Amplifon SpA

MIL:AMP

Earnings Call Transcript 2021-Q3

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Amplifon Third Quarter 2021 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 Morichini, executive]

Thank you. Good afternoon, and welcome to Amplifon's conference call on Q3 and first 9 months 2021 results. Before we start, a few logistic comments. This morning, 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. Entire link 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.

Please also let me drive your attention to the fact that this year, we are also reporting 2019 income statement data for greater comparability purpose, given the relevant impact of the pandemic on 2020. In addition, in light of Company's decision to seize the Elite business, selected P&L data for both Q3 and 9 months 2021 as well as for comparative years are also restated without Elite contribution. The following commentary is, therefore, primarily based on these figures.

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

[Enrico Vita, executive]

Thank you, Francesca, and good afternoon, everyone, and welcome to our quarterly conference call for the Q3 results. Today, I'm glad to comment with you on our excellent quarter results and on our progress on some of our key strategic initiatives. Regarding our results for the quarter, I can anticipate you that all the KPIs were very positive. In fact, in comparison with Q3 2019, despite a definitely more challenging comparison base, our revenues increased by over 21% at constant exchange rates. The organic component of the growth was also excellent at circa 14%. Although this growth was, again, very well balanced across all core markets. I cannot avoid highlighting our performance in North America, and in particular, in the U.S., where our growth led by Miracle-Ear, was exceptional. More than 60% at constant exchange rates versus 2019 and nearly twice than the growth of the market only from a pure organic viewpoint. In my opinion, these results proved that our new strategy in the U.S. is working, and our direction is right.

On a global level, I believe that also during this quarter, our revenues have led us to significant market share gains in all major markets. An excellent quarter also in terms of profitability as we continue to reap the benefits of all the work done on our cost base since the pandemic beginning. Increasing profitability of 180 basis points is the net result of improved efficiencies and increased operating leverage and significant reinvestments in the business. Operating cash flow was also very strong, a circa EUR 220 million in the quarter, up more than 70% versus 2019, allowing us to achieve a very healthy net financial position at EUR 617 million.

Then in addition to the financial results, I'm happy to give you some highlights about the most important ongoing initiatives. In Australia, we have already started to work on the integration of Bay. And what I can tell you is that I'm very happy about how our teams are working together, showing the right spirit of collaboration. In Spain, perfectly in line with our original plan, we are now launching the Amplifon product experience, and I expect strong results here like in all other markets before. Lastly, also the Elite wind-down is progressing according to plan, and we expect to terminate the business by the year-end.

With this, I now hand over to Gabriele to give you more colors about our financial performance.

[Gabriele Galli, executive]

Thanks, Enrico, and good afternoon to everybody. Moving to Chart #4, we have a quick look at the group financial performance in Q3, which, as already commented by Enrico posted outstanding results. I will comment on the Pro-forma figures, excluding Elite, in light of the ongoing wind-down. The comments will also refer primarily to the comparison versus 2019 period not impacted by the pandemic.

In the quarter, revenues at constant ForEx increased by over 21% versus 2019, with an excellent organic growth at around 14% despite a very challenging comparison basis and by around 8% versus Q3 2020, period, which benefited from the easing of the severe lockdown measures adopted in the second quarter of 2020.

EBITDA recurring came in at EUR 95.5 million, with a margin at 21.3%, up 180 basis points versus 2019, thanks to the strong revenue performance, coupled with the structural efficiencies and productivity enhancements, derived by the decisive measures implemented for the pandemic. This strong EBITDA increase was achieved even after sizable investments in the business, including marketing and several strategic initiatives ongoing. Figures with Elite were affected and set by the ongoing wind-down process.

Moving to Slide #5. We have a look at our financial performance in the first 9 months. Revenues at constant ForEx were up over 19% over 2019, with a well above-market organic growth at over 13%. M&A contribution at over 6% and ForEx impact -1.8%. EBITDA recurring amounted to EUR 326 million, up over 28% versus 2019. EBITDA margin ended up at 23.6%, up 190 basis points versus 2019.

Moving to Slide #6, we have a look at the EMEA's strong performance despite a very challenging comparable basis of both 2019 and 2020, both characterized by exceptional organic growth of more than 11%. In Q3, revenue growth at constant ForEx was 14.5% versus '19, with an organic growth at 11.3%. M&A contribution was at 3.2%. Excellent organic growth was reported in France, also driven by the recent regulatory change, Italy and Spain.

