Amplifon SpA

MIL:AMP

Earnings Call Transcript 2023-Q1

[Operator]

This is the Chorus Call conference operator. Welcome and thank you for joining the Amplifon Q1 2023 Results Conference Call. [Operator Instructions]

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.

[Francesca Rambaudi, executive]

Thank you. Good afternoon and welcome to Amplifon's conference call on the first quarter of 2023 results. Before we start, few logistic comments. Earlier today, we issued a press release related to our results. And this presentation is posted on our website in the Investors section. The call can be accessed also via webcast and dial-in details are on Amplifon's website as well as on our press release.

I have to bring your attention to the disclaimer on Slide 2 as some of the statements made during this call may be considered forward-looking statements.

With that, I'm now pleased to turn the call over to our CEO, Enrico Vita.

[Enrico Vita, executive]

Thank you, Francesca. Good afternoon, everyone and thank you for joining us today. Today, I'm pleased to comment on a great quarter. One of our best quarters, even above our expectations. Definitely, I would say, the best way to start the new year after all the turbulences of last year. Our performance was supported by a market demand, finally back to a positive growth but also by our relative performance, once again above market.

So let's immediately review some of the quarter's key numbers and achievements together. Revenues were up 9% at current exchange rates and 9.3% at constant exchange rates. More importantly, the composition of the growth was excellent. And in fact, the organic growth was at remarkable 7.4%.

Clearly, the pricing actions I anticipated you during our last conference call, supported this high organic growth. And today, I can share that these actions have been executed very well and the current outcome is even above our initial expectations.

M&A contribution was also strong at almost 2%, thanks to our bolt-on acquisitions, which has accelerated, as already discussed, in the last part of last year and during this first quarter. Also thanks to decreasing multiple expectations by the sellers.

Regarding the recurring EBITDA, we delivered around EUR 124 million, increasing by almost 10% versus 2022, while the margin increased by 10 basis points to 22.9%. Then we posted a net profit recurring of EUR 35 million increasing by 6% versus 2022.

Finally, the net financial position was at EUR 826 million, further reducing versus year-end despite the lower seasonality of our business in Q1. All in all, we are very happy about our results in this initial part of the year.

And now I hand it over to Gabriele to give you more color about our financials.

[Gabriele Galli, executive]

Thanks, Enrico and good afternoon, everybody. Moving to Chart #4, we have a quick look at the group financial performance in Q1, which as already by -- commented by Enrico, offers a truly excellent start to the year. In the quarter, revenues at constant ForEx increased by over 9% versus '22 with an excellent above-market organic growth at 7.4%, despite the very tough comparison base. In fact, revenues in Q1 '22 were 16% higher than in Q1 '21. The very strong organic performance was driven by a market demand back into positive territory, primarily for the U.S. product market, share gains and positive pricing developments.

M&A contribution strongly accelerating since October was around 2%. ForEx was negative for 0.3%, primarily for the Argentine peso and the Australian dollar impact, more than offsetting the U.S. dollar appreciation. EBITDA recurring came in at almost EUR 124 million, with a margin of 22.9%, up 10 basis points versus thanks to solid operational leverage while strongly investing for the growth.

Moving to Chart #5. We have a look at EMEA, very strong performance. Revenue growth at constant ForEx was 6% versus '22, with a strong and above market organic growth of 5%, despite still some market-related softness and a challenging comparison base.

M&A contribution related to bolt-on in France and Germany was around 1%. Strong organic growth was reported in Italy and Germany as well as a sequential recovery versus year-end '22 in Spain and France. EBITDA amounted to EUR 100 million, up 7% versus '22, with margin of 27.8%, up 30 basis points, thanks to strong operational efficiency.

Moving to Chart #6. We have a look at another outstanding performance of Americas despite a very challenging comparison base. In fact, last year, revenues grew 30% versus Q1 '21. Revenue growth was over 19% at constant ForEx with an excellent organic growth of around 13%, driven by an outstanding performance in the U.S., especially for Miracle-Ear Direct Retail and Amplifon Hearing Health Care and LatAm.

