Earnings Call: Q2 2021

Jul 30, 2021

Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome and thank you for joining the AMS, Osram Conference Call on Second Quarter and First Half twenty twenty one Throughout today's recorded presentation, all participants will be in a listen only mode. The presentation will be followed by a question and answer session. I would now like to turn the conference over to Alexander Iverka, CEO Mr. Ingo Bank, CFO and Mr. Moritz Geminer, Head of Investor Relations. Please go ahead, gentlemen. Good morning, everybody. This is Mors Meine. I'm very happy to welcome you to to guide you guide us through the developments and some of the things we look forward to as a company. And then Ingo will lead us through the financials of the last quarter. Alex? Yes. Thank you, Moritz. Good morning, ladies and gentlemen. I'm very happy to welcome you to our Q2 2021 conference call this morning. In this webcast, I will first lead you through some key aspects of our business positioning as AMS Osram and how we see it moving forward and then comment on the developments in the Q2. We have a clear vision for our company to create the leader in optical solutions. This is what drives us as the guiding principle for our business, investment and spending decisions. We are fully committed to achieve this vision through bold investments in disruptive innovation and continuous transformation, Delivering best in class profitability and growth. If you look at Page 3, to this end, we pursue leadership in key segments Of the optical space, offering an outstanding combination of emitters, optical components and modules, detectors, related ICs And algorithm. With these solution elements, we are addressing the diversified markets for sensing, Illumination and visualization. We offer optical solutions for 3 global end markets: Consumer, Automotive and Industrial and Medical, where we combine light emission and sensing in an outstanding portfolio. Here on Page 4, you see how we are set up in these markets. Our broad range of current strength and the diversified growth areas that we see driving our business development in the future. Focusing on growth fields, this includes the following: the next generation displays, MicroLED, MiniLED, Sensor Integration, Augmented Reality, 3 d and near to eye applications for consumer. In automotive, it's light applications, high resolution matrix headlights, exchangeable LED lights, Head up displays and in cabin sensing. And in Industrial and Medical, we see UVC LED, horticulture, Industry 5.0 and robotics, 3 d applications and in vitro diagnostics. You turn to Page 5. So looking around in a nutshell, we see ourselves best positioned for leadership in the optical solution field. We benefit from balanced revenue streams and a diversified base. We leverage our portfolio and application expertise that is at the forefront of the industry, supporting a broad range of markets, product cycles and customer bases. And we are successful in our markets by being a leader in key optical applications across automotive, consumer, industrial and medical. Based on this, we are putting forward a strong value proposition as AMS Osram, which consists of 4 elements, which is shown on Page 6. 1st, a commitment to drive growth. We pursue Board investment into disruptive technologies and innovation led growth. This is reflected in our target level for R and D spending of 11% to 14% of revenues. We have a clear target of achieving double digit average yearly revenue growth as a group. With a solutions approach, we address high differentiation opportunities And new markets. And we use M and A to add technology to our portfolio to build leadership. The second element is a strong focus on long term value generation. We are driving a sustained position as leading technology provider. We reinvest into organic growth opportunities for the company. Our balanced end market exposure creates a broadly supported earnings stream with manageable volatility. We serve a diversified global customer base through different sales channels, And we do continuous active portfolio management to optimize our technology position. Thirdly, We're on the path to strong sustainability and profitability. We are realizing significant synergies and savings of around €350,000,000 until spring 2024. We are committed to drive benchmark levels For operational and support functions costs, which is expressed in our target level of SG and A Of 7% to 9% of revenues, all to drive our clear target of more than 20% adjusted EBIT margin for the group. And the 4th element is a prudent financial policy. We are committed to deleverage our balance sheet. We target investment grade rating and a limited leverage of less than 2x net debt to adjusted EBITDA. Supporting this is our broad array of financing instruments with a balanced longer term maturity profile, At the same time, a further increase in our ownership of Osram is not a priority for us. On Page 7. To underscore this value