Good afternoon to everyone, and welcome to El.En.'s Sales of Majority Stake in the Laser Cutting Division Conference Call. Today's call will be recorded, and so it will be 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 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 expectation 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 statements to reflect events or circumstances that may arise after the date here of. Please note that all microphones have been automatically turned off, and therefore, if you need to ask a question at the end of the presentation, reserve your questions on the Bianca Fersini Mastelloni chat or raise your virtual hand, and you will have the floor in order of your request. At this time, I want to give the floor to Andrea Cangioli. Please go ahead, Andrea.
Thank you, Nicola. Thank you, Bianca. Thank you, everybody, for joining this call that is aimed to give some more color and details on the sale of Penta Laser Zhejiang control stake and also on the 2025 guidance. I will talk about these two issues, and then, together with Enrico Romagnoli, we will answer your questions. As disclosed in the press releases issued on Friday and this morning, we finalized the share purchase agreement pursuant to the framework agreement signed in November 2024 with YOFC for the sale of the majority stake of our Chinese entities involved in the laser cutting business. Headquartered in Wuhan and listed on the Shanghai Stock Exchange and on the Hong Kong Stock Exchange, YOFC specializes in the production of optical fibers for telecommunications. Leveraging its technological and manufacturing background, it entered the high-power laser source business through its subsidiary, Everfoton.
YOFC originated from an initiative by Philips, later managed by Prysmian, which holds approximately 23% of its shares today. The agreements we executed slightly differ from the initial scope of the framework agreement. As you might recall, we had initially envisioned to transfer to YOFC the control of the whole laser cutting division, including Cutlite Penta in Italy and its Brazilian subsidiary, Cutlite do Brasil. The news of Cutlite Penta being controlled by a foreign entity was not welcomed by a large part of its customers and potential customers, especially on the U.S. market, which is the single largest export market for Cutlite.
As the unease on the marketplace was starting to affect Cutlite's sales performance, and for sure it affected Cutlite's sales and financial performance in the fourth quarter of 2024, at the very beginning of the year, we reached an agreement with YOFC that only a minority share of Cutlite Penta would have been assigned to YOFC within the transaction in order to preserve the Italian control on the entity and, with the Italian control, the assurance at the eyes of the outlet markets that the Italian DNA of the company, of its product and brand, would not be affected by any means by the transaction. This news was released on January 2nd, and from that date, we started renegotiating under this new scope, the agreement that was otherwise almost ready to be finalized.
Such further negotiation involved an adjustment in valuations, as the original deal was attributing a single value to the cutting division as a whole, while now one piece of it was being sold for its majority and another, the Western and Italian currently better-performed entities, for a minority stake only. Negotiation also involved the definition of the governance guidelines for the two entities, which proved to be quite complex, especially on certain formal issues related to the entity where YOFC was going to invest as a minority shareholder. In order to pragmatically reach the finalization of the deal, in the last weeks, we decided to remove in full the Italian leg of the deal, concentrating on the Chinese companies only and leaving to future discussions the possible cooperation on Cutlite Penta.
I'd like to underline that the negotiation, that was complex and time-lasting, has always been carried out by the two parties in a very collaborative way and with a mutual understanding of the business issues among the management teams. Based on this, I can say I'm very optimistic on the potential of our cooperation with YOFC. The financial details of the deal are reported in the press release. In essence, Ot-las is selling 59% of Penta Laser Zhejiang shares for CNY 240 million, which is roughly EUR 30.5 million, which corresponds to an equity value of CNY 405 million, which is roughly EUR 51.5 million. We estimate the gain on the sale of the asset, also considering the potential effect of certain clauses that might adjust the price, could be around EUR 6 million.
Upon completion of the sale, YOFC will own just below 60% of Penta Laser Zhejiang, and Ot-las will maintain an approximately 19% stake. There are several significant side clauses to the agreement: a 5% price reduction clause if certain financial targets are not met by Penta Laser Zhejiang within 2025 and 2027, a seller liability concerning certain findings from the due diligence process that was conducted by YOFC since June 2024, with all the findings subjected to a maximum indemnity cap of 10% of their received price, except for two specific cases which may result in indemnities without a compensation limit. Ot-las's remaining stake in Penta Laser Zhejiang will be locked up until the approval of the 2027 financials.
