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

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Amplifon Full Year 2020 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Francesca Rambaudi, Investor Relations Director of Amplifon. Please go ahead, Madam.

Thank you. Good afternoon, and welcome to Amplifon's conference call on Q4 and full year 2020 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 and dial-in details, which 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.

Thank you, Francesca. Good afternoon, everyone, and thank you for attending our conference call on our full year results. Without a doubt, 2020 has been a very challenging year for all of us, both from a personal and from a professional point of view. However, if today I look back to how we reacted to the emergency and if I look back to our achievements of last year, I can certainly say that I'm very proud about how our team and our organizations worked all together to turn these challenges into opportunities. As you know, since the beginning of the COVID-19 outbreak, our first priority has been to protect all our people while continuing to serve safely our customers that still needed our services. Our second priority was to protect our profitability, cash flow and balance sheet. Hence, we reviewed completely our way of operating the business looking for efficiencies. Also, we immediately focused on the most important projects while postponing all those not essential. In fact, we confirmed our commitment to the pillars of our strategy, keeping investing on our people and organization, on our brands, on our Amplifon product experience and on our M&A strategy. Actually, in terms of M&A, we have been very active analyzing on top of our usual bolt-on acquisitions, the acquisition of Attune in Australia at the beginning of the year and the acquisition of PJC Hearing at year-end. All in all, a huge amount of work done by the team that allow to say with confidence that Amplifon of today is a much stronger company than the Amplifon of just 1 year ago. Moving to the next chart. And with regards to our financial results, I believe today, we are reporting a very strong achievement. Despite the 9% decline at constant ForEx in terms of sales, the fourth quarter reporting a strong finish of the year despite new lockdown measures implemented in many of our core markets. We improved our profitability by more than 100 basis points, even after the significant investments that I mentioned earlier on. We also reported the best ever cash flow generation with the operating cash flow above EUR 300 million. Consequently, we reported an excellent net financial position at circa EUR 634 million. Indeed, very strong results that allow also us to propose at the next shareholders' meeting, an improved dividend of EUR 0.22 per share. Also, these results, in my opinion, tell us that Amplifon is strong, our businesses -- our business model is flexible, agile and most important, very reactive. I now hand over to Gabriele to give you more colors about our financial performance in numbers.

