Sensirion Holding AG (SENS) Earnings Call Transcript & Summary

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Good morning. This is Lars Dünnhaupt speaking. I'm the Director of Investor Relations at Sensirion. Welcome to the Earnings Call 2024. We apologize for the technical problems we have had on our end, but I hope that you all can hear us now well. Please note that this event will be recorded. With me today, I have Marc von Waldkirch, our CEO. He will walk us through the first half year 2024 and provide an update on the markets. After this, we hand over to Matthias Gantner, who will provide a financial update on the first half of the year. And at the end, Marc will provide an outlook for the full year 2024. And we end the session with a Q&A session, please use the chat or the question function of the webinar, post your questions into the chat, and then I will read them at the end of the section. With that, I would like to hand over to Marc.

Well, thank you very much, Lars, for the introduction and also a warm welcome from my side to this short earnings call this morning. I have to start first with a short executive summary. So, this clearly the highlight of last six months as far, and the take-home message over is that we are back on growth after the very challenging and difficult year of 2023. So, we ended up this half year with a loss of more or less at 9% in local currency. Unfortunately, there was some headwinds with FX compared to H1 2023. That means we ended up in with Swiss franc with loss of a slightly less than 4%. On the other hand, the growth came mainly from two submarkets, one was automotive, mainly driven by new business projects. And on the other hand, industrial, mainly driven by recovery especially in home appliances. We have also two markets, they are somehow weak. This is on the one hand side, medical sales suffering province or destocking effects as expected by the way. And secondly, on the other hand, consumer, which is the kind of a mixture between on the one hand side, the destocking effect, they are still going on, on the other hand, just reflecting a pretty bad commercial or economic situation in the consumer markets in general. I now lost the slides. It's okay. In R&D and in operations, we are very disciplined to focus on capturing the next growth cycle. So, especially we're focused on preparing all that is needed to meet the requirements of our customers for a well ramp up A2L means this kind of gatekeeper a new business opportunity. We have already explained in the March communication about air conditioners in the U.S. I will come back to this point later on in more details. Then we have, as you might remember, in our epoch communication at the beginning of April, we decided to close and to seize our activities in the condition monitoring in Berlin. Also, this was one of the topics that we like to cover again in that more details later down the road in the presentation today. What I can already share with you today is that the execution of this decision is actually progressing very well and is fully on track. Last but not least, also on track and progressing very well is all what we have done when we have started and launched in terms of the utilization of productivity, efficiency, not just in operations and administration, but also in the range. So, that brings me to a short look at the figures. Again, revenue went up by 4%, roughly spoken in Swiss francs or 9% in local currency with a gross margin, which is more or less there where we had expected, but definitely significantly lower than last time. I will comment that also later on. And EBITDA margin, more or less there were expected all these figures, and this is also what we are going to talk in priority. In first priority is about the adjustment. The only adjustment we are doing is all what is linked to the AiSight or these activities condition monitoring, condition activities in Berlin. There are no other adjustments in the line of adjusted figures. Short look at the business outlook. This can be done pretty fast because it can fully confirm what we have already communicated in March. There is no change compared to our guidance in April or in March. That brings me to a shorter dive into all the respective market segments. Starting first is automotive. Automotive, we are recorded again the growth of 14% compared to H1 '23. The growth across the gain over multiple reporting periods. This is mainly driven by new projects. So, what we see is the existing business. On the one hand side, in our module business, as a Tier 1 player, but also in our component business, where we are playing the role of Tier 2 in both existing businesses, we have seen a pretty resilient demand of our products, but there is no growth momentum. On top of that, we have started new projects. They are kicking in now, and they are also regard -- calling or driving the growth that we see here in H1 results. In Medical, the picture is completely different. There, we have a significant drop of our revenue by 42%. This is actually not surprising as you've also guided already at the beginning of the year. Is mainly driven by two different aspects. So, on the one hand side, we are still suffering from severe restocking mainly in CPAP, but also in medical ventilators. The medical ventilators and also CPAP, these are the two main allocations we are supporting in medical today. And both are highly still highly influenced by the allocation, but also by the pandemic. And certainly, by the fact you might remember that in CPAP, there was this kind of quality replacement and initiatives during by Philips the last couple of years. It brought up significantly higher revenues, the kind of one-off revenues. We have also carved out pretty well. In order to have a very clear transparency on that. What is now is the drawback is that older stocks at our customers or at the TMS side are significantly too high, and there are still something like that. On the other hand, we have also -- that's the second reason why we have a significant drop by 42% compared to H1 '23. This is not a full fair comparison because A2L was significantly higher than historically normal. And this was driven by some additional demand and which was not fully care out commented at that time about additional demand from China, because this was at the beginning of '23, when the Chinese government decided to go out for all the COVID and countermeasures. And our customers in China had concerns about what is the outcome of this decision of the government and doubled the order additional medical regulators in order to be prepared for any kind of short reaction to this governmental