Afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the El.En. full year 2019 financial results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Nicola Fiore. Please go ahead, sir.
Thank you. Welcome to everyone and thank you for joining us. With me on the call are Andrea Cangioli, EL.En.'s Managing Director, and Enrico Romagnoli, EL.En.'s Chief Financial Officer and Investor Relations. Before we begin, please note that there is a remark the management makes on the conference call about future expectations, trends, and process, and forward-looking statements. Certain statements in this call, including those addressing the company's beliefs, trends, objectives, estimates, or expectations of possible future results and events, are forward-looking statements. Forward-looking statements involve known or unknown risks, including the general economic and business conditions and conditions in the industry the company operates, that may be affected should the assumptions turn out to be inaccurate. Consequently, no forward-looking statements can be guaranteed, and actual future results, performance, or achievements may vary materially from those expressed or implied in such forward-looking statements.
The company undertakes no obligation about the content nor to update the forward-looking statements to reflect events or circumstances that may arise after the date hereof. Let me introduce the call, Andrea Cangioli. Please go on, Andrea.
Thank you, Nicola. Thank you very much. Thank you, everybody, for joining this conference call on the financial report for the full 2019 year that we released on Friday. As usual, Enrico Romagnoli will guide you through the details of our financials. I'll give you a very brief highlight on the year and spend more time then on the current status of our business and activity. 2019 was indeed a superb year. Despite the material sales accounting write-off due to the International Financial Reporting Standard 16 requirements, the EUR 400 million threshold was overcome by our consolidated revenues. Due to improved metrics all over the board, our EBIT increased by 27% to EUR 38.2 million and improved its margin on revenue.
Despite the EUR 4.6 million adjustment due to the IFRS 16 requirement, despite EUR 8.6 million of dividends and EUR 23 million of investment in fixed assets, and despite the 15% and more growth in revenue that, of course, needed funding for working capital, despite all that, the net financial position basically stayed where it was at the beginning of the year. The overall results were excellent, and nearly all of our businesses contributed to the increase of revenue and profit. There were only two segments that struggled this year. Nanometer patching in the United States was at zero for the year. We did not do so bad worldwide, but without the drive by the U.S. sales, it will be difficult to maintain a positive trend worldwide for this product.
The other area struggling was the sales for cutting systems in China that registered a small slowdown in presence of a fairly strong headwind due to the tariff war and the related effect on the performance of the overall Chinese economy. Most of our competitors booked double-digit sales reduction, but our competitive position allowed to limit the decrease in China and provided a worldwide 7% increase in laser cutting system sales due to the excellent picking up of the sales in Europe and in Italy in the H2 of the year. It was a six-month close of 2019. All the other segments went from good to very good to extraordinary. Urology and hair removal leading the pack in terms of sales growth, Quanta System in terms of profitability, jointly with Lasit, which I recall specialize largely in laser marking systems for the market of identification.
Our new system, Onda Coolwaves , performed very well in the body shaping market. Our treatment, Motus AY, was our best seller in hair removal. Several new products are lined up ready for launch in 2020. Most of our construction work dedicated to the strengthening of our logistics and our production capacity was completed. The initial EUR 30 million budget was not sufficient due to the addition on the run of three projects. First, the new plant in Linyi, our third plant in China. Second, a larger than expected plant needed for Cutlite Penta here in Prato, about 10 km away from where I'm talking from here in Calenzano, was Penta mid-December. Third, the refurbish of the plant that Cutlite Penta itself left vacant by leaving. A surface that is going to be occupied by the new 4.0 plant for our new power, making RS in the surface.
Please, Enrico, you can go ahead with the details of 2019.
Thank you, Andrea. Good morning to everybody. The year 2019 showed a strong growth in sales volume and in profitability, as already mentioned by Andrea. Revenues were over EUR 400 million, up 16% compared to the last year. The Q4 was also excellent, with a turnover of EUR 117 million and an operating result of EUR 11.7 million, with an impact on sales of 10%. It should also be remembered that in the period, EUR 1.5 million of sales to leading company with our repurchase obligation had been accounted in compliance with IFRS 15. The sales have been recognized as multi-year rent despite the fact the price was already fully collected. The negative impact on operating income was EUR 0.6 million compared to our traditional accounting.