Thanks, Enrico, and good afternoon, everybody. Moving to Slide #5. We have a look at the financial performance in the full year 2020. Revenues at constant ForEx were down around 9%, with organic performance at minus 11% due to COVID-19 outbreak, M&A contribution at plus 1.7% and ForEx impact of minus 0.9%. EBITDA amounted to EUR 371 million, with margin at 23.8%, up 110 basis points versus '19, despite the heavy impact of COVID on revenues in Q2, thanks to the timely and effective cost containment measures. Cash flow indicators also came in very strong in this unprecedented period, thanks to the action implemented to maximize cash conversion and protect our NFP. Free cash flow was up 71% versus previous year and the NFP, as of end of December, was around EUR 634 million, improving by over EUR 150 million versus December '19 with a financial leverage at 1.63. As said by Enrico, the strong results achieved this year in profitability and cash flow and the strength of our balance sheet allow us to propose at the shareholders meeting a strong dividend of EUR 0.22 with a payout of 49%, also as a recognition to all of our shareholders for the support demonstrated throughout 2020. Moving to Chart #6, we have a look at the group financial performance in Q4, which posted a strong result with a record EBITDA, volume terms of absolute revenue and margin. Revenues at constant ForEx increased around 3% despite lockdown measures implemented across different markets, especially in Europe and moreover, despite a very challenging comparison basis with revenues in Q4 2019, growing at constant ForEx by over 26% in the organic growth by over 8% versus Q4 '18. Organic growth was plus 1.7%, and contribution of acquisition was 1.2%. ForEx was negative by 1.7% as a result of the strengthening of the euro against the U.S. and the Australian dollars and the Latin American currencies. In the quarter, we posted a record EBITDA and EBITDA margin. EBITDA came in at EUR 143 million with margin of 27.8%, up 210 basis points versus previous year, thanks to the structural efficiencies derived by the decisive measures implemented in Q2 and the weak amount of social tool contribution nor significant income related to rent concessions. In addition, the strong EBITDA increase was achieved even after sizable reinvestment in the business. Moving to Chart #7. We have a look at the EMEA financial performance, which was affected by COVID outbreak since March, but recovered strongly from end of June and posted a strong performance in H2, also despite new lockdown measures implemented up here and across major countries. In the full year, revenues were down around 10.5% in local currency with organic performance at minus 11.6%, well above our reference market and M&A contribution at plus 1.1%. EBITDA in the full year amounted to EUR 305 million with margin at 27.2%, up 150 basis points versus previous year. In Q4, revenues growth was around 2% in local currency with an organic growth at 1.5%, well above market and despite a very challenging comparison basis since in Q4 '19, organic growth, even excluding GAES, was plus 7.4% versus '18. Strong organic growth in the quarter was reported in Spain, France, Germany and BeLux despite the lockdowns implemented. EBITDA in Q4 amounted to the record level of EUR 126 million, up around 8% versus previous year, with margins at around 33%, up 180 basis points versus previous year, thanks to the improved efficiency and productivity. Moving to Slide #8. We have a look at Americas performance. In the full year, revenues were down 8.6% in local currency, above market, and with organic performance at minus 9%. ForEx effect was a negative for 3.9%. EBITDA in the full year amounted to EUR 57 million, with a margin at 23.1%, up 40 basis points versus 2019. In Q4, revenues growth was 1.1% in local currency with organic plus 1%, thanks to a robust and well-above market performance in the U.S., driven by a strong performance of Miracle-Ear, despite rise in infection and presidential election. Strong improvement of LATAM performance in Q4, but severely impacted by ForEx. Total ForEx effect in Q4 was negative for over 9%. In Q4, EBITDA amounted to EUR 19 million with margin at 25%, up 80 basis points versus prior year, thanks to greater efficiency and productivity. Moving to the following chart, let me spend a few words on the acquisition of PJC's Hearing business, which we announced and closed in December 2020. PJC Hearing is the second largest Miracle-Ear franchisee with 110 points of sale in Texas, Florida and New Mexico, highly attractive states due to the highest density of senior citizens in the U.S. and with 2020 revenues of over USD 50 million. The transaction will allow us to combine PJC's 110 points of sales with 59 corporate stores owned by Amplifon, thus strengthening Miracle-Ear corporate network, thanks to greater scale and sharing of reciprocal strengths and creating a tremendous new opportunity to drive growth and value by developing, implementing and sharing best practices and processes, which will then be deployed to the whole Miracle-Ear franchisee network. Moving to Chart #10, we have a look to APAC performance, which led during all of 2020 and showed an outstanding operating leverage. In the full year, revenues were basically flat in local currency despite the COVID impact with organic performance of around minus 8%, offset by M&A related to the Attune acquisition closed in February 2020. Currency had a negative contribution by around minus 3%. EBITDA in the full year amounted to EUR 62.8 million, with margin at 34.4%, up 5.1 percentage points versus prior year. This impressive expansion in profitability was due to higher structural efficiencies, following the strong measures implemented in Q2 as well as the positive contribution from social tools apparently introduced in Australia to offset the COVID impact during Q2 and Q3. In Q4, revenues were up 17.7% in local currency, driven by strong organic growth of around 8% despite an extremely challenging comparable basis since organic growth in Q4 '19 versus prior year was plus 11%. In the quarter, organic growth in China and New Zealand was double-digit, and Australia reported a solid performance as well, mainly in Q4 relating to Attune and accounted for 10%. ForEx was negative for 1.8%. EBITDA in Q4 was EUR 17.7 million with margin at 32.1%, posting an improvement of 4.1 percentage points versus '19. This strong improvement in profitability was due to higher structural efficiency with no contribution from social tools. Moving to Chart 11. We appreciate the Q4 profit and loss evolution. Revenues showed the growth of 3% at constant ForEx despite new lockdown measures implemented across different markets, following a negative currency contribution for minus 0.7%, revenues landed at EUR 513 million, plus 1.2% versus previous year. The structural efficiency and productivity announcement coming from the strong measures implemented during Q2 and Q3 led to an excellent growth of profitability, up 210 basis points from 25.7% to 27.8%, the all-time high level. The absolute EBITDA increased by around 10% from EUR 130 million to EUR 143 million this year. EBIT increased by 16% from EUR 77 million to EUR 89 million. Net financial expenses and tax rate in line with the previous year led an increase in net result of 17% from EUR 51 million to EUR 60 million. Moving to Slide 12. We have a look at profit and loss evolution in the full year. Following the negative impact of COVID-19 during Q2, total revenues decreased by 9.3% in local currency to EUR 1.56 billion versus EUR 1.73 billion in '19. Despite a heavy COVID outbreak in Q2, timely and effective action on cost led EBITDA margin at 23.8%, up by 110 basis points versus 22.7% last year. Absolute EBITDA was at EUR 371 million versus EUR 393 million last year. D&A increased by around EUR 11 million, leading EBIT to EUR 169 million versus EUR 201 million in 2019. Following a slight increase in financial expenses, driven by the important activity of debt refinancing implemented during 2020 and the substantially flat tax rate, net profit ended up at EUR 101 million. Moving to Slide 13, we can appreciate the cash flow evolution. Operating cash flow after lease liabilities was in this period equal to around EUR 314 million versus EUR 239 million in '19, posting an outstanding improvement of EUR 75 million, around 32%, despite the negative impact of COVID in Q2. CapEx decreased by around EUR 32 million to EUR 57 million, leading free cash flow at EUR 257 million versus EUR 150 million last year, posting an outstanding growth of EUR 107 million, plus 71%. M&A has hovered around EUR 89 million, mostly driven by the acquisition of Attune and PJC versus EUR 66 million in '19. Net cash flow was positive for EUR 160 million versus EUR 55 million in '19, leading the NFP of EUR 634 million versus EUR 787 million at the beginning of the year with an outstanding improvement of EUR 153 million in the period. Moving to Slide 14. We have a look at the debt profile trend and the key financial ratios. I mentioned in the previous chart, the net financial debt closed at a record level of EUR 634 million, with a sequential improvement over the last 4 quarters. Liquidity accounted for positive EUR 545 million. Short-term debt were around EUR 75 million, and medium/long-term debt were around EUR 1.1 billion, proving the very strong financial profile of the group after the completion of the refinancing program, which resulted in the extension of the maturities by around EUR 270 million as well as in the increase of the amount of committed line by around EUR 380 million, thus allowing us a financial headroom of around EUR 800 million, excluding cash on balance sheet and undrawn committed revolving facilities. Following IFRS 16 application, lease liability amounted to EUR 423 million, leading the sum of net financial debt and lease liability to EUR 1.05 billion versus EUR 1.21 billion last year. Equity ended up at EUR 800 million, with an increase of EUR 105 million versus December '19. Looking at financial ratios, net debt over EBITDA ended at 1.63, the best results achieved after the completion of the successful GAES acquisition and net debt-over-equity at 0.8, posted a significant reduction versus 1.13 at the end of 2019. I would now hand over to Enrico for 2021.

