LEM Holding SA ((CH:LEHN)) has held its Q2 earnings call. Read on for the main highlights of the call.
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The recent earnings call for LEM Holding SA painted a mixed picture, highlighting the company’s strategic achievements alongside ongoing challenges. While the company made significant strides in cost management and strategic expansion, it continues to face margin pressures and regional performance issues, particularly in the Renewable Energy and EMEA segments.
Positive Momentum in Key Segments
The Automation, Automotive, and Track segments emerged as bright spots in LEM Holding’s portfolio, with the Automotive sector experiencing a 9% growth in constant currencies and the Track business expanding by 15%. This growth underscores the company’s ability to capitalize on market opportunities within these sectors.
Improved Cash Flow
LEM Holding successfully turned around its cash flow situation, moving from a negative CHF 12 million to a positive CHF 5.6 million in the first half of fiscal 2025-2026. This improvement reflects the company’s effective financial management and operational efficiency.
Successful Cost Reduction Initiatives
The company’s Fit for Growth program has yielded substantial cost savings, with SG&A expenses reduced by 13% and R&D savings exceeding 20%. These initiatives have been pivotal in enhancing the company’s financial health and operational efficiency.
Strategic Geographic Expansion
LEM Holding’s new plant in Malaysia is now producing at the same volume as its Bulgaria site, marking a successful geographic diversification. This expansion is a strategic move to bolster the company’s global footprint and production capabilities.
Decline in Gross Margin
Despite some recovery in Q2, the gross margin dropped by nearly 15% in the first half due to Forex, price, and mix impacts. This decline highlights the challenges LEM Holding faces in maintaining profitability amidst fluctuating market conditions.
Weakness in Renewable Energy and Energy Distribution
Both the Renewable Energy and Energy Distribution segments experienced a 15% decline in constant currencies, with Renewable Energy particularly affected by price pressures and overcapacity. These challenges underscore the need for strategic adjustments in these segments.
Pressure from Chinese Market
The Chinese market continues to exert pressure on LEM Holding, with competition and currency depreciation impacting margins and market dynamics. This remains a critical area of concern for the company.
Challenging Environment in EMEA
Sales in the EMEA region contracted by 7% over six months, reflecting the challenging market environment in this region. This decline highlights the need for strategic initiatives to address regional market challenges.
Forward-Looking Guidance
Looking ahead, LEM Holding has set a sales target range of CHF 265 million to CHF 290 million for the fiscal year 2025-26, aiming for a high single-digit EBIT margin through its Fit for Growth program. Despite a 5% decline in sales in the first half, the company achieved a slight positive growth in constant currencies. LEM aims to maintain strict cost discipline and focus on financial resilience, with a long-term annual growth target of 4% to 7% in constant currencies and an EBIT margin corridor of 10% to 15%.
In summary, LEM Holding’s earnings call reflects a company navigating through a complex landscape of achievements and challenges. While strategic expansions and cost reductions are commendable, the company must address margin pressures and regional performance issues to sustain its growth trajectory.