AMP Limited

Good afternoon, this is the Core School Conference Operator. Welcome. Good afternoon, this is the Core School Conference Operator. Welcome and thank you for joining the AMPLIFON third quarter and nine month 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 Francesca Rambaudi, Investor Relations and Sustainability Senior Director of Amplifon. Please go ahead, madam.

Good afternoon and welcome to Amplifon's conference call on third quarter and nine months 2022 results. Before we start, a few logistic comments. Earlier today, we issued a press release related to our results and this presentation, which are posted on the website in the investor section. The call can be accessed also via webcast and dial-in details are on Amplifon's website as well as on the 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 overlooking 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 glad to comment with you on our very strong Q3 results. Strong despite still an exceptionally high comparison base, in particular in France and the US. Strong results also despite some contingent issues from July to mid-August in Australia and New Zealand due to the last wave of COVID-related infections affecting customers and staff, and also in South Europe due to an exceptionally hit wave in particular in Italy and Spain. In this scenario, we posted a double-digit revenue growth supported by a strong organic growth. In fact, our revenues increased by 12.1% at current exchange rates and plus 8.5% at cost of exchange rates. The organic component of the growth was also very positive at plus 3.5%. In this context, once again, I cannot avoid highlighting our performance in the US where our growth led by Miracle-Ear was again very strong and well above the market's growth, which reported a minus 3% contraction in the period, although on a very high comparison base. We significantly outperformed the market also on a global level, and we gained material market share in almost all our core markets. Finally, definitely an excellent quarter in terms of profitability. The increasing profitability of 50 basis points is without a doubt remarkable, also considering the last year exceptionally high comparison base also in terms of EBITDA margin. This result was possible thanks to a rigorous and decisive approach to our cost, but without giving up on our most critical strategic initiatives. With that, I now hand over to Gabriele to give you more colors about our financial performance.

