Good morning, ladies and gentlemen, and welcome to the LEM Holding AG Full-Year Results 2024-2025 Call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Andreas Hürlimann.
Ladies and gentlemen, thanks for coming here today for the Full-Year Results 2024-2025 Conference of LEM Holding, and a warm welcome from my side, also to the participants who join us via phone conference. I'm Andreas Hürlimann, Chairman of the Board, and I'm here with our CEO, Frank Rehfeld, and with Thomas Mellano, our VP Finance. 2024-2025 was an exceptional year. It was shaped by geopolitical and economic uncertainties and persistent market headwinds. While LEM was under pressure in the first half due to cautious customer spending and high inventory levels, we saw encouraging signs of recovery in the fourth quarter. China, in particular, showed stabilization, especially in the automotive business, where we achieved growth and regained market share. Demand in EMEA, the rest of Asia, and Americas remained subdued due to cautious capital investments and still elevated stock levels.
Nevertheless, we observed early signs of normalization across our businesses, primarily also in automotive. Both Europe and Americas were project ramp-ups, and improved bookings supported a more positive development. Frank and Thomas will provide more details on business development and financial performance in their presentations. From the Chairman's perspective, it 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 electrification, renewable energy, and e-mobility. We invested in innovation, strengthened customer proximity, and aligned our structure to meet shifting market realities, mainly in China, where our efforts to win new projects and build regional capabilities have started to bear fruit, as you will hear. 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, Thomas Mellano will present the financial results, before Frank will give you an outlook on the current year and an update on our sustainability strategy and its implementation. I will return to the speaker desk to inform about upcoming board changes and dividend proposals for the annual general meeting. Before I hand over, I would like to take the opportunity to introduce Antoine Chulia, who joined LEM in May 2025 as Chief Financial Officer and member of the Executive Committee.
Thanks, Andreas. Hi, everyone. I've been CFO for two weeks now, three weeks. I'm super excited to be here. I was just CFO at Britax Römer. Britax is a turnaround buy-in investment by Avenue Capital and Market Gate distressed debt, mainly focused on lifting free cash flow through restructuring R&D efficiency. Before that, I had some experience in growth context at Medline, a global distributor of medical supplies. You might be familiar with Medline, as it's the largest leveraged buyout in the past 30 years. I led that sell side, and I worked with private equity investors like Carlyle and Blackstone, mainly focused on injecting financial discipline and executing their investment thesis. Before that, I spent 15 years in an industry that you are very familiar with if you follow LEM at Schneider Electric, a city link with similarly complex products and channels.
I'm super excited to be here at LEM, moving from the US to Europe and taking on LEM's challenges alongside Frank and building on the great work done by Thomas. So excited to meet you all. Thanks for coming.
Thanks, Antoine. Thanks very much. Also, a big thank you goes to Thomas Mellano for successfully leading the finance organization in the interim. With this, now, Frank, the floor is yours.
Thank you very much, Andreas. Good morning, ladies and gentlemen, and also a warm welcome to the presentation of our full-year results from my side. For those who are not yet familiar with LEM, LEM is providing sensors for measuring electrical parameters, namely current, voltage, energy, and with those help our customers and society to transition to a sustainable future. Now, the financial year 2024-2025, and Andreas was already alluding to this, was certainly not an easy year and potentially even the most challenging year in LEM's history, with a top-line drop of about 24% against last year. Those who attended our press conferences six and twelve months ago might remember that we expected for 2024-2025 a weak start. However, a rebound in the second semester. This rebound was the consensus of many customer discussions across the world with customers in China, in the US, Europe, and Japan.
Unfortunately, we were all wrong, and the rebound back to 2023-2024 levels in the second semester did not happen, neither in the solar industry nor in automation, and for the automotive industry, neither in Europe nor in the U.S., but only in China. Nevertheless, the second half showed some positive signals, be it in the bookings, even though short-term, or in the automotive business in China where we managed to grow 15%. Times of headwinds are important to rethink the strategy, reflect about the resilience of the organization, and make sure that the organization is set up in a robust way to weather those storms. On the gross margin side, we clearly managed to adjust our costs quickly to the maximum possible extent and made also important efforts on the OPEX side. However, they will only become visible in the current financial year 2025-2026.
