El En SpA

MIL:ELN

Earnings Call Transcript 2023-Q2

[Nicola Fiore]

Okay. Good afternoon, everyone, and welcome to the conference call on financial results of EL.En. for the first half of 2023. Today's call will be recorded and will be, therefore, an opportunity for questions at the end of the conference call. With me on the call, Andrea Cangioli, El.En CEO; and Enrico Romagnoli, El.En, Chief Financial Officer and Investor Relator. Before we begin, please note that there is a remark for management regarding future expectations, plans and prospects and forward-looking statements. Sustain statements in this call, including those addressing the company's beliefs, plans, objectives, estimates or expectations of 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 condition of the industry in which the company operates and may be affected if assumptions turn out to be inaccurate. Consequently, no forward-looking statements can be guaranteed and actor 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 occur after the date hereof. But at this moment, I want to give the word to Andrea Cantele. Please, Andrea, go ahead.

[Andrea Cangioli, executive]

Thank you, Nicola, Thank you Bianca, and thank you, everybody, to who is attending this conference call after the release of this 6 months financials. I'm here with Enrico and we'll go with a brief overview in general touching also some number, and then Andrea will go back -- we'll go deeper into the details of the numbers of this first 6 months of 2023. Beginning with the overall performance, the financial results as a whole continue to be very strong and positive with consolidated revenues up roughly 6% and consolidated EBIT tracking the record of 2022 levels with a slight delay of 6%. With respect to the guidance we earlier provided, we are in line with the revenues and slightly also with EBIT. As the trend of the first quarter had already highlighted, the second quarter confirmed that in this 2023, our performance is excellent in certain areas. Most of our business areas, I'd say, and disappointing in one single business area. To date, I mean until June 30, 2023, the trend in sales and profitability exceeded the record benchmark of 2022 in the medical sector and in most of the activities of the industrial sector with the one exception of the ship metal laser cutting business on the Chinese territory. In terms of revenue, the results of the well-performing areas more than balance the decrease in revenue of the Chinese areas, leading to the overall 6% revenue growth. In terms of EBIT, the improved performance in several areas could not prevent the consolidated result to mark a slight decrease from 2022. In the medical business, we continued to experience healthy levels of demand in all the market segments. We are observing now a normalization phase. The market environment is slowly returning to the normal standards we were used to living before the pandemic after the hype of the post-pandemic phase. The challenges and priorities we are currently facing are not anymore led by the desperate effort to fetch the materials needed to satisfy the buoyant demand that was inflating our order books to record levels, but they are focused again in the definition and execution of the product development and market access strategies aimed to allow the group to take advantage of the overall positive trend expected in these markets. The markets and the customers need to be simulated again with intense marketing activities, worldwide on-site visits, trade fairs and congresses. The size of the open orders book is adequate to a good sales performance, but is not implying extended delivery turns as it was during 2022. The broader picture of the expected long-term growth of our markets is the reference for our strategies, investments and targets. This current phase is also affected by the impact of the uncertainty of the economic trend as an effect of inflation, interest rate increase and of the unresolved international issues, the war in Ukraine and the development of the relations between China and the Western countries. The uncertainty stemming from these issues are not helping the capital goods markets, which dealing with investments usually bearing a return over several years, obviously, are more at ease with a more stable economic environment. I'd like to also add that the research and development investments continue to be strong in order to continue competing through innovation of our product offering and through an attractive offering for our customers due to the ingenuity and to the innovativity of our buffer usually are attracted by our products also in periods where the economic trend is not generally so strong. And going to Industrial business, the leaseco business continued to perform very well in the Western countries and poorly in China. Alita, which manufactures in its facility near by year in Prato, later systems for the Italian and the worldwide markets with the exception of China, experienced once again record revenues, up 30% on the good performance of both the Italian and the international markets. Order bookings were good, as expected, increasingly weighted on both international markets and higher power systems which is good news because it implies higher margins on sales. Therefore, the trend is expected to be positive for the rest of the year, although with a lower growth rate as the comparison benchmark of 2022 becomes more demanding in the second half of the year. By the way, we are currently attending FabTech in Chicago. The most important trade fair for the U.S. manufacturing work. I can report a great success of our stand displaying one of our high-performance laser cutting systems or shipment. Decrease in margins on sales is the main problem that we're facing today on the Chinese markets and the key metric to improve -- in order to improve the current disappointing results. As we disclosed, our projection for 2023, we're counting on a strong rebound of the Chinese market, which has been widely penalized in 2022 by the zero COVID approach and the subsequent lockdown strategy, which isolated China from the rest of the world and also affected the day-to-day and business line much more in 2022 than it had done in the acute initial phase of early 2020. As it is now clear and well discussed and analyzed also outside of the technical debate of the financial loospapers, the rebound of the Chinese economy is not taking place and the economic environment is facing unprecedented headwinds. Also, the support expected by the government policies has been lagging in the 6 months or turd to be defensive rather than expensive. The environment is not helping us, but it wouldn't be fair to blame only to the economic environment for our poor performance. We are experiencing a fierce competition on the domestic market, which is depleting the already slim sales prices and impacting on