LEM Aktie

Welcome to the LEM Full Year Results 2025-'26 Conference Call. [Operator Instructions] Let me now turn the floor over to your host, Andreas Hurlimann, Board of Directors.

Ladies and gentlemen, thank you for coming here today for the full year results '25-'26 conference of LEM Holding, and a warm welcome from my side, also to the participants who joined us via telephone conference or webcast. I'm Andreas Hurlimann, Chairman of the Board of Directors. I'm here with our CEO, Frank Rehfeld, and our CFO, Antoine Chulia.

'25-'26 once again characterized by market uncertainty, currency headwinds. While conditions remain challenging, including ongoing pricing pressure in China, we saw signs of stabilization supported by mostly normalizing inventory levels and some positive signals in Western markets. Momentum was particularly evident in automation and energy distribution and high precision, supported by data center-related demand. Order intake improved towards the end of the financial year.

Frank and Antoine will provide more details on business development and financial performance in their presentations coming up. From the Chairman perspective, this is important that you know that. In this environment, LEM continued to move forward with its strategy of building a business model that is well positioned to benefit from global megatrends such as data center infrastructure, electrification, energy efficiency, energy transition and e-mobility.

A key focus of the year was the continued implementation of our company-wide transformation program Fit for Growth, aimed at improving competitiveness, enhancing operational efficiency and strengthening our focus on Asia, while making LEM more agile and customer-centric.

As global markets for new energy vehicles and renewable energy increasingly shift to Asia, LEM further adapted its organizational and geographical setup. R&D activities were expanded in Asia, shared service-centric capacity is consolidated in Bulgaria and production capabilities strengthened in Malaysia and Bulgaria as well.

At the same time, the company continued to optimize its cost base across all functions, supporting growth in key markets while maintaining financial discipline and resilience. Beyond these organizational measures, we invested in innovation, strengthened customer proximity and aligned our structure to meet shifting market realities, particularly in China, where our efforts to win new projects and build regional capabilities have contributed to bear fruit.

Based on these measures and the resulting improved business performance, LEM has drawn attention of certain interested parties. In accordance with its fiduciary duties, the Board of Directors is conducting a review of potential strategic options to increase long-term value creation. The process is at a very early stage and no decision has been made. There can be no assurances that the review will result in any transaction or other specific outcome.

After my introduction, Frank Rehfeld will present the highlights of the last financial year and provide a deeper insight into the business performance. After that, Antoine Chulia will present the financial results before Frank will give you an outlook on the current year and an update on our sustainability strategy and effort. Then, I will return to the speaker desk to inform you about the dividend proposal to the Annual General Meeting.

And now, the floor is yours, Frank.

Thank you very much. So good morning also from my side. A warm welcome here to the presentation of our full year results. Now, for those who don't know LEM yet, LEM is providing sensors for measuring electrical parameters, namely current, voltage and energy and with those help customers and society transition into a sustainable future.

As you remember, we had a tough start in '25-'26, just referring to our Q1 results. Therefore, to report today stable sales in constant currencies of CHF 287.7 million is a decent achievement. Even though it means a decline of 6.3% in Swiss francs. But as you might know, we only do a marginal business in CHF. And therefore, the constant currency comparison is more relevant.

I don't want to insinuate that we are satisfied with those results, though. The ambition is clearly higher. However, considering through which challenges we have been going in the last 24 months, I clearly see that the efforts to turn around LEM are showing results.

The quarter-by-quarter increasingly strong bookings give us confidence that the worst is behind us, that we are going to enjoy for our visible forecast horizon growth momentum. The '25-'26 had a strong cost reduction focus, in particular, on OpEx, and we've been fully achieving our commitment of the Fit for Growth project to save CHF 20 million in '25-'26. As you can see in the EBIT increase and even more importantly, in the substantial improvement of our free cash flow to CHF 31.7 million.

As you might recall, 18 months ago, we reported a negative cash flow of minus CHF 11.6 million.

Now since Andreas has been already mentioning this strategic review, I will not repeat this here again. And you might have then questions that we can answer in the Q&A. So therefore, I would like to move to the business performance directly. And yes, following our business structure, you see here the development of the 5 businesses in comparison to the same period of the year before.

We will focus on the numbers in constant currencies, as you know, that the Swiss franc is our -- well knowing that the Swiss franc is our reporting currency. However, our business is done in euro, U.S. dollar and Chinese Yuan and that had, again, a big influence in our numbers.

When you compare the full year result with what we have been reporting 6 months ago, you will realize that in H2, our automation business has been further accelerating in growth. Our automotive and our traction business have been slowing down and both our renewable as well as our energy distribution and high-precision business, abbreviated EDHP have been improving in the second half.

Nevertheless, both businesses were still shrinking in the year-on-year comparison. I will explain in the following slides in more detail what developments we have been seeing in our markets in the last 6 months. Now before I do that, I would like to share on this page the distribution of our businesses relative to each other. There have been, again, some movements between those businesses.

The Automation business grew 2 percentage points against the half year results, driven by improved order intake since the inventory levels were depleted. Automotive and Track remained relatively stable in the full year and constant currency comparison, however, did both have a rather weak Q4 in comparison to the year before. And also the renewable business did not have a great Q4, whereas the data center demand pulled our EDHP business in a positive direction in the last 3 months.

Now let's go through the business one by one, starting with our biggest business, the Automation business that represents now 31% of our global business. Automation has been the business that had the biggest growth momentum amongst all of our businesses. It was driven by recovering base markets, depleted inventory levels, but in particular, also strong demand from our customers who deliver into data centers.

For data centers, it's both the HVAC customers that came with strong orders and also some of our automation products made it into power measurement for data centers. Now not surprisingly, the competitive situation in China remains fierce, a topic that Antoine is going to further allude to since it impacted our gross margins across the company.

In our half year reporting, we stated that our Automotive business saw a nice growth of 9% in constant currencies, 2% in Swiss francs.

However, in the second half, the situation changed. We saw a slowing Chinese and U.S. market, while Europe recorded growth. The European growth is to be attributed to product ramp-ups with key customers. All-in-all, we launched 17 new products across the whole organization in '25, '26 as well as positive market momentum.

In China, a combination of slowing market, technology choices in battery management systems as well as the competitive situation impacted our sales. Also, our other Asian markets developed slowly since they saw softening exports. The importance of electrification in the U.S. business is going down, hence, project postponements and lower sales were the consequence.

Renewable energy, representing now 14% of our global business declined in constant currencies by 6.7%. The situation, however, improved in the second half, mainly driven by the European market. While we are going to see less PV installations in China in '26, the utility scale applications in Europe saw nice growth. While 18 months ago, our inverter customers in Europe saw a sharp demand drop since Chinese manufacturers came with very aggressive pricing, we see now that infrastructure deciders prefer European solutions for large-scale photovoltaic installations.

The renewable energy market nevertheless will remain a highly competitive market since the majority of the inverter suppliers are located in China, which puts pressure on gross margins.

The Energy Distribution and High Precision business became our smallest segment with 13% of our total turnover and has also continued to shrink by 8.4% year-on-year in constant currencies. However, similar to the renewable business, the situation improved in H2 with the Q4 '25-'26 being slightly stronger than the Q4 of the previous year. Also here, several rather adverse developments led to this result.

On one hand, stronger demand from customers delivering into data centers, typically storage or mid-voltage applications. These customers are located across the world, while the investments are mainly made in the U.S. and China. On the other hand, the charging infrastructure business remained weak and will only pick up once our new product generations are going to get launched within this year.

While our Track business was showing growth in the half year comparison, we experienced a slowdown in the second half. This led to an overall stable development year-on-year and making it our third biggest business with 15% of the global revenue share. China and India contributed positively, while Europe was declining and the Americas were stable. However, with the upcoming implementation of new regulations in Europe, we are positive that this development is going to change and that we are going to see also here positive momentum in the future in Europe again.

Now I'm sure you realize that the performance in the different businesses were quite distinct and changing direction within the same business here in certain regions. This clearly indicates that the volatility in our business is still high and makes mid-term and longer-term predictions almost impossible, probably with the exception of data centers where all our customers are and remain bullish.