Being faced with the fact that our turnover level in 2024-2025 is back to 2019-2020 levels and a quick recovery is not on the horizon, the executive team decided to take broader measures that we bundled under our initiative Fit for Growth. With Fit for Growth, we want to mainly achieve two targets. On the one hand, to adjust our OPEX to the new revenue reality. On the other hand, to align our organization to the fact that we see an increasing business share coming from our Asian region in the future. After our thorough benchmark of the organizational setup with external help, we've been setting ambitious targets for this exercise. First, to reduce our OPEX by CHF 18 million-CHF 22 million in 2025-2026, and on top, an additional CHF 15 million in 2026-2027.
Two, by shifting our R&D footprint stronger to our Asian customers by expanding R&D in Shanghai. Three, by moving transactional activities from high-cost locations in Europe to our shared service center in Sofia. We therefore consequently follow our plan to focus our Geneva headquarter on strategy and innovation, and at the same time, align our R&D footprint with our manufacturing footprint that is already strongly focused on Asia with our plants in Beijing and Penang. While strategically, the alignment was rather quickly reached, the preparation of the Fit for Growth program required the whole leadership team to take many difficult decisions. The net reduction of 150 positions across all major sites had to be prepared in alignment with the existing legal frameworks, including negotiation with work councils.
We tried to limit the impact for our employees through the social plans that we had in place and asked the leadership team to execute the plan with a high level of respect and empathy. At the same time, leading by example, we decided to also reduce our executive team from seven to five people. Most of our personal measures have already been announced to those concerned. Accordingly, you will see that the majority of the one-off cost of about CHF 8 million, so CHF 8 million out of CHF 10 million, were already booked in 2024-2025. Beside the personal measures, the non-personal measures are getting implemented while we are speaking here, contributing about 50% of the total savings over the next 24 months. All measures are getting tracked weekly to make sure that the results will also become visible in the P&L.
Nevertheless, we continue to invest important amounts into our future by developing next-generation sensor technology, AI-enhanced, and energy harvesting solutions with our customers. Now, after those general remarks, let's move on to the business performance in more detail. Following our business structure, you see here the development of the five businesses in comparison to the same period in 2023-2024. Obviously, all business segments were severely decreasing against the same period last year. Particularly heavily hit was renewable energy. As you can see, there was no significant currency impact influencing the performance. The decrease in CHF and constant currencies is almost identical. When you compare the numbers against our half-year results, you will realize that automation improved for the full year by 4 percentage points against the first semester numbers. Automotive improved by even 12 percentage points and tracked by 5 percentage points.
While recognizing those positive developments, however, renewable energy and energy distribution remained at the same level like in the first six months. Now, on this page, you see the distribution of our businesses relative to each other. Now, keeping in mind what I just said about the different developments of those businesses in the second semester against the first, you see some shifts of those businesses relative to each other. Automation and automotive are now at equal size, and each of them is about twice as big as the smaller businesses for renewable energy, distribution, and track. Obviously, the automotive business gained momentum, mainly driven from China, whereas our global automation business, our renewable business in Europe and the US, the charging infrastructures in the US and Europe, and similarly, our global traction business did shrink importantly against 2023-2024.
Now, let's go through the business one by one, starting with automation. This represents about 28% of our global business, and you see here the turnover plotted for the last five years. Our automation business was down by 28%, mainly due to a difficult economic environment in Europe and the Americas, as well as the rest of Asia, particularly Japan. We saw low investment levels and high inventories in the industry, and only the business in China was yielding small growth. However, there are nevertheless some good news. Inventories are now depleting, and we see that design activities are restarting. Our automotive business was down by only 12%, mainly driven by the lack of acceptance of electrical vehicles both in Europe and the Americas.
There was robust growth in China for new energy vehicles, so everything that includes EVs and hybrids, and we managed to grow our market share in the world's biggest NEV market. As you can see here in the table, Q4 2024-2025 was already stronger than one year ago, and there were some positive signals from most of our automotive markets in the second half. In particular, the substantial increase in bookings by 52% is encouraging for 2025-2026. Nevertheless, the ongoing tariff discussions might again negatively impact the sales eventually. Renewable energy, now 15% of our business, is including solar and wind power generation. Our global business decreased here by 37%. Many of our European customers are restructuring their businesses in the light of shy renewable investments and the very high pressure from Chinese competition.