decision. And this drove our revenue at that time, which is definitely now the opposite. That means, again, destocking. On the other hand, also we compare now H1 '24 with pretty strong '23 half year result. So, these are the two reasons. All in all, we are expecting that the destocking will last until end of the year. This is the same state that I have done in March, so we can just confirm that. But in the fundamental aspect, that means that our customer structure, our application structure, all the products we have, there is no change. So, there is just that the fact of destocking compared to former years at extent. Then we go to industrial. Industrial is a pretty highly diversified of different applications in our company. This is including submarkets like appliances provides, but it's also HVAC ventilation, air conditioning, gas metering and all other kinds of diverting of applications like silicon and so on. Here, we see a pretty significant growth of 31%, mainly driven by three effects, that major effect is air purifying recovery. So, you might remember, last year we suffered a lot from destocking there. Now it seems to be over. So the customers are coming back, they're placing orders, especially A2L of this year. So, this is one of the main drivers for this big growth in industrial. Secondly, there was also first no revenue contribution given by this new opportunity of A2L sends for the air condition of CBS. Not the main ramp up, the main ramp up is actually planned for the second half of the year as already communicated, but there are already some moderate contributions from this side. And third, the gas metering. Gas metering is still growing from period to period, again. On the other hand, we have on reduced brand contributions from semiconductor, just driven by the size of semiconductor. Well, I think this is all what I'd like to share now with you in industrial, and then we end up with consumer. In consumer, we are still lower. It's more in relative figures that in absolute figures because the market is anyway small, but there is even a loan revenue recorded compared to the already pretty weak H2 '23 or also week H1 '23. This is mainly driven by aspects on the one hand side, we see still there, especially distribution at the stock team. Destocking is not yet owned. So, some of the distributors and consumer, by the way, is heavily driven by distributors because there are a lot of smaller companies, they are ordering our products. they are still suffering from inventory. On the other hand, I think consumer is highly sensitive to the global economic situation. And there, definitely, we have some headwinds, especially in China from the generally and not really strong economic better situation in some of our main countries. Then let's move on to some comments about the decision to close our condition AiSight activities in Berlin. I'd like to shortly recap for those same is probably our set of communication at the beginning of April, what was the business thresholds behind the position. And secondly, I'd like already to be very transparent on what has influenced also the closing of our books for the first half of the year before I hand over to Matthias to dive into all the figures upwards. So, Sensirion has communicated to stop activity in Berlin at the beginning of April. And we acquired a start-up, with small start-up three years ago with the clear goal and ambition to become #1 in this condition monitoring view. I think this is the DNA of Sensirion, that whenever we like to jump into the field, we have the ambition to become #1. And in the meantime, the market position has changed in a way. So, the market -- and this is a new emerging market, to be honest, develop in a different direction than anticipated at the moment we acquired the company. On the one hand side, what we see today is we will not anticipate that way is the highest level of fragmentation of a lot of smaller customers compared for those who is a lot of competitors, smaller large amounts. And on the other hand, it's pretty hard to differentiate technically. And our company has -- we are not the company they are fighting with price only. We like actually to be attractive in price. There is no doubt about that, but we like to differentiate in technology and innovation. And so, we turned out in the three years, we have learned a lot about market development. And in this field, it's really hard to have this differentiation in technical terms, which is a kind of a precondition to become #1 and to become the leading company in respective field. Therefore, we decided to stop this business in April. What is very important to note again and also to point out again is that we remain committed to this database services, which is also a strategic goal of the company. And we focus now on the other activities. We have launched three years ago. This is about the same condition monitoring. The situation is completely different. There we see good traction from the market. There is also kind of another customer structure. We have also, by far, more chance to differentiate technically, and also this business is heavily and affected positively by new regulations in the U.S., but also in the European Union. Financially coming back to our AiSight and the condition monitoring, financially, there is almost no significant impact on revenue because it was a startup phase. On the cost blocks, we have some extraordinary impairments of CHF 28.6 million on EBITDA level and CHF 33.4 million on EBIT level, mainly not cash relevant because it was its recycled good and a write-off of tax loss carryforwards, the only cash flow was effect restructuring costs. All the costs are well within those guidance we have given in our April communications. What is also important as before I hand over to Matthias, is that all these extraordinary expenses are now charged in the first half of the year. There will -- there's no plans and no estimations or expectations that there will be another kind of note for H2 of this year. And for comparative reasons, we are going to adjust these parts of the extraordinary impairment. But again, it's important to note that the only adjustments we have done are linked to AI. In fact, there are no or adjustments done in our adjusted trail comment upwards. So, my last word here is that execution is fully on track, not just financially right, but also operational wise. And that means the whole -- not that easy activity to shut down such activity is actually progressing extremely well and also thanks to the people; they have done a really great job internally. That brings me to the end of my comments, and I'd like to hand over to Matthias.

