ams-OSRAM AG (OTCPK:AMSSY) Q3 2023 Earnings Conference Call October 31, 2023 4:30 AM ET
Company Participants
Juergen Rebel – Head of Investor Relations
Aldo Kamper – Chief Executive Officer
Rainer Irle – Chief Financial Officer
Conference Call Participants
Janardan Menon – Jefferies
Sandeep Deshpande – JPMorgan
Sara Russo – Bernstein
Sebastien Sztabowicz – Kepler Cheuvreux
Jurgen Wagner – Stifel
Reto Huber – Research Partners AG
Simon Coles – Barclays
Operator
Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Conference Call on Third Quarter 2023 Results. 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.[Operator Instructions]
I would now like to turn the conference over to Juergen Rebel, Head of Investor Relations. Please go ahead.
Juergen Rebel
Thank you. Hello. Good morning, everyone. This is Juergen speaking. I would like to welcome all of you to our Q3 earnings call for investors and analysts. With me are Aldo, CEO; and Rainer, CFO. Aldo will comment on business update and strategy. Rainer will comment on the financials and status of the financing plan.
After the introductory remarks, we’re happy to answer your questions. Aldo and Rainer will refer to the earnings call presentation that you find in our website.
Aldo, please walk us through the Q3 business update now.
Aldo Kamper
Thank you, Juergen, and good morning to everybody from my side as well. The business environment is certainly not easy, but I think we have delivered a solid third quarter.
Let us take a look at slide number four. Q3 revenues grew nicely by 6% quarter-on-quarter to EUR904 million. We landed above the midpoint of our guided range. One year ago we stood on a like-for-like basis, excluding divestments in the Lamp & Systems segment, at EUR1.093 billion. As such, we see a nominal decline of 7% year-on-year.
However, we need to consider two things. First, the U.S. dollar weakened at the average exchange rate 1 year ago to the 1.01, compared to an average exchange of 1.09 in Q3. At constant currencies dominated by U.S. dollar and euro, Q3 revenues would have been EUR43 million higher. So the currency effect accounts for around 4% decline year-on-year.
Second, the remaining decline of around 3% is mainly due to the weakness of several end markets, especially industrial and consumer. We’ll talk about it in more detail afterwards. Adjusted EBIT improved even more from EUR50 million in Q2 to EUR71 million in Q3, an increase of 42% driven by strict cost control and higher volumes.
Furthermore, some EUR10 million were due to a positive one-off effect related to a catch-up effect in government grants. This resulted in an adjusted EBIT margin of 8%, better but still far away from where we want to be. It’s our clear ambition to significantly increase profitability and our Re-establish the Base program will ensure that we will deliver on this promise.
Now let us take a look at our biggest segment, Semiconductors, on Slide #5. Revenues improved by 8% from Q2 and came in at EUR 648 million. All end markets; automotive, industrial, medical and consumer; contributed positively. However, in detail the picture is very diverse, which I will comment on in a moment. Adjusted EBIT of the Semiconductor segment almost tripled sequentially.
With 6% adjusted EBIT margin, we posted EUR 36 million in absolute terms up from 2% or EUR 13 million in Q2. Higher loading contributed to improved results. Furthermore, the steep increase was also supported by this catch-up effect I spoke about related to the IPCEI funding.
Let us switch to slide number six, looking at the dynamics in the end markets. Our automotive LED products were in high demand especially in China with an increasingly short notice order pattern. We could even grow year-on-year by 2% in automotive. Although we grew revenue from products for industrial medical applications compared to last quarter, the year-on-year comparison reveals the massive macroeconomic pressure in essentially all verticals, we are down by 26%.
You’re all aware of the problems in the construction sector worldwide and this is leading to a weak demand for industrial outdoor lighting LED products. Another example is horticulture. Higher energy prices and high borrowing costs helped the developers. Consequently, horticulture project development is weak and we sell fewer high powered LEDs although we did see an uptick in demand for Q3. The weakness in industrial is seen both in mass market and OEMs. Medical business also remained subdued.
Coming to consumer: on the positive side we saw a decent seasonal upswing of 6% driven by our leading position in Android smartphones for our products. On the negative side, we still see a significant year-on-year decline due to the phasing out of some big sockets as we told you before. Also macroeconomic pressures weigh on global smartphone sales especially in the relevant premium segments.
Now let me come to one of today’s highlights, the fantastic traction that our cutting edge LED and sensor products find in their target markets. The increasing design win tally confirms our structural growth model.
