EL.En. S.p.A. (ELN) Earnings Call Transcript & Summary

Good afternoon to everyone and welcome to El.En's Fiscal Year 2021 Financial Results Conference Call. [Foreign Language] Okay. Start again. Good afternoon to everyone and welcome to El.En's Fiscal Year 2021 Financial Results Conference Call. Today's call will be recorded and therefore will be an opportunity for questions at the end of the conference. With me on the call Andrea Cangioli, El.En CEO; and Enrico Romagnoli, Chief Financial Officer and Investor Relation. Before we begin, just please note that there is a remarks that management makes on the conference call about the future expectations, plans and prospects and the forward-looking statements. Certain statements in this call, including those addressed in the company's belief, objectives, estimates, or expectation of possible future results or events are forward-looking statements. Forward-looking statements involve known or unknown risks, including the general economic and business conditions and conditions in the industry that the company operates and may be affected should the assumptions turn out to be inaccurate. Consequently, no forward-looking statement can be guaranteed and actual future results, performance or achievements may vary materially from those expressed, said or implied by such forward-looking statements. The company undertakes no obligation about the contents nor to update the forward-looking statements to reflect events or circumstances that may arise after the date hereof. If you need to ask the questions, please book your question on the chat of Bianca Fersini Mastelloni. She will be pleased to introduce you according to the booking order. But at this time, I want to give the floor to Andrea Cangioli. Please go ahead, Andrea.

Thank you, Nicola, for your introduction. I hope everybody is doing well. Thank you, Bianca, and welcome everybody. Thank you for joining this call we are holding after the release of the 2021 full-year financials. Together with me on this call is Enrico Romagnoli will share with you the details of our financial performance. The financial results of 2021 have been extraordinarily positive. Revenues were up 40% with a 19.4% average growth in the last 2 years, despite the impact of the pandemic. Profit from operations and net profit were up accordingly, both exceeding 30% average growth from 2019. If you want to summarize the revenue generation performance with a single metric, consolidated EBITDA was EUR 80 million in 2021. We are at one time pleased and proud of the remarkable achievements and grateful to all the people of the El.En Group that are providing their valuable efforts that is making all this happen. We are moreover confident that with their knowledge, dedication and capabilities, our people are the cornerstone of the construction we have been progressing and constantly enlarging over the years and we count to further elevate in the future. At this time, I'd like to give immediately the floor to Enrico Romagnoli and to the financial details. I'll be back later for a few general comments on our performance and our expectations. Thank you, Enrico.