M&A contribution primarily related to U.S. and Canada was over 6%. ForEx effect was positive for 0.6%, driven by U.S. dollar appreciation, partially offset by the high inflation in Argentine. EBITDA amounted to EUR 24.8 million, with margin at 24.6%, in line with Q1 '22 after strong investment in the business.

Moving to Slide #7, we have a look at Asia Pac performance, where we posted an excellent revenue growth as well as profitability improvement. Revenues were up over 13% at constant ForEx, mainly driven by the outstanding organic growth boosted by Australia and China after the negative impact of COVID in 2022.

M&A contribution related to China was 0.8%. ForEx headwind was minus 2%. EBITDA reached EUR 21.7 million, an increase of 12.5% compared to '21, with margin at 27.3%, 20 basis points higher versus Q1 '22 bring back to positive operating leverage also after significant continued investments in the business.

Moving to Slide #8. We appreciate the Q1 profit and loss. In the quarter, total revenues increased by 9% to EUR 540 million, with an excellent 7.4% organic growth versus Q1 '22. By far the strongest quarter last year with an outstanding 9% organic growth versus 2021.

EBITDA recurring came in at EUR 123.5 million, increasing 9.5% or around EUR 11 million with margin at 22.9%, 10 basis points above Q1 '22 record level after stronger reinvestment in the business versus last year when we implemented some cost containment measures related to nonstrategic investments and other operating costs due to the softer-than-expected market conditions.

EBITDA reported was around EUR 116 million, up around EUR 6 million versus 2022, after around EUR 8 million one-off nonmonetary costs, primarily related to the application of IFRS 2 accounting principle to the share assignment to the CEO already communicated internally.

Ordinary D&A and PPA were EUR 62 million versus EUR 58 million last year in light of the increased investment in network, IT infrastructure and innovation. Net financial expenses amounted to EUR 11.9 million versus EUR 8.4 million in Q1 2022. In light of the extraordinary exchange rate differences related to ForEx swings in America and of the increase in interest rates although, as you know, our credit line are mostly at fixed rates.

Tax rate, as usually, slightly higher in the first quarter versus the following quarter due to seasonality after the 10-basis point reduction versus '22 leading recurring net profit of around EUR 35 million versus EUR 32.8 million in Q1 2022.

Moving to Slide #9, we appreciate the cash evolution. Operating cash flow after lease liabilities was in the period equal to EUR 73 million, almost in line with the EUR 74.5 million outstanding level achieved in 2022.

Net CapEx increased by EUR 5 million to EUR 27 million, leading free cash flow to over EUR 46 million. Next, [indiscernible] for M&A, posted a significant increase to around EUR 39 million versus EUR 24 million last year following the significant acceleration of bolt-on M&A primarily in France, Germany, Canada and China with around 70 shops acquired in the quarter. NFP ended at EUR 826 million, posting an improvement versus year-end 2022 after strong CapEx and M&A [indiscernible].

Moving to Slide 10. We have alluded the debt profile trend and key financial ratios. As mentioned, the net financial position closed at EUR 826 million with liquidity accounting for EUR 195 million, short-term debt accounting for around EUR 274 million and medium long-term debt accounting for around EUR 747 million. This confirms the very strong financial profile of the group with a financial headroom of over EUR 350 million, including the undrawn revolving credit facilities after the repayment of the [ U.S. PP ], we completed in January.

Following the IFRS 16 application, lease liabilities amounted to around EUR 480 million, leading the sum of net financial debt and lease liability to EUR 1.3 billion. Equity ended up at around EUR 1.05 billion. Looking at net financial ratios, net debt over EBITDA ended at 1.48x, improving versus 1.52x of December last year despite the seasonality and after the strong CapEx and bolt-on [indiscernible]. Net debt over equity ended at 0.79x.

