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

[Audio Gap] circumstances that may arise after the date hereof. If you need to ask a question, 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. So please go ahead, Andrea.

Good afternoon, everybody. Thank you, Nicola. Thank you, Bianca, for your introduction, and thank you, everybody, for joining us in this earnings call after the ease of the drought 2022 financials. It's Enrico Romagnoli and myself, holding this earnings call on this topic. Needless to say, we are very pleased with the results we are discussing with you today for 2022, making once again a robust revenue growth up 18% and overcoming the [ EUR 673 million ] threshold. And most important, margin an excellent EBIT margin, touching the record level of 12%. And we are maintaining our financial strength, one of the traditional cornerstones of our business approach with a net financial position up again at around EUR 88 million at the end of the year. For today's call, we decided to modify our standard agenda schedule of the presentation. I'm now done with a very short introduction. I ask Enrico to go ahead with a deep analysis of the notable achievements of our 2022, and we will like to comment on the results with a more prospective view on the current outlook. Thank you, Enrico, for going ahead.

Thank you, Andrea, and good morning, everybody. I'm going to comment our last financial release yesterday. The 2022 financial year closed with extremely brilliant result, the best ever and well above the guidelines. In the period, consolidated revenues was over EUR 673 million, up 18%, with a double-digit growth in both of our sector of activities. The growth in medical sector was 23% higher than in last year with a growth of 12%. The gross margin for the year amounted to EUR 249.7 million with an increase of 17.7% compared to the EUR 212 million...

Sorry, Enrico. Sorry, just a moment. There is some noise. I kindly ask to turn off the microphone, please. Go ahead, Enrico.

2 Thank you, Bianca. There is a lot of noise. Okay. So in terms of gross margin, we are -- the year closed with EUR 249 million compared to EUR 212 million. And impact on sales is 37.1% the same result of last year. Operating expenses amounted to EUR 56.2 million, an increase in absolute value compared to last year, but with the same impact on sales. The main increases are referring to the commercial expenses as effect of the recovery of international travels and trade fairs and congress activities, which particularly in the medical sector is a significant cost. Staff costs are also increasing even though the impact on turnover is slightly improving. On December 31, there were over 2,100 group employees. EBITDA amounted to EUR 95.2 million, up 18.9% compared to the EUR 80 million of last year, thanks to the increase in turnover and the better absorption of the operating expenses. Also, the EBITDA margin improved too. Depreciation and provision decreased sharply and consequently, the EBIT margin increased from 11.4% to 12% of the current period. And EBIT at the end of 2022 amounted to EUR 81 million compared to the EUR 64.8 million last year. The tax income affected by negative exchange foreign loss was positive for EUR 78.9 million with a 11.7% impact on turnover and an 18.9% increase. And net income amounted to EUR 55.1 million with an 8.2% impact on turnover and a 21.3% increase. The tax rate for the year was 25% versus 26% of last year. Briefly for what concerned the fourth quarter of 2022, the growth in sales was 13.9% and the profitability in terms of gross margin, EBITDA and EBIT was in line with the Q4 of 2021, a robust growth -- robust quarter as comparison. In terms of balance sheet, the net financial position of the group at the end of the year were positive for approximately EUR 88.5 million, reducing of EUR 27 million from the peak at the beginning of the year, but increasing of EUR 56 million from the lowest point at the end of September 2022. The increase in net capital employed is also due to the consolidation of KBF, the last Chinese company acquired at the end of December with a net impact of EUR 10 million included EUR 5 million of [indiscernible]. Looking to the cash flow. As already said, in the year, the net financial position decreased by approximately EUR 27 million. The difficulties associated with the supply chains continued in the year and the need to lengthen the cycle of inventories to give stability to production process and the rapid growth achieved and expected have led to an expansion of working capital and the consequent use of cash for EUR 51 million. The operating investment in the year was EUR 28 million. CapEx for new building plants and other fixed assets reduced cash for EUR 23 million, when EUR 5 million are referred to the -- would be paid for KBF. During the year, dividends for EUR 70 million were paid, of which EUR 60 million by [indiscernible] equal to EUR 0.20 per share. And yesterday, the Board of the Directors resolved to propose to the shareholder meeting [indiscernible] to pay a dividend of EUR 0.22 next May. In -- for what concerned the breakdown by business, the growth achieved was significant in all market segments in which the group operates, and double-digit results were registered both in the medical sector, which grew by 23% and industrial application sector, which showed a 4% increase. Aesthetics accounting for the 62.5% of the sector revenue was the most important segment in the medical, showing a growth of 20% and a turnover of approximately EUR 239 million. In the aesthetics, sales performance was excellent in all main application segment, hair removal, removal of tattoos and pigmented lesions, body treatment and skin rejuvenation. The fastest growth was recorded in surgery plus 37% with a result of EUR 62 million compared to the EUR 45.2 million in the same period of last year, also exceeding the record levels achieved in 2019. A goal achieved also in therapy where turnover grew by 17% to EUR 15.7 million compared to the EUR 15.5 million in the same period of 2021. Revenue in aftersales service were up by 19%, with a sharp increase thanks to the increase of installed base and above all to the sale of optical fibers for urologic surgical application. The industrial sector increase of 12%, a very positive result considering the negative condition of the Chinese market. The lack of growth in the China cutting segment did not penalize the overall result of laser cutting division, which nonetheless recorded an increase in turnover of 13%, thanks to the extraordinary performance of [ Cutlite Penta in Italy, Europe and ] in Brazil. The trend was still very positive in the laser marking segment, thanks to an acceleration in the second half of the year, reaching a 5% growth over the year, reaching EUR 25.4 million in turnover compared to the EUR 24.2 million of last year. Sales in after-service increase of 24% in accordance with the increase in the installed base. In terms of sales by area in both sectors, the market with the most brilliant result, were Europe and the United States of America together with the Middle East. Only a few areas in the Far East recorded results lower than expected. For what concerned the industrial sector in China, the expected recovery of the local economy at the basis of the expected growth for 2022 in the laser cutting sector was hampered by the persistence of the anti-COVID restriction by the Chinese isolation and by the effect of the economic slowdown, of which our important laser casting business unit suffered. In 2022, our subsidiaries in China had a reduction of sales of 16% in local currency reduced to 11.7% in Euro currency. Please Andrea go ahead on 2023 guidance.