Thank you, Marc. So good morning, everybody, also from my side, a warm welcome. Thank you, Marc, for this first introduction about the -- some financials and all the topic adjustment. So, for the report in accordance with Swiss GAAP FER, the presentation or the discontinuation of activities in Berlin is, of course, almost very essential for the reporting according to the standard. And so, when we talk about the profitability P&L in financial terms, I think we are very early in a situation where we stay okay, it definitely makes sense in the favor of having better comparability with previous periods and reconciliation also with our current guidance. Then really to look at adjusted numbers. And so, you see here at our key figures on this slide. And when it comes to gross margin, when we talk about EBITDA, adjusted numbers because -- yes, the main point, the main trigger point when it definitely comes to deterioration compared or looking at the Swiss GAAP FER standard accounting P&L, definitely is the CHF 25.6 million recycling of the goodwill that we have to report according to the accounting standard as part of the cost above EBIT line. And so, we show that as part of the R&D, but to show this complete linkage and bridging between Swiss GAAP FER reporting and adjusted numbers. Here, this slide indicates on which line wage adjustments have been done. So, in total, I think we talk about CHF 33.4 million impact on the net profit. And as said, the main block there is the goodwill recycling with close to 26%. And then also already mentioned by Marc, we have some restructuring costs, one-off costs, mainly valuation on inventory that is even part of the gross margin, but we have also then, of course, with the nature of closing down an organization, personnel costs with severance payments, et cetera. But this reduces down and is according to our announcement that we had in April. This is in the dimension of all in all, rebuild. And this, of course, also reflects the pure cash impact with this project, which is closing down. And so, especially for the balance sheet, it's quite over seeable what has happened here and what is the impact. So, we're talking about adjustments, we can focus on the P&L, and we can focus also on H1 2024. So, as mentioned already, we don't foresee any further costs coming in that are not approved with that numbers shown and indicated here. So, for the next slide, so we can really focus on adjusted numbers, starting with a headline. We could report an increase in our revenues of close to CHF 9 million, if we calculate that with fixed FX rates. Yes, given with the ongoing strong net of Swiss franc versus euro and U.S. dollar, of course, we have to pay another 5% minus due to FX effects that is as in the previous period, mainly driven by those core currencies. Definitely, there we have with our export co-health higher than 90%. We have this exposure on the CapEx side for the top line. In terms of the gross profit. In terms of the gross profit, as mentioned and already also given in our guidance with three main factors, we show a reduced gross profit. It's not no more over the 50%. So, three main factors, three drivers. It's still an underutilization with these volumes. We produce and operate for the time being. This is the underutilization in our manufacturing. The second one is the product mix. It's this higher sales portion of lower-margin modules. And third, of course, it's within the existing business. It's a lower portion of really gross profit, favorable product in the medical market. So, all in all, that comes down to this 47.5% gross profit, but that is very well in line with our expectations with a given sales volume that we could record for the first six months. So, that is definitely according to our plans and estimates. With this underutilization, even for this actual period, actual months, of course, we exercised some active cost management projects, and we were quite successful in that even with the fact that we look for further innovation and keep all the projects running. We at least could contain our cost in the overhead sector. So, also with that, there are still activities running, and some of them will fully materialize in H2 or even starting to materialize and have a definite cost effect then from 2025. So also here, I think we, of course, two measures to improve profitability to that extent that is given. But all in all, and if we look at the overall EBITDA that is calculated down out of that. Then, of course, with a CHF 5.9 million achieved EBITDA or 4.6% EBITDA ratio, of course, we still operate and this is also what we have commented on already in the past with high volatility on profitability with this cost structure with a given fixed cost. And so, under-utilization definitely is the big driver there upwards. And when we come in better situations with the utilization, I think we have a quite high leverage on scaling up also here profitability. So, looking at the P&L, again, completely took down also here the bridging from Swiss GAAP FER accounting to H1 2024 numbers adjusted. Here you see line by line where the impact from this closure of the Berlin activities. And yes, here, looking at net financial results, we could collect some interest. We have some -- as per closing date, June, we have some unrealized currency gains as it gains here on our open positions, receivables and cash. On the other hand, we have a loss, a partial loss of our equity accounting indices. And so, this balances out close to 0. And also on the tax, I think you see here for the H1 2024 reported, the CHF 4.8 million. This is million tax loss that is definitely the deal of the loss brought forward related to the Berlin activities. So, all for the rest for the operating activities tax result balances out to 0. Looking at capital bond and capital spend for capital expenditures in H1 2024. As per the closing date, end of June '24, we see a very high net working capital. That is really definitely higher, but the drivers here are quite high receivables as per closing date. I can tell you, in the meantime, this has normalized. This is just a look at this closing date, 30th of June, midnight. And it has normalized. Talking about the data management overall, we are active in that, and we can definitely state once more we see no risk with a receivable that are open. And our DOS is now a little bit more than the 45%. It's going towards 50%, but still with a very, very marginal risk on the debtors. On the other hand, we could apart from still having the quite good safety powers on our wafer, which is a strategic topic for us. We could reduce some inventories here in the magnitude of CHF 5 million to CHF 6 million compared to January 1, 2024. The CapEx. I think the CapEx also higher compared to previous periods. One driver here is that we have bought land in Staefa to have an open flexibility to increase our growth at the location in Staefa that kicks in with CHF 6 million. And on the other hand, of course, growing up our product portfolio in the younger days now with building up production line for A2L. Of course, it also used for invest. But all in all, I think one of the main drivers and a little bit kind of extraordinary and strategic is, of course, the purchase of land here for the long-term strategic growth path. So, with this cash out, just mentioned, our cash bond having a look at the cash flow, I think what is positive is that we could generate positive cash flow from operations in the first semester 2024, but with investing activities of in total CHF 42.2 million. And here, it's not only the just mentioned CapEx plan and machines and production equipment. But here, it's also that we participated in the capital increase for our equity accounted investment Lumiphase with another CHF 20 million. And then, of course, it's a pure cash out for that at that time. So, in total, we reduced our cash position with around CHF 35 million, and it comes down to close to CHF 40 million as per end of June. So, last but not least, then a look at the balance sheet. How does look like, even with the reduced cash, we are still in overall net cash position status. What is here a little bit the eye catcher is, of course, the PPE now above CHF 100 million coming with a continuous increased CapEx here. And of course, it's the trade receivables with up to CHF 40 million. It is a plus of CHF 60 million. But overall, I think we see that we still have a strong balance sheet that gives us enough space to maneuver the projects to come. And when we look at the equity, also here to close now again with a recycle of the goodwill is, of course, that within the equity, it's just a 0 calculation in the equity here with this recycle of the goodwill because the offset had taken place at the time when we acquired AiSight in 2021. Yes, with that, I'm close. That brings me to the end of my comments, and I'll hand back to Marc.

