LEM Holding SA (LEHN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the LEM Holding SA Half Year Results 2024-'25. [Operator Instructions] Let me now turn the floor over to your host, Frank Rehfeld, CEO. Mr. Rehfeld, you may begin.

Good morning, ladies and gentlemen. Thank you very much for joining us here on the webcast. Today, we would like to introduce LEM's half year results of our financial year '24-'25. My name is Frank Rehfeld. I'm the CEO of LEM, and I'm here together with Andrea Borla, our CFO, who is going to leave us by the end of November; and Thomas Mellano, our Interim CFO, who is going to take over from then on. 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. Andrea Borla, our Group CFO, will then introduce the financial results, and Thomas Mellano will use the opportunity to introduce himself shortly to you. And I'm going to outline then what we expect in the future. As already indicated in our full year result presentation, we expected a weak first semester, and this is also what the results show. Since we compare against the first half '23-'24 that was showing rather strong results, driven by the order backlogs from the semiconductor crisis, we see now a rather significant drop of almost 30%. Particularly the Western regions, both EMEA and Americas were weak as well as rest of Asia, where the reduced exports of our customers from those regions into the West were impacting the performance. Positively though, we saw that China is stabilizing despite also challenging foreign conditions in the country. That such a substantial sales drop impacts the EBIT margin is certainly not a surprise. Positive to mention here is that the gross margins were still relatively stable, and we end up with 9% profit. We don't expect a brightening of the overall business outlook in the next months to come and have, therefore, decided to start a Fit for Growth performance improvement program that focuses on our operating expenses and our organizational setup. The target is to improve our overall competitiveness for the new growth cycle that we expect. When I talk here about a new growth cycle, I would like to reiterate that we see the sustainability trend intact and don't see a need for a general strategic challenge or change. Despite the challenging economic environment with geopolitical tensions and fragmentation, inflation, energy crisis, wars, we believe that all those short and midterm challenges are not questioning the megatrends of sustainability with the ultimate goal to move to a carbon-neutral world in between 2040 and 2050. Therefore, we continue investing in R&D and drive forward innovation. And at the same time, we continue our footprint strategy with respect to our new manufacturing site in Penang, Malaysia, even though the loading of this site is still low at the moment. Both steps are well aligned with the market developments and the geopolitical framework. With that, let's now 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 '23-'24. Obviously, all business segments were severely decreasing against the same period last year, particularly heavily hit were renewable energy and automation. There were some common reasons like the overall economic environment that led to this impact. However, there were also a couple of specific effects that I would like to share with you in the next slides. As you can also see, there was no significant currency impact influencing the performance, the decreases in CHF and at constant currencies are almost identical. Now on this page here, you see the distribution of our businesses relative to each other. Since there was an overall downturn of the global electronics industry affecting all our businesses, we would expect that the business size relative to each other has not been changing a lot, and this is exactly what you see here. We see, in all markets, a high level of reservation towards new investments, high stock levels from past over-ordering; however, important differences in the different geographies that I would like to explain to you at a later stage. Now let's go through the businesses one by one, starting with our biggest business, the automation business that represents almost 30% of our global business. You see here the turnover plotted for the last 5 years. And our automation business was down by 32%, mainly due to the difficult economic environment in Europe and the Americas as well as rest of Asia, particularly here in Japan. We saw low investment level and high inventories in the industry and only the business in China has been yielding small growth. Our automotive business was down by 25%, mainly driven by the lack of acceptance of electrical vehicles, both in Europe and the Americas. I'm, at the moment, while we are speaking here in Shenzhen in China, visiting customers and witness that the electrification in China is continuing. Also here, we see changes with an important shift from pure EVs towards the coexistence of EVs and hybrids. We managed to improve our market position in China and consequently grew here. However, this growth momentum was more than eaten up by the performance in the non-Chinese world. You might remember that the situation one year ago was exactly opposite. The automotive performance in China was weak, and we had growth outside of China. With the management changes we've been introducing here, our investments are paying off. We substantially improved our cost positions and invested into sales and field application engineering as well as new product development. Renewable energy, now 16% of our business is including the solar and wind power generation market. Our global business decreased here by more than 37%. Many of our European customers are restructuring their businesses in the light of shy renewable investments and the very high price pressure from Chinese competition. In combination with high stock levels, this led to a very weak market with many pushouts in Europe and reduced exports from China in comparison to previous years. Similarly to automotive, in China, we managed to improve our market position, in particular, with the big players and continue to also invest here. Energy distribution and high precision, continuing to represent 15% of our global business, contains our high-precision business, our smart grid solutions as well as the DC meter for fast charging stations. This business was down by about 27%, again, reflecting the overall weakness in the European and American EV markets, aligned with the weakness in the electrical vehicle sales, also the investments in the charging infrastructure were weak. In addition, we see a gradual move of the fast charger production from Europe to China, where we are in discussion with several manufacturers. This will go along with substantially cost-reduced solutions that are currently under development in our R&D organization. Also, our smart grid products did not see a growth momentum since also here, the investments are subdued at the moment. Our smallest business, track, contains all solutions LEM has to offer for trains, metros and trams for both [ rolling stock ] as well as trackside. It represents a 14% share of our global business and as well declined by about 25% against half year '23-'24. Considering that the '23-'24 strong half year growth of more than 50% was owed to the backlog from the semiconductor crisis, we are now back to the normal investment levels in the traction industry. We are particularly enjoying the continuous retrofitting business of our traction meters. Projecting this business from a regional perspective, we see important changes in comparison to the full year '23-'24. The most striking is that our Chinese sales share is back to about 40% of our total revenue in comparison to the same period. This gives us the confidence that the measures that we were taking in China are effective and go in the right direction. This is also the feedback I'm receiving here when I talk to our customers in China. Despite being a small plus in Q2 against '23-'24 Q2, also the Chinese market will remain volatile in the months to come, and it would be too early to indicate a market upturn. The weakness in the Asian market outside of China was expected. Nevertheless, the reduction of almost 43% against '23-'24 half year was the strongest across all markets. Both the American as well as the European markets are down by about 30% and 38%, respectively, owed to the fact the base of the comparison in the last year was very strong. In particular, in EMEA, we reported last year almost 50% growth based on the backlogs in our order book. For EMEA, we do not expect an improvement of the market within the next quarters of this financial year. With this, I would like now to hand over to Andrea, who will introduce the financial results in greater detail.