I would now hand over to Enrico for the outlook and closing remarks.

[Enrico Vita, executive]

Thank you, Gabriele. So we are at the end of today's presentation, which contains several key very positive messages. First, the market demand is back to growth after 3 quarters of negative development. Second, our pricing actions have been implemented smoothly and are delivering strong results. Third, we continue to increase our share in most core markets and delivering on M&A bolt-ons.

Clearly, we are very satisfied about our performance in Q1, which further increases our confidence about a very positive 2023. In fact, this confidence translates into our outlook for the year. In terms of revenues, we now see our revenues growing in the region of EUR 2.3 billion, EUR 2.35 billion.

Regarding EBITDA recurring, we aim to end in the EUR 570 million, EUR 585 million region, also thanks to an easier comparison base, particularly in second half. Definitely, let me say, a strong set of good news for today. And with this, I want to thank you all for your attention, and we look forward to taking your questions.

Francesca, over to you.

[Francesca Rambaudi, executive]

Thanks, Enrico. I kindly ask the operator to open today's Q&A session. [Operator Instructions]

Now I'll turn the call over to Sherry in order to open for Q&A. Thanks.

[Operator]

[Operator Instructions] The first question is from Hassan Al-Wakeel of Barclays.

[Hassan Al-Wakeel, analyst]

I have 2, please. So firstly, could you talk about the guidance on margins and why you only expect up to 10 basis points of margin expansion with a organic growth in the range of 6.5% to 9% as well as the pricing actions that you're taking? Is this a function of greater marketing, perhaps more dilutive retail M&A or simply conservatism?

And then secondly, could you talk a bit about the growth guidance and why guidance doesn't imply a more meaningful acceleration in growth over the coming quarters given that comps do ease meaningfully? And how has growth trended in March and April?

[Enrico Vita, executive]

So with regards to profitability, I think that what we have put in our guidance today is very coherent with what we said that just a few weeks ago at the beginning of March during our full year results. As you know, our target was basically to be above the profitability of last year. And I think that the guidance for today is very coherent, with that we felt that was not really meaningful to change anything for the time being.

Let me say that we are very positive about our ability to continue to increase our profitability in the medium term, exploiting of course, operational leverage. And let me also add that there is nothing really to be concerned about profitability. Also, if we compare with last year, you know very well that last year, as usual in this kind of situations, we were very good in managing the profitability.

Also thanks, as you would expect, to some cost containment measures on known strategic items that, of course, this year, we will not have any more. So I don't see any issue in terms of profitability. Anything to be concerned, of course, if the market will develop in a positive way, the results of the opportunity actually to be above last year. So a lot will depend also on this.

And in fact, please consider that whilst in the first quarter, the market was positive, still below the historical levels. So we are still hoping with the market that is not growing at the same pace of, let's say, over the last -- the historical pace of the market.

With regards instead to the revenue growth, well, I think that the guidance, it is reflecting some sort of acceleration in the second -- in the next 3 quarters, if you take, of course, the upper part of the range. And that's why, of course, we give a guidance which is in a certain range. If things will develop in the right way, we can be in the upper part of the range. Please do not forget that not all the clouds that were present last year basically disappeared overnight but definitely, we are much more positive than we were just a few months ago.

[Hassan Al-Wakeel, analyst]

That's very helpful. And if I could just follow up on that on the market dynamics that you talked about. I mean do you think the improvement that you're seeing in the market is sustainable, barring a significant macro event? And how are deferral of replacements trending across your major markets compared to, say, 2 or 3 months ago?

[Enrico Vita, executive]

Yes. Well, let's say that our view for the Q1 in terms of market growth in our reference market, so I'm not considering channels like [ BA ] or like NHS, where we are not present, of course. In the first quarter, we estimate that the market was positive in the region of 2%, 3%.

