ams OSRAM AG

SIX:AMS

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. I am Emma, your Chorus Call operator. Welcome, and thank you for joining the ams Third Quarter 2020 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Alexander Everke, CEO; Mr. Ingo Bank, CFO; and Mr. Moritz Gmeiner, Head of Investor Relations. Please go ahead, gentlemen.

[Moritz M. Gmeiner, Head of Investor Relations]

Good morning, ladies and gentlemen. This is Moritz Gmeiner. I'm very happy to welcome you to this morning's conference call on the ams Third Quarter 2020 results. As usual, Alex will lead you through key developments in our business, while Ingo will take a closer look at the financial performance. Alex?

[Alexander Everke, CEO & Member of Management Board]

Thank you, Moritz. Good morning, ladies and gentlemen. I'm very happy to welcome you to our third quarter 2020 conference call this morning. This is the first time we are reporting consolidated group financial information, including OSRAM, on the base of our majority shareholding.Please note, however, that my following remarks will relate to our ams business only. Therefore, the terms we and our business in my remarks will solely refer to our ams business, the term group will refer to the total group, including OSRAM.Now some key figures to start with. Third quarter ams revenues came in at $564 million near the top end of our guidance range for ams. Our group third quarter revenues were $1.428 billion. Our adjusted ams EBIT for the third quarter was $128 million. That is an adjusted EBIT margin of 23% towards to top end of our guidance for ams. Our group adjusted EBIT for the third quarter was $60 million. We were able to achieve these strong results for our ams business against the backdrop of continuing end market and macroeconomic impacts on the global COVID-19 pandemic. I would, therefore, like to thank our employees worldwide for their flexibility and commitment in this difficult situation. Before I look at our business, I want to update you on the acquisition of OSRAM and latest developments. We successfully concluded the domination and profits and loss transfer agreement, or DPLTA, for OSRAM in September. The agreement was approved by OSRAM shareholders with 99.8% of the vote in an extraordinary general meeting this Tuesday. Following the widely expected shareholder approval, we see implementing the DPLTA around end of this year as a possible timeline.I'm very happy that we have completed yet another important step in the acquisition of OSRAM because we are keen to move forward and begin the integration of OSRAM. Based on the DPLTA, we will be able to drive and accelerate the combination of both companies' business in the most efficient manner.We will unite the complementary strengths of ams and OSRAM and plan to create a very profitable combined company within the next years. During the quarter, we have also taken 3 seats on the OSRAM Supervisory Board as expected and plan to eventually increase ams representation to 4 seats. Let me add that from a legal perspective, OSRAM is a majority-owned independent listed subsidiary of ams prior to implementation of the DPLTA. Now let's talk -- take a look at the development of our ams business. Consumer Solutions continue to contribute the largest share to our results for the quarter. Our leading position in the optical sensing is built on our broad ams portfolio from 3D sensing, including VCSELs, all the way to spectrum sensing. Our success is based on continuous significant R&D investments, which allow us to drive innovation in optical technologies. We are a major player in 3D sensing in our ams business, where our leading system know-how and high-value IP of an unmatched platform to serve all architectures, structured light, time of light in iToF and dToF, and active stereo vision, or ASV. Shipping 3D sensing products to leading smartphone OEMs for front-facing and world-facing applications, we have built our strong position focused on 3D illumination for structured light, iToF, and ASV. Here, we continue to leverage our advanced optics expertise and leading VCSEL technology. At the same time, we are driving the expansion of our 3D offering, including the integration of high-performance, near-infrareds image sensing. This allows us to create 3D solutions in different technologies. We continue focused development in world-facing 3D for 3D dToF technology and advanced time-of-flight architecture that offers clear advantages for longer distance in world-facing and AR-oriented applications.Here, we leverage our leading 3D system capabilities, developing a full ams dToF solution that includes VCSEL illuminations, high-performance bad sensing, and related software and algorithm. We see increasing market interest to explore AR-related applications on the base of full 3D and dToF technology and expect these applications and dToF to emerge as an attractive 3D market in the next years. Consequently, 3D systems for this application area will be in an innovation focus for us going forward. In front-facing 3D, we are developing sensing technology for face authentication that is invisible behind the display and eliminates special place components from the device front. This cutting-edge approach leverage our singular expertise in behind-OLED or BOLED light emission and sensing together with our deep 3D system know-how. For the highly innovative OLED 3D technology, we combine VCSEL illumination, 3D near-infrared sensing, software, and algorithm in a solution architecture. Here, we continue to forecast towards demonstrating BOLED 3D and ASV early in the first quarter.In the following step, we plan to explore BOLED 3D sensing architectures that support structured light. Overall, we have received a market feedback on both dToF and BOLED 3D, which supports our view that these technologies will offer volume opportunities for the coming years. Our BOLED light and proximity sensing solutions continued their success in the android market, which has already shown strong adoption of this innovation. Forming the basis for our 3D BOLED developments, we realized end proximity sensing behind the OLED display to remove related components from the device face. Supporting major android OEMs, we advanced our BOLED light sensing road map as part of our display management portfolio. Ultra small-scale integrated light and proximity sensing solutions are also receiving increasing market attention. In combination, we serve leading consumer OEMs with a large -- with a range of display management solution in high volume. Going forward, we expect sophisticated camera enhancing technologies to offer attractive adoption opportunities because camera-related feature will drive key value proposition for smartphone users. This includes areas such as automatic white balancing, or AWB, laser detects, autofocus, one dToF, wide range flicker detection, and AR-oriented camera support functions. As an example, our