the sales margin and subsequently moving upward the breakeven point and make it harder to reach the leverage effect that based on the wide capacity investments over the last years and the increased sales volume and amount had allowed the improvements in the local financial results. The isolation that force of China, our Italian managers in the technical and sales departments turned out to have inhibited the cooperation and cross-virtualization processes that allow the Italian and Chinese knowledge bases to be effectively shared for the benefit of both parts. And the rapid changes in the Chinese markets would have required a rapid and coordinated response that only in recent months, we are now able to define and organize. Of course, the trend in the Chinese performance is also affecting the IPO process, which bearing the current financial results could not achieve meaningful metrics in terms of cost of capital of the IPO share capital increase. The process is currently still live and on hold with the congress compliance procedures to be reinitiated as soon as the results will outline the possibility of a successful IPO. Let me share with you a few figures on the literate business unit in these 6 months of 2022. Revenues were flat at EUR 126 million, within which China was down from EUR 72 million to EUR 55 million. The latter also including the inorganic addition of KBF, roughly $6 million. The and KBF is the Shenzhen bad company specializing in Laser site for the manufacturing of batteries for electric vehicle that we purchased at the end of year 2022. EBIT for the cutting division was down in the 6 months from EUR 6 million to EUR 1.1 million, notwithstanding the excellent performance of [indiscernible]. As said, I confirm that we are proactively working on cost reduction, revenue generation, product configuration and market coverage in order to rapidly revert the negative trend of our Chinese business. Without getting it in the details of the numbers, I would like to spend a few words on the restatement of the financial balances of equity and net financial position that we reported in our press release. The point is the share capital increase of penalizing subscribed between October and December 2022 by 4 Chinese private equity funds. According to the practice adopted by Chinese companies and accounting for capital increase preparatory to IPO and to the guidelines of CSRC, the supervisory authority on Chinese stock markets. The pending amounts were booked within equity, notwithstanding the presence of the customer -- customary withdrawal option available for the investors in case of failure of the IPO process. We are now acknowledging the prevalent of the IFRS principles and restating within financial debt, most of the bidding amounts with the exception of the amounts related to one of the investors that executed a waiver of the option closes. Also, the interest that would be acknowledged to the investor in the case of withdraw, 6% a year, has been factored in the balance sheet balances and the profit and loss statement. What is important to underline is that this technical in terms of financial reporting adjustment has no relation with the poor performance of our Chinese subsidiaries. The restatement further contributes to the depletion of our net financial position, which is one of the topics I wanted to discuss within this call. The period change in the net financial position anyway is not affected by our statement, and it highlights a reduction of the balance by roughly EUR 65 million, equally divided between the first 2 quarters. Since the second quarter was affected by the payment of dividends, EUR 18 million in total, the performance of current operations significantly improved from the first quarter, but it's still cash negative and needs to be reversed or better. It is expected to be reverted in the next quarter. The main cash absorber was net working capital with a strong increase over the 6 months. Within the components of networking capital, the rolling out of the trade receivable components was physiologic with the balance increasing by less than 5%, in line with the increase in the sales volume, and therefore, without another change in the days of sales outstanding metric. The main contributors to the increase were inventories and trade payables. The former -- the former increasing by EUR 23 million and the latter decreasing by EUR 24 million. The grounds and routes for this trend are to be identified back in 2022 with the booming demand and the desperate struggle to timely source materials in order to allow the [indiscernible] There's somebody talking. The grounds and routes for this trend are to be identified back in 2022 with the booming demand and the desperate struggle to timely source materials in order to allow decent delivery terms to customers and also in the proportional white part purchasing plant support of the expected 2023 sales expansion. In 2022, we deliberately increased the current purchase volume, the purchase volume commitments, and we reduced the average payment terms to vendors in order to gain a competitive advantage on a market where the ability to timely deliver was constituting an exception. In the first months of 2023, we confirm this strategy. Now that the supply chain constraints are being removed and lead time seem to return to normality, we are returning to the normal purchasing standards. In the meantime, we had a progressive increase of inventories, including a progressive increase of what we could define safety inventory. Upon expiration of the payment terms, winter vendors were paid, why? Also due to the normalization of the market cycle, it will take some time to liquidate the so-called safety inventory. It is important that you know that to our best and current knowledge, there is no higher obsolescence risk in this safety stock. But in certain cases, it might take a while to be used to the fluctuations from the expected demand for specific product lines, but that will be eventually absorbed in the production processes, cost of goods. Concerning inventory, we are also registering an increase at the end of June in finished products -- in finished goods, anticipating manufacturing of certain long-term plant customer orders in order to optimize our production capacity management throughout the year. Moreover, apart from the 3 main components of net working capital, trade receivables, inventory and trade payables, a significant rolling cash absorption was played by deposits from customers and 2 suppliers we jointly recorded a cash absorption of EUR 10 million in the 6 months, mainly reflecting the reduced amount of the order books in China and of the order books in Italy, concerning the order books bare down payments, which means the order books related to vessel were 4.0 tax cuts. I am done with my general introduction. Please, Enrico, you can go ahead with your report.

