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Edited Transcript of AMP.MI earnings conference call or presentation 28-Feb-17 2:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Amplifon SpA Earnings Call

Milan Feb 28, 2017 (Thomson StreetEvents) -- Edited Transcript of Amplifon SpA earnings conference call or presentation Tuesday, February 28, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Francesca Rambaudi

Amplifon SpA - IR

* Enrico Vita

Amplifon SpA - CEO

* Ugo Giorcelli

Amplifon SpA - CFO

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Conference Call Participants

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* Nicolo Pessina

Mediobanca - Analyst

* Annette Lykke

Handelsbanken - Analyst

* Chris Cooper

Jefferies - Analyst

* Veronika Dubajova

Goldman Sachs - Analyst

* Oliver Metzger

Commerzbank - Analyst

* Domenico Ghilotti

Equita SIM SpA - Analyst

* Filippo Prini

Kepler Cheuvreux - Analyst

* Markus Gola

MainFirst. - Analyst

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Presentation

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Operator [1]

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Good afternoon. This is the chorus call conference operator. Welcome and thank you for joining the Amplifon Full Year 2016 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. (Operator Instructions).

At this time, I would like to turn the conference over to Miss. Francesca Rambaudi, Investor Relations of Amplifon. Please go ahead, madam.

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Francesca Rambaudi, Amplifon SpA - IR [2]

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Thank you. Good afternoon and welcome to Amplifon's conference call on full year 2016 results. During the next hour or so, Enrico Vita, Amplifon's CEO and Ugo Giorcelli, Amplifon's CFO will provide comments on the results for full year 2016 and for the fourth quarter 2016. After the presentation, we will be happy to take your questions.

First, a few logistical comments. Earlier this morning, we issued a press release containing our results and the presentation which management will refer to now is posted on our website Investor Relations section. Second, from today, you can access this call also via on the webcast. The link is indicated in our press release. Lastly, you should note that some statements made during this call maybe considered forward-looking statements and that actual results might differ materially from those projected in any forward-looking statements. Please refer to the disclaimer on slide two.

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

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Enrico Vita, Amplifon SpA - CEO [3]

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Thanks, Francesca. Good morning, everyone and welcome to our full year 2016 result conference call also from me. Today, we are extremely pleased to comment with you another strong set of results for the last quarter of the year, but above all, we are very pleased to comment another record fantastic year for our Company.

2016 was certainly an excellent year from the financials perspective, but what makes me also very satisfied is that last year, we really did an incredible amount of work and this is true everywhere in all the regions, in all the markets, in corporate, in all the functions and in fact I cannot name anyone that did not do. Moreover, last year we focused more than ever in the management of two key intangible assets, our people and our brands. Building in this way, a structural platform for the long-term sustainability of our performance. So that today, we feel we are coming out from the record year stronger than ever.

So let's now move to the chart number 5 to comment together the numbers for the year and for the last quarter afterwards. As you can see in chart number 5, we posted record results on top of 2015, which was another record year. Revenues were up 10.4% in local currencies and I would like to highlight once again that all the regions, all the markets performed very well. As well as the composition of the growth was very healthy, 7.4% was the organic growth. Also we have been able to deliver record EBITDA in absolute terms, and the EBITDA margin improvement as for our plans from 16.2% to 16.7% on a recurring basis. Finally, we significantly improved our bottom line, plus 34.2% on recurring basis, after a material increase in our investments in marketing, more than 20% and in the organization. This excellent set of result allow us to propose to the next shareholders meeting, a dividend increase to EUR0.07 from EUR0.043 of last year.

So now let's move to the following chart, chart number 6 [quickly] comment together the numbers for the last quarter. We have a strong finish of the year. The results for the quarter were very consistent with the first nine months, and in fact the revenues were up nearly double-digits, 9.6%, 9.3% in local currencies. Reported also solid organic growth, plus 6% despite a very challenging comparison versus last year. Last year we had a growth of 9.5% in local currency. We also posted an excellent profitability improvement of 90 basis points after an increase of about 15% in our marketing investments. The net profit recurring was close to EUR30 million, which is an increase of about 27% versus the last quarter of 2015.

So let's now move to the following chart, chart number 7. Here, you can find our usual geographic roadmap. As anticipated earlier on, here you can see that the growth was very strong across all our three regions, and very consistent throughout the year. All markets performed very well and we have outperformed the global market. Actually we grew twice as much the growth of the global market, which we estimate was about 5% in volume last year. This performance to me confirms once again that our business fundamentals are in a very good shape.

So before leaving the floor to Ugo, since today is last day in Amplifon, I would like to take this opportunity to thank Ugo again once again for his contribution to the results and success of the Company in the recent years. So please, Ugo go ahead.

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Ugo Giorcelli, Amplifon SpA - CFO [4]

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Well, I will take just a few words as well to thank Enrico in this last part of my tenure with Amplifon and the rest of the Amplifon team, but in particular want also to take this opportunity to thank the analyst community and the investors with whom I had many occasions of interaction in these very exciting nine years and which I think we achieved a lot in terms of growth of Amplifon. So we authorized we do and just wishing the best also to Gabriele Galli that will step in from tomorrow in the position. Next and is also a pleasure to close with once more with very good set of numbers. So let's start from EMEA. EMEA is a market that is a reference made about 5% growth in units and clearly significantly outperformed (inaudible) double-digit revenue growth. We had a very strong component of organic growth at 6.6 and the very stronger contribution from M&A with as usual very strong component from Germany and France.

