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 Q4 and Full Year 2023 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Francesca Rambaudi, Investor Relations and Sustainability Senior Director of Amplifon. Please go ahead, madam.

Thank you. Good afternoon, and welcome to Amplifon's conference call on Q4 and Full Year 2023 Results. Before we start, a few logistic comments. Earlier today, we issued a press release related to our results, and this presentation is also posted on our website on the Investors section. The call can be accessed also via webcast and dial-in details, which are on our 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's CEO, Enrico Vita.

Thank you, Francesca, and good afternoon, everyone, and thank you all for joining us. So let's begin with some comments on the year that has just ended, which was undoubtedly more complex than initially thought, especially regarding the development of the European market. In fact, we saw a global market moving at 3 different speeds. The U.S. was very strong, while Europe, our core geography, was definitely weaker than we expected, mainly because of the negative performance in 2 key markets of France and Germany. Australia and New Zealand were somewhere in the middle. In this context, also in 2023, we delivered record results. We grew strongly around 10% at constant exchange rate, and I see this as an excellent achievement considering our geographical mix, which is, as you know, still more skewed towards Europe, although U.S. is growing exceptionally well. Regarding the profitability, we sacrificed some mainly because of the investment in audiologist capacity at the beginning of the year, particularly in France, Germany and a few others. However, in the second half of the year, we did our homework. We worked hard to realign our cost structure in the field through several productivity measures, the benefits of which are already visible to us in these early months of the year. And let me tell you that all in all, I'm very proud of how our organization reacted to the softness of the European market, reviewing once again how we were doing certain things and finding ways to do them even better and more efficiently. And it is because of all the work done, especially in the second part of last year that I'm very positive about 2024. But I will come back to this at the end of the presentation. Instead, I now leave the floor to Gabriele, who will give you more details about our performance.

