Ladies and gentlemen, welcome to the LEM Annual Results 2022/2023 conference call and live webcast. I am Alice, the conference call operator. I would like to remind you that all participants will be in listen only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star one on your telephone. Webcast viewers may submit their questions in writing by the relative field. For operator assistance, please press star zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Frank Rehfeld, CEO. You will now be joined into the conference room.
Good morning, ladies and gentlemen. Also from my side, a very warm welcome. Thank you for joining us here in the room and also on the webcast. Today, we would like to introduce LEM's full year results for our financial year 2022/2023. My name is Frank Rehfeld. I'm the CEO of LEM, and I'm here together with Andreas Hürlimann and Andrea Borla. Andreas Hürlimann, our Chairman, and Andrea, our CFO. For those who are not yet familiar with LEM is providing sensors for measuring electrical parameters, mainly voltage, current, and energy, and with those, help our customers and society to transition to a sustainable future. Here you see the agenda for the today's presentation. After my opening remarks, I will give you more detail on the business performance of LEM, and Andrea, our CFO, will then introduce the finance details.
I'm going to outline what we expect in the future. Andreas Hürlimann, our Chairman, will introduce the dividend proposals to our shareholder. It's always nice to present great results, and we are particularly proud that we've been taking the CHF 400 million threshold as well as the CHF 90 million EBIT threshold to the CHF 400 million revenue threshold and the CHF 90 million EBIT threshold for the first time in LEM's history. You must also say here that the team effort behind this was substantial. If you consider the COVID situation, with lockdowns in April, May, and November, the continuous component shortages that we've been facing and the also continuous strengthening of the Swiss franc against all major currency in which we are working, but in particular also with the Chinese yuan.
We see our strategy confirmed to play in the right markets that have further important growth potential within the overall trend towards a more sustainable future. LEM has been showing that we were able to act in a nimble way, in a fast changing world, and at the same time to continue our business transformation. The 8.8% growth after our last record year brought us to CHF 406 million revenue. That would be CHF 420 in constant currencies. Despite the fact that the overall semiconductor situation seemed to start improving, we are still suffering from decommitments from some of our semiconductor suppliers that cause not only frustrations at our customers, but as well, enormous efforts in the whole organization.
We've been changing our organization from automotive and industry to a regional setup at the beginning of the financial year and see a positive momentum coming from this change. We expect that the speed of the transformation is going to further accelerate now since the executive committee is completed. Also, in April 2022, we've been moving to our new headquarters in Meyrin, in Geneva, which gives the team now a very modern state-of-the-art working conditions fitting to the new way of working. Part of our business transformation is also the extension of our operational footprint.
We are very happy to see that our building in Penang, in Malaysia, is making very good progress. We are able to attract high quality candidates to start our activities in Q4 this year. We'll start exporting from this plant in the beginning of 2024. You probably remember that we've been deciding to set up this plant to give LEM sufficient space to grow in the future, to balance our manufacturing footprint around the world. Also to tap the talent pool in Penang with respect to semiconductor competencies, in particular for the back-end processes. With this, I would like to move to the business performance 2022/2023 in a bit more detail. Following our business structure, we see here the development of the five businesses in comparison to the same period in 2021/2022.
The 8.8% growth are contributed mainly by automotive and energy distribution and high precision, where in particular, our DC meter in the energy distribution, high precision area, has been driving the growth. Against our nine-month results, there have been no fundamental changes in the growth rates, in particular, when you look in those in constant currencies. We reported 12.5% growth in our nine-month numbers. We see now 12.6% growth in constant currencies for the whole year. In particular, energy distribution and high precision, track and renewable could further improve against our nine-month results. Pro memoriam, since track might potentially draw your attention because it looks only having grown by 0.4%.
Here, please keep in mind that, in particular, this business was impacted by the stop of our activities in Russia, in Q1 of this financial year. The distribution of the businesses relative to each other, you see here on this page, there's just a small change of the business sizes as part of the total business. When you compare the Q4 growth year-on-year with 7%, please also keep in mind the strong depreciation of all currencies in which we are working against the Swiss franc, that reduced our annual turnover by CHF 14 million. I will go now in further detail to each business, starting with our biggest business, the automation business, that represents 33% of our global business. You see here, the turnover plotted over the last five years.
