Osram lays strong foundation for future growth

2015/11/10

- Adjusted EBITA margin increases to more than 10 percent in fiscal 2015
- Revenue up 8 percent, almost stable on a comparable basis
- Earnings performance in fiscal 2016 characterized by strategic realignment

Osram managed the challenges of the changing lighting market very well in the fiscal year that ended in September 2015 and laid a strong foundation for future growth. EBITA1 excluding special items rose 26 percent on a year-on-year basis to €567 million, translating into a margin of 10.2 percent. Cost savings, positive currency effects as well as simplified corporate structures have contributed to this earnings increase. The reported EBITA margin reached 5.3 percent despite high transformation costs, while net income declined to €171 million. Revenue, on the other hand, rose eight percent to almost €5.6 billion. On a comparable basis, i.e., adjusted for portfolio and currency effects, revenue remained almost stable with a decline of around one percent. Based on the current corporate structure, the company expects comparable revenue in fiscal 2016 to be slightly below the prior year’s level. The adjusted EBITA margin is likely to be substantially below the level of fiscal 2015, among other things due to expenses attributable to the “Diamond” innovation and growth initiative. In contrast, net income is expected to increase sharply due to the anticipated book gain from the announced sale of the shares in Foshan Electrical & Lighting Co., Ltd. (Felco). Osram confirms that a dividend of €0.90 per share will be proposed for fiscal 2015 to the Annual General Meeting. For fiscal 2016, the company also intends to pay a dividend of at least €0.90 per share.

In a fast-changing market, Osram has continuously adapted its business, systematically implemented its realignment, and successfully put the company on a profitability track over the past years. One of the most far-reaching steps the company has taken in its history is the carve-out of the lamps business, which was initiated in fiscal 2015. It involves the separate organizational setup of a company with revenue of €2 billion, 18 plants, and approximately 11,000 employees. In addition, Osram has streamlined the decision-making processes and boosted efficiency and flexibility by rearranging its corporate functions and setting up a lean management holding. Within these decentralized management structures, the individual business segments are “global entrepreneurs”, with full responsibility extending from development through production and procurement to sales.

“The good earnings performance in fiscal 2015 shows that Osram has already been very successful in driving its realignment forward over the past years,” said Olaf Berlien, Chief Executive Officer of OSRAM Licht AG. “We are now switching the focus to growth. The ‘Diamond’ innovation and growth initiative we have launched for this purpose is aimed not only at securing and extending the company’s position as a trendsetter in the high-tech lighting business. We also want to significantly improve our position in the large general lighting LED market with this initiative.”

Osram Group in the fourth quarter

In the fourth quarter, Osram recorded a year-on-year revenue increase of seven percent to €1.43 billion. On a comparable basis, however, revenue was down two percent due to declines in the traditional lighting technology business. The adjusted EBITA margin increased by more than one percentage point to 9.5 percent, helped by productivity improvements, among other things. The revenue share of LED-based products and solutions reached 46 percent in the fourth quarter, after 39 percent in the prior-year period.

Osram reporting segments in the fourth quarter2

Osram’s Opto Semiconductors (OS) reporting segment posted a comparable revenue increase of five percent in the fourth quarter from a year earlier, again supported by allreporting regions. Main growth drivers were the automotive and industrial businesses. At 19.2 percent, the EBITA margin again reached a very good level.

Specialty Lighting (SP), with its Automotive Lighting and Display/Optics units, also recorded revenue growth of five percent on a comparable basis, thanks to continuing strong demand for LED-based products. In contrast, the EBITA margin, excluding special items, declined to 11.5 percent. This development was driven in particular by ramp-up costs for the broad-based market launch of new technologies in the automotive business and a higher revenue share of LED-based products than in the prior-year period.

The Lighting Solutions & Systems (LSS) reporting segment comprises the business with components such as LED modules and LED drivers as well as with luminaires, solutions and services. Thanks to growth in Digital Systems, the segment’s revenue rose two percent on a comparable basis in the fourth quarter. The adjusted EBITA margin improved to minus 0.4 percent.

The Lamps reporting segment comprises the general lighting lamps business. Due to the continuing decline in demand for traditional lamps, the segment recorded a comparable revenue decrease of eight percent in the fourth quarter. The segment’s adjusted EBITA margin was 4.7 percent. With €63 million, free cash flow even topped the very good figure of the third quarter.