So, thank you, Matthias. A short comment about the outlook. So, the short message is there is no change compared to the March guidance. Nevertheless, I like to comment it again. On the one hand side, we are still in a very challenging market condition. Also, the lower visibility remains slow for the next months to come. And nevertheless, we see also good growth momentum, especially the second half, we can confirm that the A2L gap opportunity should actually kick in first time on significant level to our growth. On the other hand, what has driven growth here, that means the recovery of the air purifiers there, we expect that the growth moment to level off in the second half of the year. And so, it's not going down, but I believe not to contribute again to the growth. But this should be replaced by these A2L campaign, which starts now because I can remember you that this A2L regulations in the U.S. is starting to be in place by January 1. So, also this HVAC manufacturer, they have now to start to build up their new HVAC system to be compliant with the regulations from January next year onwards. In existing business, we are still somehow reluctant about a significant recovery. We see now, as I have commented before that in some submarkets, destocking seems to be on. On the other hand, Medical has already guided in March is very likely to lose again until end of the year. So, in numbers. On the one hand side, we confirm the revenue target of CHF 250 million up to CHF 280 million on unchanged foreign currency exchange rates, this would reflect the organic revenue growth of 7% to 20%. Gross margin, and now this is the only change we have some. This is some way adjust the gross margin is lower in the AiSight closure in April, but there we expect still to have 47% up to 49% for the full year and EBITDA of 35% to 10%. So, all in all, no change. That brings me to the end of this short review, and we are very happy to answer your questions now. And now, I hand it over back to Lars to moderate the Q&A session.

