ams OSRAM Fourth Quarter Review
February 10, 2023
ams OSRAM delivers overall solid full year and fourth quarter results in line with fourth quarter guidance and reflecting difficult market environment; sees muted demand situation in key markets in first quarter
- Fourth quarter revenues of EUR 1,177 million and adj. EBIT margin of 7.3% show results fully in line with guidance range; strong operating cash flow for fourth quarter and full year
- Last planned disposal signed and Traxon disposal closed in fourth quarter, two remaining closings expected in first half of 2023 marking full completion of planned disposals
- Significant deep customer engagement confirms strategic leadership position in smallest structure size microLED technology
- Providing further program information based on latest available information and its assessment, ams OSRAM sees relevant revenues from leading microLED technology starting in 2025
- Expected first quarter revenues of EUR 900-1,000 million and expected adj. EBIT margin of 4-7% reflect ongoing market correction effects in important markets, lower expected production and shipment volumes, adverse exchange rate and deconsolidation effects
- Expecting to achieve mid-term targets within lower half of target ranges for revenues and adj. EBIT margin given expected business mix with current macro-economic trends and inflation pressures further impacting mid-term volumes
- Alexander Everke stepping down as CEO of ams OSRAM as of 31 March 2023, successor Aldo Kamper assumes CEO position on 1 April 2023
ams OSRAM reports solid full year and fourth quarter 2022 financial results. “Our business delivered full year and fourth quarter results that reflect a solid overall performance of our business in an increasingly difficult sector and macro-economic environment over the course of the second half. We recorded full year group revenues of EUR 4,819 million together with fourth quarter revenues and adj. operating margin that were fully in line with our guidance range. Our full year results reflect an overall good performance of our automotive activities and a robust contribution by our industrial and medical areas together with a more mixed performance of our consumer markets, all against the backdrop of significant sector impacts from last year’s geopolitical and macro-economic developments translating into, among other effects, substantial inflationary pressures. In the ending quarter, our automotive business performed well in-line with expectations including seasonal effects while inventory adjustments continued. Our consumer, industrial and medical activities showed an overall muted performance in the quarter driven by the negative macro-economic momentum and impacts on large customer demand from Covid-19 in China”, commented Alexander Everke, CEO of ams OSRAM.
“2022 has been a demanding year for the global semiconductor sector and the negative macro-economic trends continue to shape the situation in our end markets as we enter 2023. We have been able to deliver overall solid results for 2022 in light of imbalances in automotive supply chains, a muted performance of consumer markets, volatile developments in the China region, and significant inflationary pressures driven by the Ukraine war.
We have also signed or completed all planned disposals of businesses outside of our strategic focus, even as the market situation has become more demanding. We are confident to fully achieve our expected level of total proceeds including around EUR 100 million currently remaining to be received. All other integration programs also advanced according to plan over the course of last year. These successful steps testify to our progress in realizing the integration of OSRAM and the expected synergies and savings, all in line with our original commitments,” Everke noted.
“We are currently observing characteristics of a market correction and expect the prevailing macro-economic and sector situation to continue during the first half of 2023. Similar to other industry participants and assuming an expected recovery of demand exiting the first half, particularly in China and Europe, we currently expect an improved business environment in the second half of 2023 compared to the first half, based on current exchange rates.
Despite the demanding business environment we see near-term, we are not changing our focus on innovation, technological leadership and high performance solutions. We continue to invest significantly in R&D in the current year for next generation technologies in illumination, visualization and sensing. We also continue our focused investments into production infrastructure to support our leading position and growth for the long-term, including our industry-first 8” LED manufacturing facility. Working with major OEMs worldwide, we will continue to enable attractive sizeable growth markets for optical solutions”, Everke added.
As communicated, Alexander Everke will step down as CEO of ams OSRAM as of 31 March 2023 after seven years at the helm of the company. Aldo Kamper will become CEO of ams OSRAM on 1 April 2023. Aldo Kamper has been CEO of Leoni AG, Nuremberg, a global player in energy and data management solutions for the automotive industry, since 2018. Prior, he spent over 15 years in different management positions with OSRAM, including general manager of the business unit Opto Semiconductors, which recorded significant growth under his leadership.
