Sonova Holding AG (OTCPK:SONVF) Q2 2023 Earnings Conference Call November 14, 2022 7:00 AM ET
Company Participants
Arnd Kaldowski – Chief Executive Officer
Birgit Conix – Chief Financial Officer
Conference Call Participants
Daniel Buchta – ZKB
Hassan Al-Wakeel – Barclays
Maja Pataki – Kepler
Chris Gretler – Credit Suisse
Julien Ouaddour – Bank of America
Veronika Dubajova – Citi
Graham Doyle – UBS
Urs Kunz – Research Partners
David Adlington – JPMorgan
Falko Friedrichs – Deutsche Bank
Daniel Jelovcan – Stifel
Arnd Kaldowski
Welcome to everybody on the call on this Monday afternoon. Thanks for your focus and attention and participation. It’s a regular reporting for the first half year. So we will share the results as well as any commentary relevant for how we think about the second half year. I have with me Birgit Conix, our CFO and the Investor Relations team in case we need more help during the Q&A.
We intend to go through the slides for about 30 minutes and unpack the results, and then we should have ample time for the Q&A. On the first page — on page 2, our regular disclaimer. I assume everybody took note here.
So coming to the high level on page 3. Looking at the first half year and understanding the current market circumstances we look at the results we are publishing today as sound, particularly on the top line side, you’ll see later in the numbers a good growth given the market circumstances, almost 18% including the larger acquisitions we’ve done, but also on the organic side, 5% across the group some pluses and minuses overall putting us slightly ahead of the market in total in our eyes.
Clearly on the profitability side, a lot to be understood as we also had already indicated in the August update with regard to the guidance. The big picture has not changed here there is a big element of the expected dilution particularly from the Sennheiser acquisition. There is factor cost elements and significant price impact from geo mix coupled with some headwinds on the FX side.
You can also see with the launch of the Lumity as well as the new products on the Sennheiser side a continued high focus on innovation on our product businesses with a pretty good start on the Lumity, as well as on the momentum for and the MOMENTUM True Wireless 3.
Clearly a year in, which if you look over the 12 months’ time horizon we’re significantly expanding our consumer access and our market reach, which is in line with the strategy we’ve laid out. Good level of bolt-ons on the M&A side for Audiological Care also in the first half year and I’ll comment on the numbers later. But also a successful first half year with Alpaca from how we bring the teams in the United States of America together.
Pretty good start with Sennheiser also not just the numbers, but also the progress we’re making on bringing the organization and consumer hearing business together. And last but not least, the announcement not yet closed but signed acquisition of HYSOUND, which longer term is very important for us on the Audiological Care side to get more meaningful in the Chinese market.
Now last but not least, obviously, the question on how we think about the second half of the year implicit in the overall guidance. The guidance, which we have put out in August remains in place. I think the markets continue to be dynamic but also muted. October was not a strong month in the market. When we look at the published market data we have access to and in addition we will comment on where we are headed with regard to a large US-based private label contract, which I’m sure you have seen, we put it unlikely to be renewed. And therefore, with those two things together still seeing us in the guidance range, but at the lower end Q2, those two comments here.
Going to Page 5, just on the highest level of the results. 17.9 in LC, you can see from a growth perspective, a significant impact from the FX here for the first half year, we’ll comment on how we think about the full year and the second half year later in Birgit’s section, 17.9%, a good number also ahead of what we said during the August, same is true for the EBITDA, a significant FX impact currently, but also slightly ahead of what we said for the first half year showing that the Lumity and a couple of other things we had worked on helped us finishing the half year on a good note. Sales outlook 15% to 19% on the sales side EBITDA 6% to 10% both in LC.
If we go to Page 6, the ones who had a chance to be with us at the Capital Markets Day, we went through in a lot of detail here. Therefore, I will not read every bullet point. But while the market is dynamic, there are headwinds particular towards the EBITDA height [ph]. We have continued to invest in our strategic priorities. So making good progress in line of the six dimensions here. Continued high investment into new product development, with very meaningful launches this year for the HI in this consumer hearing business, continue to drive access to more consumers particularly on the younger side.
And then with regard to the high-growth markets, not just the continued investment into digital market in direct consumers, but I found at a transaction side. We see continued good progress on the continuous improvement side. We had chance to talk, a little bit more about that on the Capital Markets Day and that allows us to invest into the business even in tighter years.
I want to dive a little deeper on three of those priorities. If we go to Page 7, there are some new information here because we’re sharing what we did on the bolt-on side in the first half year. We continued a good higher level on bolt-ons. Keep in mind, we said one year ago CHF 70 million to CHF 100 million would be kind of a target range. We’ve deployed CHF 60 million additional M&A dollars into bolt-ons on the HC side and first half year, added 70 POS. We have also opened 50 greenfield POS in the first half year. So despite the headwinds, and you can imagine especially the greenfields are OpEx intensive at the beginning, we didn’t stop those because we wanted to drive our consumer access.
Alpaca on a good track from a getting the teams together. We have one dedicated management team half Alpaca colleagues half Connect Hearing. We’re proud that the founder and his key staff on the leadership are committed and are staying with us and bringing the best practices of Alpaca into our joint US Audiological Care business.
China, Christophe at the Capital Markets Day has laid out in more color. Our digital position we have built over two to three years, some early innings of greenfield openings and now doubled down with the HYSOUND acquisition which we expect to be closed in the second half of this year after all of the talks, — our eyes are — T’s are crossed and eye are dotted.
Page eight. On the high focus area, leading innovation. We went through the Lumity and shared the content. Clearly, a significant step forward from a hearing performance perspective in difficult environments and then the known benefits out of our made-for-all phone connectivity, the availability of the world’s first waterproof rechargeable — combined with rechargeability, clearly, highly appreciated by the consumer.
We see particularly around the repurchase rate, meaning the hearing care professional, after the first consumers have used the device, buying many more, getting positive responses from the initial purchases and then driving the penetration in the market for us.
High-level results, page nine. Just want to focus on the ones I haven’t said yet, talked about the top line EBITDA at a plus 3% in the local currency. The EBITDA margin, 320 basis points down, significant part to dilution, particularly from Sennheiser and then the quoted input factor and price mix matters.
If you go down here, the different businesses, the hearing instruments business, slightly above 5% on an organic side, a good number, particularly in the half year before we launch a new product. So Paradise still had a good run and then Lumity came on top here, significant step-up on pricing, with list price increases in July and then another increase of price with the Lumity launch, helping us to offset some of the inflationary pressure.
