Welcome to the LEM Half-Year Results 2026/27 conference call. The conference will be recorded. 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, Frank Rehfeld, CEO.
Good morning, ladies and gentlemen, and a very warm welcome to the presentation of our half-year results. My name is Frank Rehfeld. I am the CEO of LEM, and I am here together with Antoine Chulia, our CFO.
For those who are not yet familiar with LEM is providing sensors for measuring electrical parameters, namely current, voltage, and energy, and with those, help customers and society to transition to a sustainable future. Here, you see the agenda for today's presentation. After my opening remarks, I will give you more detail on the business performance of LEM.
Antoine Chulia, our CFO, will then introduce the financial results, and I am going to outline what we expect in the future for this year, as well as our mid-term ambitions. The fiscal year 2026/27 continued very positively and even exceeded an already strong Q1.
Sales grew by about 18% against H1 last year, CHF 274.6 million. EBIT more than doubled in comparison to the same period last year, and free cash flow more than tripled. You have to recall, 2025/26 was the second year with low sales and low profitability after the power electronics market went down in 2024.
Last financial year, we were executing the Fit for Growth program in order to improve our global cost base and prepare ourselves for the next growth cycle. Since indeed sometimes fortune favors the brave, the book-to-bill above 1.1 that we reported in our full-year presentation 2025/26 was then turning into strong growth. That translates in attractive EBIT and free cash flow due to the improved cost base.
As much as we enjoy this new momentum, it comes with challenges in the supply chain, in particular due to the globally limited availability of PCB material and input cost increases. We are proud that we have managed the turnaround rather well. Nevertheless, there are sufficient challenges ahead to postpone the celebrations. With that, let's move 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 2025/26. First of all, the currency set in which we are doing business was rather stable against the CHF, as you can see from the only little differences between our growth numbers in CHF and constant currency. The outstanding growth rates, both in energy distribution as well as in automation, are owed to the increased demand for data center.
In automation, the momentum comes from the drives for cooling and ventilation systems. In EDHP, it is UPS and power measurement that led to this increase. Renewable energy was driven by battery energy storage systems connected to the energy production. It is nice recovery for utility solar in Europe. In automotive, we see the ramp-up of some of our new products as well as a nice recovery of our business activities in rest of Asia.
I will explain in the following slides in more detail what developments we have been seeing in our markets in the last six months and will also give more details on the track business. First, however, I would like to share on this page the distribution of our businesses relative to each other. Little surprise that the balance has been changing, considering the different growth rates of our businesses.
Both automation and EDHP have increased their share in comparison to full year 2025/2026, whereas all other businesses have lost in their relative size. Comparing the quarterly performance in the table below the diagram, you see that beside the continuously strong automation and the even stronger EDHP business in Q2, automotive has been improving in Q2 against Q1.
Also, renewable had a stronger momentum, whereas track remains at lower sales, particularly because of the European business. Now, let us go through the businesses one by one by starting with our biggest business, the automation business that now represents 32% of our global revenue cake.
We saw 26% growth in comparison to H1 2025/2026. That, to the largest extent, came from data centers. The non-data center applications ran stable. Growth has been particularly impressive in Asia, both in China and rest of Asia.
But also the Americas were growing double digit in automation. Wherever possible, we are passing on the higher material cost that we are facing, and by this, manage to stabilize our gross margin. Important to mention here is that a significant part of our business for data centers in the U.S. gets either manufactured in India or in China.
Therefore, we will report it under Asia rather than under the U.S. Moving to the next business, to automotive. It is our second-biggest business and recorded moderate growth, now represents 24% of our business.
Very different growth patterns depending on our market share, and for sure also the dynamics in the different geographies led to this. The overall EV market is growing at a slower pace than in 2025. While the European EV market is growing, the Chinese local market shrank in 2026 by about 10%.
If you, however, take the exports into account, then the total Chinese production volume has been growing year on year by 11%. We saw strong growth in rest of Asia, where both India as well as Korea contributed substantially. We remain on track to achieve the milestone of launching our TMR application for the automotive market in the final quarter of this calendar year.
