OSRAM Licht AG

Margaret Paxton - Head, IR Olaf Berlien - CEO Ingo Bank - CFO Stefan Kampmann - CTO

Sven Weier - UBS Lucie Carrier - Morgan Stanley

Thanks very much. And good morning, everyone.

And welcome to our Q4, 2016 conference call. Before we start, I'd just like to draw your attention to the safe harbor statement on page two of the management presentation, which is published on our website.

As usual, our CEO Olaf Berlien, will make his opening remarks, after which our CFO, Ingo Bank will take you through the financials in more detail. After that, we will be happy to take your questions.

And with that, let me hand you over to Olaf?

Thank you, Maggie. Good morning, ladies and gentlemen and a warm welcome from my side as well.

I would like to start by welcoming our new CFO, Ingo Bank, who joined us in September, and along with our CTO, Stefan Kampmann, the board is now complete and we really have a great start together. Let me start reviewing 2016, we had 2% comparable growth with target reaching €5.6 billion and our adjusted EBITDA reached 10.4% improving on the 2015 margin despite a step up in growth investment and the declining lens margin.

Our free cash flow was negative to a large extent due to pension derisking of over $200 million, which has helped to further strength our balance sheet. And of course, our net income rose sharply due to the sale of our Felco shares at the beginning of the fiscal year.

This was our second record year in a row and I think this really demonstrate two things, two years of record sales, means that we have the right product and that we are in the right market with a strong customer focus. Secondly, our record margin means we have the right cost position and to make a long story short, we have the right strategy and we are executing that strategy every single day.

As you know, we agreed to sell our lens businesses in the end of July and therefore this business will be reported on discontinued operations, which Ingo will go through in a more detail later. On slide number five, you can see the performance of Osram was outlined and with 6% comparable growth, I think it’s a great number, and 12.5% EBIT margin and growing net income, even excluding the Felco gain, I think this demonstrate very well the true qualities of Osram, a technology focused and growth oriented business with excellent profitability.

From the slide you can see that by carving out lens, we have shown the true performance of the remaining business which has higher growth dynamics and Ingo will comment to this back later on in his outlook. In light of the Stella business development, we plan to put forward the dividend of €1 per share at the next AGM in 2016 compared with $0.90 last year.

I want to emphasize that it’s important to us that our shareholders also participate in the success of our company. As I already mentioned, we are implementing our strategy consistently.

Looking to slide number six, you can see that two of the largest and most important strategic decisions in the company history have been implemented over the past 12 months. Firstly, it is clearly the separation and the announcements of sale of lens business to a better owner.

This allows us to focus even more on light solution and accelerate our gross. As you know the sale is currently going through approval process, but let me be clear on one thing, we remain confident that this transaction will be closed in 2017 fiscal year as we originally stated before.

And secondly, we have started the implementation of our Opto strategy which is strengthening of the business for premium and for volume amenities. On the basis of what was very successful fiscal year 2016, we are now well on our way to the 515 target and we push ahead to focus on technology and of course, the 515 target are closely linked to our three pillar strategy that we set out one year ago and you see it on page number seven.

In these three pillars, we want to build our strength and our potential, fundamental to this is clearly our Diamond innovation and growth initiative. We are proactively driving change in our markets and in technology which will put us further in the front of the race.

This enables us to maintain our leading position in automotive where we are number one, and in Opto and then in LSS which we are turning around the business in order to unlock the potential of the growing and profitable market. Let us look into each segment one by one, starting with Opto on slide number eight.

As you know, a year ago we made a decision to invest into Opto, in part to take advantage of the fastest growing application general lighting, which is expected to grow at a high single digit rate into the midterm. This is the highest growth of the lighting sub sectors IHS forecast to 2020, you see it in this number.

Overall, the market is expected to grow at a solid 4% growth year-over-year. However, I would like to stress that the decision was all made in order to maintain our clear leading position and high profitability in premium applications.

As you can see on slide number nine, our Opto strategy is very agile. We realized we need to remain flexible in a dynamic market.

We are able to do so because these are some common processes and mature between general lighting and premium LEDs, which allow this and this chart shows the fact ability. Our Opto strategy remains very much in the premium strategy.

