© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome, and thank you for the OSRAM Licht AG Analyst and Investor Call. [Operator Instructions] I would now like to turn the conference over to Juliana Baron. Please go ahead.
Thank you, Stuart. Good morning, and good afternoon, ladies and gentlemen. A very warm welcome to the OSRAM Conference Call on our First Quarter 2020 Results. With me on the call are Dr. Olaf Berlien, our CEO; and Ingo Bank, our CFO; as well as Dr. Stefan Kampmann, our CTO. Olaf and Ingo will comment on the market development and our financial performance. Afterwards, we will be happy to answer your questions. As a reminder, today's call is being recorded. You can follow the webcast on our website at osram.com/ir where you will also find the slides available for download. As with previous result conference calls, I would like to draw your attention to the safe harbor statement on Page 2 of the results presentation. As usual, it applies throughout this call. It's now my pleasure to hand over to Olaf.
Yes. Thank you, Juliana. Ladies and gentlemen, welcome to our conference call. So let me start with an overview of the first quarter. As usual, Ingo will then run through the financial results, followed by your Q&A session. After a challenging 2019, we delivered a robust start in the fiscal year 2020. While market development was still restrained, our first quarter turned out slightly better than expected. Revenue increased somewhat on a comparable basis. Adjusted EBITDA margin rose by almost 200 basis points year-on-year. Good signals came especially from our OS business, where earnings margins return to a historical level of over 24%. This is mainly due to higher production volumes as well as our performance programs kicking in and positive effects from IFRS 16 accounting standards. Based on the solid first quarter results and taking into account macroeconomic uncertainty, we confirm our guidance for the fiscal year 2020. So let's have a closer look at the first quarter results on Slide #4. As mentioned, revenue for the period between October and the end of December increased slightly by 0.5% year-on-year to EUR 873 million. Adjusted EBITDA before special items, climbed to EUR 114 million, resulting in a margin of 13%. OS showed a significant recovery in returns with an adjusted EBITDA margin of 24.5%. And I'm also pleased to see that DI, our digital business, breaking even in the quarter. Free cash flow improved by EUR 180 million (sic) [ EUR 108 million ] compared with the prior year quarter and turned positive. All this against the backdrop of political and economic headwinds, as you can see on Slide #5. The world economic climate continued its downward trend in the last quarter. Expectations dropped significantly, as you can see from the ifo world index on the left side. It saw a decline in nearly all regions. At the same time, the global manufacturing expectations showed caution signs of relief as you can see on the right side with the global PMI index from JPMorgan. It remains to be seen whether this trend will last. Given the mixed signals we are receiving, we remain cautious. One reason for that is the continuing weakness in car production as we move to Slide #6. Global car production continued to decline in the first quarter. Accordingly, IHS has once more reduced its forecast. Yearly production is now expected to be around 88 million cars in our fiscal year 2020, a minus of 2.5% compared to the prior year. This is mainly due to a weak development in North America, NAFTA and Europe. China remains to be seen, especially now in the wake of the coronavirus situation, the only thing we know is, there will be an impact in China and, of course, worldwide, especially if the logistic chain will be interrupted. So to what extent, we don't know. But yes, there are also some positive signs possible. So the updated global forecast from IHS remains cautiously optimistic regarding a return to growth in the second half of the fiscal year. While the general economic outlook remains uncertain, however, we will concentrate on our own performance. And this includes the transformation of OSRAM into a high-tech photonics company. Here, we are making really good progress as we recently demonstrated very successfully at the CES in Las Vegas. So let's move to the last chart 7. In the automotive hall, we showcased our solutions for the future of mobility under the slogan, Mobility at the Speed of Light. Our latest photonics product such as the LiDAR systems and the driver assistance solutions received great attention as did the Rinspeed car that we showcased on our booths and that attracted a lot of new customers. All in all, CES underlined that we are on a good path to becoming a photonics champion. And with this, I would like to hand over to Ingo.