Audiological Care, you see the top line 17.3%, obviously, a significant part coming from M&A. What we see here on the consumer end is an interesting different development than what we’ve seen during COVID, during the high inflationary environment and we learned this to some degree, because we didn’t have these levels for many decades.
We see actually new consumers coming and marketing efforts bringing them to the store. We struggle more on the renewal side, interestingly, and perhaps understandable, if you keep in mind, those people have a solution on their ear and they may just push out the purchase of the new device by half a year or year in the markets where there’s a high share of private pay. So that’s what we’re seeing on the ground.
Consumer Hearing business, a good start with CHF 133 million. Keep in mind, the first half year is weaker because the Christmas season starts October and November in the channels. Secondarily, there were, at the beginning, still some supply chain issues in part of the product line which we have come through, but they clearly impacted Q1.
So, overall, a good start, clearly, with very strong reception on The MOMENTUM True Wireless 3 and the momentum for headphones driving good growth above market here in those segments.
And then, Cochlear Implants, rather lower growth, probably slightly better than market, in line with market. We will see when other people publish, but a good continued step-up with regard to the profitability as you will see later. There are significant impacts of shortages in some parts of the world in the hospital. So the implant rates are still not back to a normal level.
On page 10, you see the bridge between the different components of growth. You can read them here. You see the 5% on the organic side. You also see the 2.8% from an FX impact perspective.
If we go to page 11, just a couple of comments here, you can read it yourself on the geos. Interestingly, very similar numbers EMEA, U.S. and Americas but lots of color around it from a different M&A footprint.
If you take Europe, pretty strong markets, in Germany Netherlands and Nordics or resilient markets more of a headache or headwind not headache in France after a reimbursement change on a high jump-off point the U.K. private market, we set was rather weak on the first half year, but overall, Europe actually in a reasonably resilient position.
The U.S., the volumes in the U.S. private market did decline in the first half year, in units, in the low single-digit environment which is quite different. An element of that was strong year-over-year impact or a big jump-up point in the year before, but clearly a reaction of the consumers to the macro environment VA held on better, as you could see from the numbers they publish.
And then, keep in mind on our number and that’s why there is the 14% Alpaca is obviously a purely U.S. acquisition for us. And then, on the Americas side good momentum particularly in Canada.
APAC some positives out of the weaker jump-off point in Australia from the year before. We haven’t spent it out here, but China on and off depending on when a lockdown happens in a larger country — in a larger city.
I want to dive a little bit into the hearing instruments. Again, I trust you have a chance to read the numbers, on the commentary side solid organic growth in the two businesses where we spell out the organic growth here both with 5%, successful launch of the Lumity was driving it on the HI side for the last six weeks and a decent resilience at the back end of the Paradise.
And then, on top of the organic G&A a strong acquisition component. Profitability, before that over, I’m sure Birgit will go deeper and further into it. On the transportation side and the component cost particularly on the transportation we see some signs of improvement you need to see that stabilize that should help us into the second half.
Also when you look at the expected dilutive effect, we said for the full year it’s 130 to 150 basis points. Keep in mind, Sennheiser is low revenue in the first half. So the dilutive effect was larger in the first half year, helping to explain the bridge towards the profitability.
Page 14, in addition to the Lumity new launch of the, Unitron Insera product on the custom side which helped, drive some growth there. The pricing side and clearly a very strong resilience of our market share position on the VA side with Paradise.
Page 15, not so much additional to what I said here, I think integration on track for the Alpaca. And I was commenting on the headwinds with regard to the — to some of the consumers not coming or they may come to the store and then don’t close the sale.
Page 16, in consumer Hearing business with the Sennheiser acquisition, slightly ahead of what we had, mentally written down for ourselves coming out of the new product there. You have to understand we also need to learn the business new ourselves.
TV Clear the first Sonova product, under the Sennheiser brand and now gearing up for the launch of the first speech enhanced hearable within the current financial year, that’s looking good from the launch and the capabilities of the product.
Last page, I was on Page 18 on the cochlear implant and some more detail as we always share between system sales and upgrade sales. You can see system sales at 3.6%, upgrades at 1.8%. Keep in mind, upgrade sales are very much driven when we launch a processor and the launch was a year ago or 1.5 years ago. So I would say even if it is “only 1.8%” this is on a high level of the year before. The system sits at 3.6% given the challenges in some markets with the staff within the respective hospitals, a pretty good number I think. And then on the profitability side, you see that year-over-year for the period. We have grown the profitability in LC by 280 basis points by driving continued efforts on the continuous improvement and on the price realization even if we only had 3% growth here.
With that, I want to hand over to Birgit in the financial section.
Birgit Conix
Thank you Arnd. So good afternoon — so starting with Page 20 the financial highlights and most of this you already read from Arnd not go into all of the same detail. So sales were CHF 1.8 billion and this is an increase of 17.9% and an organic growth of 5% with the foreign exchange being a significant headwind, which reduced our top line by CHF 44 million, or by 2.8 percentage points, and given the substantial change in margin, I will therefore unpack the gross profit in just a minute in some of the subsequent slides.
So adjusted EBITDA stood at CHF 398 million. This is up 3% in local currencies with a margin of 21.6%. And this is slightly above our expectation communicated in August. And there we said that EBITDA would remain largely unchanged. And then our operating free cash flow was at CHF 185 million and it is a decline of around 45% versus prior year, and it was mainly related to increased net working capital due to lower payables also lower accruals and also a buildup in net working capital due to our newly formed consumer hearing business.
And so far we returned cash to shareholders through dividend of CHF 268 million and also through our share buyback program worth CHF 304 million. And since the cash out of the dividend occurs in the first half of our financial year, our net debt position at the end of September went up to CHF 1.5 billion. So all-in-all this represents a net debt-to-EBITDA ratio of 1.5 times. And this is at the upper end of our target range, which is one to 1.5 times. And in the second half the net debt position is expected to reduce to be well within the target range.
So moving to the next Slide 21, yes. So our adjusted gross margin stood at 69.6% down 350 basis points year-on-year in local currencies. And this decline can be decomposed in a few major effects. So first what you see is the expected negative effect from the consolidation of Alpaca and Sennheiser and this we communicated at our full year results presentation. And then secondly, the slowdown in certain high-priced hearing care markets such as the UK and the US, which led to negative mix effects, or in other words, a lower average selling price due to lower volumes in higher-priced markets.
