Ams Osram Ag Unsp/Adr

Ladies and gentlemen, welcome to the Adept Investor conference call and live webcast on fourth quarter and full year 2025 results. I'm Sergen, 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 one on your telephone. 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 introduce Jürgen Rehwil, Head of Investor Relations. Please go ahead.

Hello, good afternoon. This is Jürgen speaking. Welcome to today's call on our fourth quarter and full fiscal 25 results for credit investors. Rainer, our CFO, will walk you through the Q4 earnings call presentation that you can find on our website as well. Rainer, the stage is yours.

Thank you, Jürgen, and good afternoon, everyone from my side. Let's start on slide three. 25 was another year of disciplined execution. We built a stable foundation for further expansion as a leader in digital photonics. Our core CME portfolio grew 7% year-on-year, underlining the strength of our focus positioning. And importantly, for the first time ever, AMS Awesome holds the number one position in the global LED market. a significant strategic milestone. Design wind traction remained excellent with more than €5 billion in new lifetime value added to the pipeline. Profitability improved again, adjusted EBITDA margin up 1.5 percentage points year-on-year, driven by accelerated execution of the re-establishment base program, despite significant cost headwinds one year ahead of plan. We also delivered €144 million free cash flow, including interest paid. On top of that, our leveraging plan progressed strongly. Two portfolio transactions announced as of last week with proceeds of 670 million euros and pro forma leverage at two and a half times. On to slide four. Q4 was a strong quarter. Revenues and adjusted EBITDA came in in the upper band of our guidance, a clear beat thanks to the super strong aftermarket LEMS business. Revenues stayed almost compared to last year flat at first glance, but bear in mind the weaker dollar cost us around 55 million Euro top line versus last year. Adjusted EBITDA increased 7% year on year, despite FX headwinds, driven by the continued cost savings of real estate with the base. Let's move to slide five. Looking at the segments, OS, held up okay in the seasonally weaker quarter. Revenues dipped a bit more than what you would normally expect. I will comment on auto on the next slide. Margin dropped broadly in line with fall through, but is still five percentage points higher than a year ago. CSA showed resilience after the typical peak in the third quarter, driven by good demand for custom sensor products, for consumer handhelds, and better industrial medical revenues compared to a year ago. Revenues were broadly stable quarter-on-quarter and slightly up compared to a year ago. However, adjusted EBITDA margins were down both sequentially and compared to a year ago. An unfortunate product mix coupled with a strong impact from the weaker US dollar and some inventory cleanup effects were the reason for this. Lamson Systems saw an exceptionally strong seasonal upswing. after market demand went through the roof as customers flooded us with short notice orders after our closest competitor fell into financial troubles. We are trying to turn some of this into long-term business for sure. Specialty lamps contributed for the last time for a full quarter before closing the transaction with Ushio later in this quarter. In line with fall through, profitability was up more than 80% compared to Q3. overall a good quarter across the portfolio. Let's now take a closer look at the semiconductor business. I am slide six. If you look through the weaker dollar and the non-core portfolio contribution, the clean core portfolio grew exactly in line with our semi-target operating model, 8% year on year. The non-core portfolio was expected to be fully phased out latest by Q1 last year, However, customers kept ordering and ordering. For this, it still contributed a high double-digit million-year revenue last year. This page highlights the underlying resilience of our semiconductor business. In automotive, we saw a sequential decline, mostly seasonal. But the automotive supply chain continues to operate with extremely lean inventories, and the competitive environment driven by the kind of war amongst the OEMs is unchanged. Although difficult to quantify, the so-called next period chip crisis at the beginning of last quarter certainly had some negative impact on order intake as well. Year-by-year softness is basically due to FX, the order pattern I just mentioned, and that no real restocking in the supply chain happens. Industrial medical, this vertical is gradually improving. We are not out of the woods yet, but indicators are trending in the right direction. Orders in industrial automation and medical came in a bit stronger, balancing the seasonal decline in horticulture, for example. And finally, consumer typical Q4 seasonal decline plus US dollar effects and the exit of the non-core portfolio. And now let's have a look on slide seven. We delivered 144 million euro free cash flow. adjusted for the one-time cash in from changing the employee pension fund setup. Free cash flow above 100 million