Thank you, Andrea. Good morning, everybody. As already said by Andrea, the 2021 is a brilliant year in terms of financials. In this slide, you can see that the most relevant figures of the 2021 with sales of over EUR 571 million and EBIT is equal to the EUR 64.8 million. The double-digit growth for most segment, industrial, plus 45%; and medical, plus 36% respect to 2020. And we have annual average growth over 2019 of 13% for medical and 24% for industrial. Also in terms of gross margin profitability, there is an improvement from 2020 to 2021. In medical, there is an increase from 41% to 44.8% and industrial from 26.6% to 27.9%. The full income statement show the progression, the increase compared to the 2020 and compared to the 2019. And the true measures of the solidity of the result achieved is to be found in the comparison with 2019, the last year before the pandemic. Despite the heavy impact of the crisis, the average growth from 2019 to 2021 was 19.4% in terms of revenue, 30.3% in terms of EBIT, and 32.2% in terms of net income. In 2021, we saw also an improvement in terms of gross margin, profitability, total value, because the total amount of sales increased, but also in terms -- in relative value, thanks to the mix of products sold within the individual sector, the savings on purchases due to the efficiencies deriving from higher volumes and the strengthening of the U.S. dollar together with an increase in turnover in dollars to North America. Thanks also to the control of operating costs, in particular of sales and marketing due to the drastic reduction in travel, trade fairs and congresses expenses, EBITDA reached EUR 80.1 million with a 14% in EBITDA margin compared to the EUR 40.8 million in 2020. Net of amortization, depreciation and provisions increasing both for the volume of investments in past years and for the prudential provisions allocated during the year, the EBIT was positive for EUR 64.8 million, up compared to EUR 30.1 million in 2020 and with an EBIT margin of 11.4%, an increase compared to 7.4% of last year. Pre-tax income was positive for approximately EUR 66.4 million and with a tax rate of 26%, the net result was 45.4% of euro (sic) [ EUR 45.4 million ] of compared to the EUR 20.3 million over last year. And the impact on turnover increased from the 5% to 8%. Also in the Q4, we had a strong growth in sales and in profit with the profitability in terms of EBIT over the average of the year as usual, because usually the seasonality in the Q4 is the best quarter of the year in terms of sales and in terms of profitability. Balance sheet, the net financial position was positive for EUR 115.7 million with an increase of EUR 51.5 million compared to the December 2020 and up of EUR 41 million compared to the September 2021. Excellent cash generation despite the substantial investment in fixed asset made for a total amount of EUR 23 million in the period. We saw an improvement of the ratio, net working capital on sales that reduced from 27% to 25% and a sharp increase of the ratio EBIT on net capital employed, thanks to the increase in EBIT and thanks to the cash generation in the year. In the cash flow, during the year, the group generated cash from operating activities while there was a cash absorption of EUR 33 million due to the increase in working capital, physiological in this phase of rapid growth. And we have a positive cash flow for other current payable and receivable, mainly due to the increase in advance received from customer, a particular relevant practice in China. We had cash absorption due to the investment as already said for EUR 23 million and the main single investment in the year was the new building of Cutlite Penta in Prato for EUR 5 million purchased with a leasing. El.En and the subsidiaries paid dividends for EUR 9 million and there is also a capital increase of EUR 4 million due to the exercise of stock options assigned to the employee. Revenue by business in the medical sector was the 54.5% of group revenues in 2021 with a total amount of EUR 311 million and with a CAGR of 13% over the 2019. The aesthetics segment showed the best performance with a CAGR of 22% over 2019 and an amount of sales of EUR 198 million. The 3 main families of laser system for hair removal Mediostar by Asclepion, the Motus and Again by Deka were decisive for the group. We saw the recovery with respect to 2020 in the segment of therapy, plus 76% over 2020 and surgery plus 18% over 2020 that has suffered the most from the effects of COVID and which returned to shine during the year, setting revenues above 2019 levels set in therapy and with the prospect of a short-term recovery for surgery or of the record levels of 2019. System for surgical application in the urological segment, removal of stones and treatment of benign prostate hypertrophy increased in the installed base over the year and generating future income, thanks to the consumable. For example, a single or multiple use optical fiber produced by the group to be used in every single surgical procedures. Consumable and maintenance are accounted in the service segment. In the industrial sector -- the growth in the industrial sector was the 45.5% of group revenue in 2021 with a total amount of EUR 216 million and a CAGR of 28% over 2019. The disruptive growth of the laser cutting sector continued in the year with revenues of EUR 216 million obtained by both Chinese and Italian organization involved in the sheet metal laser cutting business. We note that the sales performance of Cutlite Penta active in Italy and Europe in laser cutting sector, recorded an extraordinary growth of 68.8% with a decisive contribution -- over the group. The positive trend of the markets also involved the Brazilian branch of the group able to double its turnover and providing a positive contribution on the group profitability. Within the industrial sector, the trend of the marking business was positive, and we remarked the performance of Lasit showing a turnover of EUR 18.1 million compared with the EUR 14 million of last year. Increase was also in the 2 other sector of laser sources and service. And finally, the breakdown by area, the growth is significant in all geographical areas in which the group operates, and the performance in Europe stand out in the medical sector, plus 20%, while in the industrial sector, the best performance was achieved in Italy. Andrea Please go ahead in the presentation.