And then thirdly, we saw continues headwinds from elevated transportation and component costs, and as well as wage increases. We saw positive signs towards the end of the reporting period, which we expect will give us a lift in the second half. And then lastly, and I already said that, we have a further FX headwinds of 70 basis points leading to a gross margin decline of 420 basis points in Swiss franc.
And then our adjusted EPS was at CHF 4.9 per share and this is an increase of plus 7% in local currencies. So again, given the substantial foreign exchange headwinds, our EPS is almost flat in Swiss francs.
So let’s look at the separate EBITDA components on the next slide. So here going from left to right, our adjusted EBITDA in local currencies was CHF 419 million, representing 3% growth year-on-year. And as I said slightly above the indication, we gave back in August.
And to a large extent, our EBITDA growth in local currencies was driven by the acquisitions of Sennheiser Consumer Hearing and also Alpaca Audiology in total adding CHF 10.5 million EBITDA. And given that these businesses currently come at a lower than group average EBITDA margin, our recent acquisitions had a dilutive effect of 210 basis points on our adjusted EBITDA margin in the first half of the year.
And then the organic EBITDA contribution, as you can see here was CHF 1.6 million and reduced the adjusted EBITDA margin by 110 basis points. This was mainly driven by the pressures that, I talked about on the previous slide. And then currencies were a major headwind reducing the adjusted EBITDA by around CHF 20 million, and the EBITDA margin by 60 basis points.
So then moving to the next slide. Here you see, our operating expenses increased by 17.2% in the first half and it’s important to understand that around 75% of this increase was driven by acquisitions, and I will explain that later. But before that, let me quickly briefly touch on tax. And our underlying tax rate was 15.5% compared to 14.5% in the prior year, and this is in line with our indication that the tax rate is expected to move towards the mid-teens, also in the midterm. So that is what you see here.
So moving on to slide 24, to take a deeper look at the increase in OpEx. So here important to flag is that, we attained a high level of investment into innovative products and solutions. And you can see that, the R&D expenses were CHF 119 million, or 6.5% of sales, allowing us to drive impactful innovation for our consumers. And then sales and marketing was up 22.7%, and was the largest driver for the increase in operating expenses, along with G&A, which was up 8.9%. That’s important to mention here is that, both these OpEx lines show this level of increase, mainly as a result of our M&A consolidation effect.
So here you see that, it’s lifted here around 70% of the increase in sales and marketing, was mainly related to the acquisition of the Sennheiser Consumer Division, Alpaca Audiology and AC bolt-ons. And then the remainder 30% of the increase in sales and marketing was largely driven by a shift in the business mix and this is due to the continued expansion of the Audiological Care business. And as you noticed Audiological Care business has a larger or higher ratio to sales percentage for these costs versus the rest of the group. And then the development in channel and administrative expenses was almost exclusively driven by acquisitions.
So, in line with our well-known principles of strict cost control the organic increase in G&A was very limited and that is I believe a good indicator for our strict cost difficulty.
And then finally touching on adjustments of CHF5.5 million in the first half this declined from CHF11 million in the prior year period and were related to restructuring transaction and integration costs as well as litigation expenses. So, then moving to the next slide. As mentioned in the beginning operating free cash flow was at CHF185 million and declined by around 45%. And this was mainly driven by increased net working capital. And let me try to explain these drivers here in more detail.
So, first starting with the CHF65 million net working capital increase. So, from this bucket nearly half of this was related to lower payables due to a safety stock build up at the end of the previous fiscal year 2021-2022. And the orders occurred in the previous fiscal year was related to accounts payable transferred into our current financial year. And once these bills were paid, the payables position reduced.
And the remainder was largely due to lower accruals and I can give some examples of those. And for instance timing of prepayments associated with various larger R&D and IT projects also a decrease in accruals for share-based payments due to the lower 2022 stock price and also for into a non-repeat of prior period accruals related to fees for larger acquisitions.
And then second going to the next bucket of around CHF28 million. This is related to the acquisition of the Sennheiser Consumer division and represents a normal buildup in net working capital. It’s due to the setup of this new business as we acquired these assets excluding any receivables or payables.
And then the last effect of around CHF33 million mainly related to other items such as increased lease payments that comes naturally due to the network expansion in Audiological Care, the movements in financial assets, and also lower financial expenses.
And then a further normalization of the CapEx level should be expected more towards the previously communicated 2% to 4% of sales and compared to last year the normalization reduced the operating free cash flow by a further CHF30 million.
So, then moving to the next slide the balance sheet. So, here you see our net debt of around CHF1.5 billion translates into a net debt-to-EBITDA ratio of one and a half times which is touching the upper end of our target range of one to one and a half times.
And the main drivers for the increase were our share buyback worth around CHF300 million the dividend payment of CHF268 million, and then cash considerations for acquisitions in an amount of CHF86 million.
And then let’s shortly touch on the DIOs. So, when I led you to the increase in net working capital I mentioned the decrease in payables due to increase in safety stock prior to the end of fiscal year 2021-2022. But if you look at the DIO here, which are flat year-on-year this may seem a contradiction. But if you however, look at the DIO at the end of the fiscal year 2021-2022 in March, there the number was at 171 days and the reduction to the 148 days is related to process improvements since then.
However, important to note the current DIO level is still higher than pre-pandemic. And albeit really to a lesser extent it remains impacted by the mentioned buildup in safety stock and also product launches.
So, then moving to the next slide. Total shareholder return and capital deployment strategy. So, the strategy remains unchanged. We maintain our level of investment into bolt-ons of around CHF70 million to CHF100 million.
Arnd already said that as well. We have a dividend payout ratio of around 40% and then leverage ratio will remain between one and one and a half times to maintain a healthy balance sheet. And then in line with our capital allocation strategy, we are continuing our current share buyback program. And that is obviously in the absence of large M&A.
So, finally, let’s touch on the outlook and related to the assumptions for the remainder of the financial year. So, considering the development in the year in car markets we saw and also with a weak October month, we saw a slow start into H2 signaling we did expect that a sequential market slowdown versus the first half. And we believe inflationary pressures will stay with us for a longer while and they will continue to negatively affect consumer sentiment. So, this implies a limited market growth in the second half.
And as you have seen, we faced high volatility in the market and therefore to be noted that the uncertainty currently remains high. So, what exactly does this mean for our results in the second half? So, let me decompose our –.
So, as a positive year-over-year development so we are confident that Lumity will support our market share gains and further lift our average selling prices. So beyond our announced price increases. We also are confident that we successfully continue to expand our Audiological Care business. and that the consumer heading business will show a lift from the seasonal contribution during the Christmas season and that we will see a gradual easing of supply chain constraints and transportation costs.