On the same date, Ot-las will have the right to sell to YOFC its stake at a price corresponding to a valuation of the company equal to 1.05x its net asset at the time, 1.05. Customary co-sale and right of first refusal rights are provided by the agreements. Finally, the sale agreement is contingent upon the satisfaction of certain conditions and subject to a procedure at the Italian Prime Minister's office pursuant to Italian Law Decree No. 21 of 2012, which is better known under the name of Golden Power. The agreement entrusts the management of Penta Laser Zhejiang to YOFC, a partner with great solidity and technological expertise. Collaborating with YOFC is opening great opportunities for the revitalization of Penta Laser.
On the other side, we will continue to manage the Italian operations in the laser cutting sector with Cutlite Penta, supporting its growth best, aimed at expanding the international presence of a company and product that express sophisticated technology with a strong made-in-Italy identity. The proceeds from the sales will repay part of the financing extended to Ot-las by El.En., thereby ultimately consolidating the net financial position of the parent company and the group. There are no compelling uses for such liquidity provided by our plans. We plan to continue to use our cash resources to accelerate the growth of the El.En. group. We have several application verticals that are and can be subjected to specific investments aimed at their growth. Investment can be in infrastructural CapEx, in P&L resources, especially in R&D and S&M areas, and in the net working capital expansion.
Also, M&A functional to the improvement of the performance in a specific segment has already and will be performed, especially through the expansion of the subsidiary distribution network that at the end of 2025 will count nine direct sales subsidiaries in Europe for Cutlite, Lasit, and Quanta System. This last comment brings me in the management activity for this 2025 and to the 2025 guidance that we disclosed, about which I would like to share with you some more color, in addition to the minimal contents we provided within the relevant press release. The guidance says that we are targeting for an increase in revenues, especially in the industrial sector, and confirms for 2025 the target of achieving the same EBIT as we did in 2024.
First, as the consolidation perimeter under which we reported for 2024 was already taking into account the possible effect of the sale of Penta Laser Zhejiang, the sale has no effect on the guidance. It will have an effect on the net profit due to the expected gain on the sale, but no effect is expected on revenues and on EBIT. We did not mention the medical sector among the growth driver expected for 2025. This, we understand, could have and probably has given the impressions that the expectation on the market performance and on our performance are flat, which is not consistent with our optimism on the market trend for medical laser application of the next years, including 2025. In fact, we expect a good performance on the medical sector. We do have to take into consideration two inorganic elements which are going to deplete our sales volume.
We sold our Japanese subsidiary With Us, which was worth EUR 10 million in revenues in 2024. As an effect of the M&A that led to the merger of our customer Cynosure with the Korean laser manufacturer Lutronic, the high-performance alexandrite hair removal device that El.En. is manufacturing and selling to Cynosure on an OEM basis, we reduced its revenues by roughly EUR 15 million. Therefore, inorganic events are causing a 6% handicap on medical revenues. Net growth exceeding such threshold was definitely included in the plans we drafted at the end of last year based on the booking status and on the general mood of the market. The input that was provided to the outlook of the year by the first months was encouraging on the revenue side, but was less encouraging on the worldwide economic situation.
The wars that are driving uncertainty, the wars that are driving uncertainty are not over, and expectations about their end do not seem to rest on very solid grounds. Interest rates that were expected to decrease are not being adjusted downward as we were hoping. Of course, lower interest rates are always good news for the capital equipment buyers. The U.S. dollar exchange rate against euro weakened, and this will have an impact on the margins on our U.S. sales. For this reason, we still consider to be able to register an increase in medical sales, but of course, you need to understand that the sales increase that we will book will exceed the 6% inorganic negative effect.
For what concerns the industrial sector, we expect the industrial sector sales to grow over the year as an effect of the reaction to the very bad 2024 performance in the Italian market, which represents a significant part of the sector sales, and also supported by the continuing investment in the distribution network, especially on the European territory, where Cutlite Penta will be opening three facilities in Poland, Germany, and Spain, and Lasit has just opened its fifth subsidiary in Europe on the French territory.
