Speech by Martin Goetzeler, President and CEO of OSRAM GmbH

Financial statement press conference on December 13, 2007

The spoken word takes precedence

2007 was an exceptional year for the lighting industry. In 2007 the energy-saving lamp became the symbol for climate protection. OSRAM has always been a pioneer in this field, as our advertising posters from as far back as the 1920s clearly show. And in 1985 for example we were the first manufacturer to integrate electronic control gear in an energy-saving lamp. Last year, we brought energy savings to halogen lamps that look like ordinary light bulbs and invented the Halogen Energy Saver. As one of the market leaders in light emitting diodes (LEDs), OSRAM is also in an excellent position to meet the demand for this energy-efficient light of the future. Last week at the award ceremony for the German Future Prize presented by the German Federal President we were extremely proud of a team of researchers who invented the highly efficient thin-film LED. As a high-tech company in the lighting industry, we will be helping to shape our market. We see energy-efficient lighting solutions and LEDs as our most important growth drivers.

Ladies and Gentlemen, a warm welcome to our annual press conference to present our financial statement.

Artificial light still accounts for 19% of the global consumption of electricity. Incandescent lamps and other inefficient light sources are responsible for more than two thirds of this. There is therefore enormous potential for further savings and we are actively supporting governments and NGOs in their initiatives to reduce CO₂ emissions. Relevant legislation is currently being drafted in the EU. We are expecting the EuP Directive to specify thresholds for street and office lighting in 2008 and ones for domestic properties in 2009. We have made certain recommendations as part of the European Lamp Companies Federation (ELC). For example we propose incandescent lamps to be phased out by the year 2015. In view of the quantities involved - 2.1 billion incandescent lamps are still being sold each year in Europe - this is an ambitious but realistic timescale.

Let's now take a look at the figures for 2007. We recorded a nominal increase in our sales year on year of 3% to EUR 4.7 billion. After adjustment for currency exchange rates our growth was 7.4%. We grew faster than the market. We achieved double-figure increases in volume in various sectors including energy-saving lighting solutions, electronic products (such as electronic control gear and opto semiconductors) and the Display/Optic division as a whole. We recorded growth in all regions. We achieved excellent growth in the BRIC states. As of September 30, 2007 we employed more than 41,000 people throughout the world. This is 2% more than in the previous year.

America remains our largest market at EUR 1.9 billion and contributes 41% to our worldwide business. In the NAFTA states we grew by 5% (calculated in dollars) to EUR 1.8 billion. Here too, greater importance is being attached to energy-efficient systems, and our subsidiary OSRAM SYLVANIA became a partner in the Clinton Climate Initiative, a project in which the mayors of six North American cities including New York, Los Angeles and Toronto are aiming to reduce the electricity consumption of the lighting systems in municipal buildings by 20 to 50%.

Europe accounts for 38% of world sales with EUR 1.8 billion and we were able here to grow by 6%. We achieved double-figure growth in sales in Eastern Europe. In Germany, Europe's largest lighting market, nominal sales increased by only 1% to EUR 547 million due to structural changes. Germany still accounts for 12% of world business. The number of employees in Germany increased by 2% to around 9000 due to expansion of production capacity for high-intensity discharge lamps in Berlin and LED chips in Regensburg.

In Asia/Pacific we recorded double-figure growth to EUR 780 million, after adjustment for exchange rates. The region's share of overall sales rose to 17% - in the year 2000 it was just 9%. We achieved particularly high growth rates above all in China and India.

Our earnings rose to EUR 492 million. Our profit margin is therefore 10.5%, which is within the target corridor prescribed by the parent company Siemens. Among other things, the startup costs for innovative products and an expansion in sales and marketing activities in Europe and Asia have been offset here. We also could compensate the weakness of the US dollar and the Japanese Yen.

Strength in innovative and energy-efficient products were the main reasons for our continued high level of performance. We have also maintained our strict approach to cost management. We are constantly working to improve processes and productivity worldwide. In the last fiscal year alone, we started or completed 1300 productivity programs. And at the end of the fiscal year the number of employees in low-wage countries and those in high-wage countries were broadly in balance for the first time at 50% each.