On the organic side, Italy has once more (inaudible) very, very strong year. Thanks to the TV campaign (inaudible) digital and this is on top of very stronger 15 but I would also say 14 and so on. As I said Stellar performance in Germany with a good underlying performance and 110 more jobs acquired (inaudible) then positive notes that we have double-digit growth also coming from Switzerland, Iberia, Belux, Hungary, Poland and the EMEA regions all with very strong contribution from organic growth. In the Netherlands, we had once more the ASP pressure but very strong volume growth has been able to offset negativity.

In France of the growth came mostly from acquisition, we bought 31 shops and another 10 shop-in-shops and also as we will see in a moment. We said in Q4 of the foundation for another significant transaction that we are planning to consume sharply. In UK, we have seen the sales improvement that has been the first time since 2010 and that we have seen a good evolution of the topline. All of these positive notes on the top-line are reflected in margin improvement of 160 basis points.

Thanks to the operational efficiency and clearly reaching or scale or achieving scale in four countries. We would like to mention a significant acquisition that has been completed partially in 2017, already in Q1 and partially will be completed in the next coming days. We bought from Sonova two assets, that used to be part of the AudioNova Group in Portugal and it's about to happen in France. Both companies are in the region of EUR13 million topline each and they will be adding 75 shops in Portugal, bringing our presence to 130 shops in Portugal, which is clearly (inaudible) optimal complete presence in this country. And with 55 additional shops in France, will take asset to 560 points of sales between the shops and the shop-in-shops. We are, for a time being, only declaring the value of the Portuguese transaction that is completed, that is in the region of EUR16 million.

Moving on the American business, the reference market is estimated to be in the region of 5.5% growth and we have done an excellent job of growing the business on the high-single digit on a full year basis, also Q4 -- was cut off for a moment I was saying that we have had a very positive evolution in Q4 as well because we shouldn't forget that the comparison basis was 18.7% in Q4 one year ago. We have seen a little bit of slowdown in Q4 in connection to the president election as it's pretty normal, but December was back to normality. In terms of performance of the three business units, and we are [currently] extremely well, very good execution of the strategic initiatives, new marketing campaigns, 68 openings. We have renewed the agreement with Sivantos, so remains the sole provider of Miracle-Ear branded instruments. And we have top level of relationship with our franchisees. And so this collaboration and the alignment with the franchisee is fundamental to the success of near full year.

Positive contribution in Elite as well, we have had, as you all know for the previous quarter tough comparison due to the cancellation of one significant relationship, but that was up to Q3 from Q4 there (inaudible) negative comparison and we have also seen an acceleration in the acquisition of new members in Q4. Excellent performance on the insurance business, as well with particular two large contracts have been in the Amplifon business. Also in Canada, we have had a very successful year because not only we have doubled the size of our network from 20 to 45. But also we have entered the most important market in Canada, Ontario. These positive numbers are reflected in a solid performance also at the EBITDA level we should remember all that this is a year of investment in the business with additional expenditure in marketing that after 40% and organization as well that is up 15%. But nevertheless, we have been able to substantially maintain and even increases in actual terms our EBITDA. Moving to Asia-Pacific, once more, we have to use a very positive objectives in commenting this performance the Asia and the Australia and New Zealand market has grown at 6%. We have posted revenue growth at 11.6%. We have seen this on top of (inaudible) very challenging comparison represented by the 10.7 growth we had in 2015. We had been additional currency tailwind in Q4 significant because it's plus 6.8. In (inaudible) little bit more granularity on the two main markets in Australia, we have had double-digit organic growth and the marketing leaders generation has been successful. We keep on the working on productivity that sometimes did very high level of EBITDA margins. And we have further increase our footprint by eight shops and 25 shop-in-shops. New Zealand had a very tough comparison basis, because (inaudible) 20% the year before, but we have been able to in any how improved on top of this very good starting point. We've in particular an acceleration in Q4 at double-digit level. Remarkable for the year, the integration between [half of] the deal was businesses together with the established brand. We have opened nine shops. We have also in this market, increased our marketing expenditure at about 50% above year-on-year, EBITDA is up 8.8% year-on-year and remains at the highest level of the Group.

Moving to review of numbers on the complete basis, Q4 margin is up on a recurring basis from 19.7% to 20.6%. In Q4, as you can see in the difference between Q4 recurring and Q4 reported, we have posted EUR5.5 million goodwill adjustment, goodwill write-off on the UK, because despite the increase in the topline, UK remains in a loss-making position even though decreasing and applying the accounting principle we have to go through this partial write-down of the goodwill that is now down in the region of about EUR10 million. The final page of the P&L on page of 13 for the full year, I would like to remark once more the improvement on the EBITDA margin up by about 50 basis point, absolutely in line with the target given at the beginning of the year in our Investor Day. And I would like also to remark the strong improvement in the net profit, and also in the earning per share that are up over 30%. This is also thanks to an improvement in the tax rate. Tax rate is down at reported level from 47% in 2015 to 40.6% in 2016. And on the recurring basis is below the 40% mark, 38.6% in line again with the indication we have given. I remind you that the goodwill write-off is not tax deductible.

And I would also remind you that we still have no tax asset activated on the loss-making entities. If you were to get also these entities into profit, the tax rate would be some 3 percentage points to 4 percentage points lower. And other element of that, I would like to make sure regarding the tax situation is that we have filed the request for the Patent Box that is new law in Italy that allows to consider some of the revenues as non-taxable. And in addition, that we will be seen in 2017 and onwards, reduction in the corporate rate in Italy from 27.5% to 24%. So the two elements of the -- in fact three elements looking into the future of the Patent Box successful negotiation with the tax authorities, the reduction in income tax in Italy and the fact that we see improvement in the countries in which we are currently not activating tax assets, so that all brings to a further reduction of the tax rate.

