AMS Osram - Balance sheet questions - Model Update

All,

Please find our updated analysis of AMS Osram following the announced asset sale and the Q4 results, here.

AMS Osram’s credit profile has materially improved. Following the announced asset sale to Infineon, which the company expects to close in June 2026, AMS Osram should hold approximately €2bn of cash and report adjusted net leverage of around 2.5x, including the Osram put. Our own analysis points to somewhat higher leverage after additional adjustments, but the balance sheet nonetheless looks substantially de-risked. The remaining question centres on timing: management reiterated that it does not intend to refinance the 2029 notes until call protection steps down in March next year. The company plans to address the convertible bonds over the summer, most likely at par.

Investment rationale

- We are maintaining our 4% long position in the AMS Osram € Mar-29 bonds. Although the bonds are callable at 106.25% on 10 days’ notice—implying minimal yield to call—we do not expect a refinancing before March next year. Yield to March 2027 stands at approximately 7%, which we view as attractive given the strengthened asset coverage and cash balances. The principal downside risk remains an early call, with bonds trading close to the callable price. Execution also depends on completion of the asset sale, which remains subject to regulatory approvals, including EU merger clearance.

- We have exited our position in the convertible bonds. Following the asset sale announcement, we are more confident that the company will retire these instruments over the summer. However, management has not committed to a par redemption. Given the January tender at 96%, AMS Osram may prefer a further Dutch auction rather than an outright call.

Q4 performance

- Cost pressure dominated the quarter. Sharp increases in precious metal prices—particularly gold—significantly increased LED cost of goods sold. Gold inflation added approximately €35m to FY25 COGS and could create a further €60m headwind in FY26, assuming gold prices around $5,000/oz. Management therefore frames FY26 as a transition year, with weaker reported profitability despite a leaner portfolio and a stronger balance sheet, ahead of the full benefit of cost-saving measures in later periods.

- FY25 results exceeded our expectations. The company continued to outperform on cost savings, and revenue also came in ahead of our forecasts as USD weakness had a smaller impact than anticipated.

Asset sale

- AMS Osram has delivered on its deleveraging commitment. Infineon agreed to acquire the non-Optical Analog/Mixed-Signal Sensor business for €570m. The asset generated approximately €220m of revenue and €60m of EBITDA, implying a 9.5x multiple. Management expects to use the proceeds primarily to repay the 2027 convertible bonds, with closing targeted for June 2026.

Leverage adjustments:

- Our leverage calculations include a €224m customer prepayment received in Q3 2024 for products scheduled for delivery in FY26–FY27. We amortise this amount evenly over eight instalments across two years.

- We also assume the cost of the Osram Licht put will exceed the stated €505m contractual amount, reflecting the current c.10% premium at which the Licht shares trade to the strike price.

- Finally, we struggle to reconcile our adjusted EBITDA with the company’s post-disposal EBITDA metric. We have outstanding questions regarding the treatment of sunk costs associated with the asset sale, which the company likely classifies as restructuring items and excludes from EBITDA.

- Taken together, these adjustments result in leverage of approximately 3.4x on our numbers, compared with the company’s stated 2.5x.

Tomás

E: tmannion@sarria.co.uk
T: +44 20 3744 7009
www.sarria.co.uk