Amplifon S.p.A. (AMP.MI) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Amplifon Second Quarter and First Half 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference to Ms. Francesca Rambaudi, Investor Relations and Sustainability Senior Director of Amplifon. Please go ahead, madam.

Thank you. Good afternoon, and welcome to Amplifon's Conference Call on Second Quarter and First Half 2025 Results. Before we start, a few logistic comments. Earlier, 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 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 Amplifon CEO, Enrico Vita.

Thank you, Francesca. Good afternoon, everyone, and thank you for joining us once again today. As usual, let's begin with a general overview of the global market dynamics which was clearly impacted by ongoing uncertainties and the various well-known events that occurred during the second quarter. This resulted in a high level of volatility and very different trends across markets also influenced by some temporary factors that I will explain shortly. However, we believe that the impact of recent geopolitical and macroeconomic events and consumer confidence peaked in Q2. Hence, we anticipate a gradual improvement in market conditions in the second half of the year. Starting with the European market, it shows a 2-speed dynamic. France confirmed our assumptions delivering strong volume growth driven by the anniversary of the RAC zero reform. Germany also posted solid growth. Conversely, nearly all other markets reported subdued trends partly also due to temporary effects. Southern European markets, in particular, were affected by the anniversary of the strict COVID, the lockdowns in 2020, which significantly reduced the return in customer base during the quarter. In fact, it is worth noting that the repurchase cycle in Italy, Spain and Portugal, typically picks 5 years after the first purchase. Moreover, the June heat wave, you probably remember, certainly did not help affecting especially the aging population, including many of our customers. For these reasons, we expect a better market environment in Europe during the second half of the year, also supported by an easier comparison base. I would also like to emphasize once again that we believe that the European market's performance in recent years compared to historical levels, has created some pent-up demand that could be potentially unlocked in the future. In the private U.S. market, as expected, we saw an improvement compared to Q1. However, the trend remained volatile and still below historical averages. Over the first 6 months, the market was slightly lower than last year overall with the recent uncertainties clearly impacting consumer behavior. That said, we do expect also year-end improvements in the coming months. In Asia Pacific, I needed to mention the continued subdued trend of the Chinese market and also a negative trend in Australia. All in all, we estimate that the global market grew something more than 2% in Q2, primarily supported by the strong volume performance in France which has now become the second largest market globally and also the plus 3% in the United States. Let's now turn to our performance within this market context. Our sales grew by 0.6% at constant exchange rates, while the euro appreciation versus nearly all major currencies in our footprint, has an impact of minus 2.5%. Overall, organic growth performance was minus 1.7%, mainly driven by EMEA's minus 2.5% organic performance which was also impacted by less favorable market mix. In fact, as you know, our presence is particularly strong in Southern European countries, which were among the most negatively affected in the quarter. However, it is also important to highlight and remember the impact of Easter occurring in April this year compared to March last year as well as the factor of a fewer trading days and a very high comparison base, given that we posted a 7% growth at constant exchange rates in the same period last year. The contribution from M&A activity was strong at 2.3%. Regarding adjusted EBITDA we delivered a 24.9% margin, minus 180 bps year-over-year, mainly due to lower operating leverage and unfavorable geographic mix. Finally, we posted an adjusted net profit of approximately EUR 49 million with a margin of 8.2%. In response to a clearly complex market environment, even though we expect conditions to improve in the second half of the year with uncertainty likely having peaked in Q2, we have chose to act swiftly and decisively. We launched a comprehensive program aimed at structurally enhancing profitability, which we believe will also strengthen our competitive position over the medium term. The program on which we have named Fit4Growth target a run rate improvement of 150 to up 200 basis points in adjusted EBITDA margin by 2027 and is structured around 4 key areas of action. First, we are working to increase the efficiency of our retail network. This includes targeted consolidations and selective closures of less or underperforming stores as well as driving further productivity gains through the optimization of in-store processes. Second, we are enhancing the efficiency of our back office operations. This involves streamlining internal processes and improving organizational structure also supported, for example, by digital solutions. The third area involves an even more decisive approach to cost management. We're taking important steps to reduce general and administrative expenses in the short term. For example, through a reduction in indirect spending like travels, consultancies, et cetera. At the same time, we are rigorously prioritizing our projects focusing only on those initiatives that offer the highest return on investment. Finally, we have launched a strategic review of our business segments to assess their attractiveness and long-term potential. This includes evaluating our competitive positioning across market such as, for example, the wholesale business in China to ensure that our resources are allocated to the areas with the greatest opportunity. As mentioned earlier, the program is expected to generate a run rate improvement of 150 to 200 basis points in adjusted EBITDA margin by 2027. I will hand it over to Gabriele, who will provide more details on our financial results. Gabriele, over to you.

