Ladies and gentlemen, welcome to the full year 2018/2019 results presentation. I am Sandra, the conference call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for question at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Arnd Kaldowski, CEO. Please go ahead. Ladies and gentlemen, please hold the line. The conference will start shortly.
Good afternoon together here in Stäfa, as well as the people on the phone. I heard we're now online. Okay, super. Thanks for joining us today to our full year result presentation, the ones in Stäfa who made the extra effort to be with us in person, also the ones on the phone. I have Hartwig with me, our CFO, and Thomas Bernhardsgrütter our head of IR. I'm going to guide through the highlights. Hartwig will pick up the financial section. I'll talk a little bit about the guidance. We have ample time for Q&A. As always, the disclaimer on the forward-looking statement, I trust everybody took note. It's time to jump into the Sonova Group results. Just a quick reminder on where we started into the fiscal year, because we're going to talk about the full fiscal year here.
We started off on a somewhat lower point because we were at the end of our product life cycle with the Belong platform. We guided for the year with one percent lower than our normal guidance, on the organic side and then divestments we had chosen to do strategically. Our overall guidance was 2%-4%. With an acceleration in the second half of the year, we also said that we're planning to have the Marvel at the end of the year. Being able to deliver the Marvel six weeks ahead of our original plan and on content, which is the most important, was obviously important for us to accelerate the business in the second half year. For the full year, I'll dissect the numbers as we go through the presentation. For the full year, 4.1% LC growth.
It's a little step ahead of our own guidance, allowing us to produce a good adjusted EBITDA, adjusted because of the restructuring we had announced in the Q4 to help us drive productivity in the years to come. Good EPS growth at almost 12% in CHF. I think a strong sign of life and positive signal from an innovation perspective, obviously the Marvel on the back of the SWORD chip. In addition, on the cochlear side, step forward with the 3D MRI electrode. I will talk more about those during the presentation. This puts us at a good place from a sales momentum perspective coming out of the year and also educated us and led us to take up our guidance by one percent relative to our midterm guidance.
We still think for the midterm, the midterm guidance is the right number, expecting 6%-8% growth in LC this year, allowing us to drive towards an EBITDA from 9%-13%. From a strategy perspective, no change relative to what we have discussed at the Capital Markets Day. Clearly innovation critical, but in two different directions in our business by now. The one have to be best in audiological performance. That's why people buy hearing aid. In addition, we need to also cater the expectations with regard to the incremental capabilities of a hearing aid with regard to applications, sensors over time, and really improving the consumer experience. On our three businesses, drive all of them with the right go-to-market and the right strategic objectives, differentiation and audiological care, evolving our networks.
I have one example on what we're trying in one pilot right now in the presentation driving multichannel wholesale business and CI, as well as on the hearing aid side, really getting better and serving the customers as they come in different form factors, needs and expectations. Driving over proportional investment into high-growth developing markets to participate in the underlying growth rate. It's all about innovation, consumer access, participating in the emerging digitization. On the innovation side, obviously Marvel, the most important given the size and also the signal it sends to the marketplace. On the back of it, advancements to our eSolutions portfolio, both of them launched ahead of time relative to what we thought at the beginning of the year, in the middle of Q3.
The high-res 3D MRI compatible electrode, which we brought out in September, impacting the full second half year. Now two newer ones, not that relevant for the numbers last year, but certainly important when you think through how we think about the first half of this year, the second half of this year. We're in the process we launched end of last week, the Moxi Jump R, which is the SWORD technology and the capabilities we have on the Marvel side technologically also to our Unitron product platform. The Cochlear business has launched at the end of the year two significant upgrades. One, we're bringing the SWORD chip to the processor, not integrated, but as an incremental element which you can clip on, which allows people to upgrade their processors if they have the right technology towards connectivity.
The second one, the Chorus, really serves our "oldest population" of people. It's the first electrode we had out, which hasn't received an upgrade on the processor for a long time. Living up to our commitment to the patient base, but at the same time, a good revenue contribution. Going back to the Marvel. Why is the Marvel so important? A, it represents, or that product category represents 30% of our wholesale business overall. There's also the litmus test on are we ahead of the competition with regard to innovation? What we hear from customers after they receive the Marvel, and we now see also in the sales figures for them, this is a big step forward.
Pretty important things they quote, the best hearing performance in side by side, the best rechargeability, our second generation of lithium-ion, the third one, a clear step ahead of others on the connectivity. Because we can connect through Bluetooth to all devices and not just the iPhone, but at the same time, we can enable incremental features like picking up your phone on your hearing aid and using the microphone in there, which you cannot do with the MFI connectivity. Clearly a strong package. If you ask your audiologist really for what makes the difference, they would say, "I have to make no compromise on the most important criteria to buy a hearing aid." It's a really good position to be in if you think go forward, SWORD technology, certainly two to three years, a unique differentiator if it comes to availability to users.
A good platform to continue to build our portfolio of products as well as applications. You're here to talk and understand numbers too. A little chart here on the pickup for the Marvel in the Audéo product platform. The Audéo is what's shown here, as I said, about 30% of the total wholesale revenue. You see the different products which we phased in over the years, you see this nice steep pickup here on the right-hand side since the Marvel launch. You can compare visually here with the Belong launch, which we felt was a good start or a good launch too. You can see that the Marvel picks up more momentum in unit volume than what we have seen on the Belong side with a quite steep curve. Incremental point here, high rechargeability. We're clearly above 50% in rechargeable volume in the Marvel world.
On the Belong, it was more in the 30 to 35, we're really seeing the market shifting to rechargeability becoming the dominant mode, I think that will continue over the years, ultimately, I think rechargeable will be the way to go for all of the consumers. Getting to the summary of the financials, I don't want to voice over every bullet point. Some of the things I said already, let me tease out the critical ones from my point of view. Organic growth, 4.9%. You see the EBITDA adjusted. The adjustment we're taking here is, it is corrected for the restructuring cost we've announced around CHF 11 million, these are the things we do and don't always know the timing at the beginning of the year.
Expect us to approach it that way go forward, we'll share what the saving expectations are out of those. You see a nice EBITDA margin lift adjusted of 70 basis points, which I think particular coming out of the first half year, where we're struggling on price, a nice pickup here in the second half. On the hearing instruments, 8.1% organic growth in the second half. Keep in mind, Marvel came middle of November, there's a phasing you have to think through. The other big point for me, if I think about the hearing instruments business, is just a good, steady execution on the audiological care side. 5.2% organic growth.