Projecting our business now from a regional perspective, we see again some changes in comparison to last year. Most prominently, China declined by 25% in Q4 and 12.6% year-on-year, in line with the challenges in the local economy. However, in constant currencies, this reduces to only 5% and therefore, remained almost stable.

As you can see, the weaker Automotive business was offset by growth in Automation, EDHP and Track. Rest of Asia showed positive momentum, mainly driven by India with the automotive, while the automotive dependencies of our Korean and our Japanese business had a negative impact. EMEA had a good Q4 being slightly behind last year in constant currencies, and our EMEA business is now equal to the business in China, mainly driven by Automation, Automotive and EDHP.

In the numbers of the Americas, a significant tariff share needs to be considered. And again, Antoine will give there more detail in his section. Nevertheless, the activities in data centers affecting our Automation and EDHP business were overcompensating the Automotive drop and drove the baseline up.

With this, I would like to hand over to Antoine, who will explain the financial achievements in greater detail.

Thanks. Good morning, everyone. Thanks for joining us today. As we share our results, these are my first annual earnings for LEM, but I've seen you all 6 months ago for our half year. So thanks for being here.

So this past year has been transformative, right? So when I joined a year ago, the company committed to restoring financial discipline, strengthening the balance sheet, positioning the company for sustainable growth. So today, I'm happy to report that we've not only met those commitments, but in the most part, we've exceeded them in several areas.

So our results reflect a significant recovery from last year's challenges driven by focus on operational efficiency, cost optimization and yet still strategic investment in key markets and applications.

So as Frank explained, order intake is showing some good momentum with CHF 80 million in Q4. Sales have stabilized to just south of CHF 70 million in Q4. Operating profit is up almost 30% from prior year and cash flow has more than doubled despite several headwinds. But besides the metrics, the most encouraging signals actually this year to me is the -- or the cultural shift that we have fostered at LEM, strong commitment to fiscal discipline and long-term value creation.

So with that, let's dive in the numbers. We're finishing the year with CHF 115 million of gross profit, 40% of sales. Gross margin had taken a hit in Q1 because of price pressures across the board and a continuation of Q4 last year, especially with some overcapacity in China as well as the implementation of U.S. import tariffs, which hit us on the cost side.

We managed to partly recover from that hit in the second half with a more surgical management of price and deal margins in China and elsewhere as well as the implementation of systematic recharges of U.S. tariffs to the market and a strong push on material productivity across our main categories of spend.

Going down the P&L, our SG&A trajectory has come down significantly from the prior year. This 12% reduction was the result of Fit for Growth actions, which started back in Q4 last year. Several structural cost takeout measures, personnel reductions and efficiency redesigns like shared services on back office and admin functions, including IT, finance and HR.

In R&D, if you remember one of the objectives of Fit for Growth was a recalibration of our R&D efforts. And we're clearly delivered in that department with the spend brought back to under 10% of revenue. But more importantly, R&D activity is much more in sync with our end markets geographically and across our main applications.

A particular focus was put on increasing R&D efficiency, prioritizing strong returns, shorter time to market and strengthening our product road map to support the applications expected to provide growth moving forward. Our financial results has improved by around CHF 2 million from the prior year as well, mainly thanks to reduced overall exposure, ForEx exposure, which limited the exchange loss due to the CHF appreciation.

Our debt service charge slightly increased year-over-year following the implementation of our main debt facility that took place around midyear last year and the interest charge lapsed over the period. Our income tax charge went back up to CHF 8 million this year due to higher levels of profits globally, but it was also affected by a onetime hit from operating losses in certain jurisdictions that we were unable to carry forward. That's the result of the corporate and tax structure that was put in place several years ago.

And that was heavily tested -- this structure was heavily tested during the sharp decline in revenue these past 2 years, right? So this brought our effective tax rate to an underwhelming 45% this year, but we expect this to normalize back down in future years.

To recap, our income statement performance showed some good resilience following the prior year adjustments and top line basically on all lines in the P&L, highlighting the results of the Fit for Growth initiative. Sales down 6%, but flat at constant currencies and stable for 9 months now.

Gross margin sliding around 300 basis points due to pressures earlier in the year, but stabilized -- we're showing some stabilization since then and recovery. OpEx being reduced substantially, thanks to Fit for Growth, all resulting in operating and net profit strongly improving from the prior.

Taking a look at our balance sheet now. We derisked several positions throughout the year, including a structural capital expenditure and working capital reduction as a result of Fit for Growth and as a result of our operational focus in this kind of strange year, right, commercially. One of the strongest achievement this year was how we deleveraged the company, landing below CHF 60 million net debt from CHF 90 million just a year ago.

So all activity, liquidity, solvency ratios have improved year-over-year, like equity -- the equity ratio, equity representing more than 42% of our book as of March. This was made possible by one of the major wins this year, which was how the teams turned the situation around cash-wise with free cash flow more than doubling from the prior year from CHF 14 million to almost CHF 32 million.

This was achieved, thanks to a strong EBITDA, CHF 46 million, a strict management of working capital and a focused reduction of capital expenditures to critical and strategic product investments. So from CHF 16 million to CHF 8 million this year. And all of this in spite of large disbursements of restructuring expenses happening this year of around CHF 9 million.

So as we look ahead, we remain cautious, disciplined, agile, focused on delivering consistent high-quality results for all of our stakeholders. I'm confident that the foundation that we put in place here that the teams at LEM have built this year will serve as a good springboard for greater success in the months and years to come.

And with this, I will let Frank take over, who's going to share with you some more color on this outlook.

Thanks a lot, Antoine. So yes, let's talk a bit about the outlook as much as we can, well considering that we typically have an order book that goes 3 to 4 months forward. While we were very cautious 6 months ago and therefore, guided towards sales in the range of CHF 265 million to CHF 290 million, we see now more positive signs that are not only anecdotal, but factually visible in our order book.

The most important driver behind this is the investment into data centers. These investments are today served with LEM's existing customer portfolio and benefit both the Automation as well as the EDHP business. Nevertheless, I was just sharing the rather important trend changes in several businesses and regions with just within 12 months. We, therefore, remain, as also Antoine said, rather cautious about the overall business development in the current macroeconomic environment with increasing energy prices.

At the same time, the electrification story is everything else than that, and we remain optimistic for the future. I was sharing with you in November that LEM's market has been going through an important change in the last years and that this was driving our transformation. From a niche market, since the foundation of the company, we saw a sustainability push in 2018, lasting until the end of COVID in 2023. And from that, on entering -- the market was entering into what I described as affordable sustainability.

Based on what I just said, we repeat our guidance from last November that latest from '27, '28, we expect 4% to 7% annual growth in constant currencies and a gradual move in the margins from today to a 10% to 15% area. We continue our journey to increase customer closeness by expanding R&D activities in Asia and improving our cost position by consolidating service centers and our operations footprint. We are, therefore, convinced that we are on the right path and uniquely positioned for the future.

One more slide for me, on sustainability, obviously, a topic that is very dear to our hearts. So sustainability continues to have a high importance internally and also externally. The 3 important pillars in which we drive this agenda can be described as our product portfolio that fully contributes to the CO2 contribution wherever it is applied. Second, the decarbonization of our operations; and thirdly, to live the ESG journey in all our processes and our way of working.

You can find the details in our sustainability report, but just to mention here some highlights. We internalized the carbon footprint calculation, TCFD has been further detailed carbon neutrality in Scope 1 and 2 achieved and our 3 key sites in China, Malaysia and Switzerland are now ISO 45001 certified. The journey is still long. However, we are fully committed to go into this and to go this to the end together with our customers and suppliers.

With this, I hand over again to Andreas.

Thank you very much. I already mentioned at the beginning, '25, '26 fiscal year was once again characterized by market uncertainty, currency headwinds and challenging conditions. In principle, LEM targets a payout ratio significantly above 50% of the consolidated net profit of the year. In view of the uncertainty surrounding the economic environment, the Board of Directors proposes not to declare a dividend for '25, '26 financial years. However, LEM remains committed to sustain its attractive dividend policy in the future.

