Ams Osram Ag Unsp/Adr

Good morning. I see quite a few familiar names on the call. Very nice to meet you again. I would like to welcome all of you to our Q2 2023 earnings call. And with me are Aldo Kamper, our CEO, Rainer Ehrle, our new CFO, who started July 1st. Aldo will take you through the new strategic direction of the group, and Rainer will comment on the business development during Q2. And after which, we're happy to take your questions. Aldo and Rainer will refer to the Q2 earnings call presentation that you find on our website besides the extended Q2 presentation. With this, I hand over to Aldo.

Thank you, Juergen, and also good morning to everyone from my side. In our earnings call three months ago, I promised that I will take a look with the management team where the company stands. There's no discussion around the fact that our recent performance has been lackluster and has not met our ambition. Over the last three months, we took a careful look at the prospects of each of our 20-plus business lines and the overall strategy. In particular, the outlook for some low-performing consumer applications, amongst others, requires a significant reset in view of the macroeconomic environment. Our core businesses continue to have a healthy and positive outlook. The reduced long-term forecast for some segments results in a goodwill impairment of 1.3 billion euro. It's obviously purely a non-cash item. We know this is a significant correction, and we are convinced this is a necessary step to earn your trust by taking a realistic view on our business outlook in a changing environment and a basis for the path we are taking to improve our performance. Now, let us look at further details on slide two of our earnings call presentation. Once we are convinced more than ever that the combination of capabilities, emitters, sensors, and ICs on the one roof provides a unique opportunity and potential, The balance in market exposure and between established and new technologies, as well as existing and new markets, was not ideal. First, a strong focus on disruptive custom technologies for high-volume opportunities in the consumer space has proven to be challenging when it has come to industrialization, execution, and market adoption. Second, we have not always lived up to our own standards when it comes to flawless execution of our roadmaps. Third, the uptake of new markets or adoption of new, partly disruptive technologies that often happen not as quickly as we'd hoped and planned for. Fourth, we didn't fully exploit the growth opportunities in sticky, structurally growing core markets as automotive and industrial medical. And last but not least, obviously the crisis in the macroeconomic environment also caused additional headwinds. Due to this, we have decided to rebalance and refocus the company towards profitably profitability, structural growth, and monetizing innovation. And what do we mean by this? With a stronger commitment towards automotive, industrial, and medical markets, we will focus our semiconductor portfolio towards a very profitable core in differentiated intelligence centers and emitter components. This also means that we will exit non-core, lower-performing semiconductor businesses with a revenue run rate of around 300 to 400 million euro. At this time, we cannot share all details as the test approach for exiting certain business areas is still being fine-tuned. The exit of passive optical components, however, is one of the examples already today. We stress that we will continue differentiated opportunities in high-volume portable consumer devices markets, such as micro-LED. However, we will focus our engagements on product development where we can achieve sustainable differentiation through cutting-edge innovations. The automotive and specialty lamps business will continue to contribute significantly to the group's earnings. We are actually expanding our leading position in this business. Portfolio choices we made, combined with a performance push and an adjustment of the company's overhead and infrastructure to its new base, is summarized in our Re-establishing the Base program. We also addressed some of the past execution topics by strengthening the ownership and accountability in the semiconductor segment, through implementing full end-to-end responsibility in the business units. The strengthening of the divisional entrepreneurial responsibility allows us to move away from the previous organizational model of a functional management board. As a consequence, the management board can be reduced to two members, a CEO and a CFO, that is Reiner and myself, effective January 1st, 2024. We're also consolidating the business units in the semiconductor segment from three to two. One will be dedicated to emitters, the other to sensors and analog mixed signal ICs. The structure is already a theme throughout this Q2 presentation. We expect savings from all of these measures of €75 million by the end of 2024 and €150 million by the end of 2025 on a run rate basis, improving earnings and cash flow. I will comment on the updated target operating model a bit later. Taking now a closer look at slide number three. With our semiconductor core portfolio, we address the fast-growing segments in automotive, industrial, medical, and selected high-volume consumer applications of the total optoelectronics and sensor semiconductor market. Those segments are expected to grow high single-digit, low double-digit percentage every year for the coming years. In total, we can address a market of roughly 17 billion euro with our core semiconductor portfolio. Let us take a look at this focused portfolio, illustrated at the center of the slide. The bulk of our portfolio is comprised of differentiated sensors and emitter components, as well as mixed-signal ICs. Examples are cutting-edge hyper-red LEDs in special packages for horticulture applications or position sensors for automotive applications. On the IC side, you can imagine differentiated specialized standalone driver ICs for LEDs, for example. Now, the power and the potential of the unique combination of