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

Good afternoon, or good morning, and welcome to El.En.'s Half Year 2022 Financial Results Conference Call. Today's call is being recorded. [Operator Instructions] With me on the call, Andrea Cangioli, El.En.'s Managing Director; and Enrico Romagnoli, El.En.'s Chief Financial Officer and Investor Relations. Before we begin, please note that there is a remarks management makes on this conference call about the future expectations, plans and prospects and forward-looking statements. Certain statements in this call include those addressing the company's beliefs, plans, objectives, estimates or expectation of a possible future results or events are forward-looking statements. Forward-looking statements involve known or unknown risks, including general economic and business conditions and the conditions in the industry we operate and may be affected should our assumptions turn out to be inaccurate. Consequently, no forward-looking statements can be guaranteed and actual future results, performance or achievements may vary materially from those expressed or implied by such forward-looking statements. The company undertakes no obligation about the content nor to update the forward-looking statements to reflect events or circumstances that may arise after the date hereof. At this time, I want to turn the call to Mr. Andrea Cangioli. Please go on, Andrea.

Thanks again, Janica. Good morning. Thank you for joining us in this call has held after the release of our financial report for the first 6 months of 2022. On this call, myself, Andrea Cangioli, Management Director of El.En. and Enrico Romagnoli, CFO and Investor Relations Manager for El.En. The financial results for the 6 months were once again outstanding and we are, of course, very pleased with that. Revenues were up 19.4%, well above the 10% minimum growth that we have forecast for the full year and profits are also increasing nicely, not only in absolute value has a macro effect of volume growth, but also as margin on revenue as well. With EBIT margin at 12.7% in the 6 months, we are touching profitability levels that the group has not seen for a long time and they go beyond our initial expectations as well. To provide you with a comprehensive view of our current situation, I'd like to focus to the specific market environment in which we're active and the positioning of our operational structure/environment. We are talking of a very healthy and promising environment in most of the market segments and sectors where we compete with our health and system solutions that are able both to fulfill and to simulate the need and desires of our customers and potential customers. A comment on our 3 most significant application market, medical setting, medical surgery and manufacturing. The 2 medical segments are the general trend in joining our long-term favorable cycle driven by social and demographic trends. People desire to look and feel better and are ready to spend for that. The population that is on an average, age has yet a desire to retain a more useful look, and when your age call for specific surgery, patients would like such surgeries to be now available with no downtime and pay increase. Our technological offers is aiming at first place to perceive disease, but also our innovation aimed to make new enduring, effective and affordable procedures available in order to expand the desire of the potential customers. And, at the same time, to expand the market for our devices. The manufacturing work does not have and expect the growth trend as strong as expected for our medical segment. But it has indeed the general need to improve the cost and quality effectiveness of each processes, and is eager to invest in solutions that enable such improvement. Our technology for the manufacturing board enables production processes to be materially improved under several point of view, cost effectiveness, productivity, volume and last but not least environmental impact. Bottom line, our main markets are currently showing a positive general trend, which is also sustained by the collective innovative action of our offer that stimulate demand by continuously improving the system performance and joining our customers' ROI. If we do much from our specific market level to the general economic trend, the situation changes quite materially since we are facing one of the most severe and uncertain pattern of the past year. In May 2020 and 2021, the post pandemic rebound was strong and allows the world's economy to put out of the continued downturn. We did it with so much strength that is generated an inflationary way. The war outbreaking Ukraine has added for the European countries, their uncertainty and [indiscernible] of a very close war with the undesired by products of losing the means of the pension to a very promising market. And most important, importing a very tough energy cost installation, which is driving further inflation and secondly, to change great turn for several energy venture businesses and the financial balance for half. We are not an energy intensive business. We do not have a very high energy deal impacting our cost of goods sold, but we do have an increase of expense due to energy deal. At the same time, the U.S. economy is also recently unseen levels of inflation and a recession. The Chinese economy is not yet out of the continuous recession phase and increase in lockdown are further slowing down an economic environment which was instead leading a booster to improving performance. So the macro-economic trends are not favorable, but they create no negative growth on our business with the exception of the Chinese uncertainties which needed our sales expansion in the month. However, these overall answer is known overall. In order to describe the most relevant difficulties that we see in these 6 months, we have, in fact, to zoom down again for our business and to specific activities within the novel business conduct. I mean the purchasing of materials and components that we need for our production processes. Apart from price inflation, which is a matter of cost and can be somehow managing. And of course, the real issue is still