Our automation business was mostly severely impacted by the US-Chinese tensions, as well as the corona crisis, and recovered nicely, actually, since 2021, 2022. We saw continuous growth also in the last financial year, 2022, 2023. We see further interesting growth potentials, in particular, with the discussions to replace fossil fuel burning heating systems with heat pumps. At the same time, we see some investment caution in China, in particular, also in this business. Our automotive business, as I said, for the first time, exceeding CHF 100 million, was managing to grow despite lockdowns and supply chain constraints. Included in this business are sensors for battery management systems, motor control, and onboard charging solutions, and it overall represents 25% of our total turnover.
We saw continuous nice growth of more than 17% in the whole reporting period, and this market for us is by far dominated with a business in China. That is also the world's biggest single market for electrical vehicles, with more than 50% of market share on the global market. We see an increasing number of well-established Chinese OEMs like NIO, BYD, XPeng, who are about to also enter the Western market. The sheer size of the Chinese market, as well as the growth potential for new energy vehicles, have led to important overcapacities, and we also expect consolidations in these capacities of brands and volumes, basically, that are trying to win market share in the future to come. Renewable energy, now 16% of our business, is including our solar and wind power generation market.
Despite the fact that the fundamentals of this market are strong, we did not manage to satisfy all our customers due to the non-availability of semiconductors. We only had 6.3% growth in constant currencies, translating in 1.6% growth in CHF. We expect that with the easing supply chain, that the growth in renewables is going to accelerate in 2023, 2024. Moving on to energy distribution and high precision, our second biggest growth pillar in the last financial year. That is representing now 15% of our global business, and as I already said, contains high precision business, but also the fast charging station and also smart grid solutions and UPS, uninterruptible power supplies, in the scope. The business is, as I said already, the second important growth pillar.
We deliver our DC meter in all major countries, of Europe, in the U.S., and also for the Chinese market, and there, in particular, for the export markets that are going to happen out of China into Europe and U.S. The readiness of charging infrastructure is and will remain a key enabler for the rollout of battery electric vehicles on a global scale. In parallel, we see that the demand for our AC grid products, like Rogowski coils, and is also accelerating since the grid stability in medium voltage grids is seen as an increasingly important topic. Our smallest business track contains all solutions LEM offers for trains, metros, and trams, both for rolling stock and also track side. It looks small with its 11% of our total turnover.
Is a very, very important part of our portfolio for all those customers who see LEM as a one-stop shop for their current measurement solutions. This rather long cyclic business has been impacted by the stop of activities in Russia, as already mentioned. The growth of about 6% in constant currencies could have been sustainably exceeded if also here we would have had all the semiconductor components available, and would not have been basically hampered here to deliver to our customers. We expect also this business area to continuously grow, in particular, also with our metering solutions for locomotives in Europe. Projecting this business from a regional perspective, you see all our regions have been growing in 2022, 2023, against 2021, 2022.
The share of China has slightly decreased from 41% in our 9-month numbers, to 39% for the full year. EMEA and Americas have been actually winning 1 percentage point each. The Q4 performance of China, which looks a little bit meager here, but also here, please keep in mind, is affected by FX effects. The fact that in Q4, Chinese New Year falls, but also some de-stocking activities at Chinese customers. In particular, in China, we see that our order book is going to become shorter, since our customers react to a decreasing availability of electric components or electronic components, with shorter lead times for their purchase orders. Nevertheless, we are very happy with the almost 10% growth that we had in China in 2022, 2023.
The Americas look particularly impressive, with 33% growth over the whole financial year. However, there is a one-time effect, something what we call a last time buy, that drives the numbers up. Nevertheless, the growth rate in Americas show that we are on a very good path and in the right direction. EMEA had been adversely affected by both the FX effects of a weak euro against a rather strong Swiss franc, and also by the stop of our activities in Russia. Nevertheless, also here, the development, the second semester shows a very nice improvement. Overall, LEM has a balanced exposure in the markets. Asia is the 57% leading us in the traditional key markets, where electronics get manufactured, independent where they are eventually used and then shipped to by our customers.