Moving to the cash flow, starting from strong operating cash flow. I would like to remark the increased level of investments. CapEx are up substantially to support the openings we have already commented. The acquisition have doubled from EUR40 million to EUR80 million. So overall, the investment in the business have gone up from EUR70 million to EUR140 million. Substantially, the bulk of this increase in investment has been self-financed and the increase in the net financial position is limited to EUR23 million, more of (inaudible). This is clearly also reflect that in the ratios that you can see in the last page of my presentation, but you see you remained substantially stable at very, very healthy level of about [1.2] on net debt to EBITDA and [0.4] net debt to equity.

With this, I turn the -- to Enrico for some more strategic notes on our business.

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Enrico Vita, Amplifon SpA - CEO [5]

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Thanks, Ugo. So we go to the chart number 17. As you know last year on March 17, for the very first time we shared with the financial community our aspirations, strategies and then missions for the three year period 2016 and 2018. In 2016, and we are successfully executed on our commitments, delivering another record year. Firstly, we achieved all-time high revenues for the second year in a row with a growth of over 10% in local currency and moreover with a very healthy mix, more than 70% that was organic and was strong across all the three regions. We have significantly outpaced the global market gaining additional shares and we have consolidated our position globally adding a total of more than 300 shops and shop-in-shops to our network. Moreover, 2016 was a record year also for profitability. We posted record EBITDA in absolute terms, and the net profit recurring was upward by 34% versus the previous year. And then (inaudible) these excellent results allowed us to propose a dividend to our shareholders of EUR0.07 which is an increase of over 60% versus last year. And with a sales closed with 25. In March, 2016 and we also provided you with a clear definition of the four strategic pillars to deliver on our strong ambitions. I would like now to go quickly through them one by one and tell you how we have progressive and successfully executed with concrete initiatives and tangible results on each then in 2016. So let's move now to the following chart, chart number 18. As you know our third pillar is to strengthen a leadership in the Coke market that alone represent over 70% of the global retail market value. Primarily in the US, which alone represents today more than 40% of our industry value. We have strengthened our position executing on all strategies, initiatives driving to accelerated organic growth. (inaudible) for example, we further invested in strengthening our brand equity and improve our customer experience. We optimize the marketing mix with an acceleration in investments and launched a new impactful campaign, (inaudible) delivered a strong improvement in the generation. We also improved our online presence and executed above plan on our footprint expansion with 58 openings. Secondly, we increased our market share in Germany, France, Spain and Canada via accelerated network expansion. In Germany, we added 110 shops in 2016 and over 140 shops as of today. In fact I'm particularly glad to inform you that we have just surpassed the key mark of 400 stores in Germany. In France, we have quite at the total of 41 shops and shop-in-shops in 2016 and we are about to close the AudioNova business deal in the coming days, with another 55 shops. In Spain, we opened 15 shops and in Canada, which is an important market accounting for about 4% of our industry in value, we more than doubled our network via acquisition. Favorably in Italy and Australia, we continued to grow respectively high single and double digit, thanks to marketing excellence and continuous focus on productivity. Finally in the UK, we invested the trend of our topline, going back to growth for the first time after 2010, starting to reaping the benefits of the new plan currently underway.

So let's now go to the following chart number 19, which is about our second pillar excellence in marketing, which I strongly believe is the key to win in our sector. In 2016, we worked with great result on three dimensions. First on the brands. In June 2016, we launched our new brand identity together with its new logo and website. Our new brand line [Clearfield] summarizes Amplifon's new brand identity and underlines our commitment to help people to rediscover all this small pleasure of hearing. At the year-end, we also reached the rebranding of over 70% of our Amplifon's stores as planned.

Second on the effectiveness of our marketing investments. In 2016 we invested over 20% more in marketing, we launched the new impactful TV companies in the US and Italy, with immediate returns in higher regenerations. Saying in Spain, New Zealand and above all in Germany, where we built on our total brand awareness doubling it from 15% as of beginning 2016 to more than 35% at the year-end.

Lastly, we accelerated on digital marketing rolling out eight new consumer website, launching the new digital investor user experience in the US and successfully focusing in improving our online presence. Also here we had a clear result with digitally strongly increasing. Let's now go to the following chart of the chart the number 20, which is about our third pillar the service model. In 2016, we continue to improve the service we provide to our customers and to innovate our business model. Striving to exceed our customer expectations with best experience ever. Last year, we rollout our Amplifon 360 our exclusive and customize protocol, which enable each customer to better understand the (inaudible) resulting in even higher level of satisfaction. As planned we focus in Europe with the complete rollout executed in three countries and ongoing rollout in other form.