innovative AWB solution uses accurate spectrum sensing for a new way of boosting picture quality and natural color expression, and we see additional market traction in this area.Let me now switch to our ams nonconsumer business. The ams automotive, industrial and medical business recorded a more positive overall performance in the third quarter. Compared to the first half, this development reflects a decreasing total impact from the COVID-19 pandemic with signs of improving demand in nonconsumer markets. Our ams automotive business performed in line with expectations. We saw more signs of recovering demand and better order trends in the third quarter as automotive production volumes are improving. We continue to invest in automotive R&D and focus on differentiated applications in safety, driver assistance, autonomous driving, position sensing and chassis control. For 3D LIDAR, the core automotive sensing technology going forward, we support illumination in multiple programs for Tier 1 system suppliers. Based on our high-power VCSEL technology, we offer high count automotive qualified VCSEL arrays that enable advanced scan and non-scan LIDAR architectures. We work in close partnership with LIDAR technology leader, Ibeo, as a key supplier for an advance to solid-state LIDAR. During the quarter, Ibeo announced a further program win for their LIDAR system at Chinese volume OEM, Great Wall Motors, which is based on high-power ams VCSEL arrays.Market traction for the technology remains positive, underlying the strength of ams Ibeo offering. Besides this partnership, we see increasing supplier interest in VCSEL base, solid-state LIDAR versus other architectures, driven by design and performance advantages of the technology. Optical in-cabin sensing, or ICS, is an expanding emerging area in automotive sensing. New interior comfort and safety functions, such as monitoring, are receiving growing attention from OEMs and Tier 1 suppliers. We continued the development of first secure ICS projects, including illumination and see increased interest to assess 3D technology and our 3D solution capabilities for upcoming applications. Our ams industrial business performed well in line with expectations in the third quarter. This reflects a still muted, but less visibly impacted demand environment as we see that previously reduced industrial investment seems to improve. We continue to benefit from our broad portfolio and customer base in industrial automation and sensing, including global shutter imaging for automation and machine vision. Our ams medical business showed a positive performance in the third quarter. Our medical portfolio is built around medical imaging for CT, digital X-ray, mammography and miniature endoscopy. We are expanding this portfolio with our highly innovative use of spectral sensing in medical lateral flow test, or LFT. Our unmet solution optically analyzes LFT results with very high accuracy at the point of care. Without the need of high-cost dedicated lab equipments, the solution is able to support fast, robust diagnostics at attractive costs, creating a new growth opportunity for the coming years. I'm happy to confirm that in our partnership with European test suppliers Senova, production and first volume shipments of an integrated LFT kit for COVID-19 antibody testing will start in the current quarter. As a result, we currently expect revenues up to a mid-single-digit million range still this year. I'm excited about this highly innovative technology, especially as early data shows an excellent performance of our solution in this application. And I'm equally excited that this turns out to be a very early example of integrating an OSRAM product into an ams optical solution. Physical traction continued to build for the technology, given its advantage as we target large-scale testing market for difference in vitro diagnostics. For COVID-19-related testing, we are in advanced discussions with one North American partner and expanding discussions with additional North American partners. We are also in contact with government authorities in Europe. Let me add that we continue to move ahead following release of COVID-19 test kits for antibiotic testing. Building on this solution, we expect to offer COVID-19 LFT kit for antigen testing, which is targeted to identifying current infections in the foreseeable future. In ams manufacturing operations, we are safeguarding volume production across our locations despite COVID-19-related challenges and restrictions and focus on being fully aligned with customer demand. Our Singapore manufacturing continues its strong operational performance in line with higher capacity utilization as we support large-scale ams product ramp in the second half.Before I come to the outlook for our business, we have taken note of the OSRAM full fiscal year and fiscal fourth quarter results that came out this morning. We are, however, not in a position to discuss details of the OSRAM business development at this time. We are encouraged by the OSRAM results showing a clear sequential improvement in revenues and EBITDA profitability. This appears to confirm positive demand trends in the OSRAM automotive business. We're also glad to see OSRAM's ongoing focus on effective cash management for its business, which is starting to show first results. Let me now turn to the outlook for the ams business. Please note that our financial outlook for the fourth quarter only comprises the ams business, given the financial guidance structure provided by OSRAM. For the fourth quarter 2020, we confirm our previously announced expectations for further robust sequential growth for the ams business. This is despite continuing effects from the COVID-19 pandemic impacting economies and our market globally. Based on currently available information and the definition above, we expect strong fourth quarter revenues for our ams business of $650 million to $690 million, up 19% sequentially and up 2%, normally year-on-year at the midpoint. High-volume ramps for ams smartphone sensing solutions and goods consumer end markets are driving the expected growth in our ams business. At the same time, our ams nonconsumer business sees positive demand trends taking hold and pointing towards recovering volumes in several end markets. We also expect profitability in the fourth quarter to increase meaningfully quarter-on-quarter for our ams business. This is expected to result in an adjusted EBIT margin of 24% to 27% for ams. In closing, let me emphasize that the positive ams business outlook, in spite of the COVID-19 pandemic and related impacts, demonstrates the strength of the ams portfolio and our operational management. Please note that the mentioned expectations assume no further unforeseen negative impact effects from the COVID-19 pandemic that would result in a meaningful negative impact on our business. This concludes my remarks, and I would like to hand over to Ingo.