Thanks, Enrico, and good afternoon, everybody. Moving to slide number four, we have a quick look at the group financial performance in Q3, which, as already commented by Enrico, posted a very good set of results, given the exceptionally high comparison base and some contingent factors. In fact, in the quarter, revenues increased double digit by 12.1% and by 8.5% at Custom Forex versus Q3 21, despite the well-known remarkable composable base. In fact, revenues in Q3 2021 were over 19% higher than Q3 2019. the anticipated market contraction in France for the anniversary of the regulatory reform, the COVID impact in Australia and New Zealand from July until mid-August, and the intense heat wave that hit Europe in the same period. Organic growth was 3.5%, well above the market, driven by market share gains, M&A contribution primarily for Bay Audio consolidation was 5%. Forex effect was positive for 3.6%, primarily for the US dollar appreciation. EBITDA recurring came in at 109 million euros, with margin increasing by 50 basis points versus 2021, to 21.8% even after sizable investment in the business thanks to timely and effective cost management. Moving to slide number five, we have a look at our financial performance in the nine months. Revenues were up 11.6% at current Forex. and plus 9% constant Forex versus 2021. With an above market organic growth at 4.1%, M&A contribution at 4.9%, and a positive Forex impact for 2.6%. EBITDA recurring amounted to almost 370 million euros, up over 13% versus 9 months 21, with margin at 24% up 40 basis points. Moving to slide number six, we have a look at EMEA performance. Revenues at constant Forex grew 1% versus 2021. Organic performance was positive despite a very strong comparison basis with Q3 2021 up almost 15% versus 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 8% versus the same period of 2021, and the intense heat wave in the July until mid-August period affecting store traffic. EBITDA was 82 million euros with margin at 26.1%, 60 basis points higher than Q3 21. thanks to timely and effective cost management coupled with the strong operational efficiency. In the nine months, revenue growth was 3.6% at current forex and 3.1% at constant forex, of which 2.4% organic. EBITDA amounted to 292 million euros, up 6.4% versus 2021, with margin at 28.6%, posting a strong 70 basis point growth versus nine months, 2021. Moving to slide number seven, we have a look at another outstanding performance of Americas. Revenue growth was over 27% at current Forex, over 14% at constant Forex, with an outstanding organic growth at around 12%. Despite the exceptional comparison base of 46% growth reported in Q3 21 versus 19 pre-pandemic level. Once again, The U.S. posted an excellent and a well above market organic growth, driven by Miracle Year and further boosted by its direct retail business. Excellent organic growth was also reported in Latin America. M&A contribution, primarily related to U.S. and Canada, was 2.5%. Forex investment was positive for around 13%. due to the strong dollar appreciation versus Euro. EBITDA amounted to circa 25 million Euros, posting a 24% growth versus 2021, with a margin of 24.6% after strong investments in the business. In the nine months, revenues were up 25.8% at current Forex, and over 15% of constant forex, driven by an excellent organic growth of 12.6%. EBITDA amounted to 73 million euros, posting a 27% growth versus Q3 21, with margin at 26%, up 10 basis points. Moving to slide eight, We have a look at AsiaPac, where we had an excellent revenue performance despite still high COVID infections, mainly in Australia and New Zealand in the first part of the quarter. Revenues were up 48.5% at current Forex and 40.6% at constant Forex, thanks to excellent organic growth of around 10%. in acceleration throughout the quarter, M&A contribution primarily related to Bay Audio for over 30%, Forex positive for around 8%. EBITDA reached 22.8 million euros, an increase of over 45% with margin at 26.4% contracting versus Q3 21 due to the significant investments in marketing in Australia, but showing an improvement compared to the previous quarters. In the nine months, revenue were up around 38.8% at current Forex and 33.9% at constant Forex. EBITDA came in at around 62.7 million, with margin at 26.3% after continued significant investment in marketing in Australia. Moving to slide number nine, we appreciated the Q3 profit and loss. In the quarter, total revenues increased by 12.1% to 502.5 million euros. EBITDA recurring margin came in at 21.8% with an improvement of 50 basis points versus Q321. Recurring EBITDA increased by 14.3% to over €109 million. Reported figures include €0.6 million one-offs, primarily related to the integration cost for Bayoge and Geis. DNA, including PPA and levy accounting depreciation, increased by 7.8 million, leading the recurring EBIT to 49 million euros, with a growth of 14.3% or 6 million versus Q3 21. Financial expenses increased by 1.8 million at 8.3 million, leading profit before tax at 40.8 million, versus 36 million euro into 321. Tax rate slightly decreasing versus last year led to a recurring net profit of 29.7 million euros, posting an over 12% increase versus last year. Moving to slide number 10, we see the nine-month profit and loss evolution. Total revenues increased by 11.6% to 1.54 billion. Recurring EBITDA increased by 13.3% to 370 million euros, with margin at 24%, with an improvement of 40 basis points versus nine months, 21. Reported figures include around 6 million euros one-off cost canada related to bay audio and guys integration dna including pba and the lease accounting depreciation increased by around 19 million leading recurring ebit to around 191 million with a growth of 14.6 percent or around 25 million versus last year Net financial expenses accounted for over 25 million euros, with an increase of around 5 million versus 9 months 21. Being the Amplifon financial debt almost entirely fixed interest rate, the increase is substantially due to the following reasons. While the 9 months 21 comparison days benefited from the profit realized on the sale of the Irish subsidiary, 9 months 22 are impacted by the application of the inflation accounting in the Argentine subsidiary, by the change to the fair value of the GICE loan after the refinancing that had generated a 4.6 million euro income at the end of 2021, and by the negative impact of interest rate increase on leases. Profit before tax came in to around 166 million euros from around 146 last year, costing therefore a 14% increase. Tax rate ended at 27.7%, leading recurring net profit at circa 120 million euros, with an increase of 14% versus 21. Moving to slide number 11, we can appreciate the cash flow evolution. Operating cash flow after lease liabilities was in the period equal to 218 million euros, substantially in line with the exceptionally high figure of 219 million in 2021, which was over 90 million higher than the 127 million euro pre-pandemic figure achieved in the 9 months 2019. Net capex increased by 17 million to 75 million euros, leading free cash flow to around 143 million versus 161 million of 2021 highly comparative figures, which was over 130% higher than the around 69 million euro pre-pandemic figure achieved in 2019. Net cash out for M&A was around 52 million driven by Bolton acquisition primarily in France, Germany and China. Following the strong buyback of 1.2 million shares or 43 million euro cash out in the period and the dividend distribution for 58 million euro, Net cash flow for the period ended negative for 10 million euros versus positive 19 million euros in nine months, 2021. NFP ended at 882 million, slightly increasing versus year-end 21, after around 230 million euro investment in CapEx, M&A, buyback, and dividends. Moving to slide 12, we have a look at the debt profile trend and key financial ratios. As mentioned, the net financial debt closed at 882 million euros, with liquidity accounting for 218 million euros, short-term debt accounting for around 197 million euros, and medium long-term debt accounting for around 900 million. This confirms the very strong financial profile of the group, with a financial headroom of over €460 million, including the undrawn revolving credit facilities. Following the IFRS 16 application, lease liability amounted to €471 million, leading the sum of net financial debt and lease liability to €1.35 billion. Equity ended up at around 1 billion and 25 million with an increase of around 100 million versus December last year. Looking at financial ratios, net debt over EBITDA ended at 1.61 times, improving versus 1.68 times at December 2021. and net debit over equity ended at 0.86 versus 0.94 at the end of last year. I would now hand over to Enrico for the outlook and closing remarks.