sensors, emitters, and ICs on the one roof comes into play. combining our own ICs with an emitter or sensor in a differentiated package, and writing our own firmware to deliver unique intelligent emitters or intelligent sensors that provide a much higher customer value. An example is our recently announced cutting-edge 25,000-pixel automotive forward lighting, a VIA solution, where we use our own highly sophisticated driver IC and ASIC in our own packet technology. This is currently receiving tremendous traction, such as we already have more than 150 million euro design wins in our books. We are very pleased having been able to announce the first customer ramp with our partner, Magneti Marelli. Our core portfolio continues to enable sensing, illumination and visualization like in the past. Innovation and technology leadership will also continue to be the key driver for our success. For the more pronounced focus to automotive industry and medical markets, we will therefore strengthen investments in the relevant product areas such as high-performance LEDs, lasers, mixed-signal analog ICs, and specialty sensors. In many of these markets, we hold leading positions, as you can also see on the next slide, slide number four. Let me now take you through slide number five, the probably most important slide, to understand our revenue model with the short-term changes and our design impact, structural growth in coming years. The group will continue to be based on two segments, semiconductors and lamp and systems. The latter segment primarily consists of traditional automotive lamps, such as halogen-based lamps and LED upgrade modules, as well as a relatively smaller business with specialty lamps for entertainment and industrial applications. Looking at 2023, you see that we plan to exit non-core, lower-performing semi-businesses of the order of €300 million to €400 million. Due to this, the revenue base in 2024 will be lower but more profitable. With the structural road drives in automotive, industrial, medical, and consumer, we plan to grow from this lower base in the range of 6% to 10% per year on average. This implies that the semi-segment will grow 9% to 13% on average, and the land and system segment will show a fledgling development as the traditional automotive land market is slowly declining, but we continue to expand our share in our portfolio. The growth of the semisegment is well aligned with the expected growth of the selected focus segments, and we want to grow faster than the market in these segments. Of course, the macroeconomic development influence all these segments, such that all our growth and also profitability expectations are to be understood through the cycle targets as customary in the semiconductor industry. Now, let us turn to the structural growth drivers in our semiconductor core portfolio. we look at automotive we command the number one position since many years in automotive leds and the number two position in automotive flight sensors with new products new applications driven by safety regulations as well as appetite for more convenience our efforts called the per vehicle will structurally grow on top in many of these areas we've already secured significant amount of design wins and oem launches which will unfold in the coming years. I mentioned already the design wind volume of more than €150 million for the highly pixelated headlamps. Another example of this is incumbent sensing, where we have a solid design base of more than €250 million already in our books. When it comes to industrial and medical device markets, our approach has always been to leverage our cutting-edge sensors, emitters, and IC platforms to market niches and applications where we are the key for system performance. This has allowed us to become the leading supplier in those very specific product categories such as photon counting for computer thermography. We will continue this very successful niche strategy and expand it. Industrial and medical markets are structurally growing as devices become smarter and need more sensors and more emitter technologies. For example, the computer thermography scan market. We are a key supplier for 8 out of the 10 leading CT scanner OEMs and our content per scanner can be up to €60,000 in some high-end scanners. In the wide space of consumer devices, our main focus has been portable personal electronic devices, smartphones, smartwatches, tablets, and ARVR devices. This application focus will remain. However, we will carefully balance the investments into products that evolutionary can improve cost performance ratio and deliver a more steady stream of business. There's more disruptive, often custom technology platforms that are challenging in terms of innovation, pre-investments, and market introduction. We are determined to improve the risk-reward balance and improve ROIs, which have in many cases not come in the way as we aspired. We hold leading positions in areas like display management or camera enhancement for smartphones, where 8 out of 10 best cameras are enabled by our technology, and we are renewing many of those sockets. In the past, these strong positions in our core markets have perhaps not been so much in the limelight as they deserve, as a lot of attention has been towards the new, exciting micro-LED platform. However, these core markets possess a high degree of attractiveness for us as they offer good growth chances and profitability combined with a strong starting position. Of course, wrapping the industry's first 8-inch LED factory with a new generation of LED technology, MicroLED, remains a significant element in our growth plans. We are well on track in terms of setting up the factory operationally. Our MicroLED effort is in the centerpiece when it comes to monetizing cutting-edge innovation. It's the biggest investment in the history of the company and we're determined to make the success and they make it successful and financially rewarding. All four elements of the structural growth, automotive, industrial medical, consumer, and monetizing innovation, you will find dedicated sections with more details