Let's now move to the following chart, the chart number 21, and therefore to the fourth and last pillar, which is about ensuring the best support from (inaudible) to successfully implement our strategy, which is at the end of the day, which means at the end of the day to attract the best people, in the industry and continue to invest in technology. In 2016, in order to strengthen our position as the best employer of choice for the top audiology for global talent. We launched our new global carrier websites in six languages and we also launched 14 Local carrier website as well as implemented a strong social media strategy dedicated to attract talent with a specific (inaudible). During the year we also conducted for a very first time our global engagement survey, which allowed us to better understand our people, their motivation and engagement. But also provided us with interesting insights. So that we can focus our efforts on finding ways to better meet their needs. The participation and engagement rates were extremely extraordinarily high. Last but not least we continue investing in technology as global IT systems are critical element of our business model. Just think of the infrastructure to support our growth and integrate our acquisitions of (inaudible) this year-end from (inaudible) digital. So let's now go to the following chart, the chart number 22 to see again a summary of the results that we delivered in 2016 and how this compare our 2018 ambitions. Last year in March, we told you we [envisioned] an average revenue growth in the range of mid-to-high single-digit, both organic and through piecemeal acquisitions. In 2016, we grew our topline by over 10%, so largely exceeding the target. At the same time, thanks to better operating leverage. We also told you we expect to be able to further improve our EBITDA margin by at least 150 basis points by 2018, we had pretty linear development. In 2016, our EBITDA margin improved by 50 basis points, perfectly in line with the target, but definitely higher in absolute value given this significant higher rate of the revenue growth. Finally in 2016, we overachieved our network expansion target with a total of 230 stores or 305 stores if we include also the shop-in-shops. All in all, the strong result achieved in 2016 position us well on track to reach the targets we set for 2018 in our strategic plan, but also provide us an excellent basis to look with sound optimism to 2017.

So let's now move to the slide number 24, which is about the outlook for 2017. So with this chart, we are almost at the end of today's presentation. We are extremely satisfied about our performance and the initiatives we have initiated and delivered in 2016. In fact in addition to strong financials, we are well on track in executing our mid-term strategy. Now we are in 2017, which we expect to be a continuation of this path of profitable growth initiated last year. What I can tell you is that, our people, our organization is fully committed to make of 2017 another successful year.

I would like also to share with you that January and February this year have been already very strong month, so we are off a good start. With this, I leave back the floor to Francesca.

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Francesca Rambaudi, Amplifon SpA - IR [6]

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Just a quick reminder of our upcoming corporate event. On April 20, 2017 we will have the shareholders general meeting in single call primarily to resolve opponent, the approval of the financial statements as of December 31, 2016 and dividend distribution. On April, 27 Q1 2017 results on July 26 the Q2 and H1 2017 results and on October 23 Q3 and first 9 months2017 results. All the results will be followed by a conference call and audio webcast at 3:00 PM Continental Europe. With this I turn back to the operator in order to open up the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Nicolo Pessina, Mediobanca

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Nicolo Pessina, Mediobanca - Analyst [2]

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Good afternoon, everyone. I have three questions, the first one is on the effectiveness of the marketing strategy (inaudible) a year ago, and I'm wondering if we could have more color in which countries you have already introduced the business new strategy and what was the impact on growth? And one year later if anything changing (inaudible)growth at the beginning and equally absurd implementation of new strategy (inaudible). Second question on the outlook for 2017, you mentioned that sales growth acceleration. So I'm wondering if this acceleration refers to overall growth as well or also to organic growth in particular? And last point on the changes on the regulatory framework (inaudible) if you could give us some more color on the expected timeline and potentially impact for uplift, thank you.

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Enrico Vita, Amplifon SpA - CEO [3]

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Sorry, can you please say again about the second question, I missed some words.

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Nicolo Pessina, Mediobanca - Analyst [4]

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The second question is on the outlook for 2017, July 24, you mentioned sales growth accelerations. I'm wondering (inaudible) growth as well or also organic growth in particular?

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Enrico Vita, Amplifon SpA - CEO [5]

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Right, so I mean, take the three questions, above the marketing strategy for sure in 2016, we focused in few countries in particular in Italy. There was a continuation of initiatives that we have already started in -- in the later part of 2015. Also, as you know, actually we focused pretty much on the US, with the launch of campaigns in the second quarter -- second and third quarter of last year. Also here, I can say that the performance of the new TV campaign and the integrated marketing campaign, we are extremely positive. Also, we launched new campaigns in other countries, in particular in Germany and Spain. Of course, the objectives in this countries is different, because as you know our brand awareness in those countries is definitely much lower than the one that we have in Italy or in the US. And therefore in particular in Germany, the focus we have set out brand awareness. And in fact I think I mentioned during my presentation that we had a very positive results on these aspects in Germany growing our total brand awareness from 15% of 2015 to more than 35% in 2016. So here of course, the objectives were quite different.

Coming back to the second question, which is about the outlook for 2017, as you know we do not provide one-year guidance. Our focus is on delivering the target for the mid-term. But what I can tell you is that, we are looking at quite a strong growth all across either in terms of organic growth but also through the acquisitions. As I mentioned during the presentation, I have to say that also January and February, which are quite important month because they are just at the beginning of the year and therefore we get early indication about the progression of our initiatives were very strong months. So I have to say that I'm very happy about (inaudible) progress done also here.

In terms of the regulatory framework in Italy, while we do not had any further update as you know on [January 12], Italian government approved the new LEA (inaudible), which brings in new important interactions to the overall Italian regulated healthcare market. So basically, including the revision and update of the main principle and criteria for the regulatory framework related to the hearing solutions. The main difference with the past regulation that were about the basic device which go from analogic to [beauty cup], but also about the eligibility. So going from more than 65 decibel as hearing loss to more than 55. So basically these should expand actually the eligibility criteria.

So the next step will include the gazette of Italy expected in the next weeks, and the definition of tariffs expected in Q1 and Q2, and therefore an effective implementation [in house] 2017.

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Operator [6]

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Annette Lykke, Handelsbanken.