Thank you, Gabriele. So we are at the end of the presentation, since this is our last chart for today. So looking ahead, the outlook, of course, for the next months remain uncertain and difficult to predict since -- and I'm sure, as you know, we are still experiencing important lockdowns in several key markets, such as Germany or Spain or Netherlands and also the vaccine rollout varies as well across the different countries. The very good news is that in the first 2 months of the year, so in Jan, Feb, our revenues at constant ForEx were in line with the previous year, so January, February 2020. Two months not yet impacted by the COVID-19. And therefore, I see this result as a remarkable achievement in consideration of the ongoing restrictive measures across different markets. And above all, in consideration of the very challenging comparable basis. You may recall that in January, February 2020, we posted a growth versus same period '19 of about 10%. I also need to recall you that our revenues last year started to be impacted from the month of March and that were severely impacted in March 2020. Hence, I believe that we continue to gain significant market share. And with regards to 2021, we expect our market to gradually normalize during the year, as COVID-19 vaccines are released. How fast market will normalize is today, I'm sure that you understand, almost impossible to say because we know that the performance of our market varies according to the implementation of restrictive measures, especially those ones that severely limit mobility of the people. You know very well that the situation changes every single day. What I can say today is that we aim to continue to perform above our market -- our reference market. I can also say that in terms of profitability, we expect to continue to reap the benefits of our actions implemented since Q2, aiming to achieve a significant margin improvement compared to 2019. Looking further ahead, we remain very positive on our prospects of growth as we stand firm on our strategy and on our investments as on what we shall for the medium and long-term development of our company. Thank you very much. And now let me hand over to Francesca, again. Thank you.

Thanks, Enrico. [Operator Instructions] Now I turn the call to Eugenia in order to open the Q&A session.

[Operator Instructions] The first question is from Catherine Tennyson with Bank of America.

I have 2, if I may. So my first one is -- hello, can you hear me?

Yes. Yes.

Perfect. My first one is on the commentary around the 2021 guide. And apology if I missed this, but can you just confirm that, that is at constant FX and including M&A activity? My second question is just on the commentary around the January and February growth. You talk about the revenue there being in line with 2020. Again, I assume that includes M&A. So just help me to understand how the organic growth profile in those 2 months have compared to last year? And if you've started to see a bit of a sequential improvement from the December organic exit rate? And just if I could squeeze in a very quick third one. We're -- slightly longer term. We're waiting to hear from the trial readout from Frequency Therapeutics. Just help us understand how you think this solution could fit into the overall hearing market, should it become commercially available? And how internally you're viewing Amplifon's longer-term business model or resilience as perhaps we move away from mainstream hearing aid devices?

Yes. I'm not sure that I understood the last one. So I will ask later on to maybe to say again. Anyway, thank you for the question. I would start from our performance in January, February this year, which, I say, again, I see as a very positive performance because it's in line with the same period of last year, January, February '20, which were the only 2 months not yet impacted by the COVID-19. You may recall that our revenues started to be significantly impacted by the COVID-19 emergency starting from March. In March, as far as I remember, we posted a decrease in terms of revenues, in March '20, a decrease in terms of revenues versus March '19 of about 30%. So to be in line with previous year, in 2 months of last year where we posted, you may recall, we mentioned, I think, during our conference call last year, in January, February last year, we posted plus 10% versus January, February '19, in my opinion, is a very strong result, which means that basically, today, we are more or less 10% above '19 January, February period. From an organic point of view, again, very positive result because the organic growth at constant ForEx and also adjusted for working days in the first 2 months of this year, we had 2 working days less in January, February '20, so the organic growth at constant ForEx and adjusted for working days is still positive so -- which is, again, a very, very good result, in my opinion. Can you maybe say again, first of all, the first question and then the third one, so I can answer more precisely.

