Ams Osram Ag Unsp/Adr

Ladies and gentlemen, welcome to the conference call on third quarter 2025 results. I am Matilde, the course 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. Webcast viewers may submit their questions in writing via the related field. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Juergen Rebel, Head of Investor Relations. Please go ahead.

Good morning, everyone. This is Juergen speaking. We welcome you to today's call on third quarter results of fiscal year 2025. Aldo, our CEO, will comment on business and strategy. Rainer, our CFO, will focus on financials. We are referring to the Q3 earnings call presentation that you can find on our website. There, you'll also find further material such as the full comprehensive IR presentation. Aldo, please let us have your thoughts on Q3.

Thank you, Jurgen, and good morning also from my side. Overall, I would say a good quarter. Our strategic focus is paying off. We delivered strong cash flow and significant growth in the core portfolio on a like-for-like basis. Profitability was better than the previous quarter, also supported by a one-off. Re-establish the base savings continue to be ahead of plan. And I'm now on page three, looking at the financial performance of the group. Revenues came in at 853 million euro, above the midpoint of the guidance. We saw almost double-digit percentage improvement in our semiconductor business. In the outdoor lamps aftermarket business, we had double-digit seasonal upswing. The weaker US dollar cost us 20 million euro top line compared to the previous quarter. Year-over-year revenues are down a bit with 3%. This is entirely due to the weaker US dollar. Note the 7 cents difference in the average US euro-US dollar exchange rate, which equals approximately 35 million euro top line. If we truly look at the like-for-like comparison based on today's core portfolio at constant currencies, we have grown by about 6% year-over-year. This includes the traditional outer lamps business. The semiconductor core business, against which we measure our growth, grew approximately 9% on a comparable basis, a really good result in the current market conditions. It clearly shows that our portfolio choices are paying off. Profitability. Adjusted EBDA margin improved quarter over quarter and year over year by almost one percentage point to 19.5%. In Euro terms, adjusted EBDA improved by 21 million Euro. Within that number, we have a profit of a bit more than 10 million Euro from the sale of some manufacturing assets in a Singapore production facility. Now, quickly on the segments. Page 4, a look at the traditional hydrogen lamp business, a classic seasonal upswing. We saw a steep 13% quarter-over-quarter increase in revenues driven by the aftermarket season. The darker months in the Northern Hemisphere make drivers replace their broken lights in their cars more frequently. Nothing particular to report on specialty lamps for industrial entertainment applications. The business remained at a similar level as last quarter, with approximately €40 million of revenues. We sold this business segment to Ushio as part of our accelerated deleveraging plan, as we communicated last quarter. Closing is expected around end of first quarter 26. Adjusted EBITDA stayed almost flat. Why? If revenues were up almost €25 million, the gross profit fall-through from higher volume was evened up by a meaningful reduction of inventories. Now on semis. I'm on slide 5, first business unit OS. A sequential increase in OptoSemis with 6% revenue improvement, €365 million compared to €344 in the previous quarter. The increase was mainly driven by automotive, but also by the seasonal peak of the horticulture business. The upswing could have been higher if it wasn't for the negative impact on the top line of the weaker US dollar. Coming to profitability, adjusted EBITDA improved by €3 million to €82 million. At first glance, you might have expected a higher fall through from 20 million more top line. However, the increase was balanced also here by inventory reductions and the absence of one-time effects that were supportive in Q2, such as IPSE funding catch-up. In the end, adjusted EBITDA margins stayed almost flat at 22.6%. Now, sensors and ASICs on slide six, an encouraging seasonal jump in revenues by 13% to 271 million euros. Consumer products were in high demand. Android business was okay. Products we basically discontinued still saw some further orders that lived longer as often. Little changes in demand for industrial and medical products. Year over year, business grew by 2%, mainly driven by the new sensor products, which are more than compensating for the revenue loss from the phased-out non-core portfolio and the top-line impact from the weaker US dollar. Adjusted EBITDA jumped to 64 million euro. However, I mentioned earlier that more than 10 million euro win-for-profit from selling manufacturing equipment was included there. Now, looking at the semi-end market in summary, and we are on slide 7 here. Sequentially, 9% up, and year-over-year, 2% down. If we exclude the non-core portfolio that we discontinued last year, the semi-core business grew by 9%, year-on-year at constant currencies, well in line with our semiconductor growth model and higher than last quarter. First, automotive. LED inventory correction has ended, but no significant restocking in sight. We even hear of some customers who want to reduce their inventory reach even further. Book-to-bill hovered around one throughout the quarter. Nevertheless, we saw a slight sequential increase in revenues of 4%. The uncertainty in the supply chain persists, we see a lot of short-term ordering, which is now often below normal lead times. Fulfillment channel inventories went further down. We are now between seven and eight weeks in the old days. Eight to ten weeks were considered healthy and normal. Second, industrial and medical. In line with the slow recovery of the