Thank you, Marc. Thank you, Matthias. With that, I will start to read out the questions I have received via the chat. We start with Mr. Sandeep. Marc, a question to you. It's really too early to look into 2025. But of course, what is your expectation? When will we leave the downturn completely? And what kind of revenue potential do you see for next year?

Thank you for this question, and I'm always extremely pleased to get our questions they have already been answered. In a way that today, it's too early to say anything about '25. And in serious terms, it's really difficult now already to talk about 2025. Five minutes ago, I commented in a way that visibility is still low, especially in the existing business. I think nobody knows exactly how the economy is actually -- that's progressing in the next couple of months. There are some discussions in the U.S. about recessive phase, some risk to fall into recession. China is still a high concern, what is going on there. So, I think at the moment, it would not be serious to talk about any kind of figures, financial figures about 2025. What I can share with you is that we are still optimistic in terms of new business. And there is the focus we have already commented this good chance about this extension for HVAC conditions. They should start now in the second half of the year, but totally will hopefully also continue to 2025. But this figure we have to be somehow patient in order to have a better fundament to give you a good guidance for 2025.

Next question also from Sandeep, is a question which goes into utilization. What is your expectation in terms of utilization in the second half of the year, but then also moving into 2025?

Is there anything I can say about this. This is highly depending especially on our utility center direct sales and all the components that is mainly dominated by unity, as you know, and also so have flow. Flow is now suffering from the medical destocking extension. This is my expectation should come to an end by end of the year. So, we do not expect any kind of support by a flow, medical flow in the next six months, but hopeful now it's already four months only is for the full year 2024, but hopefully next year should actually come to get normalized in flow medical. And in humidity, it's hard to say. So, we see now some step-by-step moderate recovery there. But will then we take another 6 up to 12 months in order to come over and to a normalized situation carefully in terms utilization. What we have, probably, I'd like also to comment that again, just to keep you to have a very transparent communication. What will continue is the fact that the growth in the next couple of months is mainly automotive, which has already been recorded in the first half of the year, but also the A2L, were all linked or most of them are linked to modules, which are close to the lower market. So, if we have the underutilization, the statement before, is actually valid. When it comes to gross margin, we have two contradicting effects. On the one hand side, we should actually come up with the amortization issue and solve it step by step. On the other hand, we have a kind of gross margin dilution, which comes with a higher portion of models, which is not come to an end at the end of the year. I think these are the two different aspects we have already pointed out in the market communication. And on the other hand, we have also to keep in mind that models caustically the lower R&D intensity because whenever we like actually to generate, let's say, CHF 10 million of revenues in modules, you don't have to invest in the same amount of R&D and sales. We order to generate this CHF 10 million. So, the intensity for sales and specialty R&D will also goes down. But these are slow changes in transitions in the company, but it's definitely worth mentioning it already in this context.

Then, I would like to combine a question both from Sandeep and also from Reto Huber for the auto market, one thing, which is, of course, interesting. How do you see the shift from traditional car, from electric cars, but how does this impact the trial product portfolio and also especially with the Tier 1 European OEM, the business. How many customers do we supply and how will you see developing this business moving from '24 into '25?