[Ingo Bank, CFO & Member of the Managing Board]

Thank you, Alex, and good morning to you on the call. As Alex pointed out, as of and including the third quarter, we are now fully consolidating the financials of OSRAM Licht AG into the ams Group financials. We have included OSRAM as a separate reporting segment. I will refer to the ams business and the OSRAM business when discussing the financial performance of these 2 business areas. I will refer to the ams Group when discussing the fully consolidated financials of the group. When we refer to adjusted financial metrics for the ams business, we refer to adjustments from the as-reported IFRS basis pertaining to acquisition-related, restructuring and share-based compensation costs. A reconciliation to the IFRS base of presentation is included on Page 10 of our Q3 2020 report available on our website in the Investors section. Let me now start with the highlights, and I'm on Page 25 of our Q3 earnings release presentation. For the first 9 months, the ams business showed year-over-year growth of close to 5%. The ams business saw an adjusted EBIT of USD 331 million or 20.9% year-over-year, that is an improvement in profitability of 350 basis points for the 9-month period. With the approval of the DPLTA by OSRAM shareholders in an extraordinary shareholders meeting earlier this week, we have moved yet again closer towards getting factual control of OSRAM. Current momentum in the ams business, mostly on the consumer side, remains strong, being also reflected in the ams business guidance for the fourth quarter of 2020. Let's take a closer look at the Q3 financials of the ams business on Page 27 of the presentation. In the third quarter 2020, revenues came in at USD 564 million, up sequentially with 15%, driven by the ongoing strength in our consumer business. Year-over-year revenue declined with 17%, largely related to different product launch patterns in our consumer business when compared to the prior year. As a result, we are expecting a somewhat different revenue distribution in the second half of our year. Please also bear in mind that through the portfolio divestitures of our pharma MEMS microphone IC business and the environmental sensor business, we have a lower quarterly revenue run rate of about USD 20 million in our financials unlike 2019. Revenues in the ams business for the first 9 months of 2020 were USD 1.585 million, a year-over-year growth of around 5% as mentioned. Moving to gross profit and profitability for the ams business on Page 28. Third quarter 2020 adjusted gross margin came in at 41%, lower by 320 basis points compared to Q3 2019, reflecting scale effects from lower volumes. For the first 9 months, the adjusted gross margin for the ams business was 40%, improved by 100 basis points compared to the same period in 2019. The adjusted EBIT of the ams business for the third quarter was USD 128 million or 22.7% of revenues towards the high end of our guidance for the quarter. For the first 9 months of 2020, the adjusted EBIT margin improved meaningfully by 350 basis points versus the prior year to 20.9%. Foreign exchange movements, especially the weakening of the U.S. dollar against the euro, provided some headwinds for the ams business in the third quarter with a meaningful negative impact on EBIT profitability.Moving now to the OpEx development of the ams business on Page 29. R&D expenses for the third quarter were USD 70 million or 12% of revenues, in line with our expectations. SG&A expenses were USD 87 million, an increase of USD 32 million compared to Q3 '19, largely related to transaction-related costs incurred within the context of the OSRAM acquisition. On an adjusted like-for-like absolute U.S. dollar basis, ams SG&A expenses were slightly below the same period last year. Efficient spending on overhead continues to be a key financial objective for us, also in the combination with OSRAM and once the transaction-related costs have cleared out.Let me now add only a few comments on the OSRAM financials, given that the results are now part of the ams Group third quarter 2020 consolidated financials. For more information on the standalone financials of OSRAM Licht AG, I would like to refer you to the OSRAM website at ww.osram.com.I'm now on Slide 32 of the presentation. OSRAM's overall revenues in the quarter were USD 865 million, representing a