OSRAM Licht AG

Thank you, Stuart. Good morning and good afternoon, ladies and gentlemen.

A warm welcome to the OSRAM conference call and our fourth quarter as well as fiscal year 2020 results. With me on the call are Dr.

Olaf Berlien, our CEO and Kathrin Dahnke, our CFO. Olaf and Kathrin will comment on the market development and our financial performance.

Afterwards, we will be happy to answer your questions. As a reminder, today's call is being recorded.

You can follow the webcast on our website at OSRAM.com/ir, where you will also find the presentation available for download. As with previous conference calls, I would like to draw your attention to the Safe Harbor Statement on page two of the earnings release presentation.

As usual, it applies throughout the call. It is now my pleasure to hand over to you Olaf.

Yeah. Thank you, Julia.

Ladies and gentlemen, a warm welcome to our conference call today. As usually I will start with an overview of our fiscal year and the current status of the combination with AMS and Kathrin will then go into the financials in more detail.

As usual, we will be happy to answer to your questions. So let's get started on Slide number three.

The past fiscal year was dominated by two topics COVID-19 and the various takeover offers. Thanks to our efficient management.

We have mastered the COVID crisis very well. We acted early in January 2020 and consistently that we were able to protect both our employees and our company and this has paid off despite the comparable revenue decline of almost 14%.

Our free cash flow was positive, so no cash burning in 2020. And our adjusted EBITDA margin remained stable at over 8%.

It also shows that we continue to make progress with our transformation, delivering and our performance and as Kathrin will show us on our saving targets, which brings me to the second dominating topic of the past year, the takeover by AMS. As you know, three days ago or shareholders approved the domination agreement between OSRAM and AMS was over 99.8% of the vote.

I think that's a major milestone for combining our businesses. Pending official court entry, we expect operations of the joint company to commence in early 2021.

So I move on Slide number four and the fiscal 2020 figures by quarter. As anticipated the months of April and May mark the low point in terms of revenue and profitability.

We had up to 50% decline in April. Since then, most business segments have been seeing gradual improvements, which is clearly shown in the recovery of the Q4 figures.

The Opto and automotive businesses benefit from the improved business situation, especially in China and North America. On a comparable basis, we recorded a sequential revenue increase of 26% compared to Q3.

Adjusted EBITDA improved by almost EUR100 million quarter-to-quarter reflecting the full effectiveness of our COVID-19 related saving measures. Of all this translate to the following yearly figures on Slide number five.

As mentioned, comparable revenue on the whole fiscal year fell by almost 14% affecting almost all business segments. The entertainment and automotive businesses were hit hardest.

At Opto, the streamlining of the product portfolio has paid off. Here, the adjusted EBITDA margin climbed to over 20% despite lower sales volumes.

For the whole it means that we managed to keep the comparable EBITDA margin almost stable at over 8%. This number reflects the improved cost base due to our performance programs.

Free cash flow came out positive EUR12 million. And I think that's a remarkable result in these special times.

This was mainly due to our active working capital management, and of course, our CapEx discipline, which brings me to slide number six and the economic environment. We have clearly observed further stabilization and important economic indicators in the last quarter.

In line with our own experience, the impact of the COVID-19 pandemic on the global economy was mostly felt in April and May as I said. Since then, there has been a rapid recovery progress, which is illustrated by the OECD composite leading indicator on the left side.

It has almost recovered in the last quarter. While another important indicator for us and you know, from the past the JP Morgan Purchasing Manager Index, on the right side already exceed pre-pandemic levels.

Especially the positive development in China makes us cautiously optimistic for our markets, the most important of which remains the automotive market. So let's take a deeper look on the global car production forecasts on Slide number seven.

This shows the global production figures as predicted by HIS. Light vehicle production for our fiscal year 2020 was down by 18% to less than 74 million vehicles, yet, it's significantly improved in the last quarter, and the forecast for the fiscal year '21 sees a further recovery.

