LEM Holding SA ($LEHN)

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.