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Operator: Good morning, ladies and gentlemen, and welcome to the LEM Holding S.A. half year results 2025-'26. [Operator Instructions] Let me now turn the floor over to your host, Frank Rehfeld, CEO.
Frank Rehfeld: Thank you very much. Good morning, ladies and gentlemen, and a warm welcome to the presentation of our half year results '25-'26. My name is Frank Rehfeld. I'm the CEO of LEM, and I'm here together with Antoine Chulia, our CFO. For those who are not yet familiar with LEM, LEM is providing sensors for measuring electrical parameters, namely current, voltage and energy, and with those help our 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'm going to outline what we expect in the future as well as talk about the adjustments we did with respect to our midterm ambitions. As you might remember, we had a tough start into '25-'26. Flat sales at constant currencies in comparison to the previous year. However, both the gross margin and consequently also the EBIT margin were under pressure in Q1. Despite not seeing a significant improvement on the top line in constant currencies in Q2, we managed to improve in Q2, both before mentioned KPIs and Antoine will go here in greater detail. For the first 6 months, the 5.3% decline in our top line can be fully attributed to FX losses, whereas the segments growing and those declining were balancing out each other. We were in particular happy with the development in Automation, Automotive and Track and saw good momentum in China. We are also happy to share that we are fully on track with our Fit for Growth program that helps us to trim our indirect costs. You might also remember that we reported a CHF 12 million negative cash flow a year ago and managed to improve the cash flow to CHF 5.6 million in '25-'26 first half. We will come to the guidance for this year that you see here in the numbers as well as the updated midterm financial ambitions at the end of the presentation again. Now with that, let's move on to the business performance in more detail. Following our business structure, you see here the development of the 5 businesses in comparison to the same period in '24-'25. I will focus on the numbers in constant currencies, as you know, that LEM is doing about 40% of its business in renminbi. That has been strongly depreciating after the announcement of the tariffs by the U.S.A. We are happy to share that the Automation business that started to slightly grow again after 4 rather flat quarters. Our Automotive business with strong focus to China has been growing by 9% H1 versus H1 last year, and saw an even more significant volume growth. And the Track business was growing even stronger. However, we also saw weak segments like Renewable Energy and Energy Distribution that I will explain in greater detail in the following slides. On this page, you see the distribution of our businesses relative to each other. What becomes clear is that there has been movement in all businesses. Looking at our 2 biggest businesses first, Automation grew, in particular, in the second quarter nicely by more than 4% since inventories normalized and Automotive, despite seeing a shrink in Q2 in CHF, continued to grow in renminbi. The businesses in the smaller segments have been changing position. The very strong development of our Traction business has been making it our third biggest business, whereas Renewable Energy has been shrinking by 2 percentage points, similar to the Energy Distribution & High-Precision business that also lost 2 percentage points relative. Now let's go through the businesses one-by-one, starting with our biggest business, the Automation business that almost represents 30% of our global business. You see a small growth in Q2 against Q2 last year, linked to normalized inventory levels, as already mentioned. This growth materializes mainly in power levels above 1 kilowatt for LEM and happens across all regions. Nevertheless, this a 3% reduction 6 months on 6 months that is to be attributed to currency -- in constant currencies, this business has been growing by 3%. Our Automotive business saw a nice growth of 9% in constant currencies, 2% in CHF. Growth areas were China and Europe, where in particular, the Americas suffered from the policy changes the U.S. administration has been implementing. We continue improving our market position in China. We are working mainly with Chinese OEMs and Tier 1s that we are expecting to further expand globally. We also saw positive momentum in Europe with increasing new energy vehicle sales and the ramp-up of some of our automotive products in the market. Rest of Asia depends very much on exports that were weak, in particular, towards the Americas, and we don't see a short-term change coming. Renewable Energy representing now 14% of our global business declined in constant currencies by 15%. Despite growing photovoltaic installations, the average content of current sensing by inverter is going to further decline step-by-step and the price pressure is going to remain high. We are expecting this to remain a segment that is as competitive as Automotive. The developments in Europe go into 2 directions. Domestic solar will be completely dominated by Chinese players and therefore, served by us in China, whereas large commercial projects will see European sources, and we expect that we are restarting to grow in this