Let’s take a look at slide number seven. First, we continue to win many new designs with our high pixel forward lighting solution called Eviyos. Design win now stands at more than EUR 250 million, up by more than EUR100 million since Q2 and traction remains strong. It is the mid to high-end forward lighting solution of choice for many OEMs now and you will soon see more and more cars on the road using our solution.
The first will be on the new Volkswagen Touareg, you might have seen it. I recently drove the car myself with our Eviyos technology and must say that it really makes a noticeable impressive difference versus existing solutions.
Second, we recently launched an intelligent ambient light for cars iRGB. Already landed more than EUR100 million in design wins. The interior lighting is increasingly becoming interactive and with that the number of multicolored lights grow from tens to hundreds per car. Third, our new LED-on-foil technology for automotive, ALIYOS, which creates light out of nothing and allows for entirely new light designs. It raised incredible interest among our customers when we launched it couple of weeks ago. It caters not only to desires of car designers, but also enables more interactive content on the rear of our cars.
Many OEMs and Tier 1s are seeking a close cooperation to quickly bring this technology on their vehicles. Please see our website also for a nice video illustrating this exciting new technology, a true world first.
Fourth, looking at medical applications, we won more than EUR50 million lifetime value design with one of our specialty sensors for computed tomography. We are a key partner for almost all OEMs in this space and continue to have good traction.
Fifth, our family of LED and laser light sources and modules for near to eye projection will be an integral component in many AR/VR devices. We have first design wins for the LED based components and see strong interest for our laser-based solution. However, you’re all aware of the uncertainty of AR/VR market and we’re cautious in terms of its outlook until it really takes off. Nevertheless, it nicely shows how we can combine our unique blend of LED and IC competence in novel products.
With this, let me switch to page number eight. The Lamps & Systems segment performed as expected with 2% quarter-on-quarter improvement in revenues to EUR256 million in Q3 on the back of a continued strong automotive aftermarket business. We’re the clear leader in this market and important partner to our retailers that trust strongly on our brand and our ability to drive traffic in their stores.
In comparison, the sales in industrial and entertainment applications declined in Lamps & Systems segment by 15% compared to Q2 reflecting the weak environment in industrial in general. Adjusted EBIT came in strong and on a comparable basis to Q2 with 14% or EUR35 million in Q3. We’ve also received quite a few questions on what assumptions we have for the relative contribution of the various growth drivers.
I’m now on slide nine. First, we reaffirm our growth model with 6% to 10% CAGR from the new base after exiting the noncore semiconductor businesses. I explained a few examples of the strong design win base and momentum we see early in the call. With this in mind, we see the largest revenue growth and EBIT contribution in automotive in this trajectory going forward where we are the clear market leader. This followed by meaningful design wins with light sensor products and smartphone applications and next in line are the growth contributions from our new 8-inch facility in Malaysia.
We assume further many other contributions from growth factors in industrial, medical and selective consumer applications. We did give you a flavor of the ranking of the growth opportunities for us in next years. We also continue to target around 50% adjusted EBIT in ’26 based on this growth model in conjunction with successful execution of our Re-establish the Base program.
With this, let me hand over to Rainer for more details on the financials.
Rainer Irle
Thank you, Aldo, and good morning, everybody. We are on page 10. Adjusted gross profit improved by 11% quarter-on-quarter coming in at EUR263 million. Gross margin stood at 29% improvement, but still not where we want and need to be. The improvement was driven by a favorable product mix and an improved loading in Q3. However, we still suffer from meaningful underutilization effects.
The adjusted R&D expenses came down by 11% to EUR 96 million from EUR 105 million in Q2, which is basically due to a catch-up effect in the IPCEI funding. R&D expenses will be higher in Q4. Adjusted SG&A expenses saw a small positive one-off effect in Q2 and increased to EUR 100 million in Q3. Over time we want to bring this run rate down to single digit as part of our Re-establish the Base program.
With this, let us take a look at adjusted net result and earnings per share on Slide #11. The adjusted net result stays almost flat with EUR 29 million in Q3 compared to EUR 31 million in Q2. We recorded a higher operating profit in Q2, but the financial result was EUR 9 million more negative in Q3 mostly due to FX effect. The clean IFRS reported net result stood at minus EUR 55 million in Q3.
And the adjusted diluted earnings per share were EUR 0.11 in Q3 compared to EUR 0.12 in Q2. The clean IFRS diluted earnings per share stood at minus EUR 0.21. Clearly it is our ambition to improve this. And now on Slide 12. The operating cash flow still came in strong at EUR 199 million in Q3 compared to EUR 232 million in Q2. We made significant progress in the reduction of our working capital in Q3. The second quarter had positive effects from the introduction of reverse factoring.
