AMP Limited

Good afternoon, this is the Coral School conference operator. Welcome and thank you for joining the Amplifon third quarter 2021 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Ms. Francesca Rambaudi, Investor Relations and Sustainability Senior Director of Amplifon. Please go ahead, madam.

Thank you. Good afternoon and welcome to Amplifon's conference call on Q3 and first nine-month 2021 results. Before we start, a few logistic comments. This morning, we issued a press release that related to our results, and this presentation is posted on our website in the investor section. The call can be accessed also via webcast, and dial-in details are on Amplifont's website as well as on our press release. I have to bring your attention to the disclaimer on slide two, as some of the statements made during this call may be considered forward-looking statements. Please also let me drive your attention to the fact that this year we are also reporting 2019 income statement data for greater comparability purposes, given the relevant impact of the pandemic on 2020. In addition, in light of companies' decision to seize the elite business, selected P&L data for both Q3 and 9 March 2021 as well as for comparative years, are also restated without a lead contribution. The following commentary is, therefore, primarily based on these figures. With that, I am now pleased to turn the call over to Antifontio Enrico Vita.

Thank you, Francesca, and good afternoon, everyone, and welcome to our quarterly conference call for the Q3 results. Today, I'm glad to comment with you on our excellent quarter results and on our progress on some of our key strategic initiatives. Regarding our results for the quarter, I can anticipate you that all the KPIs were very positive. In fact, in comparison with Q3 2019, despite a definitely more challenging comparison base, our revenues increased by over 21% at constant exchange rates. The organic component of the growth was also excellent at circa 14%. Although this growth was again very well balanced across all core markets, I cannot avoid highlighting our performance in North America, and in particular in the U.S., where our growth, led by Miracle Year, was exceptional. More than 60% of constant exchange rates versus 2019, and nearly twice than the growth of the market, only from a pure organic viewpoint. In my opinion, these results prove that our new strategy in the U.S. is working and our direction is right. On a global level, I believe that also during this quarter, our revenues have led us to significant market share gains in all major markets. An excellent quarter also in terms of profitability, as we continue to reap the benefits of all the work done on our cost base since the pandemic beginning. Increasing profitability of 180 basis points It's the net result of improved efficiencies and increased operating leverage and significant reinvestments in the business. The operating cash flow was also very strong at circa 220 million in the quarter, up more than 70% versus 2019, allowing us to achieve a very healthy net financial position at 617 million. Then, In addition to the financial results, I'm happy to give you some highlights about the most important ongoing initiatives. In Australia, we have already started to work on the integration of Bay. And what I can tell you is that I'm very happy about how our teams are working together, showing the right spirit of collaboration. In Spain, perfectly in line with our original plan, we are now launching the Amplifon product experience, and I expect strong results here like in all other markets before. Lastly, also the elite wind-down is progressing according to plan, and we expect to terminate the business by the year-end. With this, I now hand over to Gabriele to give you more colors about our financial performance.