subsegment with our European customers. Notable are the positive developments in Rest of Asia, both in Japan and India with local government investments that we expect to continue. The Energy Distribution & High-Precision business became our smallest segment with 13% of our total turnover, and it also continued to shrink at 15% 6 months on 6 months. The lion's share in this segment is the DC metering for fast chargers that remained challenging both in Europe and the U.S. as the new energy vehicle sales developed below the installation rates on the one hand. On the other hand, some of our customers also lost market share. The Chinese export business for DC fast chargers remained stable. The High-Precision subsegments were rather weak due to lower demand in automotive EV testing, whereas the UPS, the uninterruptible power supplies were nicely picking up with the increasing installations in data centers. Looking at the Track business was the surely biggest [ fund ] in this quarter. This takes up now 17% of our total business and developed with a growth rate of 15% in constant currencies very positively. The development happened across all regions based on the ongoing investments into public infrastructure and the increasing standardization of regulations across Europe. The consequence of the standardization is that this requires to retrofit energy meters across all of Europe. Projecting this business now from a regional perspective, we see important changes in comparison to last year. Our business share in China remained stable at constant currencies, however, shrank due to the depreciation of the renminbi. Therefore, it takes now 37% of our total business, 2 percentage points less than for the first 6 months last year. The segments Automation, Automotive and Track contributed, as previously mentioned. The Rest of Asia business showed a slight growth 6 months over 6 months and an even nicer growth in Q2 with more than 12%. The main contribution was coming here from traction. Just to report here the progress of our plant in Malaysia. We are meanwhile producing the same volume than in Bulgaria despite the fact that the sales share is still substantially lower, and we see an increasing demand of customers who look for either a dual sourcing both from China and Malaysia or even a relocation of their production towards Malaysia. This confirms our strategic decision to set up this new site and that, on the other hand, is still burdening our P&L since it reduces the overall loading of our manufacturing footprint. Clearly, disappointing sales in EMEA shrinking 7% 6 months over 6 months, where the reduction in EDHP and Renewable was balanced out by Automotive, Traction and Automation. The Americas numbers are including the tariffs that we are passing on to our customers, and the business is overall stable, albeit below expectation looking at the development in Automotive. Nevertheless, the successes with catalog distributors give us positive signals for the future. With this, I would like to hand over to Antoine for the financial results.
Antoine Chulia: Thanks, Frank. Good morning, everyone. Thank you for joining our Q2 earnings call, and I'm Antoine Chulia, Chief Financial Officer. I'm happy to walk you through LEM's financial performance for the period ending September 30, 2025, broadly showing a welcome recovery trend after some challenging results recently. As Frank explained, at CHF 148 million, our sales declined by 5% in the first half of the year, which translated to a positive growth of 0.5% at constant exchange rate. Q2 saw a slightly higher performance at minus 4% or plus 1.2% at constant exchange rates. Our gross margin dropped by almost 15% to CHF 59 million in the first half, mainly due to Forex, price and mix, but Q2 showed early signs of recovery at CHF 30 million, down roughly 10% from Q2 last year. Thanks to a large reduction in operational expenditures under the Fit for Growth program, EBIT reached CHF 11.4 million in the first half, of which CHF 7.2 million in Q2, an increase of more than 7% from the prior year. This represents about 7.7% of return on sales for the half year and just south of 10% for Q2. Now before restructuring costs, this margin is topping 11%. As we reported in Q1, our gross margin slipped in H1 from prior year's level, just out of 40% of revenue. This is a 400-bps drop. Now we observed a 150-basis point recovery in Q2 following the Q1 drop due to price pressures pretty much across the business spectrum, but driven by China in renewable and industry in particular. We've explained some of these pressures by overcapacity in some of these markets, combined with an aggressive commercial stance since the end of last year but we've started to adjust towards a more selective approach. In addition, supply activity in Q2 is coming with better manufacturing and sourcing variance contribution. Our SG&A spend landed on CHF 31.5 million for the first half, a sharp decline from the prior year by 13% and with further sequential savings in Q2. These savings are heavily concentrated on the general and admin expenses, both in personnel and non-personnel, leveraging reduction in force as well as productivity gains from our [ Pulse ] program with our recent ERP implementation. In addition to the SG&A reduction, savings in R&D were achieved with Fit for Growth through a reduction in overall R&D personnel, but more importantly, an