We came out of about 1% in the year before. The 5% were pretty consistent throughout the year. They were driven by many different geographies, including the ones where we made adjustments. Good, stable execution here on the Audiological Care after we have consumed the AudioNova integration. Cochlear implants, 6.3% growth in LC. The one mental correction I make is really taking out the China tenders. We know they come at low margins. We had a lot of China tenders in the year before. When I think about what's my real momentum, kind of adjust a little bit for those. If you adjust for China tenders in both years, you'd be sitting at 8.7% growth in LC on the cochlear implant side, which I think is a fair measure of our current momentum.
Last point here on the cochlear implant side, nice pickup from an EBITDA perspective. I'll voice over more in detail, but we understand that's a critical point while we're looking at the CI business. We're on a good path to getting into the mid-teens environment over time. Quick comment on the cash flow side, a little shorter than we wanted it to be. Thinking through the strong shipments in the last quarter, particularly on the Marvel, you could also imagine with the steep curve you've seen that it wasn't easy on the supply side. Electronics are hard to get by in the market right now, electronic components. It was very back-end loaded from the execution, not the demand side. We had unusually high accounts receivables and inventory in the system.
Share buyback is continuing on the pace we want it to go. Diving deeper into the businesses here. Just picking up the incremental information relative to what I said already. High single-digit volume growth in Europe and Asia Pacific throughout the year. Clearly winning share unit volume-wise. The U.S. held us back in the first half year. A strong pickup commercial segment in the U.S. in the second half. How do we define the commercial segment? For us, that's the independent and that's the Costco environment, so not VA. VA, as you can see, the numbers are published with the Marvel not launched in the VA yet. Other people having launched significant strong products before we showed up with the Marvel, is a headwind for us, at least in the numbers second half year.
Always a lot of discussion about the cost of the rechargeability and your margin levels. We've been doing fairly well on that. The combination of the price lifts we get for rechargeability, productivity gains we're driving in all of our manufacturing together allowed us to show good margin improvement for the business. Obviously the rechargeability has a cost. You need to find ways to make up for that. The last one, talked about it coming into the year. We had a good momentum in Costco in the second half because we launched in the Costco world, new products with rechargeability and with direct connectivity on the basis of Audéo B-Direct, end of the first half year. Audiological Care, as I said, strong momentum in many major markets.
High single to double digit in the one time sharing here, particularly important Germany with the 850 stores we have. Year before was softer, not just because of the AudioNova acquisition, but we also are in the process of combining all the different chains and brands we have. Prior to AudioNova, we had five different brands in Germany, so a lot of homework ongoing, but despite that, in the last fiscal year, really a nice strong growth in the market share taking on the retail side in Germany. The strategic repositioning U.S. and the Netherlands, which we had initiated more than a year ago, were concluded by the end of the first half year.
For the full year, we've seen solid same store growth, actually pretty strong same store growth above market for those both territories, which for me is an important measure to see that while you're adjusting your footprint, you at the same time able to drive to go forward stores. Overall, very strong here on the Audiological Care side. On the CI, at least on this chart, I think I said most, one incremental information here, high single digit growth in U.S. and Europe. Lower sales from the China tender, but, I think we know that price points are the highest in the developed market, so certainly important to win share in those markets. Going to page 10. Don't want to dwell too much.
Most numbers I said, if you take a look on the gross profit and adjust it, you see a nice lift here of 90 basis points year-over-year. You can see the EBITDA adjusted here and the adjustments, 19.2 and 17.8 came from still AudioNova integration work. 11 and a half were dedicated restructuring efforts this last fiscal year. You can see the EBITDA reported with the 8.4% growth. EPS, depending on adjustment or reported between 12% and 14%. The operating free cash flow is the low light on the chart with the commentary I made with regard to accounts receivable and inventory at the end of the period. Return on capital employed increasing by 220 points.
About 100 of that are coming from IFRS 15, 120, I would argue, is fair to earn. The bridge, just as a visual on the growth side, the divestment, CHF 44 million, that was the hearing care, the insurance plan in the U.S., which we sold to a significant insurer, but keeping the wholesale business within it. The chain reduction or the chain streamlining in the U.S. Good organic growth at the 4.9% and then about 1% as we normally have on the retail bolt-on site. A quick look on the phasing on the growth side between first half and second half, a little bit of a few under the hood, breaking it down into organic and acquisitions.
2.1% and 5.9% on the highest level, an even more pronounced step up on the organic side in the second half to 7%, because the acquisition side was a little lower based on phasing of larger items in the Audiological Care acquisitions. Looking by geography, that requires a little bit of an explanation here. If you start off with the EMEA side, strong in the first half year, strong in the second half year. You see nice pickup from the Marvel. This is all businesses, and we had double-digit growth in HI and in Audiological Care in EMEA. The U.S., minus 3.7%. If you correct for the year by the divestments, we're sitting at 2.3%. Still not such a good number.
If you look at the phasing here between first half and second half, and if you assume you have to add the 6%, and it's just an assumption, to both half years, you would see, A, we're having a nice step up here in the U.S. versus first half, and organically, you're getting in the second half into some meaningful order of magnitude. If I add the 6% as an assumption, would've been 7.7%. That's not the exact number, but directionally, I think that's a fair assumption. Americas, good start to the year. The second half, more driven by a year-over-year comp situation with regard to specific tenders. From my eyes, nothing to be worried about from a macroeconomic perspective, haven't seen the market slow down, but there were really significant number of larger CI tenders, particularly, which we participated in.
For Asia, while New Zealand is going well in Audiological Care, we still have to do homework on the Australia side in our own network, that's our own doing. China and Japan ahead of the Marvel launch, a little slow. Regulation takes longer in those markets. The only comment here, as you can see on the chart, the pickup half year-over-half year is all on the HI side, as you would expect from the Marvel. From an EBITDA perspective, 6.7% operationally. You see the restructuring cost here getting us down by CHF 11.4 million. No other comment required, I think.
On the half-year view for the group, wanted to point out, if you look at the gross profit step up, and if you look at the EBITDA growth step up, you can clearly see A, the volume, but probably more importantly, the ASP side coming out of the Marvel launch, which helped us accelerate significantly in the second half and get us on a better, let's say, level from a cross-margin performance here. Going deeper into the hearing instrument segment. Talked about the 5.2% organic growth on the Audiological Care side. Two key things.
I think on the one hand, the team has gotten better to learn from each other, deploy best practices and capabilities on how we generate leads, optimizing how we use digital for driving leads, moving some more of the leads to the digital world, because it helps us to have the interested consumer at the right point of time in the right store, which is important to optimize your capacity. The second one, really continued good work on the store execution, meaning how do we train people that they sell well, that they upsell well, that they manage the consumer well. We see 1 other percent point improve conversion rate relative to what it was a year ago. Really, retail execution would be my argument. Talked about the divestment here.
