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Osram adjusts businesses amid 'difficult' market

02 Aug 2018

Company revises down 2018 forecast, announces plan to sell luminaires business, aiming to save €140 million by 2020.

Lighting giant Osram this week announced that it has “held its ground in a difficult market environment” as it reports on third quarter trading of its 2018 fiscal year. On a comparable basis, revenue remained consistent with the prior year's level of €1.02 billion.

But at €133 million, pre-tax earnings (EBITDA) were “significantly below” the prior year's level, the company admitted. The latest adjusted EBITDA margin reached 13.1 percent. Foreign exchange effects as well as higher expenses for R&D and ramp-up costs have impacted the latest quarter’s performance.

Olaf Berlien, CEO of Osram Licht AG, commented "Nothing has changed in terms of long-term growth opportunities. Despite a difficult market environment, we continue to generate good returns in our most important business areas.

“We are actively addressing the temporary weakness in demand of our customers in the automotive industry and improving our cost base. To ensure success, we are accelerating the current reorganization process and have laid an excellent foundation with the recently achieved reconciliation of interests," he said.

In the first nine months of the 2017-2018 financial period, these effects added up to more than €130 million – of which €75 million was accounted for by foreign exchange (FX) effects alone. The company commented, “Recently the worldwide changes in ordering patterns of our customers and distributors, in part due to existing and imminent trade restrictions, have weighed on the company’s revenues.”

Divesting luminaires business

Significant structural change is imminent as the company stated, “These [market and trading] effects are expected to have an impact in the coming months and led Osram’s Managing Board to adjust our annual forecast at the end of June, 2018. In this context, the Managing Board has decided to further sharpen the portfolio and as a first step the company will divest its luminaires business.”

Osram’s management is looking at number of measures to rectify the current market situation: “We are first looking to streamline the global administration, which should reduce costs by about 20 percent. Beyond that, several structural and operational programs have been implemented.

"This includes the improvement of efficiency in R&D, in the supply chain, and in the German factory alliance. These operational programs should achieve between €130 and €140 million in savings by 2020," said the company statement.

Any potential job cuts were not specified in this week’s announcement but the company stated, “Negotiations with employee representatives about a reconciliation of interests have been considerably expedited and are concluded. Charges for that have already been taken into account in the forecast for the current fiscal year.”

Economic slowdown

Osram also noted the impact on its activities of what it is refered to as the general economic slowdown and weak demand in the automotive industry, which “was primarily reflected in our Opto Semiconductors and Specialty Lighting segmenst”.

It added, “The trade tariffs in the USA, more stringent emission tests in Europe and lower production expectations from premium manufacturers have also caused uncertainty. In addition, there were project delays in business with mobile devices and horticulture applications and a continued slowdown of the general lighting market.”

The company outlined its responses to these conditions: “The strategic revision of the business unit Lighting Solutions unit announced at the beginning of the year has now been completed. In addition to the ongoing sale of the US service business, the Managing Board is now planning to divest the business with luminaires. The luminaires business as part of the reporting segment Lighting Solutions and Systems (LSS) is now on the right track due to numerous efficiency improvements.”

At the end of June, 2018, Osram revised down its likely business activity outlook for the current fiscal year: “Based on these changes, the Managing Board now expects a comparable revenue increase of 1.0 to 3.0 percent (previously: 3.0 to 5.0 percent) and adjusted EBITDA of €570 to 600 million (previously: approximately €640 million) for fiscal year 2018.

The company’s August 1st statement concluded: “Osram's long-term growth prospects remain good. LED- and laser-based technologies are oriented to global megatrends and continue to serve growing high-tech markets. The group is actively shaping the ongoing technological shift and has also recently expanded its portfolio with innovative future technologies.

”That includes the acquisition of US provider Vixar, which specializes in compact 3D identification technology, and the acquisition of the horticulture company Fluence. The closings of both acquisitions were completed in the beginning of FQ4, as was the takeover of the former Trilux subsidiary BAG electronics. The Osram Continental joint venture, which will shape the future of intelligent car lighting, went into operation at the beginning of July.”

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