LEM Holding SA (LEHN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the half year results 2021/2022 conference call and live webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Frank Rehfeld, CEO. Please go ahead, sir.

Good morning, ladies and gentlemen, and thank you very much for joining this webcast. We would like to introduce LEM's half year results of our financial year '21/'22. My name is Frank Rehfeld. I'm the CEO of LEM, and I'm here together with Andrea Borla, 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 our customers and society to transition to a sustainable future. Now here you see the agenda for today. After my opening remarks, I will give you more detail on the business performance of our 2 segments. Andrea Borla, our CFO, will then introduce our financial results. And I'm going to outline what we expect in the future afterwards. Well, after 2 years of shrinking top line, we are very happy that we can announce that we have really restarted to grow again. That this growth is happening in a still challenging environment is needless to mention. I will talk in greater detail about the component shortages and the logistic challenges that we are facing. But at the time, we see strong signals that the megatrends that are the base for LEM's growth story are even further accelerating, be it in the area of renewable power or in the area of new energy vehicles, where we see an increasing market acceptance. Already, our Q1 figures were showing a strong business rebound, and this has been continuing also throughout Q2. And this across all regions and all businesses. We are, therefore, very proud to report record sales and profit in the first semester. We are particularly happy how well our DC meter is getting accepted by the market and how quickly the pace of vehicle electrification is accelerating. Despite the overall top line growth of 27% that I will explain in greater detail in the business section, we could have grown in the last 6 months even more by probably another CHF 10 million to CHF 20 million if we would have had all components available in time. Similar to many industries, also for us, the shortage in semiconductors has been the biggest supply challenge for both our fabless business, the integrated current sensors and also our assembled sensors. Our order book is further increasing and reflects both the business momentum and the increasing lead time for components since we have been asking our customers to adjust their orders to the component lead times that we are seeing. Now this chart here shows the Purchase Manager Index (sic) [ Purchasing Managers' Index ] for the global manufacturing industry. Values above 50 indicate growth, whereas values below 50 indicate economic contraction in the manufacturing industry. We see nicely the V-shape recovery associated with the corona pandemic and the return to a positive climate during the last months. As much as we all like the fast recovery after the Earth slide caused by corona and the corona lockdowns, this unfortunately has also been one of the main causes for today's supply chain challenges. Industry and automotive assembly companies have been trying to minimize the inventories since nobody could have foreseen when the economy would pick up again. At the same time, the consumer electronics market was going through the roof to satisfy the demand for home office, hardware and private demand. Therefore, the restarting industry supply chains during the upturn were superimposing, I think, the increased consumer electronics demand. Consequently, we saw the effects in both segments. However, stronger in our Automotive segment than the Industry segment. In Industry, mainly the high-demand businesses, drives and renewables, that are strongly rebounding were affected. Due to our wide product portfolio, we could at least partly offer alternatives yet compatible products that were less affected by shortages in order to satisfy customer demand. For many product families, we also requalified alternative components and tested them with our customers in order to minimize the effect on their customers. The situation in Automotive was more severe, in particular in the area of battery management systems, since one key supplier not only suffered from the corona effects but, in addition, from devastations caused by weather. The nature of the component, microcontroller and also the heavier automotive processes did not allow to easily find replacements here. The capacity buildup in the semiconductor industry will not be fast enough to meet the worldwide 2022 demand. Therefore, we see here and there improvements, but the shortages are foreseen to stay throughout the next 18 months and even longer for the semiconductor industry. That means that we are continuing to work on solutions with our customers to overcome the allocation situations. How severe the situations will be for each of our businesses is difficult to say and will also very much depend on the global economic development in the next 12 months, in particular in China where the growth starts to slow down. We believe that the ability to deliver is becoming an increasingly important [ USP ], and therefore, invest in second sources as well as additional production capacity. Now with that, let's move on to the business performance. LEM is delivering its sensors into the following