In line with the headwinds that LEM faced in the financial year, also the share price turned into negative territory. Of course, this is disappointing for us. However, despite the negative share price performance and the proposed dividend suspension, overall LEM returned a total of close to CHF 400 million to shareholders in form of dividends over the past 10 years. We're confident about the medium- and long-term growth of our business.

Demand for our products will pick up again as they play an important role in accelerating the transition to a sustainable future. This is mainly due to the sectors in which we serve our customers, which are being transformed by decarbonization, electrification, energy efficiency and mobility. These are major trends that are driving demand for our sensors, offering numerous opportunities to leverage LEM's expertise and ensures long-term sustainable success.

Let me thank on behalf of the entire Board of Directors, special thanks to our employees worldwide for their dedication, expertise, reliability, but also resilience and innovative solutions. Also thank goes to the management represented here by Frank and Antoine for the prudent empowering leadership. We would also like to extend our gratitude to our customers, suppliers and business partners for their continued trust.

We thank the shareholders for their confidence they continue to place in us, and we thank you overall for your interest in LEM performance over the past year and into our future project, showing this by being present here today.

And with this, we are ready for your questions.

I have a question on the data -- sorry -- on the data center exposure. And the question is, for the past 2 years, we've heard a lot about data centers all around the industry. My question to you is, why does this come up now specifically for LEM? Is there a specific reason for this or a specific product here? Or is this just inventory management that had to be worked through? And then I had a follow-up.

Thanks a lot for the question. I think it's a very good one. I think we've been seeing for sure that there are investments made, but for sure, before the certain installations happen, this takes a bit of time. And like I said, already, there were still also quite some stocks in the pipeline. So it took a bit until this was carrying through the whole supply chain. But now we see rather consistent demand that is getting put.

And on the -- on Automotive, you mentioned that the pricing pressure in China is especially bad, and I think that was known. And I guess the fear was that this pricing pressure would come over to Europe as well to other parts in the market. Do you think this fear should be increased after today because you mentioned that pricing pressure is still really bad in China. There's overcapacity. Or are we out of the woods in Europe?

I think we should never think that we are out of the woods because I think for sure, the competitiveness will remain a constant topic. I think we still have different, let's say, ways to innovate and also ways to work between Asia, in particular China and also in Europe. And this also results then consequently in different gross margins.

Nevertheless, we will also see step-by-step increased competition in Europe, if we don't take decisions to, for instance, ask Europe-wise for a minimum content that needs to be manufactured here because it's clear also here Chinese competition is going to further mature and further try to get market shares. So we see this not as fierce as in China, but for sure, this is clearly a development that is foreseeable.

Tommaso Operto, UBS. Just a quick follow-up on the data center question. Could you indicate more or less how much of the order book or of current sales that makes up?

At the moment, it's still a rather small part of the business. So it's not life changing. Otherwise, we would have probably also reported different numbers. But what we see in the future is that with the next development steps for data centers that move towards hybrid -- into a hybrid way where a lot of DC is getting handled and that the importance of data centers is going to increase.

And we are really working today with quite a lot of our customers on exactly these future infrastructures where topics like solid-state transformers, for instance, will become very relevant. So basically, the data centers will move to 800 volts, something we know already from the car industry, and this will give a lot of application opportunities for our product.

And then a question on the R&D focus that you mentioned is kind of shifting towards Asia. I mean, if I look at the more recent developments, it seems like pricing pressure in Asia, obviously, is a lot higher than Americas and Europe, yet you're moving the R&D focus to Asia. Can you help me synchronize those 2 developments?

Yes. I mean very good question. It sounds a bit like a contradiction to have the right gross margins in China, you need to be with your customer from day 1 and ideally even before day 1. So basically, that you design really closely with your customers. This will help to protect your gross margin.

When you are at the end of the product life cycle, there will be always a cheaper Chinese producer of certain products. So basically, for us is to really innovate with our customers and take advantage of the first 2, 3 years when the margins are still nice and towards the phase out already focused on the next product generation.

This needs the right R&D capacities that you need to have then also in the right language and also in the right location. So going into almost a resident engineering sort of step would be within -- even within Fit for Growth, investing in R&D, we've been basically building up in China despite the fact that we've been reducing here.

Still, we are far away from even having a 50-50 constellation, right? So still the majority share of our costs are also in Europe and what we want to achieve is basically sort of a balance. So therefore, we will further invest there because we are convinced that this will allow us to be more agile and more close.

And last question, and it's maybe a bit of a follow-up, but do you have like some examples of these newer stage technologies that you're working on, specifically maybe in Automotive, for instance, where is there a development towards the 800-volt batteries that could support your approach here?

So very clear, yes. Let's take the example of Automotive since you also took this. You know that there are certain developments technology-wise that basically go out of our product portfolio. Just take the example of shunt. So basically, we had solutions Fluxgate based in the battery management business. They have been replaced by shunt solutions, and we are now working on the next generation to basically compensate or fight the challenges that shunt have, in particular, at high currents and come up there with the right solutions.

So the same happens in the area of the whole motor control business, motor inverters, where also here, we work on solutions where the current prevalence solutions get replaced by solutions where you basically send without [ core, ] right? So these are innovation topics that we are very intensively discussing with our customers.

[ Dominik ] from [indiscernible]. Two questions. Obviously, this might be your last annual results conference as bidders are circling. I understand there are several ones. Can you -- is it -- can you maybe just let us know if private equity in general is interested in your industry? Or is there more like consolidation going on? Who are your main competitors? What is happening out there? If you could give us maybe some background on this?

And also the restructuring, if you could elaborate again a bit on this. I mean, how many costs or also positions have been taken out now in Europe? How big has the shift been from Europe to Asia and yes, please?

You want to take the first one?

Yes. The first question. We have received multiple approaches from various parties. And obviously, at this stage, it's too early to comment any further on that. I think in the overall context, correctly, the market structure is changing. We are small but very successful company in this context, but also there is potentially increasing competitive threats from also larger companies.

So altogether, it's in combination now, I think, in particular with the obviously improved -- substantially improved results that has attracted a certain interest here. And then Fit for Growth savings.

Fit for Growth, is it about the competition?

I was not sure maybe you could repeat the second question.

No. I mean what about the staff figures? How have they changed maybe also here in Switzerland? And yes, and overall as well -- the workforce globally, how has it.

So the Fit for Growth program was targeting CHF 20 million savings in this financial year, and we've been actually overachieving that. The contributions were coming from personnel, but also from non-personnel measures about, I think, 2/3 of the measures were personnel, 1/3 non-personnel. The overall headcount reduction net was in the order of magnitude of 150 people, where, for sure, the European locations were by far more severe affected since we are also building up activities in China.

The restructuring costs in total were about CHF 10 million, CHF 8 million already in the P&L in last year, but obviously, in the cash flow in this year. So in regards to this, I think the cash flow result is probably even more important to understand in fact CHF 2 million of restructuring this year. Antoine, anything to add from your point of view or...

I would rejoin on the question with you. Anything more you'd like to know answers for growth?

Just the workforce, how big is it now in Geneva still?

We have in Geneva today about 130 people.

130 compared to how many before?

That is always when is before when I joined LEM at about 330.

[indiscernible] for growth?

Yes. So I think for sure, we had a constant decline in Geneva. So when I joined LEM in 2016, we had about 330 people in Geneva.

Miro Zuzak, JMS Invest. Regarding the guidance for the current year, I think the old guidance was 4% to 7% growth also for 2026, '27. Now it looks a bit like it should be a rather sideways year before it starts accelerating again. And the same seems to be true also for the margin. Can you maybe give more color on the current year or basically '26, '27?

Yes. Maybe I start with the guidance. So what we guided was in November that we would see growth starting from '27, '28. The reason for that was simple because we did not yet see really a change in the booking behaviors and therefore, we're rather cautious what we can expect for '27, '28.

Now again, we are far away from being able to really guide for '27, '28. We will do that like always in November. However, what we see at least for the Q1 is also based on the nice bookings in Q4 that we expect a nice development.

