Okay. Good afternoon to everyone, and welcome to the conference call of the third quarter and nine months financial results of El.En. Today's call will be recorded, and therefore, there'll be an opportunity for questions at the end of the conference call. With me on the call are Andrea Cangiani, 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 remark the management makes on the conference call about future expectations, plans and prospects, and forward-looking statements. Certain 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 conditions in the industry the company operates, and may be affected should the assumption turn out to be inaccurate.
Consequently, no forward-looking statement can be guaranteed, and actual future results, performance, or achievements may vary materially from those expressed or implied by such forward-looking statements. The company undertakes no obligation about the contents, nor to update the forward-looking statement to reflect events or circumstances that may arise after the date hereof. At this time, I want to turn the call to Andrea Cangiani. Please go ahead, Andrea.
Thank you, Nicola. Good morning and good afternoon, everybody. Thank you for joining us for this earnings call after the release of the Q3 2021 financials. The third quarter of 2021 was another very strong quarter of rapid growth and high profitability. We are continuing to experience a very positive phase, and our results are solid and do not seem to be softening. Revenue for the quarter was EUR 131 million, up 24.4% on the same quarter of 2020, which by the way was a record third quarter, and summing up to EUR 405 million consolidated turnover after nine months, up 51% on 2020.
EBIT was EUR 13.17 million for the quarter, up 55% on the corresponding quarter of 2020, and we are at EUR 44.6 million in the year, which is already much more than in any other previous full year. In comparing our financial results with the past results, it is important to remember that the first six months of 2020 are not a very sound benchmark for our current results since in that period we were heavily affected by the pandemic restrictions, at first forced to halt production for months in Wuhan and in Guangzhou, and then in Italy for the industrial sector, and then facing an unprecedented demand alteration on the medical market. Q3 2020 was when the economy started to settle down after the initial pandemic shock, and we started performing well again.
For this reason, we are completing, and Enrico will complete my presentation with the financial details. We'll show you this kind of numbers. We are completing the financial presentation with the comparison with the 2019 results in terms of average compound yearly growth in order to give you a sense of our achievements that do not have to be overstated as the +50% growth of 2020 would suggest, but have to be appreciated in the continuity of the two years. With respect to the first nine months of 2019, the average growth in revenue was close to 20%, and for EBIT was close to 30%. Once again, I am pleased for the achievements that this organization was able to achieve and confidence in its strengths.
At the risk of appearing tedious, I need to report to you how deep our know-how and skills are in the core technologies needed for designing our products and how wide they are embracing technical and application know-how useful in several technologies and application markets, and allowing us to be leaders in specific segments and to be strong competitors of the market leaders in several other segments. I really do not see an equal to us in our space having such depth and such wideness of knowledge. Within our markets that are doing very well, aesthetics was on top in the quarter. Our hair removal systems are encountering an unprecedented success, both the Alexandrite systems offered by DEKA and Quanta System, and the diode systems manufactured by Asclepion and distributed worldwide and in Italy by Esthelogue for the professional aesthetic market. I mean, the non-medical market.
Our body shaping devices were also performing extremely well on top of the Coolwaves, back to record sales volume after the year 2020, in which the body season, which is the spring, was miserably lost due to the pandemic. Now we are ready to start U.S. distribution with a specific distribution partner for Onda. We already sell in the U.S. another product, the Physiq, through our aesthetic distributor for DEKA and Quanta, which is named Cartessa. Physiq is a body shaping device based on the superluminescent LED technology. A technology which can't meet the triple claim of the microwaves, fat removal, cellulite and tightening. Out of which it's suitable for fat removal only, but it's an extremely effective device, easy to use, and allows unmanned treatments, and for this reason it's very successful in this moment.
The small but very profitable segment of physiotherapy is back growing and contributing to the overall group's results. In the service segment, production of optical fibers for urology, the main contributor to our consumable sales volume, was extremely positive in the quarter. We had severe production problems during a significant part of Q1 of 2021. We are now back to standard volumes, and we plan to be able to further improve capacity in the coming months to meet the increased demand. Optical fibers for urology take us into the urology segment, which provides material recovery signals in this Q3, though it is still running below the 2019 record. If you could please turn off the microphone, everybody, this could help, I believe, the presentation. Thank you. The introduction of Quanta's
Thanks for that .
