AMP Limited

Good afternoon. This is the Chorus Call Conference Operator. Welcome and thank you for joining the Amplifon First Half 2022 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 Arambaudi, Investor Relations and Sustainability Senior Director. Please go ahead, madam.

Thank you. Good afternoon and welcome to Amplifon's conference call on second quarter and H1 2022 results. Before we start, a few logistic comments. Earlier today, we issued a press release 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 Ancuson's website as well, together with the purchase leads. 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. With that, I am now pleased to turn the call over to our CEO, Enrico Vita.

Thank you, Francesca. Good afternoon, everyone, and thank you for joining us. Today, I'm happy to comment with you on our Q2 results, which were characterized above all by an exceptionally high comparison base. In fact, I'm sure you recall that the Q2 2021 was by far the strongest quarter of last year, and actually, in terms of growth, the strongest in our company history. In fact, the second quarter of last year was characterized by the lift of the restrictive measures taken in response to the pandemic in most of the markets, and consequently, an exceptionally strong market growth due to a rapid release of the pent-up demand from previous months. Q2 2021 was also characterized by the impressive growth of the French market, nowadays the second largest market in the world, as a consequence of the entry into effect of the very well-known regulatory reform. The French market in the second quarter of last year grew by more than 60%. That's why I see our growth in the quarter as a very positive result. Despite an incredibly challenging comparison base, our revenues increased by a single digit at current Forex and plus 5% at constant exchange rates. The organic component of the growth was also positive at plus 0.5%. In this context, I cannot avoid highlighting our performance in the Americas and in particular in the U.S. where our growth led by Miracle Year was again excellent, more than 20% at current Forex and more than 10% at constant exchange rates, well above the growth of the market, only from a pure organic viewpoint. In my opinion, these results prove once again that our strategy in the U.S. continues to work very well. On a global level, we estimated that also during this quarter, our revenues have led us to a significant market share gain in all core markets. Finally, definitely an excellent quarter in terms of profitability. The increase in profitability of 40 basis points is, without a doubt, remarkable in consideration of the last year's exceptionally high comparison base, also in terms of EBITDA margin. and is once again proof of our ability to effectively manage our costs while significantly reinvesting in the business. I now hand over to Gabriele to give you more colors about our financial performance.