With this, I would like to hand over to Andrea, who will introduce the financial results in greater detail.
Ladies and gentlemen, good morning, also from my side. As the group CFO, I'm very pleased to present attractive financial results for the year 2022, 2023, which are slightly above the overall analysts' expectations. Let me summarize the financial highlights in three points. First of all, LEM managed to grow its sales, the EBIT, the net profit, and this despite several headwinds we experienced last year, such as lockdowns experienced in China, the continuous supply chain constraints, and as well, the continuous Swiss franc appreciation. Second, LEM continues to have a strong balance sheet, which is reflected with a healthy equity level. Third, both the operating as well as the free cash flow grew substantially above last year. Let's go a bit more into detail. Here you see the gross margin.
The gross margin in absolute value increased by CHF 15 million, from CHF 177 million to CHF 192 million. In respect of the gross margin in percentage, we have been basically stable, at and slightly above 47%. What are the main causes for this margin standstill? On the one side, both sales price increases and scale effects helped to drive the gross margin upwards. Those improvements, though, were dampened and fully compensated by higher input costs. We expect actually the material costs to further rise next year, and we will have to continue to passing on those cost increases to our customers in order to defend our profitability. Our two low-cost location in China and Bulgaria cover 81% of all sensors produced by LEM.
The construction of our future Malaysian site is progressing well, and we are expecting starting production sometimes early 2024. The percentage of our low-cost location is therefore expected to further increase in the near future. The SG&As increased by CHF 8 million, which are mainly related to increased consulting expenses, investments in information technology, and various recruitment activities. The personal costs, however, remained basically at a similar level as last year. We have, as well, reflected within 2022 or 2023, CHF 3 million expenses in connection with our digitalization project, Pulse, which among others, includes the introduction of our future ERP, Microsoft Dynamics. This Pulse project will enable LEM to automate and to strengthen its processes, and it will allow LEM to grow the SG&As under proportionally in the not-too-far distant future.
The R&D expenses increased by CHF 3 million, whereas the R&D percentage remained stable at 7.9%. The increase of R&D expenses is mainly driven by the R&D headcount increase 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. Going forward, R&D expenses are expected to remain in the 8%-10% corridor. Financial expenses. Even though a currency gain of EUR 0.2 million could be realized in Q4, LEM suffered an ethics loss of EUR 1.9 million, mainly coming from the Euro devaluation during the first semester, 2022-2023. The gains from hedges could only marginally compensate those losses. The financial expenses were impacted by Mera's IFRS sixteen lease expenses amounting to CHF 1 million, and higher interest expenses on loan amounting to CHF half a million.
This is due to the increasing interest rates, both for Swiss franc, which we are running today at close to 2%, and the Malaysian ringgit, close to 5% for the financing of our new production site in Penang. Moving on to the income taxes. The 2022, 2023 effective tax rate is at 15.3%, basically at last year's level. The geographical profit mix remained pretty similar to last year. We, as well, continue to benefit from the so-called HNTE tax status in China, which results in a reduced tax rate of 15% instead of 25%. Going forward, we expect slightly increasing tax rates due to the canton Geneva, expected to increase the corporate tax rate by 0.7 percentage points, starting the 1st of January 2024. On this slide here, you find the full profit and loss statement.
On the left side of the table, the full year result, and on the right side of the table, the Q4 result. LEM succeeded for the third time in its history, to exceed the CHF 100 million sales threshold during Q4, which represents a growth of 7% compared with last year's Q4. During Q4, both EBIT at CHF 23.8 million and the net profit of CHF 20 million came out strong, reflecting the good momentum experienced during the most recent months. What are the key points on LEM's balance sheet for end of March, 2023? First, the networking capital increased by CHF 3 million at a slower rate than the top-line growth. Second, the fixed assets increased as a consequence of the investments, both in new assembly lines and as well, the future production site in Malaysia.