IHS expects global car production numbers to settle at around 20 million vehicles per quarter. That means year-on-year growth of 13.5% to almost 84 million cars, especially Europe and NAFTA, which were hit hardest last year should see increases of 17% to 21% respectively, whereas, China has already recovered to a large extent and expected to grow another 5%.

This positive development is also reflected to our order volumes, especially bookings for our automotive LEDs here in the first quarter of the year '21, a very strong for our full first half year that means October to March. However, all this is subject to a corresponding development of the upcoming months, especially regarding COVID.

So I think it's good to be remain cautious. For the time being our measures to safeguard liquidity remain essential so I moved to Slide number eight.

Despite the pandemic and our efforts of retaining cash. This was never an expensive of strategic projects.

One of these projects at ours is the technology evolution of the LEDs for display solutions. Here the market is certainly moving from standard side emission backlighting to so called Mini LEDs.

They are only about 200 micrometers in size and mark an important technology step forward in terms of high-end displays. Production will start soon in our plant in Kulim, Malaysia where we can use our existing expertise in a second step and this will be after 2022.

OS is well positioned in the area of the micro LED. This is the next generation of LED.

At less than 100 micrometers, they are smaller than a diameter of a human hair that shows you really the increase of the performance. By combining red, green and blue micro LEDs into an array, we will enable direct emission [ph] displays with clear benefits namely brilliant colors, high contrast, high efficacy and fast reaction times.

That takes me to Slide number nine. The last two quarters I presented the so-called SHIELD program to you.

It contains more than 500 corona measures in the group that we took to safeguard profit and cash. Human resource measures such as short time working, as well as hundreds of operational and financial saving initiatives.

In total, we were able to implement measures with an EBITDA effect of over EUR50 million only in 2020. At EUR132 million the SHIELD program has also had a significant effect on free cash flow, while liquidity was improved by almost EUR190 million.

But of course, we have also continued the transformation of our company as we reported in the past. And this brings me to slide number 10.

Also in Q4, we continue to implement our existing performance and transformation program, with the biggest contribution coming from corporate overhead adjustments and the transformation of our plants worldwide. Total savings only in Q4 amounted of EUR35 million.

And despite the COVID-19 challenges I think and the integration project with an annual savings of another EUR128 million, we clearly exceeded our ambitions by more than one third. And now I hand over to Kathrin for a deep dive into financials.

Thank you, Olaf. Let's now start to take a more detailed look at the fourth quarter figures starting with our revenue development on Slide 11.

Overall, our revenue development improved substantially compared to the previous quarter, meaning the third quarter of the fiscal year due to a slight recovery in our core markets resulting in revenue in absolute terms for the OSRAM groups of 739 million, sequentially, that was an improvement over 26.3%. Looking at the development year-over-year, we had a moderate negative effect from foreign exchange rate.

But on the other hand, a slightly positive portfolio effect, thus comparable growth was minus 17.7% and mainly impacted by COVID-19. Looking at our regions, APAC declined by minus 18.3% comparable.

There in, China declined by minus 11.6% year-over-year. The biggest hit in APAC region came in for DI sales with the corona impact on entertainment, along with some challenges in the city beautification business, AM declined significantly in APAC and Opto sales showed a clear decline compared to prior year.

The biggest hit this quarter can be seen in EMEA, with a comparable decline of minus 20.9%. This development was driven by all business units, with DI showing the biggest decline followed by OS and AM.

America showed a significant drop in revenue with minus 14% on a comparable basis driven by all segments. Let me now come to the revenue development in the three reporting segments and let's start with Opto.

Compared to the third quarter this year, OS revenue showed a comparable growth of 11.4%, while the OS revenue in the fourth quarter saw a significant decline of minus 14% compared to previous fiscal year - to previous quarter four of the previous fiscal year that's resulting in a revenue in absolute terms of 320 million. Within Opto automotive revenue had the biggest hit in absolute terms mainly demand driven.