As we still see high capital expenditures especially for completing the first phase of our industry first 8-inch Kulim manufacturing facility, the free cash flow was negative at EUR 63 million in Q3. Clearly an around 30% CapEx to sales ratio is an exceptional situation for enabling the long-term asset and it will come down significantly next year. We spent essentially the same amount of EUR 262 million in Q3 as we had spent in Q2.
Now let us spend some minutes on the implementation status of our comprehensive financing plan we announced on September 27. For this, please turn to Slide 13. While the plan was widely appreciated as necessary and well balanced, we saw a massive increase in stock borrowing and the share price decline that we believe does not reflect the positive business development. We want to get in EUR 2.25 billion for financing the maturities in ’24 and ’25.
We also want to reduce our debt level to get to a roughly 30% pro forma equity ratio. The essence of this plan is the combined rights issue and placement of new senior unsecured notes. This is complemented by some asset level transactions for optimizing the interest payment burden and a small additional package in ’24 where we want to decide on the instruments subject to market conditions.
You find a summary of the planned measures on the left side of the slide. We are very pleased with the progress we are making implementing the plan. First, the EGM approved the rights issue for raising EUR800 million new capital without any contestation on October 20. Second, the asset level transactions are signed. Yesterday, we announced that we will receive around EUR450 million in proceeds, EUR150 million more than originally announced.
The main transaction relates to a sale and leaseback of our new Kulim 8-inch facility or the building of the facility with expected proceeds of around EUR400 million. We also closed the divestment of an already phased-out manufacturing facility in Asia, which accounts for the balance to the total fund of proceeds. Third, the preparations and documentation for the rights issue and the placement of new senior notes are well on track and we plan to execute both transactions by the end of this calendar year.
Fourth, we recognize part of the IPCEI subsidies and will receive first payments under the EUR300 million over five years. Fifth, we decided to terminate the program to sell our self-held treasury shares. And now let me get to the guidance for the fourth quarter and the assumptions how to get to around 15% adjusted EBIT by ’26 and for this, we look at Page 14.
We expect revenues for the fourth quarter to be in the range of EUR850 million to EUR950 million so basically flat. We also expect the adjusted EBIT to come in slightly below last quarter namely between 5% and 8%. Please remember that Q3 adjusted EBIT was at the upper end of this band also because of onetime effects such as the catch-up of IPCEI funding of the order of EUR10 million and that is really the only reason for a change in Q4. For the fourth quarter, we assume an average U.S. dollar to euro exchange rate of 1.10.
Now looking into next year. In ’24 we want to divest or exit certain noncore semiconductor businesses. This will lower the starting base for our mid-term growth measure model by about EUR300 million to EUR400 million compared to the top line level in ’23. We expect some inventory corrections especially in the industrial applications in the first-half of ’24.
The second-half end of ’24 should come in stronger than the first-half driven by design wins going into production and the end of the inventory corrections. Based on our Re-establish the Base program, we expect about EUR75 million run rate savings at year-end. We also expect the free cash flow including divestments to be positive, which means excluding interest payments. Now we have received a lot of questions around the free cash flow in ’24.
Let me add some additional flavor here. CapEx in ’24 will be in the order of EUR450 million plus/minus quite a bit as we have no approved budget yet, but I think that gives you a good order of magnitude. Now the cash out from investments is expected to be much higher to be north of EUR600 million. And why is that?
We are investing so much in Q4 of this year, which will then be paid in ’24 and we will be investing so little in Q4 ’24, which will be paid in ’25 that there is a massive reduction in accounts payable related to CapEx in ’24 basically paying the overhang of ’23 in ’24. As Aldo mentioned already, we reaffirm our midterm target financial model and for this, we assume a further recovery of the market and more design wins going into production to show top line growth within the 6% to 10% CAGR range according to our model.
With full implementation of our Re-establish the Base program, we expect about EUR150 million run rate EBIT improvement in ‘26. Higher volumes, growth from new designs in automotive mobile sensors, sales from the 8-inch Kulim factory and the many other growth drivers and the impact from Re-establish the Base should bring us to around 15% adjusted EBIT as per our model. Already in ’25, we target a 10% CapEx to sales ratio with improving free cash flow in ’25 and thereafter.
And with this, back to Aldo.