An important one in the EBITDA bucket. Hartwig, I think, will go a little bit into the P&L. We're not just trying to save our way to the EBIT, but we're making choices. One of the choices we made last year is that in the selected areas for feet on the street and sales as well as in marketing capabilities, we invest. You'll see that we invested more in OpEx on the sales and marketing than the top-line growth was. Which we believe is the right thing to do because we see growth runway in our business. Hearing instruments. Just so that you see the numbers here. The one I want to voice over, because this is the integrated Audiological Care and hearing instruments business side. The wholesale side is predominantly the EBITDA, because I'll unpeel the onion 1 level deeper on the top line.
You can see how strong the pricing impact was to the HI business as a whole coming out of the Marvel lift. On the level of hearing instruments business, the wholesale business product and selling to channel partners, we stepped up from 0.5% growth to 8.1% organically. Very strong execution of the team, but also very strong reception of the product. With regard to ASP versus unit volume, we got to the place we said we want to get to and delivered on that when we voiced it over after the first half year. Think about the price list versus what we had in the first half year of the low teen environment price improvement for the product category Audéo, and that was what we said we want to achieve. A significant unit lift, as you could see on the chart before.
VA understood competitive pressure. VA is every half year allowing people to come to the party and join. We're listed with VA and selling in VA the Marvel since 2 weeks, which obviously should have a positive impact in how we sustain growth momentum. 1 comment here on the relationship to the hearing service plan. I know other people take different choices strategically. We felt it's the right thing to partner closer with One Health Insurance. It's going very well from the growth momentum in there. We're exceeding the objective we had when we made that change from an acquisition or from a divestment perspective for the unit volume and the revenue we're realizing at the wholesale level. Audiological Care. You can see a pretty steady organic growth. I would say little bit of a tick up in the second half.
The comp level was higher in the second half. At a minimum, keeping the momentum, if not building some. On the acquisition side, a little bit of a different profile, overall, a good contribution in line with what we want to achieve from a bolt-on perspective. There was a slowdown in the French market because of some reimbursement changes and people waiting longer, that's a temporary impact, but it's in the numbers. You can see overall, we could even kind of withstand a little bit of a headwind here in France. Last point I want to make, in the progression of how we think about building our differentiated audiological network. We think in terms of clusters.
It's not that we have this in all places, ideally we would like to have, put a number, 10 stores, 15 stores who are standard stores, and then one in the middle, which has a higher level of capabilities because some consumers will need help on tinnitus, some may move to cochlear implants, some of them have allergic interest or whatever. We've built a first pilot store in the Netherlands, which we call the World of Hearing. We're in progress to deciding where we put the next pilots in various countries, really getting to a higher level of sophistication on the retail and at the same time bring it more to an experience, with regard to people really being able to see all the different technology, test the technology, get simulation about the technology, get their partner to get a simulation on their hearing loss.
The partner is important in the sales process. I'm not saying that's the perfect solution. I'm just saying we're piloting different ways of getting more specialization into the store and trying different formats of our retail. With that, I want to move to the cochlear implant side. Most of it I said. On the system sales, already got some questions today, we had already also on the slide, we did anticipate them to some degree. We're talking about the strong 3D MRI and then the system sales isn't that strong. Not to argue that we have a higher number than the 63 and the 87, just for us to make sense out of it, we went back and said how much is in dedicated tenders, not high-end product.
If you correct for that, we end in kind of a meaningful growth run rate for developed markets, high price 3D MRI. Having done that math, we're ending with the momentum on the 3D MRI driven high-end market for the developed markets in the high teens growth year-over-year in the second half on the systems sales side. The upgrade revenue, still very low, comes out of a very strong year before, as you see in the numbers later. That's relatively normal because it depends on when we get new processors out. As I said earlier, we've launched the cores for the oldest electrodes. We also launched some upgrade to the existing processor newest generation, we expect some pickup from those new product launches there. On track with the structural and productivity improvements we talked about last year, continued work, certainly not done.
Those improvements take a while. You pick the easy ones first, then you go to the more difficult ones. We see clearly the potential to get us over the next two years to the mid-teen EBITDA level for this business, which I think is the right commitment and the right direction. Here are just the numbers for the cochlear implant business. The one thing to point out, I know it's low percentages as a margin, but we were able to improve the profitability by 65%. There was a provision which we have shared in the first half of the year on the vendor B. We had to take some accruals for a pending patent litigation with the company MED-EL. Those two balance each other out, order of magnitude. I think the EBITDA you're seeing here is a fair number. It's not one-timers.
Implant systems I spoke about, 7.7, even with the emerging markets tenders and clearly above that if you mentally correct for those. With that, I want to ask Hartwig to come up, then I'll be back for the guidance.
Thank you, Arnd, good day everybody else from my side. I'll take you through some additional information and try to not repeat what Arnd already said. Page 27, on the first three categories, Arnd already identified those matters. My chance to quickly confirm that we will see the board's proposal of a dividend of CHF 2.90, up 11.5% and payout ratio of 41%, as we have always identified in our TSR strategy. The share buyback is progressing. 930,000 shares acquired at around CHF 160 million. We have a net debt to EBITDA ratio of 4.4 at this time. Page 28, you have seen all those numbers, allow me to skip that and directly move into our breakout of operating expenses. You see that the total OpEx on an adjusted basis has increased of 4.7% in local currencies.
You'll note that this is just slightly ahead of the 4.1% revenue increase. The underlying OpEx increase though is slightly below the 4.1%. As Arnd has said, we are allowing ourselves to invest in certain areas, that is namely the sales marketing piece here, where we are expanding in the store network. We are increasingly invest in greenfield, we are also increasingly invest in wholesale sales capabilities. You see that the R&D costs have moved up by 3.2%, stable in a ratio to sales at 5.4%. It doesn't mean that we have any different approach to R&D. R&D can fluctuate a bit year-over-year. We commit to continue invest into innovation. On the G&A side, you see a number of 6%, to an extent, it's misleading. There are two elements here that should be noted as a non, let's say, ongoing run rate matter.
One is that we have a patent litigation matter that we had to provide for in the year under review. On the other hand side, we are investing in our retail IT systems, I should say audiological care IT systems that manifest themselves here in the G&A pocket. Underlying, this would be an increase of 2.6%, which is in a much more healthy ratio to the 4.1% top-line increase. There is other income and expenses that identify fluctuations in things like capital gains from disposals and releases in product liability provisions. You can read this here, and you see those adjustments that Arnd already broke out in regards to the OpEx part. 2.6 of the CHF 11.5 million of restructuring costs for the 2018, 2019 fiscal year are categorized under operating expenditure. Let me quickly identify the bridge from adjusted EBITDA down to net profit.