Going forward, for the full year, we estimate the market to be above this number. But still, the historical -- below the historical level of last year's when you may recall that our assumption was always a market growing in the region of 4%. Why we still believe that the market will be definitely much more positive than last year but below the historical levels, simply because we still see some deferrals, some delay in particular, in the returning customer part of our client base, which we expect, perhaps, of course, to continue also for the remainder part of this year.

[Operator]

Next question is from Julien Ouaddour of Bank of America.

[Julien Ouaddour, analyst]

So I have a couple. The first one, so we've seen strong results from some manufacturers recently with especially some recently launched new platform, which seems to perform pretty well. And is it something that you're [indiscernible], I mean, in the case where some patient could prefer to go in the independent channel to try out these platforms inside -- in your Amplifon's network? And have you noticed, I don't know, like fierce competition from the integrated manufacturers recently? That's the first question.

And the second one, I think you mentioned on price increases that the current outcome is even above expectations. Could you give a bit more explanation there? I mean do you mean demand is more resilient than expected despite higher pricing? Or do you plan to pass on even further than the 2% to 3% already announced?

[Enrico Vita, executive]

So I always struggle actually to comment on other players' result. But let me answer, first of all, if I see it something different in terms of competition, I would say, absolutely not. Definitely, we continue to grow share. You have seen our performance in the U.S. You have seen our performance basically around the globe. We continue to gain share. This is our estimation, our assumption and we continue to gain share in the core market.

When you compare our results with others, I think that, first of all, you should look at the comparison base. As you may recall, our first quarter of last year was exceptionally strong, which was maybe not the case everywhere. Actually, last year, we had a growth of 16%. And on top of this, now we are adding another 9%, 10%. In my opinion this is a huge, huge result.

And then to be honest with you, also in consideration of the first month of the year, I was not expecting such a strong result. And also, please consider that, as you mentioned, if we speak about manufacturers, we are speaking about sell-in, we're speaking about different channels. So I don't think that comparing the 2 things are really very extremely meaningful, at least in the short term, let me say.

Then coming to your second question and therefore, the price increase. Yes. I think that we have seen that the demand is even more resilient than we were thinking to price, which is definitely a very, very positive news because at the end of the day, despite of the fact that as I said, our pricing was above our 2%, 3% that we were planning, we have not seen meaningful impact on units. So we are very, very, very pleased with our pricing actions.

[Julien Ouaddour, analyst]

Enrico, can I just follow up on the price increases question? So you just said that your -- like you're positive about it and maybe you might increase prices slightly above the 2%. Can you maybe provide a sort of more color about it? Any number maybe to give us?

[Enrico Vita, executive]

Well, let me say that for the time being, what I can tell you is that it's above that number, then we needed to see a bit above that number. Then we need to see if we can take it for the entire year and so on and so forth. But in general terms, as I said, I'm very, very positive about what we have done. And this is also very comforting because, as I was saying before, we have not seen a material impact from units, which is very good.

[Operator]

The next question comes from Niccolò Storer of Kepler.

[Niccolò Guido Storer, analyst]

Thanks for taking my 2 questions, which are again on -- sorry for that, about pricing and EBITDA guidance. On pricing, if I remember well, last time you talked about starting the increases in the month of March. So I was wondering how much of the 7% organic growth you reported in Q1 was effect of price hikes. And if, as I'm expecting, we should expect something more, a higher contribution in Q2, Q3 and Q4 as these increases goes -- go at full speed.

The second question is, again on EBITDA guidance. Basically, you are assuming a flattish margin year-after-year, even in the context of a good ability of passing higher price is probably above your expectation. And the initial idea was that price increases would have been enough to guarantee a sort of speedy, maybe not that high, but speedy improvement in profitability to protect your profitability growth path.

So why this year you're guiding for stable margins? In the press release and the presentation, you talk about new initiatives to support growth. Maybe can you share something with us on that front?