Thank you. Thank you, Enrico. I like after Enrico's presentation to underline and summarize certain essential factors that allowed the extraordinary results of 2022 and to compare them to the current status of our markets and our current positioning. Let's start from medical. The demand in the medical sector was strong as never before in 2022. We have been literally overwhelmed by purchase order throughout the year. And we increased our production capacity in order to enhance the monthly throughput in terms of shippable units. We also accelerated our purchasing schedules in order to anticipate the possible hiccups in our supply chains. The final, meaning at the end of the year balance was a record production volume, record revenues and high raw material inventories. There were exceptions to this pattern, namely Asclepion, could not succeed in fully preventing the supply chain failures and had to settle for a lower revenue growth in 2022. It was 11.6% quoted only, roughly 1/2 of the sector's average of over 22%. As counterweight, Asclepion is showing today the largest backlog of unfulfilled demand and is the medical sector division with the best outlook for 2023. Moreover, while benefiting of a very strong order inflow, we succeeded in slightly increasing our product prices to a significant part of our customers. As I said, without affecting the order bookings volume and the high levels of backlog as of the end of the year are also including parts with adjusted, meaning increased pricing. We had a significant tailwind that helped us in 2022, and it was a foreign exchange dynamics. We had a conversion advantage with the renminbi, which strengthened and allows a better conversion of the revenue results of the Chinese division, even though they were weak. But especially the U.S. dollar was strong, steadily below $1.10 per euro, averaging $1.05 as opposed to $1.18 in 2021. Our revenue expressed in U.S. dollars was roughly around EUR 90 million in 2022, which leads to around EUR 10 million of revenue translation advantage in 2022 versus 2021. Since we are paying a relevant share of our manufacturing parts and components in U.S. dollars, this amount is offset for close of 2/3 of its amount. Therefore, we could account for roughly EUR 3 million for its contribution to gross margin and EBIT. By the way, since recovered part of the balance expected in U.S. dollars and around $1.10 per euro, you see the cost of the coverage in the financial expense line, which is not affecting EBIT, but it's affecting net profit only. What I wanted to state with my last paragraphs is that 2022 has been a very strong year for our medical business, and it constitutes a very challenging benchmark, when comparing the expected 2023 performance against it. In 2022, we have sorted business-wise, the impact of the Ukrainian war, which at the beginning of the year was casting a shadow of uncertainty in the stability of the worldwide business activities, but we successfully weathered it. In this 2023, the economic environment still bears the burden of the Ukrainian war. But it is collecting and summing up the effects initiated in 2022 that need not have an immediate effect, they could not, if not in specific business areas. I'm talking of the interest rate hike and the impact on inflation on cost and margins. Inflation effects. The impact of the interest rates increased in cooling down economy by making investment more challenging is, of course, a challenge itself for capital equipment manufacturers as we are. Moreover, as you know, the news flow from the banking sector in last weeks is not helping in putting the capital equipment customer at ease at all. By the way, I wanted to mention and this could be of interest for you that we do not have any direct deposits in Silicon Valley Bank. And we are not aware also of customers of us having direct deposits and be involved by any means with Silicon Valley Bank. The last weeks showed a softening of the order intake pace and also of the request for urgent deliveries, which had characterized the whole 2022 with reference to open orders, especially from 2 relevant areas of our business, the Middle East and the United States. Our guidance is taking into account the challenges in further accelerating our medical revenues in 2022. Good news here is that the basic determinants of our midterm market growth are unchanged and that we are looking forward to another very strong year in absolute value. The story of 2022 is quite different in the industrial sector. As you just heard in Enrico's words, while we cruised at full throttle worldwide in the medical sector, in the industrial sector, specifically in the laser cutting business, we suffered a sharp slowdown in China, our most significant market. A slowdown that was more than offset by the fantastic growth registered in the other markets, in Italy at the first place and in Europe, as well. Our revenue and profitability targets were widely missed in China, and you