comparable decline of minus 17.7% relative to a year ago. On a sequential quarter-on-quarter basis, revenues increased by close to 22% on a nominal basis with all reporting segments of OSRAM contributing to this meaningful sequential uptick. Adjusted EBIT was negative with minus USD 68 million or minus 7.9% of revenues. Compared to the same period a year ago, the OSRAM quarterly and year-to-date financials are clearly impacted by the COVID-19 pandemic. Sequentially, over the last quarters, however, that is comparing the September 22 -- 2020 to the June 2020 quarter, the financial results have improved remarkably, which we would see as pointing to a recovery trajectory in the most important market, OSRAM is currently operating in.Let me now turn to the ams Group financials on Page 35 of the presentation. In the group quarter -- in the quarter, group revenues were at USD 1.428 billion with the ams business contributing USD 564 million. Let me also briefly comment on backlog here. Given the absence of comparable backlog data for the OSRAM business and the increasingly very limited relevance of backlog information for the ams business due to the growing importance of intra-quarter business, we have not included it here anymore. Adjusted EBIT for the group in Q3 was 4.2%, with ams at 22.7% and OSRAM negative at minus 7.9%. For the first 9 months, group revenues were at USD 2.450 billion with the ams business contributing USD 1.585 billion. Adjusted EBIT for the first 9 months was at 10.7% or USD 263 million. Turning to the net result and earnings per share now on Page 39 of the presentation. The adjusted net result for the third quarter for the ams group was positive with USD 11 million with the ams business recording an adjusted net result of USD 67 million. The IFRS net results as reported for the ams group was negative with USD 143 million, USD 101 million of which were attributable to ams shareholders. The company's net financing results in the quarter reflected fees related to the OSRAM transaction and higher interest expenses when compared to the same period in 2019. Overall net financing expenses were at USD 77 million into the quarter. Adjusted basic and diluted earnings per share were CHF 0.09 and CHF 0.06 or USD 0.10 or USD 0.06. The comparison to prior year is, of course, quite distorted given the first-time consolidation of OSRAM into the group financials this quarter. Let's now take a look at the cash flow and balance sheet items related to liquidity and net debt of the ams Group to complete the picture on the financials. I'm on Page 40 now. The group operating cash flow was USD 84 million in the quarter, fully absorbed by CapEx spend in the group, resulting in a free cash flow just above breakeven for the third quarter of 2020. Looking at Page 41, cash and cash equivalents stood at USD 1.4 billion at the end of the quarter compared to USD 2.5 billion at the end of the second quarter. This change mainly resulted from the closing of the OSRAM transaction and settlement of the tender offer as well as market purchases of OSRAM shares. As of today, we hold approximately 71% of OSRAM shares. The group net debt stood at $2.4 billion at the end of the quarter. As a result, total leverage for the group was at a level of approximately 2.2x as per the end of the third quarter 2020. The third quarter of 2020 and the month of October were a fairly active period for ams on the financing front with a number of transactions being completed. In July, we successfully placed a multi tranche issue of around EUR 1.25 billion, equivalent 5-year senior notes with international investors comprising EUR 850 million and $450 million notes in total. Very recently, on October 27, we successfully placed EUR 760 million of convertible bonds due 2027 with a coupon of 2.125% and a conversion premium of 47.5% by way of private placement to international investors. Also, very recently in October, we replaced our existing bridge facilities with a new bridge facility of EUR 750 million and paid down the outstanding balance of the existing bank bridge of EUR 450 million. We believe that the new and redesigned transaction funding structure that is now in place puts us in a very solid position to work towards the full integration of OSRAM going forward. And with that, I'd like to thank you for your attention and open the floor to questions.