Third, the net debts decreased slightly to CHF 22 million, and this is as free cash flow exceeds the dividends payout in 2022. Those points all result in an equity ratio, which remains stable at 53%. 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, increased substantially compared to previous year. Having said that, when excluding last year's non-recurrent tax payment of CHF 26 million, the cash flow increased only slightly. In summary, we are very pleased with LEM's 2022, 2023 performance, which is reflected in continuous sales-
... profitability, balance sheet, and cash flow improvements. You may now wonder what the future will bring to LEM. For that, I'm very happy to hand back to Frank.
Thank you, Andrea. Yeah, let me now elaborate a bit with a couple of thoughts on the outlook for our business. As much as we are confident for the mid and long term, we have to expect also in 23, 24 surprises, we probably will have to also expect surprises ongoing. This is unfortunately a little bit the tendency in this decade. We clearly see an improvement of the availability of semiconductors in 23, forthcoming, forthgoing against 22. However, we do not yet expect to get all our needs fulfilled, neither in 23, 24. In particular, short-term decommitments from some semiconductor suppliers will not improve our visibility for the current business year. The US-China relationship, as well as the consequences of the Russian-Ukraine war to the world economy, are impossible to be forecasted.
The only means that we have in our hands are actually to set up the organization in a way that we can react nimbly to an up, but also a downturn. While we speak, we are doing important extensions of our line capacities and also continue to invest in increasing our R&D capacities. We are strongly believing that the mega trends, of decarbonization, of electrification, of renewable energies are going to continue. With this, I would like to thank you for your attention, and like to hand over to our Chairman, Andreas Hürlimann.
Thank you very much, Frank. The long-term view, we had multiple reasons in recent years to be distracted from our long-term view, but we were not, or you could also argue we were boring in our strategy. While we had lockdowns, continuous lockdowns, but also supply chain disruptions, we tested and continued to test our resilience. We had no reasons to change our strategy. Our scenario for future based on mega trends with structural growth remain intact. Our ambitious and strategic investments, such as significant R&D, as you have seen, they start to bear fruit. Our projects to further de-risk our supply chains, but also our efforts to enhance our regional competencies. This will make our company even more resilient, but also more agile, and with this, more competitive. Moving on to our proposal to the shareholders.
The board considered carefully profit and cash flow, the underlying strength of the business across diverse business sectors and geographies, and the general economic uncertainty ahead. Our long-standing stated dividend policy is to distribute significantly more than 50% of our net profit to our shareholders. Considering the excellent results, we are proposing to our shareholders an increase from 50% CHF to 52% CHF per share, which is a payout ratio of 78%, similar to last year, and a dividend yield of 2.6%. It also demonstrates our high confidence in the company's ability to generate strong cash flows. We continue to make significant investments in talent, in R&D, business development, marketing, as well as operations, IT, and infrastructure. This will result in new products, enhanced value add, increased market share, as well as geographic footprint expansion. Moving on to thanking you.
On behalf of the entire board of directors, I wish to extend special thanks to our employees worldwide for their expertise, reliability, but also their innovative solutions. In particular, we are very proud on how our teams have responded to the extraordinary challenges of recent months to deliver this record performance. Also, I thank our management team for their prudent and empowering leadership. We would also like to extend our gratitude to our customers, suppliers, and business partners for their continued trust, despite some discussions on allocations. We thank shareholders for their confidence and they continue to place in us, and we all thank for your interest in LEM's performance over the past years and our future prospects. Let me wish you all the best, and I look forward to taking your questions.
Very good. ladies and gentlemen, we will take first the questions coming in from the room here at the Widder. We will take the questions coming in via phone, and in the end, those questions that come in writing. Just hold up your hand, and we will take your question.
Thank you very much. Fehrenbach, AWP?
... Your outlook is a bit cautious, what's understandable, I guess, for the most. Does this vigilance you speak about in the press release, you want to keep up for the next 12 months, does this translate into the expectation of a decline of sales in the current year, or maybe at least in the half, first half? My second question is, supply chain. You mentioned in February that the situation is improving. Now you're warning again. Can you give us a little bit more light there? As a short last one, how was the start into the current business year in the first two months compared to last year? Thank you.