heard why. But also for the positive contribution of the marking sector, the overall result of the industrial sector was positive accretive to revenue and profit growth and the Chinese slowdown did not prevent us from hitting our consolidated targets and records. In the cutting business, we are now looking forward to a year of very strong recovery of the Chinese business, freed up from the limitation and hindrances that we had to bear in 2022. For the country in its whole and for us, in particular, it will take some time, I guess, a few months to invert the negative momentum of the very poor performance of the fourth quarter of 2022. But we and the business community in China are counting on a very strong 2023. At the same time in this area of the world, I mean, in Italy and Europe, where I currently am, we plan to take progressively advantage of our penetration in the European and North American markets, and we are planning a strong international growth in the business, more than offsetting the easing of the Italian market expected due to the reduction in the tax cut allowed in technological investment, the so-called Industry 4.0 tax cuts. Also, the marking sector is expected to positively contribute to both revenue and profit growth in 2023. Starting to take advantage of the extensive technical and sales-oriented investments over the last years. In a sector that is worth to be mentioned in this call, we are talking of an overall size of about EUR 30 million of where the investment in the new facilities in Torre Annunziata, I'm talking about the company [indiscernible], together with the new subsidiaries in Poland and Spain should not become materially productive. Back to the cutting business, an overview and updates on the ongoing process that we initiated some time ago to try to elevate the organization to the standards required to file for an IPO in Mainland China. And such standards involve requirements of several kinds we have streamlined the relevant unit by putting Cutlite Penta Italy and Cutlite Brazil under the control of [indiscernible]. We have now a set of financial investors flanking our efforts as shareholders, and we are aligning the control and reporting procedure to the specific local standards for public companies. But most important, we are struggling to achieve the profitability level that makes the whole process possible and meaningful, and we were not supported by positive market trends in the last 18 months, but we can be in the coming 12. In December, we acquired a control state of KBF, a Shenzhen company specializing in the design and production of production lines based on laser technology for batteries for electrical vehicles. We decided to differentiate in this side market with a very high growth potential, counting on its accretive revenue and profit contribution stemming from the business. Summarizing the current outlook for the Industrial business, we see a year of strong growth, and this is what the first week of the year are hinting. As for the medical sector, limitation in credit facilities under the form of higher interest rate down to the extreme threats that our credit crunch could put on the market, could hinder our expected development path. But as of today, we do not see any relevant negative effect. The guidance we released yesterday has initial yearly guidance, and therefore, cautious due to the nature of our order backlog, which, as you know, is extremely strong and rich at the moment. But as you know, it typically covers only a few months of production and of sales. This guideline specified revenue increase on a consolidated basis without specifying the quantity of the revenue increase and sets a goal on the profit side as the confirmation of the EBIT accounted for in 2022. This means, of course, a lower profitability in terms of EBIT margins as a result of the mix effect since the industrial sector is expected to increase its weight. And also of the current projections of both gross margins and leverage effect, which, at the time being, we project to be solid but not supported by the tailwinds that helped out in 2022, but rather facing the headwinds that I described earlier. Headwinds, I would like to be clear that are not market-specific and not even specific to our position in which we feel increasingly strong and positive, but are due to the general economic environment. And before opening the question-and-answer section, I would like to leave you with 2 comments. The company and the group feels extremely strong and well positioned to take advantage of the expected growth of our markets in the coming years and is confident to have another year with very strong profitability and also with growth. We decided -- the Board of Directors decided to propose to the approval of the shareholders, EUR 0.22 per share dividend, which is a 10% increase on the dividend paid in 2022. At this moment, I'm done with my presentation, and we will be happy to answer to your questions.