Sure. The first one was just on your 2021 commentary around the guide, just confirming that, that is at constant FX and it does include M&A activity.

Yes, absolutely. Absolutely, yes.

And then just on the last one. So Frequency Therapeutics in the U.S. are working on a therapeutic solution to help regenerate sort of sensorineural hearing loss. Would expect to hear a readout from that coming up in Q1 of 2021. I'm sure you guys are keeping abreast as to alternatives in the hearing aid space. So was wondering what your thoughts are on firstly that solution and data trial there? And longer term, it's inevitable we'll perhaps move away from hearing aids, be that 5 or 10 years, but how do you see your business model progressing if a hearing aid doesn't become the central way of treating hearing loss?

Understood. No, actually, we are not concerned about that. And this is not a news for us. It's, I would say, old -- very old topic. It's a 10-year-old topic. There are different biotechnology companies around the world which are working since years on hearing care pharmaceutical programs. Many of them not even targeting the age-related hearing loss, but for example, targeting tinnitus, balance or gene correction programs and few on otoprotection and regeneration programs. In fact, to treat age-related hearing loss with drugs, you have 2 options from a theoretical standpoint. First option is to develop a preventive drug that protects hearing organs from age-related degeneration or develop regenerative drugs that can rebuild hearing organs after degeneration. And the former is difficult to imagine in practice since you would need to treat basically the entire population for years for preventive care. The last would be a real breakthrough in medical science with great implications for a lot of degenerative diseases far beyond hearing loss, which, unfortunately, we believe is still a long time ahead in the future. All these programs are all in very [ early ] stages. And in addition, also assuming developments in this space and assuming in the long-term that some of these may work over time, the level of efficacy and the cost and price associated to these potential therapies are also other future potential issues that will then eventually need to be considered. So frankly, in the next 10-year horizon, biotech drugs that can treat and target age-related hearing loss are not -- we believe, are not a relevant threat.

Super interesting. I was under the understanding this was looking at prevention for 40- to 70-year olds, but you're the experts there. So thanks for the clarification.

Thank you.

The next question is from Niccolò Storer with Kepler.

Two questions. The first one on cost savings. Enrico, you said before that you expect a significant improvement in margins in 2021 compared to 2019. As I was wondering, if we make 100 the cost savings, how much is related to internal efficiencies which could, in theory, last forever and how much is related to contract renegotiation that may be sooner or later could come back? And the second question is for Gabriele, is on gross debt. I see that considering that you have weathered this COVID storm, you are left with big amount of gross debt and a big amount of gross cash. So if you think you can fix this situation and make it more efficient? And related to that, I saw that you achieved a big improvement in working capital in 2020, in particular, on payables. And I was wondering if this is something sustainable going forward or it's just an exception for this year?

Right. Thank you, Niccolò, for the questions. So in terms of profitability and margin improvement, we expect most of the savings to be, let me say, structural. And therefore, we believe that in '21, we can, as we said also in our chart, we can definitely improve significantly our profitability, our profitability this year versus '19. On profitability, I can also be a bit more precise. On revenues, I'm still convinced that the situation is very fluid and therefore it is very difficult to predict what is happening even next month. You know very well that in different countries, there are signs of new lockdowns, et cetera, et cetera. But on profitability, which is more an internal factor, I can also be more precise. And I can tell also you that we are aiming to an improvement of profitability, which is, let me say, in the region of 200 basis points versus '19. With regards -- if it is okay, with regards to the...

I mean -- sorry, sorry, this is an improvement assuming which kind of rebound in volumes?

Well, as I said before, in terms of revenues, it's more difficult to give you a precise guidance. Of course, from starting -- after 2 very positive months of January, February, now, the comparable basis is becoming much, much easier. As I said, we started to suffer last year starting from March. And also, let me also say that we are now expecting a progressive improvement in the external conditions as the vaccines are going to be released and rolled out. But let me say that 200 basis points there, maybe 180, maybe something in the region of 200, is a fair target in consideration of all the very structural actions that we have taken on our cost base. And I think you appreciate that we have been able to deliver significant margin improvement also in 2020, despite of all the issues, all the emergencies, all the lockdowns, et cetera, et cetera. So between 180 and 200, let me say, basis points, profitability improvement for this year, in my opinion, is a good estimation. Then, of course, obviously, for 2021, in terms of revenues, as I said, we expect an improvement throughout the year. And therefore, for sure, we expect a good growth versus '19. I'm not in the condition today to give you a precise number on revenues. This is my point.