Ladies and gentlemen, a warm welcome also from my side. On my very last webcast in the role of the CFO, I will unfortunately present weak financial results for the first half year '24-'25. Let me first summarize the financial highlights of this first half year in 3 points. Number one, LEM sales dropped by 30% compared to previous year, mainly due to destocking happening at our customers being not yet finished. We have seen similar level of sales drops at some of our competitors. The second point I would like to mention is the equity ratio dropping to 35% following the dividend payout in July '24 and a low net profit of CHF 9 million in the first half '24-'25. And the third point I would like to mention here is on the cash flow. We -- the negative free cash flow is due to a low profit before tax and the continuous net working capital increase. Let's have now a closer look into these various points. The first slide is the gross margin. Gross margin in absolute value decreased by CHF 36 million from CHF 104.7 million to CHF 69 million. In respect of the gross margin in percentage, we have lost [ 2.8 percentage points ]. What are the main causes for this slight margin reduction? There are 2 main reasons. The first being an unfavorable mix change, both in respect to geography as well as product. The markets and product families with particularly attractive margins slowed down at a faster pace than others. The second reason is the under-absorption of the fixed costs such as machine depreciation, rent and personnel costs on supervisors. Our now 3 low-cost locations situated in China, Bulgaria and Malaysia cover 81% of all sensors produced by LEM. We continue ramping up the Malaysian site and the percentage of our low-cost location is, therefore, expected to further increase in the future. Here, we see the SG&A. The SG&A increased by a bit more than CHF 1 million, which are mainly related to the following 2 causes. First one is the increased investments in our digitalization with the introduction of our new ERP, MSD 365, now live in 5 legal entities out of a total of 10 entities. And the second reason is the SG&A expenses with our new Malaysian production site, which last year was still under construction. Please note as well that the total personnel expenses for SG&A, they were reduced by close to CHF 1 million compared to previous year. R&D, the R&D expenses increased by CHF 0.5 million compared to previous year, whereas the R&D percentage increased to 11.8%. The increase of R&D expenses is mainly driven by the R&D head count increase on average of 44 employees compared to last year. 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. The 2 new R&D centers in Munich and Shanghai shall contribute to that. On this slide, you see that LEM suffered, during the first 6 months, foreign currency losses of CHF 2.3 million due to the Swiss franc appreciation against major currencies, mainly against the RMB. Financial expenses were impacted by the IFRS 16 lease expenses amounting to CHF 600,000 and higher interest expenses on loans of CHF 1.4 million due to increasing third-party debt. In respect of tax expenses, the H1 '24-'25 effective tax rate is at 14.5%. Excluding last year's nonrecurring events, this year's tax rate would be slightly lower than last year's at 15.6%. LEM continued to benefit from the HNTE tax status in China, which results in a reduced tax rate of 15% instead of 25%. We have applied for the HNTE status again for the years '24 to '26. And here, you find the full P&L for both the H1 '24-'25, which you find on the left side of the table and the Q2, which is reflected on the right side of the table. The Q2 sales ended at a significantly lower level compared to previous year, reflecting the ongoing market weaknesses in most markets. To finish on a positive note, to achieve still an EBIT margin of 9%, and this despite a 30% top line drop is actually rather remarkable. And this confirms LEM's profitability upside potential once the sales start to kick in again. What are the key points on LEM's balance sheet for September 30, 2024? Perhaps 2 main points. Number one, the net working capital increased by CHF 18 million, mainly due to an inventory growth as a consequence of the lowering sales reflected in the first half year '24-'25. And the second point to highlight here, net debt increased to CHF 113 million, which is a consequence of the negative free cash flow of the first half year and the dividends payout in July '24. Those points result in equity ratio of 35%, which is 16% lower than 12 months ago. And talking about free cash flow, here, you find the cash flow statement. Both the cash flow from operating activities as well as the free cash flow dropped compared to previous year and came out negative, mainly due to lower profit before tax and the net working capital increase. LEM's ambition is to get back to positive free cash flow for the full year '24-'25 and several initiatives have been taken to achieve that. In summary, LEM has achieved weak results during the first half year '24-'25. LEM was faced with slowing markets and the impact on the financials is very visible. I take now the opportunity to hand over to Thomas Mellano, who will act as Interim CFO starting tomorrow, Tuesday, and who will introduce himself now.