[Enrico Romagnoli, executive]

Okay. Thank you, Andrea. And as usual, I'm going to give you some detail on our last financials. As you can see in this slide, the revenue increase of 5.7% at EUR 345.6 million with an increase higher in the medical sector, 8.5% than the industrial sector, 2%. The gross margin amounted to EUR 131.5 million, up by 8% compared to the EUR 121.8 million of first half of 2022. Sales margin recorded a slight improvement in the medical sector, above all due to a better mix of products sold, but also thanks to price increase that mitigated the inflation effects on COGS. On the other hand, the margin of the sales in the industrial sector suffered a decline above all to the difficulties in the China market already mentioned by Andrea, more competitive by the 2022 crisis from which it is struggling to emerge. Operating expenses increased on the impact on sales from 8.5% to 8.9%. The main reasons are the sales and marketing expenses for trade first and Congress incurred by both medical and industrial companies. Staff costs increased of EUR 8.2 million, but with a slight increase as impact on sales. The cost for stock option and share-based payment to employees contribute to the cost increase. In the 2023, this amount was EUR 1.6 million compared to the EUR 0.5 million in the first half of 2022. At the end of June, there was over 2,200 group employees. At the most part, 91 units derived from the employees -- from the employees of the new acquired KBF company acquired at the end of the year in Shenzhen. When the other new hires mainly concern Asclepion in Germany, a company that grew 29% in the first half and Quanta System, the company grew 20% in the first half of 2023. EBITDA was equal to EUR 45.7 million, down 3.3% on the EUR 47.2 million as June last year. And EBITDA margin was equal to 15.2%, down from the 14.4% as for the 2022. Depreciation and other accruals increased for the investment did in the past years and for bad debt reserve. One, it reduced our warranty expenses mainly due to the slowdown of turnover in China. The overall impact on sales is more or less stable. EBIT showed a positive balance of EUR 38.9 million in the first half, down from the EUR 41.4 million of 2022 with an impact on turnover decreasing from 12.7% to 11.2%. It should be -- remember that the 2023 EBIT is impacted by hugger notional cost for stock option and share-based payments, as I already said before, a senior to employees Director and collaboration -- and collaborators of EUR 1.2 million compared to the 2022. Pretax income affected by negative 4x, mainly on U.S. dollar and by interest expense is calculated on the virtual liability introducing Petalidi Jan at the end of 2022, showed a positive balance of EUR 37.8 million, down EUR 41.6 million. Net income was EUR 25.7 million, down from the EUR 28.4 million of last year. In terms of balance sheet, this balance sheet, as you can see in the calender 2022 should already the number restated, you can see in this slide, the impact of the restatement that affected the net financial position and with the same amount, the total net equity EUR 15.2 million without any change in terms of net capital employed. We can see that the main reduction in the net financial position -- is in the net financial position that move from the EUR 75 million at the beginning of the year to the EUR 10 million at the end of June 2023. And in terms of cash flow, the phases of significant assumption of working capital, as I mentioned by Andrea, by the group operating activities continues, but marks a slowdown in the second quarter, which should the reverse are expected for the second half of the year. The increase in working capital absorbed cash for EUR 59 million in the half year, of which 26 in the first quarter, while the change in advance to customers, supplier, tax payable and tax credit as solved another EUR 50 million in the 6 months. Fixed investment amounted to EUR 8.5 million, down compared to the previous year according to the forecast and the payment of dividend for EUR 18.9 million is an annual payment, which impacts the second quarter only. The significant contribution of current profitability flows, EUR 27.8 million in the half year was enabled to limit the cash absorption determined in the -- by the items just commented on. The maintenance of good current profitability, the reversal of the trend and the expansion of working capital and the absence of dividends to be paid should allow a clear improvement in the net financial position at the end of financial year. Looking to the breakdown by business. The Medical sector was the 57% of the total sales when the industrial was 43 at the end of June. The excellent result in sales of systems for surgical application standouts approaching 30% growth in line with forecast and with the progressive recovery after the slowdown in the COVID period. Therapy and aesthetics are also growing in the residual and other segment is expanding very rapidly, thanks to our all to a return of interest in dentistry systems. The turnover for aftersales service and consumable marks a higher growth than the turnover persistence, thanks to the increase in the installed base, which etiological entails a greater volume of technical assistance on the system and use of stumble, especially in urology, where every interventation require optical fiber. Turnover growth in the asset sector is around 2%. And after years of progressive rapid growth, which led to constitute almost 85% of the sales in the industrial sector, the cutting sector is maintaining a turnover cost until the first half of 2023. This stability actually arises from 2 profoundly different results, still brilliant and growing very rapidly with Catalent in the Western market, Italy and Europe and the United States and slowing down on China's territory, which represent approximately half of the group sales in the sector and where there was a decrease in turnover in order of 20%. Leasing marketing continues to be sustained, exceeding 33% in increasing in the first half, thanks to the excellent performance of both list in market for unification and Atlas for decoration and special processing with CO2 lease sources. Turnover in industrial sources is essentially stable. While the reduction in revenue for after sales service and consumables is mostly due to the slowdown of the market in China. In terms of breakdown by area, the sales trend by macro geographical area for the 2 sectors highlight the best overall performance for the medical sector, especially in foreign markets, while in the industrial sector, the excellent sales performance in Italy and in new local contrast with a slowdown in the rest of the world due to the lower sales reported in the cutting set by Chinese company. Andrea, if you want, you can comment on the guidance for the year.