And then as a negative year-over-year development we take into account a subdued market development as mentioned earlier and especially given the slow start into the second half. And we also take into account the suspension of an existing private label contract since October and also the fact that the renewal of a large contract with an individual client in the US seems unlikely at this point in time.
So, then moving to the next slide which is the outlook slide. And here we — as we also already communicated our guidance remains in place and we are expecting to reach the lower end of the fiscal year 2022-2023 ranges.
And as a reminder, this range of sales growth of 15% to 19% and an adjusted EBITDA growth of 6% to 10%. And these are both measures at constant exchange rate. And — yes, the current fiscal year posed to be impacted by the current macroeconomic challenges, which are hard to predict.
But on the other hand, we firmly believe that, the hearing care market itself remains attractive, given its underlying growth drivers and also the innovation that we bring to our consumers. So we therefore remain confident about our mid-term target of 6% to 9% growth in top line and 7% to 11% in bottom-line.
So let me finalize with a short summary on the foreign exchange development. So simulating our top and bottom-line, using the October month end exchange rates would indicate that our sales growth in Swiss francs is negatively impacted by two percentage points and the adjusted EBITDA growth by three percentage points for the full fiscal calendar year.
However, we continue to expect a high-degree of volatility in the exchange rates. And similarly to top and bottom-line results, based on October month end rates are favorable versus the indication we gave just one month ago during our Investor Analyst Day.
So the situation clearly improved since the end of October, where if we look at our current FX rates, it reverses again. So it is just a volatile environment. And we will continue to update you during conversations with you.
So this brings me to handing back to Arnd, for the closing.
Arnd Kaldowski
Summary. So before we get to the Q&A, as you can tell, quite dynamic environment and with lots of ins and outs into our numbers, so one can get easily confused. So allow me try to make a quick summary, how we think about the numbers before we move into the Q&A.
Looking at the 5% organic growth in the first half year, I think, we did reasonably well. I think that’s at the end if you calculate it through, a little bit ahead of the market so winning share, while the Paradise came to an end of its life cycle.
I think looking at the second half year guidance, if you calculate it through with the caveat of the unlikely renewal of a large private label account or contract. But at the same time also what we said, a step down with regard to the market dynamics which drove our August update.
I think you will end up at a place where you also see us winning share and that’s what we’re confident about at one contract. I think clearly good progress on the M&A front with the investment into Alpaca and Sennheiser and good initial work with the teams, but also the longer sought after step into China.
And as you heard good cost control, but on the other hand, continued investment in the most important growth drivers from a growth perspective. So when we look at that we’re in a high inflationary environment not an easy one to read. That was new territory for us.
But if we think beyond the high inflationary environment and think to a more moderate inflation environment and we feel confident that the market will return to the place where we were.
And we will return back to what we shared as our — in our eyes attractive mid-term targets. So I think taking share being able to take share, minus a big contract which comes and goes and the right focus on where we expand from an M&A perspective.
With that, we would like to open up for many questions. I’m sure they are on the — which they are on the line. Alice, if you help us with the questions.
Question-and-Answer Session
Operator
We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Daniel Buchta with ZKB. Please go ahead.
Daniel Buchta
Yes, thank you much. And maybe, my two questions. Maybe the first one on slide 29, where you mentioned the sequential market slowdown compared to the first half. I mean, your Capital Markets Day is just a few weeks ago. What has changed in the market overall that you expect even slower markets now in the second half? Is this maybe, yes, related to down trading, or what are you seeing there in your relevant markets?
And then the second question on the large contract renewal as you call it, I mean is it fair to assume that this would be normally I would say 5% of group sales and nothing for that comes in the second half anymore. And actually what are, or where the issues in the talks, is it more price, or was it really this rechargeability issue that you mentioned as well in the past? Thank you very much in advance.
Arnd Kaldowski
Daniel thanks for the question. I think the step down is more a step down when we looked at the first quarter and then Q2 was softer in the market. Q1 — our Q1 was still a pretty good number. But in Q2 we were — the markets were more flattish and that’s what we’re also seeing here baked into the numbers. So don’t read too much between capital markets. I think it’s really it had started in our fiscal Q2 and we assume the same for the remainder of the year.
With regard to the large customer contracts a little bit lower than 5% of group. And with regard to the rationale, we’re still in the back end of the discussion. So we haven’t yet gotten a full download and deeply from the other side. I think these contracts as you can look in the past tend to be renewed most of the time one round, I think in reality we’re sitting at, we would have hoped for another renewal or so. It’s a little hard to read how much of that is a procurement strategy versus too much price ask relative to what we were offering, but not clear to us at this point of time.
Daniel Buchta
Okay. That sounds uncertain. Thank you very much for the details you could give so on.
Arnd Kaldowski
Thank you.
Operator
The next question comes from the line of Hassan Al-Wakeel with Barclays. Please go ahead.
Hassan Al-Wakeel
Thank you for taking my questions. I have two please. So firstly, could you talk about your preliminary thoughts on next year given your outlook for flattish market growth in the second half, the KS contract loss and whether you can comment on consensus expectations of 6% to 7% organic growth for next year? And if you can help us think about price share gains within that context? That would be helpful.
And then secondly, could you please talk about the launch of Lumity, and how meaningful this has been to the month of October? And how do you benchmark the Lumity launch versus some of your prior launches in terms of reordering patterns and ASP? Thank you.
Arnd Kaldowski
Hassan, thank you. Next year, we’re not at a place yet where we give a guidance on the next year. But if you think about it, I think market depends on how the market evolves over the next couple of months what we see from an inflationary environment. So we’d rather wait a couple of months to lay that card.
Secondarily, you heard me say one of the things we’re seeing is people are pushing out purchases — on the renewal side. So I think we will need to wrap our head around if there for — at some point of time in next year, even some element of pent-up demand in the existing customer base.
I think we also have other products we launched, which will make an influence or an impact into the next year not just bringing Lumity to other brands and other form factors. You also heard us talk about the speech enhanced hearable. So, I would leave it here.
Certainly we will have an extra headwind on that customer contract for another half year, right? Because de facto surprise to us relative to what we said in August was that the revenue wasn’t there in the Q3. But therefore, it’s a quarter earlier out of the year-over-year comparison next year.
On the Lumity side, the October numbers were good with regards to, particular the repurchase rate, also on the penetration of the accounts. So we see the impact we’re expecting from a new platform from a share gain perspective. Hard to give an exact percentage around it, but we normally have a strong growth of our business above market in the independents, particularly when we launch a new product.