Good morning, ladies and gentlemen. My name is Thomas Mellano, and I will be acting as Interim CFO and Investor Relations contact starting tomorrow, Tuesday. I've been working at LEM for 2 years, during which I was responsible first for group consolidation and reporting and later on for group treasury. In July 2024, I've been appointed as VP, Finance to prepare the CFO transition. I'm a French chartered accountant and started my career as an auditor at Deloitte in Paris. During the last 10 years, I held various CFO positions in midsized companies with global presence. I constantly strive to bring value, making sure the finance function supports and challenges efficiently the organization. From now on, please contact me directly for any questions. I thank you for your attention and wish you a good day.

Thank you, Andrea and Thomas. Now let me now share with you our outlook for the business. I probably don't need to make you aware of today's business environment in our industry. Many customers in the automotive, renewable and automation industry in Europe and Americas are restructuring. This leads to rather weak bookings, and we do not see an improvement on the horizon in those markets yet. The promise that the business situation would improve in the second half of 2024 that was repeated by almost all our customers did unfortunately not materialize. Consequently, also our outlook is flat, and we expect the full year revenue in the range of CHF 290 million to CHF 310 million, leading to an EBIT in the high single-digit range. Based on this outlook, we have been deciding to start a performance improvement program that will prepare LEM for a higher level of competitivity and streamline the organization accordingly. The project has been kicked off, and we will share results latest during the full year communication in May 2025. While we are not questioning the sustainability journey at large, we see it moving at a slower pace due to, a, the economic environment, but also, b, both due to the fact that the level of competition is increasing and therefore, the price per component is decreasing faster. However, we are fully convinced that the momentum is going to come back. Consequentially, the CHF 600 million ambition that we were setting in '21-'22 for the year '26-'27 has to be delayed towards '29-'30. Thank you very much for your attention.