EBITDA amounted to EUR 79 million, up 36% versus Q3 '19 with margin at 25.5%, up 400 basis points versus Q3 '19, thanks to improved efficiency and productivity as well as to the outstanding performance of Spain and scale of reach in core counters. In the 9 months, revenue growth versus '19 at constant ForEx was 12%, with a strong organic growth at over 9%. EBITDA amounted to around EUR 275 million, up around 34% versus 9 months '19 with margin at 27.9%, up 450 basis points.

Moving to Slide #7, we have a look at the Q3, really impressive performance of America. Revenue growth was 61% at constant ForEx versus Q3 '19 with a stellar organic performance at over 38%, thanks to an excellent and over 2x market performance in the U.S. driven by the outstanding growth of Miracle-Ear. Very strong performance was also reported both in Canada and LatAm.

M&A contribution was around 23% versus Q3 '19, primarily reflecting the recent PJC Hearing acquisition. Total ForEx effect was negative for over 15% due to the euro appreciation versus U.S. dollar and LatAm currencies. EBITDA amounted to EUR 20 million with margin at 25.2%, up 150 basis points versus Q3 '19. As indicated in the table below, figures, including Elite, were significantly affected by the ongoing wind-down process.

Moving to Slide #8, we have a look at America's performance in the first 9 months. Revenues were up 63% at constant Forex, driven by an excellent organic growth of around 42%. EBITDA amounted to EUR 58 million with margin at 25.9%, up 170 basis points versus 9 month '19. Moving to Slide #9, we have a look at Asia-PAC, which reported a solid revenue performance despite local lockdowns in the period in both Australia and New Zealand.

And despite the extremely challenging comparison basis for the third quarter of about '19 and '20. In Q3, revenues were up at 17.4% at constant ForEx versus 2019, driven by an organic growth of around 4%. M&A contribution related to June in China accounted for around 14% versus '19. ForEx was positive by 1%. Australia posted a solid performance despite the respective measures in place in the different areas of the country during Q3, while New Zealand reported a negative performance due to the lockdowns, which resulted in the mandatory closure of our stores throughout the country for around 6 weeks.

China reported an excellent performance, thanks to an outstanding organic growth and to the contribution of the recent Soundbridge. EBITDA amounted to around EUR 15.7 million with margin at 27%, reducing versus Q3 '19 due to the lower of line growth caused by the lockdowns in New Zealand and Australia and to the strong investment in marketing, primarily in Australia. In the first 9 months, 2021, revenues were up 21% at constant Forex, driven by a very strong organic growth of 11%. EBITDA amounted to around EUR 49 million with margin at 28.8%, contracting versus 2019, reflecting the continued strong investment in marketing in Australia.

Moving to Slide #10, we appreciated the Q3 and 9 months Pro-forma profit and loss evolution, excluding Elite. In the quarter, total revenues increased by 19.2% to EUR 448 million with an excellent 13.8% organic growth versus 2019. The structural efficiencies and the productivity enhancements derived by the measures implemented last year led the EBITDA recurring margin at 21.3%, with an improvement of 180 basis points versus Q3 '19.

Recurring EBITDA increased by 30%, around EUR 22 million to EUR 96 million. Reported figures include around EUR 1.2 million cost primarily related to the GAES integration and the project for the redefinition of Amplifon S.p.A. corporate structure. Following the strong investment plan during the past quarters, D&A increased by around EUR 6 million, leading the recurring EBIT to around EUR43 million, with a growth of over 60% or EUR 16 million versus Q3 '19.

In the 9 months, total revenues increased by 17.6% to EUR 1.38 billion, with an excellent 13.3% organic growth versus 2019. The EBITDA recurring margin came in at 23.6% with an improvement of 190 basis points versus Q3 '19. Recurring EBITDA increased by 28%, around EUR 71 million to EUR326 million. Reported figures included around EUR 5.5 million one-off costs. D&A increased by around EUR 21 million, leading to the recurring EBIT of around EUR 167 million, with a growth of around 43% or EUR 50 million versus Q3 2019.