Kulim is set to enhance the cost base of our premium products, through economy of scale benefits and the flexibility. We intend to keep investing in premium.

We continue to focus on it and we continue to seek out new markets and new applications. Kulim was designed in phases so that we had the option to the speed of the construction to be fast or slow - to make faster or slower.

We also have a high degree of flexibility around what actually made the Kulim. Looking at slide number 10, and from today's perspective, Kulim is really fully on track.

We are monitoring also our own programs, as well as the market development extremely closely and some of you asked me, what are the KPIs and you see this on the right side. And we have shown on the right side some of the detailed monthly KPIs that we really close monitor.

We have also shown our progress in key areas. Overall, we are very happy.

Construction, R&D and financial KPIs are sound. Our go to market KPIs are slightly slower, but I'm confident that we have taken the right actions to address this.

We have strengthened the team with key people and with a track record both in industry and the market and in Asia. Coming to SP, as you know on page number 11, we had another strong year.

We had tailwinds from the Chinese incentives for small cars. We talked about that in the last quarter and the better-than-expected US aftermarket.

This enabled us to outperform global cap production grow again and you see this number from IHS. This is a trend that will continue driven by shift to LED, innovative leadership and more - to more like points pack.

Global car production is to set to grow at low single digit level in the mid-term and as you can see on slide - page number 11, that our exposure to higher gross area should enable better gross dynamics. For example, exterior light sources and controlled which is set to grow by 9% on average.

Looking to the market in 2017 in particular, we still expect global car production gross to be positive. However, gross is likely to be lower than in '16 as usually we still expect to outgrow the market as we did it in the last year.

This year, we have expanded an automotive LED module through the acquisition of Novita Tech and we have really good position in a very attractive market, which is set to grow by 20% on average in 2220. And it’s clear that we tried to strength our position further with continuing to evaluate additional M&A targets.

And in addition we have made good headway in the future technologies of laser and OLED. For example the new rear lights for the new ODT features OLEDs from Osram.

Osram is currently the only company in the world to offer this innovative light technology. Overall, we are extremely well placed to drive automotive lighting tends and maintain our global number one position.

And I think that position is really underlined by one nomination, together with BMW for the German President Future Award for laser lighting. This great confirmation of our technology leadership and really helps us for the future.

Last but not least, LSS on slide number 12. LSS had made some really good progress towards recovery with a solid year-on-year improvement.

This is the result of a number of projects and initiatives you see it on the left side with the full initiative. We are constantly working on our go to market approach, while also increasing the percentage of new product sales.

We have been optimistic of our footprint and supply chain and you see it on the right side, the LED driver in US market we have evaluated additional M&A options, only last week we announced the acquisition of the minority stake of Twilight a small-company in Netherlands and this strengths our position, especially for applications for smart cities. In lighting solutions, one of our initiatives has been around global key account, which helps drive really big project business in the future.

We have also been far more focused on specific verticals and I think our multi-million BMW project witnessed an excellent example of the progress we are making in these both areas. As a result of our LSS diamond turnaround measures, our sales growth in LSS has recovered back to the level of the competition after many quarters of decline and you see it in this chart on the right side, on the top.

On the digital systems side, we have made market share gains over the last few years and you see looking ahead, we expect LSS to benefit from the double-digit growth in LED luminous and component and this enable us to outgrow the market as I did - as we did it in 2016. In turn, this allows us an ongoing market expansion and ladies and gentlemen, let me summarize.

As you can see from 2015, we have had a very good start to our midterm growth plan and of course like '16, 2017 will be an investment year. But even in this context, our performance is still very positive, with earnings growth and shareholder value at the forefront of our minds, our 2020 ambition remain unchanged.

Diamond is a multi-year growth initiative, which will help us to reach our goal. We had started and we are happy with the progress.

With that in mind, we remain confident that we would deliver over $5 billion of turnover, sales was around 1 billion of EBITDA and the €5 EPS in 2020. And with that in mind, I hand over to Ingo.

Thank you, Olaf. And good morning, good evening to all of you.