Now, moving to the renewable energy. It is our fourth-biggest business, and it grew by almost 14%. In particular, the growth in Q2 was strong. We saw strong increase both in China as well as in Europe. China growth was focused on battery energy storage systems, whereas Europe saw growth, in particular, in the utility application in energy storage. China continues to be the world's most important exporter of both inverters as well as battery energy storage systems.
The latter is not surprising since 95% of the world's battery energy storage systems sales are made in China. Energy Distribution & High Precision. Our business segment that includes meters for fast chargers and solutions for smart grid, energy storage, and high precision has been the frontrunner in terms of growth.
It's now our third-biggest business. However, the portfolio has completely changed in the last five years. While in 2023, the strongest business were energy meters for fast chargers, now the data centers-related applications took the lead.
In this segment, we saw growth in all regions, all double digit, and this growth was even accelerating in Q2, as you can see from the table in the upper right corner. Also, the launch of our new DC meter has been contributing to this momentum. Now, moving to track. The track business was the only business that was seeing lower sales.
While there were good demands in China, all other regions saw a decline. We are not particularly worried about this development since the structure of the business remains healthy, and we already see a pickup in Q2 in comparison to a weaker Q1. The nature of this project business should not lead to an over-interpretation of quarterly figures.
Now, when we are looking at those results now from a regional angle, you see that Asia has been leading in the growth, and that we saw even an acceleration of the Chinese growth in the second quarter.
We also see double-digit growth rates in EMEA and Americas, however, only at half of the speed of Asia. Therefore, the Chinese share of our business has been again growing from 36% to almost 40%. In all regions, we continue passing on the cost increases that we are facing from our supply base.
An important milestone to mention here is the distribution agreement that we've been signing with Avnet Silica. This will help us to broaden our sales channels starting in Europe. With this, I would like to hand over to Antoine, who will explain the financial achievements in greater detail.
Thank you, Frank. Good morning, everyone. Most of you know LEM pretty well by now, so rather than read every line of the financial statements, I'll focus today on what changed and what matters in the quality of the performance. Before looking at the half of the year as a whole, let me make one observation about Q2.
The second quarter was stronger than the first half average on most of the major growth indicators. Orders increased almost 60% year-on-year in Q2. Sales increased 23%. EBIT increased 85%. Net profit increased more than 100%. So Q2 EBIT was CHF 13 million on CHF 89 million of sales, giving us a 14.9% EBIT margin. Net profit was CHF 10 million, giving it an 11% profit margin.
Importantly, we exited the half with profitability essentially consistent with, and actually a little bit above the first half average, even as activity continued to accelerate. To me, that's a good indication that the operating model is handling the higher volumes extremely well. For H1 now, bookings were just north of CHF 200 million, sales CHF 175 million, EBIT CHF 25.7 million, net income CHF 19.2 million, free cash flow CHF 19.9 million.
The most important financial message is not any single number on this slide, on this page. It's the conversion of higher activity into significantly higher profitability and then into cash. That's exactly what we wanted to see from the changes we've made over the last couple years, especially with the Fit for Growth. Starting with the margin. For the first half, gross profit increased to CHF 70.5 million, and gross margin improved 80 basis points to 40.4%.
In Q2 specifically, gross margin was 40.8% versus 41% last year. On a quarterly basis, the margin was essentially stable, slightly below the prior year level. I think that's worth calling out rather than hiding behind the first half average.
We had very strong volume growth in the quarter, as Frank explained, and we had better fixed cost absorption, but we also started to face higher input costs, including spot purchases, spot buys, and wage inflation, together with customer pricing pressures, as well as slightly adverse mix with low traction in strong China, as Frank explained once again.
The important point here is that despite those pressures, we maintained gross margin at roughly 41% while growing sales by more than 20%. That tells you we're not buying growth through price. For the half, several drivers contributed to the improvement. First, pricing discipline.
We're continuing to take selective actions where needed while being deliberate about protecting the value of the products and technology we provide. Second, operational efficiency. We're benefiting from the work done across the manufacturing network and in the way we run operations. Third, higher volumes are giving us better absorption of fixed production costs.
When volumes fell in previous periods, as you can recall, we carried infrastructure size for a much larger business, and we're now seeing the opposite in this quarter and this half. That's more volume through a cost base that has also become structurally leaner.