Combining these elements I just mentioned on expected revenues and on the economic situation, notwithstanding the inorganic help to 2025 EBIT deriving from removal of the loss that was booked by the Japanese subsidiary that was sold, which was worth about EUR 2.5 million at the EBIT level, we prudently consider that the increased share of revenues in the lower margin industrial sector, together with the reduced margins on the US sales and with the higher intensity of competition that the not favorable general economic conditions will cast on the medical sector, will enable to confirm 2024's level of EBIT, with EBIT margin being reduced by a small amount for the reason I just explained.
To conclude my, let's say, introduction, the overall message of the guidance is we'll improve performance in industrial, we'll improve sales volume in medical net of inorganic effects, EBIT will remain strong, though with a small decrease of marginalities due to the prevalence of headwinds induced on our business by the general world economic trends. Done with my presentation, and I'm ready to answer your questions.
Andrea, we have one question. The first question comes from Giovanni Selvetti from Berenberg. Go on, Giovanni, please.
Ciao, ciao, guys. Thank you for taking the question. A few, a few. You said, first of all, I wanted to understand why the deal is still contingent upon the satisfaction of the Golden Power, considering that Cutlite Penta is no more involved in the deal. The second question is maybe on the wording.
When you say, except for two specific cases which may result in indemnities without a compensation limit, which two cases are we talking about? The third one, I think you mentioned that in the fourth quarter, that this idea of selling Cutlite Penta to YOFC wasn't taken well by most of the clients, specifically in the US, with an impact as well in Q4. I wonder how, based on what you say, that the Q4 sales were impacted by this. Maybe the last one is that if I understood correctly, you said that the selling of the remaining of Penta Laser Zhejiang is only in 2027 at 1.05 the assets in 2025. Sorry, in 2027.
Okay. Okay. I have all the answers. Thank you for your questions, Giovanni. First, Golden Power. Yes, yes, we were surprised as well.
Doesn't seem logic at first place, but this is what we have to do. We are selling an asset which is owned by an Italian company. Anyway, the Italian government has to have a word on the sale of an asset which, though in China, today is owned by an Italian company. We have to file for permission. I believe it will be formal, but we have to do it. Second question. There are indemnification which will bear no limit. Yes, those are two specific cases. One is related to a legal dispute that is undergoing since early 2024. It is called the Baoyuan case. It's a large manufacturing cell that was sold to our Chinese customer that led to a dispute on the consistency of our supply to the specification that were pointed out at the order.
At the beginning of 2024, we were sued by the customer. We therefore acknowledged an accrual for the potential cost in the financials of 2023. We initiated a legal dispute, which, as I mentioned before, is interesting on a theoretical point of view. The news here is that probably our customer is anyway on bankrupt or anyway in very dire financial situation. The reason why they are, I mean, are making this lawsuit against us is that they do not have enough work. If they had work, they would have accepted for sure the system, even though the system was not perfect. This was confirmed by the first degree ruling by the court, which ruled that we are liable for the whole systems, for this whole systems, and the system was not compliant to the specification. For this reason, we accrued more accrual in the 2024 financials.
All this accrual reduced the transfer price of the shares. Should any further cost surface, this will be on us. It will adjust the price without any limitation. We do not expect significant amount to stem from this issue anymore. Andrea, sorry, maybe to interrupt you here, because if I remember correctly, I do not know the figures by heart, but in the last call, you said that with the new accrual, basically, you covered 80% of the value of the old. Oh, but you are right. We are talking about technicality. We believe we covered both with the provision in the financials and in the provision which reduced the transfer price, the cost which could derive from this lawsuit. The agreement, since we are appealing, is providing that if there would be some more negative consequences, they will be on us.
I'm not thinking, we are not believing that there will be an important change in this clause, in the effect of this clause on the price, but I have to report that there could be. This is the point. The accruals that we made in the financials could be, let's say, integrated with further accrual that could hit the transfer price. This is number one of the unlimited indemnities. The second unlimited indemnity is related to a possible impairment value of the company that we purchased in late 2022 in the city of Shenzhen for the manufacturing of manufacturing lines for batteries for electrical vehicles. The transfer price is already provided for a reserve for an amount which is higher than the amount we have provided for in our 2024 financials.