the unavailability of certain components. Lead times are expanded well over 50 weeks and the delivery term became unreliable as matter before push several components. I could spend an hour with handed off about delaying deliveries of safe components, so-called allocation of deliveries by supplier, delivery interruption and of course monster cost in the region. Please, we could not assure a stable inflow of material following our standard for shaping procedures and maintain a curve with our vendors, we decided to accelerate purchasing volume and feasibility delivery to us and increasing the amount of material we are holding in now. The physical production cycle of the group is now materially longer than it was the quarter because we tried to anticipate delays and cancellations to prevent delays and cancellations that is surfacing in the last year to put completely block certain production line. Moreover, by paying advances to banker for gaining priority in the supply. And by paying suppliers earlier than in the past, we further trust the financial cycle of working capital as well. This is quite evident in the use of cash that we made in the 6 months and with the change of our net financial position projectors in the period. We invest that some of the cash we have on hand and we succeed in most of the cases in stabilizing our production volumes as our order profit and loss performance is shown. Only in few circumstances, the organizational and financial efforts we may had to succumb to material shortages and slow down production grade, mainly during the [indiscernible] of the summer in our production line in our factory in [indiscernible]. We have been extremely reserve in pursuing this path, which proved to be essential for allowing us to maintain and increase our production volume. The financial interest has to be considered in part temporary due to the supply chain emergency and in part due to the continued expansion and expected expansion of production volume. Moreover, there were reasons for which the financial cycle is seasonally more positive towards the end of the year. And as in the other year, we expect part of the working capital expansion will be up. And we got -- we sort to provide you with the details of the various components of our 6-month cash observation. A cash reset point of the use of cash -- in the period, I'd like to switch back to the topic on how we made money in this 2022 today and how we were able to increase EBIT and EBIT margin to the record level we are showing. The first driver was the sales volume, 19.4% average gross was an exceptional achievement. And they were close to 25% increase in medical sales -- in medical sector sales, which allows a good leverage of operational expense. Sales growth was softer in the industrial sector, 13.2% only as I told only anyway, an outstanding performance format, considering that we had a slow performance caused mainly by the Chinese lockdown, which slowed down our manufacturing and our sales activities in China. Gross margin on sales improved by 0.8% in the period. And I would like to mention 3 drivers to that. First of all, the faster growth of the medical sector which provides on an average higher margin of sales around 45% in 6 months allows a mix percentage. Second, a more favorable sales mix within the industrial sector also contributed to margin improvement. Marginality improvement in China overweighted the margin reduction in the European sales that were driven by a strategy of rapid market share expansion on the European territory. Margins in the medical sector were more or less stable, benefiting of the increase of sales towards the U.S. and on the stronger U.S. dollar, an advantage that helped offset the slight margin decrease due to cost inflation and in total increase of sales to large volume customers bearing also volume prices. The ability to increase margin of sales increase was the main driver for EBIT margin expansion combined with a good cost of expense operationally. Research and development activities have been fruitful in the period together with our regulatory activities that, as you know, in the medical sales allow sales in specific countries, some time here or months after the first release of the product. For instance, we have made today agreement for the [indiscernible] in laser beam on health laser emission in Taiwan and Korea. Among the new products, I'd like to mention the increasing clinical evidence and market access accepted due to the clinical of the efficacy of more -- and major CO2 devices which integrates a take of 15 40-nanometer wavelength laser store allowing thermal effects to drive the traditional ability CO2 effect in term of it. A new deal like CO2 device designed for the U.S. market is due to release to sales in the early 2023. Among other, we are further challenging our wide product range of lateral thermal system by improving the performances and the usability of our data module range while system is expected to release the new powerful system for trading in early 2023. And also the body shaping product range is being enhanced with improvements to our flagship on that pool. Sheet metal laser carton systems are being equipped with laser sources of increasing power but most important, on the application side, the effectiveness of laser cut with 20 kilowatt and 30 kilowatt laser sources is continually built by our application special, allowing unprecedented customer achievement as some of you could appreciate like during the recent Open Day we have in Florence and [indiscernible]. Before Enrico provides the details of our financial results, I'd like to mention the celebration we held a few days ago, a party in the fantastic venue in Florence where -- and the future Florence acknowledge the tribute to the scientists that set up the technological foundation of our business, among which the 2018 Physics Novelist Professor Gérard Mourou. The meeting between time, business and our, there are German that promoted that night is one of the key success factors in the El.En. history. We signed an R&D playing a crucial role in the product innovation sources that is central for business development. Enrico, please go ahead.

