We added a medium-sized long position in Osram Licht AG (Germany: OSR). OSR is one of thelargest vertically integrated providers of lighting products and solutions in the world. In July, OSR was spun-off from Siemens, a large industrial conglomerate. We acquired a position in OSR at anaverage price of €24.57 per share. The lighting market in which OSR competes is undergoing atransition away from traditional technologies (such as incandescent and fluorescent lighting)towards LEDs. This transition has been a challenge for OSR with its large legacy lighting business, and has put pressure on the company's financial performance. Current margins are below historical levels and one of its three segments is currently unprofitable. In response, OSR has undertaken both a large cost restructuring program and an expansion of its LED businesses tohelp it return to historical margin levels within a two-year period.
Should OSR achieve its targeted margins, it will earn in excess of €3 per share. OSR is unlevered,has financial flexibility, and given that the financial targets were set in the context of a spin-off,we suspect OSR may ultimately exceed its targets. This could lead to a multiple re-rating as OSR becomes viewed as an LED growth story. LED companies with comparable businesses to OSR presently receive lofty multiples. OSR shares ended the quarter at €34.70.