Thank you, Gabriele. We are at the end of today's presentation. First of all, we are very happy about our results so far. In the first nine months, our performance was strong, above market and overall in line with our plans. Then, as you well know, today's external environment is certainly not improving and requires us to be prudent. In light of this, as we approach the year end, we can give you today a more detailed outlook for the full year. as we expect revenues in the region of 2.15 billion euros and profitability in the region of 25%. This outlook reflects the already anticipated sales for May, now at circa 70 million euros, due to the well-known impact of the last wave of COVID infections during the Australian winter. Looking further ahead, let me conclude by underlining once again that I firmly believe Amplifon is today, and more than ever, best positioned to turn again any future scenario into an opportunity to strengthen further our global leadership as we did during the last pandemic. With this, I hand over again to Francesca.

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

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may star and 1 on the 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 Nicolò Storer of Kepler. Please go ahead.

Good afternoon, everybody. Two questions on the new guidance. The first one on revenues. If my calculations are right, basically your new guidance implies an organic growth of Q4 similar to the one we have seen in Q3. So is this right? And what should we expect by region? How will we get to this growth similar to that of Q3? The second one is on EBDA. Again, the implicit growth for Q4 is zero in terms of homology, so probably 0.1%. And so my question is, is this reduction in your ambition basically fully driven by lower volume? Is there anything else we should be aware of? Thank you.

Thank you, Nicolo, for your questions. With regards to the first one, your numbers are mostly correct, I would say. We expect in the fourth quarter, yes, something similar to the third quarter in terms of organic growth. Wise with regards to the EBITDA for Q4, yes. Let me say that the main reason for the EBITDA in Q4 is lower leverage than expected. Nothing else.

Are there any comments by region on what to expect in Q4?

No, sorry, sorry. In terms of trend by region, you should expect a similar trend than Q3. So US leading the way in terms of growth. We expect also Asia Pacific as we anticipated also during our last conference call to have quite a strong growth in Q4, the lower growth will be in the MA region.

Thank you.

Thank you.

The next question is from Hassan Alwakil of Barclays. Please go ahead.

Thank you. Good afternoon. I have two questions, please. Firstly, if I can follow up on the guidance and what looks to be a one percentage point reduction in growth on the top line versus what you previously talked about and guided to with this all focused on Q4. And you've obviously talked about what your expectation for is for Q4 in terms of growth. But could you elaborate on what you think is driving this? What have you observed in September or indeed October given, Enrico, you were relatively happy with the performance when we last met in Milan in mid-September. So I'd love to get some unpacking of that, please. And then secondly, can we talk a bit about the strength in the Americas and what to your mind is really driving this and whether you expect to continue to gain share into Q4 in 2023, given particularly softening comps in Q4?