Well, the first question about the change from combustion to EV cars. I think it's not affecting us heavily because most of the existing vehicles we have today in any way, complete their own linked to the type of engine. So, what we are in very honestly all about air quality and comfort in the cabin. So, from anti-fog up to articulate meter, humidity level in the cabin, air quality in the cabin, all this stuff. So, this is the first order completely on next to type of engine. What is supporting our business is the fact that in EV cars, typically, you are even more concerned about an energy consumption of all these functionalities because your energy consumption, all your systems is directly linked to the range you can drive, which is car before loading or charging the battery gain. In combustion is more or less the same, but as people and consumers are not that concerned because at the end of the day, it's not linked to the range you can drive for out and that it's more about running costs and about CO2 emissions. So typically, you see a higher sensitivity when consumer when it comes to energy consumption, both the supporting functions for the E-cars rather than for combustion cost. So, this is somehow supporting our functionality. On the other hand, we do have still some ongoing business which directly the combustion there is likely to vanish, but it's not a question of one to two years. It's more a question for the next 10 years. This is an air intake to control the engine. And this really is directly linked to combustion cost. What is surprising is that these figures are still growing at the moment. And this comes to the fact that definitely the number of combustion engine-based car are decreasing already today. But on the other hand, all the regulations from European Union, usually six and so on, they support the OEMs to implement that to equip this optionality to lower and car in order to be compliant with the new regulations in combustion cars. Does it mean at the moment, we see still growing volumes, do we expect that 2025, it will be dipping on and then it starts to decrease slowly, but this is a transition of 10 years or even longer than that. So, this is directly and the last part of the answer about E-car change is that we are looking now into new applications like for example, battery management systems, they are not yet part of our revenue on that our portfolio. This is upcoming new applications. And these battery management systems, they might be optimized by our sensors. This is directly and obviously linked to E-cars only. And also, not reason, we have highlighted in our remarks communication that we are working on Atos system. So, also driving this is where we see additional potential for the future, which is not honestly not directly linked to e-cars. Even drive combustion power autonomously, but it's one of the manufacture automotive for the future. Tier 1 question in Europe? So, we cannot name customers, but generally spoken with more than 50% of in Europe, we have some kinds of collaboration. But if at the end of the day, it's not just kind of a light black. Do we have collaboration that we do not have. It's always interesting to widen up our relationships and especially also the business -- the business potential we discussed. So typically, we are in with most of these leading OEMs in Europe, but now it's our change -- our challenge to decrease the footprint we see OEMs.

Another question to the A2L ramp-up. What can you share around the second half of the ramp-up and how do you see the ramp-up to develop into the first half of 2025?

Ramp-up to comment. The ramp-up down in granularity of months it is always cyclical because ramp-ups can change pretty quickly. What we see today is a highly pipe fluctuation. That means there are some customers they like to pull in their orders now to be ready, but slightly early than we expect some other say or pushing them out. So, there is a lot of neurology, definitely is balancing out in a way for customers living the other ones are pushing out. What I can share with you that is that we expect the second half of the year to have first a significant contribution, but the ramp-up is not yet over at the end of the year. So, there should be, again, a growth contribution next year, H1 mainly, and probably even H2 of 2025. In figures to say, okay, CHF 6 million or CHF 9 million, I think that would be too granular because it's already changing to model.

Then of course, the question from Mike. First, the medical business, of course, is very much -- has been very much distorted in the last couple of months. What is your expectation of the normalized medical visit, CHF 50 million, CHF 60 million?

This is hard to say, though I have probably also thought to look at the figures again because I don't have all the figures in my mind in absolute figures. Well, I would say in H1 2022, looking back there, it was without the one-off, CHF 22 million of half year base. And there spontaneously spoken, I think it's reasonable to come back to the level of double CHF 40 million of the CHF 45 million in normal times. Again, after all destocking optimizations. And then definitely, we also work to new businesses. But as usually, medical, it's always a pretty low lasting adventure to go through all these certifications in order to have the ramp-up. But the good story behind it is whenever you are in, you're pretty safe to stay in, in medical. There's another market dynamics compared to appliances or conduces.