Thanks, Enrico, and good evening to everybody. Moving to Chart #6, we have a look at the group financial performance in Q2 which as already commented by Enrico reflects the challenging macroeconomic and geopolitical context, which appears to uptick in Q2. Revenues grew 0.6% at constant exchange rates while the FX was minus 2.5% due to the appreciation of the euro, mainly versus the U.S., Australian and New Zealand dollars, bringing growth at current exchange rates to minus 1.9%. Organic performance of minus 1.7% reflects around 1 trading day less versus 2024, equivalent to around 1.5% of growth, the high comparison base as in Q2 '24 growth at constant FX was plus 7% versus Q2 '23. The overall soft market environment with the U.S. private market showing sequential improvement versus Q1, although still volatile and below historical levels. The European market presenting a two-speed dynamic with France and Germany showing a positive momentum, while the rest of the region showed a softer consumer confidence, the effect of the fifth anniversary of the 2020 lockdown measures impacting the portfolio of returning customers particularly in Italy and spain and the exceptional heatwave across Southern Europe in June. Finally the consumer confidence remain muted in China. M&A contribution from bolt-on acquisitions, mainly in France, Germany, Poland, the U.S. and China remained sustained at 2.3%. Adjusted EBITDA came in at EUR 147 million, with margin at 24.9%, a decrease of 180 basis points due to lower operating leverage, the geographic mix in EMEA, the dilution stemming from the fast growth of Miracle-Ear Direct network in the United States as well as the performance in China. Moving to Chart #7. We take a look at our financial performance in H1. Revenues were up 1.6% at constant FX versus H1 '24 with organic performance at minus 0.8%, reflecting over 1.5 fewer trading days, the very high comparison base and the just mentioned a volatile market environment. With the U.S. private market slightly negative and below historical growth level in the first half of the year. M&A contribution was plus 2.4%, with over 220 locations acquired year-to-date, while FX was a minus 1.3%, increasing throughout the period. Adjusted EBITDA was EUR 288 million, with margin at 24.4%, 80 basis points below previous year due to the reasons just mentioned. Moving to Slide 8. We have a look at the EMEA performance. In the quarter, revenue growth at constant FX was plus 0.3% versus Q2 '24 with organic performance at minus 2.5%, reflecting 1 trading day less versus Q2 '24, which is equivalent to around 1.5% of growth. The impact of Easter holidays in April this year as well as the two-speed dynamics of the European market I have just described. M&A contribution related to bolt-ons, mainly in France, Germany and Poland was 2.6%. Adjusted EBITDA was EUR 110 million, with margin at 28.9%, 210 basis points below Q2 '24 due to the lower operating leverage and the less favorable country mix in the region. In H1, revenue growth was plus 1%, with organic performance at minus 1.6% and M&A contribution at plus 2.6%. Adjusted EBITDA was circa EUR 223 million with margin at 29.1%. Moving to Slide #9. We have a look at the performance in Americas, revenue growth in the quarter was over 3% at current FX, while the FX headwind was a material minus 7%. Organic growth was flat due to the very high comparison base, as in Q2, '24, organic growth was over plus 15% versus Q2 '23. The U.S. market performance, which improved sequentially versus Q1, but remained volatile and below historical levels and the soft market in Canada as well. M&A contribution was over [ 3%, ] also thanks to the acquisition of 24 locations in Arizona in April. Adjusted EBITDA was EUR 30.4 million with a margin of 24.4% versus 27.1% in Q2 '24 due to the fast growth of Miracle-Ear direct network in the U.S. and the integration of recent acquisitions. In H1, revenues were up 4.3% at constant FX driven by positive and above market organic growth despite a remarkable '24 comparison base when the region grew 13% versus 2023. Adjusted EBITDA was EUR 57 million, with a margin at 23.5%, 170 basis points below previous year for the reasons I just mentioned. Moving to Slide 10. We have a look at the Asia PAC performance. In the quarter, revenue growth was driven by inorganic growth in Australia and New