Thank you for joining the earnings call today. I'm excited to have joined Osram and my colleagues Olaf and Stefan in the board and I am looking forward to meeting all of you in the near future.

Before get into the numbers, I would like to point that following the agreement to sell our lamps business, we are now treating this business as discontinued operations. About a month ago we published a document on our website that reflects this reclassification for prior periods for your reference.

As a result, the presentation of the financials for Osram for the fourth quarter of fiscal year '16, as well as the full fiscal year '16 is focusing on what now constitutes continued operations. Revenue for the fourth quarter came in at €909 million, representing a comparable growth of minus 0.6% when compared to the same period of fiscal year '15.

This decline was driven by the significant pull forward effect triggered by the lamps carve-out related IP separation in the third quarter of fiscal year '16. Excluding the shift between quarters, which amounted to approximately €50 million, underlying growth in the quarter was approximately 4.5%.

Comparable growth at Opto semiconductors was solid with 8.9% whereas comparable growth in specialty lighting and LSS in the quarter was negative as expected, given the above-mentioned pull forward effect. Adjusting for these, revenue growth for SP was will 5% in the quarter and 2% for LSS.

The share of LKD based revenue in the quarter was 68%, up significantly for the same period a year ago when we were at 58%. Moving on to profitability.

Adjusted EBITDA margin for the quarter was 8.9% as expected, down sequentially to a large extent driven by the revenue pull forward effects from Q3 '16 just outlined. The estimate - the impact of this revenue shift on margin to be close to 2 full percentage points.

The balance of the reduction or percentage margin was largely due to higher corporate cost, some one-time charges in Opto, as a result of the acquisition of Patents [ph] and higher innovation related expenses in SP. Osram push related savings amounted to €73 million in the quarter, transformation costs were $6 million in the quarter in line with expectations.

Adjusted EBITDA came in at €131 million or 14.4% of revenue. Going forward, we expect to put more emphasis on earnings per share when compared for the - to the past.

Given also that its and important integral part of our 515 target. EPS in the quarter reached $0.45 per share, reflecting the lower EBITDA level in the quarter as just explained.

In the table below the graph we have provided the net income figures for continued, as well as discontinued operations. When looking at discontinued operations, please bear in mind that next to the operational lamps performances this number also includes special items relating to lamps such as carve-out costs, disposal costs and the previously communicated impairment on fair value less cost to sale.

Further details can be found in the appendix to the Q4 fiscal year '16 presentation. Let's now take a closer look at the financial performance of our three segments in the fourth quarter of fiscal year '16.

Opto continue to grow the business as a solid clip of 8.9% on a comparable basis and came in at €374 million. Demand continue to be strong for our premium offerings, especially for automotive and for our infrared business.

Adjusted EBITDA was 18.4% including a charge of €6.3 million related to license and technology transfer agreement that we entered into with a Japanese multinational. Please also refer to the related press release issued last week.

Excluding this one-time charge, Opto delivered a very strong EBITDA margin of approximately 20%, being at the high-end of the profitability range we expect for this business going forward. Adjusted EBITDA was strong and came in at €96 million or 25.8% of revenue.

Overall Opto delivered a very fiscal year '16 with high single digit growth and record profitability north of 20% of adjusted EBITDA. Moving into fiscal year '17, we expect revenue growth to continue at the same pace, possibly to even strengthen further.

From a profitability perspective, we need to bear in mind that fiscal year '16 benefited from very high license income, which we do not expect to repeat in fiscal year '17. We do also anticipate an increase in our investment into innovation, accompanied by for the buildup of our SSL market facing organization as part of our diamond growth initiative.

We expect Opto's adjusted EBITDA margin to remain between 18% to 20% for fiscal year '17 or 26% to 28% in adjusted EBITDA at current exchange rate. Moving on to specialty lighting, as expected comparable revenue growth was slightly negative in the fourth quarter, driven by the pull forward effect of approximately €35 million, which benefited revenue in Q3 of fiscal year '16.

When adjusting for this effect, underlying growth was approximately at $0.05 in the quarter. Demand for LED product in the OEM channel continued to be strong, LED now makes up 44% of the total revenue in our SP business.