Similarly to automotive in China, we managed to improve our market position, in particular with the big players, and continue to also invest here. Energy distribution and high precision, continuing to represent 15% of our global business, contains our high precision business, our smart grid solutions, as well as DC meters for fast charging stations. The business was down by about 26%, reflecting the overall weakness in the European and American EV markets. The charging infrastructure investments are delayed against the original plans, and the position of Chinese fast charger equipment manufacturers is improving. We are in close contact with several Chinese manufacturers of those fast charging equipment to design in our solutions. The trend towards AI results in important investments in data centers, where we are selling our products for uninterruptible power supplies into.
We see no major change in the development of our high precision solutions for testing measurements, in particular in the area of medical applications. Our Track business contains all solutions LEM has to offer for trains, metros, and trams for rolling stock and track site. Similar to automation and renewable, it represents a 15% share of our global business and declined by about 19% against full year 2023-2024. Considering that 2023-2024, and you can see that here, had a very strong half-year growth of more than 50% that was owed to the backlog from the semiconductor crisis, we are now back to the normal investment levels in the traction industry. In Europe, we saw a subdued development since retrofitting businesses ended. However, we foresee a restart in Q3 2025-2026. Now, on this slide, we project our business from a regional perspective.
In comparison to 2023-2024, you will notice that our Chinese sales share is back to about 40% of our total revenue. In addition, you realize that China was the only region where business was stable. The strong bookings give us an encouraging signal for the current financial year 2025-2026. All other regions showed a substantial decline, all related to the business situation in Europe and the U.S. This includes also the rest of Asia, where the business success is closely linked to exports to Europe and the Americas. Despite some positive signals in the automotive business in Europe and Americas, we remain prudent considering the ongoing tariff discussions and the uncertainty that they have been causing amongst our customers and the final car buyers. Now, with this, I would like to hand over to Thomas, who will introduce the financial results in greater detail. Thank you, Frank.
Good morning, ladies and gentlemen. Let's now have a look at our financial statements for 2024-2025. First, look at the overall performance. Our orders were CHF 262.2 million, increasing CHF 7.8 million, percent, sorry, over last year. This growth was mainly focused on the automotive business and the renewable business as well. In terms of region, China was clearly leading this increase. Our sales, CHF 206 million, was already explained by Frank, so I will not comment further here. Our EBIT, as Lene did, at CHF 18.9 million, well below last year, but aligned with our guidance before restructuring costs. Those one-off costs of approximately CHF 8 million were recognized in 2024-2025 in the context of our Fit for Growth program. These are one-off costs. Without these costs, our EBIT would have been CHF 26.8 million at a level of 8.7% of our sales.
Our net result for 2024-2025 is CHF 8.4 million, further impacted by significant financial costs and an unusual amount of income tax. I will come to that later. Our gross margin is CHF 132.6 million for the last fiscal year. It is still at a high level of 43.2% in a context where our volume dropped significantly. We were able to adjust our costs as efficiently as possible to limit the impact of our overcapacity. We also achieved significant cost decrease in our supplier base. This, being critical in staying competitive in our markets, will pursue our efforts in obtaining competitive prices for our components in the next financial year. The impact of stock depreciation was also limited despite our high level of inventories, especially because our products are still recent and are not threatened by obsolescence. Our SG&A expenses are CHF 70.7 million for 2024-2025.
They decreased by CHF 3.7 million compared to the year before. This decrease isn't as high as our sales, but we have ignited our Fit for Growth program in order to bring our global cost base to a new competitiveness level in this financial year. We are still impacted here as well by our investment in Malaysia and our digitalization program. On this front, we successfully launched our new ERP D365 from Microsoft in all our locations in a 12-month time frame, and we didn't face any significant disruption in our daily operations. We are now in a stabilization phase, and we expect to reap some benefits as soon as this financial year. Our R&D expenses have increased by 4.1% to an amount of CHF 35.3 million. This is a result of our continuous investments aimed at bringing new high-technology products to the market.
We have brought 20 new products this year and more than 15 customized versions. Several significant projects are still running to provide our clients innovative products into their application. This stems both from Europe, but also Asia, where we are reinforcing our R&D capabilities to be as close to our markets as possible, which we see as a key success factor going forward. Our financial expense is at a high level of CHF -8.1 million. We were impacted by the evolution of Swiss francs that led us to recognize a significant foreign exchange loss during the fiscal year. On the other end, the level of our financial debt significantly increased, and we will discuss that a bit later as well. We also shifted our financing structure toward Asia in order to create a natural hedging for our local assets in local currencies.