Thank you. We hear a voice underlying, please turn off the microphone. So thank you, Enrico now please take this -- I'll talk about the guidance later. As you notice, it's hard to find faults in our 2021 performance, which is ideally excellent under all the financial and business metrics. Let me update you on how we are currently positioned and on the potential of our business. I'm going to go through an overview of our markets, our current positioning, the effects of the Russian/Ukrainian conflict, other circumstances that may affect our current performance, framing for you grounds and scope of the guidance you are seeing on the screen now. I will then spend a few words on our laser cutting business with special reference to our Chinese operations and on CapEx. As you know, the wider picture for EL.En shows that we are active on 2 very different markets, laser and energy-based systems for medical applications and laser system to be used in manufacturing. We elected to pursue these 2 markets from the common starting point of our capabilities in laser technologies and adapted over the years, our organization, our products and our activities to certain market segments that we identified as most promising for the adoption of the technologies we are very good in developing. The strong demand we experienced in the last 18 months is confirming the ambition that we shared with you to be able to follow a path of rapid growth. Medical, aesthetic, laser applications are meeting a general and growing social needs of effectively, noninvasively and also cost effectively improving our appearance in the body, in the face and resisting to the science of aging. Our technological offer is at the same time, meeting this expectation and through new affordable, effective and reliable procedures and system is creating further opportunities in terms of new possible and desirable applications to fulfill the need to look better and younger. The market for aesthetics in general and for aesthetic devices, in particular, is flourishing and expected to maintain its growth momentum over the coming years. Surgical laser application are increasingly requested to replace traditional surgeries with minimal invasive procedures, which deliver excellent results with reduced discomfort and side effects for the patients and improved ROI for the investor or maybe even better, reduce cost for the public national hospital systems. Also this market is expected to grow rapidly, once again fueled by technological innovation. Considering the system sales part of our revenues only medical aesthetics and surgery were respectively worth EUR 198 million and EUR 45 million, which were again, respectively 39% and 9% of our total system sales. On the industrial application side, we are operating with a broader market -- within the broader market for systems for manufacturing, which has not been considered very alluring especially in the western countries, amidst the localization of several manufacturing processes in the phase. Where by the way, we decided to diversify our localization back in 2007. The market for the largest of our application segments, sheet metal laser cutting, has been rapidly growing in the last years and is expected to further growth phase based on the evolution of the technology that is at the same time allowing increased performance in terms of manufacturing processes speed and cost reduction. The combination of these 2 effects is increasing the number of potential buyers for our systems within the traditional -- users of laser cutting systems, accelerating the replacement install base due to rapid technological -- please -- due to rapid technological obsolescence, and last but not least, allowing the technology to be used in new application areas that only downstream of the technological shift are now ready for adopting laser systems within their processes. These are the reasons underlying the expected growth of the size of this market. Also the laser market is in very good shape, taking advantage of the increased need for identifying parts and assemblies within the most advanced manufacturing systems. Laser markers are an effective, flexible and environment-friendly solution that is experiencing an increasing acceptance in the manufacturing world. Again, to put in direct relation to this market -- this growing markets with our business, laser cutting systems were worth in 2021, EUR 215 million of revenue, 43% of our total consolidated system sales and market system were worth EUR 30 million, roughly 4% of all our group sales. Based on the expected behavior of our end markets and of our competitive position on each of them considering the wideness and, the depth of our product range and the overall set-up of our distribution network, our operational forecast for 2022 call for a further rapid development of the business in all our segments. This beginning of 2022 is adding another significant element, let's say of comfort to the current outlook, given by the unprecedented volume of orders backlog, which is taking the positive momentum of 2021 into 2022, not only in the expectation and in the perception of the market trend, but also with a solid base of orders to be delivered for sales in the very next months. And to complete the list of good news, it appears that in the Western countries, we are seeing the way out of the pandemic becoming wider and smoother, with all the benefits to our lives and life still with such a return to normality is going to apply. So we feel strong and confident. We don't have to share with you that there are 2 very powerful drivers of uncertainty that are casting or good cast a shadow on the very bright pictures we have been showing and I'm talking of the supply chain issues and of the Russian/Ukrainian war. And packing under the broader concept of supply chain problems there are several issues that have been hindering us in the, last month and are prospectively going to continue to hinder our business and our operations. There is now evidence of a fairly strong inflation, which is a very strong inflation for gas and power supply. We will have cost increase based on this, both in the cost of goods sold and in the operational expenses. Heating, air conditioning, driving, shipping, just to mention a few basic services with costs that are sharply increasing. The rapid growth of our business volumes allowed us in 2021 to overcome most material cost increase. But even though we are quoting more growth for 2022, we