Yeah, thank you very much, Mr. Venberg, for your question. With respect to outlooks in numbers, we have a long-standing tradition of basically giving the first numbers and indications after the six first months of the financial year have passed. We would like to also stick with that. Do I expect a decline or do I expect a decrease? I mean, I've been indicating what we see is that forward-looking, we see mid to long term, rather a positive trend, and the challenge to really forecast the year, in particular, the beginning of the year, is really that our supply chains do still have some basically surprises in that we cannot completely manage. Please forgive me to not give you here a better answer.
We see that the overall situation is improving, but still we see that not everything we would like to get is eventually also getting delivered to us. Does this answer the question? Hopefully, as precise as you could expect.
Okay, good morning, Serge Rotter from Credit Suisse. I like to keep this topic, we have seen order intake over the last two quarters was around CHF 100 million. This looks like a little bit the new run rate. If you multiply this by four, so we should expect CHF 400 million sales. This would be the quotation I make. Please tell me why you can do better over the next 12 months than the CHF 400 million sales. What has to happen, in which division?
Now, our order book is probably not the most precise indicator for our sales development. There are several reasons for that. When you remember where LEM was coming from, 2017, 2018, 2019, we basically had the order book that was reaching 3, maximum 6 months of the year. We had the semiconductor crisis, but also the overall geopolitical tensions that led to an extension of the order book. Basically, we got our customers ordering 12, 15, sometimes even 18 months forward. Looking at an order book, it's not enough to look at the height, you also need to look at the length. That's exactly the situation in which we are.
We see, basically, and you saw that in the numbers we published, that our order book was shrinking, by about 20% against last year. This doesn't mean that our sales are going to shrink, necessarily because of that. It's just that we have a little bit less visibility, and commitment of customers because they just now order for the next 3-6 months, or let's say at the moment, still higher than that, but we will see that it's moving to probably 3-6 months again, also in the future. That means even at the very month, we still get new orders into our order book, that will then positively impact also our sales, even of the very month.
Therefore, the mathematics that you do will not necessarily allow to forecast, in particular, not in quarterly, but also not monthly sales.
I disagree, because you mentioned also that you are back to normal with 2 to 3 months lead time. This tells me that the ordering intake of last quarter is about the backlog you have, isn't it?
No, we are still above. Again, it's not 2-3 months, it's rather 3-6 months, that we had in the past. Again, let's even not fight here about the actual, let's say, horizon, since in the very quarter, still a lot is happening. I think, again, the order book is only one indicator, for what is eventually going to happen in the very quarter.
We'll stop here. Probably 2 another questions, quick ones. In EV, how much is the share of your sales to Chinese OEMs and to the rest of the world? Can you give us indication here?
Um, in-
Did you
Yeah
... new OEMs in China?
May you remember back, we've been reporting these numbers when we were still organized a bit differently, we basically had a separate, automotive business and industry business. There you saw we were above 50%, that goes eventually to China, and that is still true today. When you look at the overall market, China is more than 50% of the global EV market. That's something one tends to underestimate when you walk through the streets of Zurich or Berlin. When you go through Shanghai or Beijing, things look different, and the density of electrical vehicles is there really feasible.
We see also that all these players are now starting to export, and when I see where the Western OEMs are standing, I'm rather optimistic that they will quickly gain market share also in the West.
Okay. Thank you, very helpful. Probably last one, not sure whether CFO or CEO, but the automotive industry taught us how to push the suppliers to the marginal cost, to the grand cost, you know? Probably you will grow there mainly in EV and also charging solutions. I'm wondering how you can increase the prices in this industry, and you're so confident.
In automotive, for sure, we agree, and also Andrea had in previous sessions, always referred to that. Probably the pressure on the margins is in average higher than it is in other markets. This is what we probably also are going to face looking in the future. Still, I'm not so pessimistic with respect to automotive, as one could be looking at the one or the other, let's say, traditional Tier 1, earning margins below 10%. Why? Because we see a rather steep development still, and then basically the need for solutions is rather big. We see differences in the markets between Europe and US on the one side, and also in particular, China, where rather the speed and the availability of products is counting, whereas Europe rather goes for, let's say, long optimization cycles.