Moving to Slide 11. We appreciate the Q3 profit and loss evolution, including the Elite performance. On this chart, I will comment only the below EBIT performance, having already commented the group operating performance in the previous chart. Net financial expenses accounted to EUR6.3 million, leading to a recurring EBIT of EUR35 million from around EUR22 million in Q3 '19, posting a 57% increase or EUR 30 million.

Tax rate ended at 27.3%, leading recurring net profit at over EUR 25 million, with a 57% increase versus 2019. Moving to Slide #12. We appreciate the 9 month profit and loss evolution, including Elite performance. As for the previous chart, I will comment only the below EBIT figures. Having already commented the 9 months group operating performance in chart 10. Net financial expenses accounted to around EUR 20 million, in line with 2019, leading to a recurring EBIT of EUR 147 million from around EUR 105 million in Q3 2019, posting a 40% increase or EUR 42 million. Tax rate ended at 27.9%, leading recurring net profit a total EUR 106 million with a 40% increase or EUR 30 million versus '19.

Moving to the following chart, #13. We appreciated the cash flow evolution. Operating cash flow after lease liabilities was in the period equal to around EUR 219 million, posting an improvement of EUR 64 million or 41% versus 9 months 2020. The comparison versus 9 months '19, shows an outstanding improvement of over EUR 100 million, leading to an increase of over 70% versus '19, reflecting the measures implemented during the pandemic to mitigate COVID impact.

Net CapEx increased by around EUR 30 million to around EUR 58 million, leading free cash flow at EUR 106 million versus EUR 127 million last year, posting a growth of EUR 34 million or 27%. Versus 9 months '19, the improvement of free cash flow is over EUR 90 million over 130%. Net cash out for M&A was EUR 63 million, driven by bolt-on acquisition in EMEA, China, and U.S. versus EUR 42 million in '20 and EUR 53 million in '19. The sum of the share buy-back program and the dividend distribution amounted to EUR 78 million, leading net cash flow for the period to around EUR '19 million versus EUR 77 million in 2020 and a EUR 15 million cash absorption in '19. NFP ended at EUR 617 million with an improvement of around EUR 96 million and EUR 240 million versus September '20 and September '19, respectively.

Moving to Slide 14. We have a look at the debt profile trend and the key financial ratios. As mentioned in the previous chart, the net financial debt closed at EUR 617 million, with liquidity accounting for positive EUR 522 million, short-term debt for around EUR 168 million, and medium/ long-term debt accounting for around EUR 970 million. This confirms the very strong financial profile of the group with around EUR 850 million pre-Bay and 500 EUR after-Bay to show financial headroom, including the undrawn revolving credit facilities and following the continuous NFP improvement.

Following the IFRS 16 application, lease liabilities amounted to EUR 430 million, leading the sum of the net financial debt and lease liabilities to EUR 1.05 billion. Equity ended up at EUR 838 million with an increase of around EUR 36 million versus December last year.

Looking at financial ratios, net debt over EBITDA ended at 1.25, with a further reduction versus December 2020 by around 40 basis points. Net debt over equity ended at 0.74, posting a reduction versus 0.80 at the end of 2020. The inclusion of the price that Amplifon paid on the 1st of October for the Bay Audio acquisition could lead the Pro-forma average at around 1.85, well below 2.0, proving our financial possibility.

And now I would hand over to Enrico for 2021 outlook.

[Enrico Vita, executive]

Thank you, Gabriele. So some key messages to conclude the presentation of today. We are obviously very, very pleased about our overall results for the quarter. And we are also very pleased about the progress that we are making on our key strategic initiatives. In particular, the acquisition of Bay Audio will allow us to reach a clear leadership also in this core market and create another company strong goals. In this last quarter, we expect Bay to contribute with additional EUR 15 million to our 2021 top-line guidance of EUR 1.93 billion. So to be clear, we now expect revenues in the region of EUR 1.945 billion. Finally, I can anticipate you that, also October will be strong, which is another element that makes us very confident about our targets for the year-end.

With this, I leave back the floor to Francesca for the Q&A.

[Francesca Morichini, executive]

Thanks, Enrico. I kindly ask operator to open today's Q&A session. [Operator Instructions] Now I'll turn the call over to Judith in order to open for Q&A. Thanks.