Thank you. Good afternoon, and thanks for joining us today. Let me start with the key financials for OSRAM continued operations that you can see summarized on Page 8. First quarter revenue was slightly up by 0.5% on a comparable basis. OS revenue growth was slightly negative, whereas Automotive and Digital posted positive growth. Adjusted EBITDA came in at EUR 114 million, translating into a margin of 13%, driven by strong profitability in Opto, solid profitability in AM and the breakeven performance at DI. Free cash flow continued to be positive with EUR 7 million in the quarter, much improved when compared to the same quarter a year ago, largely driven by improved profitability and lower CapEx. Net income from continuing operations was slightly positive with EUR 1 million in the quarter. Our performance programs delivered EUR 31 million in gross savings in Q1 '20, in line with our expectations. And special items amounted to EUR 16 million in the quarter as expected as well. Taking now a more detailed look regarding our revenue development in the first quarter 2020 on Slide #9. Movements in foreign exchange rate as well as the additions to the business portfolio of OSRAM had a positive impact on revenue growth. When looking at our regions, business development in EMEA continued to be challenging. DI and Automotive revenue declined year-over-year. Opto saw a mid-single digit decrease. In Automotive, we recorded a double-digit decline in our traditional light source OEM business whilst delivering a seasonably strong aftermarket performance. LED components revenue declined at a low single-digit clip in the quarter. Within DI, the market for ballasts and drivers continued to be weak. In the Americas, our traditional Automotive business had a good quarter, driven by the seasonally strong aftermarket business. Within our reporting segment, DI, Fluence revenue growth continued to be strong. Whilst overall Q1 revenue for the company declined in APAC, China returned to positive growth territory with a comparable growth of close to 6% in the quarter. This was driven by our Automotive business, both traditional as well as LED components. Also Opto's growth in its illumination portfolio was strong in the region. Let me now comment on the revenue development in our 3 reporting segments. Opto's revenue in the first quarter was slightly lower with 0.7% when compared to the first quarter of fiscal '19. Within Opto, Automotive revenue declined by low single digits when compared to prior year. Growth from APAC was positive, yet in EMEA and the Americas, it declined when compared to first quarter '19. Total backlog for Opto's Automotive business remained unchanged at the end of the reporting period. Opto's illumination-related revenue continued to post a strong performance, driven by outdoor and horticulture year-over-year growth. The sensing and visualization business of Opto had a slow start into the new fiscal year, posting a revenue decline. We expect revenue from 3D sensing to improve in the midterm, whereas demand for industrial laser applications will continue to be soft. The latter reflects the ongoing challenging overall economic environment of our customer base. Moving to our reporting segment, Automotive. Revenue improved slightly with 0.7% when compared to the first quarter of fiscal 2019. While our traditional light source business, revenue levels in the OEM channel declined as expected, but a strong aftermarket performance in the high season helped to more than offset this development. Particularly in APAC and in North America, aftermarket revenues were strong. Overall, LED component revenue declined at a low single-digit level. Revenue levels at our OSRAM Continental subsidiary, which is part of the AM reporting segment, increased at a low double-digit clip. Moving now to Digital. Year-over-year comparable revenue growth was positive with 2.2%. This performance was driven by Fluence and our entertainment business. Our ballasts and drivers business, digital systems, delivered revenue that was nominally at par with the revenue levels of the same period last year. Here, APAC and the Americas delivered a robust start into the year, offset by year-over-year declines in EMEA. Our traction business started to be affected by budget cuts in various Chinese provinces as spending priorities are currently under review by local governments. Together with a slower start in India and the U.S., revenue declined in the low double-digit level. Moving on to profitability on Slide 10. In Q1 fiscal '20, absolute adjusted EBITDA was EUR 114 million, translating into 13% in margin terms, which represents a year-over-year improvement of 170 basis points. Productivity measures compensated pricing and inflation impact. Higher volume, together with the positive impact from the application of IFRS 16 of approximately EUR 14 million drove the year-over-year improvement in absolute EBITDA. Compared to first quarter '19, Opto's profitability improved to 24.5% of adjusted EBITDA. Increased volume was the main driver behind this increase as ongoing operational efficiency improvement efforts offset price erosion and inflation. Compared to the same quarter a year ago, Opto's headcount was lower by 13%. Approximately 220 basis points of the margin improvement in the quarter was driven by onetime nonrecurring items. In our Automotive reporting segment, absolute adjusted EBITDA was maintained at the same level as prior year. Sequentially, it improved markedly on the back of a seasonally strong aftermarket quarter. Price erosion and inflation were more than compensated by productivity measures. Mix was unfavorable in the quarter when compared to the first quarter of '19. Our OSRAM Continental subsidiary continued to be dilutive in the quarter for Automotive overall. Adjusted EBITDA stayed negative. Let's now briefly look at DI. Here, adjusted EBITDA was at a breakeven level for the quarter, much improved to prior year. Major drivers were improvements