Euro, as we had promised. That includes a high double-digit million Euro inflow from the Austrian Chips Act. The same is true for the full-year number, 144 million Euro free cash flow, when adjusting for the pension financing as just described. CapEx remained disciplined, well below the 8% target. With that, let us take a look at liquidity and the maturity profile on the next slide. With a strong cash flow in Q4 and the inflow from the change in the pension fund set up, our cash on hand was close to 1.5 billion euro, and the available liquidity position rose to around 2.2 billion euro, backed by a diversified mix of instruments, cash, revolver, and bilateral lines. In December, we also rolled a 100 million euro bank loan to 27. In January, we completed a 200 million euro buyback of the outstanding 27 convertible, including the expected proceeds from the two announced transactions. We have already today sufficient funds to repay both the convertible bond due in 27 and the Osram minorities. This sets the stage for refinancing our high-yield maturities at improved terms. Slide 9 shows how the company has been progressing despite major headwinds from currency, automotive supply chain pattern changes, precious metal and raw material price increases, etc. Our IFRS top line declined by 3% year on year, but it's worth looking deeper. A 100 million FX impact and a more than 100 million non-core portfolio needs to be considered. With that in mind, the underlying core portfolio would have been up 4%. That is especially true when we look at our semiconductor segment. The core portfolio grew about 7% year-on-year at constant currencies, in line with our mid-term growth ambition. The year-on-year decline in lamps and systems stems mostly from two topics, the decline in the OEM business in line with the lower number of factory-new cars with traditional lamps, and the Q2 supply chain adjustment after Liberation Day. On top, the weaker US dollar also weighed a bit on top line. Adjusted EBITDA margin improved meaningfully thanks to the implementation of the re-established base run rate savings one year ahead of plan. Cost headwinds had been heavy, gold, silver, rare earths, and the top line impact from the weaker dollar. Let's move to slide 10. A key highlight, one that has also been a personal vision For Aldo for more decades, AMS Osram is now ranked number one packaged LED supplier globally by value. We now clearly surpassed our long-term rival to the crown, Nijia. Helped by weaker yen, but primarily by better relative performance in the marketplace last year. This further strengthens our position with automotive OEMs, professional lighting customers, and an emerging market such as micro emitters. On to slide 11, design win performance. Last year was again a great year for winning new business, underpinning our semiconductor growth model. The tele reached more than 5 billion euro. Again, the third year in a row with 5 billion. After a strong Q3, we also booked more than 1 billion euro of design wins in the last quarter. On the slide, we show outstanding design wins with triple-digit million euro lifetime value. In consumer, projects in display management and camera enhancement accumulated hundreds of millions. In automotive, a virus and intelligent RGB ambient lighting project stood out. And professional lighting and medical imaging design wins contributed exceptionally. The examples shown demonstrate the strong structural momentum in our business. Design wins today are the revenues of tomorrow. And our pipeline is very healthy, underpinning our growth ambitions in the semiconductor core business and along the avenues of our key emerging digital photonics applications. Slide 12 shows the next wave of structural improvements. Thanks to great execution of our teams, Resavisabase delivered its savings one year early, 220 million euros. This is huge success. but we have to get more ambitious in view of the persisting headwinds. With sharpening our profile towards the clear leader in digital photonics, we also want to transform the way we work and thereby saving additional €200 million of annual cost. Cost, speed, agility are our guiding principle as we reshape our operating model. We want to further reduce overhead, which includes addressing stranded costs of the divestment. We want to improve our manufacturing costs by transferring production of established products to Asia and a productivity push through automation. We are developing cost-optimized product platforms. Also, product development shall become cheaper and more efficient by developing maturing product families in Asia. The expensive European resources are focusing on advanced digital photonics topics. In total, around 2,000 colleagues will be affected, half of them in Europe. Certainly, we also want to get our share of productivity improvement by rolling out AI. Now let us turn to slide 13. Last April, we communicated our accelerated deleveraging plan. Since then, we have made strong progress. First, improving the structure of profitability. As I just explained, we implemented resaving the base savings one year ahead of plan. They're launching the new program Simplify. Second, generating proceeds, well