Thank you. Thank you, Andrea. And as already said by Andrea, in the first 6 months of the year, El.En. registered further record results with our consolidated revenues of EUR 327 million, up 19% compared to the last year and with another time, another double-digit growth in both our sectors, medical one and the industrial one. Together with the increase in sales, there is also an increase in profitability with an EBIT of EUR 41 million with an increase of 34% comparing the data in the first half of last year. Thanks to the high volume of sales, we have a sharp increase in EBIT and EBIT margin with an impact on sales of 12.7% higher than last year, 11.3% and higher than last quarter. And thanks -- and higher than the first quarter 11.8%. And in the Q2, the EBIT margin of El.En. Group was at 13.3%. The increase in sales is also a companion with an improvement on gross margin and the drivers of this improvement are already explained by Andrea. And thanks to the improvement of the gross margin and the stability of the impact on sales of fixed costs as operating expenses and staff costs, EBITDA was positive for EUR 47.2 million, an increase of 20.7% compared to the EUR 39.1 million last year. The incident on turnover remains totally unchanged at 14.4% in this year compared to the 14.3% on the last year. EBIT market, a positive balance of EUR 41.4 million, up 34.1% compared to the EUR 30.9 million over last year. With 12.7% market upsale, marking a record level significantly either than the result of the last year. Positive contribution was done by the reduction on accrual for risk and charges compared to last year when the increase was mainly due to the warranty to take into consideration the increase in sales volume and some expansion on warranty period. Pretax income showed a positive balance of EUR 41.6 million with a 30.8% increase and net income of the group amounted to EUR 28.4 million, up 26.6% after a tax rate of 26%. For what was the balance sheet, we can see that the net capital employed increase of 50% due to the reduction of net financial position. The net financial position of the group remained positive for EUR 43.9 million and recorded a decrease of EUR 72 million in the period compared to the EUR 115.8 million at the beginning of the year and compared to the EUR 85.8 million at the end of Q1 2022. In the cash flow chart, you can see that the new reduction of cash flow due to the increase of net working capital with an assumption of EUR 46 million to support the rapid growth and to face the impact on the business of the stock exchange prices. The change in other current payables and receivable was mainly due to EUR 14 million to a decrease in advanced receipts from customers, especially in China, where earlier acquisition as well as sales volume where we see in the semester for EUR 7 million has increased in advanced pace to supply necessary to ensure family supplies and for additional EUR 7 million as a temporary negative trend in tax payable and receivable for income taxes and GST. In the reported period, dividends for EUR 17.2 million were also paid, of which EUR 16 million by an equal to EUR 0.20 per share and investment in new building plants and our fixed assets reduced cash for EUR 9.6 million. Well, EUR 3 million of liquidities were invested in our insurance policy and reported in financial fixed assets to reflect multiyear measure. This kind of investment already booked in previous financials of the group by their nature of mid long-term investments are included among noncurrent financial assets and so not included in the financial position. The total value of this kind of instrument at June 30 was EUR 21 million of units. For sector wise business, the medical sector recorded a growth of 25% compared to the same period in the last year, and the growth was strong in all application segments. Aesthetics which represents the most important sector with a 60.7% share of total medical turnover shows a revenue of EUR 111 million compared to the EUR 94.1 million in the same period of last year. The share of Aesthetics decreased slightly in the 6 months due to the very rapid growth in the other segment, mainly Surgery, plus 43%, and Physiotherapy plus 25%, that overcome the results achieved before the COVID pandemic. Sales in after safe service, were close to 20% of the sectors turnover with sales of EUR 53.3 million, a strong increase of 35%. Thanks above all, with the sale of optical fibers for subject application in neurology with production has suffered a sharp go down at the beginning of 2021 due to the technical production problems overcome the following months. In the medical sector, there are brilliant trends, both for the point of view of turnover and profitability in part of system [indiscernible] and the safe ability of components has lowered the production and growth of late and consequently over so. The negative fees of Japanese branches remain, especially due to the weakening of fee cycle of more home use devices that has characterized the last 2 years. The industrial sector recorded a 13% turnover increase compared to the same period of the last year and the growth rate in revenue, confirming the positive trend in the last few years. The growth is driven by sheet metal cutting, increasing by 15% with a turnover of EUR 122 million and the sales performance reported in Italy was brilliant on the [ chilling ] and external plus 52% growth on the 6 months. The half year result of our Chinese business were deeply affected by COVID issues and consequently lockdown. Our recorded a decline of 16% in turnover in local currency and 25% in net income. Euro currency, the sales amount reduced of 3% and net income of 15%, thanks to the reinforcement of renminbi against euro currency. The market segment remained essentially stable over of EUR 10.8 million and represents further good development prospects. While the sales sector showed growth of 8% with EUR 2 million in revenue Sales -- aftersales service increased 9%. And finally, on a geographical point of view, in the first 6 months of 2022, revenue growth was rather significant in various areas of the world. In Italy, we have the main overall increase in sales that's up 31% at an average of an increase of 7% in medical sectors and 43% in industrial. Group growth rate there was Europe up 28% with similar growth rate in Medical 29% and industrial 25%. In the rest of the world, the first half of 2022 showed an increase of 15% as average of a strong growth in medical with a very good performance in the U.S. market, while in the industrial, there was a reduction of 1% due to China. Andrea, please go ahead with the guidance.