alignment of our footprint towards Asia. This yields a reduction of more than 20%, which is enabled by constant prioritization of R&D efforts as we aim to increase the overall R&D efficiency and time to market. Our financial results improved by CHF 1 million to a CHF 30 million loss for the half year period. The loss is mainly driven by the service cost of our debt, but the improvement from last year stems from a more favorable Forex drag. Income tax-wise, we're back to our historical effective tax rate performance around 18%, on par with last year's, especially in the second half. The first half performance last year was lifted by a favorable onetime affecting the country tax mix, both in expected and effective rates. So our overall P&L performance in H1 showed an overall compression from the prior year, landing on a net profit of 6.8% of sales, representing a 90 basis points drop. This flipped in Q2, though, thanks to a recovery on all lines, except for revenue. Margin rate improved and both operational expenses and financial expenses decreased further, yielding to both operational and net profits well above last year at CHF 7.2 million and CHF 4.8 million, respectively. Working capital inflated due to large catch-up payments since March, including severance and separation costs in the context of the Fit for Growth program. Our net debt position improved in the meantime as we continue to derisk and deleverage this balance sheet and aiming for and lending above 40% equity ratio. Aside from cost control, we focused our efforts this past semester on cash management, generating CHF 5.6 million in free cash flow to the firm from a large burn of CHF 11.6 million in the prior year. On a lower profit and EBITDA than last year and in spite of large restructuring outlays, we managed to stay on top and lift our operating flows and reduce our capital expenditures and tax flows. This cash flow focus will remain one of our core priorities in the current environment. So with this, I'll hand it over to Frank, who will explain on how we see this environment moving forward.
Frank Rehfeld: Thanks a lot, Antoine. So let me now share our outlook for the business. Overall, the business environment is not substantially changing. We hear anecdotically about some positive outlook expected for 2026 in some segments. However, we don't see those reflecting in our bookings yet. Therefore, we remain prudent considering the volatile business environment as well as our -- and as the possible exchange rate developments and the fact that historically, the second half of our business was always weaker than the first. Consequentially, we guide towards a sales range of CHF 265 million to CHF 290 million and a high single-digit EBIT margin as a result from the Fit for Growth efforts. We've decided to update our midterm financial guidance reflecting the developments in our market. As a reminder for all of us, LEM's core market of current sensing has been going through different phases. For a long time, LEM has been acting in a niche market in which we had a rather dominant position. This was a small market with limited growth potential, however, very stable. Things changed once sustainability gained importance around 2018, where the market size as well as the growth potential increased. But at the same time, the market became also more attractive for additional competition. We saw faster growth in this phase and we were accordingly more optimistic with reference to our outlook. COVID, the semiconductor crisis and the strengthening of Chinese competition was ending this market phase, and we find ourselves back in a new reality, a new market reality for us, our customers like the machine building industry or automotive as well as our peers to which we reacted with our Fit for Growth program that was launched a year ago. So we expect now a market adjustment and stabilization to continue through '26-'27 and afterwards, an annual growth rate in the corridor of 4% to 7% in constant currencies. We target an EBIT margin corridor of 10% to 15%, depending on currency and market development since we will maintain strict cost discipline and focus on financial resilience. What remains unchanged, however, is the base on which our strategy has been built. We are convinced that the trend to sustainability is going to continue despite the headwinds that we are currently seeing. We are well positioned to capture the growth that is eventually coming back from this megatrend towards electrification, renewable energy generation and energy efficiency. The important R&D investments that we made towards integrated current sensing, TMR as well as forward integration like the DC meter get encouraging customer feedback that gives us confidence that those investments will pay back. The importance to be close to our increasingly Asian customers as well as being fast is reflected in our footprint and the time-to-market improvements that we are seeing. And the manufacturing footprint, strongly Asia-based but balanced between China and outside of China enables us to flexibly react to geopolitical shifts. I close here and would like to thank you all for your attention. Before opening the Q&A, I would like to invite you already for the 9 months earnings call on February 6, 2026. With this, we are ready to take your questions.
Operator: [Operator Instructions] And the first question is from Charlie Fehrenbach, AWP.