have evidence that in the near future, we won't be able to neutralize cost increase with increased volumes. We are planning and already started to transfer cost increases on our sales prices. But this is not necessarily effectively possible and appropriate in each and every trade agreement. Moreover, cost is not necessarily the most important problem when it comes to material shortage. Given the very large diversification of materials and components included in our bills of materials, we have been exposed to shortage of several components from the very well-known chipset to capacitors, plastic molded parts, repairs components, which are vital for certain laser category in the last these quarters, we are missing quotes for our labs. We struggled in sourcing and in timely sourcing and the ability to timely and reliably receive certain ordered material has been and still is a limitation to our capacity -- to ramp up production volumes as we would desire. The world is hitting us and all, the European people psychologically first placed in helplessly witnessing such an unreasonable shame taking place next door. Business wise, we face the effects -- certain effects that are certain, no more sales in the area for a while and a very uncomfortable sense of uncertainty on the possible outcome and consequences of the war. Both Ukrainian and Russian markets are a very interesting market for us, especially in the medical aesthetic piece of our offer. Our overall trade volume with the areas is not exceeding 2% of consolidated sales. We were expecting to sharply expand the sales volume in these areas in 2022. But anyway, we are not talking of a very significant impact on with our overall sales. For the wider effects, as Italians and Europeans, we are already hurt by the energetic bill and by the refugees fleeing. We strongly hope that the war will come to a rapid end quickly saving the lives that are being sacrificed and removing the sense of uncertainty and uneasiness that for sure, is not and will not help our markets. When we decided to the disclosure of our 2022 guidance, we elected to share with you the growth path that the market situation we are actually experiencing is outlining, which is very positive. And also to share with you and make clear that the growth expectations are tied to the persistence of the general market, economic and international relations we have today since both the war and the supply chain issues could jointly or separately, change the reference frame we are today working in. Under this assumption, we delivered what I believe is the most aggressive initial guidance ever released by EL.En for consolidated revenue growth above 10%. And for an EBIT growth that the sales increase is expected to imply, but that due to the uncertainty on the material cost and availability side, we cannot more precisely specify. Such guidance is embedding a good growth projection for our sheet mental laser cutting business, which is performed by our Italian subsidiary, Cutlite Penta and by our Chinese organization headed by our company based in Wenzhou that has production facility based in Wuhan and Linyi too. The control structure for this business has been qualified in the last years. First, by liquidating our minority Chinese partner and then concentrating under the Wenzhou company all the other companies, including the Italian operation, creating a well-identified and separated division. Actually, during the Chinese New Year break, Penta Wenzhou succeeded in the transformation of its status into a joint stock company, a fairly complex procedure in China, which among others, included the re-auditing of the financial of the last 3 years in compliance with international accounting standards, taking into account the practice followed in China by companies listed on regulated markets. The transformation into our joint stock company is a necessary condition in the path towards a possible IPO of the business unit, which once this further step is completed is now one of the strategic options that can be implemented in pursuing our ambitious growth targets in the business. I wanted to show you -- Enrico, could you please remove the slide? I wanted to show you a very short clip our 40-kilowatt system top of the range in China. And here you see cutting 40-millimeter mild steel at 2.1 meters by minutes. As I was saying before, for us, because 5 years ago, this is like flying a rocket. And it's something which was simply unbelievable a few years ago to cut with this speed, with this quality mild steel of 4 centimeters of thickness. I understand this is not necessarily very alluring. But I wanted to give you a flavor of what the technology can do and how the expectations on this market are tied to a very rapid technological improvement and that's completely changed the face of the business and the ability of our system to perform cutting procedures within the manufacturing world. A few words on CapEx. CapEx for the year 2021 was around EUR 21 million, out of which EUR 15 million were dedicated to the expansion of our production capacity by purchasing, building, expanding and refurbishing our new plants. About 2 more million were expensed in other refurbishing activities for our older plants. And finally, $4 million were invested in the ordinary investment in toolings, vehicle, software and other -- and other small investment. Capacity expansion work is going to take place in several of our locations in 2022 as well. In Samarate, where Quanta System, is operating where we refurbished our second building. In Wuhan where we are completing our new plants, and hereby in Calenzano where certain areas of our plants will be expanded in the near future. Capital expenditure is expected for -- as today for 2022 in the neighborhood of EUR 15 million. Of course, subject to adjustment if like in the past, capacity expansion opportunities will show up in conjunction to the continued revenue growth, growth that most of our businesses have experienced recently. A very final word to our commitment in pursuing the sustainability targets that our plan provides for which, by the way, constitute a part of the management, including myself, valuation metrics. We are allocating adequate resources to both disseminate the ESG culture within organization and also to improve the ratios were granted by the relevant institutions. Thank you for your attention. I am at this point done with the presentation, and we are available for answering your questions.