Enrico, as I mentioned before, we see a very strong and optimistic. We're looking at our capabilities and all market potential long term but also short term. On a negative external recurrent challenges models have diverged from the excellent growth reps that we are facing. The stronger this growth has been an [indiscernible] for us is persisting tendency of COVID-19 on the Chinese territorial and economy. Finally, concerning the guidance. The starting point here was the previous change of more than 10% revenue growth on 2021 and EBIT growth on 2021, which we released in March and then subsequently in May. It was more than 10% in terms of revenue to be precise, while no indication was given about EBIT margin. The 6-month financial results assets are widely compliant with the lead guidance by margin 9.64% and revenue increase and a needed increase, moreover very 12.7% record EBIT margin level. In the second half, we like to continue to grow 5 times exceeding the EUR 660 million revenue threshold, which would mean 30% revenue growth in H2, again, against H2 2021 and 16% overall yearly revenue growth. We expect EBIT -- I mean this would be a minimum level. We expect EBIT to grow with revenue. We are showing improvement on the EBIT margin for more than EUR 1 billion. Inflation could impact our cost more than we are able to recoup from the price increase that we are putting in place. Energy cost in operation expense are going to materially increase, especially from the Italian compound. And there is a third reason which also ties to the revenue growth guidance, which is a bottom -- which is the quarter -- excuse me, guidance is the central to our ability to sales, to expand the sales volume in China and subsequently to take advantage of the leverage effects that are material in the turning basic margin results, excuse me, what I was meaning is that we now have in this moment a very high visibility on the revenue development in China due to the unstable situation in China. Could we expand our volume in China more than the effect in the revenue projection that we to share, we would be able to have also a better leverage effect on our P&L. H1 did not factor in a good performance on the Chinese market. We are counting on improving in the second half, but we need to be able to operate in more normal order condition having without the continued interaction due to lockdown. We are over with the presentation at this point. And I believe we are ready to handle your questions.

[Operator Instructions] Andrea, we have got -- we have 2 questions. The first one comes from François Robillard of Intermonte.

Okay. I've got 3. So the first one is on working capital. You made quite a strong investment over the second quarter and the first half. Just to know how much of the factors you mentioned are going to remain structural in your view? We've mentioned some higher inventories and also the trend in advanced payments, both 2 suppliers and received from clients, especially in China. I guess, so my question is about cost structure of those changes in trends? And can we expect a reversal in the second half of the year? Or is the reversal more likely in 2023? That was my first question. I have a couple afterwards.