Outlook for fiscal 2016

The following outlook refers to the company’s current structure and therefore also includes the general lighting lamps business. For fiscal 2016, the managing board expects revenue on a comparable basis to be slightly below the prior-year level. The EBITA margin, excluding special items, is expected to be substantially below the level of fiscal 2015, primarily due to the “Diamond” innovation and growth initiative as well as due to structural factors associated with the carve-out of the general lighting lamps business and the continuing transformation. In contrast, the managing board expects net income and return on capital employed (ROCE) to rise sharply due to the anticipated book gain from the announced sale of the Felco shares. Due to a strong increase in capital expenditure as well as special items such as the intended special funding of pension plans, free cash flow is expected to amount to a low to medium negative triple-digit million-euro figure. The managing board is confident about Osram’s positive midterm prospects and therefore intends to pay a dividend of at least €0.90 per share also for fiscal 2016.

Highlights in fiscal 2015

In fiscal 2015, Osram again made a mark in the international arena with its technology and innovation leadership. At the Lightfair trade show held in New York City in May, the company’s LED lighting solution OmniPoint was recognized with an innovation award for the most innovative product of the year. OmniPoint is a complete lighting solution in the form of a single downlight installed in the center of a room. It is controlled from a tablet, and the light can be directed to the intended area as required – a product that is of particular interest to retailers. New opportunities of lighting can also be seen outside the shopping mall. Around a year ago, the new groundbreaking lighting solution in the Sistine Chapel officially went into operation. Osram was in charge of realizing this project, which was funded by the European Union. The new installation consists of 7,000 LEDs and sets new standards in terms of light quality and energy efficiency. The company also set standards in the non-visible lighting segment: A few months ago, the first smartphone that can be unlocked by iris scanning with the aid of Osram infrared technology went on sale in Japan. Osram also provides high-tech products in the automotive lighting segment and started volume production of laser modules at the Herbrechtingen plant in May. Compared with previously used light sources, laser lights illuminate the road significantly further and therefore increase safety on the road. Osram also achieved further milestones in the area of organic light-emitting diodes (OLEDs) in 2015: For example, the company’s OLEDs appeared in the rear lights of the BMW M4 show car, which was presented at the International Consumer Electronics Show (CES) in Las Vegas in January. As a leading provider, Osram aims to be represented on the road with a series OLED product from 2016. And people using local public transport for short distances also have the opportunity to enjoy Osram technology: More than 1,000 Osram LED light lines were recently installed in the orange-red ceiling of the mezzanine floor at Munich’s famous “Marienplatz” subway and suburban train station.

The company’s annual press conference with the managing board will take place tomorrow at 9:00 a.m. CET. The conference will also be broadcast via the Internet at http://www.osram.com/media/news/press-releases. After the event, a recording of the conference will be provided at the same link.

Starting at 1:00 p.m. CET you can follow the analyst conference at www.osram.com/investors.

OSRAM Licht AG’s annual report will be posted on the company’s Investor Relations site at www.osram.com/investors on December 7, 2015.

Key financial data of OSRAM Licht Group in the fourth quarter

4th quarter 2015 4th quarter 2014 Change nominal
Revenue 1,429.3 1,334.8 7.1%
EBITA 110.2 36.2 >200%
...Margin 7.7% 2.7% 500 bps
EBITA, adjusted 136.1 106.2 28.2%
…Margin 9.5% 8.0% 150 bps
Income before taxes 95.2 17.1 >200%
Net income 69.1 12.0 >200%
Free cash flow 76.1 50.7 50.2%
Employees ('000) 33.1 33.8 (2.1%)

(Preliminary, unaudited figures. Figures in millions of euros, margins in percent, employees as of September 30.
Negative values in brackets.)

Reporting segment performance in the fourth quarter

4th quarter 2015 4th quarter 2014 Change nominal
Opto Semiconductors
…Total revenue 343.6 299.3 14.8%
…EBITA 65.9 49.8
…EBITA, adjusted 65.9 49.8
Specialty Lighting
…Total revenue 474.4 403.7 17.5%
…EBITA 48.4 56.9
…EBITA, adjusted 54.6 60.0
Lighting Solutions & Systems
…Total revenue 262.7 242.2 8.5%
…EBITA (5.7) (15.2)
…EBITA, adjusted (1.2) (9.5)
Lamps
…Total revenue 488.8 502.3 (2.7%)
…EBITA (18.4) (32.3)
…EBITA, adjusted 23.1 11.2

(Preliminary, unaudited figures in millions of euros. Negative values in brackets.)