This also led to a cost of our financing, but it will help us to reduce the impact of the Forex on our equity and balance sheet. In terms of income tax, we are facing an effective tax rate of 19.9%. Remember that we benefited last year from a positive one-off impact and that usually we are hovering at a tax rate that is around 15%. This year was impacted by an unfavorable country profit mix, but the situation will go back to normal when our profitability will be restored next year or this year, sorry, thanks to our Fit for Growth program. This is the full income statement. As a consequence of the impact I've just explained, our net result is CHF 8.4 million, but we expect, again, an improved profitability for 2025-2026 that will bring the benefits from the improvement initiative that we are currently implementing.
In terms of balance sheets, the deterioration of the profitability has weakened a bit the situation. However, our working capital decreased by CHF 8 million despite a significant increase in our inventories. We are here facing the challenges of a weak market demand and a long-term agreement with our suppliers to secure our supply chain. We are not worried with the quality of the stocks, and we are confident that it will allow us to quickly react to an increased demand when it will come. Our net financial debt is now CHF 90.1 million and was decreased by CHF 23.1 million during the second half year. This was thanks to our successful plan to restore a positive cash flow for the whole financial year 2024-2025.
As announced back in November, we were able to improve the positive free cash flow for an amount of CHF 25.6 million in the last six months, reaching a full year amount of CHF 14 million. This is compared to a minus CHF 11.6 million free cash flow at the end of the first half year, and this allowed us to already repay a significant amount of the financial debt. This was possible thanks to improvements in our net working capital that decreased by CHF 26 million during the last six months. We successfully led various actions in all fronts to achieve these improvements, and we expect to see some more positive outcomes in this financial year that will allow us to further repay the financial debt and improve the balance sheet situation.
We also were able to slow down our investments after two years of unusually high levels that were due to our investments in Malaysia for the new plants and also our digitalization program. We are coming back here to, I would say, a normalized level of investments. Thanks for your attention. With this, I would like to hand over to Frank, who will speak about our outlooks.
Thank you, Thomas. Now, let me share some reflections about our outlook for the business. I think it's important to understand the overall situation of the business environment in the power electronics business, so everything that is connected with our customers and the applications in which we are serving. Many customers in the automotive, renewable, and automation industry in Europe and Americas are restructuring.
This leads to weak bookings, and we do not see an improvement on the horizon in those markets fully yet. Clear winners in this situation are our Chinese customers who increase market share across all businesses. As much as we enjoy some positive signals in our order book, we remain very prudent and cautious to not take this as a guarantee that there is a continuous positive trend already visible. The volatility in our end markets, the risk that customers or suppliers are not being able to react to the speed of these changes, as well as the uncertainty of the outcome of the tariff discussions, unfortunately only allow us to plan rather short-term. Now, finally, some words about LEM's sustainability journey. As you know, our purpose as well as our strategy are deeply rooted in the megatrend of sustainability.
Therefore, we are also committed as a company to contribute ourselves to this journey and have managed to continue to reduce our scope 1-3 emissions based on many initiatives that have been triggered by our local green committees on each site. The remuneration of the executive team, as well as our senior leaders, is linked to the achievements of our sustainability targets. For the second year now, I would like to invite you to read our sustainability report, a separate document where you can find in greater detail our strategy, the actions, as well as the achievements of our efforts. Thanks a lot for your attention, and I would now like to give the stage back to Andreas Hürlimann, the Chairman of our Board.
Thank you. Thank you, Frank. I am moving on to board changes and dividend proposal. Ole Wampfler, who has been a member of the Board of Directors for the last 18 years, has decided not to stand for reelection at the upcoming Annual General Meeting. During his many years of service, Ole Wampfler, a very successful entrepreneur, shared his broad experience and made highly valuable contributions to LEM's development. The Board of Directors and the Executive Management thank him for his loyalty to the company and wish him all the best for the future. As I already mentioned at the beginning, 2024-2025 was an exceptional financial year. In principle, LEM targets a payout ratio significantly above 50% of the consolidated net profit for the year. However, in view of the profitability and the uncertainty surrounding the economic environment, the Board of Directors proposes not to pay a dividend for the 2024-2025 financial year.
