that, because I think we're all scratching our heads to add it. So that's my first question.
My other question is simply that the guidance for fiscal year 2024, especially the high end, suggests a pretty significant acceleration as the year progresses and my math possibly hits the high digits of the second half of the year. I was just wondering if he has anything in his pocket that might drive it. Are these the new Lumity extensions? Is this a Unitron? Is there anything else we're not thinking of that needs to be done to make it look like the entire sequence is playing? That would be my second question.
And then just the continuation of the decision not to make an acquisition, of any kind, should we read that from an M&A perspective? Or is it just a wise balance?
Birgit Conix
I prefer the latter. The last thing is that it is a prudent balance sheet because, as I said, we have a healthy balance sheet above all as a priority over the purchase of shares.
Ard Kaldowski
We also need to think that when we announced 1x to 1.5x, we were in a different interest environment. So to some degree you have to at least admit that I play by my own rules as the market changes for me. You also see people getting into trouble for reasons of leverage and other things. We feel comfortable with our balance sheet.
Share repurchases are evaluated periodically. But keep in mind that when we fluctuate that, we only want to get to the range that we originally said after a few more M&As.
I guess I'll have to go back to my notes in the second half, you're pretty good there. I'm not sure I see it that way, but I can try to answer what areas are outside of the product, maybe there are some, whatever you say, issues for us. I think he asked us to get the semi-annual results and then the big contract was up in the air and then there was noise from him about reliability as much as we like the performance of our products that we're delivering today. .
I think Lumity is better than Paradise. I don't think the noise in the market about reliability is necessarily helping you, is it? But this is something else in a way, so you have to work on it in the market. This is a discussion.
I think the other thing is on the price side, yeah, customers don't necessarily like price increases. And if you play your cards, then the others go the other way, because there can be consequences, right?
In that sense, if you think from a customer trust perspective, there are some customers who have been a little more reserved when talking to us. But I wouldn't rate Lumity as a product. I think the good news is that our reliability has proven to be pretty good for the product, and Lumity is showing significantly better numbers on the product. Before we make a mistake, we'll share this with customers.
Second, if you look at the pricing side, it was interesting that at least 2 major players raised their prices in the meantime. So I think it's a better side-by-side position than it was 6 months ago. We still think it was right to raise prices, but others did it later than us, right? That's how we understand it. But certainly not in the insight of Lumity next to other products.
In the second semester, we always like to have something in our back pocket. But if we don't share it, we don't share it. But overall, I think we believe that if we peel the onion, and unfortunately, we've lost a big account. And unfortunately it gives us negative results and other people are positive, if I just do the numbers, I feel pretty good about the second half. Introducing Unitron Vivanta. We launched Slim. It is clear that we have the opportunity to push Lumity even more positively through the right marketing exercises. More additional products may be released.
We bring new technology to all platforms and all brands and all form factors, but this is more, expect more than usual. But I think there's clearly potential in the second half because we don't have a contract tailwind on either side. We believe that the market is gradually improving.
I think that last comment, I think you have to take it into account, Verónica. Consider the year-over-year dynamics and the jump point. The third quarter was a really weak quarter for the industry. The market has receded, hasn't it? So while the first quarter was particularly strong last year, the second started to weaken a little bit, but we really had a significant decline from the second to the third quarter. So in the first half of the second half, I think you have to take rebound assumptions into account as well. When you add it all up, we feel comfortable in the second half without the magic mail.
Verónica Dubajova
This is very useful. And then can I just ask for a brief follow up on Russia? I understand that you are the only company left. Looking back, was it a big factor in the second half? And do you feel pressure from certain customers or channels towards Russia, given the global comfort there?
Ard Kaldowski
So we don't expect a change in our strategy to make that very clear. We immediately stopped selling non-medical products in Russia, which was a huge boost for Sennheiser, who had a significant business in Russia. It has also given us problems on our headphones, because of the Roger and other consumer devices we have. But our choice was to say that if someone has medical needs, we think they should get support. And if it's a consumer device, we see it selling. So that was our moral decision there.
I don't foresee that changing, frankly. I know there's a lot of debate in the world, but I think people have made progress on the medical side, if it's really a medical device, it's probably okay.
Operator
The next question comes from Bernstein's Susannah Ludwig.
susan ludwig
I have 2 please. So first on Conversation Clear Plus. I wonder if you could talk a little bit about how you think about marketing costs and marketing this product? It targets a milder loss category, for which it's a bit harder to convince people they need help. I guess the early data from the OTC category, which also points to that slight loss, is a bit disappointing. So I wanted to see what you thought about the price of the reader there.
And then secondly, regarding the cochlear implant, you mentioned the problems with understaffing at the hospital. Can you talk about how they evolve throughout the year and continue to be influenced by them? Some other elective surgery markets have seen a big benefit from reduced demand. I was just wondering if you see any potential next year for cochlear implant benefit because of the reduced demand?