Thanks, Enrico, and good afternoon, everybody. Moving to Slide #4, we have a look at the group financial performance in Q4, which, as already commented by Enrico, posted a revenue growth of 11.2% at constant FX with a strong and well above market organic growth despite a still slightly negative and softer-than-expected European market and one trading day less primarily in. Our organic performance was driven by significant share gains and positive pricing development. M&A contribution from bolt-on acquisition in France, Germany, U.S. and China was at a remarkable 2.3%. FX had a significant negative impact accounting for 5.1%, primarily due to the Argentine peso exceptional devaluation in mid-December. Being Argentina affected by hyperinflation, the group needs to apply the inflation accounting principle, adjusting local financial statements with a price index and then translating the adjusted local financial statements into euro at December 31 exchange rate versus the normal average exchange rate for the period. The 140% peso devaluation executed in mid-December more than offset the positive effect of the price index adjustment, strongly affecting the revenue at current FX. Organic growth calculated instead from revenues at constant FX reflects the positive impact from price index adjustment. Such impact was positive by around 2 percentage points at group level and by around 10 percentage points at American level in the quarter. In the full year, such impact was negligible at group level and positive for around 4 percentage points at Americas level. EBITDA recurring came in at around EUR 156 million with margin of 25.3%, primarily due to the significant investments in the field capacity to unlock constraints and boost growth and to the lower operating leverage in EMEA for the softer-than-expected European market. Moving to Chart 5, we have a look at our financial performance in the full year '23. Revenues reached another record level at EUR 2.26 billion, up over 10% at constant FX, driven by a very strong and above market growth at 8% despite the softer-than-expected market in Europe and M&A contribution at over 2%. FX impact was negative for 3.5% due to the depreciation of the Australian and New Zealand dollars and above all, the Argentine peso. Full year '23 revenue came in slightly lower than expected, primarily due to the above mentioned significant FX deterioration at year-end compared to the estimated FX assumptions, which had a negative impact in the range of EUR 15 million to EUR 20 million. EBITDA recurring amounted to EUR 542 million, up over 3% versus full year '22, with margin at 24%, in line with expectation despite the very strong investment in field capacity and despite EMEA lower operating leverage due to the softer-than-expected market. Moving to Chart 6, we have a look at EMEA performance. Revenue growth at constant FX was over 5% versus '22 with a well above market organic growth of 4.1%, driven by share gains and positive pricing development despite a still slightly negative and softer-than-expected market and the negative impact of 1 trading day less. M&A contribution in France and Germany was around 1 percentage point. EBITDA amounted to EUR 118.7 million with margin of 28.4% versus 31.1% in Q4 '22 primarily due to the lower operating leverage in a softer-than-expected market, while strongly investing in audiologist capacity to unlock constraints and enlarge the competitive gap versus other players. In the full year, revenue growth at constant FX was 5% with a solid and above-market organic growth at 4% and M&A contribution at 1%. EBITDA amounted to EUR 419 million with margin at 28.2%. Moving to Slide 7. We have a look at the excellent performance of Americas despite a particularly adverse FX impact in Q4. The FX impact was minus 24.5% due to the exceptional and already commented Argentine peso devaluation in December. The organic growth, including the positive inflation accounting impact was 26%. Net of this impact amounting to around 10 percentage points, the organic growth is still above 15%, driven by a very strong performance of both Miracle-Ear Direct Retail and Amplifon Hearing Healthcare versus a very challenging 2022 comparison base, which grew 20% versus Q4 '21. M&A contribution primarily related to U.S. and Canada was 6.8%. EBITDA came in at EUR 31 million with margin at 28.8%, up 170 basis points versus '22, also after the fast growth of Miracle-Ear Retail business, which today reached around 350 points of sales. In the full year, revenue were up 25.4% at constant FX despite the '22 very strong comparison base. EBITDA amounted to EUR 115 million, up 14.5% versus '22 with margin up 50 basis points at 26.8%. Moving to Slide 8. We have a look at Asia Pac, where we posted an excellent performance. Revenues were up over 15% at constant FX, mainly driven by an outstanding organic growth at around 12% with all markets in the region performing very strongly. M&A contribution was 3.4% related to China expansion plan, which led our network today to exceed 400 points of sale. FX headwind was significant at minus 6.7% due to the appreciation of euro versus both Australian and New Zealand dollars. EBITDA was at EUR 23.4 million with margin at 26.2%, up 30 basis points versus Q4 '22, also after the very strong growth of China. In the full year, revenues were up over 15% at constant FX, driven by an excellent organic growth of over 13%. EBITDA amounted to around EUR 90 million, up 7.1% versus '22 with margin at 26.1%, with a contraction of 10 basis points due to the onetime cost for the change of leadership in the region in Q2. Moving to Slide #9, we appreciate the Q4 profit and loss. As previously mentioned, total revenue at constant FX increased in the quarter by 11.2%, while revenues at current FX grew by 6.1% at EUR 615 million with an increase of over EUR 35 million versus '22. EBITDA recurring came in at EUR 156 million with margin at 25.3% versus 26.9% in '22 when we implemented some cost containment measures related to nonstrategic investments. As previously mentioned, the profitability reflects the lower operating leverage in EMEA and the less favorable geographic mix due to the softer-than-expected demand in Europe, coupled with very strong investments in the business. D&A, including PPA, increased by around EUR 13 million versus last year in light of the growing investments made during the last years in network, digital innovation and digital transformation, leading the recurring EBIT to EUR 81 million versus EUR 94 million in Q4 '22. Net financial expenses amounted to EUR 12.6 million versus EUR 9.4 million in Q4 '22. Tax rate posted a 190 basis point reduction, leading recurring net profit at around EUR 53 million. Moving to Slide #10, we see the full year profit and loss evolution. Total revenues increased over EUR 140 million to EUR 2.26 billion with a growth of 10.2% at constant FX and of 6.7% at current FX. Recurring EBITDA increased to EUR 541 million with margin of 24%, down 80 basis points versus '22 record level for the previously mentioned reasons, while reported EBITDA was around EUR 527 million after EUR 15 million one-off costs primarily related to the application of IFRS 2 accounting principle for the shares assigning previously communicated. D&A included PPA increased by around EUR 28 million to EUR 268 million, leading the recurring EBIT to EUR 274 million. Net financial expenses amounted to EUR 49.5 million versus around EUR 35 million in '22 due to the increase in interest rates on short term and on the limited portion of long-term facility at variable rate since, as you know, most of our long-term debt is at fixed rate and the higher figurative interest expenses on network leases following the application of IFRS 16. Profit before taxes resulted at around EUR 225 million versus EUR 250 million in '22. Tax rate ended at 26.2%, down 50 basis points, leading recurring net profit to EUR 166 million versus EUR 183 million in '22. Moving to Chart 11, we appreciate the cash flow evolution. The operating cash flow after lease liabilities was in the period equal to EUR 300 million versus EUR 353 million outstanding level achieved in 2022, when the group implemented several actions delivering a considerable improvement in terms of operating and nonoperating working capital. Net CapEx increased significantly by EUR 34 million to almost EUR 140 million as during 2023, we invested strongly not only in people, but also in our network, in our digital innovation and in our digital transformation, leading free cash flow at EUR 160 million. Net cash out for M&A posted as well a significant increase to over EUR 180 million from EUR 85 million last year, following the strong acceleration of bolt-on M&A with over 340 shops acquired during the year. NFP ended at EUR 852 million after a remarkable investment for around EUR 315 million in CapEx, M&A and dividends. Moving to Slide 12. We have a look at the debt profile trend and key financial ratios. As mentioned, the net financial debt closed at EUR 852 million with liquidity accounting for EUR 194 million, short-term debt for EUR 327 million and medium long-term debt for EUR 719 million. Following the IFRS 16 application, lease liabilities amounted to EUR 497 million, leaving the sum of net financial debt and lease liabilities to EUR 1.35 billion. Equity ended up at around EUR 1.1 billion. Looking at financial ratios, net debt over EBITDA ended at 1.50, slightly decreasing versus 1.52 at December last year after the very strong investment in CapEx, M&A and dividends. Net debt over equity ended up at 0.77 versus 0.80 last year. I would now hand over to Enrico for an update on our ESG achievements and on the 2024 outlook.