Adjusting for the carve-out impact, overall SP growth remains solid in APAC, growth in NAFTA was slightly positive, and in EMEA business was at the same level compared to the same period a year ago. Adjusted EBITDA came in at €40 million or 8.6% of revenue.

When adjusting for the Q3 revenue pull forward effects, our EBITDA margin would have been higher by approximately 160 basis points in the fourth quarter. In addition to this quarter, the shift in our revenue base, the margin was further affected by mix and expenses related to innovation topics in this business.

Adjusted EBITDA for SP was 12% in the quarter. For fiscal year '17, we expect SPs adjusted earnings before interest tax, depreciation and amortization or EBITDA to be above 13%.

Going forward, the acquisition of Novita Tech which we successfully closed on October 4 will be included in our SP segment reporting. Moving on to LSS.

Lighting solutions and systems overall delivered another solid quarter. Comparable growth was negative with minus 4.1% but then correcting for €12 million of revenue pull forward effect for drivers and modules business comparable growth was around 2% Growth in our Luminaires in APAC and for indoor solutions was strong.

In North America we saw good growth in our LED drivers business, as well as with lighting solutions. We managed to deliver another quarter with adjusted EBITDA at a breakeven level even though the absolute revenue was down sequentially, as we see benefits our LS 800 program.

Reflecting on the overall fiscal year 2016 for LSS, we are encouraged to see that we delivered two consecutive quarters of breakeven profitability, supported by growth performance. We expect this positive trend to continue into the new fiscal year and expect our LSS segment to deliver a breakeven performance for fiscal year '17 from adjusted EBITDA perspective.

On the basis of adjusted earnings before interest tax, depreciation and amortization, we expect LSS to move into positive numbers for the new fiscal year. Looking at the entire fiscal year 2016 from a profitability perspective, we were able to grow our adjusted EBITDA by 10% year-over-year, expanding our overall profitability by 50 basis points to 12.5%.

Price erosion was at expected levels for the fiscal year. Our productivity initiatives more than offset pricing pressure with a very strong contribution of €268 million in line with expectations.

Given that the original push program was largely associated with our lamps business, we will no longer report on this program going forward. As you know, push two which was August due to last until 2017 comprise two elements, the restructuring element which incur transformational cost and the productivity element which is just a normal part of our business.

In 2017, we intend to implement the remaining push program, which is related to our continued operation as planned. The transformational changes will lead to around $80 million to $200 million of special charges in fiscal year '17.

More generally however, the need to drive operational cost productivity will remain a clear focus area for us going forward, but rather then calling this out separately on one program, we will consider it to be a normal part of running our business and managing our profitability in our businesses and central functions. As in the past these measures will not incur unusual cost.

Let me now move to cash flow. CapEx in the quarter was €129 million, up from the same quarter a year ago, reflecting higher investment levels in Opto business.

Total CapEx for the fiscal year of '16 was €349 million, with $239 million of Opto, of which about a third was related to the implementation of our SSL strategy, 69 million worth CapEx was spend in SP and the balance in our LSS business. Working capital turn rates are now structurally different and at a higher level without lamps leading overall to a better turn rate for us.

Please note that the working capital in the chart on the lower left on slide 21 still includes our lamps business for the third of fiscal year 2016 given that historical balance sheet information was not restated. Free cash flow came in at €30 million, similar to about a year ago, despite a more elevated CapEx level and overall lower profitability in the current quarter.

We closed the year with a strong level of net liquidity of €396 million. As you can see on slide 22, we had quite some special movement this fiscal year.

We sold our shareholding in Felco yielding approximately €326 million. We used a significant part of these proceeds to contribute approximately €169 million to our pension funds bringing the combined funding ratio in our asset-back programs to a very strong 96%, largely derisking our balance sheet.

We started our overall €500 million share repurchase program for which we had paid $234 million by the end of fiscal year '16. This represents approximately 5.1% of our total outstanding share count.