Here, you see that the year-over-year increase of 70 basis points in margin that we see on the adjusted EBITDA ultimately carries through to 130 basis points on the net profit. You see that there is not really big moving items here. We have found a little bit of less acquisition-related amortization, giving us 10 basis points. Then there's 20 basis points from a year-over-year reduced tax rate. Down from 14.9% to 13.1%. The 14.9% in the years 2017, 2018 is related to temporary conditions related to the AudioNova acquisition that we had identified at the time of the acquisition. We are now back to what was a normal level in the years before the AudioNova acquisition. Some of you will have seen that here in Switzerland, we had a public vote on the weekend about a tax reform.
Allow me to say that we are happy with the outcome. The tax reform is now coming through. It was confirmed on a federal level. There is more, let's say, confirmations to be done on the canton level. For us, the Canton Zurich is the relevant canton. Even though we should expect in the longer term a slightly increasing tax rate, we are expecting that this will be still in the mid-teens and a very attractive tax environment altogether. Moving on to page 31. A bit more color on the operating free cash flow. Arnd has already identified that the year-end pattern of high, in particular wholesale revenues, have increased net working capital. You see a couple of other items here as well. There was fluctuations in when income taxes were paid, that is CHF 17 million or CHF 18 million as a contributor to the cash flow structure.
There was also higher CapEx than the year before of CHF 22 million, which is in part related to brick and mortar that is built here in Switzerland in regards to an additional, let's say, actually a replacement of a head office building in our satellite in Murten. On the other hand side, we are also continuing in investment in the audiological care business and refurbishing or adding greenfield stores there. Some additional metrics on the balance sheet. DSO has gone up in the frame of what has been just discussed before. DIO has actually been not really trending up by the DIO metric, but underlying in total value, it has. Capital employed is impacted to a certain degree by IFRS 15, but not a big change anyway. Arnd has talked about the ROCE increasing 120 basis points underlying and 100 basis points by IFRS 15 effects.
Net debt up by CHF 25 million, net debt to EBITDA within rounding or stable. I want to reconfirm that the share buyback with the one-time leverage is absolutely on rail. We have delegated this program and not just delegated the program for just a month or a quarter, but for a longer array of time. The agent is free to choose when they buy, but it is in a narrow corridor, and we will see this progressing as the months go. With that, I give back to you, Arnd, for the outlook.
Thank you, Hartwig. I've always spoke about the numbers already. Let me give you some rationale here on the outlook. First, let me start on the right-hand side. We hold to our midterm target of the 5%-7% growth, including 1% on the net M&A, which would be representing a constant increase of our market share. With it, a 7%-11% EBITDA growth in LC, which represents 60 basis points operating margin improvement every year. Looking at the current sales momentum and the strength we have on the particular innovation side from Marvel and from the 3D MRI, we think 6%-8% is a good guidance for this year, and something we have planned with and are driving for. Taking the guidance up by 1%, and then from the EBITDA side, increasing the guidance to 9%-13%.
If you think through how the last fiscal year played out, I think it's fair to assume that the first half-year is easier from the comp side. Second half will be more difficult because Marvel and 3D MRI were in your life. Just that. I don't give it a specific number, but just making sense out of logic here. With that, I would like to go to Q&A. There's more material in the deck as always, three more schedules, but want to open it up for Q&A. We want to start in the room first, but Thomas is the traffic cop to see what's coming in from the phone call, and then it'll get funneled to us, too.
For questions on the phone, please press star and one.
Good morning. Good afternoon. How many questions are we allowed to ask?
Thomas, the traffic cop.
Two.
Two. Okay. Thanks. I'd like to start with a financial question. In your restructuring announcement, you have stated restructuring costs, and you also said the annualized cost savings should be some seven million. Can you tell us whether you've already seen something in the current year, so we know how to do our models? Two A, please, if I may, for the cochlear implant system, you told us that you've seen high teen system sales for the new model. That's great. Can you give us a bit of a feeling how much the developed high-priced markets account for your overall CI sales? The B question would be related to the margin of development of the cochlear implant business. Is there anything you can give us as a help, as a thinking bridge?
How shall we think about the margin progression in cochlear implants over the next two years to get to the mid-teens? Is it going to be a small step up now, and then we have the hockey stick, or is it more fairly? Okay, you're nodding. Fairly split. Okay.
Understood. I'm blanking on the first question.
Sir?
The restructuring cost. These are longer projects where you announce, and then you need to negotiate with the works council, at least in Germany and the U.K., you go through a certain process. We expect the impact to start kicking in in the second half of the year. I think, depending on how those negotiations go, a third to half of the impact is what we expect to realize in the second half year, and then the remainder in the following year. I think on the Cochlear side, the more simple one first on how the margin progression, not an exact number because we don't give guidance on individual lines, but in principle, it should be fairly equally distributed. A, it's many different initiatives and projects, and you would expect that some of them are implemented and are kicking in already. We know those.
Secondarily, I wouldn't like us to take the risk of having a hockey stick. That's not a good way of doing it. On the growth side, the share on systems between developed and developing, Hartwig, do you have a magnitude in your mind?
Yeah, I would say in revenue, it's about three-quarters developed.
Yeah. On the system side.
Thanks. Just on the VA, I know it's very early, two weeks only since the May inclusion, although I have Opn S and we have Widex Evoke with new inclusions, can you already give some feed? I'm sure you have an ear in the street. For us, it's difficult to judge. I'm sure you have some feedback already after two weeks, how you compete and how you can regain market share in the VA.
It's two weeks, therefore you have some strong side, and it's hard to get to an exact number. In general, the VA audiologists do like the product a lot. Directionally, I think I would expect something in a similar good response to it compared to competitive products as you see in the commercial market.
Good feedback from the audiologists?
Good feedback from when we trained them and what we're seeing in the initial pickup.
Okay. Second question regarding Marvel, the rollout now with the other form factors. Can you I know that probably you don't
We launched in the spring, I think in February, two form factors, which we didn't have. You may remember we have five. The two first ones we launched in November. They make up, I think, 60+% of the revenue. We're now at around 90% of the revenue impacted since February. There's one form factor missing which is still to come, which is the most complex from a realization perspective.
Great. Thanks.
It's Chris, Credit Suisse. I have two questions. First relates to the buyback. I don't really understand who's taking actually the risk that the share price goes up. Is it you or the bank? If I look at the speed of your share buyback relative to the original assumption, if you just straightened it out, you're substantially behind, who's taking on that risk?
It's in the overall three-year perspective. We have seen the first 10 months, right? We're not even at the midpoint. Generally, it is us taking the risk. It's not that we have a turnkey delegation. At the same time, there is a so-called VWAP mechanism behind that. We get a certain guaranteed, let's say, margin that is accretive to equity, not through the P&L, over the average daily stock prices over time.
Is there anything to lead you to that? The speed of the buyback is relatively slow. Your leverage is still about the same as it was a year ago.