Ard Kaldowski
At Conversation Clear Plus, one of the reasons we launched it and we're pretty sure is that the use case is very different.
And I think the perception is different. If I buy OTC and people manage to get the category to consumers who need it. I think you've decided to buy a hearing aid. If you opt for headphones, you choose to buy headphones based on the form factor and appearance. And then you have to convince the rest of the table that it's okay to wear headphones during dinner too, right?
But a very different use case and relative to the 2 main functions it will work regardless of what speech enhancement does. You can make phone calls, you can listen to music, right? So the input seems to be smoother, especially for consumers who might not feel comfortable using it, listening to it at all, because we call it an early input device.
So I think that gives us hope and an expectation that the dynamic will be different. I don't think anyone at OTC has asked, but I'd say it's still early entries. I think people should find the right channel partner. I think the direct-to-consumer approach with the Facebook and Google apps will be quite expensive. So you need to find out what your channel is. The channel is sophisticated enough to explain it without the need for an app. So mentally I wouldn't give up on OTC, but I feel like enhanced speech sounds more relevant and easier to sell to a consumer who may not want a hearing aid at this stage.
Regarding the cochlear implant, it's interesting when I was looking at the instruments, 5% growth, I mentally allowed myself to take half the time that we couldn't sell in Germany. We're a little bit in the high single digits. Not necessarily a bad number. That's the number we saw before COVID, in a good year. Correctly? So I think yes, we've seen that the availability of staff, although it's in some parts of the world, it's still limited in some countries, but overall, we don't have as many barriers as we've seen. in other countries places.
In terms of high demand, it is difficult. They put pressure on me when I discuss it with my colleagues. I think on the pediatric side, people will always prioritize accommodation. Because we know that in the first 2 years you have to get cochlear implants, and you're not going to wait another 2 years just because there aren't enough staff.
On the adult side, that would require the adult to be fully convinced and waiting for you, right? So maybe a little bit, but probably not as much as someone who has a hearing aid that comes in a year, fixed, got a compensation letter a year ago, right? So this seems simpler to me. But maybe we will see it. But there are not a bad number of instruments in the last year on the market.
Operator
The last question on today's call comes from JPMorgan's David Adlington.
david adlington
Just one, as I covered it, I don't think so. Regarding the capacity expansion at your New Mexico plant, I was wondering if you anticipated any reduction in your gross margins as that facility increases that capacity?
Ard Kaldowski
There will be some weight loss, whatever, in the first 6 months or so. Because to prevent us from having problems with deliveries, and it's not just about the manufacturer, the supply chain must be set up well. We have very different nodes and we have to master a contour that we are not used to. We will be careful about building and upgrading. But that is. we have mentally reflected it in the guidelines. So it won't be that big of a number. It's just a perspective focus of attention. It's clearly worth it if you just look at the labor cost differences.
Mexico, I would say, is close to Vietnam, significantly better than China, significantly better than the United States of America.
david adlington
And maybe just a continuation because that brings us to net working capital. I was just wondering how you expect this to continue this year and should we look at it as net cash flow positive or negative?
Birgit Conix
Excuse me, can you repeat that last one?
david adlington
Yeah, about the inventory, obviously, it's not just related to Mexico, but I guess there was an inventory done last year that might help.
Birgit Conix
That. We're still looking at some of those. there's still capital investment in this fiscal year '23/'24 for that. But not to the extent that you would say because, I mean, if you look at the 22/23 CapEx that you see in the cash flow that is, I mean, only part of that is for the Mexican business. there. Because there are many means, also in the Audiology Care Network and this extension. So, it's not that important, let's say.
But in net working capital, maybe inventory, as Arnd mentioned, just to be careful, you might see some in the first half, but that would go away again throughout the year.
Ard Kaldowski
But that is relative to the factory. I don't know if your question is about inventory in general. I think across the Sonova system across all the different locations and across all the different types of inventory, we expect turnover to improve.
We still have safety stock because the aftermarket is moving more and more towards finding hardware buyers, not you. I think you can start to get into a more conscious environment, less conscious. So from that standpoint, I think I would expect continued improvement in stock keeping.
david adlington
Total.
Ard Kaldowski
There is Mexico, but that is only part of the equation.
Birgit Conix
This is only part of it, and in fact, it is what we have planned for this exercise. An improvement I think.
Ard Kaldowski
I need it? I'm going to hang up. I wondered what Thomas would do. So thank you very much for his continued interest in our trip. Sorry to have to unpack so many things left upstairs and downstairs. This was an unusual year in macroeconomics, but also for the often-mentioned non-renewal of contracts. We look forward to a year where hopefully this becomes a little clearer. Have you seen our guide? We're trying to balance between -- there's still some volatility in the market, but we think we're well positioned to continue to grow market share based on the strategic initiatives that we have and the acquisitions that I've made. With that, thank you very much and I look forward to the next discussion.