Thanks, Enrico, and good afternoon to everybody. Moving to chart number four, we have a quick look at the group financial performance in Q3, which, as already commented by Enrico, posted outstanding results. I will comment the performance figures excluding ELITE, in light of the ongoing wind down. The comments will also refer primarily to the comparison versus 2019, period not impacted by the pandemic. In the quarter, revenues of constant forex increased by over 21% versus 2019, with an excellent organic growth at around 14%, despite the very challenging comparison basis, and by around 8% versus Q3 2020, period which benefited from the easing of the severe lockdown measures adopted in the second quarter of 2020. EBITDA recurring came in at 95.5 million, with a margin at 21.3%, up 180 basis points versus 2019, thanks to the strong revenue performance coupled with the structural efficiencies and the productivity enhancements derived by the decisive measures implemented for the pandemic. This strong EBITDA increase was achieved even after sizable investments in the business including marketing and several strategic initiatives ongoing. Figures we deleted were affected, as said, by the ongoing win-down process. Moving to slide number five, we have a look at our financial performance in the first nine months. Revenues at Constant Forex were up over 19% over 2019, with a well-above market organic growth at over 13%, M&A contribution at over 6%, and Forex impact at minus 1.8%. EBITDA recurring amounted to 326 million euros, up over 28% versus 2019. EBITDA margin ended up at 23.6%, up 190 basis points versus 2019. Moving to slide number six. We have a look at INEA's strong performance despite a very challenging comparable basis of both 2019 and 2020, both characterized by exceptional organic growth of more than 11%. In Q3, revenue growth at Tosan Forex was 14.5% versus 2019, with an organic growth at 11.3%. M&A contribution was at 3.2%. Excellent organic growth was reported in France, also driven by the recent regulatory change, Italy and Spain. EBITDA amounted to 79 million euros, up 36% versus Q3-19, with margin at 25.5%, up 400 basis points versus Q3-19, thanks to improved efficiency and productivity, as well as to the outstanding performance of Spain and the scale reach in core countries. In the nine months, revenue growth versus 19 at Constant Forex was... 12%, with a strong organic growth at over 9%. EBITDA amounted to around 275 million euros, up around 34% versus 9 months 19, with margin at 27.9%, up 450 basis points. Moving to slide number seven. we have a look at the Q3 really impressive performance of Americas. Revenue growth was 61% at constant Forex versus Q3 2019, with a stellar organic performance at over 38%. Thanks to an excellent and over two times market performance in the U.S.-driven markets, in the U.S. driven by the outstanding growth of Miracle Year. Very strong performance was also reported both in Canada and LACAM. M&A contribution was around 23% versus Q3 2019, primarily reflecting their recent PJC E-Ring acquisitions. Total forex effect was negative for over 15% due to the euro appreciation versus US dollar and LATAM currencies. EBITDA amounted to 20 million euros with margin at 25.2%, up 150 basis points versus Q319. As indicated in the table below, Figures including Elite were significantly affected by the ongoing wind-down process. Moving to slide number eight, we have a look at the American performance in the first nine months. Revenues were up 63% at constant forex, driven by an excellent organic growth of around 42%. EBITDA amounted to 58 million euros with margin at 25.9%, up 170 basis points versus nine months, 19. Moving to slide number nine, we have a look at AsiaPAC, which reported a solid revenue performance despite local lockdowns in the period in both Australia and New Zealand, and despite the extremely challenging comparison phases for the third quarter of both 19 and 20. In Q3, revenues were up at 75%. 17.4% at constant Forex versus 2019, driven by an organic growth of around 4%. M&A contribution related to Attune and China accounted for around 14% versus 2019. Forex was positive by 1%. Australia posted a solid performance despite the restrictive measures in place in the different areas of the country during Q3, while New Zealand reported a negative performance due to the lockdowns which resulted in the mandatory closure of our stores throughout the country for around six weeks. China reported an excellent performance thanks to an outstanding organic growth and to the contribution of the recent sound bridge technology. EBITDA amounted to around 15.7 million with margin at 27%, reducing versus Q3 2019 due to the lower offline growth caused by the lockdowns in New Zealand and Australia, and to the strong investment in marketing, primarily in Australia. In the first nine months of 2021, revenues were up 21% at constant forex, driven by a very strong organic growth of 11%. EBITDA amounted to around 49 million euros, with margin at 28.8%, contracting versus 2019, reflecting the continued strong investment in marketing in Australia. Moving to slide number 