Yeah, absolutely. Thank you. Thank you for your question. So let me start by saying that I'm still extremely happy about our performance so far. I think that nobody can say differently than our first nine months were very strong. We have delivered better results, I think, than anybody else. And we have gained market share. So I can definitely confirm that I'm extremely, extremely happy about our nine months so far. Then with regards to your question, and yes, it's let's say 1% difference. 1% is what? Nothing, to be honest with you. What I mean is that in consideration of the external scenario that you know very well, and also in consideration of the fact that we already anticipated that the bay audio revenues are going to be more in the region of 70 rather than in the 80, due to the fact that during the last Australian winter, of course, the business was affected by that as any other business in Australia. And also, if you also consider that In terms of M&A, we are here today at about 50 million. We, as you know, our target for the year is 100 million. So we are a bit late on that. However, we are working and I'm pretty confident that we can close the gap in terms of M&A investment for the year. we are quite confident to be close to 100 million as originally planned in terms of investment for M&A. But of course, being some months later, this acquisition will not deliver the expected revenues. So these are, let's say, the main reason for this, but I would like to stress once again, that we are speaking about basically very, very small difference in a scenario, which is, I'm sure that you would agree with me, is also getting more volatile than just a few months ago.

Sorry, go ahead.

No, I was going to, I was going to answer to your question about the US. And with regards to the US, yes, we are very happy about our performance. Clearly, we have outperformed the market also in this quarter. I think that is a combination of, in particular, good performance in terms of our direct operated stores, where we continue to improve the performance significantly. I would say that in this quarter, this is the main reason for the better performance than the market.

That's very helpful. And if I can follow up on the first part of your answer, are you seeing any evidence of downtrading or elongation of product cycles at all? And does this adjustment bear anything on your outlook for FY23, given this is what investor questions have focused on? Thank you.

No, in terms of down trading, we do not see any deviance from the past. In terms of, in fact, in terms of ESP actually, we have been able actually to continue to improve our ESP also in the Q3. With regards instead to the postponement from customers, I would say that we might have seen some postponements from returning customers while still strong on new customers.

And to your mind, does this change your outlook into next year?

With regards to 2023, I think it's very early actually to make any kind of new outlook for next year. I mean, there are many, there are still many, many, many moving parts. And I do not have enough elements to change our view. Clearly for next year, we can also say that on a positive note, I expect the pricing to play a positive role. Also, so at the moment, I can't really tell you anything else than this, to be honest.

Very helpful. Thank you.

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

Can you hear me? Hi. A few questions. First is on the profitability in the U.S., in the sense that with such a strong organic performance, then margin was not really showing any operating leverage. You were mentioning extra investment in marketing, I presume. Do you expect to continue with these extra investments, or are you prioritizing top line versus profitability in the next few quarters? And the second question is, are you seeing in general, particularly in the U.S., but in general, what level of cost inflation or labor inflation are you seeing? And when do you expect to start to apply some price increases that you were mentioning in the previous answer?

Yeah, so with regards to America, yes, definitely. I mean, our strategy in America, as you know very well, is to continue to grow, to continue to grow faster than the market. So the priority number one for us will be to outperform the market in terms of growth and therefore to continue to gain market share. With regards to the profitability, it is true that in Q3 actually the profitability was lower, but if you look at the nine months, our profitability in the U.S. was above last year, I think about 10 basis points, which is something that I feel very fine with. Yes, so as I said many times, for us the U.S. is a growth opportunity, maybe the most important opportunity for the group, and therefore the priority there is on growth. With regards to the part related to inflation, I would say that so far the impact from cost inflation has been minimal. As you know very well, I can say basically nothing from suppliers, both direct and indirect, and I think that we mentioned also a few times that for next year I do not expect And inflation on this regard also because in terms of the direct cost, so cost for hearing aids, we have been able actually to conclude some important contracts with some of our main suppliers with price reduction. The main topic in terms of inflation is labor cost. This year, of course, we have been able actually to limit the labor cost impact. There will be an impact clearly next year, as you would expect, but we are also planning to have some price increase in order to offset this labor cost inflation. In terms of when we will see the impact, this year we have made some small adjustments, so the main result from the price will be next year.