Zealand, offset by the performance in China where consumer confidence was muted. Please also consider that this reflects a very high comparison base with a 2024 organic growth of around 6% versus Q2 '23. A perimeter change of minus 0.4% due to the exit from the noncore wholesale business and the selected closure of less-performing location, China following the Fit4Growth program, which offset the M&A contribution. Significant FX headwind of minus 7.1% driven by the appreciation of the euro versus all regional currencies. Adjusted EBITDA reached EUR 20.3 million with the margin at 23.7% versus 25% in Q2 '24 due to lower operating leverage, the performance of China as well as the strong comparison base, as in Q2 '24, margins expanded by 50 basis points versus Q2 '23. In the 6 months, organic performance was flattish while FX headwind was 4.4%. Adjusted EBITDA was EUR 44 million with a margin at 25.5%, 90 basis points below H1 '24 for the reasons just mentioned, including a 60 basis point expansion in Q2 '24 versus '23. Moving to Slide 11. We appreciate the Q2 income statement. In the quarter, total revenues increased by 0.6% at constant FX and decreased by 1.9% at current FX to EUR 593 million. Adjusted EBITDA came in at EUR 147 million, with margin at 24.9%, 180 basis points below Q2 '24 for the lower operating leverage the less favorable country mix in EMEA, the dilutive effect of the fast growth of Miracle-Ear direct retail in the U.S. and the performance of China. D&A, excluding PPA were at EUR 64.7 million versus EUR 61.5 million last year, increasing EUR 3.2 million in light of the investments made during the last 2 years in network, digital transformation and innovation, leading the adjusted EBIT to EUR 82.5 million versus EUR 99.8 million last year. Net financial expenses amounted to EUR 16.3 million versus EUR 13.7 million Q2 '24, primarily due to the higher net financial position and lease liabilities following the strong M&A and network expansion as well as FX differences. Tax rate posted a 20 bps reduction versus '24 leading adjusted net profit of around EUR 49 million versus EUR 64 million last year. Moving to Slide 12. We see the H1 profit and loss evolution. Total revenues increased by 0.3% to EUR 1.18 billion. Adjusted EBITDA was EUR 288 million, with margin at EUR 24.4, 80 basis points below H1 '24. D&A, excluding PPA, increased by around EUR 11 million, leading the adjusted EBIT to around EUR 156 million with a margin of 13.2%. Net financial expenses increased by EUR 3.6 million to EUR 31.4 million leading profit before tax to around EUR 125 million. Tax rate ended at 27.5%, leading recurring net profit to EUR 90 million. Moving to Slide 13. We appreciate the cash flow evolution. Operating cash flow after lease liabilities within the period equal to EUR 102 million, EUR 10 million below the EUR 112 million achieved last year, following higher cash outs for lease liabilities and a slight absorption of working capital, partially offset by lower taxes. Net CapEx decreased by around EUR 1 million, the circa EUR 64 million, leading free cash flow to EUR 37.5 million. Net cash out for M&A was EUR 55 million versus the exceptional level of EUR 143 million in H1 '24 while the outlays for the share buyback program were EUR 55 million in H1 '25. NFP ended slightly over EUR 1.1 billion often an increase versus December '23 after strong investment for around EUR 240 million CapEx, M&A, dividends and buyback. Moving to Slide 14, we have a look at the debt profile trend and the key financial ratios. As mentioned, the net financial debt ended at around EUR 1.1 billion with liquidity accounting EUR 243 million, short-term accounting for around EUR 305 million and a medium and long-term debt accounting for around EUR 1.050 billion. Following the IFRS 16 application, lease liability were around EUR 500 million, leading the sum of net financial debt and lease liability to EUR 1.61 billion. Equity ended at around EUR 1 billion, mainly due to FX translation differences, EUR 91.7 million; dividends, EUR 65.3 and share buybacks, EUR 55.2 million. Looking at financial ratios. Net debt over EBITDA ended at 1.93x, slightly increasing versus 1.63x in December last year. after strong investments in CapEx, M&A and dividends. Net debt over equity ended at 1.09x. I will now hand over to Enrico for outlook and final remarks.