core applications: motors and drives, power storage, renewable power generation and energy conversion and energy metering for traction application and fast-charging stations for electrical vehicles. We are organized in 2 business segments, Automotive and Industry, where Automotive has a share of about 22% of the total LEM turnover in H2 -- in H1. Both segments were growing by more than 27% in the first semester, and the currency impact was very similar for both Industry and Automotive, leading to 25.4% growth in constant currency against last year first semester. Looking at the geographic spread of our business, the picture has not been significantly changing against what we reported in 2021 year-end. Apparently, all regions were growing with a comparable double-digits speed. Just Europe gained 1 percentage point from North America that grew slightly slower. China is and remains at 38%, our single biggest market, followed by Europe. You will see the contribution of the Industry and the Automotive segment to this picture in the business performance section. Now let's look deeper in our 2 businesses, starting with the bigger one that makes 78% of the total sales. While talking in the full year review in May 2021 about a reduction of more than 6% on the top line, all businesses have a strongly growth recovered in the first semester except probably the traction business. Drives business that was weak throughout the last 2 years strongly rebounded with 40% since the delayed investment in the industrial and consumer sectors are now getting realized. Amongst those, also the investment into the semiconductor capacities are reflected here. The renewables sector was mostly driven by solar from China and the investments into the European vehicle charging infrastructure. The traction business only slightly grew by about 3%. However, this is in line with the overall traction market development that is still slow at the moment. Nice growth also in high precision mainly driven by testing/measurement equipment for the automotive market. Now projecting this picture from a regional perspective, you see that Europe has been seeing the fastest growth and all other markets grew slightly less but still strongly. The growth in industry even accelerated in Q2 versus Q1. However, we continue to see inventory fill effect after the stocks were depleted in the last years. With 35%, China remains the single biggest country for LEM industry sales as well, whereas Europe gained 1 percentage point and is now the strongest region for the industry activities. Obviously, all regions benefited from the return of investment confidence and reflect strong customer demand. This is as well confirmed for the U.S. with almost 33% growth in Q2. We're continuing to launch new products, and I would like to mention here the HOB, a product with a high bandwidth, up to 1 megahertz that serves the trend towards faster switching frequencies and miniaturization; the LWSR, a closed-loop transducer and/or current sensor -- closed-loop current sensor for 300-kilowatt solar inverters; the CDSR, a residual current measurement sensor as well for solar but also charging applications; the HTRS for the trackside market within traction; and the ARH for our Smart Grid customers. Now let us look a bit deeper into the second business segment, the Automotive business. Now often Automotive, you see very nice growth throughout all applications. The main driver for that is the increase in customer acceptance for new energy vehicles. Consequently, EV and hybrid car sales where LEM is designed in are picking up, and we see this reflected here. While motor control and charging systems grew at a speed of 50%, the battery management application developed substantially slower. The reason for that, as already mentioned, was, on the one hand, the microcontroller shortage and, therefore, the delays in the buildup; and, at the same time, the foreseen reduction of our combustion engine business in the U.S. The bookings nearly tripled against the first semester 2021, a good indication that there's a continuing strong momentum in the market. Looking at the global distribution of our automotive sales, you see the importance of China is further growing. Within the enormous growth momentum of 60% in the first semester against the same period last year, admittedly from a rather low base last year, China is now responsible for almost 50% of our sales in the Automotive segment. Also, the automotive market in Europe has shown strong growth driven by the CO2-free targets that the European car manufacturers have to achieve. The U.S. market has been growing nicely, however at a substantially slower pace since the adoption of new energy vehicles is still taking time there. And unfortunately, the rest of the world markets, namely Japan and Korea, have been heavily impacted by the supply chain limits. Now we also work on our product pipeline in Automotive. The products that you see here for battery management and motor control are prepared for the trend towards more competitiveness and lower cost per phase. The CDT series responds to the need for the measurement of residual currents also in charging systems in the car in order to protect the user as well as the infrastructure. With this, I would like to hand over to Andrea, who will introduce the financial results in greater detail.