Thank you, Gabriele. So now let's discuss our further significant step-up in our sustainability journey. First, in 2023, we strongly accelerated our environmental responsibility. We delivered on our green objectives, increasing the share of renewable energy from 50% to well above 70%, exceeding our target. We formalized our commitment to the science-based target initiatives to define near-term decarbonization targets, underwent an in-depth climate change risk assessment and adopted our new environmental policy globally. The strong improvement to score B of the CDP is also a testament of our increasing transparency and focus on environmental and climate topics. Second, we continued delivering on our commitment to people and first of all, to our employees, our most important asset. We provided almost 420,000 hours of training and following the adoption of our diversity, equity, inclusion and belonging policy, the percentage of women in managerial roles increased from 44% to 47%. We are, therefore, very pleased to have been included among the 10 -- the 100 Most Loved Workplaces 2023 globally and to have received the Top Employer Certification. Finally, this year, we worked hard on the definition of our new sustainability plan since the first ended in 2023. The new plan, which will be released in our 2023 annual report and presented in the coming weeks will include new and ongoing ambitious medium- and long-term targets integrated with our business and financial strategy and linked to management's remuneration. Hence, we look forward with real excitement to our journey towards an even more sustainable company. Let's move now to the following chart, Chart 14 for the outlook. Here, we are at the last chart of today's presentation, where you can find our key comments regarding 2024. Firstly, after a softer 2023, we expect the European market to normalize and come back to solid growth. Same for Australia and New Zealand. We also expect the U.S. market to continue to grow healthily. Hence we see a more balanced global market growing next year somewhere around 4%. Considering this market development, we aim to grow high single digits at constant exchange rates, thanks to an organic growth above market and the contribution of bolt-on acquisitions above 2%. We are also very positive on profitability. In fact, thanks to all the different productivity measures taken to realign our field structure in Europe in the second half of last year, we see a meaningful improvement in the company EBITDA margin above 24.6%. Then as usual, I also wanted to share with you some insights about how we started the year. In January and February, we saw strong momentum in sales, especially considering that last year first quarter was the strongest. Also, I said at the beginning, we see the benefit of the work done in productivity and in profitability already in the early months of the year. Obviously, March will be crucial to confirm this trend. And regarding March, considering that it has on average about 2 working days less than last year due to the earlier Easter this year, also March looks good so far. Hence, we are positive for the entire Q1. Finally, during Q4 and the first 2 months of 2023, '24, we closed many bolt-on acquisitions, particularly in the Americas and China. In China, as anticipated, we can now count more than 400 stores, and we are running fast towards a similar number in our direct store network in the U.S., where we now have more than 350 stores. All in all, we are proceeding at full speed following our strategic priorities, and I'm optimistic that 2024 will be a year of strong profitable growth for our company. With this, we thank you for your attention, and we look forward to taking your questions. Francesca?