And that's on both on the top line and also a further improvement on the bottom line already in the current level.

Relevant for the top line for sure. Gross margin is one of the key topics in this year, Antoine has been alluding to this. So for sure, our gross margin is under pressure. We lost 3 percentage points. Maybe you want to further comment on that.

Yes. We lost 320 basis points year-over-year, mostly comparing to the beginning of 2024, '25. The main reason for that was the price -- negative price and mix impact. What we changed moving -- what we changed this year and what we're changing moving forward is how we're approaching pricing, especially in the context where some -- a portion of the demand is actually showing some signs of -- some really encouraging signs, right? So we're trying to price as close as possible to the business situation there.

We mentioned data centers, but there are also other areas which are a lot less price sensitive than our traditional markets, right? So we're trying to lift these overall level of margin moving forward through price, price and actions as well as the supply squeeze basically.

Okay. And then a second question I will have on the topic of data centers again. You mentioned the 800-volt architecture. And the question is, can you give some indication on the total addressable market? How big of a business could data centers become to you? And then maybe also who -- where you are and who your clients are? Is it the hyperscalers? Or is it the infrastructure providers? Give some more clarity there.

So we believe today that the market is going to become sort of CHF 100 million market in 5, 6 years from now for current sensing. And what we see is clearly that our existing current customer portfolio is basically the ones who are leading the -- also this architectural transformation. And so this is -- we are not talking here to the Googles or to the Microsoft. We really talk to the Eatons, the Deltas and the Siemens, the ABBs because it's them who basically provides the infrastructure products.

[ Hasan ] from Vontobel. I would have 2 questions. First one around free cash flow. Maybe if you can say how you see the moving parts for this year. So CapEx, net working capital, let's say, we assume flat sales in Swiss francs, would you see free cash flow in the same range as last year?

And second question around the whole ICS opportunity. Can you update us where you are on your road map? How did the market develop?

So overall, I mean, the main theme here cash-wise is caution for this year. So as we said, some markets are showing signs of stability and some other markets are seeing -- are showing signs of recovery or rebound, right? So we're being very cautious here in how we manage our working capital, trying to invest our working capital dollars where it matters and where it converts, right?

Numbers-wise, with -- under a flat sales scenario, we would expect to further bank on the reductions in working capital that we had last year, right? CapEx-wise, we expect to stay in the same territory.

ICS, I think we've been extending our product portfolio rather significantly. And we are, I think, moving forward in terms of ICS, both in the collaboration with TDK to basically launch here the TMR-based current sensing. And at the same time, we also make good progress with design-ins with customers.

Now all this needs to be seen that when you design in, until this turns into renminbi, U.S. dollar and finally then also the Swiss, that takes a bit of time. So we expect here clearly stronger numbers in the financial year-to-date and nice growth also in the future.

You said you gained market share in China in Automation, Energy Distribution and High Precision. Does this came with a stable margin? Or did you have to make there some -- yes, you have to lower the prices there to keep the volume up?

So for sure, China is the country where gross margins independent from the business are always under highest pressure. So Antoine has been alluding to careful pricing, and we did this. We basically moved out of some businesses where we believe the margin is not worth it. And on the other hand, it's also clear to create a certain volume and to create a certain fixed cost coverage, obviously, you need volume.

So that's one of the key topics we are intensively addressing in this year to further work on our gross margin by basically increasing volume, rethinking pricing, rethinking the whole way we work with customers, increase the part of distribution that we can use in order to stabilize our gross margin because we clearly see we've been doing some benchmarking that there is some further leverage out there.

One more from my side. I was looking at the margins. And as you said, you kept the target of 10% to 15% in the medium-term for the EBIT. Does this then -- because your current cost program is done, as I understand. Does this then just come from higher capacity utilization and more revenues? And that's how we should think about that, right?

Okay. So multiple factors, 3 mainly for sure. Obviously, capacity utilization in order to cover fixed cost is one, more aggressive price reductions, so basically more contributions from our suppliers. And thirdly, also by changing the way of working. So basically still finding efficiency reserves in the organization.

And the cost takeout part was the more immediate one, right, on -- with Fit for Growth. The more difficult one and probably the more interesting one is how we operate differently moving forward, right? We mentioned shared services, but it's also true it also impacts the product content, with redesign or design to cost, right? And impact of this will be visible moving forward beyond the pure OpEx takeout that we had this year.

But first results of this change, we will only see in the next fiscal year, not the current one?

Yes. Hopefully, we see already something this year, but for sure, the majority will be rather in the next financial year.

Just again to understand you a bit better as a company, but how fragmented is your industry? I mean what is your market share? Because you've implied there are bigger companies out there, maybe also becoming more aggressive. Where are they increasingly in China? Yes, if you just could give us some background.

So the business is rather very fragmented. We talk about everything from 1,000 pieces per year to CHF 15 million to CHF 20 million per year. We talk about a huge range of applications that you see reflected in more than 2,500 product SKUs that we are having. And you see that reflected in just our number of customers that goes basically 600 main customers, but the total customer list is 3,000 plus. So it's 3,000 plus, yes.

And therefore, to be strong in one area does not automatically mean that you are strong in another area. And for sure, we structure our business to basically work with our key accounts. But -- and they are typically, they buy products for different areas, be traction plus drives plus whatever medium voltage applications, so where we can also leverage their certain presence.

So therefore, there is not a simple way of moving and really coming up there with competition. The LEM philosophy is to be the one-stop shop for our customers to have basically across all their applications and always products available.

What is also important to understand is that despite the fact that we call ourselves the company well known in the market of current sensing like Haribo for gummy bears, it's not as easily applied as a gummy bear. So you need to have really design-ins, you need to really work in detail with your clients in order to make sure that the product works in their application. So a lot of application know-how is necessary to make this one.

Next question -- from the remote end.

So since there are no more questions in the room [Operator Instructions]. There are no questions in the queue at this moment. [Operator Instructions] Everything seems to be quite clear. So no questions coming so far.

Excellent. So then we were comprehensive in our explanations, except one question that remains.

I'm coming back to the price pressure in China as it's not any more cyclical nature. It's a much more structural nature. What are your steps to defend your position, which you have in the market and that you're not will be overtaken by the local Chinese guys?

Now obviously, a question we are asking ourselves, and we are working also ourselves. I think maybe just a couple of recalls from history. We had been, I think, in '23, losing and not unimportant part of our market share because COVID was probably the time where we were not fully realizing what is happening in the country. And we've been able to regain market share by slashing our component costs by up to 25%. And with this also being able to basically regain market share.

So China is, for a company like ours, not lost. I think it's important to understand that there is nobody who is in as many applications in as many -- as many volume, and we do have more than 60% of our production in China. The art is, are we fast enough? Are we competitive enough? Do we have the right competencies in China in order to basically act as Chinese as one needs to act, right? That has been considered when we've been setting up our organization to basically have regional decision power, less decisions that need to be taken in Geneva.

So Geneva gives the general direction, the strategy, but the execution is in China. That was also the reason why, obviously, we could reduce the number of positions here in Geneva. So that is the way to go forward. Quite some companies have been showing that this is possible. We again did a benchmark just recently where we are standing, and we will implement the learnings out of this benchmark starting this year. So again, I'm here rather optimistic. When we are humble enough with respect to what we can learn from China, I'm convinced we will also be successful.

We have one question from the webcast from Denis Bauman from [indiscernible]. Regarding the strategic options to better understand the Board's approach, he asks what are the criteria you are evaluating to make a decision? And what are the points that would be non-negotiable or in other words, deal breakers?

We are -- in this context, obviously, the Board is taking the responsibility of its fiduciary duty. And in this context, we are looking at -- we have our stand-alone value creation plan, and we are obviously looking at what potential strategic options could be beneficial to the company, to the shareholders, to the employees and also to other stakeholders. And this is how we are going to eventually then evaluate such strategic options.

Good. Then thank you very much for your attention and for your time and for everybody who is here, I think we have prepared a little lunch here, standing lunch and looking forward to continue discussion here with you and during this. Thanks a lot.