Ladies and gentlemen, good morning also from my side. As the Group CFO, I'm very pleased to present attractive financial results for the first 6 months of the year, which are in line with the overall analyst expectations. Let me summarize the financial highlights in 3 points. First, the strong sales have been a key driver in achieving rapid profitability; second, LEM holds a continued strong balance sheet, reflected in a healthy equity level despite a CHF 48 million dividend payout in last July; and third point, excluding a nonrecurrent tax payment, both the operating as well as the free cash flow grew very nicely. Gross margin. The gross margin in absolute value increased by CHF 20 million from CHF 65.5 million to EUR 85.6 million. In respect of the gross margin in percentage, we have gained 1.1 percent points. What are the main causes for this very positive development? Post-production efficiency improvements and scale effects helped to drive the gross margin upwards. Those improvements were somehow dampened by higher input costs. We expect the material cost to further rise during the second half of the year and also next year. And we will have to pass on those cost increases to our customers in order to defend LEM's profitability. Our 2 low-cost locations situated in China and Bulgaria cover 80% of all sensors produced by LEM. The percentage of our low-cost locations is expected to increase in the future. SG&A. The SG&As could be reduced from 17.6% to 15.4% as LEM achieved the 27% sales growth with limited additional structure costs. We are working on several automation and process improvement initiatives, which shall allow LEM to grow the SG&As underproportionally during the coming years. The R&D expenses increased by CHF 2 million, confirming the willingness of not jeopardizing LEM's future growth by optimizing its short-term profits through R&D cost cuts. We focus not only on renewing our current product portfolio but as well on developing new product families, addressing new markets and applications in the future. Some exciting new product families, such as the DC meter, LEM's very first integrated current sensors, have been very, very welcome by our customers. Going forward, R&D expenses are expected to remain in the 8% to 10% range. Similar to last year, LEM did not suffer from any major negative exchange effects. LEM's policy is and continues to be to fully hedge the net exposure of the cash flows nominated in U.S. dollar, euro and the Japanese yen. As LEM has only limited third-party debt, the interest expenses remained modest. The main element of the financial expenses relate to expenses on our lease liabilities. The first half year effective tax rate is at 15.7%, close to 2% points lower than last year. The main drivers are a favorable mix, meaning higher profit share in low-tax countries; and some tax credits from our R&D center in France. We continue to benefit from the HNTE's tax status in China, which results in a reduced tax rate of 15% instead of 25%. LEM China is currently applying for the HNTE status prolongation for the years 2022 to 2024. And here, you find the full P&L for both the half year 2021/'22 and the Q2 on the right side of the table. LEM's momentum continued during Q2 with quarterly sales at CHF 90 million while, at the same time, further improving our gross margin to 47.5%. EBIT and net profit of Q1 and Q2 are very much at the same level. When comparing also the first half year financial figures with our pre-COVID record year 2018/2019, which was 3 years ago, LEM could increase its top line by 9% and its EBIT by 18% during this first half year '21/'22. What are the key points on LEM's balance sheet per September 30, 2021? The equity ratio dropped from 50% to 45% into the first 6 months of the year, and this is the consequence of the dividend payout in July, but improved by 5% points compared to 12 months ago due to the high H1 net profit. Second point of attention per end of September, the net debt of CHF 45 million consists of CHF 27 million cash on hand and CHF 72 million current financial liabilities. LEM plans to substantially reduce the net debt before end of March 2022, and this thanks to the free cash flow to be generated during the second half of the year. Talking about the cash flow. Here, you find the overall cash flow statement for the first 6 months. Excluding a nonrecurring tax payment of CHF 27 million, which -- where we had the cash out in the first half year, both the operating as well as the free cash have increased compared to last year's first semester. The main drivers for this improvement are the increased profitability and the better net working capital management. In summary, we are very pleased with LEM's first half performance reflected in continuous sales, profitability, balance sheet and cash flow improvements. You may now wonder what the future will bring to LEM. For that, I'm happy to hand back to Frank.