For what concern the financial situation, I mean, during the year in order to give the group an higher financial flexibility, we did a couple of things. So we renegotiated all the credit lines, and we put in place very important measures on the working capital side. So starting from the first one, we have been able to renegotiate around EUR 1 billion, including the bond finance, and we achieved a very good cost. So if you look today at the situation in terms of burden at the P&L level, in 2019, we had EUR 27 million cost. In 2020, EUR 29 million. So say excess of cash we have in the balance sheet, which is in the range of EUR 400 million compared to last year, just costs a couple of million euros, everything included. And for the moment, we are, on the one hand, I mean, convinced that we need to keep it in order to have a lot of financial flexibility. I mean, we are starting from the last quarter in a very aggressive mode in terms of acquisition. So we want to keep it, and also the COVID is not ended up. We are not paying any cost at the moment for the deposit, which is, I mean, really good. And of course, in case we need to pay back the debt, since most of it is bilateral, we don't have any related costs in order to close the financing. So we are very flexible if in 2 months, 3 months, 4 months, we decided for some reason to reduce the cash on the balance sheet to act and to close. On the working capital, as you said, we did a lot of activity. Actually, if you look at the cash conversion, it has been even higher than 100% this year because, I mean, if you compare the operating cash flow versus the EBITDA, we had an operating cash flow before repayment of leases of EUR 386 million versus an EBITDA of EUR 371 million. But most of this action, both on accounts receivable, accounts payable, but also on inventory are sustainable over time. So this year, we had an excess cash generation, which was EUR 75 million compared to previous year. So of course, we started with a very good level. We have opportunity to further improve. But going forward, we cannot expect any significant discontinuity in terms of extra cash generation compared to the EBITDA. But at the same time, I think that we have all the elements to stay at this level in all the 3 items of working capital. So no worsening is expected moving forward.

The next question is from Aisyah Noor with Morgan Stanley.

I have 2, please. The first question is on your business update for January and February. Thanks so much for providing that. Could you provide some regional color? And which regions were stronger or weaker in January, in fact? And then the second question is more of a strategic one related to your acquisition of PJC. What was the rationale for buying that asset? And should we be reading this as a signal that you're more constructive on the U.S. retail market, notwithstanding potential OTC disruption?

Right. Thank you for the questions. So with regards to our performance in Jan and Feb, I would say that, for sure, the region, which performed better than the others is obviously Asia Pacific. You know very well that the situation in terms of number of cases in Australia and New Zealand, but also in China, actually, is much better than in Europe or in the U.S. So that in terms of revenues, Asia Pacific was the region that performed better than the other 2. Then with regards to the EMEA region and the U.S., they are more or less similar in terms of performance. With regards to the second part of the question and therefore, PJC, I believe that PJC is a fantastic opportunity for us, that the U.S. is a strategic market for us being by far the biggest market in the world. The U.S. represents about 40% of the total worldwide market. And it's a fantastic opportunity to create a platform to develop, implement and share the best practices and processes to be deployed then to the entire Miracle-Ear network. So with the acquisition also of PJC, we are now able to count on a significant number of stores because we are combining the stores of PJC with our corporate stores. We had about 60 corporate stores previously. So we know we can count on a total of about, let's say, 200 stores in the U.S., and they are also located in very good states like Florida, Texas, et cetera, so the famous Sun Belt. So it's a fantastic opportunity. Of course, in this way, we are also able to capture a bigger part of the value chain. Previously, as you know, we were just capturing wholesale revenues. Now through this acquisition, we are also able to capture retail revenues. And let me say that also more -- most important, we are now also able to have direct access to customers. So to -- direct access to our customers in those states. So definitely a very strong opportunity. We are now in the phase of integration. We are working very well with the former PJC management, and therefore, we are extremely happy about how we are performing there.

If I could just follow-up on the regional developments in Jan and Feb, could you confirm if the U.S. market for you, the reference market, was that in decline or growing in January and February?

We estimate that the market was down, slightly down, I would say. No official numbers yet. This is our estimation. The last official numbers for the U.S. are related Q4. And you might already have these numbers. In Q4, 2020, the U.S. market, because of the presidential elections, because of the number of cases increasing at that time in October, November, December, the U.S. market, according to official data, reported a decline in the region of 5%, 6%.

The next question is from Veronika Dubajova with Goldman Sachs.