proposition, I would like to give you a more concrete timeline How we expect to build leadership and drive the integration and realization of synergies. In the first step, we create one company. From when we took control in March well into first half next year, This is where we are today. We execute the business portfolio realignment. We implement common platforms to run the combined business and roll out a new organization, including a new culture model. We drive 1st year synergies, Which structurally are more related to OpEx and define joint solution roadmaps in our business. The second step will be to start leveraging our strategic portfolio. We expect this from around spring next year well into 2023. Earlier in this step, this process will be materially completed and our new realigned portfolio will be in place. This means that we have established our new revenue base for the group and this will be the base from which we will grow. We will drive 2nd year synergies, which we expect to be both OpEx and COGS driven. And we will also drive developments for 1st generation joint solutions and can fully leverage the combined IP and resources. The 3rd step will be to drive growth and profit targets. We expect this from around spring 2023 beyond the spring of 20 During this period, we expect to see the midterm growth drivers kicking in and anticipate a longer term growth vectors We will drive 3rd year synergies, which will structurally center more around manufacturing costs And revenue effects. And so in spring 2024, you see the synergy run rate realized that we have laid out. I believe this offers a clear view of our plans, and we are fully focused on implementing these with the same determination we have shown for the previous steps to combine AMS and Osram. If you move on to Page 8, Now I would like to update you on the strong progress we have already seen with the integration. And let me remind you that we have only been in control of Ostrand Since March of this year. We have successfully completed the delisting of Osram, and our current shareholding Has increased to 80.4%. We have realized the first portfolio disposal and the realignment The portfolio is progressing as planned. This shows our commitment to creating the new portfolio for AMS Osram With further announcements expected in the next month. The synergy realization is on track. As an example, We have agreed OpEx related planned staff reductions in Germany with the labor representatives. We are implementing the new internal organization and have completed first steps in the integration of IT. And importantly, we are in the process of rolling out new corporate identity, purpose, values and leadership principles as part of our new culture model. Moving to Page 9. Let me now comment on the development of our business. I'm pleased with our performance in the second quarter As our key metrics of US1.49 billion dollars revenues and 9% adjusted operating margin Came in well above the midpoint of our guidance in a complex industry environment. Healthy overall demand drove our positive growth results With sequentially lower revenues than we expected, reflecting typical seasonal effects. We particularly noticed ongoing robust automotive demand and the corresponding order situation in the quarter. The semiconductor segment showed a very healthy development, where the automotive lines continue to see strong demand, with total backlog further increasing. The consumer lines also record a healthy performance in line with seasonal effects, driven by our range of optical sensing solutions. The industrial and medical market areas generally benefited from increasing macroeconomic momentum. Demand for the majority of industrial lighting applications has seen a good recovery, while horticulture lighting demand is expanding. Medical and other imaging product lines also developed positively in the quarter. We pursue development activities for new optical solutions in light sensing and 3 d, including solutions for world facing AR and 3 d authentication As well as camera enhancement and display management. Our innovation areas include Future near to eye visualization and sensing technologies for AR devices. The Lamps and Systems segment Recorded a very solid overall performance in the Q2. The Lamps and Systems Automotive business, including traditional markets, Performed strongly and contributed very positively to the overall group, driven by a sustained demand recovery and in line with typical seasonality. I'm happy to say that in other areas of lamps and systems, we saw a very attractive recovery in industrial demand, Including building related and semiconductor equipment. Other industrial and medical markets, LEMS and systems are still seeing a mixed demand environment. These developments resulted in a very solid adjusted operating margin for the group, and we again delivered strong operational cash flow in the quarter. This also drove an attractive free cash flow for the quarter, while the cash outflow