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Annette Lykke, Handelsbanken - Analyst [7]

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Thank you so much for taking your time for my questions. And I just wondered if you could say how -- I realize that during the call that you felt that US after the US election was sort of back on track, but could you say anything about if we or it is any sort of uncertainty in the market, potentially related to the repeal of (inaudible). If that creates an uncertainty among insured patient who might is holding back and spending out of our own pocket money or investments in hearing aid, are you seeing any sort of that sort of holding back? And then also on the OTC, could you please say if you see that is going to fall and if we are going to have an OTC category in the US? Thank you so much.

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Enrico Vita, Amplifon SpA - CEO [8]

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Right. With regards to the first question, actually we have experienced a slowdown only in October and November, which was exactly in the period of the presidential elections. I think that those two months, the market was pretty flat in comparison with the last year. Whilst in December, we have also seen market going back to normal rates. Actually, I think that in December, the great -- the growth of the market was double-digit 10%. So we have seen a normalized situation in terms of market growth already in December. And as I mentioned, actually also what we have seen in our business in January and February was quite positive. So I do not see -- I think that there was a temporary slowdown just in two months of last year. While, but today we are back to a normal level of growth. With regards to the OTC question, well, it's very early to say what it will happen. And of course you know, all of the story about all the discussions around these topic that on December 7, the SpA announced that it intends to consider and (inaudible) pickup and the M&A recommendations regarding a regulatory framework for this year again. However, of course SpA also said that they will seek for additional public input before proposing such an approach. Clearly, these divisional objective is to pursue an increasing penetration (inaudible) and improve the treatments. However, we think that is strongly arguable that OTC could be actually the solution for many reasons. The fact that is because that the US today is amongst the countries with the highest penetration and customer satisfaction. While countries that introduces OTC show lower adoption and customer satisfaction rates. For example, Japan with an adoption rate of less than 15% and satisfaction rate of around 40%. Secondly because professional assistant service and quality of products are the key drivers for adoption and satisfaction why the prices are (inaudible) factor finally according to our (inaudible) study on the OTC approach that we conducted in December last year in the US customers have limited capability to assess the diagnose and self-select an effective treatment for (inaudible) loss. Therefore, and this is a very important point rating public safety and patient outcome issues, which in our opinion cannot be neglected. So it's very difficult to say what it will happen but in case of any change in regulation, business simplification will vary depending on details of the final provisions. However, we think that [OTC] approach that we will be probably appeal to a small segment of customers which are the most price-driven. As you know the process is ongoing, the next steps are the Federal Trade Commission workshop on [Amplifon]. The NAS dissemination meeting on 9 June and the FTA afterwards workshop with a date is to be defined.

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Annette Lykke, Handelsbanken - Analyst [9]

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Okay, thank you very much.

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Operator [10]

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(inaudible)

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Unidentified Participant [11]

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Yes, good afternoon and thanks for taking my questions. (inaudible)The first question I have is about the profitability improvements breakdown I would be great if you could give us a bit more granularity as regard of gross margin versus SG&A I was wondering if the bulk of the marketing incremental cost have been balanced or even over balanced by a gross margin improvement in 2016. And the second, let's say a related question to profitability is more focused in the US for 2017. Given that the marketing investments have [upticked] in 2016 and also that you should benefit from the recently renegotiated contracts inventories. Would it be fair to expect the profitability to at least return to which was having 2015 level in this region. Thank you.

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Enrico Vita, Amplifon SpA - CEO [12]

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Okay, I take the first question. Well, clearly, you know it's an ongoing discussion with our suppliers to keep on improving the terms and so year-on-year we get better conditions and in fact part of the increase in the marketing has been financed by the suppliers, at the end of the day is also if you want part of the negotiation we have with the suppliers, because to the extend [when to] -- we can prove to them that we are able to expand our presence, we can grow the volumes and marketing is driving at this helps the negotiation of that is not only squeezing their margins, but is in fact grow into (inaudible) the business. So it's a kind of virtuous cycle to show that some of the improvement coming in the -- that the improvement coming from the negotiation of reinvested in the business. In this case we have in fact invested even beyond what we have gotten from the suppliers, but at the end of the day, they are showing, it's proving to be a good strategy because the overall profitability of the Group is improving. So the topline impact is more than offsetting the increase in absolute terms of marketing. So this in terms of directional indication, we don't want to be more precise that I think is a fair answer.

On the outlook on 2017 on US, if you can read for once (inaudible).

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Enrico Vita, Amplifon SpA - CEO [13]

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Yes. As you know, the reduction in terms of percentage margin in 2016 that was definitely planned given the higher investments that we made in particular in the second and third quarter of last year. You may recall that in the second and third quarter of last year, we had the peak in terms of marketing investments. In terms of our outlook for 2017 in the full year, we are envisaging an improvement in the profitability, in the path of growing profitability up to 2018. I think that with this, you will see starting largely from the second quarter when we will be anniversaried the peak of the investment of last year.

So in full year improvement starting most probably from the second quarter of this year.

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Unidentified Participant [14]

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Okay. And a very quick one if I may, just regarding trends and also the ongoing proposal to [cherish] the reimbursement scheme, what is your view about it and can you expect any impact on the business?

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Enrico Vita, Amplifon SpA - CEO [15]

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Well, in terms of reimbursement scheme changes, I guess that you are speaking broadly across regions and across countries. You know that the main -- at the moment, there are no plans to change any kind of reimbursement scheme in any of the countries in which we operate. But I'm not sure that I got your question.