Fiber laser-based system marked in the last months our entry in this technological approach to lithotripsy, one of the most significant segments for us in urology. This technology is quite new for us that we gain our market position in urology and in lithotripsy based on solid-state lasers, and needed currently to accommodate our production and our offer to the current market trend, which is very appreciative of certain advantages of the fiber introduced and promoted by a certain competitor of us. Research and development has in the pipeline new solid-state technology devices, which are expected to overcome the limitation, both of the current solid-state devices and of the fiber laser systems. The overall financial results of our industrial markets were excellent once again. The minor segments of marking and CO2 laser sources are doing well again.
The main segment of laser cutting had another very strong quarter, beating 2020 with revenue once again well over the initial projections. Very well therefore. But the win on the forecast is not as wide as it was in the first half. The Italian facility serving mainly the Italian and European markets is still overwhelmed by its backlog, and its production has to further accelerate in order to meet the volumes that we count on for this final quarter, Q4 2021. With the summer, the Chinese market has instead entered a phase of growth deceleration. Big growth deceleration, basically as an effect of the general slowdown of the Chinese economy. This is felt in the very competitive market for laser cutting, too.
We did well and count on doing well based on the specific advantage that the laser cutting technology can offer to the market, both in general terms and in our specific offer based on the very high power laser systems and application. Such applications are both the ones that we currently serve, and we are improving them in productivity. New applications to be developed by entering new niches based on the new capabilities allowed by higher power. When I mention high power, I mean that the average power of the systems we're selling is now exceeding 10 kilowatts. I mean that 20 kilowatts are standard from 1 year, 30 kilowatts are standard from this year, and 40-kilowatt laser systems are poised to become a new standard in 2022.
Just to mention one potential application I was talking about exactly this morning with our Chinese management. We are entering the construction world, where our 30 kW and the 40 kW laser sources have a clear advantage on the plasma cutters which are currently used in this industry. We therefore continue to count on the peculiarities of the laser market and on our specific competitive advantage, but have to put up with the overall slowdown of the Chinese economy. Another fact to be noted is that in this very strong closure phase of China, with lengthy quarantine enforced on any inbound visitor, and strong limitation in exiting the country, this whole situation is not helping us in the export business that was increasing its volumes toward the surrounding countries. A few words about our cash position. Just a general comment.
It's still very strong. It increased in the year, but it slightly decreased in Q3. We shifted EUR 3 million to our financial investment, which is in fact available for immediate sale, but has to be recorded outside the net financial position. The strongest impact was the material increase of our inventories level. There are two main reasons for such increase. First, at the end of a seasonally slow quarter, we are preparing the materials needed for the strongest quarter, the fourth quarter. Second, the supply chain strains have increased and made erratic the lead times provided by several vendors. We therefore decided to increase the purchase order volume and the amount of safety stock to keep in-house in light of the volume increase foreseen for the end of the year and for 2022 as well.
This last point I made on the supply chain issues is not trivial. It's actually the most compelling problem we had to face in these months. You know, from outside, you are seeing the quite shiny envelope of our excellent results. Behind the scenes, there has been, there is an amazing amount of work to allow us to achieve the target sales volume. The number of manufacture units, those the sales volume, could have been much larger without this kind of problems in the last months. It's a very unusual kind of work that we have to perform due to the perturbation that the supply chains have brought on our manufacturing process. Providing to our lines the materials and components input has been a real nightmare.
Vendors can't meet the confirmed delivery terms for several materials, not limited to the microchips everybody's talking about, but also more common integrated circuits, capacitors, plastic parts, metal parts, copper parts, including, for example, heat exchanger, which is a fundamental component in a laser system. Missing parts forced us to reschedule production plans, but also to design around certain long-term shortcomings in order to avoid production flow interruption. In a phase where we are called to sharply accelerate our production phase in order to meet the record demand in several market segments, we have to run with this handbrake on, and only a great effort of our manufacturing and technical departments allowed us to overcome, to the extent we succeeded, these hindrances.