From the delisting offer for Osram remains moderate. Looking forward, we see an ongoing tightness in chip supply As well as imbalances in the supply chain, which continue to limit the ability to fully deliver against ongoing very robust demand, Particularly in the automotive market. I expect these imbalances to extend well into the latter part of the second half based on current information. Short term revenue drivers for us continue to be automotive lighting and consumer optical sensing In areas like display management and camera enhancement. At the same time, we are moving on integrated product roadmaps that will drive our position in mid term growth markets, including UVC LED, advanced LED, front lighting systems, AR, 3 d applications and more. Let me now move to our outlook for the Q3. We expect our overall business to show a solid development across segments in the Q3. This expectation is particularly driven By continuing robust automotive demand globally, despite ongoing imbalances of the tightness in the supply chain. Demand trends in the other end markets are expected to drive attractive contributions from our other business. For the Q3, we therefore expect group revenues of $1,450,000,000 to $1,550,000,000 Slightly up sequentially at the midpoint with an expected adjusted EBIT margin of 8% to 11%, all based on currently available information. Importantly, this revenue guidance excludes The revenue of the disposed digital system business in North America as a transaction closed early July. Let me add that we plan to update you on our strategy, our new aligned business portfolio and strong technology position at the Capital Markets Day, and we see it for the early next year. With this, I would now like to hand over to Ingo. Thank you, Alex, and a very good morning to you all. Before I start going through the financials, a few things upfront. When we refer to adjusted financial metrics, we refer to adjustments for M and A related transformation And share based compensation costs and results from sales of business units and equity investments. A reconciliation to the IFRS The basis of the presentation is included in the financial information on Q2 2021 that we published today and which is and Stuart. Comparable prior year financials are not available this quarter due to the acquisition of OSRAM with the consolidation having started from the Q3 of 2020 onwards. Let me now start with reviewing the financials by going briefly through a snapshot of our key financials for the Q2. I'm on Page 11 of the presentation. Alex outlined earlier that with revenues of 1 point $49,000,000,000 and an adjusted EBIT margin of 8.8 percent, we came in well above the midpoint guided for both metrics. Adjusted gross margin was 33.2% in the quarter, also in line with expectation. Adjusted net income was at $84,000,000 with an adjusted basic EPS of $0.32 or CHF 0.29. Operational cash flow continued to be strong in the quarter at US229 million dollars Net debt stood at US2.3 billion dollars reflecting, amongst others, the settlement Of the delisting offer and the buyback of our outstanding convertible bonds. Overall leverage was a solid 1.7 times As of the 30th June 2021, particularly when taking the delisting effect into account. I'm now on Page 12 of the presentation. Revenues for Q2 'twenty one came in at $1,490,000,000 Sequentially, this translated into a 3% decline on a comparable basis. This was well within our expectations as it reflects Typical seasonality, particularly for the consumer as well as the automotive markets we are operating in. For the first half of twenty twenty one, Aemet Ostrom generated total revenues of US3.04 billion dollars As Alex pointed out earlier, we are still affected by a challenging supply chain environment across The different industries and end markets we are operating in. Whilst demand stayed strong, particularly for automotive, But also industrial and consumer applications, we still had to deal with allocations relative to our customer order backlog given shortages in different areas of our overall industry value chain, both down as well as upstream. We expect this situation to also continue in Q3 'twenty one. Adjusted gross margin in the 2nd quarter came in at 33%, in line with expectations. The sequential decrease reflected lower capacity utilization following the overall seasonal pattern of our top line and volume development. For the 1st 6 months, gross margin for the group stood at 34%, generating US1.03 billion dollars in absolute Adjusted gross profit. Adjusted EBIT for the quarter came in at 9%, reflecting a sequentially speaking lower gross margin level As well as the quarter on quarter uptick in R and D expenses, whilst SG and A was lower when compared to Q1 'twenty one, both in absolute numbers, but also in percentage of revenues. EBIT, As reported, it was negative at USD143,000,000 reflecting M and A related expenses, share based compensation, Transformation costs as well as a onetime charge related to