Nevertheless, should an impairment be needed for the bad performance of the company KBF in the next years, this would be proportionally on us. These are the two items which, in addition to the 5% potential price reduction and to the maximum 10% on all the other indemnification, which probably will not lead to 10%, but that could lead up to 10%, these are the only open indemnification areas on the deal. Question number three, U.S. sales. I know that we had a certain million of U.S. dollars of orders booked that we did not deliver because the customer said, "We do not want the systems anymore." I know the order of magnitude of this order is $5 million. This maybe ties somehow to the way we work and to the way our order booking works. I mean, we receive orders. We book orders several times.
We also receive down payments, but most of our orders are at least, I mean, delayable by our customer. In this case, once a certain number of US customers learned that we were going to be controlled by a Chinese entity, they right away say they wouldn't buy anything anymore from us, and they cancel the orders. Some of these orders, not all, some of these orders have been reopened and delivered in Q1 2025 following our notice and press release in which we were saying that the control of Cutlite Penta was not going to be transferred to YOFC anymore, and Cutlite Penta was going to remain wholly owned, excuse me, controlled by the El.En. Group.
Now, we expect for the US market to have an even more favorable impact following the fact that Cutlite Penta will remain wholly owned with no Chinese ownership, not even partial ownership. Finally, the put clause, of course, we negotiated the clause, and of course, the net equity clause is not extremely alluring in terms of pricing, but this is a put clause. We have this option. We are not obliged. We will see how the company will look. As I mentioned before in my call, notwithstanding the long negotiation, I believe that YOFC is a very interesting structure. 20% of we will be left over of 20% of a company whose total value is about EUR 50 million. We are talking of about EUR 10 million, a large amount, but not a game changer within our group.
We will have the option to exit and to cash out at that amount, more or less. Let's see how this relation with YOFC builds up in the next years. They might be interesting partners for many businesses. Not necessarily we're looking forward to liquidate the participation at the end when we will have the right to. Also, the other minority shareholders, more important is for them because we got to remember that most of the managers invested in the company, and we sold at an attractive price shares of the company as an incentive for them for the IPO when we were aiming at the IPO. All these investors, which are managers, so small investors are stuck in the company. We negotiated a clause which allows them to recover abundantly in their case.
They invested capital because the shares they got them for a very low price. For what concerns the El.En., we'll see. I mean, it's important to evaluate how our relation will develop in the next years. Okay. I have some others, but I'll let other people go first.
Okay. Andrea, we have another question from Carlo Maritano from Intermonte. Go on, Carlo, please. Hi.
Good afternoon, everyone. I just have one question. My question is about the future of the remaining part of the industrial business. So I just wanted to know what's your strategy for this part of the business and if you think that not having a Chinese shareholder in Cutlite could help you in case you decide to sell these shares. Thank you.
For the time being, we will manage the business by ourselves.
Of course, we had highlighted and disclosed the intention of finding a strategic destination different from the management within our group of the whole cutting division, for the whole cutting division. Currently, this deal says that we are keeping the cutting division based in Italy. We will start working also for identifying, if needed, an alternative strategic option, which, of course, given the current strategic constraints of Cutlite Penta, would not include a Chinese partnership. Of course, we are remaining, and the group is remaining as a partner of YOFC, and we need to try to work on this partnership as well to maintain the advantages that our Chinese presence always gives to a certain level of manufacturing. For what concerns the rest of the industrial business, for the moment, we have no plans.
We have no plans, but we are investing in order to have the Lasit marking business grow and also the other marking business continue to grow and the Lasit stores as well.
Thank you.
Andrea, we do not have any other question. Maybe Giovanni wants to ask one more question.
No, it was very similar to the one that Carlo just asked, so I got the answer.
Okay. Very well.
Okay. No one raises its virtual hand. We do not have any other questions. I want just to ask the parterre of investors if there is some other question before closing the conference. No? Okay. We close this, ladies and gentlemen. The conference is over. If you need to explore other topics in the future, please feel free to contact Enrico Romagnoli, who will be happy to answer your question.
Thank you for attending this conference, and I hope we have all of you again next time. Good afternoon. Good morning to everybody. Bye. Bye-bye.