I have 2, please. The first one is, I mean, I appreciate, it's very difficult for you guys to have a view on market normalization. And I have lots of sympathy for management saying there was a ton of uncertainty. But you see the problem is I have to have a number in my model, a single one. I can't even have a range. So imagine that. But in all seriousness, just would be good to know how you guys are thinking about the pace to market normalization? And even if you can't kind of give us a precise curve, I guess, if I look at some of the statements from your competitors, we've had a couple of extremes, right? I mean I think GN are out there as saying, their view is the second half '21 is the same level as second half '19 from a market perspective. You look at demand. And demand, say, actually, second half of '21 is the same as it would have been in the absence of COVID or potentially even better given pent-up demand. So quite a lot of variability. And I'm just curious how you're thinking about that recovery and maybe also the pent-up demand and if you can quantify that? So that would be helpful. My second question is kind of just thinking a little bit longer-term about some of the kind of competitive players that are emerging on the retail side. And I'm thinking, especially the U.S. market where, obviously, we've seen managed care, we've seen a lot more buying groups or sort of referral groups that are making some inroads into the market. Is that making it more difficult for you guys to find assets to buy in the U.S.? And do you think it's changing the kind of overall dynamics in that independent audiology market in the U.S.?

Right. Thank you for the question. Yes, I think that the fact that some of our peers have very different views about 2021 is a proof that today it's extremely difficult actually to predict. We have a view that in the second -- let's say, we should start to see a more normalized level of the market starting from the second half of this year. And you know very well that since the beginning, actually, of the crisis, our assumption for 2021 was, at the time we were maybe the first to say this, but our assumption for 2021 was that 2021 market level was going to be above '19 market level. And I can definitely confirm that. What I mean is that I expect '21 to be above -- definitely above 2019. Then unfortunately, but really -- I'm in -- really in trouble to say how fast will be this recovery because we have seen throughout the year, we had a fantastic Q3 then with double-digit growth. And then, of course, new cases, new -- the second wave of the emergency started to be seen in Q4. And of course, we had some impact from that. Hence I would say that just in September, October, no one was predicting a second wave in Q4. No one was predicting the second wave in the extent that then it happened. You may recall that we were -- I was personally also in trouble to predict in October which was going to be the end of the year, and let me tell you that, at the end, I was right. I was right because nobody was thinking -- even thinking of what has happened in November, December with very strict lockdown measures in many key countries like Germany, like Italy as well. In Italy, we had 1 month of Red Zone, which means very, very tough lockdown. So to tell you how fast I see the recovery, I would need to know how fast the vaccines will be rolled out and how fast the number of cases will decrease. Unfortunately, in true, honestly, I'm not in a position to tell you this. And I don't think that anybody is now able to say this. I can tell you, I can confirm what I was saying before. First of all, we had a very good start of the year, in my opinion, to be on par with revenues of January, February last year in consideration of the situation that is not solved at all. The situation in Germany, the situation in Spain, you know the situation in the U.S., et cetera, et cetera, in my opinion, it's a very strong result. It's a very strong result also in consideration of the fact that in January, February last year, we were not affected yet by -- at all by the COVID-19. And you may recall that during our conference call, one year ago, we said that we've been doing extremely well in January, February, growing 10% versus '19. So which means that in January, February this year, despite of the fact that we are still experiencing several lockdown measures in the U.K., in Italy, in Spain, in Germany, in France as well, et cetera, et cetera, we are 10% above '19. In my opinion, this is a very strong result. With regards to the pent-up demand, for sure, we have seen that pent-up demand is there. We have seen, in Q3, that as soon as the restrictive measures were lifted, we have seen customers coming back very, very quickly to our stores. You may recall that after the second quarter, we had a very strong double-digit growth in Q3, which means that customers are coming back as soon as all the different lockdown measures are released. And this is, in my opinion, not a surprise in consideration of the fact that our purchase, our services are not discretionary services, but they address actually healthy issues. And therefore, people, as soon as is free actually to go around, they come back to our stores. With regards to the second part of the question and therefore, the evolution of the different channels in the U.S., for sure, managed care is the channel which is today growing the most. We are well positioned with Amplifon Hearing Health Care, which is focusing exactly on this channel of the market. Anyway, we think that retail will still, of course, be extremely important going forward. So also, our acquisition of PJC is -- should be seen in light of the fact that we believe that direct retail can be a very good opportunity actually to also capture a bigger part of the value chain.

And Enrico, can I just follow-up? So I guess, you think there is pent-up demand. I understand why you would expect '21 to be greater than '19. But I mean, if there is indeed lots of pent-up demand, shouldn't it be significantly better? I mean, are you, in theory, expecting that when you kind of think about the 2021 market, it's not only 5% to 10% higher, but it could be 10% to 20% higher. I mean, is that something that you're considering? And I guess my second sneaky follow-up, if that's okay. But you have a lot of exposure to countries that are not doing a particularly great job with the vaccination rollout so far. Is that a concern for you at this stage?

Well, that's for sure. I mean, clearly, we have seen also in January, February, that in markets like Australia or like in New Zealand, you know that we are quite, let me say, well exposure to those 2 markets. We have seen a very strong rebound, very strong rebound. In January, February, Australia and New Zealand have performed extremely -- in our business, performed extremely well. So it depends how big will be the rebound and how fast the pent-up demand, will come, as I said, will depend for sure from a number of different factors, including the vaccine, et cetera, et cetera. For sure, we expect, in particular, in the second half, a strong rebound, but this is an assumption.