Next question is a question on Lumiphase also from Mike. What is the valuation of Lumiphase in the recent cap increase and what is the book value of your stake in Lumiphase when you win market to market?

Honestly, I don't have the valuation -- the pre-money valuation before the capital increase in my mind. Probably you can comment shortly about the book value. What I can share with you, and that's also the reason why we have participated in the capital increase that the company is progressing very well on the demand of which kind of optical manipulation to say in a non-scientific way, optical manipulation for the manipulation of optical race in order to guide the optical communication. And this is definitely one of the Megatrends that the whole world is asking heavily for high bandwidth and faster connections. So, the Megatrends, I think technology is turned out to be very promising factors in order to contribute to the next step of increasing bandwidth and speed data communications. And for our company, it's great because it's a technology, which is very, very close to CMOS and CMOS sensor, as we are traditionally are in and responding in the core of our technology for the whole company. But probably, you can shortly comment about book value.

That's quite an easy one. If you look at our consolidated balance sheet, I think the equity accounted investees, that is shown here with a CHF 22 million and Lumiphase is the one and only that is in here. So, with the initial CHF 3 million, we have invested there and now with a CHF 19 million or first 20 million is up to this CHF 22.2 million. And it's just -- the book value that is shown here is definitely the valuation is the cash we have.

Next question is a question on the management changes. Matthias Gantner and Mr. Orzati are leaving the company? What are the reasons behind that?

Andrea Orzati has been with the company for almost 16 years or something like that. Became CEO of another good start up, but it was usually a spinoff at Schweiz, so he became CEO, Zurich Instruments here located in Zurich. And this actually is his next career step also to become CEO. And unfortunately, in our company, we have only one CEO. Therefore, he decided to leave in order to make a career step. And Matthias, it's completely different. You are not becoming CEO, but you are going to retirement and these are two reasons for these changes. In case of the CFO, we have an internal successor, in case of sales, we could engage Simon Sonderfeld. He is coming from Bosch Sensortec, and we will start that in November 1 with our company.

Then, there a question on the outlook and the midterm guidance, the outlook is still the same range. What is the reason that the range is still as right as a business is your target expectation the midpoint of the sales and EBITDA range. And the second part of your question is the midterm guidance. When you expect to reach the mid-term guidance, and again, is it still the midterm as?

Well, the first question that typically have a range. So, I don't like actually to reduce the range of gain, say, okay, is our target to get the midpoint and definitely, our ambitions are always to be as good as possible. That's no doubt about that. And -- but we do see this kind of range because there is too much fluctuations. Now what is the reason why that we keep the range on the very same level compared to the communication in March. This is simply done by the fact that mainly it's influenced by the ramp-up of A2L and the A2L ramp-up is taking place in the second half of the year. That means that if a ramp-up is always challenging in connection with guidance because whenever we have just a shift by one month, which is absolutely without any concerns, but then we have the shift of December revenues to January, which always keeps the top line significantly without any strategic changes. And therefore, we need this kind of range still today in order to reflect the risk we do see by the ramp-up, which is not just by some by the fact that we are focusing already, but also our customers, they might push out some of the owners in this ramp-up situation. That's actually the reason this is not yet over. So, we should actually keep them at the range of very set. About midterm guidance and there, I'd like to refer to our Capital Markets Day in November where we like actually to ramp-up also the longer-term view of the company. To give you an update on strategy. We have worked heavily on strategic discussion with the Board in the last couple of months. And so therefore, we're also now ready to come out and to share the strategic update with you in November. So, in the next couple of days or weeks, we are also coming to communicating the date for the Capital Market Day and there we like also to comment about midterm guidance and when are we back on the levels we have indicated in the story.

Then there are some additional questions from Sigmund Stahler. The question goes into the A2L ramp-up. Can you be a little bit more specific on the products which are driving the A2L business and other product categories in the future, we could support the growth in 2025?