[Andrea Cangioli, executive]

Yes, yes, it's open now. Concerning the 2023 guidance, we goal accrued as always needed due to the complex environment in which we operate, particularly today in respect of the Chinese market. We confirm the full year 2023, the forecast of a slight increase in consolidated revenues compared to 2022. We was concerned EBIT, we are counting for the end of the year to maintain the same percentage at or delay for the 2022 balances. We are now done with our prepared comments, and we are ready to answer your questions, if any.

[Bianca Fersini Mastelloni]

Andrea, we have -- we have some questions. The first one is from Giovanni Selvetti from Berenberg.

[Giovanni Selvetti, analyst]

So the first question relates to the aesthetic division, really. So EUR 114 million in the semester imply Q2 sales equal to 58%, which is a contraction of roughly 1.5%, 2% year-on-year. Now given the bullishness of some of your competitor in aesthetics, I was wondering whether you think that -- I know that 2022 was exceptionally strong, but if there is something that you see there, if you feel like you're losing a bit market share? Or do you -- how do you interpret the slowdown in Q2? And most importantly, if we can expect the same growth rate for the aesthetic division in the second half of the year? The second question is of course, on China, I know it's difficult to have an idea about how the situation in China will evolve. And I know that it's not up to you. But I was wondering what are the actions you are taking to stop the bleeding really going forward. So I'm not sure if I get it right, but I think that the Enrico was mentioning additional hirings in China, I was thinking to ask whether it's reasonable to expect some firing or some cost cutting if the top line does not improve? And as a final question on China, whether it's possible to quantify what is roughly the loss at the consolidated level that China is bringing? And the third one is on the net financial position at debt. So apart from their statement of the capital increase of the Chinese private equities, there seems to be lately a constant working capital absorption. And while I kind of get it when you have supply chains that you kind of need to pay your supplier maybe earlier or in advance now that the situation is normalized, I was trying to understand how to interpret this and if maybe there is a kind of more generous approach with clients in terms of receivable to present -- to preserve sorry, the top line growth.

[Andrea Cangioli, executive]

Okay. Thank you for the questions. Yes, you are right. The state division marked a slight decrease in revenue in the second quarter -- compared to the second quarter of 2022. This is mainly due to one account which decreased its volume in the market. And in this account is related to sales of [indiscernible]. Generally speaking, the trend of aesthetic continues to be stronger. It will continue to be smoother, let's say, lighter than last year due to this single account. We do not have in the rest of the world, particular problems. We have encountered more problems than in the past, especially in the Middle Eastern countries where certain countries were -- are struggling lower than in the past to find currency to pay us. Even though the demand would have been more solid. So in a nutshell, the trend that we forecast for the second half is more or less in line with the first half. If we will be some point over some point down with 2022 will depend to specific trends. We are missing one very significant account here. For...

[Giovanni Selvetti, analyst]

Sorry on this, but what kind of weight should we talk about like a big account.

[Andrea Cangioli, executive]