To safeguard our success we once again invested heavily in the future. Our expenditure on research and development rose by 2% to EUR 242 million. For OSRAM as a whole, R&D expenditure amounted to 5.2% of sales; for opto semiconductors it was around 13%. From the high figure of last year our investment in property, plant and equipment decreased by 4% to EUR 284 million. The main focus was on the opto semiconductor and high-intensity discharge lamp sectors. In the fiscal year just ended, EUR 171 million was invested in Germany, that is 60 percent of all investment in property, plant and equipment. In the past five year we have invested more than EUR 700 million in property, plant and equipment for our German sites.

2007 was therefore another successful year for OSRAM. We achieved a further increase in sales and profits, carried out further restructuring and invested heavily in new products and projects. What are the major steps that are needed to ensure that we continue to grow faster than the market?

1) First, we must expand in growth regions:

We are continuing to expand in Asia and in Eastern Europe - with regard to both sales and production. We must focus above all on Asia because this region's share of the world lighting market with increase from its current level of 40% to more than 50%, depending on exchange rate movements, in the next 8 to 10 years. Our presence in the growth regions will play an important role in securing jobs in Germany, where we manufacture innovative products.

The groundbreaking ceremony for our second LED chip factory in July was an important step in providing further capacity for wafer production. The factory in Malaysia joins the one in Regensburg in meeting increased demand. By expanding at both sites we have now doubled the area devoted to chip production. Penang has been our LED assembly site since 1972.

Last year also saw the start of construction for our second factory in India. The new site is not far from the existing factory, near New Delhi. Over the next three years we will double our production capacity in India. The new factory will be mainly manufacturing energy-efficient products for the local market.

And in November we launched a joint venture with a Chinese partner for energy-saving lamps. The joint venture is known as Sunny World Ltd. It has its headquarters in Hong Kong. 80% of its shares are held by OSRAM. Production for the growth markets in Asia and Latin America will take place in an existing factory in the Shanghai region.

In the 2007 fiscal year one third of OSRAM's global workforce was employed in Asia.

We also strengthened our presence in Eastern Europe. A new support center was opened in Georgia on October 1, 2007. We are also making good progress with our factory in Russia which we took over in 2004 from a local manufacturer. We have now reached the OSRAM level of quality and can export the products from Smolensk to neighboring markets.

2) Alongside regional expansion, innovations are the driving force behind our success.

Our powers of innovation depend on having the "brightest sparks" so in the past two years we have added around 300 employees to our research and development department and we shall continue to increase our workforce in this sector.

With more than 3000 patents in the various aspects of opto-electronic semiconductors for illumination, sensor systems and visualization, OSRAM Opto Semiconductors is one of the technology leaders in this field. A week ago today, two of our researchers together with a representative of the Fraunhofer Institute in Jena were awarded the German "inventor's Oscar", the Federal President's Future Prize. The team has revolutionized LED lighting with its thin-film technology. Thin-film technology is the key to producing LED chips of extremely high brightness and also enables them to be packed tightly together to create a large illuminating surface. Our high-efficiency OSTAR LEDs are opening up new applications, ranging from mini projectors to dipped beam and high beam headlights, plus a broad spectrum of applications in general lighting.

LEDs are already inspiring automobile manufacturers to create pioneering designs. Our high-power-LEDs are now used in the new Audi A4 to provide high-visibility daylight running light, after proving their worth in the flagship Audi R8 sports car. OSRAM SYLVANIA is well positioned among American automobile manufacturers with its standardized Joule plug & play LED solution. It is used for example for the taillights and signal lights on new Ford and Chevrolet models. In brake lights, LEDs have a special advantage over ordinary lamps. They light up almost instantaneously (around 1.8 milliseconds to be precise) to give the driver behind more time to react. That compares with 250 milliseconds for a conventional incandescent lamp.