10. we appreciated the Q3 and nine months perform a profit and loss evolution, excluding elite. In the quarter, total revenues increased by 19.2% to 448 million, with an excellent 13.8% organic growth versus 2019. The structural efficiencies and the productivity enhanced 13.8% organic growth versus 2019. The structural efficiencies and productivity enhancements derived by the measures implemented last year led the EBITDA recurring margin at 21.3% with an improvement of 180 basis points versus Q3 2019. Recurring EBITDA increased by 30%, around 22 million euros, to 96 million. Reported figures include around 1.2 million euro cost, primarily related to the GEIS integration and the project for the redefinition of Ampliform SPA corporate structure. Following the strong investment plan during the past quarters, DNA increased by around 6 million, leading the recurring EBIT to around 43 million, with a growth of over 60%, or 16 million versus Q3 2019. In the nine months, total revenues increased by 17.6%, to 1.38 billion, with an excellent 13.3 organic growth versus 2019. The EBITDA recurring margin came in at 23.6%, with an improvement of 190 basis points versus 2019. Recurring EBITDA increased by 28%, around 71 million to 326 million euros. Reported figures include around 5.5 million euro one-off costs. DNA increased by around 21 million, leading to the recurring EBIT of around 167 million, with a growth of around 43% or €50 million versus Q3 2019. Moving to slide 11, we appreciate the Q3 profit and loss evolution, including the elite performance. On this chart, I will comment only the below EBIT performance, having already commented the group operating performance in the previous chart. That financial expenses accounted to 6.3 million, leading to a recurring EBIT of 35 million euros from around 22 million in 2019, hosting a 57% increase, or 13 million euros. ended at 27.3%, leading recurring net profit at over 25 million euros, with a 57% increase versus 2019. Moving to slide number 12, we appreciate the nine-month profit and loss evolution, including elite performance. As for the previous chart, I will comment only the below-edit figures. having already commented a nine-month group operating performance in chart 10. Net financial expenses accounted for around €20 million in line with 2019, leading to a recurring TBT of €147 million from around €105 million in Q3 2019, posting a 40% increase or 42%, 42 million, sorry. Tax rate ended at 27.9%, leading recurring net profit at over 106 million euros with a 40% increase or 30 million euros versus 19. Moving to the following chart, number 13, we appreciated the cash flow evolution. Operating cash flow after lease liabilities was in the period equal to around 219 million euros, posting an improvement of 64 million or 41% versus nine months 2020. The comparison versus nine months 2019 shows an outstanding improvement of over 100 million, leading to an increase of over 70% versus 19%, reflecting the measures implemented during the pandemic to mitigate COVID impact. Net capex increased by around 30 million euros to around 58 million euros, leading free cash flow at €160 million versus €127 million last year, costing a growth of €34 million or 27%. Versus nine months 19, the improvement of free cash flow is over €90 million, over 130%. Net cash out for M&A was 63 million, driven by Bolton acquisition in EMEA, China, and U.S., versus 42 million in 20 and 53 million in 19. The sum of the share-by-back program and the dividend distribution amounted to 78 million, leading net cash flow for the period to around 19 million euros, versus 77 million in 2020 and a 15 million cash absorption in 2019. NFP ended at 617 million euros with an improvement of around 96 million and 240 million euros versus September 20 and September 19 respectively. Moving to slide 14, we have a look at the debt profile trend and the key financial ratios. As mentioned in the previous chart, the net financial debt closed at 617 million euros with liquidity accounting for positive 522 million. Shorter debt for around 168 million euros. and medium long-term debt accounting for around 970 million. This confers the very strong financial profile of the group, with around 850 million euro pre-bay and 500 million euro after-bay cash-out financial headroom, including the Androna revolving credit facilities, and following the continuous NFP improvement. Following the IFRS 16 application, lease liabilities amounted to 430 million euros, leading the sum of the net financial debt and lease liabilities to 1.05 billion euros. Equity ended up at 838 million euros, with an increase of around 36 million versus December last year. Looking at financial ratios, net debt over EBITDA ended at 1.25, with a further reduction versus December 2020 by around 40 basis points. Net debt over equity ended at 0.74, costing a reduction versus 0.80 at the end of 2012. The inclusion of the price that Amplifon paid on the 1st of October for the Bayaudi acquisition could lead the pro forma leverage at around 1.85, well below 2.0 proving our financial flexibility. And now I hold hand over to Enrico for 2021 outlook.