Thank you, Gabriele. So we have come to the end of today's presentation. Clearly, we are operating in a complex global environment. However, we think that the impact of the macroeconomic and the geopolitical context peaked in the second quarter. Looking ahead to the second half of the year, we expect the global market demand to gradually normalize. In fact, the U.S. private market is expected to continue its steady recovery, also supported by a more favorable comparison base. The European market is also set for a progressive improvement, driven by strong anticipated growth in France, continued a solid performance in Germany and the gradual recovery across the rest of the region, particularly in Southern Europe, where a better base of returning customer is expected to support improvement compared to Q2. Moreover, in response to the current global context, we have launched the Fit4Growth. Our comprehensive program aimed at delivering a structural improvement of 150 to 200 basis points in adjusted EBITDA margin by 2027. Based on all these factors for full year 2025, we now expect revenues to grow by approximately 3% at constant exchange rates and an adjusted EBITDA margin of around 23%. With that, I would like to thank you all for your attention, and we now look forward to taking your questions. Francesca, over to you.

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

This is the Chorus Call conference operator, and we will now begin the question-and-answer session. [Operator Instructions] The first question is from Andjela Bozinovic with BNP Paribas.

First one, just on France. Can you maybe quantify what was the performance of the country in Q2? And I assume that everything is going according to plan for 2025. But what do you expect from these renewals in 2026? Do you expect for push to be just in Q1? Or can we expect the phasing to be more gradual? And second question, also on EMEA. So for the rest of the EMEA, what gives you the confidence that the market can improve? And if you can give us any details on the current trading.

Thank you for your questions. So with regards to France, I must say that we were pretty accurate in our prediction of the growth for 2025. And in fact, what I can tell you is that we are again seeing a mid-teens growth on total activations, so that our assumption of market growth in 2025 in the region of 10% is fully confirmed. What I would like also to add here is that according to our estimations, we are also -- thanks to all the activities that we have started last year in preparation of the anniversary of the reform. We think that we are growing above the market. With regards to how long this effect will last for sure for all the remaining part of 2025, also for few months in 2026. Now it's difficult to quantify if it will be 4 months, 5 months. But I would say that we expect a positive contribution definitely in the first half of 2026. With regards to the second question and in particular, the confidence of the EMEA market to improve in the second half and also in the years ahead, I must say that the EMEA market has suffered of many different factors in the recent years and also in this first half of the year. And we believe -- we think that since the fundamentals of the market are definitely still very valid, there is some pent-up demand that is building and sooner rather than later will be released. With regards in particular to Q2, we have seen a softer performance in some of our key markets, in particular, all the markets in Southern Europe, so Italy, Spain, Portugal, which were the most affected by the lockdown measures taken in 2020. And given the fact that the repurchase cycle of these markets peaks in 5 years in Q2, we had also a negative effect because of this reason.

And if I can just follow up on that. What is that you are seeing in Q3 on the rest of EMEA? Do you see any improvement from this COVID lockdown?

Yes, I can answer it in this way. Let's say that the most affected quarters in 2020, if you look also to our performance in 2020 were Q1 because a very, very bad performance during the month of March when the lockdown measures started and also Q2. Then we have seen a much better trend in Q3 and Q4. And also, as you may recall, we had also a quite significant bounce back in the following year in 2021.

The next question is from Anchal Verma with JPMorgan.

Two questions from my side, please. So the first one, can we just dive a bit deeper into the EMEA dynamics again? France and Germany were in the positive territory, but can you please outline what the actual sales growth was for both France and Germany in Q2? And similarly, for the U.S., are you able to give us the organic growth you've seen in the U.S.? And the second question is just around your assumptions for FX. Can you provide us an update on your FX impact on sales and margins for FY '25?

Sure. Thank you. I will answer the first question, and then I will leave to Gabriele the second one with regards to FX. So with regards to the performance in France, Germany and the U.S. In France, we have seen quite a strong growth. I would say in terms of market growth, I would say something in the region of low teens, low teens in the quarter in units. And what I can tell you about France is that according to our estimations, we have performed better than the market, and we have gained share. In Germany, we have seen a solid performance from the market in the region of 4%, 5%. And also in Germany, we have grown a bit over the market growth. With regard to the U.S., the U.S. market was according to HIA data, which I remember -- I remind our sell-in data, the market grew by about 3%, and we grew more or less in the U.S. in line with the market. And in fact, I must also -- I must also mention the fact that in the region, we had a pretty negative performance in Canada where we think that the market was significantly down in the quarter.

Moving to the FX impact. During H1, the FX impact was around 1.3 percentage points mainly driven by the appreciation of the euro versus all the dollars or U.S. Australia and New Zealand and also all the other related currencies such as Chinese reminded. During H2, there is going to be an acceleration of this negative impact in our estimates is going to account for around 3 percentage point. At the end of the year, the average should be in the range of a negative 2 percentage point. And in terms of revenues, no major impact in terms of profitability percentage terms because, as you know, we are very much naturally hedge. So we do not expect any significant worsening or improvement.

