Ams Osram Ag Unsp/Adr

Good morning. This is Juergen speaking. I would like to welcome you to our second quarter 2024 earnings call for investors and analysts. With me are Aldo Camper, CEO, and Rainer Early, CFO. Aldo will comment on business and strategy. Rainer will comment on financials. After our introductory remarks, we are happy to answer your questions. Aldo and Rainer will refer to the earnings call presentation that you find on our website. For further information, we also provide a full slide deck that you can find on the website as well. Aldo, please share with us your thoughts on second quarter business and strategy development.

Thank you, Juergen, and good morning to everyone from my side as well. We are happy with our solid results in the second quarter in an environment in which uncertainties are increasing. Let us take a look at slide number two. Q2 group revenues decreased slightly as guided. quarter-over-quarter and came in at 890 million euro, a 28 million euro seasonal decline compared to the first quarter. We landed at the mid-pond of our guided range. The seasonality is entirely due to the lamps and systems business, as the semiconductor business actually upped 3 percent quarter-over-quarter. We come to details later. Comparing year-over-year on a like-for-like basis, we stood at 839 million euro, excluding divestment in the lamps and systems segment. The currency impact then at around 2 million euro. like for like, and on a constant currency basis, our revenue therefore slightly decreased by 3% year over year. Despite seasonally lower revenues, we improved our profitability. Adjusted EBITDA came in at 16.5%, or 135 million euro, after 124 million euro in the first quarter. Adjusted EBITDA landed almost at the top end of our guided range. That is 9% higher than in the first quarter. We see the effect of better factory loading and materializing structural savings when we reestablish the base program. On top, some tailwind from IPCC funding catch-ups also helped. On the other hand, within that number, there's also a seasonal reduction from LEMS and systems. For comparison, you see a chart of adjusted EBIT on the right-hand side. The adjusted EBIT margin came in at 6.8% after 5.2% in the first quarter. In actual terms, adjusted EBIT stood at €12 million higher than in Q1, namely at €56 million, an increase of 28%. Let's now look at the financial performance of the business segments. The lamp and system segment is shown on page number 3. The business continued to perform well in line with the expected seasonality. Revenues stood at €233 million, resulting in a 17% quarter-over-quarter seasonal decline. As I explained in previous calls, Q4 and Q1 are always the strong quarters in the year, as most land replacements happen during wintertime in the US and Europe. The second quarter is always the softest quarter in the yearly aftermarket business cycle. We expect aftermarket sales to pick up again in September. The specialty land business for industrial and entertainment applications, however, remained at a low level of around €40 million. They're still high inventories, especially at our semi-equipment customers. The adjusted EBITDA margin for the segment stood at 17.6% or €39 million in absolute terms. This compares to 22%, 22.5% in the first quarter, or €60 million. Besides the decline from seasonality, we had some positive one-time inventory revaluation in Q1, which exaggerates a bit the quarter-over-quarter contractions. Turning our attention to the semiconductor segment now on slide 4. You find the opto-semiconductor business, always in brief, on the left-hand side. This is our semiconductor business with emitters, that is, LEDs and lasers. Revenues improved to €372 million, driven by automotive and some application industrial, such as horticulture and professional lighting. This compares to €345 million in the first quarter, an 8% quarter-over-quarter increase. Adjusted EBDA increased by €17 million to €84 million. This makes an adjusted EBDA margin of around 23% after 19% in the first quarter. You see the effect of higher loading here. However, high research and development expenses still weigh on profitability, though we have fully adjusted the micro-edity strategy along the lines outlined last time. NIPC funding catch-up impact also gave some tilt. On the right-hand side, you see the financial performance of our semiconductor segment CMOS sensors and ASICs, or CSA in short. Revenues declined quarter-over-quarter by €9 million, and stood at €224 million compared to €233 million in the first quarter. While some industrial business stabilized on a low level and sensor Android-based smartphones were in high demand, some legacy sockets for consumer handheld devices continued their ramp down, leading to the quarter-over-quarter reduction. Adjusted EBITDA for CSA more than quadrupled to €21 million, or 9% adjusted EBITDA margin. Whilst the utilization charges from weak industrial medical business are still high, you also see the structural savings from our reestablished base program taking gradual effect, shown here on the right track. Let us switch to slide number five, looking at the dynamics in the end markets in detail. On the very left, you see the revenues of both semiconductor segments combined for comparison purposes. Year over year, revenues reduced slightly by 1%, which is purely a consequence of the non-core portfolio, which still blurs the numbers and is in some