Thank you.

Good morning, ladies and gentlemen, and welcome to the LEM Holding S.A. half year results 2025-'26. [Operator Instructions]

Let me now turn the floor over to your host, Frank Rehfeld, CEO.

Thank you very much. Good morning, ladies and gentlemen, and a warm welcome to the presentation of our half year results '25-'26. My name is Frank Rehfeld. I'm the CEO of LEM, and I'm here together with Antoine Chulia, our CFO. For those who are not yet familiar with LEM, LEM is providing sensors for measuring electrical parameters, namely current, voltage and energy, and with those help our customers and society to transition to a sustainable future.

Here, you see the agenda for today's presentation. After my opening remarks, I will give you more detail on the business performance of LEM. Antoine Chulia, our CFO, will then introduce the financial results. And I'm going to outline what we expect in the future as well as talk about the adjustments we did with respect to our midterm ambitions.

As you might remember, we had a tough start into '25-'26. Flat sales at constant currencies in comparison to the previous year. However, both the gross margin and consequently also the EBIT margin were under pressure in Q1. Despite not seeing a significant improvement on the top line in constant currencies in Q2, we managed to improve in Q2, both before mentioned KPIs and Antoine will go here in greater detail.

For the first 6 months, the 5.3% decline in our top line can be fully attributed to FX losses, whereas the segments growing and those declining were balancing out each other. We were in particular happy with the development in Automation, Automotive and Track and saw good momentum in China. We are also happy to share that we are fully on track with our Fit for Growth program that helps us to trim our indirect costs.

You might also remember that we reported a CHF 12 million negative cash flow a year ago and managed to improve the cash flow to CHF 5.6 million in '25-'26 first half. We will come to the guidance for this year that you see here in the numbers as well as the updated midterm financial ambitions at the end of the presentation again.

Now with that, let's move on to the business performance in more detail. Following our business structure, you see here the development of the 5 businesses in comparison to the same period in '24-'25. I will focus on the numbers in constant currencies, as you know, that LEM is doing about 40% of its business in renminbi. That has been strongly depreciating after the announcement of the tariffs by the U.S.A.

We are happy to share that the Automation business that started to slightly grow again after 4 rather flat quarters. Our Automotive business with strong focus to China has been growing by 9% H1 versus H1 last year, and saw an even more significant volume growth. And the Track business was growing even stronger. However, we also saw weak segments like Renewable Energy and Energy Distribution that I will explain in greater detail in the following slides.

On this page, you see the distribution of our businesses relative to each other. What becomes clear is that there has been movement in all businesses. Looking at our 2 biggest businesses first, Automation grew, in particular, in the second quarter nicely by more than 4% since inventories normalized and Automotive, despite seeing a shrink in Q2 in CHF, continued to grow in renminbi. The businesses in the smaller segments have been changing position. The very strong development of our Traction business has been making it our third biggest business, whereas Renewable Energy has been shrinking by 2 percentage points, similar to the Energy Distribution & High-Precision business that also lost 2 percentage points relative.

Now let's go through the businesses one-by-one, starting with our biggest business, the Automation business that almost represents 30% of our global business. You see a small growth in Q2 against Q2 last year, linked to normalized inventory levels, as already mentioned. This growth materializes mainly in power levels above 1 kilowatt for LEM and happens across all regions. Nevertheless, this a 3% reduction 6 months on 6 months that is to be attributed to currency -- in constant currencies, this business has been growing by 3%.

Our Automotive business saw a nice growth of 9% in constant currencies, 2% in CHF. Growth areas were China and Europe, where in particular, the Americas suffered from the policy changes the U.S. administration has been implementing. We continue improving our market position in China. We are working mainly with Chinese OEMs and Tier 1s that we are expecting to further expand globally.

We also saw positive momentum in Europe with increasing new energy vehicle sales and the ramp-up of some of our automotive products in the market. Rest of Asia depends very much on exports that were weak, in particular, towards the Americas, and we don't see a short-term change coming.

Renewable Energy representing now 14% of our global business declined in constant currencies by 15%. Despite growing photovoltaic installations, the average content of current sensing by inverter is going to further decline step-by-step and the price pressure is going to remain high. We are expecting this to remain a segment that is as competitive as Automotive.

The developments in Europe go into 2 directions. Domestic solar will be completely dominated by Chinese players and therefore, served by us in China, whereas large commercial projects will see European sources, and we expect that we are restarting to grow in this subsegment with our European customers. Notable are the positive developments in Rest of Asia, both in Japan and India with local government investments that we expect to continue.

The Energy Distribution & High-Precision business became our smallest segment with 13% of our total turnover, and it also continued to shrink at 15% 6 months on 6 months. The lion's share in this segment is the DC metering for fast chargers that remained challenging both in Europe and the U.S. as the new energy vehicle sales developed below the installation rates on the one hand. On the other hand, some of our customers also lost market share. The Chinese export business for DC fast chargers remained stable. The High-Precision subsegments were rather weak due to lower demand in automotive EV testing, whereas the UPS, the uninterruptible power supplies were nicely picking up with the increasing installations in data centers.

Looking at the Track business was the surely biggest [ fund ] in this quarter. This takes up now 17% of our total business and developed with a growth rate of 15% in constant currencies very positively. The development happened across all regions based on the ongoing investments into public infrastructure and the increasing standardization of regulations across Europe. The consequence of the standardization is that this requires to retrofit energy meters across all of Europe.

Projecting this business now from a regional perspective, we see important changes in comparison to last year. Our business share in China remained stable at constant currencies, however, shrank due to the depreciation of the renminbi. Therefore, it takes now 37% of our total business, 2 percentage points less than for the first 6 months last year. The segments Automation, Automotive and Track contributed, as previously mentioned. The Rest of Asia business showed a slight growth 6 months over 6 months and an even nicer growth in Q2 with more than 12%. The main contribution was coming here from traction.

Just to report here the progress of our plant in Malaysia. We are meanwhile producing the same volume than in Bulgaria despite the fact that the sales share is still substantially lower, and we see an increasing demand of customers who look for either a dual sourcing both from China and Malaysia or even a relocation of their production towards Malaysia. This confirms our strategic decision to set up this new site and that, on the other hand, is still burdening our P&L since it reduces the overall loading of our manufacturing footprint.

Clearly, disappointing sales in EMEA shrinking 7% 6 months over 6 months, where the reduction in EDHP and Renewable was balanced out by Automotive, Traction and Automation. The Americas numbers are including the tariffs that we are passing on to our customers, and the business is overall stable, albeit below expectation looking at the development in Automotive. Nevertheless, the successes with catalog distributors give us positive signals for the future.

With this, I would like to hand over to Antoine for the financial results.

Thanks, Frank. Good morning, everyone. Thank you for joining our Q2 earnings call, and I'm Antoine Chulia, Chief Financial Officer. I'm happy to walk you through LEM's financial performance for the period ending September 30, 2025, broadly showing a welcome recovery trend after some challenging results recently.

As Frank explained, at CHF 148 million, our sales declined by 5% in the first half of the year, which translated to a positive growth of 0.5% at constant exchange rate. Q2 saw a slightly higher performance at minus 4% or plus 1.2% at constant exchange rates. Our gross margin dropped by almost 15% to CHF 59 million in the first half, mainly due to Forex, price and mix, but Q2 showed early signs of recovery at CHF 30 million, down roughly 10% from Q2 last year.

Thanks to a large reduction in operational expenditures under the Fit for Growth program, EBIT reached CHF 11.4 million in the first half, of which CHF 7.2 million in Q2, an increase of more than 7% from the prior year. This represents about 7.7% of return on sales for the half year and just south of 10% for Q2. Now before restructuring costs, this margin is topping 11%.

As we reported in Q1, our gross margin slipped in H1 from prior year's level, just out of 40% of revenue. This is a 400-bps drop. Now we observed a 150-basis point recovery in Q2 following the Q1 drop due to price pressures pretty much across the business spectrum, but driven by China in renewable and industry in particular. We've explained some of these pressures by overcapacity in some of these markets, combined with an aggressive commercial stance since the end of last year but we've started to adjust towards a more selective approach. In addition, supply activity in Q2 is coming with better manufacturing and sourcing variance contribution.