Aldo Kamper
Thank you, Rainer. So let me just summarize the key takeaways for today. We delivered a solid revenue and adjusted EBIT in Q3. We see strong design win momentum especially in automotive. Outlook for Q4, like Rainer outlined, is solid in a difficult market.
We reconfirm our structural growth model with 6% to 10% CAGR from the new base with larger contribution from automotive followed by mobile light sensors and revenue from our new 8-inch factory in Kulim and contributions from the other growth drivers.
Our Re-establish the Base efficiency program is well on track and the organizational changes that were part of this actually already went live on October 1. And also very important, our refinancing is progressing well. We look forward to close this topic till year-end to fully focus on business execution in 2024.
This concludes our introductory remarks and happy to take your questions now.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from the line of Janardan Menon with Jefferies. Please go ahead.
Janardan Menon
Him good morning. Thanks for taking the question. I just wanted to take a look at your margin trend. You said it’s EUR10 million which has affected the margin in Q4, which if I take that off comes to about 6.8% which is in the midpoint of your guidance range. But when you look out into the first-half of 2024 or 2024 in general, can you give us some of the puts and takes?
You said first half will be weak, second half will be stronger. Can we assume that that is true for margins or will you because of the cost reduction be able to maintain the sort of second half ’23 run rate of margin into first half and then improve from there in the second half? Just any color on how you see that margin trend through 2024 would be great.
Rainer Irle
Yes. It is probably a bit early to give you a more complete guidance for next year. I mean overall we obviously aspire to improve the margin next year and, as we said, the first half will kind of see a bit of inventory correction particularly in the industry. The good thing is once that inventory correction is over, we are immediately back to normal. And for the second half, we really have a lot of design wins already achieved today so we are very positive about the second half of the year.
Janardan Menon
So just on those design wins. I mean previously AMS has talked about smartphone sensor design win ramping second half next year, which I think you alluded to once again in today’s press release as well. When you look beyond that design win, are we talking about some of your new automotive design wins or is it more on the consumer side? Any color on which end market the design win that will ramp specifically in the second half of next year will be in?
Aldo Kamper
Yes. Let me take the follow-up question. And yes, automotive plays an important role in that. As I said before, Eviyos has a lot of good traction and we see more and more car models also coming online with this technology next year and this is a high ASP product so it will make a difference. Also the strong momentum on the iRGB of this intelligent multicolor LED is surprisingly strong. We really see a lot of these new platforms that people put more functionality also in the interior lighting. It’s not just ambient lighting anymore. It starts to serve a function and with that, the amount of LEDs is much higher.
And this is really driven by lot of the new EV platforms especially from China that are increasingly using this functionality and are putting the other carmakers under pressure to do something similar. So we also here expect significant uptick in the second half of next year. But yes, it also is in the other segments.
Like you said, we have a significant sensor ramp-up in the middle of ’24 ahead of us and also in the medical space, we have new programs coming in. So it is fairly broad-based, but yes, the sensors and the forward lighting in automotive are the two big topics in that.
Janardan Menon
And can you confirm that the new design wins like the automotive lighting design wins are sort of at a margin level, which is at least at your 15% long term or even higher because presumably you will have lower margin segments also in coming years. Is that a fair assumption?
Aldo Kamper
Yes. I mean these are good products with strong differentiation and also with good margin potential. These products are at the moment still in ramp. I mean if you ramp usually, you are not at the height of your profitability yet. But overall once these products scale, these will be solid contributors.
Janardan Menon
And my last question is on your CapEx, cash flow. Can we assume that your CapEx will drop in Q1 and therefore your cash flows will drop in Q2 or is there some further spending to be done in the first-half and then it drops into the second-half of the year?
Rainer Irle
Yes. I mean the second one is right. I mean it is high in Q3, Q4 and it will continue to be elevated in the first-half of the year as we are kind of moving in more equipment into the Kulim 8-inch facility and then it will come down in the second-half of the year. That is also where I said that kind of Q4 this year will be high and Q4 next year will be low and that also creates kind of the hangover in the accounts payable from CapEx.
Janardan Menon
Understood. Thank you.
Operator
Next question comes from the line of Sandeep Deshpande with JPMorgan. Please go ahead.
Sandeep Deshpande
Yes, hi. Thanks for letting me on. My question is regarding the product you’re building for your big customer in consumer. How the testing of that product is going and what is the progress on that? And in terms of the micro LED product, when do you think you will have a micro LED product in the market? That’s my first question.