parts declining due to ramp-downs of some legacy consumer designs. Automotive revenues came in still strong despite increasing clouds on the horizon, as you hear from all corners of the industry now. Our content for vehicle expansion continues, and we could again show structural growth, especially in our emitter business, which ended up with a 6% year-over-year growth. Overall, industrial and market remain weak for the time being. However, in detail, the picture is more diverse. On the positive, professional lighting saw relatively solid demand. Horticultural grew nicely based on design wins. Having the best product in the market always helps. On top, our new blue laser diode for material treatment sold even better than planned. On the negative side, we see no end yet to the inventory correction when it comes to capital goods and medical markets. Likewise, the mass market in Europe does not seem to rebound. Mass markets in China and the US are doing, relatively speaking, fine in contrast. But overall, the mood in the industrial market is pretty muted. Consumer business continues to improve compared to a year ago. when it comes to sensor products for Android smartphones. We had a very strong quarter here. We are benefiting from our leading market position in spectral sensing. However, the overall year-over-year and quarter-over-quarter decline is a result of legacy designs gradually approaching the end of their lifecycle. Switching now to slide number six. In line with our solid operational performance in the second quarter, we also continue to be very successful in securing new business to support our mid- to long-term structural growth ambitions. First, we need to speak again about our blockbuster product Evios. A 25,000 pixel forward lighting solution is a feature hardly anyone wants to miss, and consequently more than 100 million euros of lifetime value in terms of new winds were added. We will look at Evios in some more detail on the next slide. Second, our high precision temperature and position sensing products can convince more and more customers, and we can mention 50 million euro of design wins, showing again that our content per vehicle expansion is broad-based. Third, while suffering from inventory corrections, our differentiated technology for sensor interface in industrial space is helping customers designing better products. We could win designs of accumulated €100 million during the quarter. The key win relates to an HVAC application worth more than half of that cumulative number. Fourth, professional lighting. The segment was one of the few areas industrially that did well. We could also win significant new business worth more than €100 million over a lifetime. Last but not least, our leading position in ambient light sensing and proximity sensing in the Android space is continuously being reinforced. We saw around 100 million design years in Q2. Our sensor technology makes photos taken by smartphones simply better, more natural, as confirmed again by the latest DxO ranking. We feature in almost every premium smartphone in the market. I would like to share a few more details about the ramp-up of our market-leading eVaios forward lighting solution. We are now on slide number seven. As publicly known, the first adopter was the Volkswagen brand with its two models, Touareg and the Tiguan. In 2024, we're now in full ramp with further car models. We're very happy that E-Vios ramps both in Europe and in China. In China, leading EVs will be equipped with E-Vios. As we go along, more and more models will ramp, being a key element of our structural growth path in automotive. On the right-hand side, you see the latest market estimate for adaptive matrix LED headlights. Do not be confused by the terms mini and micro LED, as they basically designate the path towards smaller pixel dimensions. However, it is not to be confused with the super small pixel that we have been pursuing with our cornerstone project for novel displays. Of course, the smaller the pixel gets, the trickier the physical effects are. For this, we decided to redeploy some of our display micro LED resources to the high pixelated automotive headlamp development. Looking at the market forecast, By trend force, you can see why we believe this is a beneficial investment. The market for advanced high pixelated LED solutions is expected to grow to €1 billion by 2028. And we have the best starting position with having won the majority of assisting designs. Again, this is exemplified by more than €450 million of design wins. We believe this is just the beginning, and for this we redeployed the resources from the previous micro LED display project. Let us dwell a little longer in the automotive segment, turning to slide 8 here. I reported about our design interaction with our laser diodes and LiDAR modules not long ago. It's another example of our content per vehicle expansion across the board when it comes to optoelectronics in cars. It's an important team-up with the leaders in emerging technologies. For this, we are very proud of being recognized by RoboSense, a leading Chinese tier in the LiDAR space, as one of the key partners. Focus and slider solutions feature already 25 vehicles on the road, and their design wind tally stands at 65 models. In a few years, the laser diode market for automotive lidar should grow above €100 million annually. Let us switch now to slide number 9. Last year, we could record a total design