Okay. So there are various components in the working capital trend. We expect the main elements of the working capital, I mean inventory, account receivables and account payroll to decrease their balance and their impact on sales at the end of the year. Concerning the dynamic of the advance received and advanced based -- advance received from customers in advanced paid vendors This dynamic is strictly dependent on the order bookings and on the nature of the order bookings. Should we be able to start an important order booking, especially in China, as we had at the end of 2021. This allowance would further increase. In order for this amount to increase positively, we need to have an order booking, which is larger than the order booking we are having today. Anyway, also in the contract situation, we don't expect the balance of the advances to work and it will be cash decretive towards the end of the year. So generally, speaking, we expect the impact of total net working capital on sales to be reduced by a few percentage points from here to the end of the year.

My second question was on the extent at which you have visibility on the current demand strength across our 2 categories of product. Can you come back on your expectations for demand in the medical and the industrial segment for the second half and give us a quick comment on your current order backlog as well?

Demand, notwithstanding the quite further economic general conditions have been strong in all part segments. The only and the real problem we have is to deliver timely and to increase production volume. For this reason, we continue to have very strong backlogs even though the backlog are just a little bit smaller in most of our companies, mainly were at the beginning of the year 2022. There's only 1 case where our backlog is materially higher than at the beginning of the year. And this is the case of a company at, which, as I mentioned in my presentation, has factored more than all the other companies in the group, the component shortage and would not improve its volume and put by this means couldn't measure its demand that is still shifting in a very high amount in order backlog. So we are very confident that on the near future due to the consistency of our order backlog. The same applies for the order backlog in manufacturing, both in laser market and in castings for what concerns our European and Brazilian facilities. The only area where our order backlog is not as full as we could hope is the Chinese area where, as I mentioned before, the demand is threatened by the continuing pandemic looming on the day-to-day life and on the business activity on the Chinese territory.

And just a last one, if I may, about your EBIT guidance. So you added more precision on the second half trend. Technically speaking, you're looking at what is impacted by your guidance, it is quite a wide range for the second half between EUR 25 million and EUR 42 million for the EBIT in absolute value or 7% to 12.7% in terms of margins. Where or what part of this guided range do you see ourselves achieving or do you expect more to arrive at the -- to the higher range or the lower range?

Of course, the guidance is what it is. They cannot be too precise because in other words, we were given a different guidance, but -- when we set a minimum expected sales volume at EUR 660 million, we also pay jointly that if the situation remains as it is for the medical segment and improved just a little bit in China, we would be able to beat that amount. The same applies for EBIT margin. So if we are able to increase the volumes in the Chinese market as well as we are expecting to do in all the other markets, the leverage effect could offset a slight correction in margins that we expect in the second half as the effect of the way of inflation. So we are not taking -- talking of large swings but we are talking, we are expecting an EBIT margin just below the EBIT margin, the record EBIT margin compared to -- of the first half unless and expected to be this is why the load factors are into the guidance. Sales growth would allow the leverage on the operation expense.

Andrea, we give the floor to Andrea Bonfa, Banca Akros.

Part of my question have been answered. Andrea, if you can elaborate on the comment that you mentioned during your presentation that China profitability help or offset, we see some aggressive pricing on the Italian laser cutting business, the metal laser cutting business. And in particular, the performance and more of the Italian market in metal laser cutting was impressive. Is that fair to continue? What is your potential market size in that segment? Could you replicate that into Europe and if you can elaborate a little bit on that. And if you can recap again, maybe a little bit more slowly the new products that you were mentioning before, which are set to be launched in 2023.