Yes. It's an account which waits for a few percentage points. For sure, we are not seeing a double-digit growth. I mean net of this account, we wouldn't have seen a double-digit growth because we had a loss on this account and a smoother behavior of the Middle Eastern country and somehow also of the U.S. countries. This will continue. And I mean, the trend will be around the parity with 2022 in the second half. As I was mentioned during my presentation as opposed to the situation of 2022, where we had huge order books. Now orders are coming in a more regular way, but without without piling up in huge order backlogs. Therefore, we have less visibility than we had in 2020. Nevertheless, we are extremely optimistic because also due to the launch of new products, we have stimulated the market, and we have seen good results in terms of order acquisition, which, I mean, are very promising for the end of the year. Actions in China. As I mentioned, there are various actions that we are taking place when Enrico said that the number of employees increased , this is a technical increase we acquired a company, and we acquired a company with 80 employees on December 31. And therefore, if you compare June 30 with December 31, this company is just added in. It doesn't mean that we hired new people in the other companies that they are struggling. KBF, working on the electrical factories for the batteries for electrical vehicles is doing decently, according to the plan, while who is struggling is the ship metal business, where we didn't hire and where we started also, let's say, a review, which could end -- which is going to end up with some also head count reduction. But note, the problem that I highlighted is that we have a margin production. It means that we are manufacturing more or less the same volume of last year. So in terms of production, we didn't manufacture less laser systems. We simply had to bear lower prices on those bases system. And part of the lower price is absorbed by the reduction in cost, but not in full, and this ends up in the reduction of margin. So the design and the sales network reorganization is one of the main topics in our organization work. We are working in order to have the export part. Export from China is dedicated to the neighboring country and in minor part to the Western countries, but also this export part had great problems in its management during the lock down. And so now we are restating the distribution network, for instance, in India, for instance, in Thailand and in Korea that couldn't be followed with the attention that would have required during the year of the lockdown. We have also seen the -- even if the volumes are staying more or less flat, they are not growing. We also have due to the modernization of our production capacities and our ability to -- excuse me, due to a better organization of our production facilities, we could also reduce the number of plants that we use, therefore, reducing the cost. So these are the main actions that we are taking. Concerning the financial result of the period of the Chinese business, just as in terms of EBITDA, in terms of EBIT Velos, just a second, let me go and check it in the numbers was about EUR 4 million. So EBITDA, and differentially since last year, they were making money. It has been a great impact. Of course, you have to consider that, I believe, roughly EUR 1 million is no monetary cost for assignment of stock to employees. So stock-based compensation, which is of course, real for IFRS accounting purposes, but it's not an effective cost. About the financial position, yes, you're right. You're exactly right. The world is now changing. We are -- we do not have the hassle and the long lead times anymore. But we are -- this is today and this is starting to change in the first months of 2023. What we are now making comments about is the first 6 months of 2023. And then as I mentioned, the trend is has been defined by the actions taken in 2022 and in early 2023. Today, I see exactly what you say. We are reducing purchases because we have in-house materials. We are we're also trying to get back to more normal payment terms with vendors and we are positive. We see it that these actions will -- will lead to an increase in the net financial position and a decrease of cash absorbed from the increase of net working capital. Concerning your suggestion, to be a little bit more generous with customers in order to improve the sales volume. So in terms of payment terms with customers, I am surely we it. We need to find a balance because there's also a risk infers not only a financial variable. We do not have in several cases, counterparts, which are extremely solid financially, we're not necessarily are able to access to protection in terms of letters of credit or warranties that are provided by supernational bodies or national bodies like we have in Italy. In Italy, we have a government entity called SACE, which is able to protect our receivables in certain countries. So if I give more room to a customer, I need to make sure that he would be able to pay. So it's something that we're taking in consideration, but we do not want to expand the receivables because we do not want to increase the bad debt in the following years. I hope I have answered to your...

[Giovanni Selvetti, analyst]

It's clear, it's clear. So you don't see like an increase in the accruals for maybe trade receivables, like write-off or anything like this?

[Andrea Cangioli, executive]

We don't have this problem now. We have more of a problem. What has changed in the work is this that in June 2022, we had finished goods inventory 0 because as soon as something touched delivery area, somebody was ready to pay for it and receive it. Now people are not willing anymore to pay in order to have the materials that away, and it becomes more of a struggle to get the payments in in order to deliver the scheduled program. So it's what has characterized our way of working until 2019. And as I mentioned before, we have a sort of normalization. So things are going well, but the hype that has been generated in the past COVID couple of years is now normalizing to a good sales trend but normal -- normal relation with customers. And the normal relation with customers in our world includes that the customers wait until the very last moment before he pays for its deliveries.

[Giovanni Selvetti, analyst]

Okay. Andrea, I don't want to steal too much time to the other. Thank you very much.

[Bianca Fersini Mastelloni]

And for the second question, we have [indiscernible] go on Marco Lopez.

[Marco Lopez, analyst]

My first question is about if you could provide us with the EBITDA margin on sales for the division, for the segment -- for the Medical segment and for the industrial segment, it is possible. And the second question is about the discount policies because I remember from the last meeting that you told us that you just -- you didn't increase the prices, but you stop the discount policies on your customers. So I would like to know if you start to resume some discount policies on customers in order to increase the revenue on the volumes? And my last question is about the backlog. You already through that that you see less visibility on the year. But it's possible to know more about the backlog for the end of the year. And I mean, do you have any forecasts about that? And is it possible to have some numbers.