No. There is not. This is the agent, a bank that is known and, I believe, even represented in this room, that identifies their pattern there.
What's committed in the pathways, they have a certain channel to fulfill.
There's a corridor.
There's a corridor, right? They can't easily just stay at 50%.
Right? They need to move up.
Okay. The second question relates to the CI business. Actually, if you look at the mix that you had last year relative to the previous year. It was, I guess, substantially better. Are you happy with the margin pickup you got in the last year then?
Yeah, we're where we wanted to be. We weren't as explicit with the 290. If you correct then the two years for one-timers, which we had certain positions, we're actually at 390 like for like. It's about 100 basis points better. I think we continue to invest on the sales and marketing side, so we feel we're in the right corridor. We need another two times 400 to get to the number.
Then just quickly to confirm, the MED-EL litigation provision, that was taken in the second half, no?
Yeah. Second half, and it is in the CI number. It's one of the one-timers.
Yes. Thank you.
Karl, I suggest we move to some questions from the line.
There's one more behind you.
Oh, okay.
Fabian Silver from Mirabaud. Could you give us some light in terms of cash flow? You had quite some impact of the net working cash flow, capital. What are you expecting how to develop this this year?
There's certainly a rebound of, let's say, the accumulation that we have seen on accounts receivables at the end of the last year. You would have to normalize this out in a two-year perspective.
The other one, which should normalize out, is not making a prediction, but the tax for the CHF 17 million, that's really a phasing issue on when the tax comes through.
Okay. As a follow-up. Also give some light what you're expecting this maybe next year.
Our capital expenditure, we expect in a range of 3%-4%. That hasn't really changed. It can be that where we have, for instance, the finalization of the building in Murten that I mentioned, is yet not finalized. Depending on this progresses, there can be a CHF 5 million-CHF 10 million fluctuation in that respect.
Thank you much.
Operator, can we get a question from the line?
The first question from the phone comes from Daniel Buchta, Bank Vontobel. Please go ahead.
Thank you very much for taking my questions. The first one regarding slide seven, where you show the unit volumes of Phonak. It's quite interesting to see that also your Belong platform seems to hold up relatively well after a first drop. Can you say a bit more why that is the case? Because it seemed with the previous platform, as you are indicating that the drop was faster in this case. The second one, I'm interested a bit more about how you see demands move with Opn S and that they are announcing or that they have announced a deeper collaboration with Philips now first, that they produce basically or use a branded product with the Philips brand.
How do you expect this to impact the market as it is the, I would say, the first product after Siemens, which has a real strong consumer brand that is very well known in the market. Those would be my two questions. Thank you very much.
Sorry for re-asking. We were not loud enough with the speaker here. Can you re-ask the first question on page seven?
Exactly. On page seven, what is interesting to see is that Belong is keeping up quite well in unit terms after a first drop, and that seems to be different compared to the previous platforms and where the drop was more pronounced then. Can you share a bit more light why that is holding up relatively well as it was kind of an older product already?
Yeah, I think on the Belong, two factors here. The one, keep in mind we launched Audéo B-Direct, which was unusual for us to bring out a new chipset halfway through the product lifecycle. We probably had hoped for even more lift. In general, we had a first connectivity solution which some customers bought, which you would see middle of 2017, 2018 kicking in. I think the other one, as we said in the first half year, we used tactically price in the end of the product cycle to stabilize on the unit volume side.
Wow.
With regard to, I think you asked for Oticon S and then the Philips brand.
Yeah.
I think the jury is out on the Oticon S. Certainly, some product available. I think we feel good about where we stand from our product and the pickup. As you can see from the chart we're sharing here, we're not seeing yet any kind of negative impacts on this curve. We're carefully observing. I think it's fair to say Oticon is good company and we have respect for them. I think we're observing and we're strengthening what we do. On the Philips brand, too early to tell. I would just make a comment on the Siemens brand. I think the Siemens brand was helpful for Siemens, particularly in the Asia-Pacific emerging markets world. I think if we go to our audiologists, which are the gatekeeper to the consumer, keep in mind, consumers today still trust their audiologist and I think they will in the future.
For the audiologist, it's very important to have a trusted brand, which is long time in hearing. Then the other thing, they're really looking under the hood from a technological perspective. I wouldn't see a significant change to that behavior in the developed markets. I think developing is we have to see. I think the biggest impact for Siemens was in China. Please accept Siemens in China is a place for itself, given all the infrastructure they have and how early they went to China with many things. I don't think Philips has the same kind of one place where Siemens was benefiting strongly. Early interesting move, something to observe how this plays out.
Thank you very much. Very helpful.
The next question comes from Patrick Wood, BAML. Please go ahead.
Perfect. Thank you very much. I have two questions if I can, please. The first one would be, it looks like, given the results of the others, and correct me if you feel otherwise, that the market in terms of volumes has overall accelerated from these product launches. It seems like there's probably been a little bit less cannibalization than I think at least probably we expected. I guess my question is, do you think that the new products have brought in real new consumers or pulled forward demand? i.e., are we going to get a dip a little bit later after this product cycle as consumers as we pull forward demand, or is this a genuine expansion in terms of market penetration? That'd be the first question. The second question is on the tax side.
Thank you for the comments that sort of a mid-teens number makes sense. Be helpful just for us who are less well-informed, how long should we expect that phasing to a new tax rate to take to come through? That'd be helpful. Thank you.
Thank you, Patrick. On the first question, I'm really bad today. I should write them down.
The first one was whether with the good growth rates our industry shows whether this was new consumers or legacy.
I think we see a gradual improvement of early adoption. As an industry, we do track consumer behavior. We question every of the developed markets every three years and you see a nice gradual improvement. We haven't seen a spike in some shape or form, but people get a little younger when they adopt hearing aids. I think the place where we've seen more of a unit volume lift up was the U.S. over the last two years. I would put that mentally towards more reimbursement being available through private insurances. There's quite a run between the insurances to add a hearing plan to their offering. They normally have a dental and they have an optical plan, and hearing wasn't on the menu. We know from the partners we work with that they are really aggressively moving more and more people under coverage there.
I think that's kind of a, not a step function for the whole world, clearly for me explaining some of the U.S. penetration. The rest is just steady improvement of product and acceptance of the product.
On the tax phasing, my comments in regards to, let's say, broad expectations of future tax environment, it could be next calendar year, it could be also just the year after. It depends on how the new tax law is being introduced. This fiscal year of Sonova, which has nine months under the old tax regime that will expire December 31st to our expectation, and three months under the new one, we would rather expect more the tax rate level that you've seen last year, plus a little bit of a three months impact.
With the, let's say, you could say advance warning, sometimes when those taxation changes take place, you have certain accounting, let's say distortions. As we don't know yet fully how the transition will be managed by the regulators, that is yet a bit more difficult for us to foresee. Helpful color. Thank you very much.