We expect our share repurchase program to conclude by the middle of calendar year 2017 and we increased our CapEx spend as I just outlined, including the first investments into our SSL strategy. To the very right of this chart, you will also find the cash flow from discontinued operations, in other words, our lamps business which was negative €196 million, as our €68 million related to the net funding level needs of the new lamps legal entities.

As all that said, fiscal year '16 was a transformative year for Osram. We successfully completed the carve-out including the IT related disentanglement.

We derisked our balance sheet by increasing the funding ratio well above the average ratio found in the current German corporate environment. We signed an agreement with MLS to sell our lamps business and expect the transaction to close in the course of fiscal year '17.

We made significant progress with our focus on cost productivity, driving efficiencies of approximately $268 million for the fiscal year, excluding lamps. We started the execution of our diamond growth and innovation initiative as part of our three pillar strategy and we delivered a strong set of financials with comparable revenue growth at 6%, adjusted EBITDA of 12.5% or EBITDA of 17.2% and an 80% growth in earnings per share to €2.51 when excluding the one-time special benefits from the Felco sale.

Let me now change perspective and take a look forward. Earlier today OLED presented our current view on the markets that we currently operate in, which based on what we believe and know today provide a positive outlook for us on balance for the new fiscal year.

Against this backdrop we expected our revenue growth on a comparable basis between 5% to 7%. Turning now to our profitability guidance.

Going forward, we will use EBITDA, earnings before interest, tax, depreciation and amortization as our leading probably metric. We believe it to better reflect the profile we now have, all the technology company, after the sale of our lamps business.

In addition, it helps to better track the progress we are making against the profitability metric that was set when we communicated our 5.5 targets about a year ago. We expect our adjusted EBITDA margin to be 16% or better for fiscal year '17.

This reflects continued investment into R&D, as part of our diamond initiative, targeting growth and innovation and we expect to continue to bolster our sales approach with respect to SSL to support our aspirations in this growing market segments. Diluted earnings per share are anticipated to be between €2.35 and €2.65 assuming our share buyback program continues as planned.

We expect our free cash flow to be around breakeven level for fiscal year '17. This includes an increased level of capital expenditures when compared to fiscal year 2016, as we progress further to phase 1 of our investment for SSL.

And finally, CIE or central costs are projected to come in with an adjusted EBITDA level similar to that in fiscal year '16. And with this now, operator, we can start the Q&A session.

Thank you.

Yes. Good morning from my side gentlemen.

Three questions from my side. The first on is on the innovation side, I'm just wondering if you could give us some more color there, I think we saw some articles about you having come with an innovation on the LED front light side, where together with Daimler [indiscernible] you developed a new LED chip here and how that might cannibalize potentially the effort you take on the laser side or how complimentary that is and I think you also introduced together with Infineon more technology for autonomous driving on the laser sensor technology.

So you know, maybe you could give us some more color on this and how important this could be for you in the next couple of years. And the other question was on LSS, was just wondering if you could give us some color on the margin difference between the DS and LS currently and how you specifically see the competitive environment in BS developing from here if you are concerned about a more competitive environment and how strategically key that business is for you?

And last question is on the one-off you just mentioned, the $80 million to $100 million, how you allocate that between the divisions and how you see off the next fiscal year the kind of sustainable level of chances that this could reduce to? Thank you very much.

Okay. Sven, thank you.

I think the first question of innovation, my colleague Stefan will answer, so hand over to Stefan.

Yes. You know Sven, so clearly that you are not here and unique, that we could go through the electronics, as we [indiscernible] the technologies and lean operations that you mentioned, show there.

The first is light, the modern. All the modern light that we presented together with [indiscernible] corporation partners which was particularly on this.

It’s a modern system which enables new functionalities of front light and your question is it due to some of our competition to the laser light, we see it basically as an addition. We can use and we expect all them in them in the future that is pix [ph] light 1,024 LEDs.

It will be used to illuminate the area in front of your car and be adaptive to the traffic situation, though you may not mind as a people and still see you are appealed by yourself and if you need a front light with let's say a big boom to give you high illumination for big distance you can additionally use a laser light. So these are basically two building blocks which we see in the future of automotive lighting.