Andrea, we have one question from Francois Robillard of Intermonte.

First one is on your sales growth target for 2022. What I understand is that you expect some continued strong growth across the medical side, and you also gave some positive messages on the industrial side. Also a situation right now in China, especially and the messages from your competitors on laser cutting -- metal laser cutting in China points to -- seem to point to more cautious expectation? Can you just walk us through a bit your expectation for each segment? Then just a quick follow-up on your EBITDA target. I understand you don't want to give some -- many precise indications for now at the margin level as well. What can we expect a bit more precisely something north of EUR 70 million out of expectations for now? Just give us some more color on this. And then on the working capital, I saw that you're -- for the full year 2021, you had a positive contribution from other items, especially other liabilities. Can you just give us some more color on that?

Francois, yes we, of course do not give many details, but when we are saying that we are expecting revenue growth north of 10%, this means that we are expecting this kind of growth in most of our segments. Of course, there are some segments which are more brilliant. We expect, for instance, a very good growth in the sales of aesthetic devices in the United States. We have experience and still have a forecast of softer growth in Japan for medical devices. We have a very strong expectation in Europe and the Middle East and for the body shaping market and very strong expectations for the consumable tied to the sale of urological system. Concerning the industrial market, China has been extremely brilliant in the first 6 months of 2021, and then the growth come down. We have very good and strong expectation based primarily on what I have been just showing you. On the fact that we are leading the pack -- leading the market in the high-power application segment and we expect to be able to take advantage of the growth of this segment. And I believe that in this specific segment, we could -- we identified a very interesting growth path. Now the guidance and the model that we included in the guidance was drafted before yesterday. Now we learned that the COVID is hitting again certain areas. Now we received also from our suppliers just to make you aware of on how things are tied. That due to the lockdowns in China, they will delay supplies of certain electronic parts, which will as a subsequence imply delays in the deliveries for certain material to us. And so I mean, the overall frame of the Chinese situation is less positive than we were hoping. Nevertheless, our sales plan that was studied and discussed with our sales force in China is still extremely positive in the ability of continue to grow in this market segment. Working capital, your last question yes, we did very well and maybe we did even better than expectation concerning the working capital. This is tied to the circumstance, which I mean, it's not circumstance that took place in a short period, but it's a persistent circumstance of having a very large amount of orders and of backlogs. And especially in the industrial laser system market, those overcome with a down payment, which helped us increase the after debt. We had an increase of a few 10s of millions, which is worth most of the light blue bar that you see positively contributing to the net financial position, which is countries made of this down payments by customer. Of course, that amount will stay at that value only if we maintain the same volume of -- the same volume of down payments throughout the year, which is not likely to happen, especially in Italy, where many of these down payments were tied to the so called 4.0 -- 4.0 tax cut and which I expected not to completely disappear, but to slowly lower during the year.