wind volume of more than €5 billion lifetime value. We talked about this early February when announcing the VU 2023 figures. We are on track to repeat this outstanding achievement. With a strong acceleration in the second quarter, our year-to-date design wins for the first half of 2024 stand at around 2.5 billion euros. Design wins are across the board, but by nature with an overweight to automotive. This design win base clearly underpins our future growth ambitions. So far, we have been talking about improving the top line. Now let us switch to the view towards the bottom line. And now on slide 10. Exactly a year ago, we announced our strategic efficiency program, re-established the base. We said that most of our product lines are structurally healthy, but the overall performance is hampered by non-core businesses, primarily in some consumer applications. We also said that we target structural run rate savings of about €75 million by the end of 2024 and of around €150 million at the end of 2025. Today, one year later, I'm glad to report that we're fully on track with the program when it comes to the realization of those savings. To date, we've already realized about €60 million structural cost savings. The fall through in the results is also evident by the strongly improving EBITDA in the business unit CSA. In terms of non-core portfolio cleanup, we have addressed the most burning issues, that is the passive optical components and the CMOS image sensor business. As announced, the key assets of the passive optical component business are being sold to Focus Light for about €45 million in cash. We expect the deal to close in the third quarter. And as communicated three months ago, we are restructuring the CMOS image sensor business to a profitable core in primary medical applications. Key adjustment of the structure, especially in the U.S., are already implemented. The remaining 200 million euros or so for non-core businesses are being dealt with in the coming quarters. Various solutions for the promised exit are on the table, and we're assessing which option will be the best given the various boundary conditions we have. For clarity, this means that our starting base for our mid-term operating growth model in 2023 is around €3.15 billion. This is the level we measure ourselves against when it comes to the growth of the core business. As we mentioned regularly, our mid-term target operating model has three elements for improving profitability towards the target level. First, we establish a base, which we just talked about. Second, the ramp of new products and design wins. We've talked about the example of your BIOS as a key element earlier. And third, overall market normalization or market recovery, if you think of industrial and medical end markets, or the overall impact of car units being built. Let me also comment on the adjustment of our microalgae strategy that we laid out three months ago. With regards to development activities, we have terminated no longer needed contract workers. We've also strengthened the core automotive development in high pixelated forward lighting by the transfer of key employees. The reduction of factory personnel has started as well. With regards to the HH factory, we have said that this is a process that will take some time, despite the significant interest we had immediately received. The process started, the interested parties will be handing in their bids, and we are on our anticipated timeline. And with this overview, I now hand over to Reiner to provide you with some more details on liquidity, cash flow, and financials in general.

Yeah, thank you, Aldo. Welcome, everybody. And we are on page 11. Operating cash flow came in again at 55 million euros, as you can see in the chart on the left. Just as a reminder, in line with the market practice, net interest payments are now included in the definition of operating cash flow, and thus also in free cash flow. The payments of 50 million of interest due got pushed into the second quarter as the due date fell on a bank holiday end of March. As such, Q1 operating cash flow was higher and Q2 lower than according to the underlying business. The next chart to the right shows cash flows related to CapEx. It stood at minus 176 million euro, around 90 million euro lower than a year ago. Now, this 176 also includes the payment for a lot of construction bills that we received still late last year with long payment terms that we paid now. It is obviously still elevated compared to our 10% capex-to-cells target as it contains a meaningful amount of micro-LED-related equipment or construction. It was not always possible to cancel those machines, but we did renegotiate successfully in many instances, which brings our total transformation cost down to the current estimate of €680 million, a bit lower than the €700 million we set before, including the significant impairment. inflows from divestments were negligible in Q2. The next meaningful inflow will be from the sale of assets of the passive optical components business to focus light. We expect the transaction to close in the third quarter. As a result, pre-cash flow, including the interest payments, came in with minus 190 million euro, making it the worst quarter of the year. It will become significantly better in the second half with lower capex and higher operating cash flow from higher revenues. Now, coming to slide 12. We had 900 million euro cash on hand end of Q2, a