Thank you, Gabriele. So some key messages to conclude the presentation of today. We are obviously very, very pleased about our overall results for the quarter. We are also very pleased about the progress that we are making on our key strategic initiatives. In particular, the acquisition of Bay Audio will allow us to reach a clear leadership also in this core market and create another company stronghold. In this last quarter, we expect Bay to contribute with additional 15 million euros to our 2021 top line guidance of 1.93 billion euro. So to be clear, we now expect revenues in the region of 1,945,000,000 euros. Finally, I can anticipate you that also October will be strong. which is another element that makes us very confident about our targets for the year-end. With this, I leave back the floor to Francesca for the Q&A.

Thanks, Enrico. I kindly ask operators to open today's Q&A session. Please kindly limit your questions to two initially in order to give everybody the opportunity to ask questions. Now I turn the call over to Judith in order to open for Q&A. Thanks.

Excuse me. This is the Coral School Conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 under touchtone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Veronica Dubajova with Goldman Sachs. Please go ahead.

Hi, good afternoon, and thank you for taking my questions. I will keep it to two, please, to start with. The first one was, Rico, I was kind of hoping you could give us a little bit of insight into when you look at September and maybe to the extent that you see, you know, the numbers for October, how did the growth rates differ versus what you reported in Q3 on aggregate? So if you can give us some sense for the growth rates as the quarter ended and how different they were region by region, that would be helpful. And in particular, the two markets I'm most curious about is the U.S. and France, which obviously have seen somewhat of an outsized growth. both in Q2 and Q3, and I'm just trying to understand if you're seeing any normalization in there. So apologies, a broad question, but I think we'd all appreciate the commentary there. And the second question is just if you have any thoughts, kind of initial reaction to the OTC regs that came out last week. I appreciate you might be commenting together with the industry or alone, but just would love to get your thoughts on what was maybe unexpected from and a positive or negative surprise versus what you might have been hoping for. Thank you.

Thank you. Thank you, Veronica, for your questions. So with regards to the first question and the current trading October, France and the U.S. So October, as I mentioned during the presentation, is going to be strong. We are very happy about... the performance in this first part of the quarter so far. So I envisage another strong quarter also for Q4. And as I said also during the presentation, this kind of performance that we see for October makes us even more confident about our our targets for the year-end. With regard to specifically some key markets, yeah, for sure, I mean, we see still strong growth both in France and the U.S., maybe a bit lower than in the previous quarters, but not that much. On the other side, we expect in this last quarter of the year, of course, a much better performance in the APAC region, where the effects of the lockdowns, in particular in New Zealand and Australia, was quite significant in Q3. and we see the situation normalizing. So I would expect maybe a lower growth in France and the U.S., but higher growth in the APAC region. With regards to first reaction to the draft proposed rule regarding OTC, let me first remember that You know, our position that has not changed because of this draft regulation. You know, giving loss is a very complex medical pathology, and the purchase process is driven by the consumer and the consumer journey and not by technology. This is just to say that technical specifications are needed and relevant to guarantee safety and effectiveness to all consumers. But, you know, I say that OTC success is not related in our opinion to those aspects and is yet to be proven. With regard to the different provisions, I would say that on the positive note, There is the proposal regarding the so-called prescription hearing aid, which fully adopted the kind of suggestion in the consensus paper issued some months ago. And this approach recognized the important role of the licensed hearing care professionals helping consumers in their journey towards hearing aids. On the other side, I have to tell you that we were surprised the limit that was in terms of output that was, that is in the draft regulation of 115 decibel, which in our opinion, more than related, let's say the issue is more than related to the limit itself, is related to the fact that the potential potentially this limit can be dangerous and harmful for consumers. So I hope that this point will be revised during the consultation process and for the final regulation.

Enrico, what would be a limit that you would think would be appropriate?

Well, I still think that the consensus paper that was issued a few months ago was the proper one, which is about 110 decibels, coupled with a gain of 25 decibels, which is, in our opinion, fully responding to also the intention of of the LTC regulation to serve the mild to moderate hearing loss sufferers. And this is more important actually safeguarding the health of the hearing of the patients.

And can I just ask, and then I'll hop back into the queue, but is your issue with the 115 or with the gain number or both?

Well, the most dangerous one is the output, for sure.

Excellent. Thank you so much.

Thank you. Thank you, Veronica.

The next question is from Aisha Noor with Morgan Stanley. Please go ahead.

Good afternoon, and thank you for taking my questions. I also have two, please. The first one is on the EMEA growth, which you posted flat organic growth in the quarter. Appreciate the tough comps here, but you mentioned the positive development in France and Italy and Spain. So could you call out the moving parts here in which regions were weaker and perhaps your expectations for the EMEA region in Q4 as well? And then the second question is on Bay Audio, given it's now closed. Can we expect some of those cost synergies to come into play in Q4 already, and what sort of EBITDA contribution do you expect to steal in Q4?

Thank you. Thank you, thank you, thank you for the question. So, with regards to the first one, and therefore EMEA, yes, in Q3 we mentioned a strong performance in France, Italy, and Spain. In Q3, Germany was, let's say, below the normal growth rate. I have to say that you may recall that during the pandemic, so during the last year, Germany was one of the countries in the markets performing better than the others, while in Q3 we have seen Germany slower than usual. With regards to the second question, and therefore to the integration of pay, We are consolidating base starting from the 1st of October. As I mentioned during my presentation, I think that we have started to work together. The two teams have started to work together very well with the right approach, with the right attitude. We expect to gain synergies quite soon. Not necessarily, of course, in this quarter also. because some of them will be also related to the negotiation of some of the agreements, in particular on the indirect purchases. And therefore, I would say that the majority of the synergies will be at the end of this year, beginning of next year.