The board of directors' decision on the dividend proposal is based on its long-standing dividend policy, but also on the profitability of the financial year 2024-2025. However, LEM remains committed to sustain its attractive dividend policy for the future. In line with the headwinds LEM faced in the last 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, LEM returned a total of CHF 439 million to shareholders in form of dividends over the past 10 years. We are 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, and mobility. These are major trends that are driving demand for our sensors, offering numerous opportunities to leverage LEM's expertise and ensure long-term sustainable business. On behalf of the Board of Directors, I wish to extend special thanks to our employees worldwide for their dedication, expertise, reliability, and innovative solutions. It's been a tough year. 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. We thank shareholders for their confidence, their continued support in us, and we thank all of your interest in LEM's performance of the past year and in our future prospects. Let me wish you all the best, and now we look forward to taking questions.
Hi, thanks, Tomasso Operto from UBS. The first question I have is on pricing. You mentioned gross margin being down, but only to a limited amount despite the sales drop. Could you quantify how much of that was pricing related and how much of that was just due to underabsorption of fixed cost?
Sure. I mean, it's true that we are facing price pressure, especially in Asia. We believe that the amount of this price pressure in 2024-2025 is really limited in our gross margin, mainly because we were able to get some significant decrease in our components during this fiscal year. We are forcing the same trend going forward in 2025-2026 because we already had some successful negotiations with our suppliers at the end of 2024.
Okay, thanks. Secondly, on the order intake, I mean, there's been quite a jump in orders, and the question would be how much of that is a pre-ordering effect ahead of the tariff situations in the US.
Yeah. Now, unfortunately, our orders don't have a label and say short-term only. The challenge is for sure to exactly have these discussions with our customers. I can share with you that even sometimes our customers don't know because obviously it's passed on from their customers whether these are longer-term effects or not. However, what I see is since the ordering behavior in the overall second semester substantially improved, there is, I think, a not unimportant part of those additional orders that are probably giving a more positive business momentum for 2025-2026.
Still, obviously, in tariff times where we talk about 90-day windows, there are surely also some who react basically to the ups and downs in the tariff discussions.
One last question, if I may, on the business mix. It seems like automotive is showing quite some positive momentum, but the traditional areas of strength for LEM, like automation, like track, are struggling. If automotive continues to gain a part within the business mix, does it mean that even if top line starts to recover this year, margins will not see the same amount of recovery?
Now, before we make precise forecasts for the margins, for sure, we need to deliver the top line. I think it is important to see these businesses in the main markets in which we are performing. LEM is in a privileged situation to have a strong foothold in China, and the EV market in China has been well performing. Whereas the automation business, which is a, let's say, more global business, has been stronger influenced on the one hand by inventories across basically the globe and also by subdued investment mood.
Therefore, you see that the shifts here are probably not shifts that are really directly to be explained of the businesses in the future relative to each other. Like I mentioned for track, since we compare against a particularly strong year last year, we rather see a continuous and stable development of track in comparison to the years before. It is really something that is also challenging to always understand.
We basically perform in rather 10 different markets that also geographically have different market dynamics that one needs to follow in order to understand the picture. Hopefully, Tomaszo, I was not too unspecific. Good morning, Arben Hasenheim from Fundhobel. My first question would be around the competitor landscape. If you see any consolidation going on, which could bring maybe price discipline with kind of the difficult environment that we have right now. There are, as you can read in the press, some attempts that some competition is getting bought by bigger, in particular, semiconductor companies. Do we expect that this will have an important impact on price developments? Rather not, because we strongly believe that was also the reason why we have eventually decided to push our midterm target of CHF 600 million out, that the sustainability journey needs to be paid for.
That means it will not happen in the speed that we need it when we eventually have too high costs that potentially nobody's going to pay for. Therefore, we believe that the movement to Asia is also a strategic step in order to support the sustainability journey. At the same time, we believe that the price pressure is going to remain rather important and we plan accordingly. My second question would be around your uninterruptible power supply business. If you could share, I do not know how large is that, what is your position there, how do you see that developing? Yeah. This is developing very nicely, but it is not a huge business. As we all read that now next to each data center in the future, we will potentially have a nuclear power plant.
We do not believe that the energy hunger of AI will remain at the level that we see today, but rather believe that there will be efficiency measures in order to, let's say, slow that a bit down. Nevertheless, our products for uninterruptible power supply will be needed because this is really essential for basically guaranteeing the stability of the equipment. It is not a huge share in the overall business.