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

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

I'll keep it to 2, please. Firstly, can you talk a bit about the competitive landscape on the manufacturer side, given there seems to be a shortening of the product life cycle and whether you expect to see more pricing concessions on the manufacturer side than normal and whether you foresee any meaningful changes in the share of your wallet across suppliers? And then secondly, can you walk us through the drivers of the greater than 60 basis points of margin improvement for this year and the key building blocks? And what do you think is a realistic upper bound or upper end for this year in terms of the margin, assuming you continue to invest sufficiently into the business? And how much of this margin improvement is EMEA and mix and how much is pricing?

Okay. Thank you for the questions. I would start with the second one and therefore, our target for -- in terms of profitability for next year and our target to increase our profitability by more than 60 basis points. So the key driver for this profitability increase is mainly related to what I was telling you during the presentation and particularly the productivity measures that we have taken, in particular, in Europe in order to improve our labor cost on sales in Europe, which was the main point about the profitability decrease of Europe last year. Here, what we have done, we have been working very hard, I have to say, during all the second part of last year. And we have worked, for example, on our protocols in the stores. We have worked on the agenda management. We have also worked on training and this kind of productivity measures that we have taken allowed us basically the number of people that we need to be hired this year also given the investment that we made already last year. So basically, the productivity -- the profitability increase for this year is mainly related to labor cost productivity. With regards to the other point, the upper end today, I'm not going to give you any limit in terms of, I mean, where we see our profitability next year. I think that for now, it is, I think, a good -- very good goal to go above 24.6. Clearly, also it will depend from the kind of revenue growth that we will be able to achieve. And in terms of pricing, the effect of pricing will normalize this year. Of course, we had quite good benefit coming from pricing last year. But this year, we will come back to our usual pricing fine-tuning. We do not see prices going down eventually to be up, but definitely in a more limited way than last year. With regards to the first question and therefore, the competitive landscape amongst the different manufacturers, I can't really mention anything which is going to change significantly the picture of the last few years. So nothing major to be mentioned.

Okay. That's helpful. Just if I can just follow up on the margin point. Could 25% be realistic with high single-digit growth? Or would it need to exceed that?

Well, as I said, I think that we have given today quite a detailed guidance. Again, it depends, it depends. If we will be -- the profitability increase will be higher, of course, if we will be in the upper range of the revenue growth.

The next question is from Hugo Solvet of BNP Paribas.

I have 2 as well. First on current trading, you mentioned strong growth in January and February. Can you maybe give us a bit more detail, are you tracking or are you tracking against the full year '24 guidance for growth at or above high single digit? And on margins at or above the 60 basis point improvement? And if you can give us any details on the regional dynamics? Second, you mentioned that medium term, you're very positive about the growth prospect. Taking a step back in 2021, you gave a 3-year guidance for high single-digit growth and about 40 bps margin improvement per year. Going forward, my question is, do you see the same pace continuing or conscious of the larger scale better mix and investments now behind, you believe that there is room to push that higher?