While elimination related revenue came in rather flat on a comparable basis, visualization and laser experienced a slight increased demand for industry industrial laser applications. Sensing showed significant decline in performance with double digit percentage negative year-on-year growth.

Let me now move to the revenue development in the reporting segment automotive. Overall the AM revenue came in at 395 million, resulting in a comparable revenue growth of remarkable 45% compared to quarter three of this fiscal year and mainly driven by our traditional business and OSRAM Continental.

Year-on-year, however, automotive LED components and our traditional light source business with OM showed a substantial decline in the fourth quarter. Our aftermarket business was only slightly negative.

The revenue development of the OSRAM Continental subsidiary showed only a modest decline in quarter four compared to quarter four in the previous year. Coming now to the revenue development of digital, DI sales were hit the most due to the corona impact, especially in the entertainment and city beautification area.

In DI, we did not see a recovery in Q4 over Q3 as we saw in the other business units. Year-on-year, the comparable revenue decline was at minus 35% for the quarter, driven by all segments and all regions, though, with APAC seeing the strongest decline in comparable revenues.

However, the revenue development improved sequentially with a comparable growth of 8.2% versus previous quarter three, due to strong development at Fluence. Let's now move on to the EBITDA side and to Slide 12.

The adjusted EBITDA in quarter four of the current fiscal year came in at 71 million in absolute terms, translating into a margin of 9.6%. As you can see, thanks to our early corona mitigation measures, we were able to keep our margin nearly flat compared to quarter four in the previous year.

We saw positive impacts from productivity, overcompensating price erosion, and inflation by 14 million, as well as from an improvement in functional cost. In the fourth quarter, we had a positive impact on EBITDA by applying IFRS 16 of about EUR13 million.

However, these positive effects were not able to compensate the negative volume and digression effect of minus 61 million. Coming to the segments, in the Opto reporting segment, the adjusted EBITDA improved compared to prior year quarter four to a remarkable 21.3%.

This was mainly driven by an improved operational performance, product portfolio improvements as well as lower functional costs. The adjusted EBITDA margin in the AM reporting segment with 5.5% came in quite flat compared to prior year level, which was at 5.8%.

Negative effects from volume, price and inflation were offset by productivity savings. The OSRAM continental subsidiary however, continued to be dilutive in the quarter and the adjusted EBITDA stayed negative.

Last but not least, the profitability of DI. The adjusted EBITDA margin was below the strongest - the strong previous year quarter and came in minus 4.2%.

This deterioration was mainly driven by the corona impact and therefore lower volume. Productivity and strict cost management would use bottom line, the impact of corona crisis.

Adjusted EBITDA in corporate item for OSRAM was negative with minus 12. Let's now move on to Page 13, to the free cash flow.

The free cash flow was in the quarter four negative with minus 52 million, while for the fiscal year in total, it was positive as mentioned before. CapEx were up at 32 million after very low levels over the past quarters.

In the previous quarter during these times of the corona pandemic, followed by a general economic slowdown geopolitical uncertainties and limited visibility, it is crucial for us to focus on cash and liquidity. As you can see in the bar chart on the lower right side, our available liquidity in terms of cash and undrawn lines amounts to 696 million as of September 30, this year, undrawn credit lines apply to the revolving credit facility granted from us by AMS as a shareholder loan.

Cash of 321 million was lower compared to the previous quarters as a result of partial use of cash to repay bank debt, triggered by the change of control with AMS. However, the cash and undrawn credit facility together with a total of 696 million on a similar and comfortable level compared to previous quarters.

Now, the summary for the key financials, let's have a look on the total on Slide 14. Overall, our top and bottom line development was strongly impacted by the global consequences of the COVID pandemic.

But thanks to our cost cutting programs and our early implemented measures, we were able to mitigate those effects partially. Revenue for the OSRAM group declined by minus 13.8% and came in at EUR3 billion.