Andrea, we have a question from [ Marco Riva ].

Yes, so looking at the recent past, despite higher grow into normal range for the industrial sector, you have a returned a growing in general margin. So the question is -- if it depends on leverage, product mix, for example, to move to -- more powerful sources -- laser sources or which is the meaning, because in the past more industrial sales means less margin. So -- and if you think that it will be possible to move the major cost that you talked before into the prices if you see problem, you expect problem or if you think that is easy to do?

And excuse me, Francois, because if you -- this was part of your question 2 and didn't answer. But now I can answer to both industrial. Of course, you have to take into account that we are working on a very competitive market in which there is price competition in which we are concentrating on certain specific segments of the market in order to avoid very strong price competition, which would hit our margins. And especially in China would be a world that we probably wouldn't be able to win. But as I was saying, the large number of orders allowed us to have less pressure on pricing. Also in industrial, we could -- with the further increase of volume that we are planning, both in China and in Italy, somehow defeats the cost inflation. And I believe that in 2021, and also in 2022, the cost efficiencies that we are reading in the production process, industrial are helping in having this small, but significant margin increase. Our ability in case of a cost increase to transfer the cost increase into the price per customer is always very, very difficult to know before, because it depends on the exact market condition at the moment that you are called to do it. Because for instance, during this year in 2021, we had customers that were coming to us, paying us to deliver at any condition devices, because their traditional suppliers were not able to provide them timely deliveries. And so in this case, there's no discussion. If I want to get 10% -- or I mean, if I get -- if I want to get the cost and a price increase, I get it. In a different market situation with more competition and less pressure of the demand, it could become harder to revert our cost to our price. This all comes to an end in understanding how these events, inflation, material shortage war in Russia will impact on the overall business situation. If we will continue to have a positive business conditions, we have no problem in replicating and also improving the performances of 2022. If the picture changes and then it will be difficult to do each of the things that we are quite well succeeding to do in this moment. We are therefore, in this moment, what I can see today...

Andrea, we have one more question from Andrea Bonfa, Banca Akros.

Yes, yes. Okay, just a second. Let me finish the answer of the...

Oh sorry, sorry.

The only, the only -- I would say that given the current situation and given the current effects that we are experiencing today from these 2 issues, we are very optimistic because we have been able to overcome any problems and where problems occurred -- I mean there were minor problems compared to the largest growth, the largest improvement in results we have been able to do get. But of course, this is today, we hope that things do not change. And especially -- we are especially we're concerned from the evolutions and the consequences of the war, which is very close to us and very close to North. Excuse me.

Andrea?

Okay. And Andrea and if I may, I would like some color on what was the China's performance in the first couple of months? Just it was positive, considering that the comparison base was more difficult. And then you rightly mentioned that you are in a competitive industry, but this year, the U.S. dollar should help at least indirectly? And then a technicality, I saw that minorities went down in the H2. If you can comment on that, I think it might be partly related to China, but if you can remind us how -- that item works. And a brief update on the new machine that you are launching in 2022 and in which market. I'm referring maybe in particular to the one for the acne treatment in the U.S., which is awaiting FDA approval? And then I noticed that your D&A was strongly up in Q4. And if you can maybe disclose what was the level of bad debt because I think that is included?

Andrea, I couldn't hear the last question. What has been strongly up?

The D&A, the depreciation amortization were strongly up. I know that in your line, you are including the bad debt, if there is anything worth mentioning in that particular item?