We have further strengthened our OLED development team in Regensburg and placed great emphasis on lighting applications. As you came in you may have seen the prototype of a transparent white OLED with outstanding performance in our laboratory tests. It is transparent either on or off, and has achieved a luminous efficacy of more than 20 lm/W at 1000 cd/m². This result was achieved as part of BMBF project OPAL2008. The luminous layer of an OLED is just one hundredth of the diameter of a human hair. Visions of the future include illuminated partitions and canopies, and the integration of these light sources in a wide variety of general lighting applications to create a special atmosphere. Just imagine - your living room window may one day be a transparent OLED. At night the window could then illuminate the room, in much the same way that natural daylight comes flooding in. And during the day the sunlight would simply shine through.

Our Display/Optic division - which has already won a technical Oscar on two separate occasions - received an Emmy Engineering Award in Hollywood in September from the American TV industry for the HMI lamp. This lamp is now standard equipment in studios and outdoors for creating daylight conditions. High-intensity discharge lamps are also used in general lighting applications wherever high output is required, for example in sports stadiums and shops. We are expecting this technology to provide some interesting growth opportunities as a result of advances in ceramic materials, miniaturization and electronic integration.

An innovation that will be of particular interest to domestic consumers and one that complements the classic energy-saving lamp, is the energy-saving halogen lamp, which I mentioned at the outset. They are currently selling very well in Europe. With these lamps you can save up to 30% energy. Anyone looking to replace the incandescent lamps in their chandeliers can follow the example of the Munich city authorities who have upgraded the lighting in their historic city hall. And even the classic energy-saving lamps are now available in more shapes, warmer light colors and now from OSRAM an infinitely dimmable version.

3) In combination with our regional and technological strengths, applications and solutions are the third pillar in our corporate strategy.

With the LED Systems division we have successfully expanded our know-how in systems business from lamps to LEDs and can offer complete solutions that contain not only LEDs but also the necessary optics and thermal management systems. Applications nowadays include indirect lighting, effect lighting with color changes and shop lighting. A double-figure percentage increase in sales in the fiscal year just ended indicates that we are on the right path with our LED modules. The main customer benefits are their small dimensions, long life and energy efficiency. The high-power COINlight LED system for example achieves the same output as a 20 W halogen lamp but only consumes 12 W at most and lasts up to 25,000 hours. It is used for spotlighting.

Our new Luminaires division started work on October 1, offering luminaires for commercial and private users. Our small but successful product portfolio is now being expanded. Our focus for the future will mainly be on LED luminaires. We intend expanding these activities systematically because we are convinced that in the solid state lighting sector, future innovations will not only come from the LEDs as components. Because of the emergence of new applications, the interplay between LED components, LED systems and LED luminaires will be crucial to market success.

The creation of the LED Systems and Luminaires divisions was an important step in the right direction. From April 2008 we shall also be boosting the punching power of our largest division, General Lighting. We have decided to restructure the sales side to bring the innovative technologies faster to market. Our sales department will operate globally across all technologies, including electronic control gear, LED systems and LEDs for general lighting as well as luminaires. In other words, we shall always recommend products that precisely match the customer's particular requirements. We shall therefore be training up experts with know-how in LEDs and applications. I can best illustrate this with an example that you can also find in our new OSRAM magazine. When shipbuilders Meyer Werft fitted out the cruise ship AIDAdiva what were they interested in? Certainly not the details of all the various lamp technologies; they prefer to have specific recommendations for their specific project. They want to know which areas of the ship are suitable for energy-saving lamps, where halogen lamps can provide accent lighting and how LEDs can be used to create the right atmosphere. And ideally in conjunction with a lighting management system. The AIDAdiva now has an energy efficient lighting system that each year achieves savings of more than 200,000 US dollar.

Global responsibility for the products and technologies in the general lighting sector is with our Business Units that are close to the market and have a strong presence in the regions.