in gross margins across all businesses inside DI portfolio, particularly digital systems. Overall, this reflects the benefits of our productivity programs coming in combination with a better product mix. Adjusted EBITDA and corporate items for OSRAM continued operations was negative with EUR 20 million as expected. Moving now to Slide 11. Our performance programs delivered EUR 31 million of gross savings in the quarter, in line with our expectations. We expect gross savings out of the existing performance programs to amount to approximately EUR 80 million for the full fiscal year 2020. Let me also point out here that additional performance programs are currently being discussed with the respective labor representatives of the company. We are aiming to finalize these discussions towards the end of the second quarter of this fiscal year. Moving now to cash flow on Slide 12. Free cash flow was positive with EUR 7 million in the quarter, largely driven by the improved EBITDA performance in the quarter. CapEx continued to be at a low level and amounted to EUR 28 million in the quarter. The definition in presentation of net debt now includes the impact of IFRS 16. The adoption of the new accounting standards, as of this reporting quarter, technically increase our net debt position by approximately EUR 224 million as per the 31st of December 2019. Excluding this accounting change, net debt stayed roughly flat, sequentially speaking. Based on the results of first quarter 2020 as well as the business development we've seen so far in this new fiscal year, we are confirming our outlook for 2020. That means, we expect comparable revenue growth to be in the range of between minus 3% to plus 3%, our adjusted EBITDA margin to be in the range of 9% to 11%, and free cash flow is expected to be positive possibly at mid-double-digit levels, including significant cash outflows resulting from the ongoing performance programs. Total special items are expected to be similar to the level of fiscal '19 with a significant part related to transformation charges expected to be incurred in the second quarter of 2020. And last but not least, let me conclude with some housekeeping. In the course of tomorrow, we will issue an interim report for the first quarter of fiscal year 2020 according to IAS 34 on our Investor Relations web page. The reason behind this publication is linked to the planned financial prospectus that ams AG may publish in conjunction with their intended capital increase. Such prospectus may also incorporate OSRAM's first quarter 2020 financials as required by capital market laws. And now Juliana, back to you.
Thank you, Ingo. Now we are looking forward to your questions. Stuart, please go ahead.
[Operator Instructions] First question is from Lucie Carrier from Morgan Stanley.
The first one was more on the trend that you are seeing in the auto industry. I understand, overall, the business was still down to some extent, especially in OS in the first quarter. But are you seeing -- the improvements you are seeing, do you think this is more a restock effect? Or do you think this is more driven by an underlying demand, which is slowly improving in the market?
Yes. Thanks, Lucie. I think it's a mixture. So if I compare and see what's happening in our first quarter, I think it started with restocking. Many distributors moved down the line of the minimum of capital employed. So we had a restocking issue but nevertheless, then we had clearly higher demand from the market coming. So I got a lot of good signals from the Chinese OEMs, who had a higher production in cars. So in this case, we had clearly a higher demand. But if on the other hand, and that's the reason we are a little bit more cautious now is that if I take all these signals now what's happening in China, we see coronavirus, I think we have to see what really does it mean with the higher demand and when do we get a restart at all the factories in China.
Actually, my second question was going to be on the coronavirus. Can you maybe highlight the -- in which different way this is potentially impacting you, whether this is on the manufacturing or on the logistics side or simply also the activity of your customer? I mean, is the factory in Wuxi, for example, still close or it has reopened after the Chinese New Year?
Again, it's a mixture of information. So first of all, the Wuxi factory will be open next Monday. So that's the latest information we got today from the Chinese local government. But -- so that means we would have only an impact by 1 week with close down. But to be honest, Lucie, we have to see how many people really will come on next Monday. So it's a little bit of situation. We do not have a clear view. And so coming to your second question, there are some areas where customers had production. Their production will be down for another 1 or 2 weeks. And in the end, we have to see what does it mean if my customer cannot produce we cannot deliver. So again, that's -- it's not a clear situation in these days, and we have to follow day by day.
The next question is from the line of Jürgen Wagner from MainFirst.
You mentioned rising production, but what were the costs of underutilization on group level and in Opto. And as a follow-up to this, you had 24.5% in Opto on your flat sales. Basically, what could or would happen if revenues grow again significantly, let's say, next year?
Thank you for your question. We do not see really an impact, definitely not on my next quarter. So the -- my book-to-bill situation -- our book-to-bill situation is excellent for the next quarter. And again, it's not so easy to have really a clear view for the full year. But today, I would say if the coronavirus run like the SARS in 2001, it will be a move in demand. But it's not that the world economy is going down. It is again a little bit later. So today, we do not see a real impact on our sales for the next quarter.
Okay. And on the margin in Opto, and we know your midterm targets...