Our SG&A spend landed on CHF 31.5 million for the first half, a sharp decline from the prior year by 13% and with further sequential savings in Q2. These savings are heavily concentrated on the general and admin expenses, both in personnel and non-personnel, leveraging reduction in force as well as productivity gains from our [ Pulse ] program with our recent ERP implementation.

In addition to the SG&A reduction, savings in R&D were achieved with Fit for Growth through a reduction in overall R&D personnel, but more importantly, an alignment of our footprint towards Asia. This yields a reduction of more than 20%, which is enabled by constant prioritization of R&D efforts as we aim to increase the overall R&D efficiency and time to market.

Our financial results improved by CHF 1 million to a CHF 30 million loss for the half year period. The loss is mainly driven by the service cost of our debt, but the improvement from last year stems from a more favorable Forex drag.

Income tax-wise, we're back to our historical effective tax rate performance around 18%, on par with last year's, especially in the second half. The first half performance last year was lifted by a favorable onetime affecting the country tax mix, both in expected and effective rates. So our overall P&L performance in H1 showed an overall compression from the prior year, landing on a net profit of 6.8% of sales, representing a 90 basis points drop. This flipped in Q2, though, thanks to a recovery on all lines, except for revenue.

Margin rate improved and both operational expenses and financial expenses decreased further, yielding to both operational and net profits well above last year at CHF 7.2 million and CHF 4.8 million, respectively. Working capital inflated due to large catch-up payments since March, including severance and separation costs in the context of the Fit for Growth program. Our net debt position improved in the meantime as we continue to derisk and deleverage this balance sheet and aiming for and lending above 40% equity ratio.

Aside from cost control, we focused our efforts this past semester on cash management, generating CHF 5.6 million in free cash flow to the firm from a large burn of CHF 11.6 million in the prior year. On a lower profit and EBITDA than last year and in spite of large restructuring outlays, we managed to stay on top and lift our operating flows and reduce our capital expenditures and tax flows. This cash flow focus will remain one of our core priorities in the current environment.

So with this, I'll hand it over to Frank, who will explain on how we see this environment moving forward.

Thanks a lot, Antoine. So let me now share our outlook for the business. Overall, the business environment is not substantially changing. We hear anecdotically about some positive outlook expected for 2026 in some segments. However, we don't see those reflecting in our bookings yet. Therefore, we remain prudent considering the volatile business environment as well as our -- and as the possible exchange rate developments and the fact that historically, the second half of our business was always weaker than the first.

Consequentially, we guide towards a sales range of CHF 265 million to CHF 290 million and a high single-digit EBIT margin as a result from the Fit for Growth efforts. We've decided to update our midterm financial guidance reflecting the developments in our market.

As a reminder for all of us, LEM's core market of current sensing has been going through different phases. For a long time, LEM has been acting in a niche market in which we had a rather dominant position. This was a small market with limited growth potential, however, very stable. Things changed once sustainability gained importance around 2018, where the market size as well as the growth potential increased. But at the same time, the market became also more attractive for additional competition. We saw faster growth in this phase and we were accordingly more optimistic with reference to our outlook.

COVID, the semiconductor crisis and the strengthening of Chinese competition was ending this market phase, and we find ourselves back in a new reality, a new market reality for us, our customers like the machine building industry or automotive as well as our peers to which we reacted with our Fit for Growth program that was launched a year ago.

So we expect now a market adjustment and stabilization to continue through '26-'27 and afterwards, an annual growth rate in the corridor of 4% to 7% in constant currencies. We target an EBIT margin corridor of 10% to 15%, depending on currency and market development since we will maintain strict cost discipline and focus on financial resilience.

What remains unchanged, however, is the base on which our strategy has been built. We are convinced that the trend to sustainability is going to continue despite the headwinds that we are currently seeing. We are well positioned to capture the growth that is eventually coming back from this megatrend towards electrification, renewable energy generation and energy efficiency. The important R&D investments that we made towards integrated current sensing, TMR as well as forward integration like the DC meter get encouraging customer feedback that gives us confidence that those investments will pay back. The importance to be close to our increasingly Asian customers as well as being fast is reflected in our footprint and the time-to-market improvements that we are seeing. And the manufacturing footprint, strongly Asia-based but balanced between China and outside of China enables us to flexibly react to geopolitical shifts.

I close here and would like to thank you all for your attention. Before opening the Q&A, I would like to invite you already for the 9 months earnings call on February 6, 2026. With this, we are ready to take your questions.

[Operator Instructions] And the first question is from Charlie Fehrenbach, AWP.

My question regards your midterm guidance. A year ago, you postponed your goals already for 2 years. You still mentioned there a sales level of CHF 600 million and an EBIT margin of 20% and more, which should be able to reach, I think, after the year '29 and 2030. Now you have the new guidance, 10% to 15% margin, and this growth perspective of 4% to 7%. So the old goals, can we forget about them, this CHF 600 million and this 20%?

Yes. Thanks a lot, Charlie for your question. So let's first understand that the business realities have been further, let's say, burdened by geopolitical decisions, tariffs. So the market reality has been changing. So do we -- you said, can we forget about the CHF 600 million? I would clearly say no. However, the time until this will be achieved is probably even longer than what we were believing a year ago. What is for sure not helping is that on the one hand, our core markets move more to Asia, but at the same time, we report our growth in Swiss francs, right? And every depreciation of the renminbi basically costs us several percentage points in our growth story. So I hope this answers the question.

Okay. Yes. You mentioned the sales now the EBIT margin of 20% also is something which could be reached far in the future?

I mean, let's be careful to talk about far in the future, in particular for EBIT because here the question is how the markets are further developing. As you've been hearing, business in China is, for sure, confronted with higher competitiveness levels and higher price pressure. So therefore, we've been moving 5 percentage points down at least for the foreseeable future. Whether this is possible again it's probably possible again to reach 15% to 20%, probably a bit too early to say.

And the next question is from Tommaso Operto, UBS.

So a couple of questions. I'll take them one-by-one. Firstly, maybe on Nexperia, I mean, there's been lots of headlines. Could you share if this has impacted you as well as the supplier?

Yes. Tommaso, so we were in the lucky position to be, for the time being, not affected. Obviously, we've been starting a lot of actions to see also how vulnerable we would be, what sort of second sources we have. And as you know, we do more than 60% of our manufacturing in China and Nexperia supplies out of China, out of Dongguan, and we were basically not affected and believe that potentially this remains like this because what I hear is that the situation becomes less critical than we were expecting still a couple of days ago.

Okay. And then maybe on your margin guidance, those 10% to 15% EBIT margin, what kind of gross margins does that imply? I mean you -- in Q2, you managed to go back to above 40% gross margins. Is that more or less what you can expect? Basically that would enable you to reach those 10% to 15%? Or is gross margins further improving from here in order to achieve those 10% to 15%?

Tommaso, I'll take this one. Yes, we're expecting 40% to be kind of the new floor moving forward. As we grow, and you heard our cautious stance here on future growth. As we grow, we should be able to expand on this one a bit. But remember that we're facing kind of structural headwinds here, especially if growth happens in Chinese markets and/or automotive markets, right? So we'll battle both these headwinds as we grow. The 40% is probably the new benchmark moving forward and anything north of this.

So better capacity utilization basically compensating for higher price competitiveness?

Right.

Okay. And last question on the full year guidance for sales, I mean, in H1, you achieved CHF 148 million. If I just would annualize that, it would be already clearly above the top end of your guidance range. Frank, you mentioned some seasonality impacting here. Is that really the main driver why you think H2 is going to be so much lower than H1 at the midpoint? Or is that also taking into account further FX headwinds or even potentially deteriorating end markets?

Yes. I think a very good question. And so in particular, one end market will be surely deteriorating, and this is the renewable end market because here, the feed-in tariffs will have -- or the abandoning of the feed-in tariffs in China will have a negative impact on growth for the Chinese market, for sure, not for the export from China, but at least for the local market. So there, we will -- we basically expect weaker numbers. And we also have indications that the Chinese market overall will potentially develop in the second half and less strong than it was in the first half.