Let's hope I took an appropriate note of all your question, in case just recall me. Chinese performance. Chinese performance in the first 2 years are always scarcely relevant for the business because the first 15 days, they're waiting to go to the holidays then in February, it's the beginning of the holidays. So we -- the results that we had are in line with our expectation and in line with our budgets and compliant to the general guideline -- guidance that we have provided to you. Concerning -- let me see -- concerning the reduction of minorities in the second half. Yes, this is due to the fact that the financial performance in the second half of the companies in which we have stronger minorities was weaker. And the companies in which we have stronger minorities are the Japanese company with us, which had a fairly weak performance, reducing its revenues in the second half of 2021. And also the Chinese where, in fact minorities are up around 8% -- 5% excuse me, but they are quite significant in volume. The results -- the financial results in the second half of the Chinese subsidiaries were not particularly good, also due to the effects of the change in the estimation that we had to perform in the financials. And this is the reason why you see such a large amount of D&A in the quarters. This is the effect of the Chinese approach to evaluation of certain items like warranty and bad debt, which we had to adjust during the fourth quarter according the Chinese way to approach these 2 things. New systems actually, the most significant launch in terms of innovation content of 2022 for the moment is a new CO2 laser, which is combined to a 1470 additional wavelength which to the typical ablation effect, which is tied with our CO2 laser systems. It adds our heating, deep heating device. And the combination of these 2 effects is expected to give a good trust to our sales in dermatology. We gained the podium space at the Anti-Aging Congress in Monte Carlo, which held about 1 month from now. And we have great expectation from the MonaLisa glide device. And from the DUOGlide device, these are main. DUOGlide is the device which adds 2 wavelengths one new wavelength to the traditional CO2 wavelength. Concerning the acne device, I don't have any real new to disclose today. The clinical studies are going ahead. The funding is there for the company. So the company was able to raise a good amount of money, which is funding studies. For those who might not recall the development of the acne device has been on a technological point of view performed by our company Quanta System. But in terms of application and regulatory, we decided that the investment was very large and very risky and therefore, we segregated the development of these parts of the technology to a company called Accure Acne in which we are a minority shareholder since the company has been funded with a third-party's capital. Once the FDA clearance procedure will be done, this company should be able to raise more money and to accelerate -- to introduce the product on the market by this means creating a very strong sales infrastructure with its own capital and creating a very strong flow of sales of devices from Quanta System to Accure Acne. But as I have always been telling to the investors, we're very close in getting the FDA clearance. We have obtained the CE Mark, which is very important, but it's not enough for having a good commercial success for such a device. But we haven't the clearance yet. And therefore, even though we are very confident based on the team that is working on this clearance. There's no assurance that this clearance will be actually obtained. I hope I answered all your questions, Andrea.

Andrea we have one more question from Francois Robillard.

Yes, just a follow-up, one on the Chinese -- potential Chinese IPO. So if I recall correctly, you own about 85% of the local company. Just to get more -- get a bit more color on the rationale of such an operation. Would it be a capital increase to get more funding or would it be a partial exit from your local investment? And in that case, what would the funds that you will receive from such an operation be put at use for. And just to get to know a bit more about the Chinese operations. I believe that for 2021, revenues were about EUR 140 million sales. What kind of profitability are we looking at in this market?