Charlie Fehrenbach: My question regards your midterm guidance. A year ago, you postponed your goals already for 2 years. You still mentioned there a sales level of CHF 600 million and an EBIT margin of 20% and more, which should be able to reach, I think, after the year '29 and 2030. Now you have the new guidance, 10% to 15% margin, and this growth perspective of 4% to 7%. So the old goals, can we forget about them, this CHF 600 million and this 20%?
Frank Rehfeld: Yes. Thanks a lot, Charlie for your question. So let's first understand that the business realities have been further, let's say, burdened by geopolitical decisions, tariffs. So the market reality has been changing. So do we -- you said, can we forget about the CHF 600 million? I would clearly say no. However, the time until this will be achieved is probably even longer than what we were believing a year ago. What is for sure not helping is that on the one hand, our core markets move more to Asia, but at the same time, we report our growth in Swiss francs, right? And every depreciation of the renminbi basically costs us several percentage points in our growth story. So I hope this answers the question.
Charlie Fehrenbach: Okay. Yes. You mentioned the sales now the EBIT margin of 20% also is something which could be reached far in the future?
Frank Rehfeld: I mean, let's be careful to talk about far in the future, in particular for EBIT because here the question is how the markets are further developing. As you've been hearing, business in China is, for sure, confronted with higher competitiveness levels and higher price pressure. So therefore, we've been moving 5 percentage points down at least for the foreseeable future. Whether this is possible again it's probably possible again to reach 15% to 20%, probably a bit too early to say.
Operator: And the next question is from Tommaso Operto, UBS.
Tommaso Operto: So a couple of questions. I'll take them one-by-one. Firstly, maybe on Nexperia, I mean, there's been lots of headlines. Could you share if this has impacted you as well as the supplier?
Frank Rehfeld: Yes. Tommaso, so we were in the lucky position to be, for the time being, not affected. Obviously, we've been starting a lot of actions to see also how vulnerable we would be, what sort of second sources we have. And as you know, we do more than 60% of our manufacturing in China and Nexperia supplies out of China, out of Dongguan, and we were basically not affected and believe that potentially this remains like this because what I hear is that the situation becomes less critical than we were expecting still a couple of days ago.
Tommaso Operto: Okay. And then maybe on your margin guidance, those 10% to 15% EBIT margin, what kind of gross margins does that imply? I mean you -- in Q2, you managed to go back to above 40% gross margins. Is that more or less what you can expect? Basically that would enable you to reach those 10% to 15%? Or is gross margins further improving from here in order to achieve those 10% to 15%?
Antoine Chulia: Tommaso, I'll take this one. Yes, we're expecting 40% to be kind of the new floor moving forward. As we grow, and you heard our cautious stance here on future growth. As we grow, we should be able to expand on this one a bit. But remember that we're facing kind of structural headwinds here, especially if growth happens in Chinese markets and/or automotive markets, right? So we'll battle both these headwinds as we grow. The 40% is probably the new benchmark moving forward and anything north of this.
Tommaso Operto: So better capacity utilization basically compensating for higher price competitiveness?
Antoine Chulia: Right.
Tommaso Operto: Okay. And last question on the full year guidance for sales, I mean, in H1, you achieved CHF 148 million. If I just would annualize that, it would be already clearly above the top end of your guidance range. Frank, you mentioned some seasonality impacting here. Is that really the main driver why you think H2 is going to be so much lower than H1 at the midpoint? Or is that also taking into account further FX headwinds or even potentially deteriorating end markets?
Frank Rehfeld: Yes. I think a very good question. And so in particular, one end market will be surely deteriorating, and this is the renewable end market because here, the feed-in tariffs will have -- or the abandoning of the feed-in tariffs in China will have a negative impact on growth for the Chinese market, for sure, not for the export from China, but at least for the local market. So there, we will -- we basically expect weaker numbers. And we also have indications that the Chinese market overall will potentially develop in the second half and less strong than it was in the first half.
Operator: And the next question is from Bernd Laux, ZKB.
Bernd Laux: Two questions I have left. One is regarding free cash flow. You have achieved the turnaround in the first half. Do you expect that to be continued, so free cash flow to also be positive for the second half of this year? And the second question is regarding your investment in integrated current sensing and in TMR in particular, you slightly mentioned you have made progress. Can you be more specific here and tell us about how far away are you from maturity so that these products can really be sold in large quantities into the market? And do you expect cannibalization of existing applications? Or is this only or almost only new applications that can be entered?
