Amplifon SpA

MIL:AMP

Earnings Call Transcript 2022-Q3

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Amplifon Third Quarter and 9 Month 2022 Results Conference Call. [Operator Instructions] 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.

[Francesca Rambaudi, executive]

Good afternoon, and welcome to Amplifon's conference call on third quarter and 9 months 2022 results. Before we start, a few logistic comments. Earlier today, we issued a press release related to our results in this presentation, which are posted on the 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 the 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, I'm glad to comment with you on our very strong future results. Strong despite still an exceptionally high comparison base, in particular in France and the U.S. .

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 exceptional heat 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 constant 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 U.S., 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, is definitely an excellent quarter in terms of profitability. The reasing 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.

[Gabriele Galli, executive]

Thanks, Enrico, and good afternoon, everybody. Moving to Slide #4, we have a quick look at the group financial performance in Q3, which, as already commented by Enrico, offer 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% constant ForEx versus Q3 '21, despite the well-known remarkable comparison 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, 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 [ rate ] was positive for 3.6%, primarily for the U.S. dollar appreciation. EBITDA recurring came in at EUR 109 million, 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 #5. We have a look at our financial performance in the 9 months. Revenues were up 11.6% at current ForEx and plus 9% at 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 EUR 370 million, up over 13% versus 9 months '21, with margin at 24%, up 40 basis points.

Moving to Slide #6, we have a look at the EMEA performance. Revenues at constant ForEx grew 1% versus 2021. Organic performance was positive, despite a very strong comparison basis with our 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 EUR 82 million, 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 9 months, revenue growth was 3.6% at current ForEx and 3.1% constant ForEx, of which 2.4% organic. EBITDA amounted to EUR 292 million, up 6.4% versus 2021, with margin at 28.6%, posting a strong 70 basis point growth versus 9 months 2021.

Moving to Slide #7, we have a look at another outstanding performance of Americas. Revenue growth was over 27% at current ForEx, over 14% of constant ForEx, with an outstanding organic growth of 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 well-above market organic growth, driven by Miracle-Ear 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%, and ForEx [ tailwind ] positive for around 13% due to the strong dollar appreciation versus euro.

EBITDA amounted to circa EUR 25 million, posting a 24% growth versus 2021, with a margin at 24.6% after strong investments in the business. In the 9 months, revenues were up 25.8% at current ForEx and over 15% constant ForEx, driven by an excellent organic growth of 12.6%. EBITDA amounted to EUR 73 million, posting a 27% growth versus Q3 '21, with margin at 26%, up 10 basis points.

Moving to Slide 8. We have a look at Asia Pac, where we had an excellent revenue performance despite the 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% constant ForEx, thanks to excellent organic growth of around 10% in acceleration throughout the quarter. M&A contribution, primarily related to Bay Audio, was over 30%. ForEx positive for around 8%.

EBITDA reached EUR 22.8 million, an increase of over 45%, with margin at 26.4%, contracting versus Q3 '21 due to the significant investment in marketing in Australia, but showing an improvement compared to the previous quarters. In the 9 months, revenue were up around 38.8% at current ForEx and 33.9% at constant ForEx. EBITDA came in at around EUR 62.7 million, with margin at 26.3% after continued significant investment in marketing in Australia.

Moving to Slide #9, we appreciate the Q3 profit and loss. In the quarter, total revenues increased by 12.1% to EUR 502.5 million. EBITDA recurring margin came in at 21.8%, with an improvement of 50 basis points versus Q3 '21. Recurring EBITDA increased by 14.3% to over EUR 109 million. Reported figures include EUR 0.6 million one-offs, primarily related to the integration cost for Bay Audio and GAES.

D&A, including PPA and the lease accounting depreciation, increased by EUR 7.8 million, leading the recurring EBIT to EUR 49 million, with a growth of 14.3% or EUR 6 million versus Q3 '21.

Financial expenses increased by EUR 1.8 million at EUR 8.3 million, leading profit before tax at EUR 40.8 million versus EUR 36 million in Q3 '21. Tax rate slightly decreasing versus last year, led to a recurring net profit of EUR 29.7 million, posting an over 12% increase versus last year.

Moving to Slide #10. We see the 9-month profit and loss evolution. Total revenues increased by 11.6% to EUR 1.54 billion. Recurring EBITDA increased by 13.3% to EUR 370 million, with margin at 24%, with an improvement of 40 basis points versus 9 months '21.

Reported figures include around EUR 6 million one-off cost, primarily related to Bay Audio and GAES integration. D&A, including PPA and the lease accounting depreciation, increased by around EUR 19 million, leading recurring EBIT to around EUR 191 million, with a growth of 14.6% or around EUR 25 million versus last year. Net financial expenses accounted for over EUR 25 million, with an increase of around EUR 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 GAES loan after the refinancing that are generated of EUR 4.6 million income at the end of 2021 and by the negative impact of interest rate increase on leases.