We are in a very premium position in both technologies, so it’s not a competition, it’s more of an addition of feature for future solutions.

Okay. Thank you, Stefan.

And Sven, nice to meet you up, and to see you first in person. Let me go back to questions on the margins in LSS, I think its first of all its most important to note that we saw businesses, our LS business, our DS business improve margins, so we're very encouraged by that.

There's still a margin difference between the two, as DS slightly ahead of LS and we're working on getting LS improved as well and it’s a big part also of the whole breakeven target we have for the new fiscal year, but we are making good progress in that direction. You asked about the competitive advantage of DS, I think what we've seen clearly is that the strong LED part of our portfolio and DS has been very successful and it’s been received in our markets, particularly in NAFTA.

So from that perspective, we feel we are competitively well-positioned. Your last question was on the special items, the $80 million to $100 million, think of it that way, so about a third of that we will probably see coming back into the SP numbers, a third or slightly more will probably come into the LSS numbers and then the balance will be more from a sense of perspective, we don't expect at this point in time special item score for Opto right now.

Beyond '17 we have to see obviously we work in a dynamic market where we have to adjust for market conditions. I don’t want to make any specific statements, off that that right now we don't anticipate a large program like we had for instance in the past, but I am sure that always there will be something also in the years beyond '17 that we will need to address.

Maybe a follow-up question if I may on the innovation part. So, of what you see laser and pixel in terms of getting mainstream to same time line there and again, maybe some additional comments from your side on your involvement in autonomous driving because I think on this trade show you also had an announcement on your laser product for LIDAR technology, so I would be also curious about that one?

Thank you.

First question, [indiscernible] of this two innovations which I mentioned, we clearly show that laser in the market and we also announced that with high fixed solution of our front light, this modern front light we see it launching to the market end of the decade, so around 2019, 2020, but this will be in addition as I mentioned at the end of the decade, currently the laser is in the lead in regard to market penetration. Your second question about LIDAR in our systems, you are right we have best operation and we continue, but we also show our investment rate on the electronic.

This is a modern system which enables the distance recognition and surrounding with ignition for over the driving. We are very confident that we have a very competitive solution there, that sees market and the market penetration they will be mainly driven by the cost of these systems and the cost will be driven mainly by the design for the used systems and we think especially the corporation we continuing with those companies probably in their special competence, its - we have shown a very competitive solution and we are very excited to see the feedback from Electronica [ph] this week.

And in terms of the placing in the car, I mean, can you combine that with the lighting, or is it a completely different system outside the lighting - where you build it to somewhere else?

Currently if you look through the quality of the car is not interpreted into a firm place. However, we have some ideas how electronic will move into areas where we have the hands on, so it will give us some months.

And so we have to discuss it with the government, it’s not a question of technology but from the technology side their feasibility is leading to great more into a front light system.

Okay. Thank you very much.

That’s it from my side.

Hi, good morning. Thanks for taking my question.

Just two questions. First on the upstream chip business, we are hearing talk about stabilization in chip ASP's, I think you're talking about some good revenue prospects for that business, both next year for a couple of things, so I was wondering if you could talk about ASP side, please?

And then secondly, on automotive, can you talk about the competitive environment we are hearing some folks trying to get in there. You obviously do a quite good job in auto.

But could you talk about the competitive dynamics? Thanks so much.

Okay. Thanks, John.

Talking about upstream, so I think we have really great year in 2016. We had a huge gross, especially in our premium segment and you see it in the - first of all in turnover rand sales and you see it in our EBIT margin increased up to 22% for the full-year and we have as I said that I don't see a stabilization, I see really gross.

So I have capacity limitation to fulfill the requirements for my customer, especially in infrared and these new Iris scan and the LED chips for the virtual reality glasses. So what I said in the morning on the press conference that we invest in all the four factories where we worldwide and its [indiscernible] in Germany, it’s an innovation lab, we invest in Peynang [ph] and we invest in Kulim and then Wuxi in China.