As we mentioned in the press release and in the report, this situation is still critical and somehow working against this prospect of very rapid further growth that our backlog is outlining. We are working in order to overcome these obstacles and continue to record significant growth results in the following months. I'm done with my introduction. Enrico, please go ahead.
Thank you, Andrea. As usual, I'm going to comment on our last financials. The first nine months of 2021, in continuity with the end of 2020, the growth progression of the group continued after the parenthesis due to the effects of COVID. In the nine months, the turnover increase of 51% and reached EUR 405 million, roughly the same amount of the turnover achieved during the whole year 2020. As the comparison with the 2020 is not so significant due to the COVID restriction and the limitation that really affected mainly the first six months of last year, we compared the 2021 results with the 2019 financial results, too. We can see an aggregate average growth close to 20%.
The gross margins stood over EUR 150 million, an increase of 59% compared to last year, and over 60% respect to 2019, thanks to the significant increase in turnover. In terms of margin on sales, there is decisive recovery thanks to an improvement in margins in both main sector. The comparison with 2019 showed a decrease due to different sales mix between medical and industrial, as industrial structurally have a lower margin compared to medical. Operating costs amounted to EUR 34 million, an increase compared to 2020, but with a decrease in impact on turnover, which went from 8.9% on September 2020 to 8.4% on September 2021, and the reduction compared to 2019 is even more significant.
In this cost aggregate, we benefit from lower commercial expenses, yet savings for international travel and trade fair, congress activities, which particularly in medical sector, represent a significant cost. We attended some international conferences in September, but it will still take a long time before returning to the pre-COVID intensity of travel, congress, and trade fair events. Staff costs equal to EUR 60.5 million are up compared to the EUR 44.7 million of September 2020. With a lower impact on turnover, decreasing from 16.7% to 14.9% from September 2021, and lower than 2019 too. On September 2021, we had more than 1,800 staff.
Thanks to the increase in turnover and the better absorption of fixed costs, EBITDA, the EBITDA was 55.7 million euros, more than double 2020, and the impact on sales increased from 13.7% compared to the 9.6% of last year. Amortization and other accruals showed a market increase going from EUR 7.6 million in 2020 to EUR 11 million in 2021, while their incidence on turnover remains substantially unchanged. The main increase was for warranty provision to take into consideration the increase in sales volume and some extension of warranty period. In 2021, the total amount of fixed cost as operating cost, of course, and depreciation showed an increase of almost 30%, but the impact on sales reduced from 28% to 26%.
Thanks to the increase in gross margin and to the reduction of impact of fixed costs, the operating result marked a positive balance of EUR 44 million, with a strong increase compared to the EUR 18 million in 2020, and with an incidence on turnover increasing to 11% from 6.8% in the same period of last year and over 2019 too, when it was 9.3%. The tax result was EUR 45 million with a positive effect of forex, mainly due to the US dollar, which appreciated against the euro in the period. The net financial position had an increase of approximately EUR 10 million in the period from 64.2 million on December last year to 75 million on September 2021.
In accordance with the ESMA requirement, adopted by CONSOB for the financials as of June 2021, the net financial position needs to include the long-term payables, even though not referred to financial liability. The main long-term debt previously not included in net financial position is towards the former minority shareholders of Penta as a whole for CNY 40 million, approximately EUR 5 million, to be paid in accordance with an earn-out clause included in 2020 sales contract in case of an IPO of Penta Wenzhou with five years from the date of purchase.
In the income statement for the third quarter, you can see that also in the summer quarter, the results remain brilliant despite the less favorable seasonality, with a turnover of EUR 130 million, up 24% on 2020, and an operating result of EUR 13.7 million, plus 55%. In terms of cash flow, we generated cash from operating activities while there was a cash absorption due to the increase in working capital, physiological in this phase of rapid growth. We had a positive cash flow for other current payables and receivables, mainly determined by the increase in advances received from customers, a practice that takes on a significant volume in China.
The first nine months, the group had a cash absorption due to the investment of EUR 19 million, where CapEx are roughly EUR 16 million and EUR 3 million is a midterm cash investment already mentioned by Andrea and not included in net financial position. Excluding this investment, the net financial position reduced in the quarter for EUR 1 million. The main investment in the nine months was the new building of Cutlite Penta in Prato for EUR 5 million purchased with a leasing in the month of January.