Keep in mind on top of that we have done two steps of price. One was an inflationary adjustment and the list price for all products. And the secondary was Lumity centered. So, we feel good about the HI market share development second half, but also getting into the next year minus the customer contract we talked about.
Hassan Al-Wakeel
That’s very helpful. And if I could just follow-up on the first. And I think you mentioned that Europe was relatively resilient in the first half. I mean is this a function of reimbursement to your mind, and to what extent do you worry about a meaningful deceleration or at least down trading into next year in Europe?
Arnd Kaldowski
I think we clearly see more resilience where there is a meaningful contribution from a reimbursement perspective. So I think that does help. That’s in my eyes while Germany is doing well in the first half year. I think the jury is ultimately how the inflation develops, because I think in Europe it is actually more driven by energy prices and that’s quite a volatile topic I think, right? So, don’t want to put the best estimate around the energy prices in Europe, but I do think Europe was more resilient, particularly in the markets where you get a meaningful contribution on reimbursement.
Hassan Al-Wakeel
Very helpful. Thank you.
Arnd Kaldowski
You’re welcome.
Operator
The next question comes from the line of Maja Pataki with Kepler. Please go ahead.
Maja Pataki
Yes. Thanks. Arnd, also coming back on the private customer contract and looking at next year, I mean typically we’ve talked in the past about losing the private label contract but then gaining share on the branded side. Now, out of experience, do you have a feel for how fast do you think you could see a pick up on the branded side? And like the demand for your products from the Audiology side still like your products? What would you anticipate? And my second question is I’m not sure whether you can comment on that. But if we look at the retail price in that private customer for your Brio product, it’s meaningful above what competitors are selling at. Would you consider moving in line to be able to grab share in that segment?
Arnd Kaldowski
I think you always need to be careful how you use brand at certain price points in the market. And I think given what we have seen price points of other branded products, we will need to think very carefully on what strategy we would choose. I think you heard us say that with the Lumity and the price increases we have driven in the market. We picked up in two steps. And therefore I think unclear for us at this point of time and not reflected in the numbers we shared as our expected outcome for this year anything on the branded side.
Maja Pataki
Thank you very much.
Arnd Kaldowski
Sure/
Operator
Your next question comes from the line of Chris Gretler with Credit Suisse. Please go ahead.
Chris Gretler
Thank you, operator. Could I come back to – good afternoon, Arnd and Birgit. Could I come back to the price increases that you mentioned? Could you actually also discuss what kind of discounting you see in the market? And whether these price increases really stick. And also what kind of price increases you actually encounter on the retail level? That would be my first question.
Arnd Kaldowski
Hi, Chris. Thanks for the question. I think if you look at the wholesale side of the house, the price increases stick to the majority of what we’re putting out in the independent environment and call it the smaller chains. It’s a very different discussion than the customer-specific discussion if it comes to large chains, right? There also the timing is different because you have either an annual contractor in every two years contract.
I mean it’s fair to say that, the ask for higher prices where we have with Lumity made significant innovation is something we’re also pushing in larger retail accounts, perhaps not to the same degree as we get it on the independent side.
And then on the pricing side, on the Audiological Care side, we are able to realize higher prices. We do that also through increases of list prices, call it in the low single-digit environment. If I take the average in some markets more than others less, depends a lot on your service level you provide and your ability to also tap into kind of a more affluent base of private pay environments. But in general, we do get price realization in the order of magnitude of low single-digits right now on the retail side.
Chris Gretler
Okay. And then my second question relates to your midterm guidance and the client loss that you mentioned. First of all just kind of to reconfirm that, you didn’t have any sales in Q2 for that customer. Was that my correct understanding?
Arnd Kaldowski
The first half year was normal. The second half year is without.
Chris Gretler
Okay. So, on that basically, should we assume that the next year will be also kind of a year below the midterm target in terms of earnings growth, is this reasonable to assume, given there is no headwind that will weigh on the company, or is there enough other measures that you have in the bank to kind of make it up?
Arnd Kaldowski
I think it’s really hard to say, Chris, because it comes the question, when do we see normalization particularly in the US market. Keep in mind, we shared in August that the bigger headache was the US and that has quite a significant impact on our profitability, right? So, if you would be in a world where call it in four, five, six months, you see the inflationary pressure in the US gets back to a better environment. If you also see probably share prices go up, keep in mind, our target audience is 17 average, and in the US 401(k) is in equity. I think you would see a good recovery in the US which will help us from a profitability on top of the top line, right? So, as you can tell, we keep going down other geographies, but it’s really hard in such a dynamic environment to already comment on where our guidance for the next year is. But if the markets would start to normalize, particularly in the US, we see continued improvement on the freight side. I think there is recovery on the profitability, which can help us out relative to a half year loss of that customer contract.
Chris Gretler
Okay. I appreciate the comments and looking forward to seeing tomorrow.
Arnd Kaldowski
Same here. Thank you, Chris.
Operator
The next question comes from the line of Julien Ouaddour with Bank of America. Please go ahead.
Julien Ouaddour
Thank you very much for taking my question. First one a bit big picture question, but the hearing aid industry is highly consolidated in wholesale. Do you think, we might see further consolidation in the market going forward? And what would be the impact for Sonova, let’s say, if two of the large manufacturers combine their business just a few years after the Sivantos-Widex merger?
Second question on consumer hearing. So you mentioned that you expect a significant higher sales during Christmas season for this division. However, most of your computers stress that this year, the usual facility, let’s say is not really expected. So, like the question is, do you start to see some take in revenue for this business yet? Can you confirm if you believe that you can grow sequentially? And also, how big the upcoming speech enhanced hearable will contribute this year for this business? And any comment let’s say also about the profitability in H1 and what you expect in H2 would be super helpful. Thank you very much.
Arnd Kaldowski
Thank you, Julien. On the consolidation side, I don’t want to add to the discussions in the marketplace right now, given certain people taking share positions at other companies. But if you look at the market overall, I think over the last three years, we went from six to five. I think more interesting if you look at the market share developments, you also did see that there was more of a bifurcation of two, which are smaller and three of which are more on the larger end. We’re in a good position there, because if we do the math, we’re the larger amongst the three larger. But yes, I think you will in minimum see people having to figure out what is their overall strategy, if you’re just a third of the size of the larger ones, right? You could go a niche strategy whatever you go do from there. But clearly, there is a little bit of a separation of the field, which I find more relevant than the question if there is another step of consolidation of one of the smaller.
