OSRAM’s quarterly revenue to fall 15% year-on-year; full year to decline 11-14%

OSRAM of Munich, Germany says that its fiscal second-quarter 2019 (to end March) is expected to see a revenue decline of about 15% year-on-year (similar to last quarter’s decline, to €828m), combined with an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin in the mid to higher single-digit range (down from last quarter’s 11.3%). Similar to fiscal first-quarter 2019, the Opto Semiconductors business unit has been particularly affected, impacted by under-utilization of its production capacities.

The firm has hence lowered its fiscal full-year 2019 forecast for continuing operations. OSRAM’s previous guidance was conditional on order intake reviving meaningfully in fiscal second-half 2019, but this has not yet occurred and is it not expected for the rest of the fiscal year.

Among the reasons are the continued market weakness in the automotive industry, in general lighting and in mobile devices that has led to significant inventory build ups, particularly in China. In addition, business development is facing an ongoing impact from the general economic slowdown. Geopolitical uncertainties continue to negatively impact demand, the firm stresses.

For fiscal 2019 OSRAM hence now expects a revenue decline of 11-14% (compared with the prior forecast of 0-3% growth), an adjusted EBITDA margin of 8-10% (cut from 12-14%) and negative free cash flow of €50-150m (compared with the previously forecast positive free cash flow in the mid double-digit million range).

The managing board says that it has already proactively responded to the growing economic challenges in the past few months. As announced in January, Osram is honing its focus on photonics and optical technologies beyond lighting, as reflected by the new organizational structures initiated at the start of fiscal 2019. According to Bayerischer Rundfunk, this involves cutting 300 of the 2800 jobs in Regensburg by the end of September through voluntary redundancy. The firm also wants to cut up to 240 temporary workers. Through such initiatives the annual cost base is expected to be structurally reduced by more than €200m by fiscal year 2021.

OSRAM says that its strategy - with its focus on optical semiconductors, the automotive sector and digital applications - remains intact, irrespective of the current market weakness, believing that it will provide a sustainable and attractive return profile over the longer term. Transformation of the portfolio is progressing with the initiated sale of the European luminaires business and the sale of the US service business. New business areas such as facial recognition and professional farming are showing positive developments, the firm concludes.

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