Antoine Chulia: Thanks, Bernd. I'll take your first question on free cash flow. We're definitely expecting free cash flow to be positive moving forward. Thanks to a lift in our working capital performance as we keep focusing on these actions. And that's a very high-level summary, but it's been the focus of our efforts in the first half. So we're expecting to see more results in the second half from this. We're staying very cautious from a capital expenditure standpoint as well. So overall -- and we're expecting also probably less cash outlays from restructuring, right? So overall, we're cautiously optimistic here free cash flow for the second half.
Frank Rehfeld: Good. And I take the ICS TMR question. And for sure, you basically had a multitude of some -- sub-questions. Maybe allow me to quickly summarize the picture here. So this is the activity that we do in cooperation with TDK. And the products that we've been developing there together has now been sampled to several customers, both in the automotive and in the non-automotive business, and we've been receiving overwhelmingly positive feedback. Do we expect cannibalization? Rather not because our today's business in the area of integrated current sensing is rather small. So therefore, there is majority growth, growth, growth. Talking about launch, so we will launch the product in 2026. However, looking into, let's say, the typical qualification cycles that we have at our customers, we should not expect now an enormous sales contribution in '26. Even '27 will be probably still a bit slow until really the applications are then picking up and getting launched and getting them in mass production. So I think here, we need to be a bit more patient. This market is not an, let's say, iPhone market where suddenly everybody switches to a new iPhone. These are rather slow ramp-up processes.
Operator: And the next question is from [ Raymond Renahon with Asaybanc]
Unknown Analyst: Yes. Looking at your midterm new growth target in sales of 4% to 7% in local currencies, not in Swiss francs. I mean, given that you are moving more and more into volume markets, mass markets, there must be an underlying assumption here about volumes and prices. The only conclusion can be that volumes have to go up much more than the 4% to 7% that prices, of course, then on the other hand, will continue to go down. Is that the correct assumption?
Frank Rehfeld: Yes. I think -- thanks for the question. I think this is precisely the correct assumption. By the way, not a surprise for a component business, where you see regularly a price down per measuring point like we also see. And the more this business becomes in Chinese business, and the more volume increase you need to see a bit of increase in the sales eventually, yes. So that is exactly the right assumption.
Unknown Analyst: Okay. Now could you share these assumptions with us? I mean there must be numbers behind this 4% to 7% on volume assumptions and price assumptions you have baked into that?
Frank Rehfeld: Unfortunately, we cannot share them. You can imagine that these are also relevant, not only for you, but also for competition. And let's be honest, we have seen certain developments in the past and for sure, taking them, extrapolated them into the future, whether all that holds true, it also depends a little bit on the product mix, the more, let's say, high-value products like a DC meter come in, that also distorts the picture. So it will be not that easy to construct here a picture.
Unknown Analyst: Okay. when looking at the margins, I mean, taking out the restructuring costs, you should basically already be around 10% EBIT this year. I mean if you say high single-digit EBIT margin, but there are restructuring costs still there. So basically, net of restructuring, you would already be at the lower end. So from that perspective, you should reach the lower end clearly next year, right? That is the first one. And then the second question, looking further in the future, it is a race between catching up the lower price levels, which will go down further versus operating leverage. I mean, higher utilization rates. They have to overcompensate the price pressure. That is basically what then results in the margin, right?
Frank Rehfeld: Yes, that's right. You're basically confirming the bottom and the floor of our guidance. So that's exactly what we're seeing. So we expect to be at 10% post -- well, post and pre restructuring actually moving forward, right, at current levels. There's -- the uncertainty here on the price front is actually -- we're looking at the net contribution of price and cost, right? So basically, the difference between what we're able to save on throughput costs as opposed to how much we're giving away. I mentioned that we can extract from the market. And we expect that to be a slight negative moving forward. Obviously, in the scenario where we're growing in more competitive markets, it's going to be more of a negative. But that's basically the main reason why we don't want to signal too much of an upside from the bottom, right, from the floor of 10% as well as you noted, there's upside if the content of that growth is favorable. Remember also that we are quite highly leveraged from an operational standpoint, which has affected us in the short-term since our investment in Malaysia. It is actually a good thing moving forward as we expect to leverage on that fixed base of manufacturing costs, right? So that's one, that's another driver that would offset some of this negative net cost impact.