Quarterly financial summary
(except per share data)
|Q4 2022||Q3 2022||QoQ||Q4 2021*||YoY|
|Gross margin adj.1)||28.5%||28.7%||-20 bps||33.4%||-490 bps|
|Operating income adj.1)||86||91||-6%||118||-27%|
|Operating margin adj.1)||7.3%||7.5%||-20 bps||9.6%||-230 bps|
|Net result adj.1)||29||47||-39%||119||-75%|
|Diluted EPS adj.1)||0.11||0.18||0.45|
|Diluted EPS adj. (in CHF)1)2)||0.11||0.18||0.48|
|Operating Cash Flow||201||151||33%||179||12%|
1) Excluding M&A-related, transformation and share-based compensation costs as well as results from investments in associates and sale of a business
2) Earnings per share in CHF were converted using the average currency exchange rate for the respective periods
* 2021 financials reflect reclassification within functional cost categories / Note: EPS denotes earnings per share
Full year 2022 group revenues were EUR 4,819 million, down 4% compared to full year 2021, influenced by deconsolidation effects. Fourth quarter group revenues were EUR 1,177 million, down 3% sequentially compared to the third quarter 2022 and down 4% compared to same quarter 2021, influenced by deconsolidation effects. Adjusted group gross margin for the full year 2022 was 31%, down from 34% for full year 2021. Adjusted group gross margin for the fourth quarter 2022 was 29%, unchanged from for the third quarter and down from 33% for the same quarter 2021.
The adjusted group result from operations (EBIT) for full year 2022 was EUR 407 million or 8% of revenues compared to EUR 502 million or 10% of revenues for full year 2021 (unadjusted: EUR -161 million or -3% of revenues for 2022). The fourth quarter adjusted group result from operations (EBIT) was EUR 86 million or 7% of revenues compared to EUR 91 million or 8% for the third quarter and EUR 118 million or 10% of revenues for the same period 2021 (unadjusted: EUR -90 million or -8% of revenues for the fourth quarter).
Adjusted group net result for full year 2022 was EUR 124 million compared to EUR 272 million for full year 2021 (unadjusted: EUR -444 million for 2022). Fourth quarter adjusted group net result was EUR 29 million compared to EUR 47 million for the third quarter and compared to EUR 119 million for the same quarter 2021 (unadjusted: EUR -147 million for the fourth quarter). Adjusted diluted earnings per share for full year 2022 were EUR 0.47 or CHF 0.47 (EUR -1.70 or CHF -1.70 unadjusted). Fourth quarter adjusted diluted earnings per share were EUR 0.11 or CHF 0.11 (EUR -0.56 or CHF -0.56 unadjusted). Reflecting the current end market and macro-economic environment, ams OSRAM has decided to suspend its cash dividend policy for fiscal year 2022 to focus on strengthening its business position in 2023.
The group operating cash flow for full year 2022 was strong at EUR 599 million while group free cash flow reached EUR 62 million. Fourth quarter group operating cash flow was EUR 201 million while group free cash flow was EUR -32 million. Group net debt was EUR 1,717 million on 31 December 2022, translating into a group leverage of 2.0x net debt/adjusted EBITDA. Through the expected repayments of the matured USD convertible bond and other financial liabilities more than EUR 400 million of debt was repaid in 2022. Cash and cash equivalents reflected the mentioned repayments and stood at EUR 1,087 million on 31 December 2022.
The Semiconductors segment provided the most relevant contribution to full year results at 66% of full year revenues, together with a solid adjusted operating (EBIT) margin of 10%. In the fourth quarter, the Semiconductors segment similarly contributed 65% of revenues. The semiconductor automotive business recorded solid full year results in light of the demanding market situation last year. The automotive market environment in 2022 was characterized by vehicle production impacts and continued supply chain volatility as well as notable inventory adjustments in automotive supply chains in the second half of the year. In the fourth quarter, the semiconductor automotive business performed well in-line with expectations as the mentioned inventory adjustments continued in the quarter. The semiconductor automotive business confirmed its position as global leader in automotive LED lighting last year while managing through the unsupportive market dynamics and expanding its design pipeline for the future. High performance solutions and innovation for a full range of exterior and interior applications form the basis of ams OSRAM’s success and strong customer penetration in all key regions. As an example, ams OSRAM added to its revenue pipeline for next generation highly-pixelated LED front lighting last year. The company’s solution offers outstanding performance as a fully integrated light source/driver system where around 25,000 addressable light points enable a new level of performance and safety functions for several OEMs.
The segment’s consumer market area recorded full year results in-line with expectations that reflected the less favorable market development in the year. Although major segments of the smartphone and consumer market held up well through the largest part of the year, a lack of demand recovery in the China and Android markets from the late first half through the second half of the year meaningfully impacted the consumer market last year. In the fourth quarter, the consumer market area tracked muted expectations due to additional negative volume effects in the smartphone market from Covid-19-related manufacturing reductions in China. ams OSRAM underlined its position as a market-leading supplier of optical solutions such as display management and camera enhancement sensing to the leading smartphone OEMs last year, including good market and design traction for future devices.