El.En. and the subsidiary returned to pay dividend for EUR 9 million, and the capital increase collected by the company due to the exercise of stock options assigned to the employees amounting to EUR 4 million also contributed to the improvement of the net financial position. I remind you that the net financial position does not include EUR 18 million of investment in insurance policy.
This kind of investment, by their nature as mid- to long-term investments, are included among non-current financial assets, and so not included in net financial position. The revenue breakdown by business, also shown in this chart, we compare the 2021 with the 2020, but also with the 2019. We can see that the aggregate growth rate in medical is 14%. We can see that the main increase was achieved in the aesthetic sector, with a very significant jump, thanks to the solid growth, in particular in hair removal and body contouring applications, thanks to an offer of innovative systems and to a positive market phase. In surgery, recovery began more slowly than in other segments and is also compared with a record result in 2019.
The objective difficulties associated with focusing hospital activities on COVID. Have been added in recent months by the growing application of the urological system based on fiber optic source technology. Excellent recovery in physiotherapy, where ASA is back on the path of growth of the past years. The turnover for after sales service was also good. It includes revenue associated to the laser maintenance and the sales of spare parts and consumable. The growth trends on this segment continue to be good. Also, thanks to the overcoming the production problems, first technical and then production capacity, which limited the sales of optical fibers for urology during the first months of 2021. The industrial sector has a CAGR of 29% higher than the medical sector, with an exceptional performance recorded by the cutting sector, which is working at a very high rates, +35%.
They are, these are the production and sales volume for which the production capacity has been prepared with important investment now used in an increasing manner with a positive effect also on profitability. The trend was also very positive in laser sources, a rapid recovery from last year, while the marking sector has come back on pre-COVID level of turnover. The growth is significant in all the geographical areas in which the group operates. The performance in Europe stand out in medical sector, while growth in industrial sector is almost uniform, with Europe lagging slightly behind the rest of the world. Andrea, please go ahead for the guidance. Andrea?
Excuse me. I was on mute. Concerning the guidance, we confirm the guidance that we had given in September after the six-month financials. We will continue to grow, and we will exceed in revenue the EUR 550 million threshold, and we will also exceed in the second half the EBIT that we have recorded in the first half. We are at this point done with the prepared presentation, and we are now ready to answer your questions.
Nicola, go on. Okay. We have one question from François Rabia. Go on, François.
Hi. Good afternoon, everyone, and thank you for taking my question. Just a quick one on your FY 2021 guidance. The bottom end of your top-line guidance implies a single-digit growth for the group in the fourth quarter, while some of your medical laser peers point to sales growth of over 20% in the fourth quarter. Can you just comment on that and tell us a bit more about the growth trends in the fourth quarter you expect for each division? And after that, we saw an acceleration in fixed operating costs in the third quarter. Is it only due to traveling costs coming back, or is it something more that we should expect as well, recurring for the coming quarters?
Finally, on your if you can give us a first hint of what you are expecting for 2022, some broad expectations. Are there any new products we should be aware of? Is the surgical recovery seen in the third quarter set to accelerate further in the coming months? Thank you very much.
You know, your solution and your software and how Tier One evaluates it. Sorry, how OEM evaluates it or how the Tier One partnership, how that's been working.
Could you switch off the microphone. Thank you.
First question. Yes. You are right. I mean, should we meet EUR 551 million, this would be a very strong growth rate for the fourth quarter. We are now being compared to a very good quarter because Q4 2020 has been a very good quarter. I need to tell you that we expect strong growth in medical. We expect good growth in industrial, even though, as I was mentioning, a large piece of our industrial world is China, where the growth is decelerating. We are very positive, especially in aesthetics.
For sure, if we are gonna overcome as we have done in these last months, the production issues that are really creating serious trouble on our day-to-day work, we should continue a very solid growth for medical. Concerning the costs, there has been a slight increase in all the costs, and the slight increase in the sales and marketing costs will progressively continue over time. The most significant increase, if you look at the various single lines, was not a sales and marketing expense, but was an expense much wider than in the past for R&D in China, where we had a record expense in this quarter, as much as we are having a record effort in order to continually improve our product line.
