Osram systematically tackling its realignment

Managing Board wants to increase focus on growth, innovation and technology leadership
Mandate to examine carve-out of the lamps business
Osram’s good earnings performance continues in the second quarter

Osram is systematically tackling its realignment. At yesterday’s meeting, the supervisory board of OSRAM Licht AG gave the green light for a mandate to examine the carve-out of the general lighting lamps business. As an independent entity, the business could operate more freely on the market and realize strategic options, such as for example partnerships, more easily. The businesses with opto semiconductors, automotive and specialty lighting as well as luminaires, lighting systems and solutions would as a result form the future core business of Osram. With this move, the company will increase its focus on growth, innovation and technology leadership and addresses the different dynamics and requirements in the changing lighting market. The upheaval in the industry also had an impact on Osram’s performance in the second quarter of fiscal 2015. Revenue on a comparable basis, i.e. adjusted by portfolio and currency effects, fell about two percent from the year-earlier period, in particular due to significant declines in the traditional lamps and components business. In contrast, revenue increased more than nine percent on a nominal basis to almost €1.4 billon due to the weakness of the euro against key currencies and the acquisition of Clay Paky. EBITA¹ excluding special items rose about 30 percent to €151 million, translating into a margin of 10.8 percent. The earnings development was driven by a strong operating performance as well as cost savings from the ongoing transformation program and positive currency effects. Against this background, Osram confirms the recently updated outlook for fiscal 2015.

“While we performed well again in the second quarter, we have to face the realities of the market,” said Olaf Berlien, Chief Executive Officer of OSRAM Licht AG. “The lighting market is basically characterized by two business models with different dynamics and requirements. On the one hand, you have the volume markets in which consistently high quality and cost efficiency are crucial competitive factors. On the other hand, there are the technology markets. These are characterized by innovation, tailor-made solutions and sustainable growth. These technology markets are intended to be Osram’s future core business.”

The revenue share of LED-based products and solutions reached 41 percent in the second quarter. EBITA on a reported basis rose 54 percent to €125 million, or 8.9 percent of revenue. With €78 million, net income was 13 percent above the year-earlier figure.

Osram reporting segments and regional developments in the second quarter

In the second quarter, the Opto Semiconductors reporting segment recorded comparable revenue growth of eight percent from a year earlier. Again, all reporting regions contributed to this development. Growth was driven by the automotive, industrial and infrared business. At 17.0 percent, the EBITA margin continued to be on a high level.

Specialty Lighting (SP), with its Automotive Lighting and Display/Optics units, recorded continued growth coupled with high profitability in the second quarter. Revenue was up five percent on a comparable basis, also driven by all reporting regions. Excluding special items, the adjusted EBITA margin reached 15.9 percent and benefited from positive currency effects, among other things.

The LED Lamps & Systems (LLS) reporting segment covers Osram’s business with LED lamps, light engines as well as LED drivers. Thanks to the continued demand for LED products, the segment posted comparable revenue growth of 43 percent in the second quarter. Compared with the year-earlier period, the adjusted EBITA margin improved by 7.6 percentage points to minus 5.9 percent despite negative currency effects.

In the Classic Lamps & Ballasts (CLB) reporting segment, revenue on a comparable basis declined 16 percent from a year earlier after a strong first quarter. At the same time, the adjusted EBITA margin showed a very good performance in the second quarter and rose to 10.7 percent, benefiting from cost savings.

The Luminaires & Solutions (LS) reporting segment comprises luminaires for professional customers as well as the service and solutions business. Due to the regional focus strategy and product portfolio adjustments, the segment posted a comparable revenue decline of eight percent in the second quarter. The adjusted EBITA margin improved substantially by 9.7 percentage points and was minus 15.0 percent.

From a regional perspective², Osram’s EMEA and Americas reporting regions each recorded a comparable revenue decrease of one percent in the second quarter. Revenue in the APAC region dropped three percent on a comparable basis.

Outlook for fiscal 2015

Osram confirms the recently updated outlook for fiscal 2015. The Managing Board thus expects revenues to be on the level of fiscal 2014 on a comparable basis. The adjusted EBITA margin is expected to be above 9.0 percent. In addition, the Managing Board anticipates both net income and return on capital employed (ROCE) to decrease sharply in the current fiscal year due to an increase in transformation costs. Free cash flow is expected with a positive triple-digit million euro figure in fiscal 2015 but to stay below the prior-year level. Based on the outlook for fiscal 2015 and Osram’s midterm prospects, the Managing Board intends dividend continuity with €0.90 per share also for fiscal 2015.

Highlights in the second quarter

Osram continued to underscore its role as an innovation and technology leader in the second quarter. For example, Osram organic light emitting diodes (OLEDs) appeared in the rear lights of the BMW M4 show car, which was presented for the very first time at the International Consumer Electronics Show (CES) in Las Vegas in January. These area light sources make it possible to turn any shape into a luminous element, thus opening up completely new design options. In contrast to OLED, LED technology has already established itself in many areas over the past years, with Milan being a recent example. Prior to the World Fair 2015 hosted by the northern Italian city from May 1, Milan decided on a large-scale conversion of its street lighting to LED, including intelligent lighting control systems from Osram, which among other factors support the autonomous dimming of these energy-efficient luminaires. And thanks to Osram, intelligent lighting is also making its way across the Atlantic. In January, the company launched its smartphone-controlled Lightify lighting system also in the United States. Lightify users are not only able to choose their favorites from millions of potential colors but can also link and jointly control several light sources. This system will play an important role at the Eurovision Song Contest in May as well, when thousands of visitors will use a modified version of the app to show their support for the individual artists via “color voting” at the famous square in front of the Vienna city hall. Their votes will be converted into a color in which both the square and the city hall will then be illuminated. At the contest itself, luminaires from Osram will also be providing impressive lighting effects at the Stadthalle event center in Vienna. Osram also seems to have impressed renowned the Automotive News magazine, which recently selected the lighting maker as a winner of the coveted PACE award in recognition of innovative LED headlamp solutions.

The company will hold a conference call for journalists with the Managing Board of OSRAM Licht AG today at 9:00 a.m. CEST. The conference will also be broadcast via the Internet at www.osram.com/press. After the event, a recording of the conference will be provided at the same link.

Starting at 2:00 p.m. CEST, you can follow the conference call for analysts with the Managing Board at www.osram.com/ir.

The full report of OSRAM Licht AG’s second quarter will be posted on the company’s Investor Relations homepage at www.osram.com/ir on May 8.

Key financial data of OSRAM Licht Group in the second quarter

(Preliminary, not yet with review opinion, figures in millions of euros, margins in percent, employees as of March 31. Negative values in brackets.)

Reporting segment performance in the second quarter

(Preliminary, not yet with review opinion, figures in millions of euros. Negative values in brackets.)

¹Earnings before interest, taxes and amortization

²Osram divides its business into the three regions APAC (Asia Pacific), EMEA (Europe, Middle East and Africa) and the Americas (North and South America).