Okay, and the reaction to this small adjustment that you introduced in the U.S. market?

No, we have not seen any, because clearly we can look at it looking at conversion rates in the stores, and they have not been affected. Okay, so they are passing.

Okay, thank you.

Thank you.

The next question is from Veronica Lubasheva of CT. Please go ahead.

Thank you, guys, for taking my questions. I'll keep it to two. Good afternoon. One, maybe I can just follow up on the comments you've made on wage inflation. As far as 2023 is concerned, just point of clarification, do you hope to mitigate the wage growth with price increases, or is your opinion at this stage that you can fully offset the wage growth that you expect next year with price increases. That would be great if you could clarify that. And then my second question is just sort of a follow-on on the market environment. And I know folks have asked about down trading, but I guess my bigger question is in volumes. And if you can give us a little bit of flavor of what you've seen in October. I mean, I appreciate the month hasn't fully finished. But you were the first to report, and if you can comment maybe on the type of volume growth you're seeing in Europe, in the U.S., and in Australia and New Zealand as far as October is concerned, that would be great. Thank you.

Yeah. So, no, in terms of pricing, yes, of course, the goal is to fully offset the impact of the inflation on labor costs. This is absolutely the goal. for next year. With regards to the second part of the question for the volume, let me say that we see a very volatile market. What I mean is that if I look back to Q3, July was not good, in particular at the end of July. August was so-so. September was very strong. Then October started slower. So there is not, in my opinion, a clear pattern, which is also one of the reasons why we think and we feel more appropriate to be prudent about Q4, because volatility is certainly a characteristic that we see in the market at this moment. With regards to U.S., Australia, and New Zealand, yes, I expect growth to continue in all these three countries that you mentioned also in q4 let me say that emea europe is the region where clearly we see we see low slower growth as you have seen also in our q3 q3 result and as i said before we expect the same kind of pattern also in q4

That's very helpful. And then because I can just follow up on the wage growth, I mean, what are your expectations for wage inflation for next year specifically?

Yeah. Let's say that on top of our usual 1%, 2%, we could see an additional 1%, 2%.

Okay. So you kind of go from 1% to 2% to 2% to 4%. That's your expectation at this stage, right? Okay. That's helpful. Thank you very much.

Thank you.

The next question is from Julien Wadour of Bank of America. Please go ahead.

Thank you very much and good afternoon, everyone. So first one just on profitability to come back on it. So it seems that in the past you were able to, let's say, to manage to improve margin even despite flat organic growth in a single quarter. You mentioned lower operating leverage expected for Q4 despite some growth. So just could you give us more details about it? Why is it different this time? And just second question on the guidance. So all the hearing aids manufacturer revised their guidance last summer. You didn't. Would you say that this is what you are seeing in October? So you mentioned a sort of muted October market, which has changed your view, or could the guidance have been revised earlier in Q2? Thank you very much.

No, I don't think that the guidance should have been revised in Q2 for basically two reasons. The first one, because our Q2 results were very strong, and our Q3 results are again very strong. I think that we need to put all the things into perspective and into context. Then I think we mentioned many times that our outlook was also not including any further deterioration in the global macroeconomic scenario. I think that you would agree with me that the situation is definitely not improving. Then let me also add on top of it, as I said, as some of you mentioned, we are talking about what, 1%, 20 million. I think we already anticipated the last time that 10 million lower revenues during our conference call should have been expected by Bay Audio for the reasons that I already mentioned before. So at the end of the day, what are we talking about? Let me say that I do not see that this is a major difference from what we have been telling now for the year. And let me underline once again that in a context like the one that we are living, in my opinion, this is a major achievement. And also, if you look at profitability, at the end of the day, what are we talking about? talking about three four million which is in the broader context really very very minimal also because i'm not prepared to sacrifice the core investments and in particular also in this quarter four we are going to invest in marketing and then all the other things in order to strengthen the equity of our brands and so on and so forth so i i would really like to to to to share with you the view that at the end of the day, we are talking about really very minimal differences.