So we start with the Q&A session, and we have in our list 3 questions. The first one from Giovanni Selvetti from Berenberg. [Operator Instructions]

Well, I think that the main worry here is around the guidance of 2023, so I'm trying to understand what's the situation. So as you were saying before in the press release and in the presentation that you shared, you're talking about not just a reduction in the EBIT margins because if the EBIT were flat and revenues were up, EBIT margins would go down as a result. But also you're talking about an EBIT down in absolute numbers. So from your presentation, now it seems that most of the difficulties are coming from the medical division. And so my first question is if you already start to see a sign of slowdown due to the fact that leases are probably higher due to higher interest rates and to what extent this is slowing the demand? Also because if I look at the full year results, the implied growth of Q4 was still really, really strong. So I would be surprised to see a massive drop in the first Q1 of the year. The second one is on the Chinese market. So you were saying that the fourth quarter was still impacted by the lockdowns. I just want to have, again, an understanding of how is the situation here for the first quarter of the year, what should we expect? And if the -- again, this should speed up the possible reopening the process of the listing of the cutting division. So what's the time line there? My third question is on Accure. If we can provide an update and when can we expect this product to start generating revenues? I'm talking about the acne treatment laser that it was -- authorized by the FDA before Christmas. And last question is on cash. You were saying that, of course, the cash was impacted in 2022 due to a strong increase in the inventories to meet the demand. So can we expect that given the current environment and the current guidance you're giving with demand aesthetics slowing down a cash balance to go up? And what kind of level of CapEx should we expect for 2023?

Okay. Thank you, Giovanni. First, in the EBIT margin, which exactly since we are somehow outlining a constant EBIT margin as -- the EBIT, excuse me, as an aspiration, we have a set of negative effects, which are leading to a reduction in the EBIT margin, and therefore, to a reduction on EBIT, even though we are plotting a growth in revenue. The mix is the strongest. We plan to grow, but most -- we are not saying today how much will be the growth, but we are planning a fairly sharp growth in the industrial business, which is bearing lower profitability margins. And so this is a mix effect, which accounts for one component. The other component is that due to the inflation, due to impossibility of plotting a foreign exchange advantage again in 2023. At the same -- even at the same volumes, we will have a reduced gross margin in medical side. We increased production capacity. And so if we do not increase by a certain amount, the volumes, we also have a reduction in the leverage effect. So when -- the fact that we are not plotting today in our projection, a very fast growth has also an impact on EBIT margins. Nevertheless, I believe that the margins that we are plotting today are margins, which are excellent. If we look at our history, are, of course, lower than what we had in 2022. But again, 2022 benefited of a set of very, very, very positive situations that we cannot, let's say, at this point for -- given for 2023 as well. IPO in the industrial business. IPO in the industrial business is something we are working, and we are making a great effort to be ready as an organization in all the details. We had this equity funds, these private equity funds entering our capital, which is a prerequisite. We are working the time frame in which we might go for a filing is hopefully when we'll start seeing a real return to a quick growth and profitability. So we hope this to be within the end of this 2023. Accure is, as you know, this related company, which raised a certain amount of money in order to develop the distribution of the Accure laser, which has been developed by Penta system. They got -- we got the FDA clearance in late 2022, and we are now ready for commercialization. The strategy currently is to go for... [Technical Difficulty]

I can't hear you anymore, Andrea. I think that...