The next question comes from Romain Zana, from Exane. Please go ahead.
Yes. Thank you. Thanks for taking my questions. The first question will be on retail. What will be the CapEx purchase that will be allocated to the retail store network in the next couple of years, please? Second question was just a clarification regarding the headwind from the French reform. If you could quantify the impact that you experienced in H2, please. Thank you.
Retail on CapEx, you should see us broadly in the same bracket as Amplifon, and you can see the numbers there. Like a 4%-5% CapEx over sales ratio is what you should generally expect there. On the tax reform, I'm not sure if I acoustically understood you well. It wasn't a tax reform. It was the French reimbursement on retail. Okay. You want to take that? Yeah, I can take that. What we've seen is with the changes in the model and the consumers having to think about what they go do and what they get, we've seen about a 1-2 quarter shift in some demand. On a global level, I think it's worthwhile to note it didn't have a material impact into our growth rate, so I wouldn't read too much into it. We don't see this as an ongoing.
We've already seen some recovery against that, rather interesting for the French market, but not that relevant on a global basis.
Thank you very much. Just the last one, if I may, because I missed it. You speak about the fair tax rate that we should consider looking forward, and I missed the number. Thank you.
Sorry. It was again Yeah?
Yeah.
Yeah. Sorry for that. When I was saying mid-teens, I was talking about the midterm tax rate. Yep. Is that what you-
Okay. Thank you very much.
No problem.
The next question comes from Veronika Dubajova, Goldman Sachs. Please go ahead, madam.
Yes, good afternoon, gentlemen, and thank you for taking my questions. I have two, please. My first one is, what is your expectation for your VA market share now that Marvel is in there? I think prior to R&D joining the business, I think the company had had an ambition to get back to 50% market share. I wonder if you kind of look at your business now, what do you think is realistic on a six or 12-month basis? That would be helpful for us too, so that we can track how you're performing against those expectations. My second question is on retail. Just curious to understand whether you think that the current run rate of growth in this 5% or so is sustainable as you look forward.
Anything you can provide on what is driving that, because it is noticeably better than some of your peers, and how sustainable you think that is? That would be helpful. Thanks.
Veronika, thank you. With regard to the VA side, we're not sitting here planning with a 50% to start off with that. I think things have changed with regard to also having more competitors on the rechargeability side. If you go back one and a half years ago, we were the only kid in town. I would say the majority of what we lost in market share against a run rate a year, one and a half years ago, should be our target here, because of the strength of Marvel. I don't want to give an exact number, but that should help you directionally. On the retail side, honestly, from going through the improvements we're doing and how they're going step by step, there's no reason for us to believe that we can't continue such a growth rate. There may be things which change in markets.
There may be particularly aggressive competitors with moves we don't know. Right now, if you unpack the 5%, you're probably in a 80% of that coming out of better lead generation and store execution. The other percent comes out of some greenfield directionally, which we're driving and are controlling. It's well earned. No single item which is a one-timer in there. We will continue to get better on the lead generation side. There's initiatives to do that. Sales execution is possible. We have enough capacity in most of the stores that we can sell incremental units. The lead generation is the most important part, I think. No concern there that this was a one-timer.
That's great. Arnd, can you comment on how the U.S. performed within retail since that had been a drag in the past?
In the U.S., it had 300 stores, went down 100. We're measuring the revenue year-by-year in the remaining 200. That's strongly in the double-digit growth rate, same store. Two drivers. I think we've gotten better to keep the people in the store focused on the things they do. Because in the years before, we made so many changes coming from the headquarter, new initiatives. Now that's really hard with just one person in the store. We really paid more attention to them getting productive and happy in what they do, and that paid off. We also have improved our voluntary attrition significantly, which also helps. I think the second one is particularly in the U.S. market, lead generation. We have driven up the digital leads we're generating at a meaningful price point, and that helped us funnel more consumers to the stores.
That's great. Thank you.
The next question comes from Michael Jüngling, Morgan Stanley. Please go ahead, sir.
Thank you, good afternoon. Two questions, please. Firstly, when it comes to the warranty provision, if I look at your provision as a percentage of sales, it has fallen noticeably and in my calculation has probably boosted earnings for the current fiscal year by around CHF 20 million. Is that correct? Why would you go from 4.7% down to 4% when it comes to warranties in general? Secondly, a question on the U.S. region, or if you like, the Americas. Can you comment on what your growth outlook is, what your organic growth outlook is for FY 2020 or your next fiscal year? If I look at the last five years, the region has pretty much averaged 1% per annum organic, and it feels a little bit like a broken region to me. Just some sort of commentary around that long-term trend.
Why would that now be broken? Why should we improve from here? Thank you.
Michael, the underlying warranty provision principles have not changed. I have to get back to you. What could happen is that in the course of IFRS 15 implementation, there are recategorizations, but I want to confirm that this was no driver of the earnings progression. I am happy to follow up by email to give that more specific. Michael, on the U.S., I think you asked U.S. Not having the benefit of all of the years on the back here, I would think the two biggest swings or the three biggest swing factors we had was on the one hand, movements on the Costco side, depending on what we launched and when in Costco. I think the second one was when I arrived, a declining business in the independents. The third one is the VA we have discussed. I think VA talked about Marvel having an impact.
I think there are more operational things we are currently doing to improve how we serve the VA. Leave that for a different time. If you look at the independents, you heard us say during the capital markets day, we are putting more attention on how do we get intelligent loyalty programs in place, which we know other people are better than we are. We clearly have built capability and capacity, and we are driving up partners in our U.S. loyalty program, which for certain services we deliver to them and commit to higher volumes, and that is going well. One point of reference in the independents, we actually last year started to grow based on those process changes prior to Marvel.
You don't see that because of all of the pluses and minuses, but there's really some work going on on how we're serving them better and how we improve also the sales execution sides here. On the Costco side, again, there are swing factors in there. We had launched the new Brio versions, in my eyes, last year, a little too late. The rechargeable came about 18 months after we launched commercially. I think that's leading to quite some swings in the Costco environment, and we just need to stay closer to making sure we have the right distance, but not too much at any point of time. Having said all that, I think all of those are good works and hard to measure, having new products are always easier from the analyst side.
We spend a lot of time on refining the strategy and at the same time making sure we're really improving the sales execution on the ground.
Arnd, if I may please follow up on that is the U.S.A. more of a mid-single digit grower for the new fiscal year? Is that a reasonable target for you?
I think the U.S. should contribute a fair share to the growth we've put out from a guidance perspective. It's too big for not helping us to lift the ship.