So we are really running under full utilization and in this case, I have no stabilization, I have gross. And the second point, the question is automotive, we are number one, of course, if you are number one, you always have competition behind you, but I think with the new technology, what Sven talked about and Stefan in a second, I think it helps us only if you are coming up with new technology, like laser light, we have if you would be today in Munich, we have in front of our entrance, we have for the new Audi TTS.

That’s the first car with OLED real lighting first car on the world. We are the only company in the world to have these innovation technology for real lighting, the only game to win this coming up with the right technology and with new technologies, so I'm quite confident that we stay really as number one in the future as well and you know that number two is a little bit struggling, so I'm quite confident for 2017 as well.

Maybe let me add a little bit to the pricing environment to further what Olaf said, so from a pricing perspective we expect that the LED IRR infrared environment is fairly stable and that’s also with our expectations going forward. If you look at SSSL, we actually expect an improvement there over the midterm.

We've also - if you look at some of what our competitors have done, you’ve seen that prices have actually increased also from an equipment perspective. We've seen our interpretation basically is that we have not seen new capacity coming on stream, rather older capacity being retired and here they are replaced with new but not really expanding the supply side of the house, where as the demand continues to grow.

So that should all be very helpful from a pricing perspective on the midterm.

Thank you for that. And I am sorry, just one more strategically.

So, assuming the lamps business sale consummates, if you were talking about appetite for inorganic M&A, obviously you've got a lot going on, but I'd like your thoughts there? Thank you again.

Yes. We had some appetite and we've bought some companies already in the last three, four months.

So we bought the technology portfolio, as Ingo said from a Japanese competitor. We bought the process technology from the company of Obecon [ph] in Asia that is very helpful for our EP process, for the EP process in Kulemin Kanang [ph] and we bought last week a smaller company in Netherlands, Twilight, they are in the smart cities solutions and we are constantly watching the market for good opportunities and in this case as I said last year more M&A will come up.

Let me just say on Twilight what Olaf referred to we acquired a minority stake in the company of around 47% and I think it was also in press release that we can refer to.

Thank you, guys.

Okay. Thanks, John.

Hi, Good morning, gentlemen. Thanks for taking my question.

I have a few of them, so I will go one after the other. The first one is just kind of more looking broad based, medium to long-term, when you look at the margin today in the businesses, it is clear that you are building momentum in LSS business which is positive, but we are still seeing a strong erosion on specialty product and considering the comments you’ve made around exiting the Indian industry, so it seems that this erosion is still going to continue and that this in time on Opto, you seem to be already clear that at the top end of your margin corridor.

So I am just trying to try to figure out here where are we really seeing margin upside here at the company which is of the dilution top of the range in Opto and of course LSS improving but this of course a smaller component? So that’s my first question.

Thanks, Lucie. You had this question on the last quarters as well and tried to repeat it, to explain it.

As I said…

No, I don’t think I had it?

About the erosion, but let's come to - you have to see the LED part in automotive together with Opto and you see Opto made 22% EBITDA margin. By the way, it’s a best margin in the whole industry and I am sure you took a look to the Japanese competitive thereby now 16%.

So we are best in class. So you have to take this number together with Opto and as I said, you have a dilution between infrared part and you have on the other side the profitability in Opto part.

Nevertheless, as we said the level of EBIT margin Opto was 11% to 12%. That’s a level what we expect for the future as well.

So it’s a stable level and we don’t see any additional dilution in this area. So in the mid and long-term we see these profitability as a good one for our automotive industry and we don't see any additional dilution in this erosion coming up in the future.

May be let me add to this. Hi, Lucie.

If you look at from integral perspective, the LED components are actually accretive to margins for us, if you take the interim result from special and Opto into consideration, so there is certainly - that’s positive. In general, I think if look out into our 515 strategy, our 515 strategy is very much embarking on growth, earnings growth in general.

So therefore in some businesses like LSS we definitely have to up our margin game there, I think that’s not secret, but not happy yet with the margins you see we're okay. With the trend we're seeing, but margins that we have there right now are not satisfactory and the team is working on this and for Opto and SP it’s important because we continued grow the earnings and such, and their overall should help us to also deliver the numbers that we set out for 2020.