Bernd Laux, Zürcher Kantonalbank. Can we please briefly focus on the small segment of the integrated current sensors? Can you comment on the market development here? Is this still fast-moving? Are you progressing well at LEM? Is your product offer now up to speed, competitive with the best in the marketplace? In particular, at the end, what is the status with the TMR sensors and your partnership with TDK? Is that progressing according to plan, or do you think there need to be made adjustments? Thank you.
Yeah. Very good question. Thank you very much. Yes, ICS is an important part on the journey to basically having more affordable sustainability solutions. This market is going to continue to grow. Maybe I start first with the second part of your question, which focuses on the future, which are TMR solutions. For those who are not here in the details, basically we see a gradual shift from Hall-based magnet field measurement to TMR-based magnet field measurements. The partnership with TDK is really paying off. We have now samples in our hands. We are measuring these samples. We are characterizing them and are very positively surprised by the results, better than actually expected.
We discuss these results with our customers and see a lot of excitement there reflecting those results. This goes in the right direction, but will not now create turnover in 2025-2026. That is also something that is very clear. For the Hall-based current sensors, integrated current sensors, we are looking at all possible streams to basically enlarge our product portfolio. We make here very good progress to basically really have a full product portfolio now quickly available in a sense that we also do not have to do all the developments just by ourselves. There are at the moment a couple of investigations very constructively moving forward.
Can you please substantiate your claim a bit more that you have gained market share? Because you show some growth in China, but quite a drop in Europe and Americas. To me, it looks like the business has moved to a large part just to China and that the market overall has grown faster than LEM has.
Yeah. Let's maybe start at the moment with the renewable business, and maybe then I make a short excursion towards automotive. Basically, the renewable European market is almost dead, right? When we talk about gaining market share, we talk about gaining market share in Asia and seeing then also getting those products eventually exported towards Europe and the Americas. There, for sure, also our Asian and mainly Chinese customers do not grow at the same speed as they were growing before. However, in those areas where we are in and in those customers, and we are really together with the three, four largest players in this market, we clearly see against competition that we have substantially increased market share.
For sure, when you have then, let's say, a dead European market and then, let's say, a not as fast-growing Chinese market anymore, where obviously you sell at different price levels and also they sell at different price levels, it does not look like seeing -37% in renewable and still gaining market share. Nevertheless, this is the case. Automotive is something where I think the initiatives that we took in the last 18 months, again, particularly in Asia, really paid off. There we also see it a bit easier in the numbers and also in the bookings. There we have been winning with important Chinese customers substantially market share. For sure, had to do also important efforts in order to come down with costs to speed up our development and to really, yeah, couple closer with those customers. We clearly see that this is bearing fruit.
From this, I think we are, and for sure, market share numbers are always a little bit imprecise, but still from all the information we have here, we are rather optimistic that the statement is true.
Thank you, Viazwanoth from ODDO BHF. Could we speak a little bit about the targets? I mean, first, in the short run, when I look at your peers, they come up with quarterly outlooks. Why do not you come up with such an outlook? Yeah, maybe you could enlighten us a little bit how you saw the start into the year on sales and margin performance and also adjusted or linked to these targets. I mean, the long-term targets, are they still valid or will they be reviewed now by your new management?
We have a tradition to report basically or to plan for or to announce, that's probably the right expression, to announce outlooks after six months. I think those volatile times are probably the times that indicate prudence is probably the best way to react to volatility and not to promise something that you probably can even not influence. I don't think that in particular in those times, we will change our policy and basically report results or even forecasts on a quarterly base. As you can imagine, the positive inputs from the bookings also result in positive results on the sales side. They are always a bit toned when you look then at the implementation of our new ERP system that for sure also has then some implications on how you basically do sales recognition.
I think we are at the moment seeing a quarter that is probably rather giving us some positive hope. However, we also see that the up and downs, the left and rights in the automotive industry, in particular in the U.S., give signals of customers delaying businesses, customers canceling platforms. There is everything again happening in the market. Therefore, to make today a strong statement about what we believe the future is going to bring goes at least for what we can foresee beyond our capabilities. Therefore, we very much stick to that we want to deliver what we promise and are therefore a little bit more careful with statements for what is going to come.
Maybe on the outlook, a follow-up with regard to these inventory levels, destockings. I mean, would have expected them as well to be finished some quarters ago. What have you done here? Could you somehow improve the visibility with your clients? What kind of maximum sales burden are you looking at now in the running year? Could further destocking take away, I do not know, 5% of full-year growth or 10%, or how relevant is it?