Profit before tax came in to around EUR 166 million from around EUR 146 million last year, posting therefore, a 14% increase. Tax rate ended at 27.7%, leading recurring net profit at circa EUR 120 million, with an increase of 14% versus '21.

Moving to Slide #11, we can appreciate the cash flow evolution. Operating cash flow after lease liabilities was in the period equal to EUR 218 million, substantially in line with exceptionally high figure of EUR 219 million in 2021, which was over EUR 90 million higher than the EUR 127 million pre-pandemic figure achieved in the 9 months 2019.

Net CapEx increased by EUR 17 million to EUR 75 million, leading free cash flow to around EUR 143 million versus EUR 161 million of 2021 highly comparative figure, which was over 130% higher than the around EUR 69 million of pre-pandemic figure achieved in 2019. Net cash out for M&A was around EUR 52 million, driven by bolt-on acquisitions, primarily in France, Germany and China.

Following a strong buyback of 1.2 million shares or EUR 43 million cash out in the period and the dividend distribution for EUR 58 million, net cash flow for the period ended negative for EUR 10 million with positive -- versus positive EUR 19 million in 9 months of 2021.

NFP ended at EUR 882 million, slightly increasing versus year-end '21 after around EUR 230 million investment in CapEx, mainly buybacks 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 EUR 882 million, with liquidity accounting for EUR 218 million, short-term debt accounting for around EUR 197 million and medium/long-term debt accounting for around EUR 900 million.

This confirms the very strong financial profile of the group with a financial headroom of over EUR 450 million, including the undrawn revolving credit facilities.

Following the IFRS 16 application, lease liability amounted to EUR 471 million, leading the sum of net financial debt and lease liability to EUR 1.35 billion. Equity ended up at around EUR 1.25 billion, with an increase of around EUR 100 million versus December this year.

Looking at financial ratios, net debt over EBITDA ended at 1.61x, improving versus 1.68x at December 2021. And net debt over equity ended at 0.86x versus 0.94x at the end of last year.

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

[Enrico Vita, executive]

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 9 months, our performance was strong, above market and overall in line with our plan.

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 EUR 2.15 billion and profitability in the region of 25%. This outlook reflects the already-anticipated sales for Bay now at circa EUR 70 million due to the well-known impact of the last wave of COVID infections during the Australian [ winter ].

Looking further ahead, let me conclude by underlying 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.

[Francesca Rambaudi, executive]

Thanks, Enrico. I kindly ask the operator to open today's Q&A session. Please kindly limit your questions to maximum 2 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.

[Operator]

[Operator Instructions] The first question is from Niccolò Storer of Kepler.

[Niccolò Guido Storer, analyst]

Good afternoon, everybody. Two questions on the new guidance. So the first one on revenues. If my calculations are right, basically your new guidance implies an organic growth for 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 EBITDA. Again, the implicit growth for Q4 is 0 in terms of margin. So probably [ 0.1% ]. And so my question is, is this reduction in your ambition basically fully driven by lower volume? Or is there anything else we should be aware of?

[Enrico Vita, executive]

Thank you, Niccolò, 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. Whilst 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. And nothing else.

[Niccolò Guido Storer, analyst]

Have any comment by region on [indiscernible] in Q4?

[Enrico Vita, executive]

Sorry, sorry. Well, in terms of trend by region, you should expect a similar trend than Q3. So U.S. is 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 EMEA region.

[Operator]

The next question is from Hassan Al-Wakeel of Barclays.

[Hassan Al-Wakeel, analyst]

I have two questions, please. Firstly, if I can follow up on the guidance and what looks to be a 1 percentage point reduction in growth versus 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're 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?

[Enrico Vita, executive]

Yes, absolutely. Thank you for your questions. 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 9 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 9 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 we also consider that in terms of M&A, we are year-to-date at about EUR 50 million. We -- as you know, our target for the year is EUR 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.

So we are quite confident to be close to EUR 100 million as originally planned in terms of investment for M&A. But of course, being some months late, 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.

[Hassan Al-Wakeel, analyst]

With regard -- sorry, go ahead.

[Enrico Vita, executive]

No, I was going to answer to your question about the U.S. And with regards to the U.S., 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.

[Hassan Al-Wakeel, analyst]

That's very helpful. And if I can follow up on the first part of your answer, are you seeing any evidence of down trading or elongation of product cycles at all? And does this adjustment bear anything on your outlook for FY '23, given this is what investor questions have focused on?

[Enrico Vita, executive]

No. In terms of down trading, we do not see any deviance from the past. In terms of -- in fact, in terms of ASP actually, we have been able actually to continue to improve our ASP 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 whilst still strong on new customers.