Thank you. So I can have a follow on that, I was not talking specifically of the Opto margin, within the group, but I was just talking about the level where Opto is today, which is - today is a lot of it is driven by Opto, going forward you'll have also a bit of general lighting business where I believe you are expecting slightly lower margin in general lighting then you have in your premium.

So from that standpoint, I understand that's at the group level the margin in Opto is really, best in class, but if we look at the different component, I mean, it isn’t - I mean, don't you expect the Opto margin actually could be over time a little bit impacted by the general lighting mix or you expecting your premium margin to continue to expand?

Again, what we explained with our three pillar strategy, Opto in the future will have the business in general lighting with a lower margin and we have it in automotive lighting with some higher margin. But to be - to get these higher margin on automotive you need the economy of scale.

So that’s the reason we built this factory for EP Taxi in pulling and with these economy of scale where we use the EP Taxi and the chip you can use it then lighting on and on a later stage you can use for premium lighting. But you need the numbers of economy of scale to make your margin in premium and as I explained a little bit with - if you would have only a Rolls-Royce', you cannot survive only if you have a Rolls-Royce cars in your portfolio, you need a combination of a platform, like BMW and that have the 7 Series and they have the 5 Series.

So you need the platform, that’s what we are doing with general lighting as a platform and use the economy scale for premium cars as well and by the Lucie it’s not only Opto or general lighting, new applications are coming up as I've said, Iris scan, and they work through the chip for LED glasses are coming up. So we have in consumer we will have LED chips as well.

So it’s general lighting consumer industry and automotive. So we are much more balanced in the future than we are in past where we had a big part in automotive.

I mean, you could also see it Lucie a little bit what happened in '16, we saw a very good growth in infrared which has very good margin for us and as Olaf said when we announced our 515 strategy, we always said that we don't expect lighting margins to be very similar to the premium. But what we've seen this year and what we also see clearly from demand that’s out there that there is a very strong ideas and demand for different type of premium products maybe even that what we sell today.

And the other thing which I think is always also important to mind from a margin perspective, Kulim was designed to also help us with the premium segment as well. And if we deliver into the premium segments with a product that has a far more superior cost point, maybe even to that, that we have today, that will actually also either help us to improve margins or offset some of the margin dilution we will probably have from the SSL business.

Thank you. The question I had was regarding the penetration of LED in your auto segment, I mean, I understand now a lot of it is on premium cost, how did you think about the pricing dynamics for you LED lighting product in auto, when that penetration is going to start targeting kind of a bit more to mass market?

As I said, we have today Lucie - we have around 820 million comps with halogen on the market. So for the next 10 years we still have a huge demand for halogen replacement for use car, smaller product still coming up with halogen, new cars coming up with halogen, nevertheless you are absolutely right and as we describe the trend is that new cars will come up with LED in the future.

So you see it in Europe, I would say the penetration for our new cars is maybe around 80%, in China still with new cars on the market coming with halogen, but the trend is clearly more and more LED chips in LED lighting in new cars. But nevertheless, as I said, as number one, we had a huge, huge aftermarket business for the halogen for the next 10 years, for these hundreds of millions of cars on the road.

And maybe let add to what Olaf just said on pricing, we haven't seen anything out of the ordinary in fiscal '16 in our auto business from a pricing or pricing pressure perspective, and it tells me also not anticipating that to change fundamentally when we go into fiscal year '17 despite an anticipation of the penetration of course will increase.

Okay. Thank you.

And just my last question very quickly, this is a question we received from a lot of investors, so I am sure you've also had it as well. Is there any part of your portfolio, any part of your products which are serving the defense industry, whether this is defense industry in Germany or in the US?

I know, that question came up this morning in a press conference as well. So we don’t have a direct delivery to any military base business.

Nevertheless, we deliver quite often to media, so in the end I don't know, don't know really what kind of a portion of products in the end product, maybe in the military era and US. But there will be something that’s for sure, is it a double million, is it 3 million, I don't know it today.

Thank you.

Thank you, guys.

Okay. I am afraid we're going to have to put the call out.

Thanks everyone for joining the call today and we look forward to seeing you soon. Good-bye.

All right.