Ams Osram Ag Unsp/Adr

Ladies and gentlemen, welcome to the conference call and live webcast on the third quarter 2024 results. I'm Alice, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Jürgen Rebbel, head of IR. Please go ahead.

Good morning, everyone. This is Jürgen speaking. I would like to welcome you to our third quarter 2024 earnings call for investors and analysts. With me are Aldo, our CEO, and Rainer, our CFO. Aldo will now comment on business and strategy. Rainer, as usual, will comment on financials. After Aldo's and Rainer's comments, we are happy to answer your questions. During the introduction, they will refer to the earnings call presentation that you find on our website. Aldo, please walk us through the key developments during the third quarter.

Thank you, Juergen, and also good morning from my side to everybody. The last couple of weeks saw a lot of negative news from the automotive industry and many other industrial sectors. Against the backdrop of this, we are actually happy with the solid business performance in the third quarter that we can show. Many did not believe us when we indicated that our strong Q3 guidance already includes some weakness in the automotive semisegment. So let us take a look at slide number two. Q3 group revenues increased quarter over quarter by 8% and came in at 881 million euro, pretty exactly at the midpoint of our guided range. We saw a quarterly increase of 62 million euro compared to the second quarter. The main driver for this is a semiconductor business with ramping new products for consumer handheld devices but also supported by other verticals like horticulture with its seasonal peak. A year ago, we stood at €903 million, looking at the same portfolio. The currency impact is approximately €7 million. Like for like and on a constant currency basis, we were standing at €888 million in Q3, which means that our group revenue decreased slightly by 2% compared to a year ago. Profitability moved up on the back of higher revenues, improved loading of our semi-factories, and the savings for my re-established base program. Adjusted EVTA reached 19% or €166 million after €135 million in the second quarter. It is a much higher than a year ago and a 23% increase compared to a quarter ago. Probability benefited from one-offs like NRE payments which gave us the push above the midpoint of the guidance. Let us now look at the financial performance of the business segments. Lamps and system segments is shown on page number three. The business performed broadly in line with expectations. Revenue stood at 233 million euro, meaning a 4% up quarterly. The automotive lamps aftermarket still had its off-season in July and August, but early signs of seasonal upswing in September drove revenues up. Comparing revenues to a year ago, we have phased out some legacy module business during the third quarter, and traditional business was a step softer. This is the only reason why group revenues were also a bit lower. Looking at the Specialty LEMS business for industrial entertainment applications, we do not see a market recovery yet, but it seems to have found the floor. Revenues hover around 40 million euro for the time being. The adjusted EBITDA came in at 16% or 37 million euro. In absolute terms, it's on a similar level compared to the second quarter. In Q2, we had also benefited from some one-offs like rent, license, income. With entering the lighting season, our markup and selling expenses always go up a few million, impacting profitability this quarter. Turning our attention to the semiconductor segment on slide four. You'll find after semiconductor business on the left-hand side, revenues here improved to 381 million euros. They were driven by the NRE payments for development of novel LED technologies on top of the seasonal peak in horticulture and good professional lighting business. Automotive was down a bit in Q3 in line with the overall market. We are proud of these NRE development contracts as they show the trust of our customers in our technology leadership and long-term roadmap. You'd see revenues compared to 372 million Euro in the second quarter, still a 2% quarter over quarter increase in a difficult market environment with weaker automotive revenues. And these are always advantageous for the profitability as such adjusted EBITDA margin improved to 23.1 up to 22.7 in the previous quarter. In absolute terms, OS recorded €88 million after €84 million in Q2. The NRE-funded technology projects are also reducing the transformation cost for adjusting the micro-LD strategy significantly, as we're reducing fewer people in R&D. On the right-hand side, you see the financial performance of our semiconductor segment, CMOS sensors and ASICs. Revenue jumped quarter-over-quarter by €42 million, or 90%, and came in at €266 million compared to €224 million in the second quarter. The uptake is primarily driven by the ramp of new sensor products for consumer handheld devices, and also a decent overall product sales into consumer device applications. Some of our industrial and medical business, however, continue to stabilize on a low level, as automotive sensors, where we serve some niches, sold well. Adjusted TBDA for CSA, more than doubled to €48 million, or 18% adjusted EBITDA margin. Here you see the effects of higher revenue, lower underutilization, and the structural savings from a reestablished base program. Let us now switch to slide number five, looking at the dynamics of the semi-end markets in detail. On the very left, you see the revenues of both semiconductor segments combined for comparison purposes. At face value, revenues are essentially flat year over year. However, if we really look a bit deeper at the performance of the core portfolio, we can see actually some year-over-year growth in the mid-single-digit percentage range. In 2023, when reestablished debates were defined, about €350 million need to be excluded, and this year, an estimated €200 million non-core revenues are still part of the semi-business. Automotive revenues came in as expected. They were 7% lower than in the second quarter, reflecting the known weakness and uncertainty in automotive end markets, and a 10% year-over-year decline for the same cyclical reasons. No changes in the fundamental dynamics in industrial end markets. Revenue remains flat quarter over quarter. Again, in detail, the picture is a bit more diverse. On the positive side, professional lighting was doing reasonably well. Horticulture grew to its seasonal peak based on strong design, which was from earlier this year. On the negative, There's no light at the end of the tunnel when it comes to the inventory correction in the capital goods and medical equipment market. Consequently, revenues are lower in a year-over-year comparison. Looking at the business with product for consumer devices on the very right, already mentioned, our new products ramped up as planned. Furthermore, our classic product for the smartphones and wearables market also sold well. Again, we are benefiting from our leading market position in spectral sensing. In total, we record a 45% jump in revenues quarter over quarter. With the ramp of the new products, we could finally switch gears back to structural growth in a year-over-year comparison, and we see a 24% increase. Switching to slide number six now. Besides technology leadership, deep customer relationships are key. Over the last couple of months, we managed to deepen and intensify those with some of our key customers. This resulted in the already mentioned Anna Reefbender Technology Development Contracts, but it also contributed to the unabated design win momentum during the third quarter, despite cyclical weaknesses from markets. Year-to-date, our design mentality stands at €3.5 billion, measured in project lifetime value. Let me walk you through some examples. First, automotive, looking at plastic forward lighting, LED-based products and applications, are bread and butter business. We could lend significant new design wins, more than €150 million a year. Second, our high precision temperature and precision sensing products found great traction in the market, just like in the second quarter. More than 50 million euros of design wins were recorded, addressing both automotive and medical applications. Third, professional lighting. We are not only happy with the good momentum in the overall very difficult industrial market, but also with a new business we can win. More than 75 million euro lifetime wins during the quarter will contribute to the mid-digit percent structural growth ambitions over the coming years. Last but not least, we continue to win meaningful design sockets for ambient light sensors and proximity sensing across the market as a clear leader in that space. Looking at the Android space, more than 50 million Euro design wins in this quarter. This means both renewing of existing sockets with model facelifts, as well as winning new sockets on new models. Let's now switch to slide seven. We often talk about the blockbuster design wins. However, most of our design wins are spread across our entire portfolio. And as such, I want to share a few more details on one of the applications that is often a bit in the shadows. We are speaking of professional lighting applications, and here we serve six out of the top eight professional lighting OEMs. They appreciate our performance and quality value proposition. Our high performance LEDs light up streets, sport arenas, but also office buildings and factory premises. Even now, we are enjoying a good book to build above one and expect mid-single-digit CAGR over the next years contributing to our mid-term structural growth model. Our key strategic initiative is the re-establish a base program, as you all know, looking at now at slide eight. End of the second quarter, our realized run rate savings stood at 60 million euro. This quarter, I'm happy to report that we are progressing faster with implementing the measures than initially planned. End of tier three, we have already realized 85 million euro structural run rate savings, and that is clearly ahead of the plan. You will remember that we set the target structural run rate savings of around 75 million euro by the end of 24, and over 150 million euros by the end of 25. Fall through into results is again evident in the strongly improving EBITDA, especially in the CSA business. Again, one cannot assume a full fall through of the saving measures through the procurement bottom line, as you always have adverse effects from inflation, triggered cost increases, fluctuating price declines, merit increases, and others. In terms of the non-core portfolio cleanup, we said we will deal with the remaining 200 million euro non-core business that are still part of this year's revenues until the end of the year. Assume that we are going to exit them via accelerated end-of-life schemes. Now let us move to slide number nine. You'll hear from all sides of the market, customers and customers and peers, that visibility is getting rather worse than better. On top, the uncertainty about the timing of cyclical recovery in key markets is increasing. For example, we currently see much shorter-term ordering in automotive. Looking at some of our industrial medical markets, there's simply no sign of timely recovery yet. However, we want to sustain our trajectory towards industry benchmarks while we continue to invest into differentiating technologies and products for future growth. For this, we decided to step up and extend our strategic efficiency program by another 75 million euro run rate savings. To be effective by the end of 2026, the initiatives will primarily address overhead and corporate structures, as well as R&D footprint. This will affect additionally more than 500 employees globally, with the majority in Germany. About a third of the effective functions will be relocated to best-class countries. Upsizing of the reestablished base will cost approximately €40 million of additional transformation costs, most of which will be due next fiscal year. Let me now comment on the adjustment of our micro LED strategy. I'm on slide 10. We are near completion of adjusting the relevant R&D. We were able to redeploy some key resources to core automotive development, like the high pixelated forward lighting. We also filled some gaps in our core bread and butter business to accelerate roadmaps. And, as I mentioned earlier, could also reallocate a number of engineers to the NRE-based programs for development of novel technologies that may or may not lead to products in a few years. A very good solution as we keep optionality for potential websites in the future. With this, we can also minimize the transformation costs related to micro-LED. And, of course, we had to release not only R&D, but also factory personnel, still in meaningful numbers as the consequence of the micro-edity change. When it comes to the future use of the 8-inch factory, we had to learn that patience is a virtue. The process of working with interested parties that would take over the facility has been strongly influenced by the semiconductor cycle. Despite principal strategic interest, everybody is scaling back investment and reducing short-term outlooks. We will need more time until somebody takes over the facility. The process is certainly continuing with full effort. However, as many of you told us, maximizing the value out of the facility is more important than timing, and we have to agree to you. Every year we complete our yearly strategic planning cycle after the summer, and today we want to give you an update on some of the results on slide number 11. We are nearing the completion of exiting the non-core semiconductor portfolio, as mentioned earlier. We think it's time to sharpen the view on structural growth of the underlying core portfolio. For this, we now base our mid-term target operating model, the core semiconductor business. Taking the current macro environment and its semiconductor cycle into account, we plan to grow our semi-business with 6% to 10% CAGR over the next three years until 2027. Without a doubt, the launchpad for this Are this year's semiconductor revenues excluding the 200 million euro non-core revenues that we spoke about before, that we will mostly exit by an accelerated end of life until end of this year? The lamps and system business is expected to be slightly down or flat. It's primarily driven by the aftermarket for traditional halogen lamps and auto. As you know, we are pursuing a last-man-standing strategy that means that we're primarily managing this business for cash flow and EBITDA. When we're looking at capex and with working very hard on our plans, including capital efficiency measures, we now plan to achieve an 8% capex-to-sales ratio over the cycle. This figure includes, as before, investment in PP&E and capitalized R&D reduced by capital grants. With this, let us look at the updated profitability trajectory. Our maximum focus lies on cash generation going forward. With this in mind, we think EBITDA is a more appropriate benchmark for profitability. The key levers driving the group profitability improvements remain unchanged. First, structural savings from the now-upsized re-established base program. Second, ramble of new product and design wins. Third, the marketing. Of course, we are subject to the semiconductor cycle and a recovery in key markets. The recovery in the capital goods market and other industrial and medical markets is not yet in sight. At the same time, automotive is entering a phase of uncertainty, which means that we may need some patience until H2 next year before we see structural growth year over year again in auto, although content per vehicle continues to rise. Altogether, we now expect between 20% and 24% EBDA in 2027. Bear in mind that this target corridor now assumes an 8% capital to sales ratio when it comes to understanding the DA portion in it. If you do the math, we are adjusting 26 to a level that sell-side analysts had modeled all along, if you look at the consensus figures. As said, it's the third driver, market security, that is driving the adaption. The underlying structural profitability potential of our business is unchanged. Our aspiration to achieve positive free cash flow, including net interest paid as soon as possible, is certainly unchanged. We plan this for 2025. With this, I hand over to Rainer, who will provide you with some more details on liquidity, cash flow, and financials in general.