[Operator Instructions] And the first question comes from Tobias Fahrenholz of Stifel.

On destocking, could you try to quantify the magnitude of destocking you've seen in the first half and what you still expect to come in the second half? When could we hopefully see an end of the destocking? Might it already be Q3? Or could it last into Q4? And also in this combination, what about orders? You speak about a flattish business overall on sales level, H2 versus H1. Is there some hope that orders could already move up slightly before?

So thank you, Tobias, for the question -- so I take it.

Andrea, go on.

Okay. So it's very difficult to have a detailed view on customers' level by businesses and by industry of what exactly their orders is and how do they stand. But what we really see is in the first, second of this first half year, also comparing to competitors, looking at how they behave in the first 6 months, it's an enormous amount of this destocking happening in place. It's kind of this pendulum which is coming back. We had during these COVID years, everybody was desperately seeking for sensors on the one side with all the supply chain crisis, not being able to deliver. And then suddenly now with the slowing down in a couple of end markets from our side, our customers are just full of stocks. And I would be very careful to assume a rapid rebound. We were wishing that. We were having this evidence or, let's say, this anecdotal evidence from our customers claiming that the second half of the year, we will see here order intakes increasing. But at the time being, I think it's more prudent to go with a scenario saying, hey, no major improvement, no improvement at all actually expected in the second half of the year. And this gives ourselves then the opportunity to work now on the costs. And that's all the intention of this program Fit for Growth is, hey, we assume now for the next 6 months, still a very weak sales performance. But on the other side, we will then work on the costs. And then once it picks up, the markets are picking up, then we'll be in a very good position to take advantage of this positive trend.

And maybe one follow-up...

Yes. A little bit -- sorry, there's a little delay in the line since I'm sitting in China. And obviously, this have -- a second always leads to some confusion. Sorry about that.

Can I ask a follow-up question?

Yes, please go on.

With regard to your restructuring or efficiency program, are there any one-offs you're looking at in the second half? And what is the magnitude of cost savings you're looking at in the current...

[Audio Gap] a few weeks ago. And the conclusions and outcome and recommendations internally will be reviewed sometimes during December. And depending then on the decisions, which will be taken, there could be, let's say, some costs, which will still be reflected in the, let's say, financial year '24-'25, especially if we think about potentially some reductions on headcounts.

Okay. Then we have another question coming from Miro Zuzak, JMS Invest AG.

Can you hear me?

Yes.

Loud and clear.

I have a question regarding the seasonality now in the second half of the year. So when I go back before COVID, typically Q4 was a bit weaker than Q3. That's the first question. if okay for you, I take them one by one. The question is whether it's the same this year, whether Q4 is going to be weaker than Q3 or whether you think that we're going to see a gradual uptake now in sales in the next 2 quarters?

I think in the past, the second half of the year was -- yes, go ahead.

Sorry. So what we see basically for the business is, at the moment, not yet an uptick as Andrea already has been mentioning. And I think we are, at the moment in a phase where, let's say, the rules from the past are not easily to be extrapolated for the future. So I think obviously, in the Q4, we still see Chinese New Year. Therefore, we regularly see here also a weak momentum. But again, it's rather difficult to extrapolate now from the past easily into the future. But Andrea, you want to probably add something?

No, no, that's well explained. Thank you, Frank.

So that -- did I get this correctly? So probably Q4 this time is going to be not worse than Q3. So it's probably more equally distributed now for the remainder of the year. Hello?

At the risk of repeating, I see basically Q3 and Q4 further weak comparable to Q1 and Q2. Then again, to make here now an exact forecast whether we see Q4 stronger than Q3 or Q3 stronger than Q4, that's probably too much of a visibility where still to be very honest, even our customers are getting surprised of the business outlook of their customers.