And just a follow-up on the market. I know it's still early, but have you seen any data from July on the market, both on the U.S. and France essentially, has it remained the same? Has it improved? Has it worsened?

Yes. I must make it very clear that I see this data, I mean, monthly data not very meaningful because, again, they are selling data. I mean you have to look at least 1 quarter and I would say I would actually recommend to look at least 6 months because this data can be distorted by launches of new products, et cetera, et cetera. However, yes, July is so far showing a better trend, but I would definitely take this data with the pinch of salt.

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

I can start with one. The first one is, I mean, we clearly see longer replacement cycle. It seems to be in Europe for quite some time. I would say the market is quite volatile in all the regions. We saw it in the U.S., in Canada and China and more. Despite you say there -- I mean you don't think there is anything fundamental that can explain the weakness? What if the replacement cycle continues to get longer? It could be due to lack of new reimbursement, competition from opticians or even OTC glasses. So your view here would be interesting. And do you have maybe a bear case scenario for 2H in terms of market outlook in case the global market remains subdued. Any potential downside for, let's say, top line OIBDA in case the market doesn't recover?

Thank you for your question. I think that the main reason why the market has slowed in recent years and also in the recent months is I would say, mainly and mostly and most probably only related to the current macroeconomic situation. I would say that the proof of that is what is happening in the U.S. In the U.S., we had a pretty significant growth until November, December last year. Last year, the market grew by 6% to 7%. And following all the different topics and very well-known events that you know very well in starting in the new year, we have seen immediately quite a significant slowdown of the U.S. market and that nothing else than that. What I mean is that the U.S. market already in the first quarter of last -- of this year went from a plus 6, plus 5 to minus 5. Again, maybe it's not the quarter 100% reliable but for sure, there was something that happened in the first quarter of this year, which has changed consumer behavior. And the only thing which happened in the U.S. is the all is related to the whole events that you know very well. So no, I think that for sure, the current macro and geopolitical context had an impact. I think that if we look also to Europe, I think that we are now anniversary 2020, which was a year of in particular in Q1 and Q2, very, very low sales, which now are impacting the repurchase cycle. For sure, in a situation of uncertainty of inflation, et cetera, et cetera, the repurchase cycle tends to get longer because people wait. Now if the situation will improve also from a macro point of view with less uncertainty with more certainty on many different things. I think that also our market will reflect this improvement or a more clear situation at the macro level. Then with regards to the second part of the question, look, while, of course, hoping for the best, we wanted to get prepared for any possible scenario. We wanted to take with decisive actions. That's why we have initiated our program Fit4Growth, which is a very comprehensive program, which aims to structurally improve our profitability. We feel very confident on that. It's something that we have already started to work now for a few months. We have a number of different options and initiatives. So I'm confident that we will be able actually to improve our profitability from a structural point of view for our group and our company in the next years.

Perfect. And maybe just the second question is a follow-up to that. If -- I mean if the market turns a little bit weaker than expected, could you maybe accelerate the cost savings that you just announced. And also about the cost savings, should we take the 150 bps to the like 200 as like 100% drop-through to margin? Or do you need to reinvest some in the business to grow?

No, this is the net effect. So this is what we are aiming to not -- so it's net effect of what we might reinvest, et cetera, et cetera. So this is what we are aiming deliver to the EBITDA margin. Then in terms of acceleration, well, let's say that for sure, we are working very hard in order to deliver it as soon as possible. So we will follow our plans. But again, I feel very confident that we have a number of options that we are working on to deliver this kind of net result.

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

A couple from me. Enrico, circling back to the market, what has surprised you the most about Q2 numbers as you've seen them over the last few months? I mean it certainly comes as a surprise to us. And do you think this cyclical slowdown could be more structural in nature? Is it that you're losing share in North America or EMEA? I asked given some more positive commentary from some of your peers on EMEA? Or is it that you think the U.S. maybe gets worse before it gets better as it relates to deferrals or down trading? So that's the first question. The second is whether you're reevaluating your M&A ambitions for the rest of the year and into next year given investments needed as part of the Fit4Growth program as well as the deterioration in markets that you talk about. Thank you.