Thanks, Enrico, and good afternoon to everybody. Moving to slide number four, we have a quick look at the group financial performance in Q2. which, as already commented by Enrico, posted a good set of results, given the exceptionally high comparison base. In the quarter, revenues increased by 7.6% versus Q2 2021, despite the well-known remarkable comparison base the anticipated market contraction in France for the anniversary of the regulatory reform, the temporary COVID impact and related restrictive measure across Asia-Pac markets, and one trading day less, which, as you know, accounts for around 1.5% growth. The organic growth at 0.5% was above market and allowed Amplifon to gain market share. The M&A contribution, primarily for Bay Audio consolidation, was 4.5%. The Forex was positive for 2.6%, primarily for US dollar appreciation. EBITDA recurring came in at around 147 million euros, with margin at 27.2%, up 40 basis points versus 2021, thanks to the structural efficiencies and the productivity enhancements, even after sizable investment in the business. Moving to slide number five, we have a look at our financial performance in H1. Revenues were up over 11% versus 2021 with an above market organic growth at 4.3%. M&A contribution at 4.8% and Forex impact at positive 2.2%. EBITDA recurring amounted to 260 million euros up around 13% versus H1-21, with margin at 25.1%, up 30 basis points. Moving to slide six, we have a look at EMEA performance. Revenues at Constant Forex slightly grew versus 2021. Organic performance was flattish despite A very strong comparison basis with Q2 2021 up over 12% versus Q2 2019. The anticipated contraction of the French market accounting for around 25% of the European market, which we estimate was down in the quarter around 10% versus the same period of 2021. And finally, one trading day less versus last year. EBITDA amounted to over 116 million euros with margin at 31.9%, often a strong growth of 90 basis points to 221, thanks to the improved efficiencies. Revenue growth was 4.6%, with a 3.5% organic growth. EBITDA amounted to circa 210 million euros, up 7.5% versus 21, with a margin of 29.8%, posting a strong growth of 80 basis points versus H1 last year. Moving to slide number seven, we have a look at another excellent performance of Americas. Revenue growth was over 21% at current Forex and over 10% at constant Forex, with an outstanding organic growth at 7.5%. Despite the exceptional Comparison base of over 55% growth reported in Q2 21 versus 19 pre-pandemic level. Excellent and well above market organic growth was posted in the U.S., driven by Miracle Year and further boosted by its direct retail business. M&A contribution, primarily related to U.S. and Canada, was 2.6%. Forex effect was positive for over 11% due to the strong U.S. dollar appreciation versus Europe. EBITDA amounted to circa 28 million euros. costing a growth of 25.5% versus 221, with margin at 28.8%, up 100 basis points. In H1, revenues were up 25% at current forex and around 16% at constant forex, driven by an excellent organic growth of around 13%. EBITDA amounted to 48.6 million euros, posting a growth of 28% versus 21 with a margin of 26.9% up 70 basis points. Moving to slide 8. We have a look at Asia-packed performance fostered by Bay Audio consolidation, though impacted by a still soft market environment for COVID. Revenues were up 32% at Constant Forex and 27.5% at Constant Forex, mainly driven by the significant M&A contribution primarily related to Bay Audio. Organic performance was negative for 3.4% due to still high COVID contagions and related restrictive measures in Australia, New Zealand, and China, affecting still today consumers and our personnel. Fibida reached 20.5 million euros, an increase of 15.5%, with market 25.7% contracting versus Q2 last year due to the continued significant investment in market in Australia and to the lower operating leverage and some labor cost inflation. In H1, revenues were up around 34% at current forex and 30.5% at constant forex. EBITDA came in at around 40 million euros with margin at 26.3%, contracting versus H121 for the reasons commented before. Moving to slide number nine, we appreciate the Q2 profit and loss. In the quarter, total revenues increased by 7.6% to 541 million euros. EBITDA recurring margin came in at 27.2% with an improvement of 40 basis points versus Q2 21. Recurring EBITDA increased by 9.2% to over 147 million euros. Reported figures include the 2 million euro one-off costs, primarily related to integration costs for Bayesian guys. DNA, including PPA, increased by over 6 million, leading the recurring EBITDA to 87 million euros, with a growth of 7.5% or 6 million versus Q2 21. While the net interest expenses increased only by 0.7 million euros, reflecting the increased net debt for the Bay Audio acquisition, the overall cost category indicated in this slide, which also includes Forex differences and other cost items, increased by 2.1 million euros, primarily due to the fact that Q2 21 benefited from a gain on the sale of our small Irish subsidiary and for the negative effect of inflation accounting of our Argentine subsidiary. Profit before tax came in at 78 million euros, 4 million higher than last year. Tax rate slightly decreasing versus Q221 led to a recurring net profit of 57 million euro, posting over 5% increase versus last year. Moving to slide number 10, we see the H1 profit and loss evolution. Total revenues increased by 11.3% 1,037,000,000 euros. Recurring EBITDA increased by 12.7% to 260,000,000 euros with margin up to 25.1%. Reported figure include around 5,000,000 euro one-off costs. DNA, including PPA, increased by around 11 million, leading the recurring EBIT to around 142 million, with a growth of around 15% or 18 million versus H121. Net financial expenses accounted for over 17 million, leading profit before taxes to around 125 million euros, from around 110 million euros last year, costing, therefore, a 14% increase versus 21. Tax rates ended at 27.9%, leading net profits at certain 90 million euros, with an increase of 14.4% or 11 million versus last year. Moving to slide number 10, we appreciate the cash flow evolution. Operating cash flow after lease liability was in the period equal to 155.6 million euros, posting a slight improvement versus the exceptionally high figure of 155.4 million of 2021. which was around 56% higher than the around 100 million pre-pandemic figure achieved in 2019. Next topics increased by 11 million to 48 million euros, leading free cash flow to around 108 million euros, slightly lower than last year. highly comparative figure, which was around 105% higher than the around 58 million euro pre-pandemic figure achieved in H1 2019. Net cash out for M&A was around 31 million, driven by Bolton acquisitions primarily in France, Germany, and China. Following the strong buyback of 1.2 million shares or 43 million euros cash out in the period and the dividend distribution for 58 million euros, net cash flow for the period ended negative for 24 million euros versus positive 13 last year. NFP ended at 895 million euros. slightly increasing versus year end 21 after around 180 million euro investment in CAPEX, M&A, buyback, and dividends. Moving to the following chart, we have a look at the debt profile trend and the key financial ratios. As mentioned, the net financial debt closed at 895 million. with liquidity accounting for 212 million, short-term debt accounting for around 158 million, and medium long-term debt accounting for 950 million euros. This confirms the very strong financial profile of the group, with a financial headroom of over 450 million euros, including the undrawn revolving credit facilities. Following the IFRS 16 application, lease liability amounted to 475 million euros, leading the sum of the net financial debt and lease liability to 1.37 billion euros. Equity ended up at around 979 million euros, with an increase of over 50 million versus December last year. Looking at financial ratios, Net debt for EBITDA ended at 1.67 times, improving versus December last year, and net debt of equity ended at 0.91 versus 0.94 at the end of 2021. I would now hand over to Enrico for the outlook and the closing remarks.