Now if a consolidation would happen, we would not worry about this. I think we have what we need to develop the broadest product portfolio. We have the momentum in the P&L as you’ve seen from the ability to step up our R&D over the last three years by 45%, and still having the highest profitability in the marketplace. And I think there’s something to be said about it is good to have all of your products on the same chipset that’s the most efficient way to develop product and we do have that between the Phonak and the Unitron business which did take us many years right? So we don’t worry about an element of consolidation there. We’re not in a position to comment if this would happen or wouldn’t happen.
On the Consumer Hearing business for Christmas, again, we’re new to this. So we’re not the most detailed on consumer electronics. And keep in mind, this is a far bigger market, with far more different segments in our hearing instruments, but we were encouraged by the October sales on the consumer hearing business. We’re encouraged by the momentum we have in November. So we do expect a meaningful step up quarter-over-quarter from the first half year and the Q2 towards the Q3.
We don’t have the exact number yet because it’s beginning of November not yet end of December, but clearly we will see a step up there, which will also help us to contribute some meaningful profitability to the Sonova business at least from an absolute Swiss franc amount.
On the speech enhanced hearable, I think we’re excited when we launch it. We think it’s a good product for a need of customers, which is not fully fulfilled today. We don’t think it’s going to be a huge revenue contributor. Keep in mind, this is a new product category in the market and for us and that’s on the new brand. So I think it’s really getting going in building that business quarter-by-quarter.
Yes, there will be some revenue in the Q4, but not in a very big effect as we have when we launch a new hearing instrument platform and everybody is waiting for the new Phonak product. But we’ll be comparing it with our plans, but it is more kind of an S curve over time, which we have planned there.
Julien Ouaddour
Thank you very much. Just maybe on the profitability. Can you give us a bit more color on what you did in H1 and also what you expect in H2? Yes. Thank you.
Arnd Kaldowski
You mean for the consumer hearing business?
Julien Ouaddour
Yes. Yes, absolutely.
Arnd Kaldowski
So we were for the Sennheiser you need to understand when we commence consumer hearing business, it’s the Sennheiser business plus our developments of speech enhanced products and other early entry devices, right? So I think if you look at Sennheiser standalone, there was a slight positive EBITDA contribution to the house. So it was accretive the acquisition.
We expect this to be more meaningful in the second half. If we add the product development cost for speech enhanced and TV Clear without a revenue, the sum of the two was negative, right? But that’s really more of an investment into new product categories. We’re in the process of launching.
Julien Ouaddour
Thank you. Thank you very much.
Arnd Kaldowski
You’re welcome.
Operator
The next question comes from the line of Andrej Levak [ph] with Stone Creek Global. Go ahead.
Unidentified Analyst
Hello. Thank you for the opportunity. My question is related to potential funding opportunities for those who are not an investors, the opportunities when you would work on additional capital on levered stock. Previously you mentioned the drop of operating cash flow with already clarified reasons why that happened and for the proposal of potential or motivation to participate with non-recourse capital. I’m asking how does your welcoming of extra capital currently look like? And when could the candidate reach out on that topic to whom and to which contact information could be used for that? Thank you in advance.
Birgit Conix
So yeah, I think best to contact Thomas Bernhardsgrütter and you can find all the information on our web page.
Unidentified Analyst
Mr. Thomas?
Birgit Conix
No, Thomas Bernhardsgrutter.
Arnd Kaldowski
He’s the Head of Investor Relations on the web page. He can guide you to the right person. Yeah.
Unidentified Analyst
We’ll do that. Thank you for advice.
Birgit Conix
Thank you, Andre.
Operator
The next question comes from the line of Veronika Dubajova with Citi. Please go ahead.
Q – Veronika Dubajova
Hi. Good afternoon and thank you for taking my questions please. I have three if I can. So the first one is just — I was hoping Arnd if you could help us quantify the contribution from price to the wholesale organic growth in the first half. So out of that five points what was pricing versus volume? And what your expectations are on price mix, as you move into the second half year, just so that we’re all on the same page in terms of what you were expecting?
Then my second question is just to confirm. Is your expectation that you will not be participating in the branded segment of that large customer where you’ve lost the contract, or would you expect to be maintaining some revenues, but maybe not at the same level as what you’ve learned before? And then my last question maybe for Birgit, if you can help us with a little bit of gross margin bridge for the second half of the year that would be really helpful? Thanks.
Arnd Kaldowski
Yeah. Hi, there, Veronika, thanks for the question. So on the pricing side I would put it at in the first half year, the price contribution was smaller than the unit volume contribution. Keep in mind the list prices came in 1st of July. So there’s a little bit of a mix element in there. But we would — and also keep in mind that larger contracts can’t be moved that quickly. I think in the second half you’re probably looking at a 50-50 or so hard to tell exactly, but going up and this is just because the price increases of Lumity and the July and then in the full period.
With regard to the branded, I would not plan with it for the remainder of the fiscal year. I think if you would move into a branded position of meaningful size, you would need to go through the negotiations and you would need to define the brand to use, you would need to define the value proposition and the price, which I think are process steps we would need to go through. We’re open for that, but certainly not right away because we need to think the branding side through the pricing and the value proposition.
Birgit Conix
Yeah. So, hi, Veronika. So, on the second half, this was the gross profit. So we expect an improvement in gross profit. So first element would be as just mentioned, so price will have a – will be a bigger bucket, obviously, because it’s the full second half to be taken into account. Then on the freight and components, there we do see an ease. We do see that in the past months that it is coming down. So there we believe, we will have an upside as well versus the first half.
And then, we also will see a lift from the consumer hearing business in the second half also because of the seasonality but – and also the development in sales that we see. And then we – due to kind of let’s say, a mix shift due to the – the uncertainty around the let’s say larger contracts that would also be a lift in gross profit. So you could expect like around, let’s say 200 to 300 basis points so – we then that we would increase.
Veronika Dubajova
Okay. That’s very helpful. Thank you.
Arnd Kaldowski
Yeah.
Birgit Conix
But it depends on of course, how we see freight and components and developing. Yeah, but that’s what we are aiming for also, including continuous improvement, and so we see other elements.
Operator
The next question comes from the line of Graham Doyle with UBS. Please go ahead.