As I mentioned in my presentation, in China, where the market is very competitive, we need to heavily differentiate our product to our competition in order to continue our growth path, on which we continue to count for the next quarter and the next year. Therefore, expense was particularly high in this quarter. Generally speaking, I don't expect a cost reduction in the coming months. I would expect higher revenues in order to better absorb cost increase.
This quarter was negative in the industrial, not especially in China, but was not a good quarter for manufacturing in the Italian plant, which ran well below its current capacities because we were somehow adjusting everything in order to be able for the final 2021 rush, which foresees also in the cutting systems, a revenue in Q4, which is materially larger than the revenue we booked in Q3. Concerning 2022, in this moment, we still continue to have a very good expectation for all the work tied to medical laser application. In this case, in this business, our backlog is increasing, and also the length of certain orders we are receiving is increasing.
Since our delivery terms are not so fast anymore, we have more customers which are planning production over 2022, and I mean, for the time being, the planning looks very, very well. For what concerns industrial, the planning is still short term, or is shorter term than medical in this circumstance. We are already booking deliveries for 2022, and therefore we are looking forward to a further increase in our activity in 2022.
Andrea, we have another question from Andrea Bonfà. Go on, Andrea. Thank you.
Hi, good afternoon, everybody. I hope you can hear me. My question is related to the gross margin, in particular if in the light of your, let's say, supply chain constraint, but also an accelerating mix versus medical. If you can elaborate on which kind of expectation we can have on the gross margin. If you can return to the peak level, or if now industrial is structurally lower, but maybe it can be compensated by medical. Just an idea of where you can go on the gross margin level, because the improvement in the third quarter was pretty nice and pretty sharp. Of course, you've got higher cost, but some of them have been explained during your call.
It seems to me that with acceleration medical there is further room for the gross margin to improve. I want to have your thoughts on it. Thank you very much.
Yes. You are right. We did well in Q3 in terms of margin, not only for the higher relative weight of medical on industrial, but we did well in both segments. Margins increased both in medical and in industrial. Talking about industrial, I don't believe we are in a situation in which margins will increase, also because in the fourth quarter, the weight of the lower margin cutting business will be even more overwhelming. While we had softer sales in Q3 in cutting, we will have stronger sales in Q4 in cutting, and they will overwhelm the minor sectors which in industrial bear a high margin. I don't see margin increase or the continuation of the margin increase in the industrial sector.
I see an opportunity to continue to increase margins in medical due to the exchange rate of the dollar, which is now helping after having damaged our sales to the U.S. for the whole year, is now helping them. I see that we had a lower amount of sales in Japan in aesthetics for low margin local sales. We typically have EUR a few million per quarter of sales that our local subsidiary performs in pure distribution with just a fairly small gross margin, but which makes a presence on the market. We encourage it. When this share of sales goes down, the overall gross margin of the segment increases. There is one question mark. It's something we cannot exactly model.
For sure, the wave of the cost increases will start to hit our production costs in the next months because we have been purchasing materials at increasingly higher prices for several kinds of materials. Some of these cost increases are offset on a manufacturing level by volumes in purchasing and general volumes for the production overhead. With increased volumes, we should be able to neutralize this effect. Of course, this is a question mark going forward.
In a nutshell, I believe that we should be able to maintain higher margins in Medical, but should not be able to further improve margins in Industrial while we should have in Q4 a positive effect due to increased volume with respect to Q3.
Andrea, thank you very much. If I may, is it right in the light of the same macroeconomic condition of China versus Europe, that maybe the Chinese slowdown in industrial can be offset by, let's say, an acceleration in Europe or Italy?
Let's say in terms of percentages, for sure. Currently our business in Italy and Europe is about one half than our business in China. Therefore, in terms of actual numbers at the very end, I don't think that things will match. Anyway, I'm sure that at the end of the quarter, we will see a good performance of the cutting business.
Okay. Thank you very much, Andrea.
You're welcome. Thank you, Andrea.
Hello. Manon?
Hi.
We have a call from Manon Culaud. Go on, Manon, please.