We're pleased with this margin development, but we would not extrapolate every basis point from a one-and-a-half-year period in this zone. Directionally, the improvement is clearly encouraging. Going down the P&L, the operating leverage becomes even clearer when you move down to SG&A. SG&A was CHF 32.2 million versus CHF 31.5 million last year.
In absolute terms, it was broadly flat despite a 17.7% increase in sales. Percentage of sales, SG&A declined from 21% to 18%, an improvement of roughly 300 basis points. The Q2 numbers tell basically the same story. SG&A was CHF 69 million versus CHF 15 million last year, but sales were up more than 23%. SG&A fell from 21% of sales to 19% in Q2.
Even during the quarter of very strong growth, maintained discipline in the fixed cost base. We're allowing the business to grow without automatically allowing the organization around it to grow at the same rate.
There will obviously be areas where we continue to invest as the business grows, but we want incremental sales to generate attractive incremental earnings, and this half provides actually good evidence, on the heels of Fit for Growth, that the organization is capable of doing that.
This is what operating leverage is supposed to look like. Moving to R&D. The first half expenses decreased 13.5% to CHF 12.6 million, representing 7.2% of sales, compared with almost 10% in the prior period. Interestingly, the Q2 absolute R&D spend was CHF 6.3 million, essentially unchanged year-on-year, but because revenue was considerably higher, R&D fell from 8.7% to 7% of sales.
I think this one here is a good illustration of what we're trying to accomplish. We're not simply cutting R&D quarter after quarter, of course. We're keeping substantial engineering resources in the business, but asking those resources to support larger business and focusing them more tightly on opportunities where they can create the greatest value. So in the wake of Fit for Growth last year, the objective is getting more output from the resources we have.
We're concentrating engineering resources in fewer higher-impact opportunities, and we're looking more systematically at risk-adjusted return, probability of technical and commercial success, strategic importance, and time to market. So in R&D, you always have optionality, right, as we saw during the previous phases, and that is extremely valuable, but the optionality is not free.
Every engineer working on one project is an engineer who cannot work on another. Last but not least, we're also increasingly using AI to improve engineering productivity and accelerate development cycles. The goal, therefore, as a summary here, is not less R&D.
The goal is better R&D economics, more innovation output, better commercial conversion, shorter time to market for every dollar we invest. Moving now to the financial result, that was also somewhat better. Net financial expense was approximately CHF 2 million compared with CHF 3 million in the first half last year.
In Q2, the financial result was CHF 0.9 million expense versus CHF 1.3 million last year. Forex effects improved year-on-year, supported by natural hedge in our hedging policy, and interest expense declined as a result of lower average financial debt. Not much more to say here, but the main takeaway is reduction of debt is now also starting to benefit the P&L.
Moving to tax, our expense increased to CHF 4.5 million from CHF 1.5 million, mainly reflecting the much higher level of profitability. The effective tax rate was 19%, broadly in line with the 18.2% rate in the comparable first half.
So remember last year's full-year tax rate that was unusually high, largely because of specific deferred tax effects and tax losses. The important point here is that we're back at what looks like a much more normalized tax rate.
Putting all that together, you get the income statement on this page. So for H1, sales were CHF 175 million, up 18%. Gross margin at 40.4%, EBIT CHF 25.7 million, up 126%. EBIT margin 14.7% versus 7.7% in prior. Net profit CHF 19 million versus CHF 7 million last year, giving us an 11% net margin.
To summarize this H1, it would be this good top-line growth and then a better gross margin, with, more importantly, a structurally leaner operating cost base. The combination produced very strong incremental profitability.
To look specifically at Q2 now, you see clearly how the model is working. Sales increased 23% to CHF 89 million. Gross margin was 40.8%, broadly stable year-on-year. Our operating expense were kept at CHF 23 million, compared with CHF 22.6 million last year, so they grew much more slowly than sales.
The result was CHF 13 million of EBIT, up 85%, with the EBIT margin increasing from less than 10% to almost 15%. Net profit CHF 10 million, more than double last year's CHF 4.8 million. Q2 is important in understanding the quality of the H1 result. The gross margin itself was not higher year-on-year in Q2, but the big step-up in profitability came from converting much higher activity through a disciplined cost base.