Thank you. Thank you, Enrico. Just if I can squeeze one quick follow-up. I know you don't want to, let's say, comment on 2023, but when we look at the current run rates in Q3 and what you expect for Q4, it seems that basically the market won't grow at the normal 45% next year. So just to be sure that you agree with this and if you have any other comment about it, it would be super helpful. Thank you.

It's very difficult to say now what is going to be next year. Let me say that this year was a very, very strange year. And clearly, the previous estimation of the market growing around 4%, and now I think it's more in the region of 2% or something like that. Now, is because of the external environment or is because the comparison base of last year was inflated, overly inflated by the pent-up demand of last year? I think that there is also an element of the latter. What I mean is that also this kind of volatility that we see in the market can be in part justified with external environment, in part also justified Last year, 2021, was a really exceptional year after the 2020 affected by COVID, where we have seen the pent-up demand to be released. Also, according, you may recall, the lockdowns in two months and then the release of the restrictive measures and so on and so forth. It's very difficult actually to say if this year, I don't see this year actually as a normal year, given the very exceptional market growth of 2021, also in terms of phasing month by month.

Thank you very much, Enrico.

Thank you.

The next question is from Oliver Metzer of OdoBHF. Please go ahead.

Good afternoon. Hi. Thanks a lot for taking my questions. So the first one is also on your bottom line guidance. So you speak of around 25%. Last year, we were at 24.8% from a recurring perspective. So purely technically, you could be still below last year's level or some Or is it above that? So should we still expect a margin improvement year-on-year? That's basically the number one question. Number two is also a follow-up from a previous question. So for years, we saw a margin development to remain comparatively static at, let's say, not more than 50 basis points margin improvement as additional profits derived from operating leverage were really used to grow investments and basically also to foster growth now basically you really grow a notch slower q3 is fine it was a good quarter but for q4 you are more cautious so you you also mentioned in your answers that you leave basically investments the same but now it's basically less operating leverage comes through So the question is, and that's potentially also reflected by today's share price reaction, so what's what should we read into 23? Should we expect investments to remain more on a higher level despite potentially operating leverage is at a lower level, which would mean some margin deterioration, or is it just this pure quarterly exception you show right now because the investments you have planned or both you have started are basically already done and you cannot adapt them to the degree of operating leverage?

you so thank you thank you for the question now let me say first of all you made you might recall that in 2021 we delivered the 24.8 percent profitability now we are saying in the region of 25 25 so definitely is an improvement versus versus last year also which is in my opinion again a remarkable result if you consider that last year we our our profitability increased by almost 200 basis points so to continue to grow in profitability in my opinion is a very very very good very good achievement then with regards to to next year is, as I said, I do not have today any element to say anything else than what we have said in the past, which is from one side on the revenue, from a revenue point of view, we aim to continue to grow above the market, well above the market, and we have also delivered this in these first nine months of this year, and we are also envisaging same kind of situation also in the quarter four. With regards to profitability, we have already said that our goal is to continue to improve profitability year on year, and this doesn't change as a goal for us. Let me say once again, you know very well the external environment, if there will be major deviation in terms of macroeconomic outlook, et cetera, et cetera, we'll see. But our goals remain unchanged for the time being.

Okay.

One follow-up. I mean, we are discussing about, 20 basis points, the difference from the 25.2 and the broad 25%, which is, as Enrico mentioned, 4 million in a situation where, I mean, geopolitical scenario is completely different from what it was in the past. If I look a little bit more, I mean, in a more stabilized scenario, I believe it's a super result, and I don't see in the long term anything affecting the profitability of the group compared to which were the expectations of every single analyst before. We have to take in mind where we stand and how normally the economy is developing.

Okay. But a very general question. So going forward, would you say that investments have a higher priority or that basically the goal to improve margin by 40, 50 basis points per year has a higher priority?