Operator: [Operator Instructions] I would like to hand over for the questions from the chat.
Unknown Executive: We have a question from [ Jose Veros ] who is asking if he could give some color regarding the restructuring program going forward and what cost base we target in the next 2 years?
Antoine Chulia: So we -- thanks for the question. We intend to fully execute Fit for Growth. We're not quite there yet, even though we've seen some strong contribution to the P&L so far. So we will -- first, we will execute Fit for Growth as intended in the coming months. Our objective is to defend the current profitability level, as I was explaining in the previous questions. Hence, adjust our cost footprint depending on the sales development. And that's the key here, right? Everything depends on sales development moving forward. So we've shown that we're able to adjust to lower volumes and be cautious and selective with our spend. So we'll continue doing so. But no one knows at this stage what the future holds, right? So we will continue to be extremely nimble and flexible with our cost base.
Unknown Executive: Then we have a second question from Jose Veros who is asking if you could speak a bit about competition, how is LEM differentiating vis-a-vis other players? And if there would be a way to target more niche markets like in the past in order to avoid high competition?
Frank Rehfeld: I think a very good question for sure, referring a bit also to the strategic reflections that we have in the team. So LEM differentiates clearly by having the widest portfolio in application, having customer closeness across the world with all our American, European, Chinese customers, and having the application experience and basically having probably overall the biggest scale that we have in terms of applications, products, but also volumes. And this brings us into the privileged position that the products that we are defining are really very close to the customer needs and allow us to basically deliver really what customers expect that the rounds of optimization are reduced. And we clearly see this reflected in the feedback that we are getting from our customers. Now talking about the niches versus, let's say, the big volume. I think in the past, LEM has been always playing in both areas. And I think we also have to -- and on the one hand, the level of competitiveness that you need in order to be successful in the Chinese market, I think, is a must and an important reference or benchmark to understand where we are. And at the same time, for sure, you try to discover more growth areas, be it in smart grid, be it in new technologies like TMR, where we also basically then see the next level of development. To only do niche business will not allow us to be really on a competitive scale. So I'm deeply convinced we need to do both.
Unknown Executive: Then we have a third question from Jose Veros regarding M&A. Would LEM consider M&A? And if yes, how would this be financed?
Frank Rehfeld: Maybe I take this. We've been saying in the past, we would not go for M&A in order to increase our sales turnover. And I can tell you that there are a couple of competitors on the market where basically the mother companies look for alternative solutions, but we don't really consider this as the right way moving forward because we would in the midterm lose their business because customers would then look for other alternatives when that all goes to them. So here, our customer strategies actually speak against such a growth option. However, what we said is when we see technologically and that partnering or M&A would make sense, then we would move forward. And you've seen this when we, for instance, been acquiring R&D teams in Munich in order to strengthen our ICS capabilities or when we moved into the partnership with TDK in order to bring the ICS business forward.
Unknown Executive: Then we have received a question from Gian Marco Gadini from Kepler Cheuvreux. Could you give a bit of color on the impact of volumes and prices on revenue in Q2 and H1 of '25-'26?
Antoine Chulia: Yes. Thanks, Gian Marco. So this has been a hot button here since Q1. And I think not just for them, by the way. We've seen a large price drag in most markets in the past 6 months, but it's been led by our Chinese business, especially in Automation and to a lesser extent, in Automotive. So this impact has somewhat slowed down in Q2 as we've been more selective and prudent in our commercial efforts. Also remember that there was a demand trough in Renewable in China following the end of the feed-in tariffs, and that resulted in overcapacity in the market and the corresponding price pressures. Now overall, you can think of our flat revenue performance as a 4% to 5% volume increase, offset by 4% to 5% price drag in the first half. We expect this level of delta price to reduce moving forward to improve moving forward as we're learning to operate in this kind of environment. I hope that answers your question.
Unknown Executive: There's a second question from Gian Marco, whether we are able to reallocate production capacity from one segment to another to offset negative developments of specific segments like Energy Renewables?