I don't know what happened. Now you should hear me, don't you? [Foreign Language] Something appeared on my screen that I wasn't audible anymore. Accure. So the plan is to place on the market a first batch, quite consistent of pilot devices in order then to approach more strongly the market in a second phase. Our budget for 2023, therefore, does not include any big splash on this device and on the revenue generated by this device, which is expected according to our plans to take place later on in the year with a limited effect on 2023 and a more strong -- a stronger effect expected in 2024. Cash. You're right. I mean your assumption, excuse me. All you -- the assumptions you developed in your question are correct. We increased the inventory based on the increased volume and on the extension of the transit time of production in the factory due to the need to buy materials before in order to prevent delays by our suppliers. We are planning our revenue growth, and we have purchased a second house in order to be able to have a revenue growth in terms of production volumes. Should the production volumes do not meet the expected growth, we would have, in a first moment, an increase in inventory, and then we would readjust the purchasing volume. But unfortunately, given the current purchasing market, let's say, supply situation, we cannot get even close to what you would call a just-in-time purchasing strategy because if we were purchasing just in time, simply we wouldn't be able to deliver. And therefore, we have to take position on raw materials in order to be able to manufacture more over the year. And this may reflect increased inventories if we are not able to sell more than -- sell the quantities that we have scheduled for production. The good news here is that there's no risk of obsolescence because we are buying for our mainstreams, which, I mean, if we not produce in Q1 we're produce in Q2, Q3 or whatever. We do not have production -- changes in our production structure which caused a very rapid obsolescence of our components. In fact, what we are more faced -- facing is something different, we are facing more obsolescence in terms that certain suppliers are cutting the production of certain components, and we need to design around the components that are missing that are getting obsolete in order to continue the productions that we have and are counting on certain technologies. So the risk is not -- is more on the purchase side than on the sales side. CapEx, finally CapEx. We have an investment planned for 2022, which -- '23, excuse me, which is aggressive, but CapEx as of today, even though we're planning in expanding our building surface here in Florence and continuing to expand the available surface and to set up the production facilities that we have around the world, currently are scheduled to be lower than in 2022. We had in 2022, roughly EUR 22 million of investment in fixed assets, Enrico?

Yes.

EUR 22 million, out of which more or less EUR 15 million in new buildings and in revamping of existing buildings. I believe that the EUR 7 million, which is not in buildings, will stay more or less as they are, maybe increasing by EUR 1 million. This is the current plan. While the EUR 15 million in revamping of building should be around 1/2 of that amount or just slightly above such amount. Of course, should we be faced by investment opportunities, we will take advantage because like here in Florence, we are somehow limited in our expansion capabilities. And in the past, we have to take advantage of certain neighboring -- certain neighbors selling their plants and decided from 1 way to another 1 to buy it. It wasn't in the plans, but it was an effective investment. I believe I'm done with answering to your questions.

Yes. But maybe just on the first one. I don't know if I didn't get it all, you mentioned. But if you start to see clients postponing orders there because of increase in leases, in the medical business?

Increasing leases -- your -- this is something which is probably part of the softening that we are seeing. Rather, I mean, there's 2 components. The unavailability of the credit, which would be worse, but we are not seeing and the postponing when you see that instead of paying 4%, you are asked 6%, 7%, you get a little bit, let's say, uncertain and you somehow postpone. Yes, this is affecting, this is affecting for sure. The way we compete is to innovate and to make our sales proposition even more attractive to the customers. Another effect could be at a certain point to make the offer more attractive by reducing a little bit the price by helping the customers paying higher interest by, in fact, discounting. In the past, in Italy, we had several times the offers, which are typical also in the consumer market, the so-called 0 interest offer. So -- but you know what a 0 interest offer is. It is basically a discount to the lease units that by this way, cannot -- can avoid to charge any interest to the customer, but because it pays less the unit from the supplier. Did I answer your question now?

Yes, it is clear enough. Thank you.

Andrea, the second question comes from François Robillard from Intermonte.

So first one is just coming back on your top line and growth expectations for next year. So basically, apart from the fears of a decline in demand and not -- in the absence of come back of the favorable foreign exchange conditions. I believe I understand that your order books remain at some pretty high levels, plus -- so we've seen from peers like in the medical segment that's guiding plus 16% for next year, and Bystronic, which is also positive for growth. So should I understand that your guidance is pretty much cautious due to the potential slowdown in the second half? And how much of this do you already see as of today? So that's my first question. Second question on supply chain. So you already answered some of Giovanni's question on that. Just on freight costs. So those have reduced quite significantly over the last few months. How will it affect so -- your cost structure going forward, what was the effect of freight cost inflation in 2022? And should we expect this to go away in 2023? That's my second question. Then a third question. So if I understood correctly from your presentation, you are intending to start selling industrial products as well in the U.S. to counterbalance for a slowdown in Italy demand. Can you confirm that? And if so, will it be made in China or in your Italian plants the products that will be destined to the U.S. market? And finally, just a quick 1 on financial costs. We see quite a spike in the fourth quarter. Can you just give us some more details on what were the components of this acceleration in financial costs in the fourth quarter? And can we expect it to keep on in 2023?