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Unidentified Participant [16]

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I thought that in France, there was a proposal --

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Enrico Vita, Amplifon SpA - CEO [17]

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Alright. So you are referring to the antitrust investigation in France. Actually, that the investigation has been concluded and basically the outcome is that first of all, I think that the outcome is very positive for the industries, because first of all, they recognize that the marketplace (inaudible) certainly very competitive and I can tell you it is also they have confirmed the centrality of the professional figure of audiologist in assisting (inaudible) and this is of course very important, they came with two main recommendation. The first one is about to abolish or increase course number of our audiologist graduating from the universities and this is I think a quite that today we have a closed number of a 199 audiologist graduating from University (inaudible) and I think that this is quite positive news for us because I can tell you that the labor cost answer with regards to audiologist is definitely there, the highest in our markets. So there is an opportunity actually to have access to more of audiologists. The second recommendation was to allow and not to make a mandatory to sell separately, the first year. So the product, the service delivered during the first year, and the following year, so the after sales service, which is, I mean I would say natural natural recommendation with limited or no impact actually toll on our business.

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Unidentified Participant [18]

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Okay. Thank you very much. And all the best to you for the future.

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Operator [19]

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Chris Cooper, Jefferies

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Chris Cooper, Jefferies - Analyst [20]

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Good afternoon, this is (inaudible) on behalf of Chris Cooper. I have two questions. Firstly, just on the guidance, (inaudible) outpacing the market. I guess the (inaudible) range can be quite broad depending on who you speak -- just wondering, what was your assumption would be for the market growth for 2017? And then second question is on tax. And you -- pretty high tax rate. And I guess the potential year tax reform will have some impact on your calculations for that as well. Can you just help us understand the main (inaudible) takes from your perspective. If the legislation does come to (inaudible).

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Enrico Vita, Amplifon SpA - CEO [21]

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I'll take the first one and I'll pass to you for the most complex one. So, about the first one is the guidance on the market growth for next year. While we are envisaging a market growth, which is in line to the recent (inaudible). So in between 4% to 5% in volume terms. As I said in the presentation, last year we had a growth of 5%. So we saw just similar growth also in 2017. And, I leave to Ugo the question on the tax.

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Ugo Giorcelli, Amplifon SpA - CFO [22]

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Yes. On tax I would say, as a starting point (inaudible) 2016 recurring in the 39% range. From this, I mentioned a number of elements that will play in our favor. The one that is easier to potentially quantify is the reduction in the corporate rate in Italy that is about 1 percentage point. So that's the order of magnitude, clearly it will depend also on the needs of Italy vis-a-vis the rest of the Group, but let's say we are about 1 percentage point. When this is clearly more theoretical, when it will come into fruition is the fact that we still have some entities not profitable and which we are not currently activating any tax asset. So, we have businesses that are increasing their profitability, but we are still not yet fully capturing also the benefit of previous year deferred tax asset not in the books. And this is potentially were of 3 percentage points as an order of magnitude but when and how will develop is not that easy. And the fourth element is the Patent Box on which I make no statement, because it's an ongoing and discussion with tax authority, and so I cannot put a number until this discussion is completed.

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Operator [23]

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Veronika Dubajova, Goldman Sachs.

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Veronika Dubajova, Goldman Sachs - Analyst [24]

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Good afternoon, gentlemen and thank you for taking my questions. I have three please. The first one is just on the pace of US marketing investments from here, and I'd love for either Enrico or Ugo to comment how we should be thinking about 2017. Are you happy with the investments you've made and it's now about reaping the benefits from them or is there more that you see opportunities for in 2017? My second question is on the French business. I understand that your organic growth there has been a bit subdued. Can you comment on how fast do you think the market is growing and what you need to do to reaccelerate the growth in the French business, specifically from an organic perspective, so ex-M&A? And then my last question is on the medium-term guidance. If I look at the 150 basis points. Effectively what that implies is [50] basis points of margin expansion in each 2017 and 2018, which is pretty similar to what you did in 2016, which frankly was in according to you at least in investment year. So am I right in thinking that the 150 basis points is significantly conservative or have I overlooked something in terms of the margin progression from here as it relates to the 2018 target?

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Enrico Vita, Amplifon SpA - CEO [25]

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[Alright], thanks for the question. So first of all, about the US in 2017 in terms of investments in marketing. We are envisaging a slight growth but not a significant one. The big jump in terms of investments in marketing in the US already happened in 2016. So now we are just maybe increasing but not significantly as last year. With regards to the French business, I think that the comment made by Ugo was about the full year. In reality, we have seen actually that in the second half already of 2016 and we have seen a quite strong acceleration in the organic growth in France, and actually the fourth quarter, the organic growth was extremely strong. Thanks to the all initiatives that we have taken throughout the year. So I expect actually our organic growth to be at least in line and with the market growth or even higher than that. So no concerns at all about the differential organic growth and with regard to the improvement in profitability you know that we do not provide any NOI guidance at this moment. Actually, we are not revising our guidance for the three years, which is a period which is 150 basis points. So clearly if there will be the opportunity to do better, we will do I wouldn't say that it's overly conservative. But also I would like to highlight is that in absolute value we are now targeting an EBITDA which is higher than the increased absolute value we anticipated the last March given the fact that we are experiencing a higher growth rates of our revenues. So I would also say that the target for the three year is at the momentum overly conservative.

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Veronika Dubajova, Goldman Sachs - Analyst [26]

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Thank you very much and any comment you are willing to make. I think that the time this year in the medium-term guidance, you said the improvement would be more weighted towards 2017 and 2018 any comment you're willing to make on 2017 versus 2018. This 2018 going to be the best improvement or should we think of 2017 and 2018 is broadly similar?