Key financial data of OSRAM Licht Group in fiscal 2015

Fiscal 2015 Fiscal 2014 Change nominal
Revenue 5,574.2 5,142.1 8.4%
EBITA 293.9 310.4 (5.3%)
...Margin 5.3% 6.0% (70 bps)
EBITA, adjusted 567.1 449.0 26.3%
…Margin 10.2% 8.7% 150 bps
Income before taxes 238.8 279.2 (14.5%)
Net income 171.2 193.1 (11.2%)
Free cash flow 299.0 216.0 38.5%
Employees ('000) 33.1 33.8 (2.1%)

(Preliminary, unaudited figures. Figures in millions of euros, margins in percent, employees as of September 30.
Negative values in brackets.)

Reporting segment performance in fiscal 2015

Fiscal 2015 Fiscal 2014 Change nominal
Opto Semiconductors
…Total revenue 1,292.6 1,124.5 14.9%
…EBITA 229.9 193.8
…EBITA, adjusted 229.9 193.9
Specialty Lighting
…Total revenue 1,849.5 1,551.1 19.2%
…EBITA 245.4 224.7
…EBITA, adjusted 265.4 234.2
Lighting Solutions & Systems
…Total revenue 955.1 914.2 4.5%
…EBITA (42.1) (92.9)
…EBITA, adjusted (32.4) (79.4)
Lamps
…Total revenue 2,000.5 1,986.4 0.7%
…EBITA (48.4) 23.5
…EBITA, adjusted 135.0 110.3

(Preliminary, unaudited figures in millions of euros. Negative values in brackets.)

1Earnings before interest, taxes and amortization
2Due to the carve-out, the general lighting lamps business is now shown as the Lamps reporting segment. At the same time, the remaining activities of the former Classic Lamps & Ballasts and LED Lamps & Systems units have been bundled in the new Digital Systems unit. This unit therefore comprises the business activities with traditional ballasts as well as with LED modules, drivers and light management systems. Digital Systems has been assigned to the new Lighting Solutions & Systems reporting segment, which also includes the luminaires, solutions and services business

ABOUT OSRAM

OSRAM, based in Munich, is a globally leading lighting manufacturer with a history dating back more than 100 years. The portfolio ranges from high-tech applications based on semiconductor technology, such as infrared or laser lighting, to smart and connected lighting solutions in buildings and cities. OSRAM had around 33,000 employees worldwide at the end of fiscal 2015 (September 30) and generated revenue of almost €5.6 billion in that fiscal year. The company is listed on the stock exchanges in Frankfurt and Munich (ISIN: DE000LED4000; WKN: LED 400; trading symbol: OSR). Additional information can be found at www.osram-group.com.

DISCLAIMER

This document contains statements and information pertaining to our future business and financial performance and future developments that may constitute forward-looking statements – i.e. statements about processes that take place in the future, not in the past. These statements pertaining to the future can be identified by expressions such as "anticipate", "expect", "want", "intend", "plan", "believe", "aspire", "estimate", "will”, "predict" or words of similar meaning. Such statements are based on current expectations and certain assumptions of OSRAM‟s management. They are, therefore, subject to certain risks and uncertainties. A variety of factors, many of which are beyond OSRAM‟s control, affect OSRAM‟s operations, performance, business strategy and results and could cause the actual results, performance or achievements of OSRAM to be material different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements or anticipated on the basis of historic trends. These factors include in particular, but are not limited to the matters described in the chapter “Report on Risks and Opportunities” in the Annual Report of OSRAM Licht Group. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results, performance or achievements of OSRAM may vary materially from those described in the relevant forward-looking statement as being expected, anticipated, intended, planned, believed, sought, estimated or projected. OSRAM neither intends, nor assumes any obligation, to update or revise these forward-looking statements in light of developments which differ from those anticipated. Due to rounding, numbers presented throughout this and other documents may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures they reference.