Graham Doyle
Good afternoon, and thank for taking my questions. Just two for me. In terms of prices, you talked a lot about raising prices, rising ASP, particularly in the second half. I just sort of struggle to square that in the sense that we’re also looking at slowing volumes, right? And it just makes me slightly concerned that maybe are you potentially a risk here of having this trading down dynamic and you put all those price up on the higher priced products. But because your independent audiologists can’t pass that on they then are not really incentivized to sell them because they may make less money on them. So that’s just sort of question number one, how do you counteract that?
And then just question two, should be a quick one. Can you just confirm again you’re not expecting any of these – this US customer revenues in the second half of this year. So effectively for next year when we’re thinking about taking that customer out of your numbers it’s really just a 1.5 worth of it? Thank you.
Arnd Kaldowski
Graham, thank you. Yeah, it’s obviously you need to balance and you need to have the thing on the pulse and what you do from a pricing and a volume perspective. When we talk about price increases, we first talk about list price increases, and then we navigate from there. We still see a good ASP lift, we also watch carefully, if we’re winning or losing market share in markets, and we have seen a market share gain even in units coming out of the Lumity launch. So we’re carefully navigating it.
But, obviously, it also depends on what the competition is doing, because at the end of the day, there’s a few players and they have also at least shared list price increases coming into the second half of the year.
On the clarifying question, yes, our outlook here does not include revenues in the second half of that large US-based customer. So therefore from a year-over-year, it would be maximum a half year impact.
Graham Doyle
Okay. So just a super quick follow-up. In terms of the guidance for the second half, is it fair to say that you’re not assuming that the European region faces similar pressure to what we see in the US. You’re essentially assuming it’s going to be more resilient for the reasons you outlined earlier around reimbursement?
Arnd Kaldowski
I think what we’re assuming is that Europe is kind of a mixed picture as it was in the first half year. Keep in mind some markets and meaningful size markets like brands in the UK were in negative territory. Other ones were in slight positive territory. So we would have said similar as we’ve seen the Q2.
Graham Doyle
Perfect. Thank you very much for taking my questions, guys.
Arnd Kaldowski
You’re welcome.
Operator
The next question comes from the line of Urs Kunz with Research Partners. Please go ahead.
Urs Kunz
Yes. Hello, everybody. Maybe also confirming a question about the ASP. For example in hearing instruments this 5.2% organic growth rate you said part of it volume and part of it is price and a little bit more volume than price. So that means that in the end the total negative effect from the mix in country and channels is kind of over turned by your price increase by Lumity here bringing on the market?
And then the second question turns around return rates. Do you experience anything in increased return rates, or can you elaborate a little bit on how they evolved in the last 36 months?
Arnd Kaldowski
Thank you, Urs for the question. So you catch me at a good point when we talk price and units. My comment to the question, I think, was from Graham before from Veronika was more within a market. I did not factor in the geo mix. So if I factor in the geo mix the unit side is significantly higher because the slower market was the US, right?
But my comment was more if I think in country in the first half year we’ve seen contribution ASP in average, but a higher part on the unit side. I think the geo mix makes it more complex.
On the increased return rates I think we had a phase where we’ve seen somewhat increased return rates not in a dramatic way, but we have certain things which I think required some countermeasures in some simple things like variances in cables in charge manufacturing and things.
You were asking 24 months. I think if you look over product cycles which is 24 months the Paradise was significantly more reliable from the return rates like-for-like against the Marvel 40% less returns. And we now had a phase of a couple of months where against this low level we had a slight increase. We’re seeing this come down right now after the countermeasures are implemented. So I would put it at manufacturing variances more than anything else which we have countered, but against the significantly lower repaint return rate than what we’ve seen in the product one generation before.
Urs Kunz
Thanks. Maybe one additional question about here the consumer side and hearing instruments. This CHF133 million, would you share with us how much — how big the growth rate was on that?
Arnd Kaldowski
Yeah. So if you compare the business Sennheiser like-for-like with the product lines, you would be looking at a low single-digit growth for the period. Keep in mind, I said in the first quarter, we still had some supply issues from product or from components. Secondarily, I think the consumer device business is slower year-over-year than the hearing aids. So from there we deduct that we had market share gains with Sennheiser new products. But low single digit, while we still had some implied constraints in Q1.
Urs Kunz
Thanks.
Arnd Kaldowski
You’re welcome.
Operator
The next question comes from the line of David Adlington with JPMorgan. Please go ahead.
David Adlington
Hey guys, thanks for the question. Most have been asked already. Maybe just one point of double checking, just you said that the second half gross margin will be 200 to 300 basis points on the first half?
Second question is I know it’s very early days in the VA, but would you go to get any early feedback you’ve got into the market acceptance of Lumity there and also any potential headwinds from one of your competitors also launched?
And then third one just a slight different one. So I know that the renewal rate ranges about three to four years in the US historically in five to six years in Europe. I was just wondering if rechargeability and specifically the deterioration of the rechargeable batteries what if that changes any of those replacement rates at all? Thanks.
Birgit Conix
So David — so what extra clarification did you want on the gross margin [indiscernible]?
David Adlington
Yeah. I missed, the line dropped out, but I think you said 200 to 300 basis points improvement in the second half…?
Birgit Conix
Correct. But I say that on a low H1, because H1 was impacted by freight and component costs also didn’t have the full H2 on the price included. So if you take already these two components that is already a lift. And then the consumer hearing business will see the seasonality. So there you also have a lift of gross profit there on the back of a lower H1 profitability in our consumer hearing business.
And then I said in the event of the private label — larger private label contract then there that will also give a list. But remind you, David I’m seeing this based on the current assumptions that freight indeed continues to ease. So if there is a shift in one of these components, of course, that may change. But otherwise you should see such selection [ph] in the gross profit. That doesn’t mean it’s always, I mean the same in EBITDA. It’s not a complete fall to on all the components. But, yes, you should see a decent lift from H1 to H2.
Arnd Kaldowski
David on the VA Lumity too early to measure, because this is only 10 days or so since this is in the channel, but very positive reactions of the audiologists when we had an opportunity to demo the product in October, which is not a surprise because it’s a very audiology-centric channel. They don’t worry about price. And so at the end they’re really liking hearing performance improvements. Also keep in mind many of the veterans have higher hearing losses.
On the renewal rates, if I understood your question right, do we see changes in how long people hold on to their devices? I think in general I said earlier yes because some of them are pushing out the purchase. And it’s most relevant where you have only private pay or significant private space. So, the US is more vulnerable to that effect because you have many people with pure private pay. They also have renewed earlier as you said. So, that’s where we’re seeing more of the push out.
David Adlington
And maybe just a quick follow-up on that. I mean is there an expected time line in terms of when the — how far those people can push out those replacements?