The lower revenues and margin for the year will be recovered linearly in the multi-year period in which the operating leasing contracts will be affected. The gross margins were EUR 156 million, up 13.5% compared to the EUR 157 million of last year. The light drops in the sales margin from 39.7% - 38.9% was due to a slight decline in margin in both sectors, medical and industrial, and also suffers from a slight reduction in rent we see. The operating costs were EUR 43.6 million, up 1.8%. Staff costs were EUR 66.1 million, with an increase of 12% compared to EUR 59 million of last year. On December, the group's employees were almost 1,500, with an increase of 140 units from the beginning of the year, and the main increase was in China.
EBITDA was EUR 46.3 million, up 40% on the EUR 35.7 million of last year, with an impact on sales of 11.6%. Amortization and other accruals were EUR 8.1 million, up 44% on the EUR 5.6 million of last year, due to the capital expenditure affected during the year and to the increase of bad debt accrual and warranty accrual on products sold. It's also been noted that starting from January 1st, IFRS 16 was applied and an amount of EUR 1.6 million was reclassified from operating cost to depreciation. In 12 months, fixed cost as operating cost, plus staff cost and depreciation, decreased in impact on sales from 31.1% - 29.4%, with a positive leverage effect on operating results.
For this reason, EBIT was EUR 38.2 million, up 27.4% on the EUR 30 million of last year. The impact on sales improved to 9.5% from the 8.7% of last year. The tax result was EUR 38.6. Net income was EUR 20 million, up 55%. With an income per share of EUR 1.33 compared to the EUR 0.8 of last year. Group net financial position showed a positive balance of EUR 61.4 million, EUR one million less than the EL.En. With a strong cash generation during the fourth quarter of EUR 10 million. With an improvement of the ratio net working capital on sales from 39.5% - 27.6%. The main cash absorption of the year were dividend for EUR 8.7 million, capital expenditure for EUR 23 million, of which EUR 14 million of new building and factories.
It has also been noted that the IFRS 16 had an impact, too, on net financial position of EUR 4.8 million. Without it, the net financial position has been over EUR 66 million and higher than the last year. During the fourth quarter, Quanta System invested EUR 2.5 million in insurance policy, increasing the EUR 4 million already invested by EL.En. during the past year. This kind of investment, by their nature of long-term investment, are included among the non-current financial assets, and so not included in the net financial position. In the medical sector, representing in 2019 more than 60% of the group's turnover, aftersales service showed the most relevant growth rate, with revenue up by approximately 36% and becoming about 19% of the medical sector sales.
All the types of revenue included in this category, like frames and accessories in the beauty sector, service contract for technical assistance, ordinary service on the installed base, contributed to this remarkable result. The most important contribution was given by upgrades in IPL system for hair removal and by sales of single and multi-use optical fibers for urological applications. It should be noted that upgrades already registered in past years constitute a type of revenue that cannot be replicated in its entirety in the next year. In the medical sector, sales in urology, included in the surgery sector, stand out. Second in volume, only to those in the application segment historically most relevant for the group, that of hair removal.
The group for laser system is over 19%. Considering the turnover for laser system together with that of optical fibers, accounted in a service segment that has consumable groups, the business altogether almost reached EUR 50 million in 2019, up of 46% compared to the corresponding period of last year. The aesthetic segment was up about 22% and remains the most relevant for the group due to the sustained growth in the application segment of hair removal and tattoo removal. A significant contribution to turnover is attributable to Onda Coolwaves by Deka for body contouring, EUR 11 million of sales in the whole year, and V-STAR, distributed in Italy by Esthelogue for the professional aesthetic sector. As a whole, the body segment became among the most relevant segment in 2019, second only to hair removal, and with a size similar to tattoo removal.