[Hassan Al-Wakeel, analyst]

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

[Enrico Vita, executive]

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.

[Operator]

The next question is from Domenico Ghilotti of Equita.

[Domenico Ghilotti, analyst]

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 are mentioning extra investment in marketing, I presume. Do you expect to continue with this extra investments? So are you prioritizing top line versus profitability in the next few quarters?

And the second question is, are you seeing, in general, not 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?

[Enrico Vita, executive]

Yes. So with regards to Americas, 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 #1 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 9 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 any inflation on this regard also because we -- in terms of direct cost, so cost for hearing aids, we have been able actually to conclude some important contracts with our -- 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.

[Domenico Ghilotti, analyst]

Okay. And the reaction to this small adjustment that you introduced in the U.S. market, is that -- is there [ another ] market?

[Enrico Vita, executive]

No, we have not seen any -- because clearly, we can look at it, looking at conversion rates in the stores, and they are not in benefit.

[Operator]

The next question is from Veronica [indiscernible] Of Citi.

[Unknown Analyst]

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 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 on volumes. I mean if you can give us a little bit of flavor on what you've seen in October, I mean I appreciate the month hasn't fully finished, that 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.

[Enrico Vita, executive]

Yes. 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, therefore, 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, and 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 the 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 3 countries that you mentioned also in Q4. Let me say that EMEA, Europe is the region where clearly we see lower growth, as you have seen also in our Q3 results. And as I said before, we expect the same kind of upturn also in Q4.

[Unknown Analyst]

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

[Enrico Vita, executive]

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

[Unknown Analyst]

Okay. So you kind of go from 1% to 2% to 2% to 4%. That's your expectation at this stage?

[Enrico Vita, executive]

Yes.

[Operator]

The next question is from Julien Ouaddour of Bank of America.

[Julien Ouaddour, analyst]

First one, just on profitability to comeback. 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 detail about it, why is it different this time?

And just second question on the guidance. So all the hearing aid manufacturers revised their guidance last summer, you didn't. Would you say that this is what you are seeing in October, so you mentioned sort of muted October market, which has changed your view, or could have -- could the guidance have been revised earlier in Q2?

[Enrico Vita, executive]

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's 1%, EUR 20 million. I think we already anticipated the last time that EUR 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 Amplifon, this is a major achievement.

And also, if you look at profitability, at the end of the day, what are we talking about? We're talking about EUR 3 million, EUR 4 million, which is in the broader context, really very minimal also because I'm not prepared to sacrifice the core investments.

And in particular, also in this quarter 4, we are going to invest in marketing and all the other things, in order to strengthen the equity of our brands and so on and so forth.

So I would really like to share with you the view that at the end of the day, we are talking about really very minimal differences.

[Julien Ouaddour, analyst]

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 -- like for Q4, it seems that basically the market won't grow at the normal 4% to 5% next year. So just to be sure that you agree with this. And if you have any other comments about it, it would be super helpful.

[Enrico Vita, executive]

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, it's because of the external environment or it's 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 and being part justified with the external environment, in part also justified by last year 2021 was a really exceptional year after the 2020 affected by COVID, where we are -- in a year where we have seen the pent-up demand to be released.

Also according -- you may recall, the lockdowns in 2 months and then the release of the restrictive measures and so on and so forth. So 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.

[Operator]

The next question is from Oliver Metzger of ODDO BHF.

[Oliver Metzger, analyst]

So the first one also on your bottom line guidance. So you speak of around 25%. Last year, we're 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 #1 question.

Number 2 is also a kind of follow-up from a previous question. So for years, we saw a margin development to remain comparatively starting 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 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 -- read some margin deterioration? Or is it just this pure quarterly exception you show right now because the investments you have planned about, you have started are basically already done and you cannot adapt them to the degree of operating leverage?

[Enrico Vita, executive]

Thank you. Thank you for the question. Now let me say, first of all, you may recall that in 2021, we delivered a 24.8% profitability. Now we are staying in the region of 25%. So definitely, it's an improvement versus last year. Also -- which is, in my opinion, again, a remarkable result if you consider that last year, our profitability increased by almost 200 basis points.

So to continue to grow in profitability, in my opinion, is a very, very good achievement. Then, with regards to next year, 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.

On the -- 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 this first 9 months of this year. And we are also envisaging same kind of situation also in Q4.

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. Then, let me say once again, you know very well the external environment. If there will be a major deviation in terms of macroeconomic outlook, et cetera, et cetera, we'll see. But our goals remain unchanged for the time being.

[Oliver Metzger, analyst]

Okay. One, if I follow up...