[Andrea Cangioli, executive]

Concerning segment EBITDA, we never disclosed an adverse and it's a permission that has never been available. We might make it available in the future. Generally speaking, as we have -- and overall, 13.2% EBITDA margin, you have to consider that EBIT margin is much higher. EBITDA margin is much higher in the medical field than in the industrial field. We usually report in terms of EBIT, where, I mean, we have total -- excuse me, 11.2% EBIT margin, consider that the EBIT margin in the medical is south of 20%, while begin this year, in which we performed poorly in industrial margin, the EBIT margin of the Industrial is south of 2% in terms of order of magnitude and in terms of proportion. As a standard operating level, what I told you about medical is what we currently operate while the EBIT margin that I just mentioned, below 2% is something which is affected deeply by the very full perform performance of a Chinese facility, a more normal EBIT margin for that division would be, let's say, south of 10%. We never reached 10% in the particular business. But we never gave detailed reporting, and we just gave rough numbers concerning price increase related to volume increase and discounts as you remember well, the point was that in the Medical business, we -- where prices are usually stable over the time. We introduced price increases in -- at the end of 2022 in several product lines. Those price increases were partially taken partially not. Of course, one thing is to apply a price increase in a very, very brilliant and buoyant market situation like we had for all 2022. Quite different is doing it today where the situation is still good, but it's normalizing. And so I would say that the 10% price increase eventually impacted probably 30% of our sales. In Industrial, the situation is different because due to the rapid reduction in the cost of goods sold of most of production, the price level trend has been decreasing over time. So in that rather than applying price increases, we stopped the price level, and we stopped applying discounts and modern discount, reducing price list year-over-year. But in the industrial business, we have concerning price level, we have 2 trends which are defining how the business is developing under this point of view. In the Western world, the production of [indiscernible] is shifting towards a higher average of number of kilowatts sold for each system, which makes the system more expensive and so the price increases. And also, we're expanding the number of systems sold to international market, where also the prices are usually higher than Italy, where the market is very competitive. And so we have -- also in this case, and eventually an increase in prices due to the mix, notwithstanding the fact that for each price level for each product, the price stays stable. Finally, you asked what we have in hand in terms of order books for the end of the year, we never disclose the entity of the order books. In the past years, we mentioned that the visibility of our order books was typical 60 days. In 2022, we reported that the order book was growing to a dimension to an unprecedented dimension. And we, I believe, at certain points, had order books, which were covering depending on the market segments, 4 to 6 months. Now especially in medical, we are turning to the more normal 60 to 90 days coverage of orders. For this reason, the forecast that we made and for the end of the year, which underlines the guidance, which says that we will slightly increase the overall sales volume in 2023 compared to 2022 is supported to the current order books. But we do not disclose and never disclose any specific figure on our order box, I'm sorry.

[Bianca Fersini Mastelloni]

Andrea. Next question comes from Benjamin [indiscernible] from [indiscernible].

[Benjamin, analyst]

Yes. Quick questions from my side. First question on the laser coating business and the profitability of this subsegment. If I understood well, you said earlier that EBIT decreased from EUR 6 million to minus EUR 1.1 million in H1, if I understood well, but you also mentioned a loss of EBIT of EUR 4 million during this Q&A. Sorry, I was a little bit lost. So if you could just repeat again the impact of the weak China's laser-cutting business on EBIT, I would appreciate. And also the reason behind this margin drop, it's only the pricing pressure that you have mentioned, which explains this margin drop? Or were there also some, I don't know, initial recruitment and capacity investments in China, which led to another assumption of OpEx? And what about the other markets, Italy, Americas in the industrial sector, they were not able to compensate a little bit. I mean the weaker China. Second impact on the currency impact in H1 '23, if you could, let's say, give us, I mean, a rough figure of the currency impact on EBIT margin because I have in mind that last year in '22, there was a very favorable FX impact on profitability? And third question, what's your view on H2 for the industrial sector overall, so it was minus 5% in Q2 at plus 12% or 13% in Q1. So should we expect a further strong deterioration in Q3 or, let's say, a minus 5%, minus 10% is a good assumption at this stage for H2 in the industrial sector.

[Andrea Cangioli, executive]