Again, I know that you would like to get here concrete numbers, but honestly, when we ask our customers, we get also rather cloudy signals. I think it is at the moment extremely difficult to make here very concrete forecasts. I think what we can clearly see is that our business is more moving towards Asia. That is crystal clear. That is where we see the agility, the capability to adjust to market changes probably stronger executed than what we are seeing and what we are able to do in the West. To talk here about how will this in tariff situations that are under negotiation eventually turn out will be very difficult to forecast.
Mira Zusak, HJMS Invest. I have a question regarding your outlook on the EBIT improvement on page five of the presentation. You say 18-22 million improvement. Is this over the CHF 18.8 million EBIT that you had reported just in 2024, or is it underlying before the CHF 7.9 million that you had provisioned for layoffs?
It's before the restructuring when of costs. We plan to bring those CHF 18-22 million on top of the CHF 26.6 million that we recognize this year before restructuring.
Okay. You also, I think, have another CHF 2 million again to provision in 2025. Is this before these CHF 2 million of provisions? Yes, it's also before. It's also before so t hat would mean that we have like a 16-20 million improvement over 27 or 26.5 million.
Yeah, exactly. Those additional 2 million will be, again, I mean, one-off. Of course. We do not plan to experience that in the future.
The next question is, assuming these numbers are implied in these numbers, what is your top-line assumption? Is it roughly a flat top-line? I think that is what I can read from your wording sideways. I think that is what you mentioned. Or is there already baked in some positive development on the top-line? Because if you listen to you, you seem to be quite optimistic.
Again, we do not have now top-line assumptions to be publicly announced, but as a lesson learned of probably this year, what we can say is we try to plan conservatively and push at the max to overperform. Because again, we are living in uncertain times.
Another question is your order intake was CHF 262 million last year. You had still a top-line of CHF 307 million. Now, probably you, or obviously you still had some order backlog from the years before. Do you think the underlying order intake development that you see right now is basically supporting the sales level that we see at this point of CHF 307 million, so to speak? Is this the underlying development, or is there still a, let's say, a decrease of the order backlog needed in order to keep the top-line stable?
The challenge that we have today is that the visibility is a three, four-month visibility and obviously with an ongoing window. I think what we see today in terms of orders, rather, like I said, also to the question from Tobias, rather gives us some positive tailwinds.
However, to exactly now foresee what is going to happen in the months afterwards is extremely difficult.
Okay. Another question, the last one, happy to give back, is on page five, you also mentioned that the year after, so next fiscal year, you expect the full CHF 35 million to kick in. Does this already include some kind of top-line growth and operating leverage, or is this just if the business goes sideways?
Thanks for insisting on our growth story. We believe from everything that we see that hopefully towards the end of this calendar year that we are a little bit clearer on when growth is going to restart again. There are again quite some positive signals that there are good reasons to hope that Q3 will be a stronger quarter.
But again, lessons learned from the forecasts that we had about 2024, 2025, where also people were believing that the second half would be stronger. We take all these moods in the air with a high level of prudence because again, this is the part we cannot really fully influence.
Thank you. Yeah, Mark Bosa, VVAG. I would have a technological question. Could you describe, I mean, with the new offering that you will have in some quarters with the collaboration with TDK, the repositioning of your whole sensors into those TMR-based integrated solutions, how is the total addressable market changing? Because they are becoming smaller, less energy intensive, the miniaturization helps. The addressable market should grow basically. Yeah.
No, very interesting question. And for sure, also a question that we in the executive team are intensively discussing. I think probably a couple of remarks. It's really a completely new technology that has a lot of advantages, but also disadvantages against them all. What we will probably not see is a complete shift over of everything that is today Hall is going to become TMR in the future. We will probably have the coexistence of both technologies for a rather longer time frame since there are also certain applications, in particular automotive, that are rather prudent and really want to see stable results over a longer time frame.
You are right. It is for sure sort of a revolution in the overall market. As we are not the only ones who are performing in this market, we get also benchmark results. The thing that I can probably technologically tell you today is that the feedback from our customers is a very, very positive one against also competition with respect to what parameters we can achieve there.
Thanks. Tomasso Operto . If I remember correctly at the H1 results, you were speaking about the visibility of a couple of weeks, and that has already improved to three to four months currently. What would a normalized visibility be for you?