[Gabriele Galli, executive]

I mean, we are discussing about 20 basis points, the difference from the 25.2% and the broad 25%, which is, as Enrico mentioned, EUR 4 million in a situation where, I mean, geopolitical scenario is completely different from what it was in the past.

If I look at it a 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 expectation of every single analyst before. We have to take in mind where we stand and where -- normally, the economy is developing.

[Oliver Metzger, analyst]

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

[Enrico Vita, executive]

Look, I am not changing what is our, let's say, long-term goal, which is from one side to continue to grow above the market growth, on the other side, to continue to improve profitability year-on-year. This is our goal.

Now about 2023, and 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 means the same.

[Operator]

The next question is from Robert Davies of Morgan Stanley.

[Robert Davies, analyst]

I had a couple. One was just on the EMEA region. Just if you could flash out 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?

[Enrico Vita, executive]

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.

[Robert Davies, analyst]

Okay. 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 know you said you had some extra sort of reinvestment spend. 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 spend basically year-on-year in the APAC region?

[Enrico Vita, executive]

Yes. 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 cannot confirm to you today. What I mean is that I expect also in quarter 4 to continue to improve our profitability.

Then 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 Hearing Care to Amplifon brand because we saw an opportunity to build, leading 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.

[Robert Davies, analyst]

And then maybe just one final follow-up. Just on the pricing that you're planning to put through, can 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?

[Enrico Vita, executive]

Yes. Well, we are planning to implement some pricing actions starting from Q1 next year.

[Robert Davies, analyst]

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

[Enrico Vita, executive]

Yes, yes. I would say, yes. Maybe you can have a 1 month delay, something like that, but not much more than that.

[Operator]

The next question is from Peter Testa of One Investments.

[Peter Testa, analyst]

[ Three ] questions, 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?

[Enrico Vita, executive]

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.

[Peter Testa, analyst]

Okay. And then just a question on Q3 to Q4. I mean, obviously, Q3 was affected by lockdown, some in Australia and New Zealand. You have the traffic impact of the hot weather, and then there is 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?

[Enrico Vita, executive]

Yes, you're absolutely right. In reality, yes, maybe we have lowered EBITDA, 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 difference, which is in the region of EUR 20 million, is also mainly due to the reasons that I mentioned before. So from one side, Bay Audio delivering EUR 10 million less than originally planned because of what you mentioned as well. And also, we are a bit late, I would say, 3, 4 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 [ EUR 90, EUR 100 million ]. So -- 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.

[Peter Testa, analyst]

Yes. Okay. And then last question, please, is just you mentioned a minute ago that you've 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 of the economic context, fixed income, inflation and so on?

[Enrico Vita, executive]

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.

[Operator]

The next question is from Giorgio Tavolini of Intermonte.

[Giorgio Tavolini, analyst]

I was wondering if you could give us more update or a follow-up on 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 expand the presence, the local presence there, in particular, after -- with the recent acquisitions from your competitors in the country?

The second question is on the lease liability cost. They are increasing quite materially over the last 2 quarters. Is it driven by the new point of sales that you are adding, even though as [ what I know ] they attribute to the lower M&A activity or to the -- due to the lease inflation?

[Enrico Vita, executive]

With regards to -- 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 U.S., 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 be pleased to Gabriel to maybe...

[Gabriele Galli, executive]

The most important reason is the number of shops. So last year, we include the Bay Audio 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 this first 9 months of the year.

So the comparison period after the 9 months as of this year, Bay Audio and other bolt-on, while during last year, Bay Audio was [ not closed ]. That's the most important reason. No significant impact from inflation.

[Francesca Rambaudi, executive]

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.

[Operator]

Okay. The last question is from Niels Leth of Carnegie Bank.

[Niels Granholm-Leth, analyst]

Two housekeeping questions. First one would be, how much would you expect your nonrecurring items you're affecting your EBITDA margin to arrive at for the full year? I can see it was 5.6% at the 9-month period, but the guidance on the full-year number 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.?

[Gabriele Galli, executive]

Yes. I would answer to the last question [Technical Difficulty] which is a couple of million per quarter. Usually, moving to the Q4, we have some acceleration of this matter. But yes, there would be, of course, the integration of Bay Audio going on, so some acceleration. But we don't see anything exceptional. So I said maybe up to maybe [ 3 to 4 ].

Moving to the second question. So the tax rate, we believe the improvement that we have today, which is around [ 30 ] basis point versus the first 9 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, I mean. This should be a very sustainable trend of improvement.

[Francesca Rambaudi, executive]

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

[Enrico Vita, executive]

Thank you. Thank you, everyone. Thank you.

[Gabriele Galli, executive]

Bye.

[Enrico Vita, executive]

Bye-bye.

[Operator]

Ladies and gentlemen, thank you for joining the conference. You may disconnect your telephones. Thank you.