This is what it is exactly here, what operating leverage in a pure form. That gives us confidence that some of the improvement in profitability is structural, even though the amount of leverage will continue to depend on volume and mix. The work in productivity, cost discipline, mix pricing, and R&D efficiency continues regardless of where the demand cycle goes from here. Turning now to the balance sheet. There we go.
Net working capital increased by almost CHF 17 million to CHF 80 million. This is a pretty large increase of almost CHF 17 million, but the context matters here, right? We are supporting a meaningfully higher level of activity against a backdrop where supply availability for certain materials remains an issue. Additional working capital is necessary.
The key here was to make sure it remains controlled and purposeful. Days of inventory improved to 100 from 125, and DSO increased to 84 from 78. We have made progress in inventory efficiency, and receivables require continued attention as activity grows, but still staying largely under control.
At the same time, net financial debt fell from roughly CHF 60 million in March to roughly CHF 45 million at the end of September, so a reduction of CHF 15 million. Equity increased to CHF 160 million. Our equity ratio improved to 49.2%, well above our covenants.
The balance sheet is clearly stronger today than it was six months ago. That gives us greater resilience if demand changes and more room to invest behind the right opportunities when and if we see them. Turning now to cash flow. Free cash flow improved to CHF 19.9 million from CHF 5.6 million last year.
Cash flow from operations was CHF 21 million, despite a CHF 17 million cash investment net working capital, as I have just explained. Investing cash flow was just CHF 1.4 million, resulting in the CHF 19.9 million of free cash flow.
I am particularly pleased here because it is easy to generate accounting profit when activity comes back. It is hard to generate profit and cash when sales grow close to 18%, and the business needs more inventory and receivables to support that growth. We maintain a pretty strong internal focus on cash, started with Fit for Growth.
That means discipline around inventory, collections, payment terms, and challenging assuming growth automatically requires a proportional increase in capital spend. The business still needs investment, obviously, but we want every dollar of capital to compete for funding as part of the broader financial discipline we are putting in place.
The outcome is that we support substantial growth, invested in the working capital necessary to deliver that growth, and generating CHF 20 million of free cash flow in six months anyway. Okay. This is pretty high-quality earnings conversion. On that note, I am handing it back to you, Frank, for the outlook.
Thanks a lot, Antoine. Let's talk about the outlook and then the midterm ambition. As I said in the beginning, the year had a very strong start, but nevertheless, there are still some challenges ahead in the six months to come. Particularly, the limited availability of PCB material and input cost increases are here to be mentioned again.
In addition, historically, the second semester is always weaker than the first semester, already just mathematically given by the year-end in Europe and basically the Chinese New Year in China in January, February timeframe.
Therefore, we expect full-year sales of CHF 310 million-CHF 330 million and a low to mid-teen EBIT for the full year 2026/2027. Now, talking about our mid-term financial ambitions, our mid-term financial guidance does not change.
Based on the continuous electrification trend in the world, we expect an annual growth rate of about 4%-7% at constant exchange rate and EBIT margins in between 10%-15%. However, we are clearly now starting from a higher sales revenue level. I would like to close with our sustainability agenda at LEM.
The three important pillars on which we drive this agenda can be described as our product portfolio that fully contributes to the CO2 reduction wherever it is applied, the decarbonization of our operations, and to live the ESG journey in all our processes and our way of working. You see here what has been achieved on the supply side in several projects on our shop floor and also what training activities we have been investing in.
In addition, now all our employees are incentivized with a part of their bonus on our CO2 delivery and the achievement of our CO2 targets. Before we now start the Q&A, I would like to thank all of you for your interest in LEM and your attention to our half-year numbers, and would like to invite you already now to the announcement of our full-year results on the 27th of May next year. With this, back to the operator.
Very much. Ladies and gentlemen, if you would like to ask a question, please press star, nine, and the pound key on your telephone keypad. If you would like to cancel your question, press star, three, and the pound key. You can also use the dial-in function in the webcast to ask a question by raising your hand. First question is from Remo Rosenau from Helvetische Bank.
Yes. Thank you. Good morning. Do you hear me?
Yes, we can hear you. Go ahead, please.
Okay. On the guidance, I appreciate that the second half usually is seasonally a bit lower or weaker. However, on the upper end of your guidance, of your sales guidance, this implicates a sequential decline in sales of around 12%, which to me seems a bit higher than usually in the seasonal pattern. On the other hand, the orders are there.