The industrial sector, instead, faced less favorable conditions in 2019 than it was in previous, nevertheless, the growth in the sector on the annual basis is 4.4% for the system and 7% as a whole, including the service, which recorded a leap greater than 40%. The laser sector grew of 3.6%, not a bad result in absolute terms and in relation to the general trends for the manufacturing sector, but far from the recent growth rates. In our most important market, the China one, after a very rapid start in the first month of the year, plus 15% in H1, the H2 showed a decrease in revenue of 17%, so we had a net reduction of 2% for the year in China. The marking segment is still excellent, especially in the identification market, where Lasit, our subsidiary of Torino Iniziative Methods operates.
In the 12 months, we had an increase over 13%. The result in the resources is decrease of 9%, hit by the market slowdown. In the industrial sector, too, the most significant growth was recorded in after-sales services and sales of consumables, which showed an increase of over 44%, thanks to the consistency achieved by the installed base. Looking at the distribution of revenue by geographical areas, the largest growth in medical sector was recorded in extra-European countries, followed by Europe, while the Italian market was stable. During the period, there was the recovery of competitive position and profitability in the Japanese aesthetic market after a very bad year in 2018, thanks also to the sales to large chain of beauty centers of small aesthetic system, suitable for home use, and to the upgrade from IPL system. Moreover, El.En.
System recorded excellent performance in urological system, particularly sold to American OEMs. In industrial sector, we had a very good performance of Cutlite Penta for cutting and Lasit for marking in Italy and Europe, with a slowdown in China and Brazil. There is the slide.
Thank you, Enrico. You had all the details of our great 2019. 2020 started with all the positive momentum of 2019. In addition, the rebound in order bookings in China that had initiated with the month of December. Suddenly, the world changed. First, in China, the COVID-19 widespread forced the Chinese authorities to lock the city of Wuhan up and several other provinces of China, eliminating the spring festival vacation. What was initially looking like a minor issue turned out to be a large epidemic disease that led to the stall of most of the business activities in China for over a month. Our three factories had to be shut down, and only at early March, Linyi and Wenzhou could start working again, while the factory of Wuhan is still closed, and it will be probably for at least this current week.
Work in Linyi and Wenzhou is not fully operational since several of our employees originate from Wuhan, where they were having their break when the virus exploded, and where they have been stuck. News about the current market mood are not bad. It's of course, very difficult to predict how long the market will need to return to its standard levels. This is the Chinese part. The rest of the world seems to be able to continue its virus-free life, the recent events and statistics literally say that in several European countries and finally the U.S. are turning out that the world will be swept by the coronavirus. As you might know, all Italy lives today in a semi-quarantine status. All the shops, but pharmacies and food stores and supermarkets are closed. Hotels, restaurants are closed.
Factories can work. In a very complex environment, especially in northern Italy, where the virus is hitting harder with hundreds of casualties. Currently, our plant in Samarate, which is one of the so-called red areas, highly subjected to the epidemic, has been shut down for two weeks. Similar decision could be taken in Florence and in Prato, have not been taken yet. In the other plants, there is no study. None of our European employees have been reported as positive to the virus. Safety and health of our employees and partners is our first responsibility and care in this particular moment. We need to comply to the regulation and can't make our very valuable employees feel uncomfortable or in danger.
In the meantime, traveling has been banned and the international fairs for all of our businesses, medical, aesthetic, and industrial, have been canceled or postponed. At the moment, we are surrounded by a strongly unfavorable environment. Production has been halted in China and in one factory in Italy. We had a rich, I would say, a record backlog that is practically now when the market will be back to normal and how long it will take to restate the confidence that is needed by the demand of capital goods that we want to manufacture and sell. For this reason, we decided not to release any guidance. We don't want to be too optimistic modeling a short close month period or too pessimistic, creating a very large one. For sure, our numbers will be hit, but I'm not able to reasonably predict how much.
Before leaving the session to your question, I want to tell you that there is several good news, and there are very many positive things that we have ready for 2020. For instance, we just received the FDA clearance for our high- power thulium laser systems that is going to be sold in the United States, which is one of the areas in which strongest growth is, or that was expected for 2020. Moreover, the good news, the very good news is that our strength, as it was demonstrated in 2019 and in the dawn of 2020, our resilience and commitment to the group in this current environment are very strong. We are willing enough to react and to be back to strength.