Okay. Then a next question, if I may, is on the -- basically the P&L as a whole. So if I compare like the CHF 300 million sales level that you are guiding for, this is roughly the level that you had in '17-'18 or in 2021, '19-'20. So we had like in the past really many years with around this sales level. But if you look then at the EBIT margin at 20% in the past or even higher, it was obviously twice as high as it was now. And I've seen that like the SG&A, especially the G&A cost is now really CHF 20 million higher than it used to be at the previous times. So it's not that much the gross margin to blame, but also the G&A cost. Can you give more clarity like the magnitude of the cost measures that you are going to take and whether this makes, in the big picture, really a big difference that it will help to bring you back to the 20%? Or is it more like an opportunity to now adjust smaller stuff in the company, but like you will never be able to save another CHF 10 million, CHF 20 million with that? Could you elaborate more on that, please?

So for sure, this has been exactly the reflections that we also were going through and we see basically that the electronics industry is basically, at the moment, in a downturn and that we obviously are in a situation that we cannot avoid the sort of downturn and don't know exactly where the pickup is. So that has been exactly the logic to basically say we obviously need to look at our cost structure that was built up in the expectation with a lot of activities ongoing towards being in '26-'27, a CHF 600 million company. But since this is obviously now further pushed out, we've been deciding that this is obviously not sustainable for, let's say, the next foreseeable months, and therefore, we need to act. But again, the order of magnitude, when, what, how, please bear with us, it would be too early to give here now an order of magnitude and the concrete measures. We are working on that, and we'll inform you in due time.

Okay. Then I have a last one in the hope that you can end my questions here is on a positive note. Do I read your numbers and your statements correctly that the China problem of Q1, so to speak, with the new entrants in the market and the pricing pressure that you had, the market share losses and so on, they are solved, right? So because China was basically the bright spot in your business, is it fair to assume that this China is doing well and the problem there is solved?

So you also here read the numbers correctly and also the pros that we wrote there. So we have been exchanging important positions in the Asian and the China team and have been getting to substantial market share wins in the automotive and also in the renewable business. So for sure, our Chinese organization runs and runs well. However, also the Chinese market is not, at the moment, doing, let's say, a firework growth, right? So for sure, you see that eventually also still there is a subdued momentum, but there is positive momentum in China. And you can guess why I'm here currently. So we work with our customers. We've been investing here also in further R&D. We've been further working on field application engineering sales to basically be here closer to the customer and follow the China rhythm that is about twice as fast as the European and the American rhythm accordingly.

At the moment, there are no further questions. [Operator Instructions] And we have a follow-up from Miro Zuzak, JMS Invest AG.

So that was quick. I'm back in the line. There's apparently no other analysts asking questions. Regard -- I have a question regarding your midterm target, so the CHF 600 million. Now obviously, the base where you come from is like 50% of that, the CHF 300 million. Do you expect a V-shaped recovery in the next coming years? So basically, really just customers replenishing their inventories and then back to the CHF 400 million relatively quickly? Or do you expect a U-shaped recovery with a, let's say, back-end loaded growth pattern in absolute numbers?

Maybe I take this one. So when you see the reasons for this, let's say, push out of the target, there are, on the one hand, economical reasons, obviously, investment hesitations, but there are also a couple of strategic reasons. And one of the strategic reasons clearly is that during COVID times, China has made its homework. And that means we will see further price pressure on the components. So that means at the same volume, same volume assumptions, growth will be slower. On top, we will see slower growth to the further appreciation of the Swiss franc. And this is what we basically see. And the third reason is that the EV acceptance in the West is developing slower than originally assumed, right? So all these 3 factors are going to contribute to a rather, yes, not V-shaped sort of recovery, but the recovery taking a bit more time. And therefore, we've been basically moving this target 3 years out.

Okay. And then a next question would be the following. If I sum up your order intake since 2021, so 4.5 years basically, I get to CHF 1,750 million roughly, CHF 1.75 billion. If I sum up your sales since then, it's CHF 100 million less. So that would imply that your order backlog is still CHF 100 million higher than it used to be roughly 5 years ago. Is this a correct assessment?