And the next question is from Bernd Laux, ZKB.

Two questions I have left. One is regarding free cash flow. You have achieved the turnaround in the first half. Do you expect that to be continued, so free cash flow to also be positive for the second half of this year? And the second question is regarding your investment in integrated current sensing and in TMR in particular, you slightly mentioned you have made progress. Can you be more specific here and tell us about how far away are you from maturity so that these products can really be sold in large quantities into the market? And do you expect cannibalization of existing applications? Or is this only or almost only new applications that can be entered?

Thanks, Bernd. I'll take your first question on free cash flow. We're definitely expecting free cash flow to be positive moving forward. Thanks to a lift in our working capital performance as we keep focusing on these actions. And that's a very high-level summary, but it's been the focus of our efforts in the first half. So we're expecting to see more results in the second half from this. We're staying very cautious from a capital expenditure standpoint as well. So overall -- and we're expecting also probably less cash outlays from restructuring, right? So overall, we're cautiously optimistic here free cash flow for the second half.

Good. And I take the ICS TMR question. And for sure, you basically had a multitude of some -- sub-questions. Maybe allow me to quickly summarize the picture here. So this is the activity that we do in cooperation with TDK. And the products that we've been developing there together has now been sampled to several customers, both in the automotive and in the non-automotive business, and we've been receiving overwhelmingly positive feedback. Do we expect cannibalization? Rather not because our today's business in the area of integrated current sensing is rather small. So therefore, there is majority growth, growth, growth.

Talking about launch, so we will launch the product in 2026. However, looking into, let's say, the typical qualification cycles that we have at our customers, we should not expect now an enormous sales contribution in '26. Even '27 will be probably still a bit slow until really the applications are then picking up and getting launched and getting them in mass production. So I think here, we need to be a bit more patient. This market is not an, let's say, iPhone market where suddenly everybody switches to a new iPhone. These are rather slow ramp-up processes.

And the next question is from [ Raymond Renahon with Asaybanc]

Yes. Looking at your midterm new growth target in sales of 4% to 7% in local currencies, not in Swiss francs. I mean, given that you are moving more and more into volume markets, mass markets, there must be an underlying assumption here about volumes and prices. The only conclusion can be that volumes have to go up much more than the 4% to 7% that prices, of course, then on the other hand, will continue to go down. Is that the correct assumption?

Yes. I think -- thanks for the question. I think this is precisely the correct assumption. By the way, not a surprise for a component business, where you see regularly a price down per measuring point like we also see. And the more this business becomes in Chinese business, and the more volume increase you need to see a bit of increase in the sales eventually, yes. So that is exactly the right assumption.

Okay. Now could you share these assumptions with us? I mean there must be numbers behind this 4% to 7% on volume assumptions and price assumptions you have baked into that?

Unfortunately, we cannot share them. You can imagine that these are also relevant, not only for you, but also for competition. And let's be honest, we have seen certain developments in the past and for sure, taking them, extrapolated them into the future, whether all that holds true, it also depends a little bit on the product mix, the more, let's say, high-value products like a DC meter come in, that also distorts the picture. So it will be not that easy to construct here a picture.

Okay. when looking at the margins, I mean, taking out the restructuring costs, you should basically already be around 10% EBIT this year. I mean if you say high single-digit EBIT margin, but there are restructuring costs still there. So basically, net of restructuring, you would already be at the lower end. So from that perspective, you should reach the lower end clearly next year, right? That is the first one.

And then the second question, looking further in the future, it is a race between catching up the lower price levels, which will go down further versus operating leverage. I mean, higher utilization rates. They have to overcompensate the price pressure. That is basically what then results in the margin, right?

Yes, that's right. You're basically confirming the bottom and the floor of our guidance. So that's exactly what we're seeing. So we expect to be at 10% post -- well, post and pre restructuring actually moving forward, right, at current levels. There's -- the uncertainty here on the price front is actually -- we're looking at the net contribution of price and cost, right? So basically, the difference between what we're able to save on throughput costs as opposed to how much we're giving away. I mentioned that we can extract from the market. And we expect that to be a slight negative moving forward. Obviously, in the scenario where we're growing in more competitive markets, it's going to be more of a negative. But that's basically the main reason why we don't want to signal too much of an upside from the bottom, right, from the floor of 10% as well as you noted, there's upside if the content of that growth is favorable.

Remember also that we are quite highly leveraged from an operational standpoint, which has affected us in the short-term since our investment in Malaysia. It is actually a good thing moving forward as we expect to leverage on that fixed base of manufacturing costs, right? So that's one, that's another driver that would offset some of this negative net cost impact.

[Operator Instructions] I would like to hand over for the questions from the chat.

We have a question from [ Jose Veros ] who is asking if he could give some color regarding the restructuring program going forward and what cost base we target in the next 2 years?

So we -- thanks for the question. We intend to fully execute Fit for Growth. We're not quite there yet, even though we've seen some strong contribution to the P&L so far. So we will -- first, we will execute Fit for Growth as intended in the coming months. Our objective is to defend the current profitability level, as I was explaining in the previous questions. Hence, adjust our cost footprint depending on the sales development. And that's the key here, right? Everything depends on sales development moving forward. So we've shown that we're able to adjust to lower volumes and be cautious and selective with our spend. So we'll continue doing so. But no one knows at this stage what the future holds, right? So we will continue to be extremely nimble and flexible with our cost base.

Then we have a second question from Jose Veros who is asking if you could speak a bit about competition, how is LEM differentiating vis-a-vis other players? And if there would be a way to target more niche markets like in the past in order to avoid high competition?

I think a very good question for sure, referring a bit also to the strategic reflections that we have in the team. So LEM differentiates clearly by having the widest portfolio in application, having customer closeness across the world with all our American, European, Chinese customers, and having the application experience and basically having probably overall the biggest scale that we have in terms of applications, products, but also volumes. And this brings us into the privileged position that the products that we are defining are really very close to the customer needs and allow us to basically deliver really what customers expect that the rounds of optimization are reduced. And we clearly see this reflected in the feedback that we are getting from our customers.

Now talking about the niches versus, let's say, the big volume. I think in the past, LEM has been always playing in both areas. And I think we also have to -- and on the one hand, the level of competitiveness that you need in order to be successful in the Chinese market, I think, is a must and an important reference or benchmark to understand where we are. And at the same time, for sure, you try to discover more growth areas, be it in smart grid, be it in new technologies like TMR, where we also basically then see the next level of development. To only do niche business will not allow us to be really on a competitive scale. So I'm deeply convinced we need to do both.

Then we have a third question from Jose Veros regarding M&A. Would LEM consider M&A? And if yes, how would this be financed?

Maybe I take this. We've been saying in the past, we would not go for M&A in order to increase our sales turnover. And I can tell you that there are a couple of competitors on the market where basically the mother companies look for alternative solutions, but we don't really consider this as the right way moving forward because we would in the midterm lose their business because customers would then look for other alternatives when that all goes to them. So here, our customer strategies actually speak against such a growth option. However, what we said is when we see technologically and that partnering or M&A would make sense, then we would move forward. And you've seen this when we, for instance, been acquiring R&D teams in Munich in order to strengthen our ICS capabilities or when we moved into the partnership with TDK in order to bring the ICS business forward.

Then we have received a question from Gian Marco Gadini from Kepler Cheuvreux.

Could you give a bit of color on the impact of volumes and prices on revenue in Q2 and H1 of '25-'26?

Yes. Thanks, Gian Marco. So this has been a hot button here since Q1. And I think not just for them, by the way. We've seen a large price drag in most markets in the past 6 months, but it's been led by our Chinese business, especially in Automation and to a lesser extent, in Automotive. So this impact has somewhat slowed down in Q2 as we've been more selective and prudent in our commercial efforts. Also remember that there was a demand trough in Renewable in China following the end of the feed-in tariffs, and that resulted in overcapacity in the market and the corresponding price pressures.