tangible fixed assets of US182 $1,000,000 pretax. This noncash impairment was related to our manufacturing asset base in Asia, following a review of the useful life of specific machinery a charge of approximately US30 $1,000,000 related to an agreement with the labor representatives in Germany regarding reductions in overhead positions. Let's have a closer look at the revenue distribution for the first half of 2021 on Page 13. With respect to the segment split, 64% of group revenues were recorded in the semiconductor segments and 36 in lamps and systems. I will look at more details regarding the segments in a few minutes. The group's revenue distribution with respect to end markets has already substantially changed compared to the historic AMS business. This already today reflects a very balanced and attractive end market mix, where the first half saw around 30% consumer, Around 40% auto and around 30% industrial and medical revenues. Let me emphasize that this H1 split was driven by Industrial and Medical being recovering quite strongly through the first half, Which moved the split towards industrial, while our consumer business remains a very healthy contributor as expected. Regionally speaking, we also see a rather well balanced geographical distribution of our revenues. Over time, We do expect this to balance out even further, also taking into account the anticipated portfolio changes related to planned divestments in the Lamps and Systems portfolio. Turning to operating expenses now on Slide 14. We see That our total OpEx run rate showed a stable development when averaging the last quarters. Adjusted R and D spend in the Q2 was $185,000,000 which translates into 12% of group revenues. This was a tick higher on an absolute as well as relative basis due to roadmap driven planned R and D investments in our innovation areas and lower capitalization in the quarter. Overall spending level in the quarter was well within the targeted band of between 11% to 14% of revenues. Adjusted SG and A expenses for the group in the second quarter, on the other hand, were $188,000,000 which Is a good sequential decrease, translating into SG and A at 13% of revenues. Our targeted range for SG and A spend for the integrated group is between 7% to 9% over time. To complete the picture, I would also like to note that we've recorded a book gain due to the sale of a real estate site in Germany, Which is reflected in our other operating income. This gain, however, was excluded from our adjusted EBIT financial metric. It is, on the other hand, part of the EBIT according to IFRS. Moving to Slide 15 now. All our synergy realization programs are well on track after actually having gained control of Ostrand only since March. First important milestone of the organizational integration have already been reached. One example is the successful go live of a joint CRM platform for our semiconductors business, helping our sales and marketing organization to address our joint customer base within the entire semiconductor portfolio of AMS Osram. Savings are on track Towards the overall objective of €350,000,000 pretrax gross. We will provide regular, more detailed updates on our synergy and savings realization progress on a half yearly basis. The next update will therefore come with our Q3 'twenty one financials. At the same time, I'm very pleased to also share an important update in the context of our synergy realization with you. We completed a further review of the expected integration expense estimates after obtaining control of Osram. As a result, We now expect onetime costs for the integration to be significantly lower at only around 0.9x the €300,000,000 total synergy pool over time or approximately €270,000,000 pretax. This is a substantial reduction of around €120,000,000 of total integration cost compared to the original estimate of 1.3x. For the avoidance of doubt, let me also reconfirm our target to total pretax synergies and savings at the level of €350,000,000 in line with our communication earlier this year in conjunction with our Q1 2021 financials. Turning to the net result and EPS now on Page 16 of the presentation. The adjusted net result for the AMS Osram Group in the 2nd quarter was $84,000,000 including a net financing result of $40,000,000 The sequential decline was driven By the lower overall operating profitability. Net income, as reported, was negative at USD190 1,000,000 also reflecting The one time effects I outlined earlier. Adjusted basic earnings per share in the second quarter were $0.32 or CHF 0.29, reflecting the sequential decrease in the net result. Let's now have a look at the segment performance. Revenues on Page 17. Revenues for the Semiconductor segment were US9 $52,000,000 driven by strong demand in automotive and industrial and solid demand with seasonal influences in the consumer market. Adjusted EBIT came in at a healthy 13%, reflecting a strong automotive business paired with seasonally lower consumer business. For the 1st 6 months