Providing additional information related to its microLED development and industrialization program and based on latest available information and its assessment, ams OSRAM currently expects to start recording relevant revenues from its leading microLED technology in 2025. The company’s significant deep customer engagement in this area confirms ams OSRAM’s strategic leadership position in smallest structure size microLED technology as well as its frontrunner position for high volume industrialization of this next generation technology.
The segment’s industrial and medical business showed an overall good performance last year as industrial markets provided attractive demand support for a large part of the year. Next to industrial LED solutions, industrial imaging offered a healthy contribution which was augmented by a good performance of the medical business. In the fourth quarter, increasingly negative demand effects driven by the macro-economic environment and regional dynamics in China impacted the segment’s industrial business in certain areas including LED industrial and outdoor lighting and horticulture solutions.
Aligning with the demanding market environment and current macro-economic trends, ams OSRAM continues to actively focus its business and development activities around its core competences and sizeable growth opportunities in semiconductor light emission and sensing.
The Lamps & Systems (L&S) segment provided 34% of full year 2022 revenues and showed a solid performance for the year, together with an adjusted operating (EBIT) margin of 6%. The L&S automotive business including legacy traditional lighting recorded an overall positive development last year in light of the sector environment. In the fourth quarter, the L&S automotive business performed well including supportive aftermarket seasonal effects. The other areas of the L&S segment offered a solid contribution to full year results from industrial, building-related and medical applications which was helped by improved demand over most of the year. In the fourth quarter, the other areas of the L&S segment tracked general end market demand showing influences from global macro-economic trends. Pro-forma fourth quarter segment revenues for the retained L&S business after completion of all previously announced disposals, i.e. deconsolidation of all closed and to-be-closed disposals, were 29% of same basis group revenues or EUR 307 million.
Actively reflecting the market development in 2022, ams OSRAM focused expenses even more strongly last year while continuing to invest significantly into R&D and capital expenditures. Streamlined capital expenditures in 2022 included upgrade investments and expenditures for ams OSRAM’s industry-first 8” LED production facility which is under construction at the company’s existing location in Malaysia. The construction of the facility building progressed fully in line with plans last year and is nearing completion despite a more demanding supply and cost situation for large-scale building projects. Further significant expenditures in-line with the company’s strategic plans will continue in the current year as construction of the 8” LED front-end facility is progressing towards production availability during 2024.
For the first quarter 2023, ams OSRAM is experiencing a weakened demand environment in important markets as negative macro-economic trends continue to create visible market correction effects. The overall demand situation in the company’s automotive markets remains muted while inventory adjustments are showing certain signs of stabilizing. At the same time, the company’s consumer and industrial businesses are impacted by prevailing lower levels of demand driven by weak smartphone volumes, negative macro-economic influences, and Covid-19-related impacts in China, in addition to negative consumer seasonality quarter-on-quarter. These dynamics are expected to drive sequentially lower expected production and shipment volumes for the first quarter, with additional negative quarter-on-quarter effects from adverse exchange rate developments and a revenue loss of around EUR 15m due to a fire-related capacity loss at a supplier.
ams OSRAM therefore expects first quarter group revenues of EUR 900-1,000 million (EUR 910-1,010 million excluding quarter-on-quarter disposal-related deconsolidation effects) and an adj. operating (EBIT) margin of 4-7%. These expectations are based on currently available information and exchange rates and reflect a revenue deconsolidation effect for the first quarter from closing the disposal of the Traxon lighting business which reduces expected first quarter revenues by around EUR 10 million on a comparable portfolio basis. Furthermore, the expectations include disposal-related deconsolidation effects on a year-on-year basis with a first quarter revenue effect of around EUR 80 million.
Similar to other industry participants and assuming an expected recovery of demand exiting the first half, particularly in China and Europe, ams OSRAM presently expects an improved business environment in the second half of 2023 compared to the first half, based on current exchange rates.
Looking further out, ams OSRAM expects to achieve its mid-term financial targets for 2024 within the lower half of the target ranges for revenues and adj. EBIT margin. These expectations are based on the currently expected business mix for the target period which reflects this year’s macro-economic trends, current regional dynamics and inflation pressures. These effects are seen to further underline the previously mentioned negative impacts to mid-term volumes.
Additional selected financial information for the full year and fourth quarter 2022 is available on the company website. The full year and fourth quarter 2022 investor presentation is also available on the company website. ams OSRAM will hold a conference call on the full year and fourth quarter results on Tuesday, 7 February 2023 at 8.30am CET. The conference call will be available via webcast.