Yes. We -- as I said, we had a good start. And you see that the performance programs, where we are talking last year about that, you know that we talk about in detail. You see that they are running quite successful. So I'm good. I'm very optimistic that the margins will be in this range.
Basically, Jürgen, just to add on this, so I said in my prepared remarks that out of the 24.5%, 220 basis points were onetime nonrecurring. So obviously, that gives you sort of an operating level where we are right now. And of course, if volume were to pick up again and the operating leverage just went down, last year should go up this year. So -- and that we do -- would expect. And next to that, we have supported the cost structure by taking out cost significant way. I told you how much we brought down headcount in Opto as compared to the last year. So -- but it's too early to count on volume in this business because China is a very important factor in the whole mix for us, not just in, let's say, the LED part, but also in the traditional part of automotive. And therefore, we really have to see now how the coronavirus will affect the -- not just our production, but especially the supply chain of our customers and what kind of disruptions that would mean. We also then have to see to what extent order behavior from our customers might be changing just because they want to, again, build inventory per se themselves. So I want to be flexible in this situation of uncertainty. So that's why it's not feasible for us at this point in time to give you very specific outlook as we simply don't know enough at this point in time.
We have a follow-up question from the line of Lucie Carrier from Morgan Stanley.
Well, I'm happy to be back so quickly. Just -- I just have a follow-up on the OS margin. Ingo, can you maybe indicate what was the 200 basis point onetime? And are you able to split the IFRS benefits between the division because having made the calculation for the group, I guess, if we were excluding the IFRS benefit, the margin for the group was only up about 20 bps versus last year. So I'm just trying to understand what's the real improvement specifically in OS in terms of the margin, like-for-like?
Yes. So in the meantime, we updated the document on the web page, where you can see the impact for Opto, I think out of my head, the positive effect from IFRS was 1 percentage point, 1.25 percentage points, probably on the margin level. The one-off items I was referring to were releases of accruals that were no longer necessary for different types of reasons. And hence, they are not expected to recur again. So that's -- but we -- in the meantime, if you look at the document on Page 6 -- 17, we have now also included information which shows you also the IFRS impact by reporting segment.
So is it fair to say that if we look at it kind of like-for-like between the 200 bps and then the IFRS impact, 100 to 150 basis points, the margin in an underlying basis was up, let's say, by about 200 -- 150, 200 basis points in OS?
Yes. That's correct. Yes.
And just one last one as well on the CapEx. I know you've been quite tight on this to maximize the cash flow. The CapEx as a percentage of sale is particularly low in the quarter, about 3%. It doesn't look extremely sustainable considering the fixed asset base that you still have in many factories. How should we think about the level from here for the rest of the year or more generally as a normalized level?
Well, we do expect CapEx to go up somewhat in the balance of the year. At the same time, we've also done quite a lot of work to reduce complexity and especially Opto's flows, and that has helped also to reduce CapEx need by just improving the flow factors in the factories and unlocking or improving asset productivity in that sense. So from that perspective, we will, of course, do what's necessary to maintain our asset base. Just let me also remind you, as you know, see, we've invested quite heavily into Opto space in the last 2, 3 years. So also there, maintenance CapEx typically is at the same level of depreciation in the first 2 or 3 years of such an influx of new capital. And that's all reflected in the numbers, but we will not do anything, let's say, just to inflate short-term cash flow numbers because we're building this business for the longer term. So no worries. No worries there.
Are you able to guide us somewhat on the range as CapEx as a percentage of sales or an absolute amount?
I think -- I believe I said when we gave first guidance that it would be very similar to last year. Yes.
Next question is from the line of Sven Weier from UBS.
Just one question from my side, which relates to the takeover by ams and refers to the domination agreement, which ams has not really officially announced it, I guess. What's your opinion on that? I mean when it comes to realizing the synergies, would you insist on that being struck first or what's your opinion on that situation?
Yes. Thank you, Sven. As you said, it's not officially announced. So I cannot speculating when they announce it. If you take a look at the official offer documents, there was original plan to do it, but when I do not know. The second question is the synergies. They had it in the offer document as well. So they expect around EUR 300 million. And what we did in the meantime, Sven, is that we just started to talk to ams, and we have now 13 work streams to go a little bit deeper, deeper means whatever the -- we can do in this phase. Because before we do not have the antitrust approval, we are still a competitor. And for this reason, we cannot share detailed information. And in this case, it means we do not have detailed numbers. So again, the official number is around EUR 300 million.
But let's say when it would come to making significant reductions, so obviously, that some would be also on the OSRAM end. I mean, would you insist that there needs to be a domination agreement first before you agree to significant adjustments at OSRAM. That was prerequisite or is...