of 2021, semiconductor segment revenues were $1,950,000,000 Resulting into a very solid adjusted EBIT margin of 15%. In the course of the second quarter, we saw Ongoing resilient demand, particularly driven by automotive, building further backlog with a meaningful portion of customer orders still in allocation. A continuation of a tight supply chain, resulting into imbalances, Both up and downstream, we expect this to continue well into the second half of the year. Moving now to Lamps and Systems on Page 18. Revenues for the Lamps and Systems segment were USD 539,000,000 in the Q2 driven by solid automotive demand, including traditional lines and in all market areas As well as ongoing recovery in key industrial lighting applications. Adjusted EBIT for the quarter was positive and came in at 1%. For the 1st 6 months of 2021, the Lamps and Systems segment revenues were $1,082,000,000 resulting into an adjusted EBIT margin of close to 1%. In the course of the second quarter, we saw the successful disposal of the DS North America business with the transaction closed in the meantime and proceeds part of our Q3 Cash position. Ongoing recovery in important industrial end markets, particularly in Asia Pacific And an ongoing strong performance of the automotive aftermarket business. Moving now to cash flow and the debt position of the group on Pages 1920. The group's operating cash flow was again healthy in Q2 At $229,000,000 and therefore strong for the first half of twenty twenty one, contributing A total of $478,000,000 Capital expenditures in the second quarter were $53,000,000 or 4% of revenues. CapEx spending for the 1st 6 months amounted to US149 $1,000,000 or 5% of revenues for the group. The overall CapEx spend in the first half was mainly driven by the pickup in demand levels, particularly for our automotive and Industrial Markets. For the full year 2021, we see ourselves tracking to a CapEx spending below 10% of revenues. Free cash flow in the first half of twenty twenty one was very robust and as a result was US329 $1,000,000 for the group. Moving to Page 20 now. The group's cash And cash equivalents stood at US1.6 billion dollars at the end of Q2 'twenty one. Next to the positive free cash flow in the quarter, we also recorded cash receipts related to the divestiture of a manufacturing site in Bulgaria and the real estate side in Germany. Against these cash inflows, we had, of course, the settlement Of the delisting offer and further open market purchases of OSRAM shares amounting to overall approximately US520 $1,000,000 in the quarter and approximately US20 $1,000,000 related to the continuing buyback program The settlement of the delisting offer was done via existing cash. Consequently, I can confirm that the bridge financing we had put in place earlier for purposes of acquiring Ostrum shares Remains undrawn. Given the cash movements just outlined, the group's net debt went up by only US280 $1,000,000 compared to end of March, despite the full settlement of the delisting offer within the quarter. Overall, this translated into a financial leverage for the group of approximately 1.7x at the end of Q2, A very solid financial position as a group after the successful completion of the delisting offer. Going forward, we expect the financial position, therefore, largely to be driven By the operational performance of the group as well as future investment needs. We also feel very comfortable With the 80% ownership position we have in Ostrom, together with full control through the domination profit and loss transfer agreements, Increasing this stake further through share purchases has no priority for us at this point in time. The development of our cash position over the next few quarters, we'll also be augmented by additional expected disposal activity we mentioned earlier. On Page 21, you find summarized for your reference, again, the outlook that Alex already outlined for the 3rd Let me quickly repeat it. We expect group revenues in the range of $1,450,000,000 to $1,550,000,000 in the 3rd The adjusted EBIT margin, we expect to be between 8% 11% of revenues for the Q3. And Again, I would like to stress that the revenue expectation excludes the disposed revenues of the DS North America business, Which you should assume to be around $40,000,000 per quarter. And with that, I would like to thank you for your attention and open the floor for questions. Ladies and gentlemen, at this time, we will begin the question and answer session. Mr. Deshpande, can you please unmute your telephone? Yes. Hi. Can you hear me? Yes, we can. Yes. Hi. I have a couple of questions. Firstly, this is Sandeep Deshpande from JPMorgan. Regarding your guidance in the margin for the second half, would you say now that now that you've seen what's happened in terms of revenue loss In the second half in your consumer business that these levels of margin, this level of margin can be sustained for the second half or is there could be further changes Into the Q4 and beyond. And