Thank you very much, Andrea. Yes, what do we expect for the total financial year '21/'22? Now first of all, the long-term trends on which LEM is basing its growth remain valid and even accelerate with the commitment of more and more countries towards a more sustainable way of running their economies and their CO2 neutrality time. This gives us confidence to invest now into R&D, extend production capacities and floor space. Now based on this strong first semester, the typically weaker second semester in the LEM financial year, we foresee sales in the range of CHF 340 million to CHF 350 million and an EBIT margin of about 20%. Precondition for that will be that the shortages in the supply chain will not get worse but rather gradually improve as we see that at the moment, that there is no significant deterioration in today's trade conflicts, and for sure as well that the COVID situation will not get worse and lead to further severe lockdowns. With that, I would like to thank you very much for your attention, and we'd like to open now the Q&A section.

[Operator Instructions] The first question comes from Michael Foeth from Vontobel.

I actually have 3. The first one is relating to your comments on production capacity. You said that you're investing in more floor space. How much exactly are you planning to invest? And by how much will your production capacity or output capacity increase as a result of that? And maybe you can indicate what sort of theoretical output volume you can generate once you're done. And the second question maybe relating to that is I'm wondering, you mentioned that approximately CHF 10 million to CHF 20 million of additional revenues could have been generated in the first half without the shortages and supply chain constraints. And I'm wondering if you're expecting in the next fiscal year a catch-up effect, so further acceleration of growth, if the supply chain constraints are improving or easing, or if the demand patterns just sort of gradually then evolve going forward. So is there a step change basically that you're expecting or not? And the final question, if I may, would be regarding the rollout of the DC meter infrastructure or charging infrastructure. What sort of growth pattern are you seeing there? Is it a big push now? Or are you expecting a gradual growth pattern going forward in that segment?

Good. Thank you very much, Michael, for attending and asking these very comprehensive questions. Now I try to sketch it as extensive but, at the same time also, as compact as possible. Now production capacity, following LEM, you probably remember that we've been announcing that we plan to do an investment in LEM Malaysia for 3 reasons: first of all, to derisk our manufacturing setup that is today with more than 60% very prone to China; secondly, to really gain additional space; and thirdly, because the right competencies, in particular for our integrated current sensor portfolio, are to be found in this area where we are going to invest, which is in Penang. So looking at the order of magnitude, we plan to really, at their sufficient space, to house there the next 5 years of growth. So the step is really a substantial one because we are convinced that what we see in the markets independent from, let's say, any short-term effects will allow us to substantially grow. Now talk about square meters, probably might be misleading because we are having a lot of effects there, on the one hand, talking about increased, let's say, turnover per square meter because we go into higher-value areas. We talk about fabless production in the ICS area, where we will only do testing in-house. So I think this will not help really to also improve your model. But I think with this, you have an idea about the order of magnitude, what sort of turnover we can basically place there in the years to come. CHF 10 million to CHF 20 million of additional sales. Do we see a step change in terms of the supply chain situation? The answer is a clear no. We don't expect that the supply chain situation will easily be changing. We see some positive signs with all of our suppliers, but we also still see, let's say, ripples in the reliability of some forecasts. So not an important part of our organization throughout all functions is very much investing into basically making sure that the supply chains are running smoothly and that we are getting our components in time and that our customers are getting their basically products in time. So we don't expect really a step function there. And then last question, I think, was referring to the rollout of the DC meter. Now first of all, I think it's a very nice experience to have built up LEM Tech France in basically 2017, developing their products, increasing substantially LEM competence and seeing so quickly a return on this investment. So that's something that also, yes, I would go so far to say makes us proud of what we are capable to do. Now the growth pattern is also here not that easy. At the moment, we've been investing substantially into own capacity. We see that at the moment, our -- even our big customers, and we talk about multibillion companies, are not able to even get their systems up and running. So I think here, we see a big push, but probably the growth will be stretched out over really a couple of years to come because the system complexity that goes along with the installation of a fast-charging infrastructure should not be underestimated. So Michael, I hope I got here a comprehensive answer to the questions you had, but please come back with me when there are still some details that you would like to get.

That was very helpful.

The next question comes from Reto Huber from Research partners.

I have 3 of them. The first one refers to the gross margin where you mentioned that an efficiency program has helped to increase the margin. I was wondering, how much of the increase is due to price increases or whether price increase was one of the -- or another reason for the expansion? And then the second question refers to the long-term solutions with your customers to work around shortages. I was wondering, what do these entail? Then the last one, the tax credits in France. Maybe you could explain this again. I'm just wondering there, are they going to recur on an annual basis?