Aldo Kamper
Well, as we outlined, we see for the ‘26 mid-term guidance we have given that micro LED will start to contribute meaningfully or will contribute meaningfully. So that’s still our assumption and we are working towards that as we just outlined.
Sandeep Deshpande
And my second question is in terms of the consumer market, are you seeing any revival at all in terms of — in your guidance itself, it doesn’t seem to be seeing any revival of the consumer market at this point whereas we are seeing some signs in the smartphone market that things are coming back in the fourth quarter. But is this because of share loss that has occurred in the past or is this because you are not — that you’re not seeing it at this point? Maybe I’m trying to understand what is happening in the particularly Android world as such really.
Aldo Kamper
No. I think we are seeing something similar to what you’re describing. We’re seeing some signs of life in the Android space and we are benefiting from that as we are still designed in all the mid and high-end phones with our mobile light sensor and camera enhancement products. So we are seeing a bit of an uptick, but it is still at a relatively low overall level. But the tendency is positive. Whether that sticks after the raise for market share in this year or whether it continues into next year, we’ll have to see.
Sandeep Deshpande
Thank you so much.
Aldo Kamper
Welcome.
Operator
The next question comes from Sara Russo with Bernstein. Please go ahead.
Sara Russo
Hello. Thanks for taking my question. So you indicate in your outlook from a market conditions perspective that you’re expecting it to remain challenging for the next 12 months. Some of your auto semi peers have indicated they’re starting from a baseline of modeling flat growth for auto volumes for 2024 so 85 million vehicles. Can you talk about your base case assumptions for the auto market going into 2024?
Aldo Kamper
Yes. We share the view that there will be little volume growth next year, a bit but not a lot. The majority of our growth clearly comes from our new product introductions and they’re going to happen. I mean we know what programs we’re on and we know the ASP of those products and with that, we actually look into a quite solid ’24 even though volumes are fairly flat.
Sara Russo
Great. And then just as a follow-up on the disposals progress the $300 million to $400 million. It looks like the timing of that, you’re still expecting that to happen in the 2024 time period. Can you just confirm that? And any commentary on progress and conversations? I think you said early signs were positive, but looking just for a little more color on that.
Aldo Kamper
No. We continue to believe that step-wise we will execute these divestments in ’24. We’ve spoken about the passive optical component business, that’s the one highest on our list and where we have very active engagement at the moment. So we expect that it’s going to be the first in line. But also for the other businesses, we have put the system in motion, if you will, put all the financials together, started conversation. So also that is progressing, but some of them will take a little longer. But ’24 continues to be the right modeling assumption.
Sara Russo
Great. Thank you very much.
Aldo Kamper
Welcome.
Operator
Next question comes from the line of Sebastien Sztabowicz with Kepler Cheuvreux. Please go ahead.
Sebastien Sztabowicz
Yes. Hi, everyone and thanks for taking my question. What kind of underloading charges have you recorded in the third quarter and what do you expect in terms of underloading charges for the fourth quarter? This would be the first question. And the second one is relating to inventories in your main market. Where do you see the inventories in your main market like automotive, consumer or industrial and medical? Is it possible to quantify the level of inventory today? Thank you.
Aldo Kamper
On your first question, high level think about the next quarter overall in revenue being flat, but this is the quarter where the aftermarket business, the replacement lamp business is usually very strong. So it basically says that we’ll see further uptick in automotive aftermarket replacement lamps and therefore, a bit less volume on the semiconductor side, but it’s still a quite solid quarter fairly similar to Q3, but with a slight mix change as I indicated.
In terms of the inventory in the channel, here a very mixed picture. Actually in automotive where we had a lot of inventory beginning of the year. You remember we worked through it in the second quarter. We now see healthy, in some product categories even quite low inventory levels. And consumer is fairly normal and unchanged.
At the moment where we see the biggest issue is on the industrial side where we see both industrial and medical being fairly high and that’s what Rainer also indicated. We do expect that we will work through that beginning of next year to come down to more reasonable levels.
Sebastien Sztabowicz
And on the underloading charges, what was the impact in Q3? Could you quantify the basis points that you have in terms of negative impact?
Rainer Irle
Yes. I mean you could say that if all of our lines will be fully loaded, our margin will be 10% higher. But kind of I mean I’ve never seen that all lines are 100% loaded. But kind of we could very well expect to see a significant mid-digit improvement once the markets pick up.
Sebastien Sztabowicz
Okay, thank you.
Operator
The next question comes from the line of Jurgen Wagner with Stifel. Please go ahead.