then my second question is on the on this consumer business itself. Have you continued to work with that customer and do you believe that there are further future opportunities with that customer? Yes. Maybe start with your first question. So I think what I can say, of course, is you've seen The guides we gave on the Q3, and I don't want to give, Let's say also guidance already for the Q4, but I think it's overall fair to assume that we also expect the Q4 to be a good quarter for us. Yes. And then on your second question, since we can't talk about one specific customer, but what I can clearly say That we have good interaction and good opportunities at our large customers in the consumer space. And certainly, with the expanded portfolio now, as I mentioned also last quarter, we see various opportunities moving on For the next years to come, absolutely. Thanks. And if I just have a quick cost follow-up, Ingo, we've seen some rebalancing on the R and D and the SG and A, has that already started in terms of synergies or this is just some kind of movement you've seen in the SG and A and R and D in the Q2? I think on the R and D side, that was just some movement where we looked at some of the Our R and D projects, synergies, and yes, we see already some of the G and A benefits showing and reflected in the numbers. Next question is from the line of Sebastian Zabovitch from Kepler Cheuvreux. Please go ahead. Yes. Hello, everyone, and thanks for taking my question. On Ambiance licensing, it seems that one of your competitor is gaining a little bit of Market share in the market and potentially at our large customer your largest customer, sorry, is it possible to expect a little bit of Some market share pressure in onboard licensing going forward. And the second one would be on the LED market. Could you provide a little bit some comment on The strength of the LED market today inevitably where supply and demand are evolving in that market specifically? And more on the long term view, what kind of growth should we expect from the LED market opportunity in the coming years? Thank you. So let me yes, the sweet question, let me start. So market share, I think we communicated the Market share loss in the consumer business, we feel confident for the future development. We don't expect major changes there. On the LED market, it's a good growing market, specifically on the automotive side. It's very it's still a very tight situation. The whole trend goes into LED. If you look at electrification of cars, it's certainly A very strong motivation to go into the LED space, and our supply is fully loaded. Also, industrial LED is moving up. So the whole LED business, we see clearly the trend upwards, And we feel very confident about this. And that's why also it shows that in LED, we see on the short, mid- and long term a significant growth And then obviously, most moving into the more sophisticated LED technology like MicroLED, MiniLED It's certainly an opportunity we see for the next years to come where we see a significant growth. And then obviously, going back to LED, Where we have specific features like UVC or for horticulture for specific light waves to accelerate growth, That is certainly an area where our IP is very, very strong and we see opportunities there where we utilize The specific feature sets we have now is LED technology. Okay. Thank you. One follow-up, if I may, on Malaysia because of the COVID-nineteen and that have resulted from the pandemic. Have you seen any impact on your manufacturing capacity or production output in Asia over the past couple of weeks. No, we have not. We have implemented A very solid hygiene concept in our facilities in Asia Pacific We have also been tested by local governments on that, and we've not seen any shutdowns. We started also vaccination Of our employees at the various sites that we have, also to act responsibly, obviously, as an employer. And Hans, we are happy to see that the local management did an excellent job there and employees are quite happy to return To our facilities to help us supply our customers where the demand is still strong. Next question is from the line of Didier Shneurama from Bank of America. Please go ahead. Thanks for taking my question and good morning, gentlemen. First question, I just wanted to see, you know, could share your thoughts On the impact of the disposal of DS in North America, whether that's a big team entirely in the margin target, Can you share with us what sort of embedded revenue growth is assumed to get to that number on a sort For form a basis, since you highlight further disposals. And I guess my question is, can you get there with minimal revenue growth Purely on the back of the cost synergies that you're targeting. Okay. Let me maybe start with DS Americas. Obviously, DS Americas was still included in our Q2 financials. The Transaction was closed on the 1st July. So at the end of Q2, end of June, we held DS Americas in the balance sheet as an asset held In the