overall market, we saw a sequential improvement of 2%. However, we're still below last year's level, and ignoring the weaker US dollar, maybe roughly at the same level. As always, we have to look at the verticals individually. Horticulture revenues at the seasonal peak. Professional lighting unchanged. The amount of initial automation is improving only gradually. Same is true for medical. When we look at the channel, same picture as last quarter. Europe and US, relatively stronger than China. Third, consumer. A steep seasonal increase of 22% compared to Q2. Our main business is sensors for smartphones and wearables. Year over year, we see the impact of the weaker USD. A slight decline is entirely due to ethics. Business-wise, our new sensor products more than compensate for the phased out of our products. Now let's talk about future business. I'm on slide eight. Design wins are underpinning our mid-term growth model incentives. Traction in the market continues unabated in the third quarter. We are well on track reaching again accumulated lifetime value of 5 billion euro of new business for the full calendar year. We landed about 800 projects in the September quarter across all verticals. This pushes the total to already 4 billion for the first nine months. A few wins that we are very proud of are sticking out. First, in automotive. With our industry-leading intelligent RGBI interior lighting solutions, we secured another design win at the leading Chinese OEM. And on top of that, also a large design win for a prestigious car platform at the European Premium OEM. Second, consumer. Our spectral and proximity sensors are the best you can get. This once again convinced leading customers the design wins are worth a couple of hundred million euros. With that, let us look at some of our recent advances when it comes to differentiating technology platforms. Now on slide nine. We do spend a lot of R&D money as we continue to believe in exciting growth opportunities. One part of our R&D is dedicated to mastering the cost pressure in more established technologies by creating cost performance optimized platforms. The other part of R&D is focused on differentiating technologies, especially for new applications that might see a growth inflection in the future. We're also making sure that our customers benefit from an appropriate IP safety for those innovations. For this, we signed a comprehensive cross-license agreement with Nijia, covering thousands of patents-protected innovations in LED and laser technologies. The new agreement also covers sophisticated LED packages and also includes metric headlamps, as an example. As such, we are the right partner for our customers, holding a truly unique IP position in the industry. On slide 9, you get an impression of our leadership in infrared emitter technologies that are used in a multitude of applications. We are speaking of Algas material systems that provide LED and laser light between 808 and 1103 nanometers, just beyond what the human eye can see, the so-called near infrared. Our LEDs boast industry-leading wall plug efficiency and red glow suppression. Our laser diodes pose industry-leading efficiency in optical output power. Together with high-quality, cost-effective standard packages, these components are ideally suited for a multitude of applications that deliver or raise today a revenue contribution in the triple-digit million territory. See the infrared LEDs in the car for in-cabin sensing, in consumer applications, or in drones, among many others. Our lasers are fairly established in material treatment and LiDAR, but these properties also make them ideally suited for future defense applications, such as drone defense, or even for more visionary applications one day, like nuclear fusion, laser-based nuclear fusion, a technology that could harness the energy generation process of our sun. We think there's much more to come here on this technology platform. Now let's switch to the sensor side of things on slide 10. We recently introduced the industry-leading two-dimensional direct time-of-flight sensor platform. Why direct? The sensor measures the time a photon travels from the object and back and calculates the distance. Pretty fancy. I'm very proud of our engineers who delivered industry-leading sensors that feature twice the frame rate at the same resolution as competitor devices, or twice the resolution at the same frame rate, whatever you need in your application. You can use this performance for gesture and object recognition, but also for 3D distance measurement. It also enables edge AI sensing applications, for example in smartphones. You see the principle in the lower left corner. When an image is enhanced with the 3D dimensional depth information from the sensor, you can place objects such as furniture in an environment, completely virtually. Just to give you an example here. We see applications for this sensor technology not only in smartphones, but also in building automation, home appliances, robot drones, consumer electronics, you name it. Completing our technology product tour this quarter, I'm on slide 11 now, we have the leading spectral sensing platform in the industry. Here you'll see Honor's latest flagship model, the Magic 8. A high-end premium smartphone with four cameras on the world-facing side, our sensors allow for eye fatigue protection and professional grade color accuracy for an enhanced user experience. With this, let us move to bottom line products. We established the base, continues to be a great success as it has been so instrumental in mastering many of the headwinds to our bottom line, especially when it comes to gold price this year. We're on slide 12 here. By the end of September, we have pocketed approximately €185 million of the implemented run rate savings. Another €25 million during the last quarter alone. Now, it's time for more details on the financials, and Rainer, please tell us about the latest progress.