The next question is from Domenico Ghilotti with Equita.

Three quick clarifications. The first is on the margin, which you're referring to the 180, 200 bps, are you referring to 2019 on an adjusted basis or reported because you have some integration cost there? And the clarification also on the net financial position. So I'm trying to understand if you had -- if you use the factoring and how much compared to the previous year just to get this decline in working capital. And I'd say, still a follow-up on the comments related to the performance in the first 2 months. So what is -- so how much was the organic performance? Because I missed this point, so in the 10% of last year and in the flat performance this year. And the question is on the profitability in North America in the sense that while Europe was, say, showing a big jump in profitability despite the limited organic growth, North America was, okay, not bad, but clearly, much less. So I'm trying to understand if North America is -- has the same kind of structural savings and those kind of actions that have been executed in other regions?

Right. So I would answer to your 1, 3 and 4, and then I would leave to Gabriele for the #2. So with regards to the first question about the improvement in terms of profitability in 2021 versus 2019, the reference is on a recurring basis, absolutely. With regards to the organic growth in January and February at constant ForEx and adjusted for the working days because in the first 2 months, actually, we had 2 working days, which is a lot, of course, for 2 months like January, February, what I said is that the organic growth in the first 2 months was positive versus 2020, which I need to underline, once again, were 2 extremely strong months, reporting 10% growth versus January, February '19.

But was the 10% -- sorry, just to be clear. So was the 10% of last year an organic performance? Or was including, let's say, Attune or some kind of M&A contribution, just to...

The organic, as far as I remember, was in the region of 8%, something like that. So most of the growth was organic, actually. So with regards to the #4, and therefore, North America profitability, I can tell you that we have taken, in the North American region, the same kind of actions that we have taken also in the rest of the company. So definitely, we expect this improvement in terms of profitability to be -- most of it to be structural and therefore, to be also carried over in the next quarters. With regards to the question #2, I leave to Gabriele.

Thank you. In terms of factoring, so we don't make a lot of usage normally on -- of factoring, just for some particular credit, such as, for example, the Italian social reimbursement. And I can tell you that if I compare 2019 and 2020, the credit lines were the same, and we made a lower usage compared to 2019, of course, also due to the fact that the turnover in 2020 was lower than in 2019 due to COVID. So no discontinuity is following this change in the factoring approach. So we can see this -- I mean, the factoring as something very much in line to '20 versus 2019 and also in 2021. So the performance was really due to an improvement of the collection term, an improvement of the inventory days and an improvement of the payment terms on a stable basis.

Our next question is from Oliver Metzger with Commerzbank.

The first one is on acquisitions. And on the PJC acquisition, I agree that it's an attractive asset, which fits well into your target scheme. So first, could you describe how aggressive the bidding process was, in particular, if I assume that also the manufacturers were part of this process? And then it's a more general one on acquisitions. Do you see this number of these sized targets available right now also for the future? And the next one is on profitability. So 2020 profitability was also pushed by saving in operating expenses. So I think there is a kind of pattern in the recovery. So could you share with us your view to how this recovery pattern looks like? So how quick follows the bottom line, the top line, if revenues go up again? And yes, that's on the cost side.

Right. So I will answer the first 2, and I will leave to Gabriele the last one. So the acquisition of PJC, it was a different process from the normal ones, simply because PJC was one of our franchisee. So the kind of relationship, the kind of bond that we have with such kind of retailers is very different from, for example, the acquisition of GAES of 3 years ago. So there was not a real, let's say, bidding process for PJC in reality. With regards to the second part of the question, and therefore, if there are other franchisees still, I mean, available for sale, well, we have many, many other franchisees in the U.S. At the moment, there is nothing to report on this side also because as of today, we are likewise, for the GAES acquisition, we are definitely very, very focused in order to make this acquisition another success story. So we are working very hard in order to integrate PJC in our business in the U.S. With regards to the third part of the question, I leave to Gabriele.

If I understood, I mean, your question is about operating leverage. And what I can tell you on this regard is that we have been making significant improvement during 2020. Because, of course, you can talk about EBITDA improvement following the operating leverage or when revenues are growing, but in 2020, we have been able to post 110 basis point EBITDA improvement even if revenues were going down by 10%. So we made a lot of structural activities, which will be able to deliver superior EBITDA in the coming quarters. Enrico was talking about a 200 basis point EBITDA improvement. Of course, it will be related to revenue increase. But again, it is making some fair assumption of revenue increase. So if revenue increase will be even higher, we can expect something even stronger than the 200 basis points. And I don't know if I answered your question or if you need some detail on...