[Enrico Vita, executive]

Thank you, Niccolò. Your question was very long. I hope that I took -- I have taken notes of everything. Otherwise, please remind me some parts that I'm going to miss. But in general terms, as I said before, I mean, I'm very positive about our ability to continue to improve our profitability in the medium term. I think that if we look and we compare our profitability versus last year, as I said, I think that we need also to take into consideration 2 elements.

The first point is about the fact that, of course, we are now sustaining higher inflation than usual on labor cost. We have said in the past that basically the kind of inflation rate that we are envisaging for this year on labor cost is basically double of what we were historically sustaining in the past.

Also, again, let me underline the fact that last year, as usual, in a similar situation, in a situation, in challenging situation, we have been very good in managing our profitability. Of course, also containing -- taking some containment measures on some costs that were not strategic for us. We will have this cost, this cost this year. So it is also a matter of comparison base.

Then again, you are right. I mean, the market this year in the first quarter is positive but still not in the same kind of positive territory of the past in terms of growth in the first quarter, we estimate something in the region in our reference market. I wanted to underline once again in the region of 2%, 3%, which is below the usual 4% or 4.5% of the past. And of course, this is also something that we have to take into consideration.

Then with regards to your first part of the question and therefore, our price increase and materialization, I would say that in the first quarter, we gained more than we were expected -- expecting. What I was -- what I said I think last -- during our last conference call, was that the price increase was starting from the first of January but with the majority of it being materialized in March. In reality, we had even a better result that we were expecting.

All in all, let me say, basically, what we are saying with our guidance is the fact that we aim to have a profitability which is above the historical level of last year. When also we have taken some cost containment measures, as you would expect given the challenging situation of last year.

Let me say also -- let me add that historically, we have been able to improve, thanks to operating leverage, our profitability in the region of 30, 40 basis points. Let's say, so basically, what we are missing here, just in the worst case is what, 20 basis points. We are speaking about EUR 1 million per quarter, which is basically, let me say, not really meaningful. Just the cost of the conference, let me say, together, altogether after so many years of virtual conference, et cetera, et cetera, can explain this kind of, this kind of gap in Q1.

So the message that I would like to give you is that I have no concern about our ability to improve our profitability in the medium term. Of course, if we compare with last year, we are comparing ourselves with am year in which we were able actually to keep profitability at the highest levels in our history, also taking some cost measurements, cost measurement actions, that's basically it.

Then I can't also, of course, exclude that we can do better. But especially in the second half, that in particular in the last quarter of this year, last year, we had a profitability, which was below the previous year. So especially in the second half, so we will have both an easier comparison base.

[Niccolò Guido Storer, analyst]

Very clear. Maybe a very quick follow-up. You talked about a 2% to 3% market growth for your reference market. How much was Europe alone maybe?

[Enrico Vita, executive]

Europe was in this first quarter was still in negative territory. Let me say, 1%, 2% negative.

[Operator]

The next question is from Veronika Dubajova of Citi.

[Veronika Dubajova, analyst]

First, just to kind of want to circle back to the margin conversation. And Enrico, I think you said in an earlier -- in response to an earlier question that you're still very confident in midterm margin expansion. Maybe just quantify that for us, where we talking sort of 10 basis points, 30 basis points, 50 basis points. It's not necessarily this year but as you look beyond this year, sort of what you think the right ballpark is for that midterm margin expansion and how you're thinking about that? That would be my first question.

My second question is a follow-up on, I think Hassan asked about the trends that you've seen in March and in particular, in April, if you can comment on market growth and how that's progressed? I know that the comps change a lot through the first half of the year. So if you can share any color with us on that, that would be super helpful.

And then apologies for being [indiscernible] about this but of the 7% organic growth that you reported, can you confirm whether price was 1, 2, 3 points of growth, whatever it was, it'd just be really helpful for us to understand that.

[Enrico Vita, executive]

Yes. Well, I think with regards to our -- my confidence actually to be able to improve profitability in the medium term. Historically, we have been able to improve our profitability by 30, 40 basis points in the past. I would say that this is something that, of course, we can aim for the future.