Thank you, Aldo. Hello, everyone, from my side as well. Let us look at the balance sheet first. With the private placement of an additional €500 million in US dollar and euro senior notes, We increased our cash on hand position to a 979 million euro end of September. And end of October, we're even above a billion. After the tap in July, we have approximately 651 million euro equivalent of the US dollar bond and 1 billion 30 million in the euro bond. Those are due on March 29th. Last quarter, we got some questions about why we tapped at the particular moment. If you look at the leverage finance market in the last couple of weeks, it turns out that our timing was pretty good. Momentarily, conditions are certainly less favorable. No news on the Malaysia seal and lease-back transaction yet. We continue to talk to interested parties, but we are not yet on the final approach. The value stood almost unchanged at €422 million end of September. This brings us to an almost unchanged net debt position of €2 billion compared to end of June. Having just mentioned the sale and leaseback, we certainly continue full steam in negotiating the indicated asset disposals on top of the sale of the entertainment and special year lamps that we announced in July to ensure realized proceeds well above 500 million euro. We are fully on track. Minority shares with the value of only 11 million euro were tendered during the summer months. Consequently, the outstanding minority put options stood at €570 million at 12%, outstanding at the end of Q3. Taking cash, the revolver, and bilateral lines into account, our available liquidity significantly increased to approximately €1.6 billion. We are prepared for all eventualities, any liquidity concerns, and the market should be a thing of the past. And switching to slide 14, cash flows. Wrong improvement in the third quarter operating cash flow. We recorded 88 million euro. And that despite us paying the coupon on the high yield bonds, which as you know is always due in Q1 and Q3. So we paid that in Q3, but we also managed inventories well and made sure we are collecting money from litigation and subsidies. Last year in Q3, we had the customer prepayment of approximately €220 million. That came as a one-time positive at that time. CapEx stayed in check, €48 million in the third quarter. For the full year, we were lent between 6% and 7% of revenues, well below our long-term average ratio of 8%. In total, we finished the quarter with €43 million positive free cash flow. This brings us, year-to-date, to break even in free cash flow. To exclude the customer claimant last year, Q3 was the best quarter in a long time, though Q4 is expected to be better with lower interest payments and counting on the promised money from the Austrian government under the European Ships Act. We switch to slide 15, net earnings and earnings per share. On the left, you find adjusted figures The adjusted net result improved in line with EBITDA to €27 million in the third quarter. Adjusted EPS developed accordingly. The net financing result came in at €59 million, income tax to the just €5 million. Following the rule of thumb that there's always 50, 60 million adjustments per quarter due to transformation cost, deposition of PPA, and share-based compensation, we ended up with minus 28 million net results according to IFS. Consequently, IFS earnings per share also came in negative 28 cents. That recruits my remarks, and with that, I would like to hand back to Aldo for the summary and outlook.

Thanks, Reiner. And now on slide 16, let me summarize the third quarter results again. Looking at the business, we delivered revenues above the midpoint and profitability at the midpoint of the guidance. 9% growth in the core semi-business year-over-year on a comparable basis, well in line with our midterm target model. Execution of resupply-based programs ahead of plan, now with 185 million euro run rate savings implemented. And we are securing future semiconductor business with an abated design win streak, now $4 billion already in the first nine months of this year. Looking at the leveraging plan, everything well on track without being able to go into further detail right now. R&D investments, I've presented you an example of our relentless efforts to find future growth opportunities by investing in different types of technology with great potential. Today, we talked about infrared emitters and two-dimensional time of flight sensors. Let us look at the right-hand side of the slide, the outlook for the fourth quarter. We expect revenues to come in between 790 and 890 million euro at an exchange rate of 1.16. Compared to the beginning of the year, the weaker US dollar costs us a middle double-digit million figure in top line. Automotive lamps will see its peak in the annual lighting season. For semis altogether, we expect a small seasonal decline. Industrial medical might be kind of stable, but we sense a lot of uncertainty in the automotive market. Maybe flat is at best, whereas in consumer, the smartphone season is cooling off a bit, logically. We expect adjusted EBITDA margin to come in at 17.5%, plus or minus 1.5 percentage points. In absence, stable compared to Q3, if you back out the windfall profit from the selling of manufacturing assets in Singapore. Talking about cash flow, we're near to 0, and keeping up, of our promise for the full year. We expect a free cash flow of more than 100 million euro in the fourth quarter, certainly also driven by the expected inflows from the Portionship Act. With that, I conclude my remarks and we are now ready for the questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. In the interest of time, please limit yourself to two questions in the first round. Anyone who has a question may press star and one at this time. The first question comes from the line of Sebastian Stabovic from Kepler-Chevreux. Please go ahead.