Yes and no. So thanks for these explanations. So -- but I'm more interested in -- about your view. So first, if the market normalizes, sales growth moves up while simultaneously potentially your marketing expenses are still lagging behind. So -- and I would be pretty interested to get your view, what do you expect? How fast this -- the delay in this expense will come after, say, the market recovery? So for example, if the first 2 months, sales goes up and then you start your marketing campaigns again. And so how do you think about that?

Yes, yes, yes. No. On this, I mean, what I want to highlight is that, for example, on Q4, we achieved an EBITDA margin, which was 210 basis points higher than '19. And this was after strong investment in marketing and strong investment in strategic corporate project. So the performance, you can see at the P&L, today, is not made sacrificing anything. It's made after important negotiation with indirect supplier, important negotiation with some supplier also for direct. But I mean, in general, on direct, we are doing on an yearly basis. On indirect, 2021 was an important year to achieve the new basis of cost that you will see from 2020 on. And was also achieved thanks to some redesign of processes, thanks to -- after some also improvement of return on investment on different areas such as marketing, but it's not achieved after cutting costs. So cutting cost is something that you saw in Q2, of course, in order to react to revenues doing minus 40%. But from Q3 on is structural measure that you will see and important investment in marketing around plus 7% in Q4, a key strategic project, very much higher compared to previous year. So usually, we start OpEx as soon as we see that the market will recover because we want to gain market share. So we start marketing even before the market recovers.

The next question is from Kit Lee with Jefferies.

I have 2 questions, please. My first question is just a follow-up on pent-up demand. I guess it's hard to call the timing on this, but how do you think about the extent of pent-up demand coming back? Do you think most of it will come back eventually? Or do you think the market would be growing from a lower base? Just keen to understand how do you size the pent-up demand. And then my second question is just on the opportunity in China. Can you just talk about the sales contribution from that region to the group today? And how do you see that ramping up in 2021 and also in 2022 is?

Right. So with regards to the first question, and therefore, to the pent-up demand, our guess is that most of it will come back. And we say on the back of what we have seen already during 2020 in June, July, August, September, October, when after the lockdown measures were lifted, we have seen our customers coming back very strongly, very quickly, quicker on -- let me say, on the returning customers, more, let's say, slower on new customers. Also new customer, our assumption is that, anyway, in due time, they will come back. And we say this, again, based on the fact that our customers, our services are not discretionary services. And therefore you know also very well that the decision to purchase an hearing aid comes after a long period of an average of 7 years. So we assume that the pent-up demand will come back almost entirely and if not entirely, almost entirely. With regards to China, you know that China, for us, is a focused market. Today, our revenues are still quite small, in the region of EUR 10 million, but our first JV is growing extremely fast. And also in China, coming back to the previous question, what we have seen is that now that the situation has normalized, we see very, very strong growth. So also this tell us that as soon as the situation in terms of lockdown, in terms of infections, restrictive measures, are over, customers are coming back very, very soon. We have -- as we said many times, we wanted to increase our presence in China, and we are working on that. And you can expect a scheme, which is similar to what we have done so far, which is a scheme based on joint ventures in which we hold the majority of the shares, in which we have also an option to acquire 100% of the company in no time. So definitely is a focus area for us. It's a strategic market. We will definitely continue to invest in this market.

Thanks, Kit. And Eugenia, maybe we can ask for a last Q&A as we are running out of time. Thank you.

The last question is from Giorgio Tavolini with Intermonte.

Regarding Italy, when talking about EMEA, you didn't mention Italy, you mentioned France, Spain, Germany and Benelux. What was the exit speed for the Italian business in 2020 and the entry speed in January and February? The second question is on the January and February trends. If I don't make a mistake, in Q1 2019, you should have an easy comp -- I mean, this year, you will have an easy comp with last year due to the fact that APAC was also affected by the earlier COVID-19 outbreak in China. In January 2019, it was already there. And secondly, the bushfires in Australia. Last year, you had minus 8% organic growth in Q1. So I was wondering if the APAC rebound in January and February was also due to this easy comp?

Right. Thank you for the questions. Well, in Italy, you know -- I guess, you know very well that in November, December, very severe measures were taken, in particular, in December, with almost the entire Italy actually being in a red zone. And therefore, it's clear that in December, our revenues in Italy were affected by this situation. You know also that in January, February, these measures were eased in some way with only a few regions being in the red zone. So that for sure, since January, we have seen an improvement in terms of business here in Italy. With regards to the second question, well, China, as I mentioned earlier on, actually is extremely tiny as a business as of today. And therefore, I would not mention that as part of easy comparison. In Australia, maybe we had January with the famous bushfires, but let me say, this does not change at all the overall picture of Australia, New Zealand and the region in a situation where we see actually the pent-up demand coming back strongly, again, in confirmation of the fact that customers as soon as the situation in terms of lockdowns improves are coming back to the stores. That's it, I will say.

Thank you. Thank you, everybody, for taking part in the call. And Eugenia, I kindly ask you to close the conference call.

Thank you, everyone.

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