Jurgen Wagner
Yes, good morning. Thank you. A question on your mid-term margin. Over the past weeks, you announced several subsidy programs to also go into your OpEx. How should we look at your margin target longer term? How much benefit do you expect or is it why not higher? And then on your rights issue, what is the base case when you will announce the price? Thank you.
Aldo Kamper
Yes. So on the subsidies, maybe giving a bit more flavor. I mean from the IPCIE, we’re getting a bit more than EUR300 million. Not all of that will go into the bottom line. Obviously some also reduces the capitalization of the R&D. You could probably assume that it is a good EUR20 million positive effect on the P&L on an annualized basis. We had the catch-up effect in Q3 basically booking it for three quarters.
Starting Q4, we will book around EUR5 million positive contribution from that. The other subsidies we’re getting in Malaysia and I mean we also applied for additional subsidies under the European Chips Act, that would be investment grants that would reduce the value of the assets on hand and therefore then the depreciation going forward. On the timing of the rights issue and the high yield bond, we will launch that as soon as practically possible. Preparations are very far and, as we said, we aim at kind of concluding all of that within this year.
Jurgen Wagner
Okay, thank you.
Operator
The next question comes from the line of Reto Huber, Research Partners AG. Please go ahead.
Reto Huber
Yes, good morning everyone and thank you for taking my question. I have a few relating to the micro LED and your new fab in Kulim. I was wondering based on your current investment program for the Kulim factory, what is the maximum revenue you will be able to generate in 2025 in that fab? And then secondly, how many different customer projects that you already placed or have already placed orders for the micro LED?
Aldo Kamper
We are very focused on bringing the first program to market with 1 key customer and that’s really our core focus at the moment. This is a challenging technology to bring to market and therefore, it’s important that we get the first one done and then based on that, other programs will follow. We gave you a feeling of the relative magnitude of the contribution in ’26 and we said auto first, sensor second, the Kulim third. So it’s a meaningful amount that you can derive from that sequence that we gave you.
Reto Huber
Okay. And in terms of maximum revenue per annum?
Aldo Kamper
That’s what I just answered, try to do the math.
Reto Huber
Okay. I will think about it. Thank you.
Operator
Your next question comes from the line of Simon Coles with Barclays. Please go ahead.
Simon Coles
HI, thanks for taking the questions. First one is just you must have met lots of investors over the last month or so. So I was just wondering any key areas of interest, concern and if you had signs of commitment for some anchor investors for the rights raise? And then the second one is just on the sale and leaseback on Kulim; 10-year contract you said in the press release yesterday, but I didn’t see any comments about renewals, but I’m assuming you do have sort of automatic renewals in that leaseback. So just any color on that would be helpful as well. Thank you.
Aldo Kamper
Yes, Simon, okay. So we actually met a lot of investors and I believe that most of the investors that we are meeting actually kind of are very encouraging that we are doing the right thing. They believe in the story. They understand that the rights issue is a necessary thing to do. They understand that kind of ’24 will be kind of a bridge year where things improve, but CapEx is still a bit elevated, but that we are on the right track to achieving ’26. Also kind of from the questions we’re getting, I believe a lot of investors are sidelined and waiting for the right point of time to come in. Obviously stock borrowing is high currently.
The good thing is kind of they all need to close that at a certain point of time. Now the Kulim transaction really I mean it’s probably very complicated to explain all details. But in a simplified way, we sell the shell, the building of our new factory to some pension funds in Malaysia and we will buy it back after 10-years or we can also buy it back earlier if we want. So it’s more kind of in a way like a secured loan where we pay rent, but the rent is accounted for as interest. The interest payment will be a bit backloaded so the annual kind of coupon rent is lower and there is a kind of a catch-up payment at the very end of the agreement.
Simon Coles
Okay. That’s very helpful. Thank you. Could I ask a quick follow-up. What are you expecting sort of pro forma interest costs to be then, say, in ’25 or ’24 after everything is sorted?
Aldo Kamper
Also that’s a very good question. Obviously it depends on kind of what we will see now in the pricing of the high yield fund. So I would prefer to kind of get into more detail on that one when we talk about Q1.
Simon Coles
That’s fair enough. Thank you very much.
Operator
There are no more questions at this time.
Juergen Rebel
All right. So thank you very much for your questions and your interest. If there are any further questions around, you can contact us for the rest of the questions. You’ll find all the material on our website. And with that, yes, that does close the call. Thank you very much and have a good day.
Operator
Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.
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