No. But I think, again, it's speculating. But to make it clear, if we do not have a domination agreement, we are both independent companies and anything what we do has to be in the view that we -- all shareholders get the same intention. So there will be no advantage for one shareholder. So that means we have to deal like with a third party, and that's what you have to do from the legal point of view. So we strict follow the legal requirements.
Next question is from the line of Sebastian Growe from Commerzbank.
Three areas of questions on Opto to start with. The first one is around the really impressive EBITDA improvement year-on-year. It's been rather low on the volume side, at least from my perspective, only slightly up. So can you just really give us a bucket here what is price mix related? So is it really auto doing the trick here? And when it comes to auto, in particular, have you seen some sort of windfall gains, especially on the price side. Then for the Automotive segment as such, can you give us a sense of the Conti JV and what she would expect in terms of incremental revenues for the full year, obviously, we had a bit of a tailwind in the quarter 1 already? And what's your thinking and planning for the rest of the year? And then you mentioned in your prepared remarks around the performance programs that there might be more that you need to do over the course of 2020. So 2 questions on that one. The first one is the charges. What's the current guide that you would have out here because we obviously had some charges in the first quarter already? And then for DI, in particular, what is your planning year and how to get the business finally on track? Obviously, noticed that you had a EUR 10 million improvement year-on-year, but that shouldn't be the end of the story, I guess.
Okay. Thanks, Sebastian. I think some of these questions, I think the best one is that Ingo is going again to this one as well, especially about the performance programs. I think you already said that we achieved EUR 57 million this year. But maybe, Ingo?
Yes. So -- yes, so on -- I mean a number of -- let's start with performance programs. As I said, the expectation for the existing performance programs this year is savings of around EUR 80 million. We did EUR 31 million in the first quarter. And then we are indeed in discussions about new performance programs that, of course, needs alignment with our stakeholders on the employee side, and that's currently discussions are going. So you have to please accept that I cannot disclose any details here on this. I said also in my prepared remarks that I would expect special items to be similar to last year. And we also said in our annual report that we would expect special charges related to transformational costs to be in the high double-digit type of range. So that sort of assessments, I think, at this point hasn't changed, but I can't give you more specifics because I don't want to intervene in the process that's running between parties at this point in time. As to the Conti JV, I think there -- our focus right now is to find ways to improve profitability. As we said last year, we are not happy with the way things are running, and we are currently in discussions with the other partner in the joint venture about what we can do together to improve. From a revenue perspective, from what I've seen, things are moving along the lines of what we had expected from the year. We don't know yet what the impact is of the coronavirus continues, of course, also delivering into the automotive industry. But overall, the Conti joint venture was, of course, expected to help us with some of the growth that was part of the guidance that we're seeing. As far as Opto is concerned, I think that was the first part of your question. We saw some positive volume impact in also automotive, but also in other areas like visualization -- or sorry, illumination, not so much in the sensing and in the visualization area. Visualization is laser largely. The price erosion dynamics were more or less as expected, not much changed in automotive. We're in the midst of negotiating our VPAs, and there are some contracts where it's in the high single digits. There are few cases where it's in the low double-digit range, but overall, pretty much in line with what we had expected for the year. So for Opto, if you look at the quarter, I'd say that the productivity programs largely together with a higher R&E efficiency compensated for price erosion. And then we had positive impact of volume. For the first time in many, many quarters for Opto, that helped to uplift the margins next to the one-off time -- one-time issues that I mentioned to Lucie and the IFRS 16 impact.
Okay, that's helpful. And if I just may ask on a specific number, if possible, on the Conti JV, what you would expect in terms of incremental revenues, so it's completely impossible to put a note behind that.
Yes. I wouldn't like to put a number behind that right now. So there should be some improvements. But how much it will be, we still have to see also there what the market goes. I mean, we started the year with a solid order book and a good visibility on the year, so that we clearly have. But as things are moving along now, we still have to see again what the impact might be of customers having to shift out certain programs or other things because of supply chain disruptions from the coronavirus.
Next question is from the line of Sebastian Ubert from Societe Generale.
Thanks for taking my questions, which has been just answered in the question from Sebastian before, it would have been around the additional restructuring measures and with that, a question to Ingo, but I fully understand that you will not comment at this stage.
There are no further questions at this time. I would like to hand back to Juliana Baron for closing comments. Please go ahead.
Yes. Thank you very much for your participation. And with that, we would like to close this conference call. If you do have further questions, please get in contact with our Investor Relations team. Have a good day. Thank you, and goodbye.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.