Thanks, Andrea. So yes, I was mentioning the following, we had an extremely great 6 months for sales from Cutlite Penta, the Italian facilities for laser cutting, which had sales increased exceeding 50%. So there was an exceptional sales volume in terms of sales. This sales volume was of sales, also at the expense of a margin reduction, which in part is a strategic story. In part is also due to the fact that we took order classified a long time ago, we are ramping up production in order to reduce delivery returns. But some of the delivery returns were so long than purchase it took place with higher costs that we had, let's say, we have planned at the moment of taking the order. For this reason, we are extremely pleased with the increase of sales, but we know we have pace for improvement into the margin of sales and we could already in place revenues in order to keep these tie margins higher in the second half of the year. The other thing happen in China where there was a decrease in sales comparing 2022 first half sales to 2021 first half sales. Decrease in sales in the local currency and that, of course, we then translated to Europe for our consolidated reporting factor has been strengthening on the renminbi and reduces the impact in production. But since -- in this period, the sales that we performed were more heavily weighted on a high power systems that we are selling in higher marginality market segments like the market segment in which we are going -- replacing the [indiscernible] marginality on sale in China improved. As a total balance of the margin of sales of the industrial sector, we therefore have a small improvement which impacted positively on the consolidated balance of the gross margin. In terms of the potential of our markets will continue to be extremely optimistic due on what you can actually perform with this increasing power laser cutting system and how we have been able to manage those systems and how we became recognizable as the real leaders in this segment. The gap between us and the most significant players is still very important for instance, the market leader [indiscernible] reporting 6 months sales, I mean, is reporting a small sales increase, and I believe they are below EUR 500 million of 6 months revenue. our division, our sheet metal cap division, I don't remember, maybe Enrico, would tell me that how actual sales revenue of the division and not just the customer system of the division.

To second is dividend. I can find it maybe to -- give me one second and I have the number. I don't remember by heart now because of royalty. Anyway, you wouldn't have to make one out there. Third question I mentioned a few products that are going to be the leader of new products. One is a new dual weight like CO2 laser systems, which will be delivered for the U.S. market start in 2023. And then we have new versions of the products. We get, as you know, [indiscernible] is the largest segment and we cover with several high-level products. Data is driven with the model family, the organic family, as the Founder system and the vehicle system. I was talking of improvements in the motor spending with renewed systems most of ASV, which also provides new handsets, which broadens the capabilities of the motor platform of only limiting ban to the removal abilities, but also with new special handsets and enabling the motor laser systems to perform as a platform also for vascular treatment and the [indiscernible]. I believe then I also mentioned, and I'm going -- the clearance that we have obtained for the [ Red Pasteur ], which is a dermatologic system used for the stimulation of collagen, basically an anti-aging system, especially effective for the enhanced area. And we obtained the clearance for Korea and Taiwan, which are 2 very significant markets for the product. We are not the only market, but it was just evenly in timed how the R&D activity is fundamental in delivering new products technically speaking, why the R&D regulatory activity sometimes here for months after the technical release of the product allows the sale of the product in selected countries and is available for the research.

And now we have a question from Luis Cazalot, Good Value for Money.

Just a little question on the income taxes. I don't know if I'm wrong, but it looks that the taxes were much higher compared to the EBIT. Is there any special reason or -- I look at the slide pretty quickly, but I think you were from EUR 7 million to EUR 11 million instead with EUR 4 million increase, maybe I'm wrong. Yes here.

We have an increase of tax rate compared to the last year. Because last year, we are around 22%. Now we are around 26%. The main reason is that the net income -- the pretax income of Chinese company reduce some product to the add on pretax income. And the tax rate in China is lower than the European tax rate. Tax rate in Europe is around 25%, 30% in China is around 15%. Now that's the main explanation of the increase in tax rate.

Okay. I am ready to be answered to Andrea Bonfa with the number. The revenue for the indication in the first half of 2022 was EUR 126 million, which compared to electronic is about 1/3 at this point, just below 1/3 between 1/3. 3 years ago, we were 1/10 of electronic or maybe lower. Therefore, we are gaining market share. And we believe there is a potential in continuing to expand our activity in Europe. We have a very intense exhibition schedule for second half of 2022, including our physical presence in the last sale of Hannover, which is the most important the shipment that happened there. And then we also present at the past in Chicago where we hope to start planting a seed for the expansion in the U.S. market, which is a very significant market, in which we could have a good potential expansion with our sheet metal system.

And now we have 3 questions from Giovanni Selvetti from Berenberg.

Can you hear me?

Yes.