Thank you for your questions. So with regards to the current trading, we are very happy about how January and February started in terms of both sales growth and profitability. In terms of regional dynamics, I would say that what you can expect is definitely EMEA to be the one that is improving profitability the most amongst the 3 regions, exactly for what I was telling you before and in particular, all the different productivity measures that we have taken in the second part of last year in the EMEA region. In terms of sales growth, as usual, you should expect Americas to be the fastest in terms of growth. But we are also very happy about the kind of results that we are achieving in the APAC region, basically in all the different markets in which we are operating as of today. So let me say that it is definitely a more balanced growth and all the 3 different regions are contributing to what I believe it will be a good first quarter. With regards to the trajectory for the next years, of course, today, I'm not going to give you a guidance in the medium term. But of course, we are positive. We are positive that we can restart the trajectory of positive growth also in profitability going forward.

Okay. And if I can just squeeze one quick follow-up. What are you expecting with regards to the wave of renewals in France in late 2024 and possibly in 2025?

In terms of -- please say again, in terms of?

The wave of renewals following the implementation of reimbursement?

Absolutely, absolutely. Yes, clearly, I mean, we already see a more balanced mix between new customers and returning customers. And we expect this trend actually to continue also in 2024. In 2025, we will anniversary the RAC 0 reform in France, and this will definitely give a positive contribution also to the mix of returning customers. So yes, as of today, we see definitely a much more balanced mix between the new and returning customers.

The next question is from Niccolò Storer of Kepler.

Two questions. The first one is on growth for the first 2 months in particular in Europe because I see that fourth quarter was still a quarter of 4% growth, which I imagine translates in no growth in volume terms. So my question is, have you already seen an inflection point on the European market in terms of volumes in January and February? And in particular, if you can elaborate on Germany and France. The second question is on profitability in your guidance for the at least [ 50 ] bps expansion, you are also factoring in some improvement in the APAC region after years of decline.

Thank you for the questions. I would start from the second one. So about the profitability for this year, yes, we expect the main contributors to the profitability increase for 2024 to be, first of all, EMEA -- EMEA region, and after EMEA, APAC, this also despite of the increase of the Chinese business. As usual, instead, we see more limited profitability increase in the Americas. But this is mainly related to the fact that, as you know, we are growing very fast in terms of transforming and increasing our network of direct operated stores. With regards to the growth of January and February, let me say that in general terms, I expect in 2024, EMEA to come back to solid growth. If you want a number, I would say EMEA, perhaps in terms of market growth should be in the region of something like 3%, while last year was negative. So we see definitely a rebound and we see that also in the 2 key markets of France and Germany. And in particular, in France, I think that also during 2023, we have seen the market improving in France throughout the year. What I mean is that still in Q4 was slightly negative, but definitely much less negative than the beginning of the year. So we expect also these 2 markets to come back to positive growth, which is good.

The next question is from Veronika Dubajova of Citi.

I have 2, please. The first one is I just want to circle back to the productivity measures, Enrico. Because if I look at the fourth quarter, there doesn't seem to be any benefit from these. So I'd love to understand a little bit more exactly what has changed as you've gone through the course of the fourth quarter. And I guess as you think about the impact of these productivity measures on the profitability through the year, does it get better each quarter? Or is it already significant in Q1? So if you can elaborate on that, that would be helpful. And then my second question is just around Americas. And if you guys could give us the U.S. growth rate for the fourth quarter so that we can see what the clean U.S. number is on an organic growth basis? And then talk to your expectations about your ability to keep outgrowing the U.S. hearing aid market in 2024?