Frank Rehfeld: I would answer the question with partially yes. So we don't have -- or we try when we plan product and plan our new developments to allocate those products not only to a single market. This sometimes works, not always. And this -- in these cases, we have the opportunity to basically shift demand between different segments. However, with increasing volumes, the -- let's say, specific solutions that you need in order to be competitive and that eventually also create payback, this is increasing. So also the more and more specific very segment directed products need to be developed in order to be competitive. Right. I hope this answers the question.
Unknown Executive: And then we have a question from [ Thomas Boorie ], who's asking whether the goal for R&D is still 8% to 10% of sales?
Frank Rehfeld: Yes. So that's still the sort of range in which we operate. Obviously, when you suddenly see a dip in your top line, it looks like an artificial inflation of your R&D cost. We obviously don't then trim digitally the percentages down. But we believe that for a company active in the high-tech sector, that is a healthy amount that we need to invest in order to remain competitive and prepare for the future.
Unknown Executive: So operator, we have no more questions in the chat. So there are more questions in the telephone conference.
Operator: There are now new questions in the phone conference. One is coming from Miro Zuzak from JMS Invest.
Miro Zuzak: Can you hear me?
Frank Rehfeld: Yes.
Miro Zuzak: I have a couple of them. I take them one-by-one, please, if I may. The first one is regarding the range that you have given for sales in the current year. It's quite a range. So CHF 25 million from CHF 265 million to CHF 290 million. And if I try to model the lower end now in the segments, it's really hard to model the lower end in the sense it would be really a collapse more or less in the sales. Is it fair to assume that the lower end is really like really the lowest that you could imagine? Or are there scenarios where you think could be even worse? I'm also reflecting on the comments that you made on China and also on the fact that China was flat on a constant currency basis year-to-date?
Frank Rehfeld: Good. So thanks, Miro for your question. Now true, the range is a rather big range. Now unfortunately, we've been seeing a lot of rock and roll in the market in the past. And unfortunately, 2 weeks ago, we were even not clear whether the whole electronics business would not see a more severe hits based on a player like Nexperia basically not being able anymore to deliver. So we were considering all this, considering the uncertainty from the exchange rate and therefore, came up also with a guidance that rather have this big range. But it's true. We work every day on actually rather being at the higher end if this is possible. So that's where we are standing. But unfortunately, the last probably 12 years have been teaching us that we were also probably sometimes a bit too positive in our expectations what is still possible in this market.
Miro Zuzak: Okay. Very clear. And connected to that, and second question regarding the EBIT guidance. So high single digit implies 7%, 8%, 9%, something in this range, which is not such a large range. So it seems like there is not much operating leverage in the top line regarding your incremental margin. Is it because like the less secure or the areas with the least visibility has the lowest margins?
Antoine Chulia: It's a good question. Look, I think it has to do also with the -- again, the content of the growth, right? We are being cautious here price-wise. We are defending our price levels. The top end, the high end of our sales guidance I think might assume some or it may include some more, I'd say, aggressivity price-wise, right? And so obviously, we would benefit from the volume, but this would be a scenario where we're operating at current prices or even or slightly lower prices in some segments. So that would -- the tailwind on volume and on operating leverage would be partly offset by the price drag. The other around, it works too, right? So the low end of the range is -- we would definitely defend our profitability and defend the low volume and the low cost coverage through more selectivity price-wise.
Miro Zuzak: Very clear. And third question, if I may, you elaborated on the 40% as a floor for the gross margin. Now looking into the upcoming 2 years where you gave guidance on EBIT, it's almost unthinkable to or even possible to model 15% EBIT margin, taking only 40% gross margin? Or is the cost lines, the G&A cost really to decline even significantly further than it already did in Q2. I mean you did a great job. We can see that in the numbers. But is it -- can you elaborate on that? Would the 15% imply a higher gross margin than 40%?
Antoine Chulia: Yes, there's -- definitely, yes.
Miro Zuzak: Okay.
Antoine Chulia: To reach 15%, we would have to generate more than our floor for margin, yes.
Miro Zuzak: And the last question regarding cash flow and net debt. So your net debt went down by CHF 5 million more than the cash flow statement would imply. And you can see that on Page 13, if I'm not mistaken, in the report, the fair value changes and others, CHF 4.8 million negative number, which declined or decreased your interest-bearing debt. Could you please explain what that is?