I'm not changing what is our, let's say, long-term goal, which is from one side to continue to grow above the market growth, from the other side to continue to improve profitability year on year. This is our goal. Now, about 2023, I would be very happy to discuss with you at our call at the beginning of March when we will also have more elements to give you more detail. But the goal remains the same.

Okay. That's a good clarification. Thank you very much.

Thank you.

The next question is from Robert Davies of Morgan Stanley. Please go ahead.

Thank you for taking my questions. I had a couple. One was just on the EMEA region. Just if you could flesh out the margin improvement you saw there on flat organic growth. I know you made a comment, I think, in the release talking about operational efficiency and cost management. But was there any headcount reductions in there to sort of bring that margin up?

No, no, no, no. We are not planning anything like that. Absolutely not. We are not also in the situation to be obliged, as many other companies announced, to do something like that. So definitely not at all.

Okay. Thank you for clarifying. And then just on the APAC region, a similar question to what somebody asked on the Americas earlier, just in terms of obviously strong organic growth and the margin decline there. I had some extra sort of reinvestment spent. Could you kind of quantify that so we can get a better idea of what the underlying sort of profitability trends are in that business? How big is the reinvestment spent basically year on year in the APAC region?

Yeah, on the APAC region, I think that we are following, in terms of profitability, we are following our plan to continue to improve during the year our profitability quarter over quarter. And this is something that I can confirm to you today. What I mean is that I expect also in quarter four to continue to improve our profitability. Then, you know, up to a couple of years ago, basically we were not investing at all on our brands, as you know very well. Then we immigrated from National Healing Care to Amplifon Brand because we saw an opportunity to build leading the brand in terms of brand awareness, brand equity in the Australian market. Today we are spending definitely much more than in the past. I would say that I'm not able to give you a precise number, but clearly today our investments in marketing are growing faster, definitely faster than our top line.

Thank you. And then maybe just one final follow-up. Just on the pricing that you're planning to put through, could you just give us a bit more color around the timing of that and if there's any lag between the price increases and when that should sort of hit your P&L? Thank you.

Yeah, well, we are planning to implement some pricing actions starting from Q1 of next year.

And in terms of the lag, is there nothing materialized, that should come pretty quickly after you've done that.

Yeah, yeah, I would say yes. Maybe you can have a one-month delay, something like that, but not much more than that. Understood.

Okay, thank you.

The next question is from Peter Testa of One Investments. Please go ahead.

Hi, thank you. The questions are good one at a time. Maybe just following on from that question on pricing and cost, The manufacturers have been talking about trying to put up prices going into next year for their own inflation reasons. You mentioned some questions about sourcing. I wasn't sure whether you were giving a sense that you did not expect sourcing cost or sourcing cost inflation next year, or would you expect there to be some?

No, not at all. I mentioned already now a few months ago that for 2023 and 2024, we have already finalized some important contracts with manufacturers leading to price reductions. So, no, I do not expect any increase at all, actually.

Okay. And then just a question on Q3 to Q4. I mean, obviously, Q3 was affected by lockdown some in Australia, New Zealand. You had the traffic impact of the hot weather, and then It's the most difficult comp on France. Q4 doesn't have those. So I was wondering if those are recovering, are there other areas where you see a different traffic pattern coming into the units?

Yeah, you're absolutely right. In reality, yes, maybe we have lowered a bit our expectation in terms of growth for Q4. which is mainly related to the fact that clearly today the environment is more volatile, as I was saying before. That is the main point. Yes, but I would like also to stress once again that the difference which is in the region of 20 million is also mainly due to to the reasons that I mentioned before. So from one side, Bay Audio delivering 10 million less than originally planned because of what you mentioned as well. And also we are a bit late, I would say three, four months late in terms of acquisitions. But also in this case, I'm pretty confident that we will be able actually to reach our target in terms of acquisition for the year-end in the region of $90 million, which means that we will have an acceleration in this quarter. But unfortunately, this acquisition will not deliver so much revenues in the quarter, of course.