Let's say, I would have to double check your calculation, but I assume you did it. But what we can say is -- and this is a figure we do not publish, but the orders on hand we have per end of September 2024 is back at the level we had pre-COVID. So let's say, very short lead time, not much more than 3 months visibility. So we have today -- it's not that -- for the second half of the year, the sales we forecast, we have only about half of it on our orders on hand. So we still need to sell and ship those sensors, a part of it in the second half of the year in order to make the sales forecast in the year -- second half of the year '24-'25.

Okay. But do you include the cancellations in your order intake, I guess, right?

Let's say -- yes, we do that, yes, we do that.

So there are still -- there's still CHF 100 million somewhere, which need to be [indiscernible] numbers are correct but you never know it.

Over those 5 years, you can now really assume that our orders on hand is now back to pre-COVID levels with, let's say, a relatively short visibility of only 3 months. That I think is really the takeaway you should have going forward.

Okay. And then a next question I would have, and then I go back to the queue, maybe to give other analysts the opportunity to ask a question, if I look at the change in net working capital, there was a continuous increase in that number. And now with the minus CHF 18 million roughly, which I have seen in the publication, the question is, at some point, this number will probably turn around and then you have a positive effect from a decrease in net working capital. When do you think is going to be the high point in your buildup in the net working capital?

So perhaps just to give an additional background, it is really -- again, you have to -- back during COVID, huge demand. We could not deliver because we had bottlenecks from our key suppliers. They could also not deliver key components to us, and that's why we were not able to deliver our key customers. We have, of course, renegotiated with all our key suppliers, signed long-term agreements as well. And this happens now at the same time where the end market demand has dropped dramatically. And that's the main cause of the important net working capital increase. It's really driven by inventory with increasing inventory combined with dropping sales. Now when will be the turnaround? It will really be the turnaround when sales will start to pick up, where on the one side, we really can basically reduce our orders. At the same time, and that's what I mentioned before in my briefing, in my presentation, is that we want to and have the ambition to be back free cash flow positive for the full year in the year '24-'25. And for that, actually, we need to take measures as well on the inventory. So we are having here measures to reduce. So I will not be here anymore to share. But I would -- I personally would believe that the second half of the year, the free cash flow will be substantially better than what we have experienced in the first half year because of those measures.

Okay. And then next question I have is regarding the dividend. Obviously, I would have to ask Andrea the question probably. But you paid CHF 57 million in the first half. Your net debt obviously increased by more of that because of the negative free cash flow. Do you think now -- I mean, given the fact that you also don't expect a V-shaped recovery, that this level of dividend is sustainable? Or do you expect probably a cut to the dividend?

Yes. So here again, the decision is the general assembly based on the proposal of the Board. So it's not the management team. But I would now say from my side, I would believe that there will be a change in the dividend policy, which needs to reflect the current financials of the year '24-'25. That would be my personal expectation.

And the next question is from Reto Huber, Research Partners AG.

I'm not sure whether you answered that question. I mean, the extent -- the investments in digitalization in G&A, to what extent are they a one-off? And if so, could you quantify this? And then the other question I have is also related to the CHF 600 million postponement. Is it fair to assume that this is mainly due to the weakness in fast charging, the DC metering in the West?

So I would suggest that I take the first part of the question. Exactly, as mentioned in the SG&A, we have a couple of millions of this project digitalization and especially the introduction of Microsoft Dynamics. We have now half of the legal entities are live on this program. We plan that, by end of March, early April, all legal entities are on Dynamics. So we will probably have still a couple of costs coming next year, but there should be some reductions and some reductions are expected in the next year '25-'26. That's on the first part of the question. And the second, I will give to Frank.