[Operator]

[Operator Instructions] The first question comes from the line of Sébastien Sztabowicz with Kepler Cheuvreux.

[Sébastien Sztabowicz, Head of Tech]

The first one is, what kind of visibility do you have for the end of this year taking into account that growing number of countries going back into lockdowns or partial lockdowns? That would be the first one. The second one, even if you have not already completed the DPLTA, could you please make an update on the integration process of OSRAM? What have you already done so far to prepare for the upcoming integration of OSRAM by the beginning of next year?

[Alexander Everke, CEO & Member of Management Board]

Yes. Alex here. Let me take the first question. Ingo takes the second. So visibility for Q4, this is reflected in our guidance range. We feel comfortable with this guidance range, and that's why we reconfirm today the guidance for the fourth quarter as we have done some days back. The potential lockdowns by countries, it's included in the guidance range, but if it's -- as we mentioned in the -- on the statement before, if there would be a significant decrease of the situation, that would have an impact. But from the current point of view, based on latest customer forecast and based on our production capabilities, we feel comfortable with the guidance we gave.

[Ingo Bank, CFO & Member of the Managing Board]

And on your second question on the integration, I think we progressed very well with the integration planning with the teams, as you know. Since fairly on -- early on in this year, we've already started to put working groups together with colleagues from both ams and OSRAM to work on a number of plans. We regularly go through that together internally, but also with the OSRAM management, and I think we're well on track. With the approval in the EGM now of OSRAM this week with a high approval rating, we're now looking forward to have the DPLTA commercially registered, and then all the plans are in place where we can hit the button basically somewhat early January probably to start with the work.

[Operator]

Next question comes from the line of Robert Sanders with Deutsche Bank.

[Robert Duncan Cobban Sanders, Director]

If you could just talk a bit about pipeline into '21. Maybe if you could just give us an update on your traction, the android OEMs, in 3D sensing rather than behind OLED? And is that driven by VCSEL or full solutions?My second question would be to do with automotive. If you can just update on your pipeline in automotive? If you can quantify it somehow and whether you expect strong growth into next year and the years after, whether a VCSEL or in-cabin or micro optics or something else?

[Alexander Everke, CEO & Member of Management Board]

Yes, Rob, thanks for the question. So as we just indicate, we see a very positive traction in the android space, especially in the behind-OLED proximity sensing and ambient light sensing. We are confident with bringing the first solution out in the beginning of next year to bring ASV behind OLED, and we see a good potential there for adoption in the android space because it makes the 3D sensing technology invisible and addresses some topics, which the current 3D technology has compared [Technical Difficulty] Automotive, the strong business we are building up is on the LIDAR business, which will start ramping in the end of '21, but more in '22. The traction we have with our largest customer, Ibeo, is very, very strong, and Ibeo is building up their own pipeline with car OEMs significantly. And we are seeing also more traction from other Tier 1 companies engaging with us with our VCSEL technology and VCSEL array, including the VCSEL driver, which increases the content even further. And we see that the technology we have available for long distance, it's very unique, and that's why we see the traction from the car OEMs driving this forward. And we strongly believe the technology we have and the architecture we have with the capabilities we acquired makes us a very unique partner in this area. And relate to ICS, we have multiple customer engagement. It's still in the beginning, but we see traction going forward, utilizing the 3D technology in-cabin, and this is related not only for 3D, but also in 2D.

[Operator]

The next question comes from the line of Achal Sultania with Crédit Suisse.

[Achal Sultania, Director]

Maybe a question on the synergies again. I guess you had already given a guidance of EUR 300 million of pretax synergies. Can you just help us get -- provide a bit more color on the phasing of that synergy, given that you will start in early January 2021. How much can we expect in 2021 and 2022? That's the first question. And then secondly, on the -- your 3D business with your large customer, how should we think about changes or any potential changes going into next year, given that you must be already collaborating with that customer talking about designs for future iPhone models? So can you just help us understand what are the discussion points or parameters that has been taken into consideration that you plan for 2021?