Okay. So I propose that I take question 1 and 3. So in respect -- the question was in respect of the impact of price increases on the gross margin. In the first 6 months of this year, the impact was still limited both on, let's say, our input costs being increased and also what price we pass on to our customers. However, as I said, we see that this will now come in the second half of the year and as well into next year. We will be faced with important input cost increases, and we will -- our challenge, our ambition is, of course, to hand and pass on these input cost increases to our customers to defend the overall profitability. In respect of your third question, to the tax credits, yes, let's say we have set up an R&D center in Lyon in France. And let's say the overall environment in France is quite favorable for R&D investments where we get important tax credits. Now this higher impact in these first 6 months is really due to that we have an increased amount of projects which are -- let's say, pass the test of these R&D tax credits. Going forward, unless the tax environment in France will change, we can expect that this will continue going forward as the LEM Tech France site will remain a very central R&D center within the LEM group world.

And Reto, if I take your second question, long-term solutions about shortages. So I think here, one needs to look into the different order of components. When you need to replace or find a second source for a microcontroller, this is something that really takes time and where basically you are typically bound in an order 1 to 2 years easily in order to develop your alternative solutions, in particular when these apply to the Automotive business with -- and there are basically qualification and release processes. For components that are not as complex as microcontrollers, where you need to redevelop a software, we constantly work now and we even stronger implement second source policies. LEM has the advantage with its big product portfolio and also the large number of transducers to still make that a viable business case without suffering too much from negative cost effects. So we basically really work on both the area of semiconductors but also our other components to make sure that when we see potentially such supply chain challenges again in the future, that we are even better able to react to that. So that's the activities that we do. But you can imagine we are on the phone day by day throughout all levels to basically discuss with our customers how we can make sure that their lines are not stopping.

[Operator Instructions] The next question comes from Serge Rotzer from Crédit Suisse.

I have 3 questions I will ask one by one. So the first one is on orders. When I add Q1 up with Q2, then you have about CHF 300 million backlog, if you would like. This is among the highest backlogs you ever had. If I compared it with 2019, it was only CHF 20 million higher for the full year. So the question here, how should we understand now the revenue recognition? Or can you tell us a little bit about the lead times? You always said that lead times increased, but it's really difficult to us to change it into sales. Could you give us there some recommendation or what you have seen so far? And then with orders as well, what's the situation about oversubscription? How much is firm orders? As Frank always mentioned in the past, that he believes that some are not firm orders or oversubscription. And with that probably on orders, what -- how much is from new customer? Or is all -- are all the orders from existing customers? This is question one.

Good. Already a pretty comprehensive one. Thank you, Serge. Now you're completely right. There is a high backlog of orders. When you see where we come from that, in particular in the semiconductor areas, you had lead times for components in the order of magnitude of 12 weeks. And this has been now extended towards 1.5 years. And then you can imagine what the consequences for the overall market are. And we basically have exactly this not 1:1, but, let's say, from an outlook perspective, it tended to reflect it in our order book. Oversubscription, I think it's -- this is always very, very difficult to make here a statement. I think one can -- when we talk to customers and ask what they see as oversubscription because it's eventually them who give us their feeling, then you hear something like it could be in the order of 10% to 20%. But for sure, you should also not underestimate that also they have been emptying their stocks. So let's say not everything that looks like it first goes into the stocks and not immediately into production will not be realized. So I think probably with this, giving you an order of magnitude of what we see here in the market. Does this answer your question?

Yes. And how much is from new customers and existing customers? Is there a big change, difference to the past?

Again, I think that is also not that easy. I wouldn't have immediately a number yet because it really mixes throughout quite a wide portfolio. I think we are probably in the order of magnitude of probably 20% minimum from new customers, both, and this is important here, in the industry and also in the Automotive area. But it's clear that we are, in particular with the new products, still in ramp-up curve. So for sure, we expect that these portfolios are further growing.