In the cutting -- I'm sorry, I wasn't my position wasn't clear, I'm really sorry for that. The EBIT of the cutting division for the first 6 months was positive for roughly EUR 1.1 million, decreasing from the last year EBIT. EUR 1.1 million, roughly skis is the next result of plus 5, minus 4%, last 5, Italy and Brazil, minus 4% China. So it's actually -- what happened is actually what you said that the excellent performance of CatletBeta balanced the losses in China. And the results was nevertheless positive. But of course, would have been much better and if China would have performed decently, Concerning the poor performance in China, yes, I confirm, there are no extraordinary expense for the exception of the 1 million in stock-based compensation, which is not extraordinary, but simply, it would be -- would need to be adjusted in a pro forma financial report not taking into account of the IFRS adjustment. But the main issue is that for a stable volumes of sales in terms of number of products sold, there is a decrease in average price and a decrease in the margin due to the inability to reduce our cost of goods sold proportionally to the reduction in prices. So this is the main problem. This is where we have to work and we're working -- we are working on the reduction of OpEx, but mainly in the improvement of marginal sales by identifying richer markets and by trying to better streamline our production process and reduce cost of goods sold. Currency, you have a good memory. It was a significant impact in 2022 because the dollar, the U.S. dollar suddenly increased in its value. This is not taking place in 2023. In the first 6 months, most of the currencies are basically flat. There is no impact on margins. There is only one significant shift in the currencies, which is an increase in the first -- in the average exchange rate of the first 6 months of 2023 compared to the exchange rate of the first 6 months of 2022 is the Chinese renminbi. There is a 5.7% increase in this case, but this is not affecting margin because concerning the renminbi, it's mainly a translation effect since all the cost of the sales in Revenue are mainly in renminbi as well. About your last question, what are we expecting for the -- from the industrial business in the last quarter since we marked in the overall industrial business, a decrease in sales in the second quarter. I believe that in the industrial business, we will not achieve the very sharp overall increase that we are expecting because China is underperforming. But also, we are going to face a lighter benchmark with China in the second half because of the poor performance of China initiated from Q3 2022. And therefore, I believe that we -- depending on the performance of China we will see either a small increase or a small decrease, but we are not now in the position of determining a number. Overall, I believe that we will end up the year close to a flat performance in terms of revenue or with a small increase in line with the overall guidance. I would like also to mention under this point of view, that cutting business is not the only business that we have in our -- the industrial invented business, though it's worth roughly 80% or 75%, I believe, in the first half of 2023. We expect a very strong performance from the marketing business and also from the Laser source business. Those are smaller markets, which account I believe in total to something like EUR 40 million in revenue over the year. But we believe that in that market, in these divisions, the sales amount will increase with good results in 2023 with respect to what we were able to do in 2022.

[Bianca Fersini Mastelloni]

And one more question from Andrea Randone from Intermonte.

[Andrea Randone, analyst]

My question is about new products. I mean, this year, you already mentioned that the pipeline was a bit weaker in the first half, but maybe stronger in the second half. And so after a general comment, I wonder if you can spend some words about the acne solutions, what are your processes going on in the U.S. And the last point is always on new products. I mean, your results in the urology are very good. I mean, anything new also in this segment, usually, it was a very profitable segment, again, if you can spend a few words on it.

[Andrea Cangioli, executive]

Thank you, Andrea, you give me the opportunity to mention something about new products, which in this presentation, which is more financially oriented, hadn't found an adequate space. New products are live or the base of our product development. We have significant new products in the pipeline. You remember well, 2022 together with the purchases of goods, which increased our inventory was also characterized by the need to redesign to the extent -- to redesign several products, and we had R&D and engineering absorbed by redesigning rather than designing new products, but it was a swim or zinc. If we couldn't redesign certain point of the products, we wouldn't have been able to deliver. And now we are back to the usual brilliant productivity of our R&D department. We mentioned -- I mentioned already in the presentation, the launch of the drop platforms, the protractors that were launched at the world-dermatology congress in Singapore in July, those platforms are improvement of the gain, which is our flagship platform for her removal of the Honda or flagship platform in body shaping and of breadth our flagship platform in the treatment of pigmented lesion and in the tightening of the scheme. Those incremental improvements jointly with economic improvements on the system are -- radically change those systems and also already brought a wave of new purchase order of these new devices. We have very important. Also new products dedicated for the U.S. market. Today, we have a very important customer of us visiting our production sites, and we will have a new bond shaping device based on the new technology, which will be launched on the market as soon as we receive the clearance for selling in the United States. It should be something that should fall within the end of the year. And this product, which is called physic 160, really -- could be a game changer in the market. Finally, still talking of static, we are deeply -- we are closely talking with the large accounts, which was missing when I was answering to Mr. Giovanni Selveti question before, in order to redefine the product and to have a new wave of orders in 2024. So I would like to say that we feel extremely strong and fully confident in our ability to have a very strong pipeline and to attract customers with new products.Acne. Acne is a home turn project. We have, for the first time, in the 6 months, we have an amount larger than 0 in the sales of a cure system. It's something very small because we are talking of the preliminary launch which is currently being performed by our U.S. company accurate, but we are seeing after several years, finally, something move, finally, something moved. The company occured, not funded in order to start which with this initial product launch. This is what we are supporting, and we are confident that the sales volumes will maintain low but constant over the next 6 months, upon success of the clinical results in terms of market results of the first unit installed to work on the market because I need to recall that up today -- up to now, we were basically working with Luminare all. So we didn't have the system working on the market. Upon the expected positive results accuracy should be able to finally start its launch program, which should take place in 2024. But it's too early now to define if and how large would build volume that they will be absorbing in 2024. About urology, you're right, we did extremely well. We do not have new breakthrough products, but we are redesigning products in order to improve also our penetration in the market also through our OEM partners. We enlarged the number of OEM partners, which rely on Quantasystem for the Stone devices and also for the BPH devices. We have a long-term project in the pipeline. It's a complex project. We have been talking with you with investors over a long time about this new shortfalls laser, which should improve the performances of the current reference product, which is the fiber laser -- the fiber laser product, but this won't be available on the short term on the market. Nevertheless, we are quite optimistic on how the markets are going to develop in the next months. I think I answered your question.

