Osram records good second quarter

2014/04/30

Lighting company records significant earnings increase
LED-based business (SSL) shows continuing substantial growth
Company transformation progressing according to plan and entering next stage
Osram confirms outlook given at April CMD

Osram recorded a significant year-on-year earnings increase in the second quarter of its fiscal year 2014. While revenue on a comparable basis – meaning excluding portfolio and currency effects – rose one percent to almost €1.3 billion despite a continued decline of the traditional business, EBITA1 excluding special items increased by 17 percent to €116 million. This translates into an adjusted margin of 9.1 percent. The development was mainly supported by the opto semiconductor and specialty lighting businesses. Including special items, EBITA was €81 million, or 6.4 percent of revenue. Net income reached €69 million following a loss in the same period last year when the figure was burdened by high transformation costs. The business with LED-based products (Solid State Lighting, or SSL) continued to rise strongly in the second quarter and achieved a revenue share of 34 percent.

"In the recent quarter, we did well in a challenging environment. In light of the decline of the traditional general illumination business, our revenue target has become more challenging. We are very confident regarding our earnings target”, said Wolfgang Dehen, Chief Executive Officer of OSRAM Licht AG. “To reflect the accelerated transition towards LED technology even more, we will separate the SSL business and the business with traditional products from one another within the reporting segment Lamps & Components. The intention is to sharpen the focus for the different strategies of both businesses and to increase entrepreneurial responsibilities as well as external transparency.”

The cumulated gross savings planned in the context of OSRAM Push are still expected to total €1.2 billion by the end of fiscal 2015. At the end of the second quarter, they totaled about €640 million, including a contribution of more than €100 million from the recent quarter. Additionally, Osram is also implementing or planning further measures to improve structures and processes. These include reorganizing the general illumination sales organization as well as setting up a global shared service organization, among other things.

Osram reporting segments and regional developments2

Osram’s opto-semiconductor components reporting segment Opto Semiconductors, or OS, recorded a revenue increase of 14 percent on a comparable basis in the second quarter, with contributions from all regions and businesses. General illumination and industry sales recorded particularly strong growth. At more than 19 percent, the EBITA margin was exceptionally high and included among other things a gain of more than €7 million from an insurance reimbursement. OS will officially open its new LED assembly plant in the Chinese city of Wuxi at the end of May.

Specialty Lighting (SP), with its Automotive Lighting and Display/Optics units, also continued to benefit from rising demand for LEDs in the automotive industry. On a comparable basis, the segment’s second-quarter revenues rose eleven percent, with all reporting regions contributing to this development. The automotive business has been growing faster than the global car production for 17 quarters now. Thanks to high capacity utilization, SP again achieved an EBITA margin of about 16 percent.

In the Lamps & Components (LC) reporting segment, which covers the product business with lamps, light engines and electronic control gears, the clear decline of the traditional business also impacted the second quarter. Total comparable revenue was down two percent, even though revenue with LED-based products rose 40 percent on that basis. The adjusted EBITA margin fell to slightly above five percent, in part because of the rising revenue share of LED-based products. These are less profitable. As announced during the Osram capital markets day (CMD) at the beginning of April, the businesses of the reporting segment Lamps & Components will be reorganized as of May 1, 2014: The traditional business will be bundled in the business unit Classic Lamps & Ballasts (CLB), while the LED-based businesses will be pooled in the business unit LED Lamps & Systems (LLS). Both business units will also be part of the company’s financial segment reporting from the third quarter.

The Luminaires & Solutions (LS) reporting segment comprises luminaires for professional customers, products for consumers, as well as the service and solutions business. In the second quarter, LS recorded a significant sales decline of 19 percent on a comparable basis, mainly due to luminaire portfolio adjustments and the restructuring of the service business in North America. The adjusted EBITA margin was about minus 25 percent. Osram anticipates that the decline in sales has now bottomed out.

From a regional perspective, the Osram reporting region APAC recorded a year-on-year comparable sales increase of three percent, while revenues in EMEA rose two percent. In both regions growth was again driven by OS and SP. In the Americas region, revenues on a comparable basis fell slightly by one percent, in part due to the ongoing reorganization of the North American service business.