Thank you for your question, which allows me to give you more detailed information to the extent I can give you. Since we do not have a definite IPO project, and their view is an opportunity which is outlined, but it's not a firm project yet. I do not have an answer to what will be the IPO. Generally speaking, my knowledge is that IPOs on the Chinese territory provide for the sale of around 25% of the capital in terms of -- excuse me, not for the sales -- for the issuing of new shares which are worth 25% of the capital. So this is the opportunity that the possible IPO would in case give for our business -- development of the business. The profitability of the business is quite low and was quite low in 2020. Why I'm saying quite low if you compare to -- comparing to the profitability that we are able to achieve in the medical business. We are actually having better success in Italy in 2021 than in China due to the situation that, as I mentioned to you before, should cool down a little bit during the year -- during the second half of the year. On our total revenue on which Enrico can be more precise in China. I believe that we can expect -- excuse me, EBIT margin in the near future ranging from 5% to 8%, depending upon the volume of sale actually reachable sees the profitability of the business is very strongly dependent on the leverage effect. As you know, we run 5 factories. We have a fairly large amount of fixed costs. Therefore, the ability to increase revenue and therefore, to have a leverage effect is strongly, strongly impacting on the bottom line. For this reason and due to the fact that the, second half of the year was not very positive, for China we had a lower than usual EBIT in 2021. While in the same division, which includes also the Italian activity, with benefit of the excellent results of the Italian facility, which exceeded EUR 80 million in revenue in year 2021 and was closer in its profitability to the standards of profitability of the rest of the group.

The total sales Andrea of -- Chinese consolidated is EUR 143 million.

And while the consolidated of the cutting business, including systems and service?

Let me see.

200 and change.

Yes, let me see just a second, EUR 223 million.

Thank you.

Andrea, we have a follow-up from Andrea Bonfa.

Again Andrea, now -- again back on the, let's say for acne, the machine for acne and for FDA approval. Is in your guidance any sales from this potential approval or is everything on top of it? This is the first question? Then if you can comment on the U.S. dollar, if that is beneficial at this level for you?

The number for acne sales in the 2022 budget is 0.

Okay.

The dollar -- actually, you're right. I forgot to mention this. We are now at around $1.10 exchange rate with the U.S. dollar. This is needless to say, a great help for us compared to this average foreign exchange rate of last year and also to the [ controlled ] foreign exchange at the end of the year. And therefore again, should the foreign exchange keep in this area longer, we would have a great advantage in terms of margins since a good part of the sales growth in 2022, especially in the aesthetics market comes from sales, which are expressed in U.S. dollars. And so again, if the dollar stays where it is now, we could have very positive surprises. Let's say, even if it's not a surprise, but we could model a nice shape of our profitability. But of course, it's one of the things which are somehow a consequence of the world. We have seen how the dollar strengthened in the days immediately following the war. I remember for everybody and for you that not only we make more money in the trade agreements in which we are setting the prices in dollars. But also, we gain competitive advantage against most of our competitors that are competing in dollars and we get more competitive worldwide. And so we -- the strong dollar helps our competitive position worldwide always.

And if I may, on China. If I remember correctly, your core business is related to sheet metal cutting. But with a higher, let's say, power that you are able to deliver, you can move also to rod bars, I mean, which means essentially construction. Okay, we all know that construction in China is kind of, let's say, suffering right now, but is that correct to assume that all sales in that sector would be additional to your business, which before was kind of 0?

It is. You have seen the clip that I have been showing. This is sheet metal. 4 centimeter thick, but it's sheet metal anyhow. But of course, you don't use this sheet metal as the backbone of smartphone, because [indiscernible]. You're right, the construction market is said to be quite slow in China due to several reasons. But we are entering this market as an additional market. We can turn it and we count on a replacement of the existing devices. What happens is that if the assumption we have, if the work that we are performing actually is validated. It means that a construction player that needs to cut metal like the one you have seen before, will be force there and we have great advantages in buying a laser system because it will have cost advantage and flexibility advantage in all its production facilities. And therefore, the innovation is something in which, of course, is helped by a positive cycle. But it could become something mandatory if as we hope the advantages of adopting a laser system will be so material for that kind of application.

And Andrea, we have not any other question in our list. I want to ask to the floor if there are some other questions? If there are no more questions, we finish this conference. And if you have some questions to investigate, please do not hesitate to contact Enrico Romagnoli, he will be happy to answer your questions. Thank you for attending this conference, and we hope to have you all again next time. Good afternoon to everybody.

Thank you.