But this is not, let me underline, it's not an official guidance for the next 3 years because this is something that we have not decided yet. But in general terms, let me say that this is at historical level of profitability improvement and there is no reason why it shouldn't be the case also going forward.

With regards to the second question, which is about the market growth in the first quarter, if I'm right. So in the first quarter, we estimated that our reference market was positive by 2%, 3% with EMEA still being slightly negative, with America being very positive and with Australia and New Zealand being slightly positive in the region of 2%, something like that.

[Veronika Dubajova, analyst]

Actually, Enrico, actually I was asking, has this growth continued through to April, would you say that April has been consistent with this trend, better or worse, that was really my question. Sorry, if I was...

[Enrico Vita, executive]

All right. Sorry. Well, with regards to -- with April, still, of course, we are very positive about our -- of course, I have no doubt about the market, clearly. It's difficult to make comments about April also because this year, April, we had Easter in the first part of the month. There were many bank holidays and many days off but very positive and positive also about how things are developing in April. So no concern at all, no concerned at all.

With regards to the third question, as I said, definitely, pricing was a good support to our organic growth, above the 2%, 3%. I would refrain to give you the exact split, of course but above this -- slightly above this number is a good assumption.

[Operator]

The next question comes from Domenico Ghilotti of Equita.

[Domenico Ghilotti, analyst]

Firstly, just a clarification on the full year guidance. So if I'm not wrong, you're really pointing to something more in the region of say 9% to 11%. So -- and with a slightly negative FX and 2% of M&A, so the actual organic growth is really very high single digit or even close to double digit. So just to check that. And if you can comment on what could be the mix between price and volumes on that contribution back to the previous question.

And second, on the U.S. market. So I have seen a quite significant pickup in M&A contribution. So can you comment on what would have been sort of the key focus in terms of acquisitions? And also, you were commenting on the direct-operated stores contribution on organic growth. So you can give us an update on that?

And maybe a third question, so I am passing this a 2. But I saw that Germany, you mentioned some good rebound in Germany, you were mentioning weak performance in Q4. Can you comment on the volatility that you are seeing maybe in the performance of some markets?

[Enrico Vita, executive]

Well, thank you, Domenico, especially for the first question because I think that you got, in my opinion, the most important message of this conference call, which is about the fact that our guidance implies a very strong organic growth. And so definitely, thank you for underlining this, perhaps it's something that I should have underlined even more in my comments earlier on.

But you are absolutely right with your assumptions, which, in my opinion, are leading to a very, very positive and very strong year for the company. With regards to the split, the price volume, as I said before, I won't give you the exact split. What I can tell you is that in this first quarter, our pricing action was above our initial expectation, which was 2%, 3%. So you can assume something above that.

With regards to the M&A contribution in the U.S. market, this is the combination of basically some stores that we have acquired in the U.S. But the biggest contribution was through a very nice acquisition that we made in Canada. You know that Canada is also a core market for us, is the fifth market in the world in terms of dimension. And we have been able actually to complete a nice acquisition, which definitely will increase our scale in Canada.

Finally, with regards to the third question about volatility. Yes, it is true that we still see some volatility. We still see, as I was saying, just the beginning, some returning customer postponing their purchase. But overall, from what we have seen so far, we are definitely much more positive on the market than we were at the end of last year when we were coming from 3 quarters in a row of negative market. We have seen a good rebound, let me say.

[Domenico Ghilotti, analyst]

And in Canada, just to be -- just to check, is the new stores are coming, not franchise stores that have been converted?

[Enrico Vita, executive]

No, no, no. We have acquired the new stores. We have acquired the new stores.

[Operator]

The next question is from Oliver Metzger of ODDO BHF.

[Oliver Metzger, analyst]

The first one is on your top line guidance. So the difference between the lower and the upper end is 2 percentage points, which, in an environment which appears to be a bit more volatile given also some historic data. So can you tell us a little bit more about the moving parts? So should we potentially assume more external growth when your organic growth slows down?