Thank you, Gabriele. So some key messages to conclude today's presentation. Without any doubt, today's external environment is more volatile and uncertain than just a few months ago. In this context, taking also into account the exceptionally high comparison base of Q2, our performance in H1 was strong, above market, and in line with our plans. Looking ahead, the comparison base will remain high in Q3 and then will ease in Q4, which in terms of seasonality is by far the biggest quarter of the year. Then we also expect the French market to develop in line with our assumptions of about minus 5 to minus 10% versus 2021. And finally, we also expect to continue to grow faster than the market. All in all, in an external scenario that remains very volatile and uncertain, assuming, of course, no further significant deterioration due to the well-known issues related to the pandemic, inflation, and the current geopolitical situation, we can today confirm our guidance for the year. Let me conclude by saying that, in any case, I firmly believe that Amplifon is today, and more than ever, best positioned to turn any possible scenario again into an opportunity to strengthen and harden our global leadership as we did during the pandemic. With this, I leave the floor back to Francesca for the Q&A time.

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

Thank you madam. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch tone telephone. To remove your question, please press star and two. Please pick up the receiver when asking questions. The first question comes from Nicolo Storer of Kepler.

Hello, can you hear me? Yeah. Ciao, Nicolo. Ciao, ciao. Good afternoon, everybody. I have two questions. The first one, if you can comment a little bit more on what you've seen In Europe, if we take out France, the growth probably was in the 3% region, so a deceleration compared to Q1. Also, if we take 2019 as a base, there is a deceleration versus Q1. So a few comments on that. And the second question is related on M&A. In Europe, over the past few quarters, we have seen also in this case a deceleration. What should we expect going forward? If we take organic growth plus M&A, we should get to your guidance. Probably to get there, you need now a big acceleration in the second part of the year, and in light of all the that you have highlighted for France, COVID, etc. How do you think you get there? Thank you.

Yeah, thank you. Thank you, Nicolò. So with regards to the first part of the question, which is about the market in Q2 in Europe. let's say, including the negative effect of France, the market in the EMEA region in the second quarter was negative. We estimate low single digits, let's say, around minus 2, minus 3 percent. Then if, of course, take into account the negative effect of France, that is, the market today represents more or less 25% of the total EMEA market. And as I mentioned, the French market dropped by about 10%. So we estimate the EMEA market, without excluding France, to be slightly positive, a positive fetish. With regards to the second part of the course of the question, which is about the M&A in Europe, you are right. In the second quarter, the contribution from M&A was lower. I would say that is mainly a phasing topic. Plus there was also a small negative effect from the disposal of our Irish small subsidiary last year. We expect the contribution to be higher to be higher in the future, but also we expect maybe even more activity in terms of M&A in the Americas region going forward.

Thank you.

The next question is from Oliver Metzger of Odoo. Please go ahead, sir.

Hi, good afternoon. Thanks for taking my questions. The first one is also basically on your expectations about the phasing in France for Q3, Q4. To my understanding, Q2 should have the strongest negative headwind and then we should see some easing. Potentially you can share your view with us. The second question is more for Gabriele. Could you comment on the overall inflationary tendencies in particular? In spring you appear to be very relaxed with regards to personal expenses. Since then, some time has passed and also, let's say, inflation data has moved upwards. Also, could you share with us your updated view? Do you see some, also from a modeling perspective, some increasing pressure on wage and inflation or personal expenses for you?