above 500 million euro from divestments. We delivered. We'll get 670 million euro in cash from the two transactions that we have announced. The sale of the specialty lamps business to Oshio and the sale of the non-optical sensor business to Infineon. The transaction will also result in a one-time profit of about €450 to €500 million. But a solution for the KULIM 2 serial leaseback. We continue working hard on it. There has always been interest. Discussions intensified recently, but it is really too early to call when exactly we will see a deal. But we are fully convinced that there will be a solution. We have always delivered so far and have No intention to change that. On a pro forma basis, the leverage has significantly improved, as I will show you in a minute. But the solution for the SL leaseback and fixing some of the strangle costs of that factory might be needed to really get below two. Nevertheless, I'm convinced that we'll be able to refinance the senior notes much cheaper to bring interest costs down, the key impediment for strong free cash flow performance. After refinancing the high-yield bond, it is now likely that we land at below 150 million Euro annual interest cost. On slide 15, you see the impact of the transactions on our leverage. We discussed the update of our balance sheet as of December 25 early in the presentation. With that, on the pro forma basis, including the divestment proceeds, the leverage drops from 3.3 times to 2.5 times. Excluding the Osramput options, net debt would stand at around €850 million, implying a 1.6 times leverage. This is a major step forward and a prerequisite to refinancing our 29 maturities at lower costs. And on the next slide, summarizing our transformation journey as Aldo outlined last week in detail when we announced the sale of our non-optical sensor business to Infineon. The path consists of three phases. From 23 to 25, we stabilize and refocus the company. Divestments, portfolio sharpening, reestablish the base, refinancing. 26 will be a transition year, reflecting the deconcentration of sold businesses and temporary stranded costs. We'll have to bear a temporary drop in adjusted EBITDA due to several one-off effects. For this and for making the company overall more efficient and more agile, we launched a new program, Simplify. Also, financing costs remain high in 26, approximately 250 to 300 million euro, under the refinancing of the senior nodes, which we have on the radar for 27. And then from 27 onwards, we enter the growth and value creation phase. We want to see growth in the core business and growth along the lines of the existing and new digital photonics applications, highly pixelated forward lighting, micro-emitter projection areas, and spectral, bio, and distance sensing. Based on the simplified program and growth, we will see margin expansion. With growing profitability and a solution for the CoLIMP2 cell in East Bank, we will have a fully healthy balance sheet with a leverage below 2. And we want to see our financing costs below €150 million and the low run rate of restructuring costs. That is the basis to deliver a strong free cash flow well above €200 million. Before we move on to the exciting growth avenues of some of our digital photonics projects, we have to look a bit deeper in one aspect of the transition phase. Precious metal prices, namely gold. Gold is an important material in the production of LEDs. You need it for, or maybe you want to put it simply, for corrosion-free mirrors to get the light out of the AP layers. In normal years, this added to the Cox bill a high double-digit million-euro figure. But the unprecedented gold rally that accelerated in 25, that causes an additional 35 million euro in 25, that's 2% margin for OS. The price curve has taken an exponential shape, as you can see on the left. The peak has come down the last 10 days, but when assuming an average price around $5,000 per ounce, we have another 60 million cost adder compared to 25. That would be a 4% margin impact for OS and around 2% for the group. Now, we are mitigating that as best as we can. So first of all, we have no good hedging position, so the remaining risk is relatively low, even it would further go up. And we are reducing the consumption of precious metal usage by redesigning our products. Now that doesn't go overnight, that takes a few days, but that will reduce our consumption significantly. And we are launching the Simplify program. I hate to say it, but on top of the divestments and the stranded costs, the gold price and precious metal prices overall will weigh further on margins in the adjusted EBITDA in 26. With that, some words on the digital photonics growth vectors that will kick in step by step, and that we presented in detail last week. And we are on slide 17. Digital photonics is opening multiple highly attractive growth avenues across both emitters and sensors. On the emitter side, micrometer arrays are transforming three key markets. Advanced automotive lighting with a BIOS, where we already ship the volume and hold the clear design when lit. Ultra-compact RGB micrometer arrays enabling bright, power-efficient AR displays for the next generation smart glasses.