Now overall, you can think of our flat revenue performance as a 4% to 5% volume increase, offset by 4% to 5% price drag in the first half. We expect this level of delta price to reduce moving forward to improve moving forward as we're learning to operate in this kind of environment. I hope that answers your question.

There's a second question from Gian Marco, whether we are able to reallocate production capacity from one segment to another to offset negative developments of specific segments like Energy Renewables?

I would answer the question with partially yes. So we don't have -- or we try when we plan product and plan our new developments to allocate those products not only to a single market. This sometimes works, not always. And this -- in these cases, we have the opportunity to basically shift demand between different segments. However, with increasing volumes, the -- let's say, specific solutions that you need in order to be competitive and that eventually also create payback, this is increasing. So also the more and more specific very segment directed products need to be developed in order to be competitive. Right. I hope this answers the question.

And then we have a question from [ Thomas Boorie ], who's asking whether the goal for R&D is still 8% to 10% of sales?

Yes. So that's still the sort of range in which we operate. Obviously, when you suddenly see a dip in your top line, it looks like an artificial inflation of your R&D cost. We obviously don't then trim digitally the percentages down. But we believe that for a company active in the high-tech sector, that is a healthy amount that we need to invest in order to remain competitive and prepare for the future.

So operator, we have no more questions in the chat. So there are more questions in the telephone conference.

There are now new questions in the phone conference. One is coming from Miro Zuzak from JMS Invest.

Can you hear me?

Yes.

I have a couple of them. I take them one-by-one, please, if I may. The first one is regarding the range that you have given for sales in the current year. It's quite a range. So CHF 25 million from CHF 265 million to CHF 290 million. And if I try to model the lower end now in the segments, it's really hard to model the lower end in the sense it would be really a collapse more or less in the sales. Is it fair to assume that the lower end is really like really the lowest that you could imagine? Or are there scenarios where you think could be even worse? I'm also reflecting on the comments that you made on China and also on the fact that China was flat on a constant currency basis year-to-date?

Good. So thanks, Miro for your question. Now true, the range is a rather big range. Now unfortunately, we've been seeing a lot of rock and roll in the market in the past. And unfortunately, 2 weeks ago, we were even not clear whether the whole electronics business would not see a more severe hits based on a player like Nexperia basically not being able anymore to deliver. So we were considering all this, considering the uncertainty from the exchange rate and therefore, came up also with a guidance that rather have this big range. But it's true. We work every day on actually rather being at the higher end if this is possible. So that's where we are standing. But unfortunately, the last probably 12 years have been teaching us that we were also probably sometimes a bit too positive in our expectations what is still possible in this market.

Okay. Very clear. And connected to that, and second question regarding the EBIT guidance. So high single digit implies 7%, 8%, 9%, something in this range, which is not such a large range. So it seems like there is not much operating leverage in the top line regarding your incremental margin. Is it because like the less secure or the areas with the least visibility has the lowest margins?

It's a good question. Look, I think it has to do also with the -- again, the content of the growth, right? We are being cautious here price-wise. We are defending our price levels. The top end, the high end of our sales guidance I think might assume some or it may include some more, I'd say, aggressivity price-wise, right? And so obviously, we would benefit from the volume, but this would be a scenario where we're operating at current prices or even or slightly lower prices in some segments. So that would -- the tailwind on volume and on operating leverage would be partly offset by the price drag.

The other around, it works too, right? So the low end of the range is -- we would definitely defend our profitability and defend the low volume and the low cost coverage through more selectivity price-wise.

Very clear. And third question, if I may, you elaborated on the 40% as a floor for the gross margin. Now looking into the upcoming 2 years where you gave guidance on EBIT, it's almost unthinkable to or even possible to model 15% EBIT margin, taking only 40% gross margin? Or is the cost lines, the G&A cost really to decline even significantly further than it already did in Q2. I mean you did a great job. We can see that in the numbers. But is it -- can you elaborate on that? Would the 15% imply a higher gross margin than 40%?

Yes, there's -- definitely, yes.

Okay.

To reach 15%, we would have to generate more than our floor for margin, yes.

And the last question regarding cash flow and net debt. So your net debt went down by CHF 5 million more than the cash flow statement would imply. And you can see that on Page 13, if I'm not mistaken, in the report, the fair value changes and others, CHF 4.8 million negative number, which declined or decreased your interest-bearing debt. Could you please explain what that is?

There's a Forex lift on this one. I mean, lift -- some of the improvement is coming from Forex, the same way it's impacting our sales the other way, right? So that's the biggest contribution.

But that means that would be, for example, U.S. dollar liabilities or Chinese renminbi liabilities that you have?

Yes, there would be non-CHF liabilities.

And which currencies is it U.S. dollars or Chinese renminbi?

It's a blend, and it's -- yes, some of that is renminbi, yes.

And the last question is a follow-up from Tommaso Operto, UBS.

Just a quick follow-up on the Fit for Growth program. I mean this cost program was -- so I mean, I apologize in case this is repetitive. But what I didn't quite understand, it was announced a year ago when you still had a different midterm ambition or a guidance of the CHF 600 million. And now you kind of adjust to this new reality. So my question is, does this mean -- does this new top line guidance indicate that potentially there would be an additional cost program? Or are you still fine even with the new market reality with the current Fit for Growth program?

Right. I think very, very good question, Tommaso, I think probably one cannot be repetitive on this question because it's one of the -- let's say, really complex topics. So you remember, we basically started to implement the program in -- planned it in November and then basically saw some effects in Q4 where we saw the restructuring cost and the positives we started to see in April. Now this program runs according to plan, and we clearly see that we are saving the planned range in this financial year and also go for further savings. You remember, we said CHF 18 million to CHF 22 million in '25-'26 and an additional CHF 15 million then in the next financial year. So that's what we currently plan, and that's what we are all aligned about.

Now it depends for sure how the market is developing. At the moment, we don't -- clearly don't foresee any further restructuring necessary because we do have a base that will allow us to go forward in the way we've been planning this. But again, therefore, also, you remember we were cautious with '26-'27. On the one hand, we hear positive, I called it anecdotically evidence that maybe '26 comes better, but our bookings don't show that yet. So therefore, we rather talk about the stabilization this year and then a pick up and then after '26 and '27. So that's basically the current planning base. But when this, for whatever reason, would be again put into question because geopolitically short-term something happens, then a potential further restructuring could not be excluded.

Okay. Got it. And then a last question on order levels. And I mean, in Q2, orders were sequentially down quite significantly, right? And at the beginning of this fiscal year, you started to take into account different shorter-term orders as well, and yet they have declined so significantly. So could you maybe elaborate where that cutoff is and how we can kind of compare the current order levels to the levels a year ago?

I mean looking at orders, and you remember what we already exchanged in previous discussions, the times where you can mathematically take order levels and then extrapolate them and mathematically say that is then exactly the sales is getting increasingly difficult. I give you a couple of examples, what we saw when, for instance, the tariffs were announced is that some important OEMs, car OEMs were canceling certain new energy vehicle car lines or pushing them out. We saw suddenly drops in our Rest of Asia business that is mainly guided towards exports into the Western market. So we saw quite some surprising effects that then also were reflected in the order book with negative orders of pushouts and cancellations. So therefore, unfortunately, lead times are a bit difficult to simply extrapolate out of the orders what then the real sales is going to become. Hopefully, you can live with this level of uncertainty as we have to.

And Tommaso, things are technically comparable, right, year-over-year. I think what we're looking at here is -- this is a reflection of the subjective part of how we book orders. And here, the keyword is caution, right? We've learned from the noise in the market and in customers' behavior in the past 6 months. We are being very cautious with how much orders we're capturing in our book and especially as the long-term visibility is very, very muddy, very blurry, right? So overall, we're seeing less visibility. So we're being more cautious in how we're capturing orders.

Right. Looking at the time, I would like to thank each and everybody of you for your interest in LEM, for your time, you've been invested to follow us here, and looking forward that we stay in touch and that we latest talk again on the 6th of February. Thanks a lot and have a great week. Thank you. Bye-bye.

Thanks, everyone. Bye.