Excuse me, once this period that will be probably touching most of our world will be done, we'll be back with all our forces ready to start growing again. Thank you for your attention, and please go ahead with the questions.
Excuse me. This is the Chorus Call Conference operator. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press Star and One on their touch-tone telephone. To remove yourself from the question queue, please press Star and Two. Please pick up the receiver when asking questions. Anyone who has a question may press Star and One at this time. The first question is from Andrea Bonfà of Banca Akros. Please go ahead.
Hi, it's Andrea, Enrico. Good afternoon to everybody. My first question is related to the operational leverage of Q4. It's not particularly relevant at this point in time, just a curiosity, I mean, your mix was pretty good with a strong growth in medical and technical, the operational leverage didn't, let's say, impress particularly compared, especially with the 9M performance. If you can elaborate on that, please. The second one is, of course, mostly relevant to the current economic situation, the impact of the Coronavirus. I mean, in a likely scenario of a recession globally in H2 2020, the trajectory, let's say, of your fixed costs and, say, variable costs, I mean, all those costs below the gross margin, how can you manage those in the hypothetical scenario of a decline in sales? Are those fixed increased, or can you manage those aggregate costs?
Thank you very much. If I may, on the third, sorry, point. My curiosity is that if we arrive that there is going to be a recession, you might need to support your client with the extension of payments. Would you use your cash to support working capital, or would you consider launching a buyback on your shares? Thank you.
Thank you, Andrea. Three questions. First, leverage on Q4. Q4, the reason we are limited, what you did is that sales in China were very, very low compared to the cost. We had a structure which starts on a certain level of cost. We were expecting a certain level of revenue. Revenue in China, as an effect of the lowOver collection in September was low. We did a little bit better in December. In the months of October and November, we had a very low sales level. As I said before, we had a good order booking in December and in the beginning of January before everything stopped. The second question is about fixed costs. Of course, there are large parts of certain fixed costs that, for this moment, are gone. All the international fairs are not going to take place.
We are not going to pay the international fairs. We're not going to pay any international traveling. We are not going to pay all the expenses, all the traveling, and also the training, that is very relevant with our customer, and it's a cost, it's part of the fixed cost. We will be able to cut this kind of costs. The largest part of cost is usually employee. For Italy, where we are slowing down, we are having people go home and work from home. From home, probably they are working a little bit less than they are working here. Production will probably have to be slowed down because we won't be probably allowed to ship at least in the very next weeks. We could face some volume reduction.
In this case, we first will have our employees benefit of the CIG offer, and then we'll see if the period should be longer, if we need to call for the standard state support in these occasions. Ironically, we are far from this situation because our order book is extremely interesting. As I told you, we had a record order book running into this period. We need now to see how everything develops worldwide, because we might encounter difficulties in shipping all the goods that we have on the order books to our customer because of the spreading of the virus worldwide. In a nutshell, we can have some handle on the fixed costs, trying to reduce them in case of limitation of revenues like we will encounter in the very next weeks.
For the third point, you're right, the stock dropped at a very low level, which makes it interesting as an investment also for the company itself. I believe that we already allocated a good amount of cash to the payment of dividends that we left unchanged, even though we know we are going into a very, very difficult year. We will see what kind of financial effects the virus will have. If, as it happened in 2009, there will be a credit crunch, we will be probably forced to use some of our cash to support our most valuable customers. It's early now to see and to give you a forecast on what we will be able to do. Sincerely, for the moment, today, we are continuing to ship, and we don't see problems with our customers. I'm talking of foreign customers.
This can change tomorrow, the day after tomorrow. For sure, in this moment, we are not shipping at all to customers in Italy because our customers in Italy, in the medical system, in the medical market, cannot work.
Okay, thank you very much. I will come back later on.
The next question is from François Robillard of Intermonte. Please go ahead.
Hi there. Good afternoon. Thank you for taking my question. First one, just to clarify, Enrico talked about the FDA clearance for a product in the U.S., but I didn't get the name of this product. If you can just come back on that. Another thing is on your recent FDA clearance on Onda, what are your expectations, although that it may be difficult to give at that point? If you can give us an update on the works made at all the plant enhancements that you had announced until late last year. Are they all over and with the rate? Finally, your recent investment in the minority. About that, is it too early to think about some impairment on those assets? Thank you very much.