[Operator]

Excuse me, this is the Chorus Call conference operator. [Operator Instructions]

The first question is from Veronika Dubajova with Goldman Sachs.

[Veronika Dubajova, analyst]

I will keep it to 2, please, to start with. The first one was, Enrico, I was kind of hoping you could give us a little bit of insight into when you look at September and maybe to the extent that you've seen the numbers for October, how did the growth rates differ versus what you reported in Q3 on aggregate. So if you can give us some sense for the growth rates as the quarter ended and how different they were region by region, that would be helpful.

And in particular, the 2 markets I'm most curious about is the U.S. and France, which obviously have seen somewhat of an outsized growth both in Q2 and Q3. And I'm just trying to understand if you're seeing any normalization in there. So apologies, a broad question, but I think we'd all appreciate the commentary there. And the second question is just if you have any thoughts kind of initial reaction to the OTC regs that came out last week. I appreciate you might be commenting together with the industry or alone, but just would love to get your thoughts on what was maybe unexpected and a positive or negative surprise versus what you might have been hoping for?

[Enrico Vita, executive]

Thank you, Veronika, for your questions. So with regards to the first question and the current trading of October in France and the U.S. So October, as I mentioned during the presentation, is going to be strong. We are very happy about the performance in this first part of the quarter so far. So I envisage another strong quarter also for Q4. And as I said also during the presentation, this kind of performance that we see for October makes us even more confident about our targets for the year-end.

With regards to specifically some key markets, yes, for sure. I mean, we see still strong growth, both in France and the U.S., maybe a bit lower than in the previous quarters, but not that much. On the other side, we expect in this last quarter of the year, of course, a much better performance in the APAC region, where the effect of the lockdowns, in particular, in New Zealand and Australia was quite significant in Q3, and we see the situation normalizing. So I would expect maybe a lower growth in France and the U.S., but higher growth in the APAC region.

With regards to first reaction to the draft proposed rule regarding OTC. Let me first remember that our position has not changed because of this draft regulation. Hearing loss is a very complex medical pathology and the purchase process is driven by the consumer and the consumer journey and not by technology. This is just to say that technical specifications are needed and relevant to guarantee safety and effectiveness to our consumers. But OTC success is not related in our opinion to those aspects and is yet to be proven.

With regards to the different provisions, I would say that on a positive note, there is the proposal regarding the so-called prescription #3448 engage, which fully adopted the kind of suggestion in the consensus paper issued some months ago. And this approach recognizes the important role of the licensed hearing care professionals, helping consumers in their journey towards hearing aids.

On the other side, I have to tell you that we were surprised about the limit that was in terms of output that is in the draft regulation of 115 decibel, which, in our opinion, more than related and, let's say, the issue is more than related to the limit itself, is related to the fact that the potential potentially this limit can be dangerous and harmful for consumers. So I hope that this point will be revised during the consultation process and for the final regulation.

[Veronika Dubajova, analyst]

And Rico, what would be a limit that you would think would be appropriate?

[Enrico Vita, executive]

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

[Veronika Dubajova, analyst]

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

[Enrico Vita, executive]

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

[Operator]

The next question is from Aisyah Noor with Morgan Stanley.

[Aisyah Noor, analyst]

I also have 2, please. The first one is on the EMEA growth, which you posted flat organic growth in the quarter. I appreciate the tough comps here, but you mentioned the positive development in France, in Italy and Spain. So could you call out the moving parts here and which regions were weaker and perhaps your expectations for the EMEA region in Q4 as well? And then the second question is on Bay Audio, given it's now closed, can we expect some of those cost synergies to come into play in Q4 already? And what sort of EBITDA contribution do you expect from this deal in Q4?

[Enrico Vita, executive]

Thank you for the questions. So with regards to the first one and therefore, EMEA, yes, in Q3 we mentioned a strong performance in France, Italy and Spain. In Q3, Germany was, let's say, below the normal growth rates. I have to say that you may recall that during the pandemic. So during last year, Germany was one of the countries and the markets performing better than the others, while in Q3, we have seen Germany lower than usual.