I mean, book-to-bill is well above one. Is that reasonably cautious, or are there any other seasonal factors you should point us to? The same is true for the margin. I mean, in the first half, you made 14.7%.
Given if we take the mid-range of your guidance, 10%-15%, that would imply a second-half margin of something like 10.5%. I mean, a very strong decline in the margin, a sequential also very strong decline in EBIT. I mean, is this reasonably cautious, or are there any other reasons why the seasonality should be actually quite higher than usual this time?
Right. Maybe I take this one, Remo, and thank you for the question. What is the situation? You are right. For sure, we do not see headwinds from the bookings. What are the headwinds that we are seeing? It is material availability. Without PCBs, a large part of our products cannot be manufactured.
I think it needs to be understood that there is really a crisis in the PCB material, and we talk here about a crisis where there are predictions that there is a fight in the last quarter, but ongoing also in 2027, to get sufficient supply for PCBs.
Even when the orders are there, when we do not have the material to produce them, this is exactly the risk that we are seeing, and we are at the moment not able to really assure that we can deliver all that we have in our order book. That is really the big topic here. On the other hand, the margin, the same topic.
The supply chain crisis that we see, mainly driven again on PCBs, but also on a couple of other components, they substantially rise our input costs. Therefore, what are we able to deliver in terms of margin still depends on what prices we have to pay. That means, for sure, Antoine has been extensively alluding to this, margin quality is the key topic that we want to have. Nevertheless, we also do not want to disappoint customers and let competition in.
Therefore, that is the balance we have to play, and therefore, we are clearly seeing that there will be a H2 that will be not as strong as the H1 . That is the reason for this guidance.
Okay. But you baked in all these reservations into the actual guidance now?
That is baked in, yes. Yeah.
Okay. Then a general question. I mean, half a year ago, you announced that you are looking at all strategic options for the company. I mean, how are these strategic options assessments developing?
The process is ongoing. At the moment, there are no conclusions, and for sure, we can also not foresee whether there will be any conclusion with respect to strategic options eventually happening. The focus that we have, Antoine, myself, but also the whole executive team, is to lead the company in this currently, on the one hand, stormy, but also positive times, and to the max to improve our operational performance.
But have these kind of discussions you certainly had the last six months been, let's say, encouraging or a bit disappointing?
I think that is, again, too early to comment because, again, before you do not have a final result, it is always difficult to then conclude. But you can imagine that also for potential investors, the fact that LEM has been probably from by some people, not us internally, but maybe from the outside, been seen as a restructuring case, and now it is, again, a growth case. This for sure puts a bit of complexity in the discussion of how to evaluate the business, and this just naturally takes time.
Okay. Thank you. I go back in line.
Thanks a lot, Remo.
Thank you very much. Dear participants, you can also ask questions through the chat function in the webcast using the question mark sign on the bottom left corner of the webcast. This is just a small reminder. The next question is from Charlie Bergenbach from ABB. The floor is yours.
Good morning, gentlemen. I just have an additional question to Remo's about the strategic options. When can we expect further news? Is it maybe the next few weeks or rather a couple of months?
I think it's also too early to talk here about timing. I think just can ask you to stay here patient, and as soon as there is something to be shared, we will do this with great pleasure.
Okay. Thanks a lot.
At the moment, there seem to be no further questions. Okay, we have a question from Remo Rosenau again from Helvetische Bank. Please go ahead. The floor is yours.
Yes, thank you. If nobody else asks something, I come back again. Given the supply chain constraints you mentioned, that is, on the other hand, prolonging the cycle, right? So, what you cannot deliver this year will be delivered next year. So, let's say for the next 18 months, the growth trajectory looks quite promising one way or the other. Can you look that far ahead, or is that a bit too long?
Yeah, I mean, probably 18 months is a bit long, but what we can clearly say is that our order book has becoming again longer. You remember in the semiconductor crisis times, the order book was exploding, and we were actually receiving by far more orders than realistically we could ever deliver, and they were afterwards also canceled.
So, I think the order book quality has been basically extending, so longer order book. To make now prediction for the next 18 months is probably looking at also the geopolitical situation would be a bit too daring.