Thank you, Veronika. So with regards to the first one and in particular, the productivity measures that we have been working in the second half of last year. Basically, these measures were aimed at improving the productivity in our stores operation. As I said during -- before, actually, we have worked on our protocols. We have worked on our agendas in order to optimize the agendas of our radiologists. We have worked on training. And basically, at the end of the day, this allowed us to significantly reduce the number of people that we need to hire, we needed to hire in 2024 at the beginning of 2024 to sustain our growth path. Also given the fact that this kind of investments were carried out already during the first part of last year. And why we were not able to reap the benefit of these measures already in Q4, basically because there is an obvious time lag between the implementation of actions and the achievement of the results. But I can definitely confirm you that in this first month and in this first quarter of this year, we are going to see the full benefit of all the work that we have done in the last part of last year. With regards to the organic growth of the Americas in Q4, of course, I think that Gabriele already mentioned the fact that on the total Americas organic performance, there is an effect related to the inflation accounting, which is related to Argentina in the region of 10 percentage points. Let me say that in the Americas, we were -- I mean, even after considering this, we were very strong in terms of organic growth. We continue to outperform the market. So we continue to see a very, very good results coming from our strategy implemented in the U.S. now for a while. So we are very happy about how we are growing in the U.S. As you know, U.S. is our priority #1 in terms of growth going forward.

And can I just follow up on that? So did the U.S. grow 10%, 15%, somewhere in between? I'm just trying to understand that. And if indeed, the number was just 10%. I mean, if I look at the HIA stats, the private market was very strong in the fourth quarter. And so even if you did grow 10% to 15%, it just seems less outperformance than we have seen from you historically. So I'm just trying to understand that.

No, no, I wouldn't say this. I mean the U.S. grew very, very strongly in terms of organic growth, well above 10%, let me say. So we have been, again, I think, outperforming the market and more than this is really very difficult to ask. Also, please, if you are referring to the comparison with the reported number by HIA, which is the association of manufacturers. Please always remember that these numbers are related to sell-in data, which can be affected by launch of new products, stocking in large accounts and so on and so forth. So according to our estimation, we continue to outperform the U.S. market definitely.

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

I have 2 as well. The first one on Italy. So do you have any update on the Italian government investigation for the hearing aids market? And should we expect any kind of decision in the -- like in the coming months? Also, if you can run through sort of different potential scenario you have and your foresee for this, that would be helpful. The next question, so it's still on the U.S. You've recently announced a large acquisition of franchisees. Could you maybe update us on your U.S. store strategy for the short term, but also for the midterm? So is there more large franchisees network that you can buy? And if I'm correct, part of the growth you're seeing in the U.S. come from the fact that you capture much more of the value chain today by having direct retail as opposed to franchise. So as you continue this sort of intra-group acquisition, is it fair to believe America could continue to grow, let's say, at a double-digit growth rate organically also underpinned by South America and managed care, which grows very fast.

Thank you, Julien. So with regards to the investigation by the competition authority in Italy, first of all, no, we don't have any further update since last time actually. I think that while some time ago, the outcome was expected around February, March. Now it is, I think, unlikely that a conclusion will be ready in the next few weeks. So perhaps it will come a bit later. But these are not things which are which are in my control. And therefore, I can't really give you any specific more detail about that as well as it is still very premature to make any conjecture. With regards to the second question and therefore, our strategy in the U.S., we are super pleased with how our business is performing in the U.S. Definitely, the strategy to be more present through direct -- through a direct operated store network, I think, is definitely the winning one. As you know, also in the case of the last acquisitions, as soon as we are able to manage directly some of our franchise operations, we are able to improve the performance quite significantly. This will make us confident that this is the right strategy also going forward. And for sure, we will continue to pursue this strategy also in 2024 and further on. With regards to what will be the growth of the Americas going forward, it is -- I don't give you a precise guidance by region, but definitely, the Americas and the U.S., in particular, thanks to strategy that I just mentioned and thanks also to the fact that manage -- I mean, our Amplifon Hearing Health Care business is growing very fast. So definitely, we expect Americas to be the fastest-growing region also going forward.

Perfect. And should we expect a bit more acquisition of franchises this year or you're done with the 50 stores?