Okay. Then, when we turn from orders to sales, based on your guidance, you will see a year-over-year -- you will see a sequential decline of 12% in second half. And you mentioned, on the other hand, that you could do CHF 20 million more in the first half. So from CHF 200 million down to CHF 160 million. So this will -- how should we -- what's the explanation exactly for that? Still supply bottlenecks? Or is it then based that your order backlog has lead times which goes into next year mainly? Or -- please help me somewhere.

Yes. So the main assumptions based for our full year forecast is the supply chain situation will not improve over the next 6 months, and we have no signals at all that this is improving. So this is the main assumption. We will not be able. Second assumption, I think this was mentioned or -- also during the call, is that the second half of the year is always and has always been weaker than the first half of the year. And on this basis, that's what we forecast, to have a, let's say, a slightly less strong second half of the year than the first half of the year.

But do you see all this to recover in next fiscal years? Or do you see more steady development going into next fiscal year?

We rather see a steady development. So -- yes, there is no -- there are no jumps to be expected because just imagine the investments necessary to extend the semiconductor activities are in the area of billions. The number of suppliers who can do that are limited, and certain things just need a certain time frame. So I think 18 months is the minimum that I expect until the supply chains are, let's say, back on a balanced situation.

Okay. Then probably the last one here. Well, in second half, we see lower volumes, so less leverage. And we see a rising input cost. Does -- this will bring the EBIT margin then below a 20% level as you're guiding? Or is this a wrong read-through?

Okay. So you did the math correctly. Let's say the input cost is only one area. Of course, what we also will be faced in the second half of the year, on the one side, let's say the low volume but also, let's say, the overall R&D expenses, the overall SG&A expenses, they will rather increase in the second half of the year because we will continue to invest to prepare the organization for, on the one side, important transformations and to -- really to grasp, let's say, all the growth opportunities we see over the next 5 years. So we -- on the one side, you'll see the overall cost block slightly increasing; on the other side, the sales increase in the second half of the year as expected. And this will have, as a conclusion, that then the EBIT margin overall will be still -- lower in the second half than in the first half.

Okay. Then probably to come to an end, can you remind me when you increase the prices normally? Is it at the beginning of the year? Or when is a price increase in your industry?

Let's say with the -- we have, of course, a price list, which we have already now upgraded and increased the prices. But, let's say, with the important key accounts, it's really now the phase where we are discussing about pricing for the next year. So it's as we speak.

This discussing and go-live is then next calendar year or fiscal year?

Calendar year. Very often.

So January, yes?

Exactly.

Your next question comes from Miro Zuzak from JMS.

Good morning, gentlemen, and congratulations to the results. Just one question. In the Automotive business, I see battery management relatively muted below last year in Q2. And also in this context, I have a question about the Automotive business overall. How much of this performance was now driven by really EV volumes picking up? And how much was driven by, let's say, pre-buying of clients to make sure they have the components on stock?

So let us probably give you here a comprehensive picture. I think the battery management business has been most strongly affected by the -- primarily by the supply chain challenges. So when we divide the shortages and the potential sales that we could not realize, then probably half of that really comes from the BMS situation. So the reason for that is that obviously, battery management systems are the ones that need the intelligence, and there you need microcontrollers. So that means -- I would not go so far to say the battery management systems are not growing because LEM's presence or LEM's share in there is underrepresented. No, I think it's the opposite. It's the area where we were discussing even to OEM CEO level together with our suppliers in order to get the components. And so we know that some cars, unfortunately, could have not built because also. LEM not able to deliver because we didn't get the microcontrollers. There, we don't really talk about, let's say, stock build. I think at the moment, everything goes immediately into cars and what we are delivering. Also for BMS, it's important to understand that there's still a share of the conventional [indiscernible] fuel business in U.S. in -- that is year-by-year further phased out. So that is for sure dampening the development in comparison to motor control and charging systems.

Gentlemen, so far, there are no more questions from the phone.

Here, we have 2 questions in writing. First question comes from Jean-Louis Richard from GMG. The question is, "Would you have an opportunity to expand your sales share in the U.S.? What is the competition landscape?"