So let's say that in terms of market dynamics, of course, we were absolutely aware of the potential impact of the anniversary of the COVID drop in sales back in 2020 but for sure, our goal was to offset and to mitigate this kind of effect through targeted actions aimed at anticipating returning customers in the free market as well as leveraging on our marketing activities on new customers. Unfortunately, these measures proved to be more difficult in a context where customers and to postpone their decisions for I would say, in a period of very high uncertainty. I don't think that there is anything structural that is affecting our market. Again, I would mention once again the U.S., the U.S. last year grew by a very healthy 6% -- 6% to 7%. And all of a sudden already starting from January we had completely January, February and the first quarter of this year, we had a completely different picture with the first quarter posting a minus 5, again, maybe not the right number, but definitely a big swing in terms of growth in just 1 or 2 months which tells me that it's not about any structural change in the market dynamics, but it's more related to the events that we all know. Now it's important also to mention one thing, which is we still operate in a market which is a positive overall which in the current context is something that, in my opinion, shows once again the very strong resilience of our sector. But once again, I think that to think that our sector is totally immune from the uncertainties and what is happening on -- from a geopolitical, from a macroeconomic point of view, I think it's not even realistic. So let me summarize in this way. We have seen immediately in our market, the effect of all the events that we all know very well nothing, in my opinion, structural at all. Still we are operating in a very resilient market. The key markets like France, even in Italy, we posted a better performance and then the market itself, et cetera, et cetera. So I can definitely assure you that our ability to overperform in the market is definitely intact. Whilst on the second part of the question, M&A ambition. Now we want to see how the market will develop from this point of view, also because, as I said, now given the market conditions we see a number -- an increasing number of potential targets and knocking at our doors and we want -- we are ready, and we wanted to take advantage of that. So definitely M&A has been part of our DNA for since ever, and it will remain like this.

The next question is from Veronika Dubajova with Citi.

I will keep it to 2. One, apologies, I just want to circle back to the performance in Europe. And if I -- this is imprecise math, so bear with me or correct me if I'm wrong. But if I strip out France and if I strip out Germany, it seems to me that the rest of your European business declined high single digits. And so I just one, want one to confirm that, that math is right, and two, that your assessment at this point in time is that, that is in line with the market. I'm just kind of trying to figure out what happened in the markets outside of France and Germany. And it just seems inconsistent with the data points that we see from some of your peers. So that would be my first question. And then my second question is on the Fit4Growth initiative. Enrico and Gabriele both you could maybe give us a little bit more flavor for what is it that you're working on here? Obviously, as a business, you've done a lot of work on efficiency already. So I'm trying to understand, is this closing store locations that are not performing well? Is this reducing stack in the stores that you have? Where is the kind of cost saving opportunity that you've identified because of the 150 basis point class is pretty meaningful. So just trying to get some flavor for that. And maybe -- and apologies if I missed it, if you can comment on the cost of delivering those savings as well, that would be helpful.

Thank you for your question. So with regards to the first one, so the market outside Germany and France were negative. And I would again attribute this to basically, first of all, to the anniversary of the COVID. You may recall that back in Q1 and Q2 of 2020, we had a significant sales drop, very meaningful which I think that in Q2, our sales were about minus 50% in Italy and in Spain and a similar number also in Portugal. You may recall that Southern Europe countries were the most affected by very extreme lockdowns. And one thing that I needed to mention is that in Italy, the social market cycle is exactly 5 years and in general terms, in all these markets, the repurchase cycle peaks in 5 years. So clearly, these markets were affected by the COVID anniversary. And of course, you know very well that in this market, Italy, Spain, Portugal, we have got a very, very strong position. With regards to the second question, and therefore Fit4Growth. I think these kind of situations are always an opportunity we see as an opportunity to improve how we do a lot of different things. For sure, as you mentioned, in terms of, for example, in terms of network efficiency, we are now looking at the optimization of our network through consolidation of stores, also some closures of nonperforming locations. Also, as you mentioned, we have been working on productivity now for a while, but I must say that we are still far away to be totally and fully satisfied about our efficiency in the store. And therefore, we are also working on a further improvement of our in-store processes. For example, we are working on staffing optimization, both for audiologists and CAs. We are working on the agenda management in order to focus audiologists on the added value and customer-facing activities. So we are working on opening hours according to the potential of the store. We are working on different task location between audiologists and CAs and so on and so forth. So we are working on a number of different things. as well as we are also working on making some efficiency in the back office because we think that there are a number of different things that we can do in order to improve productivity also there.