Okay. It's only if you look at the last five years, it didn't make much contribution at all. I'm trying to work out whether 2020, is that inflection year where the U.S. finally picks up to a, let's call it mid-single digit number.
I understand. That's our intention. That's where the focus of lots of energy for many of us, including the senior management goes. We'll make sure we report out after the first half year and after second half year.
Okay. Thank you.
The next question comes from Yi-Dan Wang, Deutsche Bank. Please go ahead.
Thank you very much. I have three questions. The first question is on the cochlear implant business. Your competitor, Cochlear, also came out with a 3T-compatible implant. Just wondering whether your experts have had the chance to look into that product, and if yes, how competitive is that versus your product, and how sustainable do you think the advantage that you have with the high-res 3T will be? The second question is on the cost of the litigation that you have with MED-EL. How much cost have you provided for that in your guidance for the coming year? The third question is, you commented on greenfield development for your AC business. Just wondering what your plans are for the China market, which is growing very quickly in retail. There isn't much collateral damage associated with that market. Some commentary there would be great.
Lastly, Hartwig, at current rates, what would be the impact of FX on revenues and margins? Thank you.
On the first one on the CI from Cochlear, obviously interesting, their move. It's probably also interesting to see an announcement and a relatively slow rollout, in my book. You may wonder what has triggered that. We have not had a product in hand yet. It's not certainly in the U.S. and the selected places where they're working with it. Let me first make a comment on how our 3D MRI is different than the MED-EL, and then we can speculate which route Cochlear is able to go. We have made a different approach to the MRI, which allows the magnet to always orient with the magnet direction of the MRI or the MRT, the MRI in the U.S., which is not the case for MED-EL.
We're in a better place from the technical realization of the alignment of the field, which also leads to that we don't need to worry about anything around the head when people do their MRI, because the system corrects itself to a level that there's no pain. Now, I don't know exactly if Cochlear has gone the whole way or not, so that will be interesting to see, but we have not seen any drawings or a product anywhere in this point of time. I think from the litigation cost-
Yeah, maybe I can take that. What we are able to say is that overall, the past year includes a charge of around CHF 4 million. Allow us to not be specific of what of that is provisioned for future and what of that is already consumed, because we are in an ongoing dispute here. The number is intended to cover the future risk that we have in that dispute. Maybe quickly also going on to the foreign exchange question. The year-over-year is, from today's spot rates, We don't expect a significant FX impact for the new year. At today's rate, as the euro is a little bit softer against the franc than what we have seen on average for the last year, there is a mild negative impact from there.
On the China retail, certainly a big market, with its own set of challenges. If you think about entering and M&A, two of them, you always have to be mindful on compliance in a retail environment, particularly if you're operating in markets which may be high on the compliance score. The second one, I think it's still with regard to the dynamic in the marketplace of 100% clear which model will win. Particular if you factor in that in China, many of the customers look for more of a mixed model with more online lead generation and then some execution in the store. I think there's a traditional market which we're serving well on the wholesale side. There's a couple of questions you can ask about how did you get more consumers into the system there. Both of them keep us certainly alert.
We, I think, increasingly understand the Chinese market well by spending enough time there. At this point of time, nothing to declare and nothing to announce stepwise here. I think that was three questions, which became four.
I guess it was four.
Thank you.
I know.
The next question comes from Oliver Metzger, Commerzbank. Please go ahead.
Hi. Thanks a lot for taking my questions. The first one is on the rechargeable penetration rate. You described already an attractive pickup in the usage to a rate of above 50%. Potentially, the adoption is higher than you had initially thought as you presented your first rechargeable device. Could you give us your view or your idea onto which level you believe the market can reasonably grow? My second question is on your German retail business. You clearly described an improving organic momentum. First, would you describe the bottleneck of the audiologists within Geers as solved? Secondly, has the German network already a size where you really wanted to have, or do you see some further acquisition opportunities?
On the rechargeability, I think factually, there is not a good argument why you wouldn't say the market moves completely to rechargeability. Pick a number above 90%. The question, what's the curve? I think the cost for the rechargeability, even if you pay up front a little bit more, is lower than the cost of the battery. You get incremental benefits in two forms. A, you don't need to fiddle around with the battery, which for many people with difficulties of moving their hands is very important. That's one of the challenges they have. The second one, the way we have implemented it, you can't open the hearing aid anymore, which gives you incremental reliability. I think all of those would indicate that the world will move there. I think it's an S-curve, and we move from 30% to exceeding 50%.
I think eventually we're going to arrive in the 90%. That would be my best read on it. With regard to the Germany side, the first question was on the bottleneck on the audiologist. Two answers there. The one, we were not good in the prior years on making sure we have enough people, or we have all positions filled in the store. That was more of an internal exercise to improve the voluntary attrition of people, but also getting more up front in the way we recruit and potentially over-recruit in a certain region so that we have enough capacity if somebody leaves. We've done that, which is part of the Lift2 theme. We're now in the process of rolling out our own academy for audiologists in the U.S., as some other players have, because it's always tight in the German market.
We collaborate with a school which is there from the industry association. It also helps us getting to "some more peace" with our wholesale customers because the more we build ourselves, the less we may recruit from some of our customers. I think we're working on that bottleneck. It is not holding us back right now from the sales execution, because if I look at the vacancies in the stores, we're at a level which is clearly significantly lower than before and is a good number.
Network quantity, sorry.
Yeah. On the network quantity, if you go into the regional mapping in Germany, you would find certain areas where there's potential for our retail. There is areas where we clearly have a density which is as high as you want to go, and then there are other areas where we don't. The team continues to do smaller build-ons. Obviously, with a very focused effort to understand how much potential there is in the catchment area, and if this is a good place where we have some more stores. We're doing smaller steps in Germany.
Okay. Thank you very much.
You're welcome.
Operator, if there are no more questions by phone, we will see if there are further questions here in the room.
Far from the phone, there are no further questions.
Yes. Thanks. Two questions. One again, a bit of a financial question. When we witnessed you in meetings, you were always talking about a positive ASP impact about Marvel. You were talking about mid-teens. Now you've been talking about low teens. In the meetings, you've been referring to a 25% share of the portfolio, whereas now you said already 60% of the portfolio basically was launched in November. I'm just trying to understand how we put those lines together. Then the second question refers to your online strategy in retail. Since you have integrated Blamey Saunders in March, and there are more and more online stores popping up also in Germany, are you focusing on a dedicated online platform for your retail network?
Sorry if I'm using two slightly different terms. I meant the same. If I said low teens, we used mid-teens. We achieved the price realization we wanted, as we said in the first half year.
It's within the mid-teens, the lower end.