This translated into an adjusted EBITDA of 8.3% for the year in line with our revised guidance in September. Adjusted EBITDA in absolute terms came in at EUR253 million mainly impacted by the decline in volume.

Our productivity gains were able to offset effects from price and inflation to a large extent. In fiscal year 20, we had an increase of EBITDA by applying IFRS 16 of about EUR54 million.

Let's have a closer look on revenue development in the regions. EMEA was hit hardest, with a decline of minus 17.1% for fiscal year '20.

This was driven by all business units, with AM and DI experiencing the biggest decline. APAC declined by minus 10.5%, mainly impacted by DI and there in by their businesses in China.

Overall, China declined only by a mid-single digit. Our business in the Americas showed a substantial decline of minus 13.9% for fiscal year '20.

Within America's Opto business experienced the biggest decline of more than 20%. All our business units were impacted by the consequences of the pandemic.

However, especially in the Opto segments, we were able to mitigate the effects on the bottom line resulting in an EBITDA margin for OS of 20.1% and thus, even 280 basis points above previous year. Our automotive business was of course affected by the weak development of the automotive market, as well as the dilutive impact of OSRAM Continental resulting in a margin of 4.8% and as already mentioned DI was hit hardest, mainly due to entertainment and city beautification.

The adjusted EBITDA margin for the DI segment came in at minus 3.8% for the full year. And with that, I would like to hand over to Olaf for the outlook.

Yeah. Thank you, Kathrin.

So coming to our last page and then to your questions, I move on Slide number 15 and the outlook for fiscal year '21. Regarding the further economic recovery, we are cautiously optimistic for many of our key markets.

Actual orders, as I said for the first two quarters are quite promising. We can therefore confirm our outlook for the new fiscal year published at the end of September.

For fiscal year '21, we expect a comparable revenue growth of 6% to 10% and adjusted EBITDA margin between 9% and 11%. And the balance free cash flow one might optimistically up to a double digit million figure.

Please note that this forecast is based on the assumption that the effects of COVID-19 will be overcome during fiscal year '21. So something I think we are all hoping for.

And with this I hand back to Julia.

And here we will now open the Q&A session.

Yeah, hi, thanks for letting me on. Olaf, two questions for me, firstly, on the numbers itself that was imported, you have now moved ORSAM Continental into - moved for resale or whatever, you know, they moved out separately, so can be understand in the full year numbers what kind of loss or profit was reported for or OSRAM Continental?

Or was it not there in the numbers at all, as you have reported today? That's my first question.

Second question is on the backlighting business you've mentioned your entry into the micro LED and then - sorry Mini LED, then micro LED, I mean, historically as I remember in your presentation, this was - backlighting was not a focus for OSRAM. Is this a new focus that you want to be in this market because historically, pricing pressure in this market has been considerable?

And then finally, a quick one on the current environment, have you seen any changes in the current environment orders or sales to customers because of the new lockdowns in Europe et cetera.

I will start with question number two and three and then I it for the OSRAM Conti to Kathrin. So let me start with the backlighting micro and Mini.

Now, the reason why I put it in for you was because I have seen now so many reports talking about micro LED and many authors, especially the press is confused between micro and mini. And to make it clear, there is no single micro led in the market today and there will be no single micro led next year.

So to make it clear, many people are confused from micro and mini and that was a reason to show a little bit the progress between the traditional led. The mini led, which is coming up now is just started in production by OSRAM in Kulim and then the micro LED is coming later on.

That was only to help you a little bit to give you an overview and not mix micro and mini. The second point is are we interested to going in the backlighting business?

No, so we are not producing television. But the micro and especially the mini - the mini and the micro LEDs are very interesting for displays and these kind of LEDs will replace the OLED and for this reason, many people call the micro LED OLED killer because today in smaller displays and in higher displays, but let me talk about smaller displays in an automotive interior areas.