Hi, thank you for taking my question. I have just one, if I may. Can we have a bit more color on the deceleration in China? Can we know the kind of, sort of growth you had in Q2 and Q3, and maybe what do you expect for Q4 and for 2022? Thanks.
What kind of what did we have? Excuse me. I couldn't hear.
Sorry, the growth in China because you talked about relative deceleration. Can we have a sense of what it was, what kind of deceleration it was from Q2 to Q3, and what shall we expect in Q4 and in 2021 and for 2022?
Let me. I don't have the numbers here. I have to open a file. Just a second. I will do it in a short time. Q3 in China, if you take Q3 over Q3 in China in this year, the growth was about 3%, while the growth Q2 over Q2 was 53%, and Q1 over Q1 was 223.3%. Of course, you need to understand what happened in China last year. The comparison with Q1 is senseless because we were not working in China in Q1 2020. Q2, we started working, but still the situation was extremely complex.
Q3 2020 has been a record quarter, the first quarter in which we started selling again, and we're back on track. Therefore, this Q3 has the toughest comparison because revenues in China in Q3 were, of course, we did even better in Q4, but were by far a record revenue for the quarter. Concerning Q4, I mean, what we are trying to do, we hope to be able to match last year's revenue in China. In this situation, it's something which can happen, but it's not sure that we will be able to beat widely the Q4 revenue of 2020 in China.
While we are in the condition as from the question by Andrea Bonfà to be quite sure that we will beat the revenues of Cutlite Penta, which is the Italian division of the cutting division, in Q4 quite remarkably. Very clear. Thank you very much. Concerning 2022, it's still early to tell what will happen in 2022, and how the order books that we have today will roll down in 2022. Of course, the performance in China will largely depend from the order bookings that we will secure in these coming weeks before the end of the year and in the first weeks of 2022.
As I told you, we have seen a softening of the orders over December. We have seen now the activity going better than in the summer. We still see the global economy of China being quite having certain general issues. On the other side, we are extremely confident in our products, and we are extremely confident that our specialties, I mean, the high power laser sources for very specific application could allow us the continuation of the rapid growth path that we are looking forward to obtain also in 2022.
Andrea, we have one more question from Marco Riva. Go on, Marco.
Hey, good afternoon, everybody. Just a question. In the question before you answer, talking about the spare capacity you have already, again, in Italy. I ask if the same situation is everywhere, and if you can give us some color about your CapEx plan looking forward. Thanks.
In this moment, we probably have some spare capacity in China because the CapEx went according to the plans in China, and we have two factories more than last year in operations, one in Linyi and one in Wenzhou. We need to improve our capacity in the medical business. This is not expected to require huge investments, but it will require investments in setting up the second building of Quanta System, which was purchased a couple of years ago, and whose surface has not been yet used. In order to be used, it will require some investment. Also here in Florence, we will require to refurbish some of the existing buildings in order to accommodate further production increase.
We are planning a very strong production increase both in Florence and in Milan for 2022. We could be expanding our production capacity in China again in the city of Wuhan, which was our original production site, where we currently operate on a leased facility. Looks like the Wuhan development area is offering us a large piece of land in order to build our factory. We could, if everything works well, have the opportunity to expand our production footprint in Wuhan only. In Wuhan too, like we did in the other cities.
Overall, I believe that in 2022, CapEx should be lower than 2021 because we shouldn't be having large investments like the EUR 5 million in Cutlite Penta and the close to EUR 2.5 million each in Wuhan and Wenzhou, which were or are going to be spent till the end of the year. I believe that this kind of investment, apart from other investments in general toolings or in other plants, let's say real estate investment in 2022 should be about half than what it has been in 2021.
Thanks a lot.
Hi, Andrea. We have no more question arrived for us. But I just want to ask if there is some other question. If there are no more question, we finish this conference. If you have some more question to investigate, please do not hesitate to contact Enrico Romagnoli. He will be happy to answer your question. Thank you for attending this conference, and we hope to have you all next time. Good afternoon to everybody.
Thank you very much, everybody.
Thank you.
Thank you.
Thank you. Bye.
Bye.
Bye. [Non-English content].