Yeah, in terms of EBITDA margin, so we do not expect any significant discontinuity compared to the pre-acquisition for the Q4. So EBITDA margin should be in the range of 30%, 31% as it was in the past.

Absolutely.

Great, thank you.

The next question is from Nicola Storer with Kepler Chevrolet. Please go ahead.

Good afternoon. Thanks for taking my questions too. The first one on profitability, if you can comment a bit on the big differences that we can appreciate by region, both compared to 2019 with Europe strongly up and APAC down, and also compared to... With Europe still up, while the U.S., which is probably the region which benefited least from support in terms of cost-cutting state aid for COVID down year on year. The second question is on M&As. You mentioned some both done acquisitions in the U.S. as well, other than BJC, of course. So if you can give us a little bit of color on these acquisitions in the U.S. Thanks.

Absolutely. So I would ask Gabriele maybe to answer to the first one. Yes.

So, okay, in terms of profitability, Nicola, we wanted to focus the presentation and explanation of the results mostly versus 19, because Q3 2020 was quite a peculiar quarter. So, in each single region, we had some positive effect coming from some specifics For example, in Australia, it was due to the contribution, the very high performance was due to the contribution of social tools, also partially linked and approved in Q3, but related to the previous period. Similarly, in the U.S., plus we had some positive coming from the rent renegotiation. So, really, the percentages for... Q3 2020 are not, I believe, so meaningful, especially if you go to Asia Pacific, for example, where the profitability was at 40%. So comparing the trend versus 2019 for the three regions, as we were commenting, EMEA was particularly positive, around 400 basis points more. And, of course, the three most important items were, on the one hand, the implementation of the measures that we identified last year. So productivity in general, productivity of labor, productivity of external factors such as purchasing, especially on the indirect side, but also on the direct side. So this is something that we saw as a discontinuity during the last quarters, and I believe that this is a jump up, which we will see starting from 2021 on. So this is the new basis for the cost. The second very important item, which Enrico was mentioning, was the successful implementation of GEIS integration. So GEIS integration is going very, very well. Compared to 2019, we have many items today in place, such as the restructuring. For example, as you remember, in Q3-Q4-19, we made the restructuring in Spain. So the cost base in terms of human resources was still high. Today, we are much, much more efficient. Probably, we still can be more productive moving forward, but the comparison is very strong versus 19. And the third item is the scale reaching core council. So, in here, if you add up the two years of growth, has been increasing significantly the revenue basis in the quarter around... 14.6% out of which 11.3% is the organic portion. And so together with organic growth, of course, you can be much more productive and much more efficient. And so the bidda margin can be much, much better. Similarly, U.S., I would say, in the sense that the differential is not as high as EMEA, But 150 points is basically driven by the two effects that we were recommending before. So scale and productivity measures, because also in U.S., we implemented a very important plan for improving the productivity. So for U.S., I would say that these are the two most important elements. And finally, for AsiaPath, the trend is a bit different, but this is driven by the two facts that we commented during the presentation. So first of all, in Australia, we started implementing a very strong marketing campaign in order to reinforce our positioning on the private market. And so the investments on the brand start in 2020 are very, very important. So this is a very important item which we will see also in the next quarters because we believe that the private market is a very good opportunity for the group. The second item which is more linked to the quarter is the fact that we have been growing. and organic has been 3.7% versus 2019, but, of course, much less than what was expected, because at the end, during Q3, we had six weeks of full closure in New Zealand. We had several weeks of closure in Victoria State, so this is not... This, I mean, should be considered when analyzing the total volume and the total revenue of the quarters.

Thank you. Thank you, Gabriele. So with regards to the second question, and therefore the M&A in the U.S., yes, we have acquired two smaller franchisees in July, one in Alabama and the other one in California. So the contribution that you have seen is related to those two franchises.

Thank you, thank you, Gabriel, and thank you, Enrico. Thank you, thank you.

The next question is from Domenico Ghilotti with Equita. Please go ahead.