With regards to the second question, therefore, to the integration of Bay. We have -- we are consolidating base starting from the 1st of October. As I mentioned during my presentation, I think that we have started to work together. The 2 teams have started to work together very well with the right approach, with the right attitude. We expect to gain synergies quite soon, not necessarily, of course, in this quarter also because some of them will be also related to the negotiation of some of the agreements, in particular, on the indirect purchases. And therefore, I would say that the majority of the synergies will be at the end of this year, beginning of next year.

[Gabriele Galli, executive]

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

[Enrico Vita, executive]

Absolutely.

[Operator]

The next question is from Niccolo Storer with Kepler Cheuvreux.

[Niccolò Guido Storer, analyst]

Two, the first one on profitability. If you can comment a bit on the big differences that we can appreciate by region, both compared to 2019, with Europe strongly up and APAC down? And also compared to 2020, with Europe still up, while the U.S., which is probably the region which benefited the least from support in terms of cost-cutting, state aid for COVID down year-on-year? The second question is on M&A. You mentioned some bolt-on acquisitions in the U.S. as well, other than PJC, of course. So if you can give us a little bit of color on these acquisitions in the U.S.?

[Enrico Vita, executive]

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

[Gabriele Galli, executive]

Yes. So okay, in terms of profitability, Niccolo, we wanted to focus the presentation and explanation of the results mostly versus '19 because Q3 2020 was quite a peculiar quarter. So in each single region, we had some positive effect coming from some specifics. For example, in Australia, it was due to the contribution, the very high-performance was due to the contribution of social tools, also partially linked and approved in Q3, but related to the previous period, similarly in the U.S., plus we had some positive coming from the rent renegotiation.

So really, the percentages for Q3 2020 are not, I believe, so meaningful especially if you go to a capacity, for example, where the profitability was at 40%. So comparing the trend versus 2019 for the 3 regions, as we were commenting, EMEA was particularly positive, around 400 basis points more. And of course, the 3 most important items were, on the one hand, the implementation of the measures that we identified last year. So productivity, in general, productivity of labor, productivity of external factors, such as purchasing, especially on the indirect side, but also on the direct side, so this is something that we saw as a discontinuity during the last quarters, and I believe that this is a jump up, which we see starting from 2021 on. So this is the new basis for the cost.

The second very important item, which Enrico was mentioning, was the successful implementation of gas integration. So our GAES integration is going very, very well compared to 2019, we have many items today in place, such as the restructuring. For example, as you remember, in Q3, Q4 '19, we made the restructuring in Spain. So the cost base in terms of human resources was #Elite. Today, we are much, much more efficient. Probably we still can be more productive moving forward, but the comparison is very strong versus '19. And the third item is the scale reach in core countries.

So EMEA, if you adopt the 2 years of growth has been increasing significantly the revenue basis in the quarter around 14.6%, out of which 11.3% is the organic portion. And so together with organic growth, of course. You can be much more productive, much more efficient. And so the EBITDA margin can be much, much better. Similarly, U.S., I would say, in the sense that the differential is not as high as EMEA, but 150 points is basically driven by the 2 effects that we were commenting before. So scale and productivity measures because also in U.S., we implemented a very important plan for improving the productivity. So for U.S., I would say that these are the 2 most important elements.

And finally, for Asia-PAC, the trend is a bit different, but this is driven by the 2 facts that we commented during the presentation. So first of all, in Australia, we started implementing a very strong marketing campaign in order to reinforce our positioning on the private market. And so the investment on the brand start in 2020 are very, very important. So this is a very important item, which we will see also in the next quarters because we believe that the private market is a very good opportunity for the group.

The second item, which is more linked to the quarter is the fact that we have been growing. And the organic has been 3.7% versus '19, but of course, much less than what was expected because at the end, during Q3, we had 6 weeks of full closure in New Zealand. We had several weeks of closure in Victoria state. So this is not -- this should be considered when analyzing the total volume and the total revenue of the quarters.

[Enrico Vita, executive]

Thank you, Gabriele. So with regards to the second question and for the M&A in the U.S., yes, we have acquired 2 smaller franchisees in July, one in Alabama and the other one in California. So the contribution that you have seen is related to those 2 franchises.

[Operator]

The next question is from Domenico Ghilotti with Equita.

[Domenico Ghilotti, analyst]

Two questions. The first one is on the Bay Audio. So if I remember well, you were planning something like AUD100 million or so you reached AUD100 million sales in the last year. And it was progressing 30%, if I remember well, when you announced the acquisition.