Okay. And the last question, please, was just you mentioned a minute ago that you'd seen slightly less impact or flow of customers replacing or upgrading versus new customers. And I was wondering, also looking at the recent European shows, the innovation rate from the supply industry has been pretty moderate now for about 12, 18 months. And I was wondering whether you felt that this was having an impact on replacement, i.e. there's not so much innovation to drive replacement, or whether it was more the economic context, fixed incomes, inflation, and so on?

No, I don't think that there is an issue related to the rate of innovation from manufacturers, to be honest. I don't think that this is something that is affecting the renewal from customers, no. Okay, thank you very much.

The next question is from Giorgio Tavolini of Intermonte. Please go ahead.

Hi, good evening. Thanks for taking my question. I was wondering if you could give us more update or follow up on the M&A. Which countries are you targeting for the business acquisitions that you are targeting for the coming months? And in particular in China, if you are targeting to extend the presence, the local presence there, in particular after the recent acquisitions from your competitors in the country. The second question is on the lease liability costs. They are increasing quite materially over the last two quarters. Is it driven by the new point of sales that you are adding, even though at a slower pace due to the lower M&A activity, or due to the lease inflation? Thank you.

Yeah. With regards to the – thank you for the questions. With regards to the first question, so our strategy in terms of M&A, bolt-on M&A, has not changed. So our priorities are definitely, from one side, the US, in Europe, Germany, and France, whilst China continues to be an area of interest for us. Also in China, we are working to expand our network, and also there I'm pretty confident that we can do that through acquisitions also in the coming months. Clearly, our view on China is more a mid to long-term view, and this has not changed. With regards to lease liability, I can already tell you that there is not an element of inflation, but I would leave to Gabriele to maybe .

The most important reason is the number of shops. So, last year, we included consolidation starting from Q4. And so, Bay Audio was a very important addition to our total number of stores on top of the other bolt-on acquisition that we made during these first nine months of the year. So, the comparison period after the nine months of this year, Bay Audio and other bolt-on while during last year, Bay Audio was not included. So, that's the most important reason. no significant impact from inflation. Thank you. Thank you.

I would ask maybe operator for just one last question if we have someone else in queue since the hour has passed and then we close. Thanks.

Okay. The last question is from Niles Leith of Carnegie Bank. Please go ahead.

Thank you and good afternoon. Two housekeeping questions. First one would be how much would you expect your non-recurring items you're affecting your EBITDA margin to arrive at for the full year? I can see it was 5.6% at the nine-month period, but a guidance on the full year number would be helpful. Second housekeeping question would be where do you expect your accounting tax rate to arrive for the full year? And then a third question on the OTC category in the U.S. So you're still not planning to sell OTC products in your U.S. network, but what are you hearing in terms of the initial takeoff of OTC hearing aids in the U.S.? Thank you.

Yeah, I would answer to the last question, and then I'm very happy to leave the first to Gabriele. So with regards to OTC, you know, the new regulation is in place since October 17th, so we're speaking about just a few days. I don't have any kind of feedback, significant feedback, actually, to report about these first few days of the regulation being in place. So nothing really to report about a part of what has been already mentioned in the past. With regards to the first two questions.

From the non-recurring item, after the nine months, we have around 6 million, which is a couple of million per quarter. Usually, moving to the Q4, we have some acceleration of this number. Yeah, there would be, of course, the integration of Bayadio going on, so some acceleration, but we don't see anything exceptional. So instead of two, maybe three, four. Moving to the second question, so the tax rate, we believe the improvement that we have today, which is around the 30 basis point versus the first nine months of last year. can be a good proxy. Of course, then when you arrive at the end of the year, you make the actual calculation, but I mean, this should be a very sustainable trend of improvement.

Great. Thank you.

Thank you. Thank you. So, this concludes today's call. Thank you for the interest and the attendance, and I kindly ask the operator to disconnect.

Thank you. Thank you, everyone. Thank you. Bye-bye. Thank you. Bye-bye. Thank you. Bye-bye. Thank you. Bye-bye. Thank you. Bye-bye. Thank you. Bye-bye. Thank you. Bye-bye. Thank you. Bye-bye. Thank you. Bye-bye. Thank you.