Second question is about the phasing of your price increases. Obviously, it's the hardest part to observe from the outside. So if you look for on the positive contribution in the first quarter, should we see a similar contribution also over the next quarters? Or can you tell us when the contribution should become lower?

And the last one, very quick, is, how has the share of manufacturers changed over the last month?

[Enrico Vita, executive]

Thank you, Oliver, for the 3 questions. So with regards to the first question and therefore, the top line guidance. Now in this guidance, we are not -- let's say, we are sticking with what we have already disclosed in terms of contribution coming from M&A. So basically, we are looking at a contribution from M&A in the region of 2%, something less, something more but the 2% region is absolutely confirmed. So that all the rest -- the top end of our guidance implies a plus 11% growth.

The bottom end implies an 8.5% growth which is our, I think, let's say, which implies also one of the best organic growth that we ever had in our company. So all the rest is coming from organic growth. With regards to the next quarters and the phasing of the price increase. No, we are not definitely lowering the contribution, we are not envisaging a lower contribution from pricing in the next quarters, eventually something, there's something more also given a bit of phasing in Q1.

And the final question was about the share of manufacturers, nothing meaningful to report.

[Operator]

The next question is from Robert Davies from Morgan Stanley.

[Robert Davies, analyst]

I just wonder if you could touch on the expected seasonality and the profitability of the group going through the year. I was just looking back to your results from last year and there was quite a bit of movement, I guess, across the quarters, particularly on your gross margins. Just wondering how you'd think about that cost evolution, given your comments earlier on inflation as you move through the year? That was my first question.

And then just in terms -- along the same lines, just in terms of sort of labor inflation, just being curious, what you're seeing is sort of -- the sort of most aggressive inflation across your labor base?

[Enrico Vita, executive]

So with regards to profitability, you are absolutely right. If we look at our performance of last year, basically, we were in positive territory in the first 3 quarters, then or as I remember, in the last quarter, we had -- we posted the profitability, which was down versus previous year of about 70 basis points.

So in -- let me say, that's why I was also commenting earlier on about the fact that in terms of profitability in the second half, we should have also an easier comparison base. With regards to labor costs there's -- where we have seen the, let's say, the bigger increases are in Australia, New Zealand.

Australia, New Zealand also, I think that we commented in the past about France, where, of course, given the huge growth of the market let's say, competition on audiology also increased. So also there, we had a labor cost inflation, which was above the average. These are the 3 markets that I would mention.

[Robert Davies, analyst]

Maybe just one follow-up. Your comment you made earlier around more hesitation in returning customers, coming back to you -- back to buy a sort of follow-on product. What do you hear anecdotally from the stores in terms of why that is? Is it sort of all macro related? Is it anything to do with the platforms on offer or the technology or people becoming more ambivalent about sort of buying upgrades as quickly as before? Just being curious on what you're hearing in terms of feedback.

[Enrico Vita, executive]

Well, let me say, first of all, we see very good response from new customers, which might, I say might because I can't give you a definite statement on this, which might be also related to some sort of impact demand from last year. But I don't know, to be honest with you.

What I mean is that on new customers, we see a very good response on our marketing activities. What we see, let's say, less responses on returning customer. I personally associate that with the current scenario, because if you have already an hearing aid that perhaps you delay given all the other things that are happening at the global level, perhaps you can decide maybe to postpone 3, 4 months, et cetera.

Whilst if you are a new customer and you arrive to the decision of to buy an hearing aid after 7 years than you really need it. So there is a less of this kind of effect on new customers. So I think it is more on related to returning customer and just postponing for a few months, the decision to renew their hearing aids.

[Operator]

The next question is from Shubhangi Gupta of HSBC.