meantime, it has closed. We've already received the proceeds, and it will therefore not be reflected anymore in our Q3 financials going forward other than the cash proceeds we've received from acuity already in the meantime. Yes. And then to your second question, as I presented in my speech before, We use our disposals to clean up the portfolio, which we will plan to finalize in the next year, 2022. This The basis for the growth, and we expect double digit growth for the next following years to come. And that's the basis of the EBIT improvement In conjunction, obviously, with the cost reduction, the synergies, the portfolio management, we are executing currently. Wonderful. My follow-up, if I may, just in terms of sequential growth rates, sort of organic, So ex disposal, at which point do you think we've sort of reached a flow on revenues? Is it already behind us? Or do you think that sort of next year could find a bit of a flow on revenues and you can grow that double digit Just highlight it from there on. Yes. I think, look, I mean, what Alex said earlier, we are still in in the process of making very fundamental adjustments to our portfolio in DI. So I don't think you can speak of a flow As of yet, as Alex said and as we pointed out on one of our slides in the presentation, we expect that to Sort of baseline, if you like, reset to be there in the course of 2022. And then from then onwards, See what maybe you would call a flow. Stay with us. Many thanks. Next question is from the line of David O'Connor from Exane BNP Paribas. Please go ahead. Great. Good morning, Ana. Thanks for taking my questions. 1 or 2 from my side. Maybe firstly, Ingo, just going back to the guidance, You're guiding me the second half revenue slightly above the first half. Just to complete the picture, can you give us any additional color on that second half Adjusted EBIT margin. I mean, reading through the press release, it seems you're implying the second half margin below First half, but maybe if you can give us even some puts and takes that we should bear in mind when modeling that? And I have a follow-up. Yes. Thanks for the question. So Obviously, we've undertaken quite some measures since we communicated earlier this year about the market There a loss in the consumer business, and we've taken some significant cost measures to try to mitigate Some of what will be lower utilization in our factories in the second half. If you go back to what I said when one of your colleagues asked earlier What the margin is also in Q4 and you look at where we are margin wise in the Q3, I think I say that we expect also Somewhat of a good quarter in Q4. That should give you sort of an idea what our current thinking is. The imbalances, Alex, that you mentioned, supply imbalance is impacting your ability to deliver. Can you just give us a bit more color there on where exactly are these Supply imbalances that you're seeing, is there something on the wafer side, subcontractors' equipment? And when exactly would you expect these 2 to be resolved? Thank you. Yes. Thanks for the question. Yes, actually, we see this on both sides, on the back end side, subcontracting side, on the front end side, wafer It's very strong, obvious reason in the automotive industry. And you have a Direct impact and an indirect impact, one is which affects us directly. And then obviously, if other suppliers are affected If other suppliers are affected for the same platform, then it's pushing the short supply in automotive. And for that reason, to support automotive more. That means, on the other hand, that we also position that's a very complex supply situation. It certainly continues for the remaining part of the year. But so far, we were able to manage this and our customers According to the situation, supportive. And also we mentioned that we're having in our order books. Very helpful. Thank you. Next question is from the line of Juergen Wagner from Stifel. Please go ahead. Yes, good morning. Thank you for taking my question. Actually, I have 2. One follow-up on your the lower margin profile of that business, at least historically. And then 3 d behind Green in Consumer Applications. When do you expect first revenues? Thank you. Yes. Let me start with the second question. You can take the first one. 3 d behind OLED, as I mentioned last quarter, we are working closely with display manufacturers together. It's very come more clearer that also these solutions are Very much related to the display itself, and that means to the display manufacturer. So we're doing progress, but it's still a decent way to move on Yes. Maybe the portfolio question you had. So as we said that The portfolio adjustments we are undertaking right now focus very much on the business that is was under the digital Segment when it was with OSRAM, which is was largely a traditional lighting portfolio, and We already booked the first progress, as you know, with the sale of the DS Americas business, and we expect also more progress on other