Good afternoon. Two questions. The first one is on the Bay Audio. So if I remember well, you were, say, planning something like 100 million, so you reached 100 million Australian dollar sales in the last year. And it was progressing 30%, if I remember well, when you announced the acquisition. So I'm a bit surprised to see just 15 million contributions from Q4. And the second question is a follow-up on the M&A strategy in the U.S., Can you elaborate a little bit more? So who is managing, for example, the last two acquisitions? So are you giving the responsibility for the integration to the PJC manager? So how are you dealing with this strategy, and should we see an acceleration or a continuation of this strategy going forward?

Thank you. Thank you, Domenico, for the question. So with regard to the first question, and therefore Bay Audio, there we put circa 15 million euros and might be more than that. We wanted to be quite cautious in giving you a number because of the current situation still in place in Australia. I definitely expect the situation improving in particular in Australia in November and December but still in October we had some lockdowns so this kind of guidance is taking into consideration the current situation which is not solved completely and therefore some uncertainty still persists unfortunately in that market but nothing really nothing to be worried about in terms of impact of the pandemic in the future, because we see that the vaccination rates are improving significantly, also in Australia and New Zealand, and also Bay Audio. As I said during the presentation, we are very happy about how they're performing. So 15, it's quite, let me say, a conservative guidance, which in order to take into consideration the fact that still, as I said, we had some lockdowns throughout all Q3 and also in some weeks of October. But really nothing to be concerned and nothing to worry about. With regards to the second question and the four M&A strategies in the U.S., definitely you know very well as we... during our Capital Market Day, the U.S. is a key area of focus for us, and definitely if there will be the opportunity, we will continue in our strategy to get direct access to consumers. We have acquired these two small franchises during the month of July. I would say that in terms of who is managing, from a negotiation point of view, the large acquisitions like PJC are managed from our M&A team here in corporate, while when we have... to deal with similar smaller franchises like the ones that I mentioned just before, then the negotiation is managed locally, so from the U.S. In terms of integration, we have a team in the U.S. which is in charge of the integration of both large and small acquisitions.

Just a follow-up, do you expect, so there is really, I'm not saying that similar performance as we saw in PJC, but do you expect really significant upside once converted into DOS?

Absolutely, absolutely. This is the kind of experience that we had with PJC, which... now is performing really in a very outstanding manner. And we expect the same kind. If you want, in a percentage point of view, we expect even a better performance in these small franchises because they are more family companies, while PJC was a more structured company. franchisees, so the potential upside could be even higher in these small targets. Thank you. Thank you.

The next question is from Oliver Metzger with Odo. Please go ahead.

Good afternoon. Thanks for taking my questions. The first is about the French market. At Veronica's question, you already made a bullish comment for the last quarter. So if we go back a little bit, the initial expectations for France was just a strong start in 2021. Now this positive trend has become more sustainable. So what do you expect for next year? Do you think or do you share some expectations that the current level might represent the new baseline for the country? That's number one. Number two is a financial one. Could you comment on your captured expenditures? So you're basically at the same level as 2019, despite some more executed acquisitions suggest that you have to invest more funds into the acquired stores. So is there any reason why this level is still so low?

Thank you. Thank you for the question. So with regards to the first one, I will answer. And with regards to our expectations from the French market, yes, we share the view that you mentioned. So we expect the French market, I mean, we expect the kind of volume of this year to be the new base for the French market. and we expect the French market next year to come back to the usual growth rate of 4%, 5%, like in the past, but starting from a much higher base. With regards to the second question, Gabriele, maybe? Yeah, yeah, yeah, absolutely.

No, no, regarding CapEx, Oliver, I confirm you that we are accelerating. So, of course, I mean seasonality of the different kind of CapEx may play some role on it. But if I look at the end of 2021, the expectation for the total CapEx is above the expectation for 2019. In 2019, we spent around $100 million, and the expectations are more in the range of $110 million, $115 million for 2021.

Okay, great. Thank you very much. Thank you.

The next question is from Kate Kalavnikola with Citi. Please go ahead.

Hello, Erika, Gabriel. This is Kate Kalashnikova from CETI. My first question is on impact from wages inflation and supply chain challenges. As you think about next year, what impact on margins do you expect from wages inflation? And do you expect higher manufacturer prices given supply chain challenges that manufacturers are experiencing today? this year and into the next year. And my second question is on marketing costs. Could you comment by how much marketing costs increased compared to 3Q19? In other words, I want to understand what would the margin expansion have been if we excluded the increase in marketing costs? Thank you.