The next question is from Domenico Ghilotti with Equita.

The first question is on the guidance because if I understood properly, so you are not slowing down the M&A. So I presume that 2% is still valid. So is it correct to say that the organic contribution is 0%, 1%. And my second question is on Italy and Spain. I'm trying to understand what has happened there so because it's a matter of conversion because you didn't flag that particularly tough situation before. So I'm trying to understand if the conversion of the activated clients was poor. And do you think there is -- there could be any impact from say, the nuance launch that is creating some confusion in the consumer? Or don't you see this kind of link?

Well, with regards to the first question, yes, you're absolutely right. I mean now we see an improvement in the performance in the second half with contribution from M&A in the region of about 2%. With regards to the second question, let me say that we were completely aware of the fact that, of course, in Q2, the customer base was going to be much smaller because of the extreme lockdown measures taken in 2020. We were also envisaging to offset this kind of effect through actions aimed at anticipating returning customers in the free market as well as new customers. But eventually, this kind of activities proved to be less effective than we thought, especially because we have -- especially because we are in a situation where customers tend to postpone their purchases. I would like to mention that, of course, the performance on the Italian or the Spanish or the Portuguese market where, of course, affecting us significantly because our strong presence in these markets. But let me also say that outside those -- Germany and France all the other markets, including Switzerland, including Netherlands, et cetera, et cetera, were not positive. And as I said also before the reason for that, in my opinion, is only related to the current environment that we are living in, as demonstrated also by what has happened in the U.S. Let me say once again, in the U.S., we went from plus 6% in the fourth quarter of last year to minus 5 or a negative territory. We do not want to be to negative in quarter 1. What has changed since then, only one thing, which is related to the events that you know very well.

The next question is from Oliver Metzger with ODDO BHF.

The first one is on the weakness in China. Can you give us some comments about the situation there and whether you see any turn to better in the foreseeable time. Just remember, 1 year ago, China was the big growth opportunity now things have changed. So it would be great to have some more comments on that. Second relates also to a previous question on the M&A contributions. So in the last years, M&A was more in the 2% to 3% territory adding to sales, now you mentioned [ Fit4Growth ] program that you want to close some unprofitable stores or even leave some markets. So is it fair that going forward, the net external growth contribution might be more 1% to 2% territory? Or could you already give us an indication about the effect you see from these restructurings right now.

Thank you for your questions. So with regards to the first question, I think that China reflected, again, also there a quite challenging external context. And in fact, China -- the Chinese market was negative also in Q2 2025. And again, also in this case, the only reason for that is a low consumer confidence. And that's why also you may recall that we have posted a very strong numbers throughout all last year, in quarter 2 was more difficult in a very challenging market. Let me also underline another thing that is the performance of the Australian market, which is our main market in the region. Also in Australia, we saw a negative market trend. Once again, the only reason for that is the kind of macro environment in which we are living in Australia as well, according to our estimation, we posted a well above performance well above market performance. But clearly, the market turned to be pretty negative in Q2. I don't want to be pessimistic. As I said also during my speech, I think that for what I have, for sure for what we know the level of uncertainty peaked in Q2, some temporary factor will ease in the future like the COVID anniversary, which has been a significant element that affected the growth of some of our important markets so that we expect the second half of the year to be better, and this is also reflected in our guidance, which envisage definitely a second half of the year better than the first one. With regards to M&A for 2025, I think you should assume to stick to the 2% also because the majority of the activities related to Fit4Growth will kick in starting from 2026.

The next question is from Robert Davies with Morgan Stanley.

Most of them have been covered. Just wanted to get a bit more color on some of the developments you called out in the U.S. You made the point of U.S. market growth going from 6% to minus 5% between 4Q and 1Q this year. But even in 4Q last year, the Americas growth was only sub-2%, and now we've obviously kind of come closer to 0. So how big of a drag was Canada specifically? I know you called that out, but just maybe quantify that drag in the quarter specifically? And then above and beyond that, what do you see in terms of expectations for the Americas and Canada in particular, kind of going through the back half of this year? That was question number one. And then on question number two, just sort of circling back on your conviction level on a sort of country-by-country basis in Europe, where you got the strongest levels of conviction particularly in Southern Europe or seeing any improvement through the back half of the year because the growth comparables are fairly similar through sort of 3Q and 4Q, 2Q. So just trying to get a bit more color where you personally feel you've got the greatest conviction.