Okay. Maybe I take that one. So first of all, there is a tendency to raise, let's say, a too negative picture into our U.S. share when you just look at the global sales. But when you just look at your computer in front of you, even when this computer is sold in the U.S., it's still manufactured in Asia. So this also applies to our products. A lot of our products who are ending up eventually in the U.S. are still manufactured and shipped to Asia, where they are either in Korea, in Japan or in China, assembled into, let's say, intermediate or even final products that are then shipped to the U.S. And asking about opportunities to expand your sales share in the U.S., yes, there are opportunities, very clear. And luckily, the decision of the Biden government to really now invest into the infrastructure in the U.S. but also to invest into new energy vehicles, charging infrastructures, renewable and power generation will give us growth potential in the U.S. that we assume will also be partly realized really eventually in the U.S. So this topic, we see very, very positive, and we really also strongly invest into the U.S. to participate in this foreseeable growth.

We have one further question from Andres Gujan from Carnot Capital. "Sales growth in Automotive Europe looks a bit low compared to growth of EV sales. Could you could -- maybe not fulfill all delivery obligations?"

Good. Yes, thanks. That's a very good question now. For sure, there's always a bit of risk to say when, let's say, EV sales are increasing by this and this and this percentage. Very proportionately, the sales in LEM should also increase by the same percentage. I think one needs to look here a little bit differentiated. It really depends on what products you are selling in which car. And therefore, there is a correlation, but it's not a single 1:1. What we see and we are very happy about is that really the European market is picking up at a very high speed. We also see that the response of our customers to our product is very positive, that we are winning a lot of these signs. So for this reason, we are not worried about our Automotive European sales but rather see here a further positive development.

Our next question comes from Marc Possa from VV Vermögensverwaltung AG. "Could you describe the market share development?"

Yes, this is -- now in general, it's basically -- I can share with you what we see is probably a balanced development across all markets. In Automotive, basically, our shares are not really affected because we're basically -- when you are designed in and then there are typically no second sources, your share doesn't really change. In Automotive, therefore, we don't see impact. Industry is a bit different. There, sometimes there are second sources. So that can happen that when LEM is not able to deliver, our customer fast is in a position to replace us. But this also happens in the other direction. So also here, when we are in the position to find alternative solutions, and luckily, because of our large portfolio, we have a lot of internal opportunities there also to find alternative products. We are basically, all in all, I would also say, rather stable. But again, this is something that is really in the move, and we are very strongly working on that to really satisfy the max of the demand that we see in the market. Hope that answers your question.

We have a follow-up question from Marc Possa. "Do you have any vacancies in the software area since all are looking for the same skill set? Or do you attract the needed talent, thanks to your footprint in Lyon, France?"

Right. Yes, you are right, electrical engineers are in high demand across the world, be it in the area of Automotive but also the -- in a lot of Industry segments. I think the decision to move to Lyon was exactly reflecting the talent pool in the Lyon and Grenoble area and to tap that at the place rather than basically trying to move people across the world. This is working fine. But we also see that for sure, the efforts to recruit people, the efforts to attract talent is increasing because there is an overall shortage that basically universities produce sufficient talent. But I think still, the direction in which LEM moves, the purpose of LEM, in particular that we contribute with all our products to a more sustainable future, are of the good arguments for talent particularly of Generation Z to join companies like us. So we are there rather on a good path.

We have one further question from Yves Vaneerdewegh from Capricorn Partners. "Do you expect an improvement in growth in traction?"

Yes, it's a good question. At the moment, at least not short term. Traction projects are no -- these are multimillion -- multibillion U.S. dollar projects that are not triggered overnight. We see when we talk to partners with whom we are working that the overall market is slow, and we don't expect at the moment a complete change in this development in the, let's say, at least period of this financial year.

We have no more questions.

Good. Well, this is the case, then again, I would like to thank you very much to -- for your attention. I think, again, to summarize, we are very proud with this record performance in the LEM history. We are very convinced about the long-term trends. And we wish you all the best and look forward to report, hopefully, again, a nice news then in the Q3 and Q4 timing that you see here on the financial calendar. Thank you very much, and have a great week.

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