Thank you. Thank you for the two questions. So with regards to the first one, let me first of all share that in terms of supply chain, today we have not experienced any problem with any of the different manufacturers. You know that we source hearing aids from five manufacturers, so we have quite a spread of of supply amongst the five of them. And to be honest with you, none of them has created as any significant problem in terms of supply chain. On the broader part of the question related to inflation, if I'm correct, on the different cost inputs for next year. We do not see any material impact. Actually, I think that we have still room for, for example, improved efficiencies of our purchases on the indirect cost in particular, where we have started to work just from a couple of years in a very structured way. So I don't think that inflation will be an area of concern for next year. There are some local and very specific situations. I would mention maybe given the fact that the borders are closed in Australia, We see some inflation on labor costs, but we expect this to normalize as soon as the borders will be reopened and the impact is not that meaningful on the total growth. With regards to our marketing costs, in comparison with 2019, we are investing definitely more more than 2019. And I would say, in particular, in Q3, we have invested even more. I would say something like in the region, 30-35% more in 2019. And we expect, actually, our marketing investments to continue to grow, but in line to... to our usual growth rate and in line with the revenue growth.

So Enrico, as you think about Q4, is it reasonable to expect a similar increase versus 19 or more normalized increase?

To be honest with you, I don't have the number in my mind, but I would expect something more normalized.

Understood. Thank you.

Thank you.

The next question is from Julien Werdour with XAINB and Peterba. Please go ahead.

Thank you very much and good afternoon, everyone. So my first question is on China. So you mentioned some acquisition in China this quarter and I think your first ampli from store in Shanghai. So can you just give us more color about it and how many stores maybe do you have currently in the country? Also, it would be probably interesting if you could draw a sort of roadmap, I would say, for the Chinese journey for the coming year. So do you expect to grow the business at, I would say, around 50% annually in the next couple of years, given you're coming from a low base? And if you also could split growth between Organic Greenfield and M&A Javis, it would be super helpful. So that's my first question. On the second one, it's more in the U.S., so you are doing extremely well. Two quarters in a row, you grow more than twice faster than the market. Should you believe that this is because, I would say, management is now fully focused on the two growing businesses, so Miracle here and Managed Care, or is it maybe something else that – that I didn't point out. And just going forward, how do you see the U.S. growth, including the fact that you are accelerating in M&A and new digital lead generation, and also in managed PR you are expanding to new segments. Thank you very much.

Thank you. Thank you for your questions. So with regards to the first question in particular, With regard to China, so as you know, we have completed the last few months, we have completed our second JD. Today, the number of stores that we have is in the region of 100, 110 stores in China. And in terms of revenues on a full year basis, we are talking about 15 million euro in terms of revenue. The two JVs are performing in a very, I would say, extraordinary way because our revenues, despite, of course... starting from a quite low base are growing very, very rapidly, which makes us confident that definitely we can go on and accelerate on our plan of expansion in China. Yeah, we mentioned about our first new opening in Shanghai. I think that since the beginning, we say that our strategy in China would be a strategy of a mix of components in terms of growth, so acquisitions, organic growth, and also greenfield growth, and in particular, openings. So we have opened our first store in Shanghai, just opened. We have also established a new headquarter in Shanghai for the region. And looking ahead, definitely our intention is to continue to expand in this market. Of course, the kind of speed that we will have have in terms of expansion, it will depend also on an opportunistic way from availability of targets. As you know, in China, there are not many big targets, and therefore we are looking also to many different potential targets of smaller dimensions. With regards to the U.S., I think that our performance, definitely there is an element which is related to the fact that now our whole organization is focused on the two businesses which are more close to what we know we can do well, in particular retail and managed care. And also I would mention the fact that during the last year or so, we have definitely strengthened our organization in the U.S. Today I think that we have a much stronger management team than just 24 months ago. So I think that we are starting to see results coming also from the fact that we have built in the last couple of years a much, much stronger management team. And therefore, I expect positive, very positive results from the U.S. also in the coming quarters and next year.

Thank you. Thank you very much.

Thank you.

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Thank you. Thank you. See you soon. Bye.

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