Thank you for your questions. So with regards to the U.S., now maybe we are checking the numbers, but out of my memory, and I'm pretty sure about that in Q4, we had a plus 6%. You may recall that at that time, we were talking about the golden age, and there was a lot of euphoria everywhere. And actually, the market was very positive in Q4 2024. Again, out of my memory, not less than 5% to 6%. Then we saw immediately after starting from January, February, March, a completely different trend. Again, I would not take the quarterly results as I mean as a definitive, but definitely, we saw a significant change in the trend, which can be related only to external factors. But I think that the positive news is that the trend is showing a steady improvement. What I mean is that after a very negative Q1, we saw a more positive Q2, as also I mentioned, July for what is meaningful is showing also a better trend. So we see a better trend starting from January onwards. So that's why we are more positive about the second half in the U.S., but also, we are more positive also in Europe and in all the other markets simply because we think that the uncertainty levels have peaked in Q2 and also some of the temporary effects that I mentioned before, in particular, the significant effect of the customer base in Southern Europe, which is due for renewal after 5 years will improve in the following quarters in consideration of the fact that the very worst quarters of 2020 were Q1 and also Q2.

The next question is from Susannah Ludwig with Bernstein.

I have 2, please. First, I guess, on the negative impact from the COVID anniversary, how narrow is the standard deviation around sort of 5 years in terms of the upgrade cycle? I guess it's just a little bit surprising in Italy and Spain that it would be so tightly banded given that there is not reimbursement that makes you eligible at a certain date. And then the second question just is on France. If you could maybe talk about how the mix shift between Class 1 and Class 2 devices is changing from sort of last year to this year, I would assume you have more Class 1 devices, but to what extent will we see sort of a difference in market value versus market volume figures?

Thank you for your questions, very interesting questions, actually. So with regards to the standard deviation. For sure, there is -- there is a Gaussian curve in the repurchase, but this curve is very strict in particular in Italy, where we have a social market and the reimbursement of the social market, which includes also the top-up market. So the top-up social and top-up part of our sales is basically 5 years straight, 5 years and 1 month, et cetera, et cetera. So in Italy, in particular, where there is reimbursement the repurchase cycle is very related to repurchase cycle in the region of 5 years, 5 years and 1 month. In other countries like Spain and Portugal, for example, there is no reimbursement. So the Gaussian curve is wider. But in Italy, the repurchase cycle in the social market is very close to straight 5 years. With regarding...

Can I just ask a follow-up on that. What percentage of Italy is the social market? Because I thought there was a pretty high threshold. You had to have significant loss to be eligible for the social market?

Yes, yes, of course, social market in Italy, when I say social market and include also top-up market on returning customers is in the region of 40%. Whilst with the second -- with regards to the second question and therefore, Class 1, Class 2 split in France, yes. Also in France, we see a significant growth in terms of units, of course, there is a bit of ASP erosion to the fact related to the fact that the share of Class 1, of course, is increasing. So the growth in terms of revenues is lower than the growth in terms of units.

And are you able to quantify at all what the ASP erosion is or rough guidance?

At the moment, maybe we can follow up later on this.

Thank you. To the last question, I kindly ask operator.

The last question comes from Niccolò Storer with Kepler.

Very quick questions. On your Fit4Growth plan just a clarification, should we assume the 150, 200 bps improvement to 2027 as additional 31 you would get with the standard, let's say, progress of the business or this also comprehend the natural, let's say, improvement you get from, let's say, returning to a normal growth in the business? And then still on this plan, how should we imagine the EUR 35 million, let's say, cost to be split between '25 and '26?

Absolutely. So with regards to the second question, I will ask Gabriele to tell you the split between '26 and '27. And with regards to the first question, no, the Fit4Growth program is, let me say, an extraordinary initiative that we have taken in order to face the current external scenario, so is on top of what we would have normally delivered in the next years so it's additional. With regards to the split, maybe Gabriele.

Of that EUR 35 million cash cost for the program, of course, we want to accelerate at maximum the impact. And so the vast majority of it will be in 2026, the portion of also in 2025 and the minimum part of any minimum part in '27. So let's say we can assume '25 and '26 have very vast majority.

Thank you.

Thank you so much, everyone.

Obviously, we remain at your disposal, Investor Relations for any questions. And I kindly ask operator to disconnect. Thank you.

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