It's the lower end of the mid-teens. Sorry. We don't want to confuse you. We have not seen prices being lower than we want it to be. If that's the most relevant answer. I think from the share of the portfolio, when we came out with the Marvel, we first addressed two form factors. In between, we launched the next two, therefore the percentages are different. We moved up two of the Marvel, if that was the question. 90% of what people are looking for in form factors is now available in the Marvel, which before that was more 65% when we came out in November. Two new product launches there.
You mean within Audéo, right? Within RIC. We fully exercised the RIC form factor in all of its facets.
No. Sorry. If I think about the Marvel getting to all form factors we have in RIC, there's five main form factors. The first launch was two form factors were available middle of November. They make up 60% to 65% of the potential. We then launched in February two more form factors, which we needed more work on, which make up up to the 90% mark. There's one more launch to come. You could imagine that may happen later in this year, which is 10% of the potential, which is not covered. That's a T-coil version. That's how we got to the percentage, but no change relative to what we said at the end of first half-year. The incremental information, we launched two more form factors in February, March. On the, you called it online.
I would not call Blamey Saunders online in any shape or form. Blamey Saunders is a business which we knew for quite a while. It's in Australia. It covers about a percent of the Australian market. What the team has done there, they've developed a model in which they have traditional retail customers come to the store, everything. Pre-sales and post-sales gets done traditional. They have a model in which some of the customers come in the store to 50% of the interaction, and 50% they call in. They have a model where people buy a hearing aid in a combination of online relationship, phone relationship, and then fitting of the hearing aid and sending it out to the consumer. That's the far smallest part of the business.
The biggest percentage is in what I would call, if you hear me talk about omni-channel, that's a world in which you see your hearing care professional for the most important meetings. Other ones you do over the phone or with remote fitting, a capability Blamey Saunders had developed. They had developed their own hearing aid, which has these capabilities. I think about Blamey Saunders first as an attractive retailer, 1% market share in Australia, but growing and with a good pathway to a good profitability. Then a world in which we particularly learn about the omni-channel, because that is a tricky one. If you think about a 3,500 store network, which you're running very tight and very much on a traditional sales model on where do we find opportunities to learn, what does the consumer want to have from a fitting perspective online?
What interaction do they want to have through a call center? What interaction do they want to have in person? They are predominantly an omni-channel model. The second largest bit is people come completely to the store. They sell at normal prices in the marketplace. They sell at comparable prices in all of the three different business models, and clearly good prices. For us, it is a good addition to the Audiological Care, gets us some market share with some profitability or LCM in Australia. At the same time, we have a place where we learn, particularly on the omni-channel side, which we believe we need to move to, at least for a subset of the consumers in all of our retail.
When you're looking at the learning curve, I believe they also have a self-fitting hearing device that they've launched last year with a very modern rechargeability functionality, whereby you have to.
No, the product you're talking about is called Facet. It still has an interaction on the fitting side with regard to the interaction with your hearing care professional in the store. There is a relationship between the product and the store, and there's a conversation and interaction between the store and the product. The other one, the product is in the store optimized before they send it out. I don't see that as a self-fitting in any shape or form. The first is done with a hearing care professional, there is a remote fitting connection in which they further optimize the device. For me, it's an omni-channel. We're not seeing this, we had this discussion when we discussed OTC. We're not seeing, nor in the U.S. in VOC, nor in Australia or other places, this enormous demand for pure online.
We just don't see it in unit volumes. We don't see it in our VOC. We do see is many consumers who say, "Look, some of the interaction we want to handle differently." The more they are looking for any place, any time interaction. I think it's our homework to figure out how we do that. We do believe that the hearing care professional plays an important role in the selection of the right technology, the coaching of the consumer, as well as the fitting of the device. I think the model will change over time to a more anytime, any place interaction with a hearing care professional.
Thank you. I have two questions now. First on the DTC, actually, could you now elaborate on your investment and also the returns you're seeing on this investment and how you basically ensure that you also benefit directly from the investment? Is it only really a strategy for markets where you also have your own retail channels, such as Germany? The second question is just on restructuring. Are there any more measures now we should expect to come up?
On the DTC side, I think DTC is normal for the retailer, right? Because we need to generate the leads. Now, if you break down where the leads come from, some of it may come from an ENT, some of it you have an outreach in the real traditional world, and you go to a senior home and educate people. Some of it is foot traffic coming to the store. We do see a share, the 10%-15%, depending on the market, which comes out of a digital component. We historically have, in certain markets, used TV, as do other of our competitors use TV, if that's a good way where you have a big store network, so you really benefit from the demand coming in. We always have that DTC side. It's normal in the audiological care side.
On the wholesale, it's difficult to economically make that slide because ultimately that's the task of the independent, right? There's not a good business model in that. What we're doing is we're working with different elements there on the online side. As I said, in U.S., that had a significant contribution to the lead generation, the ultimate growth of our U.S. network. In Germany, we went down a different path, partially because of the need to position us well in the eyes of the consumer after we had acquired Geers, which had a certain lower price positioning in the market over the years. There we put our money together.
We didn't increase the spend in marketing, but we put our money together in a dedicated TV campaign, which is currently ongoing, which has two objectives, driving leads and at the same time increase the brand awareness and the perceived brand quality of Geers. For the ones who are German speaking, we have signed up with Mr. Gottschalk, which I think is a good person for that kind of target audience. The second question was on the restructuring. I think we said middle of last year that there are, based on all of the acquisitions we've done, there are places in the organization in which you can find ways to streamline the way you operate. First, to get more agile, get faster towards customer, but ultimately also get to more efficiency in the system.
There is more opportunity which we will uncover and work through the next two to three years now. We're not with any of the projects at the place where we know exactly this is the timing. We're currently working with the ones we have shared with you, and they're going well from what we have laid out as a plan. We're teeing up other ones. I would ask you to wait until we come forward with some more information on those.
Thank you.
Just a small one. You mentioned in the press release Canada, which had price pressure. I guess you're talking about wholesale and was that because of another competitor or what happened there?
In Canada, big parts of the business get distributed through tenders of a certain Canadian region or state. They move on long time cycles. I am not sure for the specific one, was it five years or longer? This one was up after we held it for a long period of time. We had to participate in that tender. We did not want to lose the business. We won it, but we have a price headwind out of it relative to the couple of years steady pricing in that particular tender. It is because it is statewide and it covers a lot of the patient and the life under management, you can have a meaningful impact to your country result.
Canadian business relative to the U.S. business is proportion-wise, ballpark, like the population or I guess it is a bit stronger because of-
We are a bit over indexed in Canada because this is the origin of our Unitron brand. The other one we have a quite nicely built-out audiological care business in Canada, where also some of our bolt-ons are happening because it is running well for us. Both sides are pretty strong in Canada. Looks like no more questions in the room, none on the phone. Thanks for your attention. Thanks for the questions. Thanks for coming and hope to speak soon.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye