Ams Osram Ag Unsp/Adr

We welcome you to today's call on the second quarter results. Aldo, our CEO, will comment on business and strategy. Rainer, CFO, will focus on financials. We're referring during the call to the earnings call presentation that you find on our website, but there is also a full comprehensive presentation with further details. Aldo, please walk us through the latest results.

Thank you, Juergen, and good morning, everybody. Another solid quarter. Probability is improving. Re-establish the base savings have already reached the 2025 year-end target. Our value sheet leveraging is progressing as planned. And all this against the backdrop of high macroeconomic uncertainties, despite some promising signs in auto and industrial markets. We're on slide three, looking at the financial performance of the group. Revenues came in at €775 million, exactly at the midpoint of the guidance. We saw a single-digit percentage improvement in our semiconductor business. In the automotive lamps aftermarket business, we had a pretty steep inventory correction at our US retailers on top of normal seasonal decline. And the weaker US dollar costs about 35 million euro top line compared to Q2. Year-over-year revenues are down 5%. This is due to the cyclical inventory correction in automotive LEDs. The auto aftermarket lamps inventory correction re-establish the base portfolio effect and the weaker US dollar. If we truly look at a life-for-life comparison based on today's core portfolio at constant currencies, we actually would have grown by about 2% year-over-year. Adjusted EBITDA margin improved quarter-over-quarter and year-over-year by more than 2 percentage points to 18.8%. Higher profitability with lower revenue clearly showed our improved earnings profile thanks to the reestablished base program. To continue, non-refundable engineering payments also helped. Various other effects were supported as well. Among those were building of inventory for the ramp-up in Q3 and Q4 in the sensor products and government funding catch-up payments. Now quickly on the segments. Slide four. A look at the traditional hydrogen lamp business. Sometimes one gets punished for good performance. The pretty steep, much more than normal seasonal step down compared to Q1 is due to an inventory reduction at our U.S. retail chain customers. Our delivery performance has just been so good that they told us that they can live with less inventory on their side. Year over year, you see this effect as well. In live and normal seasonal development, we recorded approximately 40 million euros of specialty lamb sales for industrial and entertainment applications. This is the business that we just sold. We will come to that later. Probability suffered in line with revenue. We saw an adjusted EBITDA margin of 15%, actually in line with fall-through. If you remember, we had positive one-offs in Q1 that pushed EBITDA down beyond the typical run rate. Compare the 29 million euro with 39 million euro a year ago to see that we managed to fall through pretty well. Only 10 million euro impact on EBITDA with approximately 30 million euro less revenue. Now on semis, I'm on slide five, business unit OS. A small recovery in the opto-semis with 2% revenue at quarter over quarter, 344 million euro compared to 336. A moderate, more seasonal improvement in industrial, mainly driven by horticulture, but also slightly improving auto business drove this development. It is more than balancing the negative impact from the weaker US dollar. Adjusted EBITDA jumped by more than 60% quarter over quarter to €79 million, coming in at 23%. To back out some specific effects in Q1, and consider also the typical funding catch-up in Q2, it's pretty much in line with improved factory loading and slightly higher revenue. Now, sensors and ASICs on slide 6. A slight sequential increase of 1% against normal seasonal trends. The majority of CSA businesses in consumer applications, CA smartphones and wearables. Pretty stable due to resilient demand for new products. But to our surprise, already discontinued products also still contributed quite a bit. Slight improvement in demand for industrial and medical products. Complete the picture. Year over year, business grew by 7%, mainly driven by new sensor products, which are more than compensating for the revenue loss from the phased out non-core portfolio. Adjusted EBDA increased to 43 million euro, resulting in an 18% adjusted EBDA margin. Reproduction of sensors for the ramp-up in Q3 and Q4 helped. EBDA is now twice as high as a year ago, showing a structural improvement in profitability, thanks to re-establish the base and better factory loading. Now looking at the semi-end markets in summary, and we are on slide seven now. Sequentially, 2% up. and year-over-year, 2% down. If we exclude the non-core portfolio that we discontinued last year, the semi-core business grew year-on-year by approximately 7% at constant currencies, well in line with our semi-conductor growth factor. First, automotive. The LED inventory direction seems to be coming to an end. We saw solid book-to-bill ratio above 1 throughout the quarter. Consequently, we saw a slight sequential increase in revenue. However, there's still a lot of uncertainty in the supply chain. You still see a lot of short-term ordering, which is regularly below normal lead times. Fulfillment channel inventories are in check, actually a bit down compared to last quarter. Year over year, you still see the impact of the LED inventory correction cycle with revenue down 9%. Second, industrial medical, up sequentially by 21%, a lot of seasonality. But it also seems that the cycle is stabilizing. As always, the picture is much more granular in detail as the verticals we are serving are often completely uncorrelated. Horticulture revenues went up seasonally. Professional lighting saw good traction. On top, we are winning share from competitors that are stepping out. A clear sign that the consolidation in the LED market is gradually happening and we are benefiting from this trend. Demand in digital automation is still muted. It takes some time in view of inventories for our customers until the green shoots in end demand are reaching our order book. In medical, orders picked up. When we look at the channel, Europe and the US did better than before. China was rather muted. Third, consumer. The main business is sensors for smartphones and wearables. We saw the typical seasonal decline. However, year over year, we saw a 15% increase in revenues. Again, our new sensor products more than compensated for the fade out of the non-core portfolio, but we also had still noteworthy orders for discontinued legacy products. Now, let's talk about new business. I'm on slide eight. Winning new business is obviously essential for underpinning our mid-term growth model in CEMIS. I'm actually very happy with the market traction during the first half of this year. We could win again designs with accumulated lifetime value of 2.5 billion euro, similar runway like in the past two years. This member has accumulated a figure of more than 2,000 individual designs that our passionate teams have won. Let me comment on a few ones. In automotive, we strengthened our bread and butter business in classic forward lighting and signaling. The total value in the first half came in with more than 800 million euros. We landed further design wins of our price to buy us 25,000 pixel forward lighting product at Chinese and Korean car makers. We also win continuously new in-cabin designs. Also two examples from INM. Our image sensors will be deployed in night vision applications, and we also won share in North America when it comes to professional lighting. When it comes to consumer devices, we'd like to mention the design win for our extremely precise temperature sensors that will be used for glucose monitoring. Let's flip to slide 9. Isn't that a beautiful car? It's NIO's latest flagship model, the ET9. It comes with all the bells and whistles you expect from a state-of-the-art Chinese premium EV. What distinguishes it even more is the integration of a 25,000 pixel EVIO matrix headlamp and an active communication interface between vehicle, driver, and surroundings. It's advanced functionality, but realized together with our partner Morelli. The I-beam extends the maximum projection distance by more than 100 meters to 500 meters. But what impresses me most is the real-time adaptive beam shaping capabilities that are gradually emerging. It features a tracking light carpet that predicts the vehicle's trajectory or projects, allows for custom light signatures for branding or projection of symbols, and is future-proof as a software-defined lighting system. I believe the true potential of technology is just emerging. Now on to consumer. on slide 10. Strong customer relationships are at the core of our business. As a global leader of optical sensors, we are naturally supplying to all the Chinese smartphone vendors as well. People are very honored by the Best Delivery Award that we received from Oppo for exceptional product quality and impeccable delivery performance. Moving from center to LEDs, I'm on slide 11 now. It has taken us many years, but finally we closed in on our longstanding competitor, And you can consider us now the shares number one in the LED market when looking at the market share rankings from Trendforce. Admittedly, the currency development helped a bit, but nevertheless, it's a testimony of our relentless efforts to bring new products to the market and expand our position with customers worldwide. Our leading position in the most attractive part of the LED market, automotive, is instrumental in driving our global share. I'm personally quite proud of this, especially because I have led Ostrom Opto Semiconductor for many years before it became part of AIM as Ostrom, We have been working towards this number one goal ever since, and now it is within reach. Switching to new products in our traditional business, let's look at slide 12. This is part of our last-man-standing strategy in the traditional automotive lamps business. We're also working on new products for the aftermarket channel. In Spain, for example, it will be legally required to have connected warning lights on board every registered vehicle starting 1st of January 26th. we are providing these emergency lights and we'll be capturing a sizable chunk of this emerging market through our product and brand strength. In case of emergency, you no longer need a warning triangle and through its connectivity, it automatically warms auto traffic in the vicinity. With this, let me also give you an update of reestablish the base, which has been so instrumental in improving and structurally stabilizing our bottom line. Here on slide 13. The implementation works very well. End of June, we already passed the mark that we have set ourselves for the end of 2025. We have approximately 160 million euro of implemented run rate savings by now. The effects are clearly visible in the bottom line. Later since the end of 26, we want to reach 225 million euro of run rate savings. All necessary measures and actions to realize that are identified and are being put in action. Now it is time for more details on the financials and Reiner, please tell us about the latest progress.

Thank you, Aldo. Hello everyone from my side as well. We are on slide 14. Last time we shared our plan to deleverage our balance sheet and get to a net debt to adjusted EBITDA ratio below 2. We talked about the five steps you see on this slide. We are progressing well. We are continuously improving our profitability and free cash flow yield through re-establish the base and growth in the core business. We are ahead of plan with our cost savings. I'll just explain it. Profitability is improving as well, as you can see when you look at our Q3 guidance. Second, no specific news yet when it comes to selling the empty factory in Kulam. We continue to have strongly interested parties, but the process needs patience. Third, as promised, We extended the revolving 800 million Euro credit facility with our banks for having a temporary financing means when large portions of the outstanding Osra minority shares might be tendered in conjunction with the final verdict in the appraisal proceeding. In the meantime, we have also secured a long-term financing until 29 with stepping into the high yield bonds. I will come to that in more detail later. Of course, just two days ago, we announced the sale of our entertainment industrial lighting segment, the first element when it comes to divestments to generate well above 500 million Euro proceeds. To re-emphasize, this is just the first step. The proceeds from this transaction are just a small portion of the entire amount of disposal proceeds that we are targeting. Without being able to go into further detail, the other processes are progressing as planned. After the first four steps are done, we will refinance the 29 maturities at better conditions, bringing us to our goal of interest payments below €100 million per year. Now I want to spend a few words on the business that we sold to Ishiro. Take a look at slide 15. We sold our entertainment and industry relapse business to Ishiro for €140 million. The deal is expected to close in the first quarter of 2016. subject to the usual closing procedures. We hold strong positions in this traditional business. The products range from specialty lamps for infrastructure and cinema applications to extremely sophisticated light sources for semiconductor wafer fabrication equipment. Last year, the business contributed approximately 170 million to the top line of lamps and systems. About 500 employees will transition to the new owner. We're very glad that we have found such a good new home for our employees, as Rishio is a global leader in the field of optical technologies with a complementary portfolio and a long-term commitment to this business. Rishio is headquartered in Tokyo, Japan. With this, it is the right moment to look at our maturity table on slide 16. End of March, we had 511 million euro cash on hand. We had a slightly negative cash flow in Q2 due to inventory pre-production and regular payouts such as annual bonus to employees. We had 57 million euro minority shares tendered in the last six months. We drew 50 million euro off the revolver to cover this, which is more a cosmetic measure to keep the cash on hand balance at around 5 million euro. Technically, we could run the business with less cash. By now, we already paid back the revolver with the proceeds of the tap. Now, let me explain why we tapped in the 29 high-yield bonds last week. Take a brief look at the maturity table at the right. In 26, we need to refinance the 27 convert in addition to the bulk of the outstanding offshore minority shares that will in all likelihood be tendered after the final verdict in the appraisal proceedings. which might happen later this year. Together, there are, let's say, 1.3 to 1.4 billion Euro to be refinanced next year. We plan to reap well above 500 million Euro proceeds from the asset disposals, which will cover a bigger chunk of that refinancing need. Nobody can give us a firm indication how the credit market will look in a year from now, given the persisting uncertainties in the global economy. For this, we decided to use this exceptionally good market window and live with a temporary higher interest burden as a kind of insurance premium for making good use of the current market conditions. About €150 million from the TEP is earmarked for refurging 27 converts subject to market conditions. You can call me conservative for that. This is exactly the way we want to approach our financials, proactive and conservative. By the way, we sold the €500 million at 104%, and we aim at buying back the convertible bond well below par. The demand for our new paper was just overwhelming, which was the reason for upsizing the tap from €300 million to €500 million. It clearly shows the trust of the market in our conservative approach and our turnaround plan overall. Again, we want to thank all investors who supported us so well. So this also means that we have the RCF even on top, which should settle any liquidity concerns that may still persist in some corners of the market once and for all. Moving further down in the maturity table to 29, we have the U.S. dollar and the euro high yield bonds. Now, after the tap, we have 1,025,000,000 in the euro bond and approximately 640,000,000 euro equivalent in the U.S. dollar bond. The upsizing of the U.S. dollar bond was particularly attractive as it increases the liquidity in the bond and makes it a reasonably sized tranche for the bigger U.S. market. The value of the Malaysia sale and leaseback transaction stood at 420 million euro end of Q2. This 9 million euro reduction compared to end of March is again due to a devaluation of the ringgit during the quarter despite the regular quarterly accrual. of part of the lease payment. This brings us to a slightly increased net debt position of just short of €2 billion compared to end of March. The outstanding minority put options amount to the €528 million or 12% of outstanding shares. Minority shares with a value of €42 million were tendered during Q2. Taking cash, RCF, and bilateral lines into account, our available liquidity stood at approximately 1.1 billion euros. And now including the tap into the bonds, we look at a very comfortable over liquidity of 1.6 billion euros. And switching now to slide 17, cash flows. The second quarter operating cash flow came in at 25 million euro inventories went up due to the pre-production for Q3 and Q4 project ramp-ups. We paid out annual bonuses in Q2 as every year. And just for the ones about net interest rate is always included in the definition of operating cash flow. CapEx went down again, only 40 million euro in the second quarter. Q3 and Q4 will each be a bit higher and for the full year, we will land maybe between 6% and 7% of revenues, well below our long-term average ratio of 8%. The 6% to 7% exclude the subsidy catch-up effects from previous years. Summing it all up, we finished the quarter with minus 40 million free cash flow. Some of you might ask how we can stick to our full-year free cash flow guidance of above 100 million euro, especially with higher interest payments from the TAP. Firstly, we certainly had a reasonable buffer at the beginning of the year when we introduced the above 100 million euro guidance. And second, as with all other semiconductor companies, CHIPS Act funding is an important element of the free cash flow. We are still waiting on a significant cash in for the factory extension in Austria. We have received a notification from the EU already a while ago, and the subsidies will be provided by the Austrian government. With those subsidies, including catch-up, our capex in 25 will be more like 4% of revenue, plus minus. Thirdly, we had a kind of windfall from the closure of that decades-long lawsuit regarding misappropriation of trade secrets by a counterparty, which will contribute about $37 million of cash in 25. And now let's switch to slide 18, net earnings and earnings per share. On the left, adjusted figures. The adjusted net result improved year-over-year from minus €1 million to €80 million. Adjusted EPS developed accordingly. Net financing result came in with €40 million. Income tax stood at €10 million. Now, as a rule of thumb, you can always take €50 million to €60 million adjustments per quarter due to transformation costs, depreciation of PPA, and share-based compensation. However, in the second quarter, we had the 37 million windfall profit from the lawsuit, which reduced the adjustment. With that, the IFRS net result came in positive compared to negative 41 million euro a year ago. And diluted earnings per share came in with one euro cent in the second quarter. And with that, let me hand back to Aldo for the summary and outlook.