Thank you. Thank you for the question. With regards to the first part of the question, which is about the French market, you are absolutely right. In terms of comparison base, the comparison should ease in the next quarters. Definitely the French market was very strong still in July, August last year. And then starting from September started to be less, I mean, it was growing less last year. So we definitely expect a better comparison base starting from September onwards. With regards to the second part of the question about cost inflation, We are pretty confident that we can manage situations like the one in Australia and in some other markets in the past. We mentioned also France. We can manage, and I would say that today is developing in line with our assumption, which means that we do not see situation worsening in the second half of the year.

Okay, let's go together. Thank you.

Thank you.

The next question is from Julien Durmois of BNP Paribas. Please go ahead.

Hi, good afternoon. Thanks for making the question. I have two, please. One, I'm sorry for coming back on this, and I just wanted to make sure that my math are right regarding your guidance for the full year. If I get your Excuse me, sir.

Are you able to speak closer to the microphone? We cannot hear you very well.

Yeah, sorry.

Thank you.

Is that better now? Yeah. Okay, cool. Sorry for that. Yeah, no, I was about the guidance for the full year on top line. I think you guys delivered around 9% in Q1, then about 0.5% in Q2, and you said that you still expect prettier results. high comps in Q3 and then easing into Q4. So does that mean that you would probably need to deliver something like mid-teens organic growth in Q4 to get to your full year guidance? And would you feel comfortable with that number? And the second question I have is, and I know probably your business is not comparable to what it was at the time, Can you just remind us how you did during the great financial crisis, just to get some sort of a blueprint as to what could happen in case of a severe recession across the various geographies? That would be very helpful. Thank you.

Yeah. No, in terms of guidance, I think the math that you made is not correct. What I mean is that we are not... We are not planning to grow mid-single digits in the last quarter. This is not necessary in order to meet our guidance in terms of revenues. Clearly, as I said before, Q3, in terms of comparison, is still quite high. But the good news is that Q4 is by far the biggest quarter of the year due to the seasonality. And you may recall that last year was also the lowest in terms of growth. So the comparison base will definitely ease in the last quarter. But then Francesca is at your disposal to give all the details about . With regards to the second part of the question, it's about the impact of a recession. I would say that anything of today, a completely different company from 2009, 2010, both in terms of size, in terms of geographical in terms of profitability, in terms of ability to manage costs and so on and so forth. I cannot comment initial comparisons between the Amplifon of today and the Amplifon of 2009.

Thank you.

The next question is from David Applington of J.P. Morgan. Please go ahead.

Hey, guys. Thanks for taking the question. Sort of following on from the last question around demand, I just wondered if you are seeing any signs either through the quarter as it progressed or maybe on the end of the quarter, if any of your markets of customers may be either being impacted by the cost of living crisis by either reducing patient flows or whether they're trading down in terms of the value chain? Thank you.

Yeah. Well, in terms of trading down, I wouldn't say so, actually. we continue to improve our average selling price. We are continuing to improve our average selling price. Then in terms of, let's say, less number of customers coming to our stores, it's difficult to say. Certainly in the last part of June and also in July, in some markets which were affected by this wave of heat, we have seen more difficulties in terms of customer footfall, definitely. But I'm not sure that it is related to the current economic environment. I'm speaking in particular, I mean, in those countries like Italy, like Spain, where definitely the current weather situation is not helping our customers to get out and to come to our stores.

Understood. Thank you very much.

Thank you.

The next question is from Domenico Gilotti of Equita. Please go ahead.

Good afternoon. The first is a follow-up on your previous comment related to Italy and Spain. If you can add also some comments on the German situation, what have you seen as an exit speed for the quarter? And on top of that, I'm wondering how did you manage to get to this nice improvement in profitability in EMEA despite the organic growth, so the flat-ish organic growth. So if you can give us also a sense of what is the driver of profitability. And the second question is on Bay Audio. You had a guidance of generating around 80 million, if I'm not wrong, 80 million sales. Is it still possible or... Should we take into account the COVID restriction also on that target?

Thank you, thank you Domenico. So with regards to the first part of the question and in particular about Germany. No, Germany was good. Germany was good in terms of units. We grew quite a lot, I would say high single digits. So German market was not affected by the same kind of situation that I mentioned before actually about Italy and Spain. So we saw quite a strong growth in the German market. With regards to the second part of the question, which is about profitability, I think that we have demonstrated also during the COVID We can manage our costs in order to, in a quite effective way, in order to achieve our targets. And this is also what we are planning for the future. I mean that definitely I'm pretty confident that we can continue to do so also in the future if anything would happen. With regards to the last part of the question and for Bay Audio, you are right. I mean, unfortunately, today, both in Australia and even more in New Zealand, in the second quarter, the markets contracted because of this last, hopefully, last wave of COVID cases. I think that in the last few days in Australia we had more than 150,000 cases per day, while in New Zealand more than 10,000 cases per day, which is a lot. And this also caused a contraction of the market. In general terms, we in Australia, we have continued, we believe that the market in Australia was negative and we continued to grow share. I would say that the 80 million now is more difficult to be achieved by eBay audio would be something less than that. Okay, thank you.