Thanks for taking my question. The first one is on the automotive market. The demand is building up. It seems that you are coming to the end of the inventory collection, but I'm just curious about the trajectory of growth moving to the next two quarters and In the short term, have you seen any specific downside to demand linked to next-pair turmoil, or is it not something that is affecting the global car production volume for you or your demand? And the second question is on the synergies and the cost-saving program. You already reached 185 million at the end of q3 which is well above the target for 25 and you are coming closer to what you expect for 2026 do you plan to accelerate a little bit more further because cutting action or you will stick to 225 million for next year and then you're going to stop cutting the cost base thank you yeah thanks a lot for those questions yes on the automotive side

I would say inventory situation is okay. We do see that there is a lot of short-term order behavior, and I do also link that partly to the Nexperia topic. Just our car makers also have to be very agile in their production schedules. and what they build and when they build it does vary a bit. So I would expect this quarter and next quarter to be impacted a bit by that. But overall, vehicle build volumes globally are actually holding up quite well. And here it is also important that we have a good position in China. It's a Chinese market in this is growing quite nicely, I have to say. And Europe and the US are struggling a bit. But given our global exposure, we are able to balance it out. So I would say overall, the story hasn't really changed. We still see more content per vehicle globally, that we benefit from a fairly stable vehicle build volume currently and also for next year. At the same time, yeah, also the usual price pressure that eats it up a bit, and then, of course, ethics that also goes against us. But, yeah, underlying demand, I would say, is, in principle, okay with some short-term hiccups, as explained. On reestablished debates, yeah, we're very happy that we are making very good progress, 185 million already. So I would assume that we can get to the 225 million goal also significantly ahead of plan. And we are thinking about how to extend this program after that. But we at the moment mainly focus on bringing in the savings as quickly as possible of the measure that we've already defined.

The next question comes from the line of Harry Bleiklock from UBS. Please go ahead.

Hi there. Thanks for taking my question. The first is just on the consumer business. I know you've had success at one of your big consumer customers in terms of getting a socket rolled out across the whole kind of smartphone portfolio. And historically, you've spoken about potentially getting further socket wins in that business. I was wondering whether you could just provide an update on that. And then my second question is just on whether there's any update you can give us in terms of progress on the further asset disposals for generating over 500 million.

Sure, Harry. Thanks for the question. So, yeah, at the various cell phone customers, we are making good progress and are winning new sockets. And I must say that it goes across both Android and non-Android space in a very steady and good manner, I must say. without calling out one specific socket, but I must say the engagement across the customer base is very strong, and we continue to see good growth potential in this space with our technology. On the asset disposals, yeah, it's hard to comment on that in detail, but I can say we are very active in the process, and the plan still stands. We will deliver significantly more than 500 million of disposals. Proceeds, as we have communicated, the first step, the 100 million on the land business, on the entertainment land business, is in execution. We are progressing well towards closing, probably by the end of Q1 next year. And on a second, bigger step, we are making good progress. And we'll share that, of course, as soon as we can with all of you.

Thank you, Adair. Sure.

As a reminder, if you wish to register for a question, please press star and one on your telephone. We now have a question from the line of Reto Huba from Research Partners. Please go ahead.

Yes, good morning, gentlemen. Thank you very much for your very detailed reporting. Now I was wondering, the adjusted EBTA, maybe I missed it, that includes the gain from sales of assets, if I understood this correctly. Have you disclosed that number somewhere? And how much is the one-off gain? And then secondly, what is the reduction in year-over-year sales due to disposals?

Yeah, the adjusted EBITDA had a benefit from that asset sale of roughly $10 million, a bit north of $10 million. That's obviously a one-time effect. And yes, if you look at the year-over-year impact from asset disposals from portfolio, I would say that that is probably $30 million.

$30 million. Okay, very good. Thank you very much.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Jürgen Rehbel for any closing remarks.

Thanks very much for the interest. We had a lot of people who dialed in. If you have any further questions, don't hesitate to reach out to us. We're looking forward to receiving your feedback. Thank you. Bye. Bye-bye.

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