No, no, no, no. For sure, we are working in order to continue to accelerate our growth in the U.S. also pursuing our strategy.

The next question is from Shubhangi Gupta of HSBC.

I have 2, please. France and Germany have been seeing some positive growth momentum. Could you comment on other European markets like Italy and Spain? What is the growth pattern you are seeing there? And second, for your FY '24 growth outlook, what is the expectation for U.S.? Because as I understand, U.S. is more exposed to disposable income and has no social reimbursement.

Okay. Thank you. So yes, in general terms, let me say that we see the European market going back to positive growth. This growth, I mentioned before, I expect something in the region of 3% for the European market. And this growth, of course, will be underpinned by some growth both in France, Germany, France was negative last year. But also in Italy and Spain, we see a positive market also in this very early part of the year. So we expect a more normalized European market in 2024 for sure. With regards to the second question and therefore, the development of the U.S. market, for sure, we expect also the U.S. market to be the fastest markets amongst the mature markets in which we operate, difficult to say a number, definitely will be higher than Europe. I would not expect the same kind of growth that we have seen in 2023, though. So definitely very solid, very strong, but below 2024. I would say something in the region of 5%, 6%.

The next question is from Oliver Metzger of ODDO BHF.

The first one is on your bottom line guidance. So potentially, I'm just missing something. But we see, on the one hand, quite good growth, particularly in Europe, which is the most profitable region to my understanding. You have also initiated the productivity gains. So given both also the operating leverage, I would have expected something even stronger bottom line or margin improvement, in particular, as basically you target the '22 levels. So potentially you can also what are right now the factors which basically hold back profitability? And the second question is in Europe, in particular, in Germany. So we saw a quite, let's say, strange situation in this all the health insurances prolonged the repurchase cycle. From now, do you see some stabilization that the current level is the new normal? Or do you see also a potential that it might be returned to previous shorter cycles?

Right. I will answer to the second one, and I will leave the first one to Gabriele. So with regards to Germany, I would expect for this year, let's say, come back to the usual kind of growth that we were experiencing in the last few years. I do not expect any change at least as of today in the way that the reimbursement rules have been set from a large insurance company last year. So I do not see anything major changing there. With regards instead to the first quarter question, maybe Gabriele.

About the bottom line, Oliver, of course, this year, we suffered a bit from the market situation. I mean, as you know, we are investing a lot, and we have been investing a lot over the last year and so we did this year. This, of course, raised the level of depreciation, not only in terms of normal depreciation, but also in terms of PPA. And on the other side, the increase in interest rate, even if our credit lines are mostly at fixed rate, of course, increased in light of the very important jump up in terms of cost of the money. So moving forward, we are improving our EBITDA margin. We are improving our revenue, as Enrico was commenting before. So we should be reverting to a much more positive impact on the lines below EBITDA. And what I can tell you is that the kind of improvement we were discussing before with Enrico in terms of EBITDA margin can be reflected also below a level of EBIT margin and PBT margin. Then on the tax side, generally, we go on improving a little bit on a yearly basis in terms of [ percentages. ]

Okay. Just a very quick follow-up if it's possible in this context. So what basically would you describe as 1 of the 2 most permanent headwinds on the EBITDA level currently? Is it still the labor inflation, which -- or obviously investments into growth?

Not sure.

Oliver, you're asking the headwind on EBITDA, for example, labor...

Yes, yes, for '24. I just want to understand the dynamics better.

Well, actually, for '24, we are positive that the EBITDA is going to increase pretty significantly. As we mentioned before, by more than 60 basis points, then as I said also, of course, this number can be exceeded or not. It will -- well, it can be exceeded by something or not. It will depend from the revenue growth. Clearly, if we will be in the upper part of the guidance or the outlook in terms of revenue growth, maybe we can do better. So -- but as of today, I would stick to what I said before, and I think it's a very good objective for this year. But in general terms, I'm positive, as I said before, that 2024 will be a very good year and also that we can also continue a positive trajectory going forward in terms of profitability.