[Alexander Everke, CEO & Member of Management Board]

Yes, Alex here. Let me take your second question first, and Ingo take the first one. On 3D relate to a large customer, as you know, we can't give any statements related to one specific customer. We feel comfortable based on what we're seeing right now, but we cannot give any details on that.

[Ingo Bank, CFO & Member of the Managing Board]

Yes. And on your questions on the synergies, I think, first of all, I think it's important to note that we feel very confident about the EUR 300 million that we communicated consistently in the past. I mentioned just now, so on the question of your colleague that we're quite good to see the work on the workstreams to support not just integration but also realization of synergies. So overall, we have a very good feeling about this. We've always said also that overall, we would, of course, try to implement and integrate as fast as we can possibly do that. But forgive me if I don't give you a precise guidance now for the synergies for 2021, but the teams are clearly also incentivized to execute with the speed on realizing all the objectives of the integration, including the synergies.

[Operator]

Next question comes from the line of Janardan Menon with Liberum.

[Janardan Nedyam Menon, Technology Analyst]

I have two. One is, again, on the integration, but I'm looking more at what you plan to do with some of the struggling businesses within OSRAM? So for instance, in things like digital, where you've expressed a possibility of an exit, how do you think -- how do you look at that in terms of time scale? And what are the sort of challenges? Or how easy do you think that process will be? And is that something that you will be able to achieve within 2021? And similarly, there is a decision made that on the continental JV, the 2 parties will take back their respective businesses, which I understand is loss-making. So once you take that business back, do you have any initial thoughts on how you would be able to deal with that in terms of bringing it back to profitability?And my second question is on bio-sensing, on the LFT side, where you said that you had a -- you expect shipments of a mid-single-digit million in '21. What roughly is the sort of pricing that we can expect on that product? And if you look further, are you seeing interest in non-COVID applications as well, which could sustain that as a bigger revenue trend going into '22, '23, et cetera?

[Alexander Everke, CEO & Member of Management Board]

Yes. Thanks for the question. Let me start with the second, and then I'll come to the first one. A small correction, you mentioned Q4 2021. Actually, the revenue starts this quarter, so Q4 2020, which is quite encouraging. There are multiple options for this solution and the largest, highest content could be several dollars in one LFT kit. So it's quite significant what we can see there. And you are right, the great advantage besides measuring COVID-19 antibody and antigen to a later stage is that this technology can be used to identify also other kind of viruses. So everything which has an impact on an LFT's drive can be measured with our spectrum sensing technology in an extremely precise way, in a very cheap way, and very fast, delivers the result of the test directly to a cloud and can be accessible whoever has access to it. So that means that there is a very strong trace and follow-up on test results, and we see more and more other opportunities utilized in this technology from -- based on LFT. So that's very positive. COVID-19, certainly, a driver and ignition to bring this product to the market, but at the moment, it's there, it can be a wide application space, which makes life much easier and can identify any kind of viruses over time in a very fast manner and can avoid spreading diseases around the globe.On the OSRAM side, as we mentioned multiple times the last quarters, we clearly see that DI is not a strategic asset for us moving forward, and the intention, obviously, is after the domination agreement is registered that we act timely on all the matters we indicated whether synergies and making portfolio choices, this applies for DI that applies as well for the conti joint venture. We are very happy to see that OSRAM made a decision to find a good way forward with continental to disengage from it, and certainly, the part which comes back to us will be investigated based on profitability and strategic positioning, and we will make them with the OSRAM team decisions beginning of next year.

[Janardan Nedyam Menon, Technology Analyst]

Okay. But timescale wise, would 12 months be something achievable on the DI side?

[Alexander Everke, CEO & Member of Management Board]

Well, I think the way you know us is that we act as fast as possible, and consequently, we bring this company to combined company to a more profitable situation, yes?

[Operator]

The next question comes from the line of Jürgen Wagner with MainFirst.

[Jürgen Wagner]

I actually have 2 questions. First, on your free cash flow. ams standalone in Q4, given the high-growth you indicate quarter-over-quarter, what can we expect there? And second question on Q1, '21. Other smartphone chip suppliers have indicated a less seasonal patent this year, not only due to delayed iPhone's, but also to Huawei. How do you see that?