reduction by 176 million euro compared to end of March. In Q2, we paid the dividend to the minority investors of Oslo and Liecht AG, and as I said, that was the carryover effect from last year. We also paid back a 100 million euro maturing bilateral loan end of June, while drawing another one to replace it. We expect liquidity to rather go up than down in the second half of the year. Bilateral bank facilities, including promissory notes, amount to 346 million euro, this light reduction compared to end of March. Of those, we have already paid back the maturing promissory notes of 51 million euro early July. It indicated that when we spoke last time. There are no changes in the maturity profile relating to the 25 or 27 converts, nor to the 29 senior unsecured notes. The sale on Leaseback in Malaysia stood at €401 million. That's always a bit of quarter-to-quarter increase from the quarterly accrual of the catch-up interest payment at maturity. Technically, according to IFS, it's not that, but I think you would agree with us that we consider it as debt internally. We are working on the exit of the CERN leaseback in close alignment with the investors for transferring it to a new lessee as part of the divestment. A process that is well on track but takes some time, as Aldo explained. That would take away the 400 million euro debt-like liability, strengthening our balance sheet and reduce leverage. it would also take away the 35 million Euro interest expense each year. For completeness, the outstanding minority put options amount to 605 million Euro of 14 percent of shares outstanding. In Q2, put options worth around 5 million Euro were executed. We have the revolving credit facility of 800 million Euro, which is in principle reserved for the unlikely event of a more by kind of exercise of the minority options. We believe that scenario is unlikely, but it's still kind of the headroom in the revolvers, $200 million on top of that. And also, we have another $106 million of undrawn bilateral bank facilities. In summary, we continue to stand with a strong available liquidity of $1.8 billion at the end of the same quarter. On the right, you find the familiar maturity table of our outstanding debtors. And now on page 13, looking at gross profit and OPEX. Adjusted gross profit came in at 244 million euro in the second quarter, two million euro higher than in Q1. Adjusted gross margins stood at almost 30%, more than 1.5% higher than in Q1. The cost improvements from re-established to base, particularly in the business units, CSA are clearly visible. The adjusted R&D expenses decreased by 12 percent quarter-over-quarter to 100 million euro from 140 million in Q1. Now, there is a catch-up payment of IPSE funding in there that is positive, but also with the end of that micro-LED project, the capitalization of R&D has come down, which is kind of negative. Adjusted SG&A expenses came in essentially flat at 94 million euro in the second quarter. Now on page 14, the net financing result in the first quarter stood at minus 55 million euro compared to the second compared to the 57 million euro in Q1. No material changes here. Adjusted net results came in at minus 1 million euro and the back on only 2 million euro tax expenses. For the entire year 24, you can assume around 50 million euro net tax expenses for modeling purposes. As such, you need to see the first and second quarter together adding to around 23 million euro tax expenses. Consequently, the adjusted diluted earnings per share came in at zero euro cents, significantly above the minus four euro cents in the last quarter. The clean alpha ads reported net result was minus 41 million euro in Q2, resulting in minus four euro cents per share in Q3. And now let's take a look at page 15. Q3, we expect the beginning of the seasonal rebound in the auto lamps aftermarket business. In semiconductors, we expect the amount of automotive products to weaken in line with the reduced car unit forecast by HS. However, we will see a good revenue contribution from ramping new sensor products for smartphone applications. We also see an uptick in the horticulture business. The inventory corrections in some industrial and medical markets will continue. In summary, the revenues are expected to come in between 830 and 930 million euros. On the back of stronger sales and progressing implementation of a re-established base program, we expect the adjusted EBITDA to improve quite a bit, coming in between 17% and 20% in the third quarter. Thereby, we assume a euro-to-US dollar exchange rate of 110%. Looking at the remainder of 24 as a whole, the targeted 75 million euro front-rate savings from real estate with the base are on track. When it comes to CapEx for the full year, the guidance was 450 million euro last quarter, and that included the carryover effect and so on. But we might end up a bit higher, 500 to 550 million euro, as we have included some capital grants, some significant capital grants to come in end of this year, and they might slip into next year, which is just a timing effect. And then if it comes in higher this year, then obviously the 25 capex would be lower by that same amount. With spring cash flow now standing at minus 179 million euro in the first six months, it will be certainly much stronger in the second half as we continue to target positive pre-cash flow excluding interest payments this year. And with that outlook and the summary, I would hand back to Aldo.