[Bianca Fersini Mastelloni]

Andrea. The next question comes from Emmanuel de Figueiredo from LBV go on Emmanuel. Emmanuel. Are you still there? No. Okay. We give the floor to Andrea Bonfa from Banca Akros.

[Andrea Bonfa, analyst]

My question is the first one is related to your potential cash in initial in H2. I mean you mentioned that you are in to recover part of the X stock if it's possible to quantify this number because in the first half you observed on EUR 16 million in the net working capital. And the second one is on the same in a scenario where your sales growth is, let's say, slowing down? Do you expect to become more of a cash-generating machine -- or do you expect still that your working capital keeps absorbing and not allow you to properly generate cash this a more long-term question. The other one related to the industrial laser. If you can elaborate how it's performing in Brazil and the U.S., in particular, when U.S. will become visible in the later -- in the industrial laser business. And if I may look at your Q2 '23 figures. It seems that both Italy and rest of Europe slow down quite materially, if you can elaborate on those market aggregate for the H2 '23.

[Andrea Cangioli, executive]

You asked what is expected to decrease the general economy, a specific market segment, I couldn't hear.

[Andrea Bonfa, analyst]

I lost part of your question, but if I understood correctly, I was referring to the fact in a scenario where your sales growth rates are slowing down. So they are not anymore like they used to be in the recent past. If you are becoming a cash unit machine because I mean in the past, the growth observed on the net working capital standpoint. So I'm wondering if in a more stable scenario, you should become a cash ninth machine. So I want to know your standpoint on that.

[Andrea Cangioli, executive]

Okay. So let me start from the first question. How much are we planning to recover difficult to say because it depends on various items. We have excess stock. This is obvious. Most of this exact stock is paid for already. So when we would sell it, this will transform us in a very good cash generator because we would sell something we have already paid for. But there are 2 uncertainties: One is the extent of the demand, so how much we will sell more or less we know. But most important is what we will sell for any product because what is harming us is our a huge variety of products, which is a great competitive advantage, but which is also a high stock inventory generator since you have to program large volumes to have safety stock for each of the product line. So if the excess stock for each of the product line will be uniformly released. It is quite logical that we will be -- we should be able to release about EUR 20 million of inventory within here at the end of the year. I don't think this will take place. I don't think this will take place because we will be able to release in full certain lines, but some of the lines will remain there. And in the meantime, we will be purchasing more materials for other product lines. Of course, if you look at our financials in the first 6 months, we are not a cash generator. But now that we pay for all this material, I believe, since we're not going to increase the volume so much, and we will not have the need to overpurchase as we were forced to do due to the contingency of 2022, we will believe -- we will return to be a good cash generator as we have been in the past. The -- so I cannot give you the exact number, but I can confirm that the trend is the right trend. Was there another question?

[Andrea Bonfa, analyst]

Brazil and U.S. industrial laser and Europe and Italy industrially.

[Andrea Cangioli, executive]

Brazil, I can tell you the exact figures of Brazil, just a second. They did in Brazil, low... Just a second on that. I don't -- so I need to find it.

[Enrico Romagnoli, executive]

In Brazil, we have Q2 with an increase in sales of 5%. And in the 6 months, we have an increase of 2% in sales.

[Andrea Cangioli, executive]

Yes. So Brazil, the sales are slightly increasing, but not so much. The main increase were in Italy and in the other countries, also in the U.S., the number is increasing revenue is not worthwhile mentioning it. We have great expectation for the U.S. going forward, and we will probably disclose the numbers going forward because, as I was mentioning to you before, it's the second time we have planned the trader, and we are encountering a huge success at this trade fair since we have already in place the initial scale of an effective distribution network in the United States. We plan to see good results in the sales in the U.S. market already from 2023 and increasing further in 2024. Concerning the sales in Italy and Europe, we will -- we are planning to see a wider increase in Europe and a more stable trend in Italy due to the fact that the incentives for the 4.0 are still present but are not as compelling as they were before. And therefore, the demand in Italy will not, at the very end, exceed the performance of 2022 in 2022.

[Bianca Fersini Mastelloni]

Andrea, we have not any other questions in our list. I can want to ask to the floor if there are some other questions.

[Andrea Cangioli, executive]

I've seen Emmanuel.

[Bianca Fersini Mastelloni]

Emmanuel. It looks like he left the conference. Do we have some other questions from the floor? No. Then if there are no more questions, we finish this conference. And if you have some more 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. Bye. Thank you.