So our interest is to deliver to automotive interior displays, smaller one and you see that more and more displays are coming up in a car, interior car. And for this reason, the micro and mini LEDs are very helpful because the accuracy and the lighting potential is very high and especially if you have any lighting from the sun with the traditional backlighting that is often a disadvantage.

In this area there is a huge potential in the future. And for this reason we would like to be in this special area of let me say backlighting and applications for automotive.

The third question was the current environment, as I said, and to give you a little bit an indication and you are right Sandy that usually OSRAM is an early indicator for many things. I have a strong order book for the Q1 and Q2.

That surprised me, especially in automotive LEDs. That means that today still in November, there is no impact from the current lockdown visible for us and if I compare the book to vary from this year to last year, we have a much better situation.

So today in the current environment I do not see weak signals for pandemic decline in the business. It is the opposite.

People love to drive cars. They don't like to use public transportation.

In North America, people are not willing to fly or to take the train, or the Greyhound bus, they are using cars. So the demand especially in driving mileage is increasing.

And there's a clear correlation between driving a car mileage and change of halogen lamps. So we are more or less sold out in North America.

And we have a very good order book for halogen aftermarket business in North America. And the same is a little bit in China.

People love to have their own car. And you see it by the way here in Munich as well, streets are full, but public transportation is empty.

And the third question - and first question is coming to you.

The first question is, in fact Sandy, thank you for that. Regarding the OSRAM Continental joint venture, as in the previous fiscal year, the revenue amounted to roughly 220 million, and we continue to have a negative EBITDA margin and therefore that's diluted for SM of approximately 20%.

As a result, at the end of the day, there was also a negative free cash flow deriving from that activity.

Sandy, is it okay?

Sorry, my question, just [Technical Difficulty] that OSRAM Continental, it's about 14 million negative EBITDA is what you - is the dilution is what you're saying.

Definitely, yeah.

Thank you. Thank you.

Yes, hi. Good afternoon.

Can you hear me?

Yeah.

Very good, just double checking. Right, so the first one would be on the outlook for me.

It's implying about 20% to 40% contribution margin based on my calculation, or in the background? How should we think about the growth by divisions when I'm looking at your 6% to 10% organic growth guidance, any potential currency impact that you might have baked into that margin guidance, cost inflation, so any color on sort of the moving parts would be very, very much appreciated?

And the second question is around portfolio. So digital, I would assume has suffered pretty much from especially the play party stage entertainment lockdown situation, can you give us a bit of time how much sort of the traditional specialty lighting which was moved into the digital division kind of created the $30 million loss and how much really related them to all other activities within digital?

And if I may follow up quickly on the prior question around the Conti JV, can you just update us on the overall process? What is intended, the timeline and what is sort of the exit route?

Is there anything here?

Well, maybe I start with the OSRAM Continental since I was just answering that question. It's still the same timeline as we envisage.

So when we intend to unwind the two businesses, I think that's a term for it by the end of the next fiscal year, meaning by September of 2021. That's still the idea.

And the idea is also unchanged that the parties have agreed on what activities exactly they are basically taking along the lines from what they brought and integrated in their business when it was first established. And there's a lot of details to work on.

And especially it's the customer orders which need to be complied with and fulfilled and that's the most important question. However, no changes and it's as we envisaged and that's why we also will find an impairment for the quarter four in our numbers, because all of that has been anticipated and impaired.

I'm coming to question number two and number one about planning assumptions that the job will help us a little bit to come through. Portfolio, DI, yes, we had the huge impact on entertainment lands and play party decline is up to 95%.

That means there are no single entertainment lamps we can sell more or less, it's really a little bit replacement. As you know, all cinemas worldwide, closed, all theaters are closed, Opera is closed.

Any shows are very limited, so the entertainment is really absolutely down and the biggest losses came clearly from entertainment. We have positive results from horticulture, our company Fluence are running quite well.

Horticulture is still growing in turnover, revenue and profitability. As you know, for local the people love to reduce transportation and produce fruits and products local.