Let me emphasize at this stage that our organizational changes are in line with the principles laid down by Siemens for the realignment of the Group, such as the clear accountability. As part of the Industry sector we can make more use of synergy effects. Here are just some examples of successful cooperation:

• Sports stadiums such as the Allianz Arena and the Stadio Cachamay in Venezuela which was built for the Copa América
• Together with SBT we have been setting up courses for planners and specifiers relating to building management bus systems and their networking with DALI for lighting control. A good example is the futuristic Torre Espacio tower in Madrid.
• There are also common interests in the electrical installation sector because we are addressing the same product users, namely the electrical contractors. This year therefore we jointly organized the German Innovation Conference for the electrical trade in Rust.
• There are projects with Siemens Water Technologies for using our UV lamps to purify water.
• And last but not least we see growth potential in energy-saving projects in which lighting solutions are incorporated in energy-efficient building systems.

 

Now from our future success factors let's take a look at our prospects for 2008. Our objective for the present fiscal year is to achieve above-average growth in particular in innovative and energy-saving products, combined with continued high earnings within the target band prescribed by Siemens. We expect to benefit again from a healthy economic situation and from a continuing trend toward energy-efficient products.

For us and for our employees it is also a good feeling to know that we are not only earning well from our products but also helping to improve the quality of life. This applies in particular to countries such as India that are reliant on energy-saving products so that the general population can enjoy electric light despite the limited power production capacity. Against this background we are proud of a project in which inhabitants in three Indian states have been provided with a total of around two million energy-saving lamps each with a long life of 15,000 hours. The lamps will be exchanged for ordinary light bulbs on a one-for-one basis - especially in households that could not otherwise afford to buy energy-saving lamps. Energy savings of up to 80 percent per lamp translates into monetary savings for consumers of about EUR 100 million, and the environment benefits from a reduction in CO₂ emissions of more than 1 million tonnes. The model is being financed together with an energy supplier and exclusively through CO₂ certificates. This is an example of a Clean Development Mechanism (CDM) for reducing CO₂ emissions in developing and emerging countries. In February 2007 we were the first lighting manufacturer in the world to receive approval from the United Nations for such a mechanism for our industry on the basis of the Kyoto Protocol. This mechanism helps the environment, helps the local population and also follows economic logic.

Energy-efficient products already account for 60% of OSRAM's total sales. Over the next ten years we want to increase this to 80%. Eco-friendly products are the most important growth drivers for us, alongside LEDs. For this reason we launched a worldwide campaign in 2007 with the slogan "Switch over to climate protection", combining a number of different activities including advertising, PR and sales promotion. We want this campaign to show how each and every one of us can make a contribution and at the same time we want to boost awareness of our brand.

Our message is that everyone benefits from climate protection. We like to talk about a triple-win situation here:

1. Users save energy and also money, and these savings more than offset the higher purchase price. A 21 W DULUXSTAR energy-saving lamp for example pays for itself after just 4.5 months.
2. Emissions of CO₂, the gas responsible for global warming, are reduced
3. We and our customers benefit from increasing demand for energy-efficient added-value products.

 

I hope my comments have given you an insight into the multi-faceted world of light and identified the future growth opportunities in our market. We're now happy to answer any questions.

This speech contains forward-looking statements and information ? that is, statements related to future, not past, events. These statements may be identified by words as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", "will" or words of similar meaning. Such statements are based on our current expectations and certain assumptions, and are therefore subject to certain risks and uncertainties. A variety of factors, many of which are beyond OSRAM's control, affect its operations, performance, business strategy and results and could cause the actual results, performance or achievements of OSRAM worldwide to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. For us, particular uncertainties arise, among others, from changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products or technologies by other companies, lack of acceptance of new products or services by customers targeted by OSRAM worldwide, changes in business strategy and various other factors. More detailed information about certain of these factors is contained in Siemens' filings with the SEC, which are available on the Siemens web site, www.siemens.com and on the SEC's web site, www.sec.gov. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the relevant forward-looking statement as anticipated, believed, estimated, expected, intended, planned or projected. OSRAM does not intend or assume any obligation to update or revise these forward-looking statements in light of developments which differ from those anticipated.