So I'm a bit surprised to see just EUR 15 million contribution from Q4? And the second question is a follow-up on the M&A strategy in the U.S. Can you elaborate a little bit more? So who is managing, for example, the last 2 acquisitions? So are you giving the responsibility for the integration to the PJC manager? So how are you with this strategy? And should we see an acceleration or a continuation of the strategy going forward?

[Enrico Vita, executive]

Thank you, Domenico, for the questions. So with regards to the first question, and therefore, Bay Audio, there, we put circa EUR 15 million, and might be more than that. We wanted to be quite cautious in giving you a number because of the current situation still in place in Australia. I definitely expect the situation improving, in particular, in Australia in November and December, but still, in October, we had some low downs.

So this kind of guidance is taking into consideration the current situation, which is not solved completely. And therefore, some uncertainty still persists, unfortunately, in that market, but really nothing to be worried, in terms of impact of the pandemic in the future because we see that the vaccination rates are improving significantly, also in Australia and New Zealand and also Bay Audio, as I said during the presentation, we are very happy about how they're performance -- performing. So EUR 15 million could -- it's quite, let me say, a conservative guidance, which in order to take into consideration the fact that still, as I said, we had some lockdowns throughout all Q3 and also October some -- in some weeks of October. But really nothing to be concerned and nothing to worry about.

With regards to the second question and therefore, M&A strategy in the U.S., definitely, you know very well. As we stated during our Capital Market Day, the U.S. is a key area of focus for us and definitely, if there will be the opportunity, we will continue in our strategy to get direct access to consumers. We have acquired these 2 small franchises during the month of July.

I would say that in terms of who is managing from a negotiation point of view, the large acquisitions like PC are managed from our M&A team here in corporate. Whilst when we have to deal with similar smaller franchisees like the ones that I mentioned just before, the negotiation is managed locally, so from the U.S. in terms of integration, we have a team in the U.S., which is in charge of the integration of both large and small acquisitions.

[Domenico Ghilotti, analyst]

And just a follow-up, do you expect -- so there is really -- I'm not saying the similar performance as we saw in PJC, but do you expect really significant upside, once converted into the U.S. Absolutely. This is the kind of experience that we had with PJC, which now is performing really in a very outstanding manner, and we expect at the same time. If you want in a percentage -- from a percentage point of view, we expect even a better performance in these small franchisees because they are more family company while PJC was a more structured franchisee. So the potential upside could be even higher in these small targets.

[Operator]

The next question is from Oliver Metzger with ODDO.

[Oliver Metzger, analyst]

So the first is about the French market. So at Veronika's question, you already made a bullish comment for the last quarter. So if we go back a little bit, the initial expectations for France was just a strong start in '21. Now it's -- this positive trend has become more sustainable. So what do you expect for next year? Do you think -- or do you share some expectations that the current level might represent the new baseline for the country? That's #1. #2 is a financial one. Could you comment on your capital expenditures. So you're basically at the same level as 2019 despite some more executed acquisitions suggest that you had to invest more funds into the acquired stores. So is there any reason why this level is still so low?

[Enrico Vita, executive]

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

[Gabriele Galli, executive]

Yes, yes, absolutely. No, no. Regarding Capex, Oliver, I confirm you that we are accelerating. So of course, I mean, seasonality of the different kind of Capex may play some role on it. But if I look at the end of 2021, the expectation for the total CapEx is above the expectation for 2019. In 2019, we spent around EUR 100 million, and the expectations are more in the range of EUR 110 million, EUR 150 million for 2021.

[Operator]

The next question is from Kate Kalashnikova with Citi.

[Kateryna Kalashnikova, analyst]

Gabriele, this is Kate Kalashnikova from Citi. My first question is on impact from wage inflation and supply chain challenges. As we think about next year, what impact on margins do you expect on wage inflation? And do you expect high manufacturer prices given supply chain challenges that manufacturers are experiencing this year and into the next year? And my second question is on marketing costs. Could you comment by how much market cost increased compared to 3Q 19? In other words, I want to understand what the margin expansion has been if excluded the increase in market local.