As a reminder, if you wish to register for a question, please press star and 1 on your touch-tone telephone. We have a follow-up question from Mr. Domenico Ghilotti of Equita. Please go ahead.

I was sticking to the two questions. I didn't know to be the last on the queue. And so I was – so a follow-up on the M&A. So you are running a bit behind the target of 100 million. You were mentioning that you see room to accelerate in the second half, but probably I tried to get your feeling on the possibility to achieve the target. And then in terms of America, so the organic growth was quite impressive. So I wonder if you can elaborate a little bit more on the contribution on the organic growth in the American market, in particular in the U.S. You were mentioning Miracle Year, but I'm trying to understand if this is really mostly driven by the conversion of direct-to-operative stores that are now anniversary, or there is also a broad-based performance there.

Yeah. Thank you. With regards to M&A, yes, definitely we are planning to still be on plan in terms of our M&A activities. I would say that you should expect more activity according also to what is our strategy, more activity in the U.S. and maybe a bit less in the M&A region, but this is perfectly in line with our strategy. Yes, it's more a phasing issue rather than anything else, and therefore we are planning to be on target from an M&A point of view. With regard to the second part of the question, and therefore the performance in America, yes, we are very happy. We are very happy about the performance of Miracolier in particular. And within Miracolier, definitely the performance of our direct operated stores was truly exceptional. which is, again, a demonstration of the fact that, you know, when we acquire companies, we can definitely improve their performance significantly, and this is what we are continuing to do also in the U.S. with our direct-operated stores network. I have to say that also Canada and LATAM did very well, but the main growth was in Miracolier and in particular in our network of direct-operated stores.

If I may, what is the size, the percentage of your franchise network that can fit into a direct-operated store model? even over the medium term and not meaning one year.

Clearly, I think we mentioned also in the past that the objective is to increase the share of direct operated stores. In terms of how much of the network we are aiming to convert to this, it's not easy to say today because clearly it depends also from the willingness of the franchisee to sell and so on and so forth. Definitely, there will be always a mix of direct operated stores and franchising because We know that there are some territories, some states that are not, we cannot be very efficient in managing them directly. Now I think it's a bit premature to give you a percentage, but definitely it's part of our strategy to increase the share.

Okay, thank you. Thank you.

The next question is a follow-up from Julien Dormois of BNP Paribas. Please go ahead.

Yes, thanks for taking my follow-up. It basically just relates to your ability to platform potential price hikes by manufacturers to your customers. How do you feel about that? I think you mentioned that you continue to improve your ASP, but any comment around your pricing strategy and how you can cope with that would be helpful.

Yeah. Let's say that we are continuing to optimize our pricing basically in all the markets in which we operate. This is what we have been doing also in the last few years and definitely we will continue to do so also this year. As I say, at the moment we do not foresee any significant impact from the cost side. So we do not see at the moment any reason to go for exceptional price increases. So we will continue to optimize our pricing with some price adjustments as we did also in the past.

Very helpful. Thank you very much. Thank you.

The next question is a follow-up from Nicola Storer of Kepler. Please go ahead, sir.

Yes, a very, very quick one. Can you tell us the contribution of the audio for H1 in terms of EuroMillion or in percentage terms on M&A?

You can estimate from the contribution of the M&A in the numbers. So as you know, in the first half of this year, the contribution of acquisition in the APAC region was about 32%. The vast majority of that is related to Bay Out.

Let's say more than 25%.

Yeah, yeah.

Okay, thank you.

Once again, for any questions, please press star and 1 on your telephone. We are about to close the Q&A session, so if you'd like to ask a question, please press star and 1 on your telephone. Gentlemen, Ms. Rambaudi, there are no questions registered at this time.

Thank you. So we thank everybody, and I think this concludes our today's call. So thank you for the interest and attendance, and we kindly ask you to disconnect.

Thank you, everyone. Thank you.