[Alexander Everke, CEO & Member of Management Board]

Yes. Thanks for the question. Let me take the last one. I think it's a bit too early to give a statement now on Q1. We look positive into next year, but to give guidance on Q1, it's too early. We are confident with the Q4 guidance. And if all the other companies you're talking to see a less seasonal than in a smartphone market, and potentially, we see the same, but it's too early to give any guidance on the first quarter.Maybe then the question on the free cash flow. Obviously, at this point in time, I can only comment on our expectation for the free cash flow of ams and not the combined company, as you can probably understand. So I mean, if you look at the expectation we have from a business perspective for the fourth quarter, we also expect that, that will be accompanied by also a strong free cash flow performance of the company that -- so for the overall year, we will again look probably at a very strong free cash flow for the ams business.

[Operator]

The next question comes from the line of Stephane Houri with ODDO.

[Stephane Houri, Research Analyst]

Yes. You have talked about the EUR 300 million synergies, but I also remember that in the past or really at the beginning of the offer in 2019, you were talking of a combined company that was able to generate double-digit growth and more than 25% EBIT margin. So is that still what you have in mind for the combined company? If yes, what is the timeline for that? And the second question is, you've been talking also in the past of EUR 400 million one-off charge for the restructuring. Is it still the same amount? And when do you think will be -- we will see it in the accounts?

[Alexander Everke, CEO & Member of Management Board]

Yes. Thanks for the question. Alex here. Let me answer the first one first. The double-digit growth and the 25% adjusted EBIT margin, this was the indication we gave. We see as a potential for the combined company. This is our target model. We have the ambition to achieve this in the next few years to come. We didn't give a timeline guidance on that one, but in the midterm, this is certainly a financial profile we can consider for the combined entity moving forward. On the EUR 400 million charges, Ingo.

[Ingo Bank, CFO & Member of the Managing Board]

Yes. So yes, indeed. So we always communicate indeed that we would estimate around EUR 400 million. As you can imagine, likewise, with the work we're doing in the workstreams, et cetera, and we're now looking into next year. At this point in time, we are already putting that together. I think it's too early to tell. I've also said in the past that I believe that the EUR 400 million was on the rather conservative side of the equation, but that's all I can say for now. So again, I think it's a very conservative number that we communicated back then. We're currently looking with the rest as well, next to the synergies also to the implementation cost of some of the changes we're anticipating to make.

[Stephane Houri, Research Analyst]

Sorry, when you say conservative number, you mean that it could be less, right? Or...

[Ingo Bank, CFO & Member of the Managing Board]

Yes, yes, yes.

[Operator]

The next question is from the line of Adithya Metuku with Bank of America.

[Adithya Satyanarayana Metuku, Associate]

Yes. So I had 2 questions. Firstly, just a clarification for Ingo. So Ingo, you said earlier that the net debt-to-EBITDA was at 2.2x, if I heard that correctly. And so essentially, you're implying that the pro forma EBITDA for the last 12 months is around EUR 1.1 billion. Am I right in my calculation? And if so, does this EUR 1.1 billion include the run rate synergies? It just looks very resilient because you had EUR 1.2 billion on a pro forma basis in 2019. So I just wanted to understand if I got this correct. And secondly, again, when I look at OSRAM's financials disclosures, they look in a much simpler, much nicer, much cleaner than they've been with ams historically. So I just wondered, what are your plans as you take over the financial reporting side of OSRAM? OSRAM, ams has had dollar reporting, euro reporting, and so this complicated reporting has been of putting for investors. Are you planning on making it simpler? And just one quick question on the consolidation. I was a bit surprised to see that you have consolidated from the beginning of 3Q when the deal ended in -- deal closed in the second week of July. So this is how we should expect consolidation in full year numbers as well for our modeling purposes?

[Ingo Bank, CFO & Member of the Managing Board]

So first of all, the leverage does not include synergies, obviously, because the transaction has closed, but we don't have yet started the work on the integration. We can only do that once we have control, which is after the date the DPLTA has been registered in the commercial register in Germany. So it's not included in that calculation. On the reporting, I think, again, that's something for us to look into once we have, again, control. I don't think -- it's a bit premature to talk about that now. I'll take your feedback. Thank you for that, but I think it's too early to tell. As per the consolidation, we have basically been able to integrate it, as you said, and that doesn't also change for the year. As you rightfully point out, the closing took place on July 9. We've included it for -- since the 1st of July, which is agreed with our auditors. So you should also assume that to be the case for the balance of the year.