Right. So the CHF 600 million postponement is not linked to only one business. So for sure, the DC meter is one where basically we see and we've been mentioned that before that some of our customers have been losing market share. And with that, we also obviously didn't sell as planned. At the same time, we see that some fast chargers moved to Asia, in particular to China, and obviously, get them shipped from Asia at a substantially more competitive cost than if they would be produced in Europe. But you also see clearly a slower acceptance in automotive. And therefore, while the Chinese market is still nicely growing, and I'm sitting here in Shenzhen, not so far away from BYD, and this company is producing highly competitive, but also feature-wise, very, very interesting cars. So here in China, we don't see a slowdown, but clearly, in Europe and in the U.S., and potentially in the U.S. now with the elections even slower, the acceptance is taking there longer time and renewable, similar. Here, we don't see actually that the rollout is slowing down, but we see that here the cost per -- or let's say, the current sensor cost per gigawatt installed is going to go down even faster, right? And therefore, obviously, our investments into these fields are mission-critical in order to be there simply competitive. I hope this answered the question.

Yes, it did. And just to clarify, I mean, the new team that you have in Munich, they are working mainly on DC meters for fast charging. Is that correct?

No, the Munich team focuses on working on integrated current sensors. So basically on the semiconductor solutions.

Okay. And to Mr. Borla, thank you very much for all your help during your time as a CFO at LEM.

Thank you very much, Reto.

And the next question comes from Arben Hasanaj from Vontobel.

Just 2 quick ones. The first one, if you maybe could talk a bit about the order trends that you've seen based on the segments. So in the short term, where do you see maybe some improvement? I think automotive sounds a bit better, but it seems like destocking in automation and renewables is ongoing. So if you just could share there a bit, some information. And the second question around CapEx. So what do you see for the full year? Should we expect a similar level in the second half year like we've seen in the first half year?

Right. So maybe I take the question with respect to the ordering behavior and, Andrea, if you could then take the CapEx question. So ordering behavior, what we see is more short term very clearly. So what we see, automotive, yes, some improvements, but also in some regions, pushouts. Let's say, forecast ordering behavior in China, both for automotive and renewable, rather slightly positive. But we also see weaknesses and ordering behavior rather, let's say, very, very cautious in the Western market. So again, difference in geographies. And when you look at it by business, you don't have really a harmonious sort of ordering behavior by business. But regionally, in China, rather positive; rest of Asia, rather cautious; and EMEA and Americas also rather on the cautious end.

And in respect of CapEx, so yes, we expect a similar level in the second half of the year like in the first half. We do not have any major sites like we had last year with the Malaysia setup, but we still actually will invest in a couple of lines, especially for Malaysia. So those CapEx will still persist. So yes, similar level, second half of the year compared to first half of the year.

Okay. Then we go to the next question from Tommaso Operto, UBS.

I would have 2 questions. I'll take them one by one. First, just a short follow-up on China, especially in automotive, right? I mean EV sales were actually quite high, driven by subsidies in China, which; however, are about to run out by year-end as far as I know. So just wondering if you could kind of share how much of your China auto division sales was related to market share gains and how much was just kind of driven by strong current market environment?

I mean it's almost a philosophical answer that you will hear because in China, things happen rather quickly. So within, let's say, 3 to 6 months, you can win business and you can also lose business again. So basically, the upturn that we see in our Chinese automotive numbers, they were clearly coming from pre-discussions and pre-developments that were done and then accordingly, market shares were then won, but also these market shares need to be defended and market shares need to be defended in China sometimes on a quarterly and sometimes on a half year basis. So you are never sure over the lifetime of a program over 5 years, whether you keep your market share when you not continuously work on your competitiveness.

All right. And then the second question would be in regard to integrated current sensing. Could you share any potential progress there in terms of potential design wins with customers or further build-out of your IP portfolio or anything else you might have?

So all the future-directed topics are making good progress. We work on the one hand, on the TMR topic together with TDK. And here, we see really moving in a very good direction. We see progress. I think the collaboration is on a very, very good level. Talking about, let's say, the products on the whole side, also here, we do have good progress. However, we also see here that the market is, for sure, rather crowded. And as long as the market is not really picking up, we will probably also not see a substantial pickup in our ICS sales, right? So -- and Andrea has been mentioning that also our ICS competition is, at the moment, struggling and basically also seeing substantial reductions in their sales and also in their forecast due to the situation in those markets.