I have a few. So the first one is you can requantify how much of the increase in the profitability and the gross margin level was due to the effect of the exchange rate, in particular, the U.S. dollar and how much was coming from the different mix between medical and industrial. The second question is about Quanta, one, if you look at the single company, Quanta is increasing at an amazing pace, more than 50% much more than the other companies in the group in the Medical segment. What is driving this amazing performance? Is this due on to the rebound of the surgical business or what it is? The third one is like to really quickly on CapEx. I mean during the call of the results in mode I stated that they opened a new subsidiary in Italy, which is already positive and contributing to the positive results of the European group, but do you see an increase in the competition in the domestic market? And if yes, how is the company planning to tackle it? And the last one, again, on Aesthetics, listening to the American piece, there seems to see a demand which is stronger than ever and seeing decline also accepting higher cost of the leasing. Is it something you foresee yourself?

Excuse me, could you please repeat the first question, I didn't get it what the client accessing higher cost of the leasing.

The leasing cost to buy the laser systems are higher now. But according to your peers, the trend is so strong that the decline is willing to accept the higher cost of buying the machine because the land is steel strong. Is it something you foresee yourself?

Okay. -- so four questions. Exchange rates impact was significant, but we didn't disclose the amount, but we are more percentage of the impact. I don't believe that for exchange rate, P&L impact on gross margin would exceed a percentage points in maybe 6 months pointing to financial. This is why I mentioned that the increase is mainly due to mix. The mix is that we made heavier. And so this is more or less half of the change in the margin. And the other house is due to the improvement in the margin in the industrial sector. The foreign exchange effect is not an active effect in an excess of margin reduction more or less of the same -- of the signal. Why did Quantum growth effect compared from all the other?

Quanta.

Why is Quanta. Yes, there is a technical reason here. Quanta did very well, and they had very good progress sales in the third segment and also they were propelling to a first half 2021 in which they had 2 structural problems. One, we started and close it. There was a production process on the optical fiber supply. We had to stop delivering optical fibers, which are a significant part of revenues due to a problem which occurred in one of our suppliers. This was a very invaded product -- problem, basically the supplier what we do not be see compliance and we have to shut down the factory due to very strict regulation factor we have not -- we could not switch manufacturer. And bottom line, we have to wait, we have to requalify under medical point another supplier, and this caused a delay in revenue in optical fiber in the first month of 2021. The other event, which caused the some problem, not large but some problems, which were not present in 2022 was the change of the ERP system in Quanta System with SAP knocking in on January 1, 2021. And as you know, in companies like Quanta System the change of the ERP system could somehow, even though we spent a lot of money from sales and in, let's say, in trade people actually have an effect on the first month of production back in 2021l. For this region, the comparison is particularly favorable. We don't expect the Quanta to be able to maintain this kind of growth rate in the second half of the year. InMode is our most brilliant competitors, even though they are often competing with weapons, which are completely different from ours. They sell low technology products with an excellent marketing package and support, they get exceptionally high margins. We've exceptionally high average prices. We know that they are present in Italy, and we know that they could become a stress on our market position in Italy. Yes, we need to be closed for sales mode because not necessarily a customer buying from InMode would be a customers that we own. There is high possibility that our customers buying from InMode is not a customer that would buy from us. But it's early for me in giving to you a comprehensive answer on this specific topic on the current trajectory. Looking worldwide, it is evident that InMode is doing very well. It is evident that we are doing very well at the same time. And so since I believe that we are not looking for the same kind of customer, I believe that also in Italy, we were present, not necessarily is going to be carving our dominant position. Finally, your last question was on the cost of leasing of course, with increasing interest rates and huge have to bear a higher cost. Also when we apply price increases because we are applying price increases for our customers. They will also bear a higher cost of the purchase, notwithstanding the financial expense. Today I'm talking at the mid of September, we do not see a material effect in demand as consequent of this higher cost of the purchase on medical doctor. I don't know. Maybe in 2 months from now, the situation could be different. But -- for the moment, the trend continues to be strong.

Andrea, we have no more question on our list. Some other questions from the floor? No. Then if there are no further question, let us conclude this conference call. Thank you for attending this conference, and we hope to have all of you in the next occasion. Good afternoon to everybody.