Okay. Three questions. Onda, we received a clearance in the United States, but the clearance is not for Onda itself, but for a product that is similar to Onda, but its specification, and most important, its intended use claim, is a little bit different from Onda. This system, anyway, will be sold in the United States by a new distributor that we have. It is called Neauvia, which has a strong distribution network in the United States. The other product for hair removal will be sold through an OEM partnership, and the name will be revealed to you. The other question was about the minority in China. Well, the transaction took place the H1 in 2019, with the purchase by Zhengzhou of Wuhan, and second part in 2023, January, with the purchase and payment by Ot-las of about 30% more of Penta Zhengzhou.
I believe it is really too early to start talking about impairment. Of course, the results in 2020, especially in the H1, will be far from what we would have expected on January 15, when we sent the wire to make the payment. We are extremely confident that the market will be back, and that we will be able to complete our, let's say, business case in developing our business capacity in China and seeing further growth in this market. Of course, we paid a considerable amount, this 30% share of a company. For the moment, I believe we are able, I believe, to justify the value of the acquisition. Was there a third question? Excuse me, François, I don't remember.
Yes. Just on the plant construction and upgrade, if you can give us an update. Are they all finished?
Yes. The plants, they are not all finished because we had some work that will roll on 2020, and that will be also slowed down. The most important of the work that will be slowed down is the Chinese ending of the Zhengzhou plant. We finished up the new plant in 2019. We had the grand opening in December. We have not fully completed the second Zhengzhou facility, and this will go on slowly, given the current situation of the Chinese economy. We still have to complete the new building here in Florence for the industrial laser sources manufacturing, the medium power CO2, RF excited laser sources. We still have to complete in full the move in Torre Miletta of lasers into the new building with some expenses. We are talking of quoted minor expenses.
We were planning of expanding, which was something that absolutely unplanned but needed, due to the pace of growth of the European and Italian business of Cutlite Penta. We were planning to expand further our production capacity in Prato, which to the pace that we had in November and December, was not sufficient anymore. We had been growing really in a very important way. Of course, this investment is now on hold.
Okay, thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. For any further questions, please press star and one on your telephone. The next question is a follow-up from Andrea Bonfà of Banca Akros. Please go ahead.
Hi again. Just an input from your side, if it is possible. We are really in uncharted territories in how to make the forecast for the Q1 and especially for China. We were wondering if you can guide us, what you're expecting in terms of sales for China in the laser industrial laser division. As a linear input, I would put -50%, but it is too little. Are we going there for -80%, -70%, -30%? Some ideas we're working through the spec, at least in China, for the Q1. Then we can give some recovery scenario for the following ones.
If, Andrea, if you can give us a color. Outside of one, is really the economic, let's say, situation really gradually improving? With, let's say, economic activity returning to normal level, or what are the inputs from your side that you can share with us? Thank you.
Starting from the last question. The inputs are fairly good that the economic situation is returning to good levels. We know that our salesmen, the ones that can move, because we have many sales people which were in Wuhan, so they can't move, started booking new orders. We started booking orders in the first 15 days of March, which was very positive, because we have seen a decent work under this point of view. For what concerns the expected turnover for Q1, we didn't guide anything, and I am not guiding you to any number, but the math is quite easy. We worked 15 days before the spring break, and following those 15 days, we started working again at very low rate, we will say, 50%, with roughly 50% of our capabilities on a market that anyway is still very slow.
We're not expecting an interesting number, a good number of sales in the Q1 of 2024 for our Chinese activities.
Thank you very much.
Once again, if you wish to ask a question, please press star and one on your telephone. For any further questions, please press star and one on your telephone. Mr. Cangioli, there are no more questions at this time.
At this point, thank you for being with us. I hope to have a new meeting with you in a few weeks, when we will see the Q1 financials, which should take place about two months from now. I hope at that point, to be able to give a much clearer situation on how our business will develop. Most of everything, I hope that at that point, most of the hits that we received, are receiving from the coronavirus situation, will be gone. Thank you for being with us.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.