When you cover and rather wider region portfolio, I'm not so pessimistic that we cannot also generate interesting margins also in automotive. For sure, probably it might be slightly below what we see in other businesses.
Okay, good to hear. Thank you so much.
Yeah.
Good morning, gentlemen. Arben Hasanaj from Vontobel. My question would be around the subsegments. What are the trends you are seeing there? In Q4, you had a book-to-bill of around 1, so some must have been above that, some below. If you could share maybe in the subsegments, because last time you also mentioned some recessionary signals-
Mm.
especially in auto, automation. That would be my question.
Right. I mean, we don't basically break down order intakes or or the book-to-bills per segment, but to talk qualitatively, we see, let's say, a certain caution, in particular in the automation business. Because there, typically, the foresight and also the confidence in the business developments is probably very sensitive. We see that in the Chinese market, there are some question marks, in particular, also following the COVID situation. We see very, let's say, nice signals in the whole area of energy distribution. In particular, they are driven by the DC meters. Very nice signals in the area of renewable energy, and also positive signals in the traction business.
Anybody else here in the room who has, at the moment, a question to Andrea, Andreas, and myself?
Hello. Sterin from Finanz und Wirtschaft. Just a short question. AMI is Europe, Middle East, and Africa. Do you have any exposure in Africa?
Yes, we do have some renewable business, but it's still very, very small. Agreed, yes.
Where is it?
That's in this case in Ghana.
Okay.
Basically what we provide there are equipments to help localize telecommunication to basically have their power supplies.
Thank you.
With pleasure.
Are there any further questions from the room? There are no further questions.
Great.
from the room. We will take the questions coming from the telephone.
For questions over the phone, please press star and one. There are no questions over the phone so far.
Let's go back to the room.
Otherwise, we have a couple of questions coming from the room.
Yeah.
I would have two questions concerning the patents and new product launches. I mean, it kind of looks like development cycles have become a bit shorter. Is that correct, because there is more software content involved? Could you describe that maybe a bit?
We've continued to invest into R&D, and the 8%, 8%-10% of sales that we've been giving is also something we did in the last year and also are planning to do in the upcoming future. The plan is to shorten development cycles, in particular for product adaptations. Let's say the development of really completely new products, like for instance, a DC meter or also a new integrated current sensor. Basically with a semiconductor, we probably will not really see shortening.
The obligatory question concerning market shares in the more, or most important markets. Could you describe them a bit, allude them without mentioning them explicitly?
Right.
This is difficult to do.
Right.
Is there any kind of technology on the horizon that could endanger your transducers or make them obsolete, even?
Right. The trend towards current measurement is increasing. The question is: do we have sufficiently competitive solutions also for the future? The number of measurement points that will have to be measured in the future, that is basically an increasing sort of trend. We have for sure been losing market share in markets where we could not deliver, but we're also sometimes in the situation that we had to deliver because competition could not deliver. We see basically there a more or less plus and minus equal game. But also in areas where we've been losing market share, the past has been showing through the long-standing business relationships we have with our customers, and also the high quality that we deliver, that we can also win business back.
This is here rather something where we had to accept that we could not satisfy 100% of the market demands that were basically brought to us. We see overall market share increases, in particular in our business of the energy distribution, so basically here DC meter, and probably have been losing a bit of market share in the area of renewable business. Looking forward, we do see a trend to further integration, particularly driven in the automotive business, in order to basically get the power electronic solutions cheaper. Because the overall target is to get the bill of material of an electrical vehicle to the same level than the bill of material of an a combustion engine vehicle.
Therefore, we will see also further that the average price per transducer is going to go down, and therefore, consequently, we foresaw to put our fingers ourselves in the fabless industry. There we will see within the trend towards smaller sensors, more compactness, also the introduction of silicon carbide. Also here, mainly driven from the automotive industry, but probably later on carried also into the traditional applications, like solar, and automation. Here, the frequency to measure needs to increase, and here new technologies might come up that are also relevant for us. We are also working on that. One key word, for instance, is here TMR, as an alternative, basically a sensor principle to the whole base sensors that we have today.