[Enrico Vita, executive]

Thank you for the 2 questions. So with regards to the first one, let me, first of all, share that in terms of supply chain, today, we have not experienced any problem with any of the different manufacturers. You know that we source from 5 manufacturers. So we have a quite spread of supply amongst the 5 of them. And to be honest with you, none of them has created as any significant problem in terms of supply chain.

On the broader part of the question related to inflation, if I'm correct on the different cost inputs for next year, we do not see any material impact. Actually, I think that we have still room for, for example, improving the efficiencies of our purchases on the indirect cost, in particular, where we have started to work just from a couple of years in a very structured way. So I don't think that inflation will be an area of concern for next year. There are some local and very specific situations.

I would mention maybe given the fact that the borders are closed in Australia, we see some inflation on labor costs, but we expect this to normalize as soon as the borders will be reopened, and the impact is not that meaningful on the total growth. With regards to our marketing cost in comparison with 2019, we are investing definitely more than 2019. And I would say, in particularly in Q3, we have invested even more, I would say, something like in the region, 30%, 35% more than 2019. And we expect actually our marketing investments to continue to grow in line to our usual growth rates and in line with the revenue growth.

[Kateryna Kalashnikova, analyst]

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

[Enrico Vita, executive]

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

[Operator]

The next question is from Julien Ouaddour with Exane BNP Paribas.

[Julien Ouaddour, analyst]

So my first question is on China. So you mentioned some acquisition in China this quarter. And I think your first Amplifon store in Shanghai. So can you just give us more color about it? And how many stores maybe do you have currently in the country?

Also, it would be probably interesting if you could draw a sort of road map, I would say, for the Chinese journey for the coming years. So do you expect to grow the business at, I would say, around 50% annually in the next couple of years, given you're coming from a low base. And if you also could split growth between organic greenfield and M&A to be super helpful. So that's my first question.

On the second one is more on the U.S. So you are doing extremely well. 2 quarters in a row, you grow more than twice faster than the market. Should you believe that this is because, I would say management now fully focused on the 2 growing businesses, so Miracle-Ear and managed care? Or is it maybe something else that I didn't point out. And just going forward, how do you see the U.S. growth, including the fact that you are accelerating in M&A and new digital lead generation and also in Managed care, you are expanding to new segments.

[Enrico Vita, executive]

Thank you. Thank you for your questions. So with regards to the first question and in particular, with regards to China. So as you know, we have completed the last few months, we have completed our second JV. Today, the number of stores that we have is in the region of 100 to 110 stores in China. We -- and in terms of revenues on a full year basis, we are talking about EUR 15 million in terms of revenue.

The 2 JVs are performing in a very, I would say, extraordinary way because our revenues despite, of course, starting from a quite low base are growing very, very rapidly, which makes us confident that definitely, we can go on and accelerate on our plan of expansion in China. Yes, we mentioned about our first new opening in Shanghai. I think that since the beginning, we said that our strategy in China would be a strategy of a mix of components in terms of growth. So acquisitions, organic growth and also greenfield growth, and in particular, opening.

So we have opened our first store in Shanghai, just opened. We have also established a new headquarter in Shanghai for the region. And looking ahead, definitely, our intention is to continue to expand in this market, of course, the kind of speed that we will have in terms of expansion, it will depend also from on an opportunistic way from availability of targets. As you know, in China, there are not many big targets. And therefore, we are looking also to many different potential targets of smaller dimension.

With regards to the U.S., I think that our performance, definitely, there is an element which is related to the fact that now our whole organization is focused on the 2 businesses, which are more close to what we know we can do well, in particular, retail and managed care. And also, I would mention the fact that during the last year or so, we have definitely strengthened our organization in the U.S. today, I think that we have a much stronger management team than just 24 months ago. So I think that we start -- we are starting to see results coming also from the fact that we have built in the last couple of years a much, much stronger management team. And therefore, I expect positive -- very positive results from the U.S. also in the coming quarters and next year.

[Operator]

Ladies and gentlemen, there are no more questions registered at this time.

[Francesca Morichini, executive]

Thank you. So many thanks to everybody for taking part to our call, and I kindly ask the operator to disconnect. Thank you.

[Enrico Vita, executive]

Thank you.

[Gabriele Galli, executive]

Thank you.

[Enrico Vita, executive]

See you soon. Bye.

[Operator]

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