Well, to shortly recap this opportunity, HVAC systems worldwide has a cooling inside in order to is central at delivery, which is typically in the matrix in order to affirmation system, in order to have functionality of cooling down the room. Now in former times, it used to be a cooling, which is great in terms of functionality, but it's not that great in terms of global warming potential. So, these are pretty high. Therefore, all the company not just U.S., they decided to switch, to regulate this and say, okay, now we need the new category A2L, a category or a base of different cools or refrigerant. And you have actually now to change a new AC, you have to change there. There is one drawback comes with the lower GWP reformations. And this is the plant ability. So, whenever you drive down the GWP, the global warming potentials, on the other hand, the flyer mobility goes up. And Europe and Asia, they just decided to regulate in a way to say this coolant has to be changed in U.S., which is the last content larger country to change now from effective as of January 1. They also decide not just change the coolant but also to force the manufacturers to implement a leakage sensor for this refrigerator in order to reflect the high flammability of these new refrigerators. And this is exactly the opportunity we see now. So, this is a new emerging market, not AC itself but the fact that only the air conditioner market manufacture, not only those located in the U.S., but also those they like to ship their products to U.S. They need not just to change to the new reflection, but also to implement or design center. And this is -- we are one of the three suppliers they land also at the pass all the U.S. certification, and we were pretty successful to promote our sensors. And this is actually the business opportunities. Now the second question comes afterwards. Hopefully, this will be a continuing business for the next couple of years because air-condition is not just a one off of the rollout. I believe the new machines to be manufactured from January 1 onward. They have to be quickly with the kind of that stable set we expect to have a business, which will rank up potential, hopefully be sustainable over the next couple of years. What you see is that right, not yet really tangible is about the next class of preparation. I explained before that the advance of A2L class is the fact that the GWP, global warming potential is lower than the traditional mode, but still not 0. There is an A3 category, which comes and you see now the coping up in the horizon, where you have even longer GWP, 0 effects, but on the other hand, they are even higher in flammability. And one of this is very well known. This is for propane, which is deposit not even favorable but even explosive. And this might be the next chance and we are still already worked on that. We have almost first discussions with our customers to think about the new opportunity. But it's not fully clear when it kicks in. And second, it's not clear how the regulation will look like in non-U.S. about that, U.S. will definitely change not in the next couple of years because they are just digesting this change rate well now. But this is at the horizon longer-term might be the next opportunity to catch.

Matthias, an additional question on China. Is it still fair to assume that China is approximately half of the Asian business of Sensirion, or how did China perform in the first half of the year? And how do you see the risk between China and the U.S. with the upcoming election, how that region is going to evolve?

Well, the China business is probably half of the operation business is a fair estimation. And I think it's diverse to comment that the market conditions in China, or see on the one hand side, the consumer, all these and solution, all the smaller companies, they are pretty fast also in designing in our centers when it comes to a table-based air quality monitors this stuff, they are real software because they are highly sensitive to the consumers of their customers that we and customers are people. And in China at the moment, we do pretty bad, especially also reflecting these real estate prices, a lot of increasing costs, and higher also unemployment rate in China. So there, we see it directly. On the other hand, we see a moving automotive beating where we honestly are not yet very strong in. So, this is one of our ambitions in future to increase our footprint in the automotive business in China, which is heavily driven by government support. But is definitely one of the many situations in medical and we are less is more or less stable. The only import we see there is now again also with China, the destocking effect. But the end presumably is not very sensitive and relevant in that terms. And when it comes to the time U.S. and the China trading discussions, at the moment, we do not see strong headwinds. Definitely somehow some Chinese customers, they might be somehow reluctant in working together with a non-Chinese company. I have also the impression sometimes that the government is pushing the at least incentivized some of the larger companies in China to work, the first priority to work together with Chinese local brands. So there looking longer-term, it might increase the headwinds, might increase. But more in all, we are a U.S.-based company. We are best cost by the end of the U.S. base that this is definitely help us for our relationship to our customer. On the other hand, what is always best protection is to have in a way to product, they are not that easily replaceable by any other products, then also Chinese people offering practice to source their products from outside of China. What is more about our monitoring is about production in China. We are running a production site there. And there, we see more and more, that some customers in the U.S. They don't like to be sourced by or to be to be served by the operation centers in Shanghai. So, this is definitely one of the topics we are into. It's a trend. It's not yet here, but this is -- I have also the lead to advance in that context.

Good. Thank you, Marc. We have no additional questions, so we have also reached the end of this session at 11:00. I would like to thank for your interest in Sensirion for the interest in our H1 results. And with that, I would like to close the call and wish you all a nice day.

Thank you for attending. And have a good day. Bye-bye.

Bye.