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Ugo Giorcelli, Amplifon SpA - CFO [27]

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Well, I think that's what we said is that the progression in terms of profitability will be required nearly in the in the three year period with maybe some, I mean small upside in 2017, 2018 and this is I think what should effect, but the expectation is quite (inaudible) for three years.

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Annette Lykke, Handelsbanken - Analyst [28]

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Understood, thank you very Ugo, good luck.

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Operator [29]

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Oliver Metzger, Commerzbank

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Oliver Metzger, Commerzbank - Analyst [30]

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Hi, gentlemen. Thanks a lot for taking my question. The first was also about your mid-term guidance. So if I (inaudible) sales growth was clearly above your expectations of 10.4% growth but currently your EBITDA margin moved up only by 50 basis points, which I would rate at the lower end of your described in our annual progression relates to the mid-term guidance. If you have asked me one year ago, I would have expected the higher margin basis operating leverage, given this strong momentum you have currently. So my question is did you use higher growth -- when more funds relates to operating leverage to find some more investment spend initially planned? That's my first question. My second is about the deal with Sonova and Portugal and also most likely in France. Is it your trade sale or have you also agreed to purchase a certain amount of fueling its from Sonova? And my last question is on your new share buyback program. So read you finished the new one, which this some straightforward intentions, can you share your thoughts on free float, which is comparatively small given your market cap and which will be negatively affected by these (inaudible) share buybacks.

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Enrico Vita, Amplifon SpA - CEO [31]

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So with regards to the guidance for the three years, I have to repeat myself, saying that today we are definitely on track in executing our midterm strategy and targets. We are not revising our targets as of today, since as anticipated our targets were based on the three year (inaudible). And only one year past from our meeting on March 2016. However, we will definitely be happy to give you an update and eventually revision at our next investor day, which we expected in early 2018. With regards to the question about some -- actually there is an agreement in terms of supply related to the acquisitions, which is not really material within our global procurement strategy. On the free float, I will pass to Ugo.

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Ugo Giorcelli, Amplifon SpA - CFO [32]

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Significant impact either way in the free float is standard ongoing things that we put in the shareholders meeting to because we need an authorization from (inaudible) to the management to buyback shares. And that part of the remuneration of not only the top management but also the way down to the best performing audiologist is through (inaudible) stock grants. These stock grants as to be funded and the decision as being to buyback shares that will go back into the market once signs of these stock grants and exercised by the management or in general our employees. So it has been paid in the 3% range of our shares this level of per share in order to finance to support of the buyback, no changes.

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Unidentified Participant [33]

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Okay, Just follow-up on my first question. So I think more precise, did you increase your marketing expenditures during 2016 stronger than you had initially targeted at the relief?

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Enrico Vita, Amplifon SpA - CEO [34]

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Yes, absolutely, that when we presented the plan that we are envisaging an increase in terms of marketing spend of about 10% in each year of the three year (inaudible) last year as you can see also from our presentation actually -- we invested about 20% more in terms of marketing. Since as I say, we see extremely positive outcomes actually from our initiatives as you have seen, actually there was [loss] in terms of revenues where is much higher than our guidance, which makes us very confident in pursuing the strategy. As I say also we are very positive about 2017. We intend to continue to leverage on the marketing activities and therefore marketing dispenses we continue to increase in 2017-2018 slightly higher pace than the initial 10% we told you but just because we see that the results in terms of sales are extremely positive.

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Unidentified Participant [35]

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Yeah, but since the fabrication of your increased marketing expenditures at your Investor Day in last March did you accelerate during that time that you spend more marketing when targeted at that point of time?

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Enrico Vita, Amplifon SpA - CEO [36]

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Yes, yes as I told you before during the Investor Day, we were envisaging an increasing the marketing spend of about 10%. What we have done in 2016, we have increased our investment by 20% and we are also envisaging an increase in the next two years of our marketing investments, slightly above 10%. So yes, we are accelerating and the reason is that as you can see actually from our results in 2016 the results are extremely positive as I said earlier on that we are also very positive about our 2017 performance and as I mentioned earlier on, actually maybe in next year, we will hold -- we can also revise the targets for the three years during our Investor Day that we will most probably hold in the first part of 2018.

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Unidentified Participant [37]

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Okay, great, and thank you very much for explanations Ugo for you all the best for future and bye.

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Ugo Giorcelli, Amplifon SpA - CFO [38]

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Thank you.

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Operator [39]

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[Domenico Ghilotti, Equita Sim.]

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Unidentified Participant [40]

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Good afternoon I have three questions. The first is relating to your built-on acquisition strategy, you are a [hurdle] said also on this target if I look at that on 2016 and also consequent, the recent some of the deal. And I would like to understand what is the pipeline in terms of new opportunities if you see [still there] attractive opportunities as you saw in the last basically 12 months, 18 months. The second question is a follow-up on the North American business and because you sounded extremely, extremely pleased by the performance and the effectiveness of your marketing investment, but then I see the actual results (inaudible) that you out based the market not so significantly and investments were up 40%. So in the region where you get more. So I'm trying to understand if I miss something if you really able to get momentum in terms of organic top line growth in North America? The last question is just (inaudible) in the sense that we have plenty of elections in particular in Europe and Netherlands and France maybe (inaudible) and looking at the performance in North America you have mentioned some temporary slowdown due to election. Are you assuming similar situations (inaudible) discounters?