in the full quarterly presentation, which I highly recommend to flip through. It is reworked and updated substantially. You can find it on the web. And I'm now on slide six. We are a high-tech company with great ideas, but we need to put monetizing these innovations more at the center of our thinking. In view of the somewhat lower revenue base within new core portfolio and the next steps in terms of leveraging the capabilities of sensors, IC and emitters, and the one roof, we are launching a multidimensional enhancement program we called Re-establish the Base. In addition to the portfolio adjustments, there are further important elements. One element is right-sizing the company's overhead and infrastructure. This also includes consolidating the organizational structure from three business units in the semiconductor segment to two. At the same time, we give these business units true end-to-end ownership and responsibility, supporting our drive to better monetize our innovations. As already stated, we expect an improvement of the bottom line from this program of around €75 million by the end of 2024. and around €150 million on a run rate basis until end of 2025. The one-time costs are estimated at around €50 million. We are confident that the planned portfolio streamlining will show the indicated positive financial impact as we have demonstrated a similar procedure in the LEMS and system segments, which you can see on slide 7. We brought the adjusted EBIT from close to break-even to sustainably mid-teens to portfolio focus and realignment. Now, I want to comment on our revised mid-term target operating model on slide eight. As I laid out at the beginning, the risks in launching disruptive custom technologies for high-volume consumer device applications, the late uptick of new markets such as AR, VR, some execution problems, and multiple microeconomic challenges have left their marks on our previous business model. As a consequence, we need to update our mid-term target operating model. As I explained, our revenue growth is targeted to be 6% to 10% CAGR from the reduced base. Starting base will be fiscal year 2023 revenues, less the €400 million revenues related to the exit of the non-core semiconductor portfolio. With this growth, we target an adjusted EBIT margin of 15% and above. The capex-to-sales ratio is required to reach the 10% over the cycle again, meaning it will come down significantly from the high expenditures of the last years. Our long-term goal for the leverage continues to be below 2, measured by net debt to adjusted EBITDA. As usual, the model is to be understood as over the cycle and assumes the structural road track present the ramping of the new Coulomb 8-inch facility in a timely manner. With this overview, I now hand over to Reiner to comment on the Q2 business performance and the financials.

Thank you, Aldo, and good morning, everybody. Many of you already know me from my previous role at Cellotronic, a leading supplier of semiconductor wafers. I hold a degree in business and engineering, worked six years at AD Corning, and then joined Wacker Kamin and subsidiary Sertronic. I spent 20 years at the company and various engagements took me to the US and to China. In 2015, we took Sertronic public and I'm leaving behind a great company with wonderful people. I've been looking for a new challenge in a real semiconductor company and I'm really happy that I was given the opportunity to work for AMS Austria. The company has a great product pipeline and a successful core business. We are working hard to put the financing on a new long-term basis as the basis for future growth. A few comments are prone to keep in mind during the financial section. When we refer to adjusted financial metrics, we refer to adjustments for M&A-related, transformation and share-based compensation costs, as well as results from investments in associates and sale of businesses. The reconciliation to the IFRS basis is available in the presentation on our IR website. All assumptions are based on the Euro-US dollar exchange rate at 1%. Now let us start with revenues on page 10. Revenues came in at the midpoint of the guidance with €831 million, slightly up compared to the first quarter of €848 million. if you adjust the deconsolidation effect of 79 million due to the disposals at the lamps and systems segment. I will comment on the sequential and year-over-year development on the following page. On page 11, we see revenue development for the group by end markets excluding deconsolidation effects, i.e., comparing apples to apples. Quarter and quarter, on the left side, we saw some stabilization and some improvement in all end markets. The decrease in automotive is due to the seasonality in the Lamson system segment, while automotive semiconductors increase quarter on quarter. Looking at the year-on-year comparison, we see almost flat automotive revenues, indicating some normalization of the supply chain in the auto semiconductor segment. Industrial medical continues to be impacted by the weak macro economy. Consumer remains almost stagnant. remains our most challenging end market. Here, the year-on-year comparison reveals a slowdown in consumer spending for personal electronic devices, but also the gradual end-of-life for certain bigger sockets. We re-won and won some new sockets, but there will be a gap, unfortunately, before such wins will contribute. For better understanding the dynamics behind this, let's take a look at the revenue development by end market for the reported sector. And it starts on page 12. The semiconductor segment showed mixed traction across the various end markets. Automotive showed improving book-to-bill after almost two years of erratic behavior and inventory corrections in the wake of the various macroeconomic shocks to the automotive supply chain. Industrial and medical business performed better than in Q1, but showed the typical mixed behavior during the macroeconomic week period with certain applications running well, such as laser welding, where we sell our new blue edge-emitting lasers. Other applications, such as hyper-red