[Shubhangi Gupta, analyst]

I have 2. So first, regarding price, are you seeing any price increases from the manufacturers? And is that built into your guidance and your price increases throughout the year? And the second question on OTC regulations. Are you seeing any impact from those? And since this is the early stages of OTC, so do you think going forward, it would slow down your growth?

[Enrico Vita, executive]

Thank you. So with regards to the first question, no price increase to us if this was the question actually and therefore, no inflation on cost of goods sold, not at all. With regards to the second question, OTC, thank you for this question because what we see is basically that the sales of OTC products are decreasing month over month in the -- according to the official data from HIA in the first quarter of the year, were sold something in the region of 13,000 OTC products, which means nothing, zero.

And you may recall that we also decided actually to have a sort of pilot in a bunch of our stores in order to understand the consumers' interest, to see, et cetera, et cetera. Basically, since October to end of March, we sold, I believe, less than 5 OTC products. So again, there is no -- I can -- for now, at least we have not seen any interest on OTC in the U.S.

[Operator]

The next question is from Giorgio Tavolini of Intermonte.

[Giorgio Tavolini, analyst]

I was wondering if you can elaborate more on some items related to your P&L, in particular, the corporate costs. I saw in the first quarter, there was a peak, basically, on an adjusted basis, corporate costs came at 5.6% of total sales, if I not make mistake. And should we expect some reduction in the coming quarters also given the seasonal trend of reduction that we saw last year?

And the second question is on net financial expenses. Is it fair to assume something in the region of EUR 40 million to EUR 41 million, EUR 42 million for the financial year since you had a EUR 3.5 million increase in the first quarter, even though it's more related to the short-term debt, if I understood correctly.

And the third question is on China, should we expect a positive performance in the second half of this year, I mean, in terms of easier comparison given the lower restrictions on -- in China from the borders?

[Enrico Vita, executive]

Thank you for the 3 questions. I will answer the last one and then I will leave the word to Gabriele for the other 2. And with regard to China, yes, of course. China, in China, we are doing very well. We are very active, China actually already in the first quarter contributed to the growth of the Asia Pacific region.

Clearly, the comparison base was very, let's say, was much -- very easy because of the lockdowns of last year. But definitely, we have grown so much today, we can count on a network of more than 200 stores in China, which are performing extremely well and with also good profitability, although, of course, in a lower than the average of the region. But with a good profitability, very good profitability, which is also increasing while we gain share. But definitely, we expect China, thanks to the fact that now all the restrictions are over to grow very, very fast this year.

With regards to the first 2 questions, I will leave the word to Gabriele.

[Gabriele Galli, executive]

In terms of corporate costs, if you look at the recurring ones, we are very much aligned with what we posted last year. Actually, the percentage of our sales in the range of 4.3%, last year was 4.2%. So we are very much aligned, if you look at the recurring one.

Then we have some nonmonetary one-off costs due to the assignment of some stock given from the shareholder. But this is something one-off nonmonetary which you cannot include, of course, as a recurring item in the profit and loss. So also for the year-end we envisage a ratio, recurring corporate cost in the range of 4%, very much aligned to the past.

Going to financial expenses. I mean, we are aligned with the forecast you said. So at the end of the year, it should be something in the range of EUR 41 million, EUR 42 million with the current level of credit line outstanding.

And during Q1, there was some increases related not to interest rate increase, but due to some one-off ForEx exchange difference. Some of it because last year, we had a gain and this year, we didn't have the gain and some other loss related to Latin America and something to dollar. But this should be something one-off, not to be included, of course, on the recurring financial expenses made of interest cost on financial loans perhaps [indiscernible], which, of course, also taking into account the IFRS 16, also are included in this line of the profit and loss.

[Operator]

[Operator Instructions] Ms. Rambaudi, gentlemen, there are no more questions registered at this time.

[Enrico Vita, executive]

Thank you. Thank you, everyone.

[Francesca Rambaudi, executive]

Thank you everybody for your insights. We can disconnect operator. Thanks.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over and you may disconnect your telephones.