Okay. And just one additional question, if I may, on pricing. I mean, main reason for the low gross margin was the lower production capacity utilization, obviously. But how much would you say is also from lower pricing?

Yes. So it was not part of the top 2 reasons, as I said. Number one is mix; number 2, under-absorption. Pricing was used, especially in China, to win back market share occasionally. And overall, one can say pricing on the one side and material cost reduction on the other side, which we managed to negotiate with some of our suppliers. They basically compensate each other. So no impact of those 2 elements in total. And the main effect is really the mix and the under-absorption, which brings down the gross margin by 2% -- 2.8 percentage points compared to previous year.

And the next question comes from Marc Possa, VV [ Vermogens-Management ] AG.

I maybe will spell them one at a time. Concerning market share developments, I mean, historically, you commanded a market share of about 50%. There was these 2 technologies, the shunt versus the transducer technology, so Bosch versus LEM globally. Could you maybe describe the amount of win rates and the development of win rates you have overall, not in specific geographies like North America or China, but just overall? Is the win ratio from a tendency point of view rather increasing in your favor? Or is it being challenged by, a, the transducer and the shunt technology or some newer kind of product technologies that come up?

Marc, thank you for the question. It's a question that probably takes about 2 hours to talk about because market shares differentiate very much by business segment and they vary very much also then even by certain applications in each business segment. So the 50% that you've been mentioning, this has been applying at a time where LEM has been focusing on industry only and there not been counting technologies that we could not deliver, right? So when you now look at the overall current sensing market and see our market share, we are rather at the global market share overall applications at about 20%, right? So just to reframe that. And there are really competing technologies and competing solutions. I'll give you an example. A shunt solution can, for one customer, make sense; for another customer, an ICS solution is technically the better solution. For one customer, the integration in a product like a CAB 1500 makes more sense and for another, depending on the architecture, this doesn't make sense. So here, it's very, very difficult to really give a general answer. What one can say is that the traditional markets from which LEM comes from, the market share has not been really substantially changing. The change really or, let's say, the opportunities, but also the challenges, are in these newly developing markets in the automotive market, in the renewable market, in particular, for currents below 200 amps and in markets like the DC meter market, where we saw a very nice start in Europe, but now also a quick move to Asia.

Okay. But you could basically say that there is no...

Hope that gives you a picture.

Yes. There is no technological obsolescence of your product range through a newly [ upcomed ] technology that nobody was foreseeing or you mentioned the TMR topic with TDK that is mastered with them in that joint approach. I was always of the opinion that complexity was speaking in your favor. But somehow we had to learn that there is a renewed Chinese competition evolving, especially during the COVID crisis. So the landscape has not really totally changed. But on average, there is a bit more pricing pressure because of newer players. Is that a correct assumption? I mean, overall...

I think that is a good description. When you see that we were able to substantially win market share back only in 9 months, for instance, in the automotive, but also in the renewable business in China, then it clearly shows that we don't talk about obsolescence, but we talk rather about competitivity. And this obviously is also part of the Fit for Growth program to basically make sure that we are set up in a way, both from a speed, but also from a competitiveness point of view to make sure that we have competitive solutions at the right point in time. And you can easily imagine what this means for decision-making, empowerment management setup.

And the next question comes from Tobias Fahrenholz, Stifel.

Maybe he left already before.

I believe. We can't hear him. And this was the last question for the moment.

Okay. Thank you, operator. I think it's fair to say the questions that we received over the questions function from the webcast have mostly been answered already. They were referring to the pricing declines and the performance improvement program. So I would say we can close for today.

Mr. Rehfeld, back to you.

Thank you. And then I would like to thank all of you very much for your interest in LEM, and obviously, all the questions that were coming up. Thank you for your attention to this conference. And I would like to already like to invite you for our presentation for the full year results on May 27, 2025. Thank you very much. Also thank you again, Andrea, for supporting us in the past 9 years. Thanks a lot.

Thank you, Frank. Thank you, everyone. Wonderful day. Bye.