LEDs for OTTI, are disappointed and are muted given the elevated energy and project financing costs. This market is really down and will be so for some time, we believe. The consumer business shows signs of improvement with a 90% quarter-on-quarter increase due to higher sales from existing sockets. However, the consumer business remains challenging for the group compared to previous levels a year ago, as some big sockets are approaching end-of-life and will be declining consistently. Due to end-market weakness, price pressure remains high, and the new designs we have won will only kick in in 2024 and 2025. This is particularly true for design wins in smartphones. Their lamps and system segment, shown on slide 13, recorded robust revenues in spite of the typical seasonal decline on the back of strong off-season automotive aftermarket lamps. The specialty lamps for entertainment and industrial applications came in as expected, however, especially lands with semiconductor manufacturing equipment, so a softer traction due to global slowdown in the sector. And if you look at group earnings on page 14, in spite of an essentially flat revenue development quarter on quarter, the adjusted gross margin receded by one percentage point to 28%. This resulted in adjusted gross profit of 237 million Euro in line with expectations. Main reason for this underwhelming performance is the low utilization in high fixed cost manufacturing facilities. 20% obviously is just the average temperature, while we have quite a few business lines that deliver a good 40%, even at that low utilization rate, while other lines are hovering around zero or even negative. This is where portfolio actions are urgently required, as Aldo pointed out earlier. Adjusted EBIT margin of 6% came in at the top end of our guidance range. The better than expected profitability relative to revenues coming in at the midpoint resulted from strict cost control and reducing fixed operating expense. Now, turning attention to page 15, you see the sequential development in adjusted R&D and SG&A. While R&D expenses saw savings of 10 million euro, we could meaningfully trim our SG&A expenses by more than 20 million euro. These savings brought down the adjusted SG&A to revenues ratio by one percentage point, though 11% continues to be too high in my view. Let us now look at the segment performance of semiconductors on page 16. We saw a 10% sequential increase on the back of stabilization in certain consumer and industrial areas, as well as a normalization of the automotive supply chain. Medical business came in strong. With higher revenues, we also saw a return to profitability in the semiconductor sector. continue to be far away from our expectations. Some product lines are simply not delivering sufficient margins and need to be cleaned up. Underutilization and high fixed costs are the second problem. We need more flexible cost structure. And finally, our need costs are high as a percentage of revenue, but are the key for future breakthrough innovations like micro-LED. Switching to page 17, lamps and systems show that softer than usual seasonality, which is good, with a sequential decline in revenues by €50 million on a like-for-like basis. EBIT margin came in at a strong 15%, and the strong profitability is now structural after the disposals of non-performing business and the result of a successful streamlining of the portfolio. Now, let us turn to page 18. It will comment on adjusted net results and earnings per share. The adjusted net result improved significantly to €31 million. A less negative financial result compared to Q1 contributed and is the result of positive FX effects and adjustments due to reduced amount of outstanding Osram Licht AG minority shares. The income tax result was also positive €7 million for the quarter. which is related to several changes, mainly around deferred taxes. This adjusted earnings per share improved significantly to 0.12 Eurocent or 0.12 Swiss francs, reflecting the improved profitability of the court. And let me now comment on cash flow, net debt, and the non-cash impairment in view of the revised group strategy. In slide 19, you see that our operating cash flow significantly improved to 232 million euro, after an already strong 162 million euro in Q1. CapEx came down to 263 million euro compared to the first quarter. The bulk of it went into our industry-first 8-inch LED front and factory in Cullin. Some focused investments in European sites for enabling some structural growth opportunities that Aldo mentioned also contributed to the capex figure. Overall, this still resulted in a negative, but only slightly negative, free cash flow of minus €31 million for the quarter. Let me now comment on the non-cash impairment on Goodwill on page 20. Obviously, in line with IFRS requirements and regulations, we perform impairment testing. For this, the long-term business outlook is the best. We, as the new management, had to take a meaningfully more realistic view in light of the current macroeconomic environment. This revised internal outlook in conjunction with external parameters decreased the fair value of certain Goodwill assets, triggering their impairment charge. This non-cash, one-time impairment charge related to Goodwill came in at 1.3 billion euro. It is entirely related to the semiconductor segment and has no impact on liquidity. And we had to do that. Now, let's look at page 21. Our net debt position increased to 2 billion euro. This development is primarily a result of the significant CAPEX spending, tendered minority shares, and interest payments. This brings our group leverage to 2.9 times net debt to adjusted EBITDA. Our cash position is north of 800 million euro, and we continue to have more than 900 million euro of undrawn multi-year credit lines at our disposal. This includes a fully committed multi-year 800 million euro revolver, which remains undrawn at this point of time. And again, our refinancing considerations are making good progress, though I cannot disclose any additional details today. And with that, let me hand back to Aldo for the audience.