TMR, without making now here a lecture on physics, is actually something that is very well known in the market since 20-plus years, because that's the technology with which basically all the hard disk are working. In order to measure current balance, you need to do a couple of very special things with the TMR to have the same precision. Also, TMR will probably not be the right technology for all applications, because there is a certain sensitivity for other magnetic fields where TMR is not performing that well. That is still something what we see on the horizon, and that will be necessary to switch to faster switching frequencies, again, which is necessary in order to make things more compact.
Hopefully, I was not getting too abstract, but, I think, there is technology developing in the future that we clearly see, upcoming. Yeah.
I need to gain your brain to understand the following situation. On the one hand side, we have destocking, so this means no sales for you. Probably you can help us, is where you see destocking, region-wise or product-wise? On the other hand, we see that your clients have very good revenue recognition, so helping increasing higher demand. At the same time, your clients also are reporting lower order intake, meaning that probably it can become more challenging going into the next quarters, you know? At the same time, destocking probably will stop. Can you give us a feeling for these forces, you know?
I mean, it's, you described there a certain complexity that we also face and cannot, in all cases, completely, let's say, analyze, because also our customers are not, in all cases, completely transparent. Destocking does not mean that we don't have sales, but actually means that we have postponed sales, right? That's important to understand. I mean, there are areas of lower order intake, also of our customers, I would agree. And again, I would here refer in particular to the automation business, where, we see at the moment a bit of a slowdown that is, to a certain extent, also driven by the semiconductor industry. Because the hype that we saw in semiconductor investment is now cooling down, and the next hype is probably to be expected, in 2025.
Therefore, yeah, there are a couple of mechanics, again, where it's extremely difficult for us to forecast more precisely. Therefore, my way, rather to be nimble rather than to believe that you can do analysis paralysis and still eventually miss the point.
Okay, we're in the same boat, huh?
Welcome.
Probably the last one, more again on the market. I remember in the capital market there, you used a little bit the story about this pure semiconductor transducer, now, and this is the big future.
Yeah.
You also showed how quick you gained the market share, you know? I know it gives no sense to compare quarter by quarter, but did you kept your market share? Were you improving? Do you see new competitors at the horizon or even there?
Right. Yes, this integrated current sensing business exactly, which is basically a fabless approach towards the semiconductor industry, is an important growth pillar. You are right when you say that this is probably an over proportionally fast-growing volume market, but not necessarily in turnover. Because the prices of those products are at, let's say, below 2 CHF. Therefore, to grow there substantially in turnover needs, obviously, an important volume increase. We have been starting nicely in this market, but probably need to further accelerate, in particular, because the automotive industry is moving here fast. We are working at the moment on several scenarios, how we can further accelerate to grow this business also with ICS.
Good. Thank you. We have one more question from Vontobel.
I was wondering, can you remind us what the pricing impact was on your last year's growth? You mentioned those material cost increases. Can you quantify that a bit?
This is a question to Andrea.
Yes. it's,
Maybe.
Yeah.
I was wondering on labor costs. It doesn't seem like that will be an issue for you, or?
First question is that you can assume a low single digits, both on material and as well on the pricing, which then basically were compensated and bringing up this 47.3%. Labor costs, these vary very much on the markets. On the one side, we have markets where we had important salary increases, witnessed mainly in Europe, the States, as well in Bulgaria. Other markets like China, were more, let's say, at a lower rate. Overall, again, on the total group level, again, low single digits, I would say, total input cost increase.
You expect kind of the same for this year?
Let's say, for the coming year, we will surely continue to see material cost increases, probably not at the same rate as we experienced over the last 24 months. This price increases, the ambition is to match that, but we see as well, markets where it's gonna be more challenging. Let's say China, where we have a big part of our market, as you have seen. The inflation rates are rather low, and competition is increasing now. Of course, then to get through price increases will be more challenging than what we have experienced over the last 12 months. In respect of salary increases, maybe as well, we will have a slight reduction than what we experienced over the last 12 months.
All right. Thank you.
Good morning, Vanessa from JP Morgan. I wanted to ask you, there's a very strong performance coming from the U.S. How do you see that going forward? What is your focus in the U.S. market? Which are the products that are really attracting attention from the consumers?