Arnd Kaldowski
No. Unfortunately not. This is an effect we see since a couple of months. I think at the end it’s really more of a decision on how they think about the household economics most likely right? The moment they feel they’re not as much under pressure on the inflationary environment. Perhaps their stock accounts have improved. Eventually they come back a new product always helps. But it’s — we don’t have statistics on that.
David Adlington
Thank you.
Arnd Kaldowski
You’re welcome.
Operator
Next question comes from the line of Falko Friedrichs with Deutsche Bank. Please go ahead.
Falko Friedrichs
Thank you very much. I have two questions please. Firstly, Arnd can you share your latest thoughts on your level of visibility on — when it comes to generating sales? And how long is this visibility really in this environment at the moment?
And then secondly, can you share your expectations for this uptake in the OTC market in the US now, especially in this inflationary environment? Thank you.
Arnd Kaldowski
Hi Falko. So, visibility on the retail side until sales is relatively good. We have about a month of lead generation and first meetings with the consumer. And then depending on market one to two months until you can realize the revenue because people have rights to get the product back, right? So, that gives you two to three months’ visibility. We see the funnels generated. On wholesale, it’s a lot shorter term because we shipped when they ask for more. But on the audiological care, we can see market trends two to three months out until revenue realized.
On the OTC side, our perspective has not changed. I think it’s interesting to see we’re launching which product and which price point. If there’s one learning, the price points we see at least some meaningful manufacturers who have more technology available to them is rather on the higher side than what that call it a year ago.
I think there is a lot of incremental discussions on hearing aids. The positive is there’s a lot more marketing going into hearing aids. And so many of the people still ask an audiologist the downside right now while this is new to the market is it takes a little longer to convince people to by one with full service. So, I couldn’t tell you the net effect. But in general, yes, there’s more interest in hearing aids. And yes, the fitter has a little bit more work to bring the people over to a fully serviced model.
But no fundamental change in our eyes. I think long-term, if these devices work for people who haven’t come to the category before, that will be positive, because more people have done earlier, I think the ones who really need a hearing aid and want to have full services, you can’t mimic that with a self-fitting device.
Falko Friedrichs
Great. Thank you.
Arnd Kaldowski
You’re welcome.
Operator
The next question comes from the line of Daniel Jelovcan with Stifel. Please go ahead.
Daniel Jelovcan
Good afternoon, as well two from my side. The first one is your wholesale and retail disclosure was pretty similar with a bit north of 5%. Is it fair to say — I mean quite logical that the US was much less. And Europe even including France was much better. But is it fair to say that the US grew still positive for wholesale and retail or yes, the more like you can see the better it is. And then, of course, it implies your guidance when you talk about more moderate consumer confidence do you bake into that decline in European move, or you believe in an ongoing negative mode of the US and a good momentum in Europe?
Arnd Kaldowski
Thanks for your question, Daniel. It’s very different organically between US and Europe. Keep in mind the Alpaca acquisition, which we have shared to be about CHF 100 million for Audiological Care give or take annualized is purely US.
So if you back that out of the US number, take half of that a little bit less probably for the first half year, you would see that the US was significantly lower from a growth perspective in the HI segment. And that’s in line with also market data we have where the US, I said it earlier was a declining market in unit volume first half of the year, while Europe was a positive one.
For the go forward, it is dynamic but — we believe the US is probably a market, which will start to recover earlier while Europe is probably still in a difficult environment. So, relative to each other probably a slight improvement in the US and a slight decline in Europe would be relative to the first half year sentiment.
Daniel Jelovcan
Okay. Thanks. And the second question just on cochlear implants a small one. But this preliminary suspension of the injunction, I mean since when didn’t you sell in Germany, I mean what’s the impact that…
Arnd Kaldowski
Yes. The impact was a significant part of the first half year. I go of memory probably four months or so, was the whole first half year. Thomas is correcting me. We then, at the European patent office, have received a win relative to the validity of the patent and so we’re working through the German court system to get that into hopefully not just preliminary seizing of the injunction. But right now, it’s only preliminary the judge is still thinking about the matter.
Daniel Jelovcan
And that takes how long is…?
Arnd Kaldowski
It should be a matter of weeks until we agree that it’s completely lifted or he has a different perspective.
Daniel Jelovcan
Okay. Thanks Arnd.
Arnd Kaldowski
Thank you. The last question from — hold, we have question on the line here.
Operator
Yes, sir. The question [ph] line is open.
Unidentified Analyst
Thank you for taking my question. You experienced a significant investment in your working capital in the first half of the year, so partially, also attributable to your consumer hearing business. So what can we expect for the full year for Sonova. So is there a full reversal of the net working capital investments possible?
And then the second one would be on your leverage. So you’re already at the upper end of the targeted range. Net debt-to-EBITDA of 1.5% and now you’re guiding for a reduction for the full year. What would be the main driver for the reduction? Will it be a slower execution of the buyback or do you expect a significant improvement in cash flow beyond the levels normally seen in the second half of the year? Thank you.
Birgit Conix
Yes. So, thank you for your question. So on the — for the second half, what — so it will — net debt to EBITDA will naturally come down, because as you see the share buyback, given the low price, it is — the low share price, it was relatively accelerated, remind you, it’s a fully mandated program, so we do not influence. But given the lower share price, it has been accelerated in the first half.
And then, we had a dividend payment in the first half, which we do not have in the second half. And then, this Sennheiser working capital effect, thereby taking on the new business will disappear in the second half. So that’s the CHF 28 million that you will see now that will balance out.
And then we had some other larger components, like, for instance, our bonus payments typically are in the first half, not in the second half. So that will naturally [indiscernible]. Yes.
So then, that was the — that was on the — so then you had a question on the cash flow, but it’s actually related, when you think of it. Net working capital, so the negative that you see from then — as I said, will disappear. And then, yes, normally, I would expect an improvement here for the second half versus the first half. That’s what I can say about it.
Unidentified Analyst
Thank you.
Operator
There are no more questions at this time. Back to you Mr. Kaldowski for closing remarks.
Arnd Kaldowski
Yes. I think I did the closing remarks before that question. Thanks for the interest and the many questions. Thanks for going through with us while we’re unpacking the results. As I said, we’re looking at good market share gains first half year. We expect them in the second half year, minus this large customer contract, we feel in a good position with all the investments we’ve done in the business and the M&A will help us to build Sonova for the long run. With that, thanks for the attention. I wish and we wish a good rest of the afternoon to everyone.
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