Let's say the times before COVID, we had also a visibility of about three to four months. This was the length of our order book that was then disturbed by this enormous overordering and basically blowing up the order book and everything to an extent that you could basically not really plan anymore and could only underserve your customer needs.
We believe that the length of the order book that we have today is probably the level that we are going to keep also in the future. We saw, however, a substantially increasing short-term ordering from, in particular, our European customers. A rather important share of the orders that we are delivering gets ordered in the very same months in which we also then booked the sales, right? This is something that is rather new for the European market, but also shows the high level of uncertainty that our customers have with respect to the economic future.
Thanks. Just one follow-up on the Asian footprint increasing. If I were to try to see a bit positive light here in these results, is there a case to be made that with these Chinese customers of yours, like BYD, for instance, has famously gained a lot of market share also in Europe? Is there a case to be made that they would start increasing the production footprint in Europe as compared to just exporting to Europe?
Yeah, I'm a strong believer that a sustainability story globally is not thinkable without China, at least not economically thinkable without China. Therefore, I believe that the products that we get today in the renewable market, in the automation market, but also in the automotive market will be essential to, again, make sustainability affordable. Therefore, to work with important customers in China is, for us, an important part of also winning market share globally. Yes. Yes. We see this actually happen in these key markets while we are speaking.
You still look not fully satisfied with the answer.
Are your customers actually producing production footprint in Europe?
Yeah, yeah. You probably know BYD without now having said that BYD is necessarily one of our customers since we typically do not talk about our customers. The Huawei's, the BYDs of this world, they are all investing in Europe, mainly in Hungary, and build basically here local production facilities. We should not be surprised when they will not source locally from neighboring suppliers, but actually bring their supply base from Asia.
In recent years, you have set up a dual production strategy with the Malaysian fab being added to the Chinese facility. Can you comment on the status of Malaysia and in particular the cost position relative to China? Are you satisfied with the progress here?
Yeah. Yes, you are completely right. The strategic rationale behind Malaysia was to first be able to grow, secondly, to basically balance our footprint in Asia, and also to take advantage of the back-end skills that are in the region. Everything we planned in Malaysia in terms of setting up CapEx, basically also moving lines from China to Malaysia, has been happening. Unfortunately, also there, the production is underloaded, right? Today, basically a quarter of the total production surface is equipped with machines, but for sure, they are not running at the speed at which they could run.
Again, we believe it was not only an insurance step, but it was also an important strategic step to react to this geopolitically increasingly different, let's say, polarizing world. Therefore, we are happy, but obviously with some tears in our eyes because ideally we would for sure see these machines running at full speed.
Just two additional understanding questions concerning the customized product offering. Has that the similar margin patterns with increased volume and price visibility, or is there a significant difference?
Typically, the margins of the customized products are not worse than those of the standard products. It's true, and you also saw in the press release an important number of customized products that we've been launching in 2024, 2025. This is an important revenue and also growth source, and similar also margin source. So similar sort of level. Yeah.
Maybe a question concerning the difference between sales expenses and R&D expenses. I mean, talking to Asian customers implies that these are like engineers that do lead these talks. Where are they booked exactly? What is the difference there?
In the R&D teams, we have typically all the engineers that work specifically on developing the products for the clients or adapting the customized version. For sure, they are still in contact with the clients, but they are not salespeople. In the sales expense, we book all the expenses related to our sales team who are the salesperson, our field advanced engineer who are engineers as well, and who close the gaps between our clients' teams and the R&D.
It is nevertheless an interesting question because it is true that the closeness of cooperation that we see in Asia and almost daily exchange between engineers from our side and engineers from the customer side is something that is for sure the reason for this enormous speed of development. They do not communicate through official and three times approved documents.
They communicate through WeChat and basically communicate also adjustments in specifications really at speed of light. This is enormously remarkable. Again, it's probably the best way how you react to an ever-volatile market by doing small adjustment steps rather than three-year plans.
Thank you. I guess we may have questions on the webcast or the conference call.
Okay. Ladies and gentlemen, from the telephone conference, if you would like to ask a question, please press nine followed by the star key on your telephone keypad. In case you wish to cancel that question, please press three followed by the star key. There are currently no questions from the telephone conference.
Thank you very much. With this, we are coming to a close. Again, thank you for joining. Thank you for expressing the interest in our company by being here. It is a pleasure now for us to invite you for a quick standing lunch, which is just behind. Thank you very much.