transactions possibly in the next Couple of months. So the portfolio eventually that will be the sort of new baseline as of next year will then also include still, of course, The traditional automotive business, which is a very strong business in terms of market position worldwide, which has a very high share already of aftermarket in there with a strong Recurring revenue stream with very little investment needs and therefore also a fairly high margin base. So overall, this will be helpful for the margin of COO Group. Okay. Thank you. Next question is from the line of Robert Sanders from Deutsche Bank. Please go ahead. Yes. Hi. Just a couple of questions, if I may. First one is just on automotive. If you could just comment on automotive LED pricing trends. Hello. One of your customers has been complaining that their prices have been going up. I'm assuming that that is partly response you guys are partly responsible for putting up pricing maybe because It's tied. And whether you have any plans to add capacity. And then just a question for Ingo. On the impairment, Am I right to assume that that contributes to around 100 basis points uplift on the gross margin in Q3 given the lower depreciation charges, is Is that right? And related to that, when the Conti deal gets unwound, is that already excluded from your adjusted margin, so it doesn't affect The adjusted margin or is it already included? Thanks. Yes. Alexia, let me start with your first question. Certainly, as I mentioned before, the LED Business related to automotive is very, very strong. And in areas where There is the opportunity to adjust pricing upwards according to supply situation and complying with legal Agreements we have with customers, certainly, we will take opportunity in a constructive way. But we see this over in the market that In general, prices are going up from our suppliers as well from us to customers where it's possible to accomplish this. Yes. And then on the two other questions you had. So in our current outlook and guidance and also in the numbers in Q2, The contingent venture is, of course, included. So there is no exclusion or adjustments, what have you. Obviously, We're still in the process of returning the what we originally contributed to the joint venture back into The AMS Group now, and that is anticipated to be sort of in 2, 3 months from now. And then once it's with us, we're already preparing for its future, and it's likely not going to remain with us. And If that's clear and we're making progress, we will also announce it. But for now, of course, it's still there, and we also are fully included into the financials as well as in the guidance. On the impairment side, I don't think we would like to give now specific guidance on the impact, but I think the number you mentioned It's a bit too high in my eyes. So I would if I were you, I would work with a number that is lower than that. Thanks a lot. Next question is from the line of Stephan Houri from ODDO. Please go ahead. Yes. Good morning. Thank you for taking my question. Actually, it's about the margins going forward, Waiting for your that you're making and also the first synergies, but at the same time the impact of the market share loss. So I guess my question is to understand what direction will the margin take in 2022. Can we expect more pressure on the margin because of the market share losses before it goes better? Or how do you see that? Thank you. So I think as you rightfully point out, There's still quite a number of moving parts, particularly when you think about the portfolio and the ongoing integration efforts that we have. And as Alex mentioned earlier in his prepared remarks, we are sort of setting the base business, if you like, in 2022. So I aspire to in that year for the reasons I just mentioned. The changes we are conducting right now are very fundamental In various parts and they will not be Of the rest of the digital division. And you've said that the U. S. Part was had an impact of about €40,000,000 per quarter, if I'm correct. What will be the additional impact of the next This was all that you will do, when you will do them? Thank you. In terms of revenue, of course. Yes. Well, obviously, that very much depends on a number of factors we have, a number of, let's say, Divestiture process is going on in parallel right now at different stages. It's a bit too early to indicate For obvious reasons also because we don't want to intervene into the process itself. So rest assured that once we have Concluded, we will also indicate what the impact will be. And as I said, we do expect I saw further progress there in the second half of the year. Okay. Thank you very much. Ladies and gentlemen, this concludes our question and answer session for this morning. We thank you very much for joining us for this conference call, and we look forward to updating you on our business development again after the Q3. Thank you very much, and have a good day. Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.