Antoine Chulia: There's a Forex lift on this one. I mean, lift -- some of the improvement is coming from Forex, the same way it's impacting our sales the other way, right? So that's the biggest contribution.
Miro Zuzak: But that means that would be, for example, U.S. dollar liabilities or Chinese renminbi liabilities that you have?
Antoine Chulia: Yes, there would be non-CHF liabilities.
Miro Zuzak: And which currencies is it U.S. dollars or Chinese renminbi?
Antoine Chulia: It's a blend, and it's -- yes, some of that is renminbi, yes.
Operator: And the last question is a follow-up from Tommaso Operto, UBS.
Tommaso Operto: Just a quick follow-up on the Fit for Growth program. I mean this cost program was -- so I mean, I apologize in case this is repetitive. But what I didn't quite understand, it was announced a year ago when you still had a different midterm ambition or a guidance of the CHF 600 million. And now you kind of adjust to this new reality. So my question is, does this mean -- does this new top line guidance indicate that potentially there would be an additional cost program? Or are you still fine even with the new market reality with the current Fit for Growth program?
Frank Rehfeld: Right. I think very, very good question, Tommaso, I think probably one cannot be repetitive on this question because it's one of the -- let's say, really complex topics. So you remember, we basically started to implement the program in -- planned it in November and then basically saw some effects in Q4 where we saw the restructuring cost and the positives we started to see in April. Now this program runs according to plan, and we clearly see that we are saving the planned range in this financial year and also go for further savings. You remember, we said CHF 18 million to CHF 22 million in '25-'26 and an additional CHF 15 million then in the next financial year. So that's what we currently plan, and that's what we are all aligned about. Now it depends for sure how the market is developing. At the moment, we don't -- clearly don't foresee any further restructuring necessary because we do have a base that will allow us to go forward in the way we've been planning this. But again, therefore, also, you remember we were cautious with '26-'27. On the one hand, we hear positive, I called it anecdotically evidence that maybe '26 comes better, but our bookings don't show that yet. So therefore, we rather talk about the stabilization this year and then a pick up and then after '26 and '27. So that's basically the current planning base. But when this, for whatever reason, would be again put into question because geopolitically short-term something happens, then a potential further restructuring could not be excluded.
Tommaso Operto: Okay. Got it. And then a last question on order levels. And I mean, in Q2, orders were sequentially down quite significantly, right? And at the beginning of this fiscal year, you started to take into account different shorter-term orders as well, and yet they have declined so significantly. So could you maybe elaborate where that cutoff is and how we can kind of compare the current order levels to the levels a year ago?
Frank Rehfeld: I mean looking at orders, and you remember what we already exchanged in previous discussions, the times where you can mathematically take order levels and then extrapolate them and mathematically say that is then exactly the sales is getting increasingly difficult. I give you a couple of examples, what we saw when, for instance, the tariffs were announced is that some important OEMs, car OEMs were canceling certain new energy vehicle car lines or pushing them out. We saw suddenly drops in our Rest of Asia business that is mainly guided towards exports into the Western market. So we saw quite some surprising effects that then also were reflected in the order book with negative orders of pushouts and cancellations. So therefore, unfortunately, lead times are a bit difficult to simply extrapolate out of the orders what then the real sales is going to become. Hopefully, you can live with this level of uncertainty as we have to.
Antoine Chulia: And Tommaso, things are technically comparable, right, year-over-year. I think what we're looking at here is -- this is a reflection of the subjective part of how we book orders. And here, the keyword is caution, right? We've learned from the noise in the market and in customers' behavior in the past 6 months. We are being very cautious with how much orders we're capturing in our book and especially as the long-term visibility is very, very muddy, very blurry, right? So overall, we're seeing less visibility. So we're being more cautious in how we're capturing orders.
Frank Rehfeld: Right. Looking at the time, I would like to thank each and everybody of you for your interest in LEM, for your time, you've been invested to follow us here, and looking forward that we stay in touch and that we latest talk again on the 6th of February. Thanks a lot and have a great week. Thank you. Bye-bye.
Antoine Chulia: Thanks, everyone. Bye.