[Adithya Satyanarayana Metuku, Associate]

Understood, very clear. Just one quick clarification on that. So the pro forma EBITDA for the combined company for the last 12 months is EUR 1.1 billion. Am I right?

[Ingo Bank, CFO & Member of the Managing Board]

But I think if you look at what I said about the net debt and the leverage.

[Adithya Satyanarayana Metuku, Associate]

Yes, that's what it comes out to, yes. Okay. Because that looks pretty high, and I don't think consensus is expecting that.

[Operator]

The next question comes from the line of Sandeep Deshpande with JPMorgan.

[Sandeep Sudhir Deshpande, Research Analyst]

I have 2 questions, if I may. Firstly, I would like to have your views on your VCSEL business in Singapore. I mean, where are you at this point on VCSEL manufacturing as well as on the customer side? I mean, how far have you been able to realize the promises of that business as it was when it was invested in?And then secondly, when you look at ams standalone growth into 2020-'21, what are the biggest 2 revenue drivers that you see in terms of ams standalone? And thirdly, I mean, you've -- previously, when you announced the acquisition of OSRAM, given an overview of what you would like to do, but are you now allowed to give a clearer view of what you would like to do at OSRAM?

[Alexander Everke, CEO & Member of Management Board]

Yes. Alex here. So on the VCSEL, the facility in Singapore is ramping up. So far, we are according to plan. The major volume for VCSEL we see with the automotive ramp for 3D LIDAR, for our VCSEL array. This fab is automotive qualified, and therefore, the products, as I mentioned before, ends '21. We see the first ramp for the automotive part and then certainly getting stronger in 2022, but so far, the VCSEL business we have started for ams is on track.The revenue drivers, I think, was the second question for 2021, very similar to 2020. It's in the area of display management. It's in the area of 3D, and certainly, in the more area, in bringing the same technology behind the OLED, both in display management and in 3D. And then certainly, the exciting part, what we showed the last 2 quarters on LFT, on COVID-19, but then also expanding into other application related to LFT. So these we consider as the volume drivers for the coming year.

[Sandeep Sudhir Deshpande, Research Analyst]

And the last one?

[Alexander Everke, CEO & Member of Management Board]

OSRAM. Ingo, the last one.

[Ingo Bank, CFO & Member of the Managing Board]

Again, please understand that at this point in time, OSRAM is a majority-owned subsidiary company of ams, but is still independent. So we cannot comment on it at this point in time. We patiently will wait for the registration after the very positive vote on the EGM this week, and then we will execute.

[Operator]

[Operator Instructions] The next question is from the line of Andreas Müller with Zürcher Kantonalbank.

[Andreas Müller, Research Analyst]

Two or three questions. One is BOLED 3D with structured light. Can you give the timeline when the solution could be ready? And what's the progress there? That's the first question. Second question on the acquisition-related costs and the restructuring costs. These are about north of [$130 million ] this quarter. What should we expect for Q4? And how much will be cash costs in Q4? And then maybe the third one on bridge financing, can you give an indication of the interest costs relative to the refinanced bridge loan?

[Alexander Everke, CEO & Member of Management Board]

Yes. Thanks for the question. Let me take the first one. Alex here. The behind-OLED 3D, as we have indicated, the priority for us is active stereo vision. We see this as the optimal solution from today's perspective for 3D functionality related to front-facing. We have ideas and have plans to bring structured light behind-OLED as well, but this will be a topic for next year. And first priority is to bring active stereo vision behind-OLED into the market, and then structure might be followed.

[Ingo Bank, CFO & Member of the Managing Board]

And then your other question was around restructuring. I'm not so sure I understand your -- the numbers you mentioned because as a group, there were adjustments, indeed, but that doesn't mean that it's all related to restructuring. As far as I can see, it's the -- on a group level, the only restructuring charges in the group accounts were related to OSRAM and not to ams. So if you have questions regarding that, I'm -- I have to sort of point you towards OSRAM management for that. Please understand, at this point in time -- so therefore, also with respect to forward-looking restructuring adjustments, that's more or less an OSRAM point at this point in time.As far as interest is concerned, what I can say is that if you look at the financial results or the financial expenses of the company, ams, at this quarter, roughly half of that was related to interest.

[Moritz M. Gmeiner, Head of Investor Relations]

Ladies and gentlemen, this concludes our question-and-answer session for this morning's call. We thank you very much for joining us this morning, and we look forward to speaking to you again with our next quarter's results. Thank you very much, and have a good day.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.