Okay. What are the average throughput times between an order and booking of sales?
Between order and booking of sales, this depends for sure very much on product category. So we do have three product categories. Our A products are always on stock, and B and C are basically then sort of take longer. So for the A products, we basically deliver within one to two weeks.
Okay. But EDHP, where you have this stellar growth at the moment, I mean, what are the average throughput times here?
Yeah, I mean, also this is an interesting business when you see what time our customers have, and they typically have four weeks to react to a project request from the hyperscalers. That means they typically already have stocks in order to be able to react, because it is clear, we have components that partly need a year in order to get confirmed and delivered in the right quantities. So they could not basically live with those cycles. Again, when the products are on stock, this is typically the order of magnitude in which we are delivering.
Okay. Did I understand you correctly before that your assessment of the order book is, of the order book, it is not only getting bigger, but the quality of the order book is also, compared to the last boom, according to your assessment, better? I mean, not like orders, just to put in orders because there is a supply chain constraint, and then if that eases, then orders will be taken out again.
Yeah. Now, for sure, to make now a forecast what orders will get taken out again is also a bit difficult. But let us say we do not see the changes as extreme as they were in the semiconductor crisis. Nevertheless, the reason why the order book gets longer is because of the supply chain limitations that everybody is aware of who is in this industry.
Okay. Good. Thank you.
Pleasure. Thank you, Remo.
Thank you very much. The next question is from Felix Remmers from zCapital. Go ahead. The floor is yours.
Hello. Thank you for letting me on. One question is regarding the competitive situation. I mean, you mentioned H2 will be lower than H1 due to, among other reasons, supply constraints of PCBs. Are competitors gaining share as their availability of components is better than yours? That would be my question.
Yeah.
Thank you.
Felix, thanks for your question. We don't know exactly now what PCB reserves our competition has in detail. Therefore, it would be a very daring statement to make here. But what is clear is that due to the hype in data centers, the PCB producers move towards the special needed PCBs for basically data centers, and this leads to the shortage. What is foreseeable is that this remains valid also in the whole year 2027. Only from 2028 on, we expect that the situation is going to relax.
Okay. Thank you. Maybe one other question is
Sure
is on pricing power. You mentioned you taking selective action to increase prices. In the past, you mentioned also pricing pressures in certain verticals. Just to give us a bit of more color around your pricing power in order to offset these cost inflation items. Thank you.
Yeah. So, what I can share here is we very successfully negotiate price increases with our customers, because they also see these price increases from other businesses. I think this is, yeah, a process that is ongoing and allows us to basically pass on the input cost increases and by this stabilize the gross margin.
Therefore, I think it's a professional process, and these are longstanding customer relationships. Basically, our customers get proof why the price increases come, and therefore these topics are really handled in a very professional way.
Okay. Thank you.
Thanks, Felix Remmers.
Thank you very much. We have one question in the chat that Antoine Chulia will answer.
Happy to take this question. It's from Arben. "Where do you see R&D as a percent of sales in 2026/27 and 2027/28?" For this year, I think the first half is a pretty good indication of where we can land. R&D was around 7.2% of sales in H1. Again, for this year, I think that's a reasonable assumption.
Next year, we're not providing detailed cost guidance today, but I would not expect R&D intensity to move materially away from that level. Now, the focus is much more on improving the productivity and the efficiency and the focus and the returns from that spend than on reducing the percentage further.
That also does not mean that we will accelerate our spend in R&D as sales growth is realizing. We're tactically managing that spend. I hope that answers the question. There's another question on the chat. Do you contemplate a sale of parts of the company or only a full sale? Frank, do you want to take this one?
Sure. First of all, it's not the executive management who contemplates. It is obviously a process that is run by the board and together with our shareholders. This is a topic that is too early to talk about. For sure, this option exists. This is a possible option. But in which direction the whole process is going to end, and whether it even will find an end that results in a transaction, that is too early to say at the moment.
Good. I have the feeling there is no more questions. Again, thank you very much for your attention, also for your questions, good discussion. As soon as there is something to share about the strategic review, we will, with great pleasure, do that. Wish you a great day, and looking forward to meeting you latest again on our full-year review. Thank you very much. Bye-bye.
Thanks, everyone. Have a good one. Bye.