Outlook for fiscal 2014

The company confirms the outlook for fiscal 2014 that was recently provided at Osram’s capital market day. The Managing Board still expects revenue growth on a comparable basis to exceed the global real GDP growth, which is currently forecast at about three percent (source: IHS Global Insight). The continued clear decline of the traditional business makes it however more challenging to achieve the revenue expectation. Regarding EBITA adjusted for special items, Osram expects a margin of more than eight percent. In addition, the Managing Board expects net income to rise sharply this fiscal year. Free cash flow should reach a triple-digit million-euro figure, but stay below the high prior-year figure, mainly due to higher cash outflows for the transformation and capital expenditure. Furthermore, Osram expects to generate a return on capital employed (ROCE) above the cost of capital of 8.5 percent.

Highlights in the second quarter

One of the most important trade shows of the lighting industry, Light+Building, took place in Frankfurt from March 30 through April 4, with Osram showcasing a variety of innovations already ahead of the event. An Osram research team for example managed to develop the world’s most efficient LED lamp. The tube-shaped lamp achieves an unparalleled efficiency of 215 lumens per watt and consumes only half as much power as a standard fluorescent or LED tube for the same light output. At the fair, Osram presented Lightify, a lighting system that enables professional customers as well as end consumers to exploit a wide range of lighting possibilities using an app on a smartphone or tablet. Apart from Light+Building, the first Annual General Meeting of OSRAM Licht AG on February 27 with more than 5,000 shareholders attending marked a milestone in the company’s history. This was also an opportunity to get a deeper insight into the company’s comprehensive product portfolio including the latest generation of laser-based headlamps in the pioneering BMW i8. Osram’s contribution to the development of this innovative lighting source was considerable. Laser light is considered the next development step in automotive lighting and offers new design options in addition to functional benefits. Innovative headlamp technology provided by Osram will also be a feature of the Ford F-150. This vehicle is one of the best selling pickup trucks in the U.S. and will now come onto the market with a complete LED forward lighting solution.

The company will hold a conference call on the preliminary results for the second quarter with OSRAM Licht AG’s Managing Board today at 9:00 a.m. CEST. The conference will also be broadcast via the Internet at www.osram-group.com/media/news/press-releases. After the event, a recording of the conference will also be provided at that link.

Starting at 2:00 p.m. CEST you can follow the conference call for analysts and investors with the Management Board at www.osram-group.com/investors.

The full report of OSRAM Licht AG’s second quarter will be posted on the company’s Investor Relations homepage at www.osram-group.com/investors on May 14.

Key financial data of OSRAM Licht Group in the second quarter

2nd quarter 2014 2ndst quarter 2013 Change
Nominal
Revenue 1,278 1,322 (3%)
EBITA 81 1 80
...Margin 6.4% 0.1% 630 bps
EBITA, adjusted 116 99 17
...Margin 9.1% 7.5% 160 bps
Income before taxes 98 (24) 122
Net income profit 69 (19) 88
Free cash flow 42 1 41
Employees (000) 33 38 (5)

(Preliminary, unaudited figures. In millions of euros, Margins in percent, Employees as of
March 31. Negative values in brackets.)

Reporting segment performance in the second quarter

2nd quarter 2014 2nd quarter 2013 Change
nominal in %
Opto Semiconductors
...Total revenue 270 241 12
...EBITA 52 25
...EBITA, adjusted 52 25
Specialty Lighting
...Total revenue 393 369 7
...EBITA 62 58
...EBITA, adjusted 64 60
Lamps & Components
...Total revenue 616 668 (8)
...EBITA 4 (16)
...EBITA, adjusted 32 49
Luminaires & Solutions
...Total revenue 101 128 (21)
...EBITA (26) (23)
...EBITA, adjusted (25) (21)

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

1Earnings before interest, taxes, amortization.

2Osram organizes its operating business in four reporting segments. Regionally, the business is split up into the three regions APAC (Asia Pacific), EMEA (Europe, Middle East and Africa) and the Americas (North and South America).

ABOUT OSRAM

OSRAM of Munich, Germany is one of the two leading light manufacturers in the world. The company's portfolio covers the entire value chain from components – including lamps, electronic control gear and opto semiconductors such as light-emitting diodes (LED) – as well as luminaires, light management systems and lighting solutions. OSRAM has more than 35,000 employees worldwide and generated revenue of almost €5.3 billion in fiscal 2013 (ended September 30). The company's business activities have been focusing on light – and hence on quality of life – for over 100 years. The company was listed on the stock exchanges in Frankfurt and Munich on July 8, 2013 (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 Opportunities and Risks” in the Annual Report of OSRAM Licht Group for fiscal 2013. 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.