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Enrico Vita, Amplifon SpA - CEO [41]

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Right, with regard to your question on (inaudible) acquisitions. What I can tell you is that we are proceeding at full speed and actually the very good news that I unable to share with you today is the fact that we continued also in the first two months of this year to deliver on these aspects. As I mentioned (inaudible) actually we completed acquisitions in Germany in the first two months which brings the number of stores in Germany above 400 stores. So I can tell you that our strategy definitely is continuing and either in Germany and in France is going actually quite above the initial plans. With the regard to the US. Well, I think that you have always to put things into context, as I mentioned by Ugo before, actually I see the performance in Q4 extremely positive for two reasons. The first one is that we have a very, very challenging comparison in the last quarter of last year. Last year in the last quarter, we grew almost 19%. So it was (inaudible) and a very good result actually to grow by 5% in the Americas in the fourth quarter also in consideration of the fact that, as I mentioned earlier actually, we have seen flattish market in October, November, which is something that we did not experience in the US in the past. So I think that we have definitely outpacing the market growth. As also we will mention before we have seen the markets of bouncing back already in December. In December, the growth was 10%. So, also in the first two months of this year the growth is quite positive. So I have no real concerns about the growth in the US. With regards to the impact of the GDP, well this is very difficult to say that the --

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Domenico Ghilotti, Equita SIM SpA - Analyst [42]

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Elections?

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Enrico Vita, Amplifon SpA - CEO [43]

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Elections. It's very difficult to say what I can tell you is that (inaudible) for sample -- US is a very quickly peculiar country elections. I think, really which are also [glowing] down the investments from many companies in terms of advertising and so on and so forth. In Italy, during the referendum in the December we have not experienced any kind of slowdown. So it's very difficult. I think that the US is quite different market, different country. At the moment to be honest with you, we have not envisaging any kind of negative impact coming from that. Also because, yes, it was mentioning the GDP as you know our business is very resilient there is no correlation basically between the GDP growth and the growth of our market. So we are quite resilient in terms of business to external factors.

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Domenico Ghilotti, Equita SIM SpA - Analyst [44]

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So do you think that maybe the US situation (inaudible) due to the strategy where the stop being the marketing investments because of the cost? --

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Enrico Vita, Amplifon SpA - CEO [45]

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Definitely part was that and also as you know, during the presidential elections in the US basically (inaudible) stocks in the US.

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Domenico Ghilotti, Equita SIM SpA - Analyst [46]

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Okay, thank you.

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Operator [47]

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Filippo Prini, Kepler Cheuvreux.

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Filippo Prini, Kepler Cheuvreux - Analyst [48]

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Good afternoon, I got one question about dividend. They've seen that after some years of increase your dividend per share should be because we can (inaudible) now your new possibly this been issued dividend policy for the future? thank you.

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Enrico Vita, Amplifon SpA - CEO [49]

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As you know, our Board of Directors is going to propose an increase in the dividend from EUR0.43 to EUR0.07. So which means that the end of the day, an increase of about 63% on 2015 dividend. The reason for that is simply that we recognize that we have and change our dividend policy for many years. Despite the stronger improvement in our performance in our results. So we believe that is correct in the light of these strong results to propose higher dividend we did pay out around 25% which is also more in line with the peers and the market. Of course this doesn't mean that we are changing at all that was its again changing at all our priorities because of course our objective remains the focus on the company development and the growth initiatives to accelerate our top lines. So I think that this change in pay out and dividend is mainly related to the stronger performance that posted last year.

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Francesca Rambaudi, Amplifon SpA - IR [50]

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Operator we can hear one final question and then I think we should close the call.

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Operator [51]

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Okay. Markus Gola, MainFirst.

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Markus Gola, MainFirst. - Analyst [52]

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Hi and thanks for taking my question and only there's just one left and it's a follow-up on the reimbursement changes in front and so, besides the French antitrust authority form my knowledge also the French government looked into hearing it in December last year. And I understand there is an intention of the government to triple the public reimbursement rate from [EUR120 to EUR370] in that country and also to organize a workshop in the beginning of the year with the private insurance company to make sure it is more affordable. So my question is whether you heard about these discussions and how could that affect your organic growth rate in the country in 2017, thanks.

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Enrico Vita, Amplifon SpA - CEO [53]

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Yeah, you are right, because the French government according to what they say that they will propose a public spending additional public spending of about around a [EUR50] million to be precise, [EUR47] million in order to increase the reimbursement before (inaudible) and this proposal is supposed to be rectified in H1 (inaudible) at 2017 and this proposal is also in line with the recommendation from the antitrust authority which in its document highlights the current low level of reimbursement in France versus other countries. So yes that we should expect possibly some increase in the reimbursement in France.

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Markus Gola, MainFirst. - Analyst [54]

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And is this already part of your guidance or would that be an additional upsides to the guidance you gave more than a year ago.

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Enrico Vita, Amplifon SpA - CEO [55]

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No, listen we were not in (inaudible) this increasing reimbursement and the implications to our business or too early to be safe.

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Markus Gola, MainFirst. - Analyst [56]

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Okay, thank you.

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Francesca Rambaudi, Amplifon SpA - IR [57]

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I think we have done.

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Operator [58]

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Yes, I confirmed there are no more questions.

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Francesca Rambaudi, Amplifon SpA - IR [59]

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Thank you.

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Enrico Vita, Amplifon SpA - CEO [60]

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Thanks to everyone.

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Ugo Giorcelli, Amplifon SpA - CFO [61]

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Thank you.

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Operator [62]

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