We go to the last in the queue, please, so we can finish off. Operator? Can we go to the last 2 people in the queue, so we finish off, please.

Okay. So the next question is from Robert Davies of Morgan Stanley.

I had a couple. One was just on, I guess, a quantification of the size of investment in field capacity you made last year, just so we can sort of see how big of an impact that had on the margins. I know you made a comment that you've made some investments. I just wonder if you could quantify it. And the second was just on your expectations for CapEx spend. I noticed the free cash flow this year came in a bit weaker than expected. I just wanted to get some clarity around what your expectations for CapEx for '24 and beyond.

Absolutely. Well, in terms of field capacity in 2023, in total, we had a significant number of additional people, including, of course, the acquisitions that we made our headcount in the field in total actually was up by more than 1,000 people. So a significant number of -- significant amount of people, the very vast majority of which was actually in the field. As I said, this investment was made at the beginning of the year, forecasting definitely a much more positive market for Europe and therefore, a faster growth in Europe, which did not happen. As soon as we realized it, which means, let's say, in last May, June, we have started to work on the productivity measures that I've mentioned before, which at the end of the day, resulted in the fact that this year, we are not going to have additional people from an organic viewpoint. We will have more people, of course, coming from the acquisitions. But from an organic viewpoint, we will not be needing any, let's say, any meaningful number of additional people, and this will result in a much better ratio of labor cost on sales and therefore, on productivity and therefore, on profitability. With regards to CapEx...

Yes. In terms of CapEx, as you know, I mean, we invested in the past something a bit lower compared to 2023. So I believe that 2023 was quite an exceptional year in terms of strong investment, also to recover a little bit some of the nonstrategic investments that maybe we sacrificed last year. Moving forward, I believe that we should figure out something a little bit lower compared to 2023. So 2023 was EUR 139 million. I would say something in the range of EUR 130 million maybe more realistic for '24 and '25.

The last question is from David Adlington of JPMorgan.

Most have been asked, but maybe just on sort of following on from Robert's question about CapEx. That's obviously had a spike up and that's resulting in some higher depreciation and there's also some higher debt levels. Maybe you could give us some quick guidance for depreciation and amortization and also net financials for FY '24. And then just related, again, following on the free cash flow point, thank you for the CapEx guidance. Just wondered if you're expecting free cash flow obviously down quite a lot in '23. Are you expecting a decent recovery in '24? And could you get back to 2022 levels?

Yes. Yes. I mean, looking at the depreciation, I mean, our depreciation has been increasing around EUR 20 million per year over the last year, including M&A and acquisition. So I mean, I believe something in line with this kind of increase may be feasible. In terms of financial expenses, I believe that this year, we were in a mixed situation in the sense that on one side, we saw the interest rate among the highest in our history. So [indiscernible] down this year. On the other side, it's also true that we benefited from a huge portion of financial debt negotiated on a fixed interest rate during 2020 and '21. So moving forward, we should have, on the one side, a larger portion of variable interest rate debt. On the other side, we should see some lower interest rate on the short-term one. All in all, of course, 2024 is going to be [ higher ] EBITDA above compared to the EUR 49.5 million we saw [indiscernible]. In terms of free cash flow is that -- it's true that this year, we're lower compared to last year. That is also true that last year in '22 and '21 were 2 peculiar year when we implemented the [indiscernible] on operating and non-operating working capital. So in terms of [indiscernible] some sort of [indiscernible] working capital both of the '21 and '22 free cash flow. Of course, this year we suffered also because of lower EBITDA because we invested a lot not only in CapEx but also in [indiscernible] was mentioning. So [indiscernible] generation because we should be able to leverage on a very [indiscernible] EBITDA at a certain point compared to this year and then [indiscernible].

Thank you. I think this concludes today's call. So thank you all for...

Thank you all.

Your interest and attendance, and we kindly ask operator to disconnect.

Thank you.

Thank you, everyone.