Thanks, yeah, very good question. Thanks, Vanessa. The U.S. market has been traditionally for them, a market where we were focusing on automation applications, because we didn't really see except one, basically, player, really a lot of automotive activities, and we also didn't really see renewable activities. With Biden really focusing on with a different speed on sustainability, we clearly see that this market is substantially picking up. We see also with the IRA Act that we are going to really see also investments getting pulled in the country, and therefore, we expect an over proportional growth in the U.S., in what we call the e-energy distribution, high-precision level field, but also in the automotive field.
This is where we are going to expect first growth, potentially also in the renewable, but this depends a little bit where eventually the electronic gets manufactured, because one should not underestimate, of the world electronic manufacturing, still 60% comes from Asia. Whether we really will see substantial electronics manufacturing in the U.S., in particular in the U.S., and not only in neighboring countries like Mexico, remains to be seen.
I would have follow-up questions to the question of Mark. The TMR technology, which you just mentioned before, how is it related to your efforts in the ICS area? Are you already using this technology, or are you just in preparation of using it? That will be the first question.
It's very strongly related, so basically that would go directly in our ICS business. At the moment, we are working there with partners, because we would not be able, technology-wise, to do that in-house. Similar also, the whole basically measurement part is also a component we buy today. We work at the moment to define with the right partner what the right requirements are and the right specifications are for the market.
Okay. The second one is, in the five subsegments that you report, for which segments is the ICS technology basically the most significant one?
Relevant. Yep. First, automotive, second, renewable.
Can you also explain within the automotive sector, in which?
Application
application?
Right. application-wise, it's priority 1, DC-DC converters. Priority 2, it's motor control. Battery management has typically different solutions, because you also need there, basically, more intelligence in order to calculate state of charge, state of health.
Thank you.
There are no further questions from the room. Maybe me do a quick reminder again for those who are on the phone.
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We will switch over to the questions coming in writing, which I will read out loud. First question comes from Fadrique Balmaseda, from White Oak Capital Management: "Were orders in Q4 also impacted by semiconductor supply issues, or did this only impact sales?
This is an interesting question. Yes, orders were impacted because obviously still we see longer lead times with respect to the order book. There is also still an order impact. I mean, what we see is that the whole semiconductor industry has probably been learning from the surprises in the last 2, 3 years by basically expecting now from their customers more longer term commitments going actually years in advance. Therefore, we will probably also see this sort of trend to a certain extent, in particular, for those products that need a lot of semiconductors. We see still an rather important link between semiconductor order lead times and also then the order book.
The next question comes again from Fadrique Balmaseda, from White Oak Capital Management: "Should we see Q4 bookings as normalized level going forward?
We expect actually also in the future, that probably the order book is going to move more to the times before, COVID and the geopolitical tension. I think, we expect that our order book is rather going to shrink a bit more in the future. Again, we come from 15-18 months, are probably now at an order of magnitude of 6-12 months, and expect this to normalize towards around 3-6 months.
There's one last question from Fadrique Balmaseda. What kind of price increases in percentage do you expect to put through this year to compensate cost inflation?
Again, repeating what I said before, the ambition is to compensate, and this is expected to be in the low single digits.
The next question comes from Andreas Gujan , from Carnot Capital. Are you affected somehow by the trend to SIC chips?
Yes. Silicon carbide, where is silicon carbide used in particular in automotive? It's used to basically drive the motor, and it's also used in onboard chargers and DC-DC converters that you need in order to transport energy between 800 volt and basically 12 or 24 volt. There, we basically see a trend that's, at the moment, not yet really something that is widely used, but we see designs moving this direction, and therefore, silicon carbide will be an important topic also for us. Again, there are several technical solutions towards that, but one is the basically change in measurement technologies that we also see towards TMR, tunnel magneto resistance.
Good. There are no further questions that came in writing. There are no further questions waiting on the phone.
Good. Again, thank you very much for your interest in LEM. Thank you very much for the good questions, the good discussions. Looking forward to welcoming you for all who are here in the room for a lunch and hopefully then soon also for the next report out. Thank you very much. Thank you.
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