Okay. First, the guidance if we expect a slowdown, if it's prudent, if is not prudent, how do we consider our backlog. We are at the very beginning of the year. We need to be prudent because we know -- I mean, if I tell you that our order backlog is 10% more than it was at the beginning of 2022. I'm not being wrong. But what counts is not necessarily the backlog, but it's also how the backlog is converted into orders and how quick it is converted into orders and how the customers are pressing for the deliveries of orders. So unfortunately, since our orders are not backed up by a letter of credit, which sets an exact delivery date with a financial collateral, the orders amount tell us that we have a great demand expected in the next months. But it does not -- but what determines the pace is what actually is going on in the market. And since we have seen a slowdown in these weeks compared to the real hunger that we were seeing in the months of 2022, we decided to be especially in the medical sector, more prudent in outlining the expected volumes for 2023. Concerning the supply side and the impact of inflation and our ability to neutralize the impact of inflation, if I am getting right your question, François. We have had a progressive increase in our manufacturing cost. And we tried and we offset part of this cost increase by production efficiencies because the increase of volumes of 2022 increased production efficiency and reduced in a way our cost of goods sold and also by price increases. Now that you are getting into 2023, I don't see any slowdown in inflation. Inflation is still there. So our vendors are continuing to apply us price increases, maybe not as markedly as they were doing in certain months of 2022, but inflation is not gone. We, as I told you, increased our price list so theoretically or our prices are increased with respect of the prices we were charging in 2022. And so this should enable offsetting part -- at least in part an increase in cost. But as I mentioned, by answering to Giovanni Selvetti, should we encounter softness, should we have problems in our customer funding, probably we would be forced to be more aggressive on our pricing and give up certain margin point in order to make sure we continue the volumes, which granted the leverage effect, which allows us to keep more interesting EBIT levels. U.S. capping. Yes, you are right. We are starting to sell in the United States as we are increasing the sales volumes in Europe as well to counterbalance the expected slowdown of the growth, expected slowdown of the growth in sales on the Italian market due to the effects of the changes in the tax policies of the Italian government. Currently, the strategy is to sell in the U.S. from Italy. We don't feel appropriate in this moment to structure any commercial relation between China and the United States, not because it wouldn't be profitable, but because we believe we can be profitable well enough by shipping the European product, which in the United States in this moment has a much higher level of acceptance.

And how sizable is that opportunity? Can you share with us the target of what you expect in 2023 and onwards for U.S. cutting sales?

We are not -- I mean maybe later in the year, we will be more specific. In this moment, we cannot be specific market by market. Also because, I mean, we are not plotting a market introduction that will account for, say, 20% of our sales. We are going to progressively get on the market. We are counting to increase the total export share of the products manufacturing in Italy, but it would be inappropriate to give an exact guidance country-by-country. We plan to do well. It's going to be -- I mean we had a few units in 2022, and we won't get to tens of units in 2023, but it would be supporting the increase of sales that we expect for the industrial market in 2023.

Sorry, just one last one on financial costs in the fourth quarter.

Financial cost. Now why it is higher in Q4 maybe Enrico can tell. Most of the financial cost is foreign exchange. Why was this higher is probably due to the behavior of the foreign exchange. Enrico?

Yes, more or less, the most part of the financial costs are foreign exchange loss, mainly due to the U.S. dollar because we had -- the U.S. dollar at the end of Q3 was below the unit we compare with the euro. Now we are around 0.9 -- 0.95, 0.97. At the end of the year, the U.S. dollar was over 1. So we are around 1.05, 1.06. So the most part of the cost concerned foreign exchange loss in euro versus U.S. dollar.

Andrea, we have 3 more questions. The first one comes from [ Antoine Fournier ]. Go on, Antoine please. [ Antoine ], are you still there? Maybe not. Okay. So we can continue with Andrea Bonfa from Banca Akros, please.

Now, my question is, again, related to the guidance. Most of it has already been elaborated and explained. But still, I want to be sure to have properly understood [indiscernible] growth. So EBIT for industrial division should stand. But on medical, if I understood correctly, you see, sorry?