For this reason, the horticulture by Fluence is running quite well. And so the last one is that we have losses in Europe for controls and we have more or less zero profitability for controls in North America.

So overall, the biggest impact came from entertainment. And for this reason that we have the losses what Kathrin explained.

Maybe coming to some of the planning assumptions for the outlook, if I remember your question, please correct me, it was the question, what kind of dollar we have inside? And what is the price decrease?

Maybe Kathrin, we can try to manage it?

Well, regarding the foreign exchange, assumption behind the business plan were still calculated on the basis of margin of 1.17. So that's basically where we are today.

As always, in OSRAM, we generally are expecting a pressure on margins. And therefore, we are basically looking at price - at margin decline.

And that's why we are constantly improving our cost structure in order to work against that. That's the same as it has been all the time.

And therefore, for the next year, we are very confident that our productivity gains will exceed the pressure on the prices.

Yeah, good afternoon, thank you. And a follow up question on page eight or slide eight.

Last time, you showed us a slide on micro LEDs, I think you in terms of time frame you rather mentioned '23, '24 and as you're supplying or intent to supply although, they tend to be rather slow on new technology. So what is driving that early adoption?

And you gave us the free cash flow guidance, you also said first half orders - orders for the first half are very strong. Should we look at negative free cash flow as you build - as you grow first half and then positive in the second half?

Thank you.

Coming to your first question was micro LED, yeah, what is maybe a little bit changed. But again, it's the range of '22 to '24.

What is maybe changed is that from the technology point of view, the issue with a micro LED was never the development of OSRAM for the micro LED, so this is finished. The issue is to pick the LED and bring it to a wafer.

So the biggest issue was in the past that we have to find a solution with the right machines to pick the LED and bring it to a wafer. And it seems to be that this is getting now much better, and we expect to be a little bit faster.

So that's the reason I said it could be '23 - '22, '23 instead of '24, but that's now our latest proposal for the micro LED. That was the reason that I bring this down.

But as I said, the biggest one was to explain a little bit the difference between mini and micro. The second question is coming up, that we expect again, as I said, strong aura entry.

And we had a strong turnover and order in Q4 and you have seen that our receivables increased. You see that on the charts of Kathrin.

That increased to 73 million alone of receivable. I expect that this receivable will change to cash, if Kathrin is tough enough and she is to bring us these receivable to our cash position.

So I expect a good free cash flow for Q1. And for this reason, I do not see an issue in this area.

Thanks for letting me on again. Two quick follow ups, firstly on again, OSRAM Conti JV, this so-called wind down of the JV.

I mean, will there be a cash cost to OSRAM associated with it? And do you have an estimate on how much it would cost to do this?

And then the second question I have overall is I mean, now with the domination agreement with AMS, are you already working with AMS on joint products, whether in LIDAR or any other business unit? And how quickly will they produce revenues?

Thank you.

Okay, I would recommend that Kathrin is starting and then I'm coming to the domination.

There are no costs attached, which hadn't been reflected in this year's impairment. Therefore, all we're looking at next year will be the operator's continuing unfortunately lost situation which is already included in our prognosis.

And there are no additional one off that was I think that the question

Coming to your second question, domination agreement, joint products, we just started to think about the roadmap. As you know, OSRAM is strong in emitter, in LEDs and visible light and invisible light and AMS is strong in sensors and for optics.

And I think the combination of emitter, sensors, optics bring us really to division to be the market leader and world market leader in photonics, illumination and sensing. And so we are working on new products as a combination of both's core competency, but we didn't - again, we are on roadmaps and not on actual developments today.

We would like to wait if we have this termination agreement is officially valid. And that's what we expect in the beginning of the year '21.

And then we are really starting together in the in the development of new products.

Thank you.

Thank you very much for your participation. And with that we would like to close this conference call.

If you do have further questions, please get in contact with our Investor Relations team. Thank you and goodbye.

Bye.