I can barely hear you, the microphone.

Sorry, sorry, my microphone was not properly inserted. Sorry, we start over again. So I've been trying to better understand your guidance. So industrial laser division is expanding. So on that, there is no major issue for this year. We are waiting and counting for the Chinese recovery. But on medical, if I understood correctly, you are expecting a moderate growth, but let's say, is it such a growth that inflation will then be part of this expansion at the end of the day. Is that more or less correct? And if that is correct, I presume in 2022, the ForEx was an important tailwind to your profitability. And if it's possible to quantify the ForEx contribution EBIT level for 2022?

First, yes, I confirm my guidance is in nominal. I mean it's expressing nominal value. Therefore, it's not in quantities, it's in euros, and therefore, it includes price increase where we have price increases. Concerning the foreign exchange, I went through in my presentation of a rough analysis of what the foreign exchange helped in terms of EBIT margin and gross margin. And I quantify the tailwind in about EUR 3 million which is in gross margin, which is in EBIT margin and which is for 50% in net profit because for about 50%, we have the cost of the coverage, which is a cost because we covered at 1.10. We covered ourselves 1.10 when the dollar was at 1.13, and then the dollar went down to 1.2 to close to 1, and therefore, we have a cost of coverage. This is the effect of the ForEx in 2022 overall. Is it clear?

Okay. But if these are the numbers, okay? Yes. And -- but if these are the numbers are not a huge basically impact on your last year profitability. So again, on your guidance, at the end of the day, the largest headwind is inflation because, I mean, you are expecting strong growth in industrial. You're expecting anyway nominal top line growth in America. Will be modest, that is what we see, but you are expecting top line growth, but you are guiding for a lower EBIT. So at the end of the day, is your cost base, which is expanding fast than inflation in general. Is that correct in a nutshell?

It -- I mean, in the low side of our projection, this is correct because in the low side of our projections, which we disclosed at the very end, we didn't want to be too optimistic in our guidance at the beginning of the year as we have always been. There is a gross margin erosion due to mix and also an EBIT margin erosion due to leverage and leverage takes place also at constant volumes due to the increasing cost. By the way, in Italy, we are going to have an average 2.5% increase in wages due to the 5% increase in cost that we will have from June because of the change in the national agreements of our sector. So we are facing increasing fixed cost and it will be harder for us to get the same leverage effect on EBIT at the same volumes. Of course, should -- had we disclosed a more optimistic guidance. We have a range, of course, in what we see taking place in the year. The better we do, I mean, if we increase the volume, this is more than linearly accretive on EBIT due to the leverage effect. We need to be -- we decided to be cautious in this phase of the year because the year is long. It didn't start well for what is going on with the economic environment. And it started very well for our positioning and for the feeling we have with our customers. But over the weeks, as I said, we felt that the uncertainty driven by certain financial factors like interest rates and also lately by this new earthquake generated by the bank's bankruptcy have a little bit hindered the confidence of our customers. We are very positive that things will be developing positively over the year. But in our range of expected results, we want to keep cautious in delivering to the market today, as you know, as we have always started at the beginning of the year.

Andrea, we have one more question from Victoria -- the last one from [ Victoria Konstantinova ] from [ Victory Capital ]. [ Victoria ]? [Foreign Language]

Her microphone is on.

Yes, yes, because the question of Victoria was -- just a moment. I will read it for you. [Foreign Language] Victoria, I will read your question for you, just a moment. Okay. Are you expecting -- this is the question of Victoria. Are you expecting medical sales to be flat or increasing in 2023, which areas of aesthetics do you expect to be most impacted?

Yes, our plan, which underlies the guidance we disclosed is providing for a moderate growth in the medical sector. Given by stronger growth in certain segments and a lower growth and also a flatness in other sectors. The sectors in which we are plotting the highest growth are urology and dermatology. The sector in which we are seeing the least chances of further expanding our production volume is hair removal, which is the segment in which we mark the most important growth in 2022. Hello?

I am asking to Victoria, if she has another question? No, thank you. So Andrea, we do not have any other question in our list. So if there are no more questions from the investors, we finish this conference. And if you have some other questions to investigate, please do not hesitate to contact Enrico Romagnoli, he will be happy to answer your questions. Thank you to Andrea Cangioli and Enrico Romagnoli, and thank you to all the investors that attended this conference, and we hope to have you all again next time. Good afternoon to everybody, Bye.