Osram eating through cash in health crisis

Three months after withdrawing financial guidance for the year, Osram issued a new and suppressed outlook, foreseeing a 15–19% revenue decline, a possible €100 million-plus gobbling up of its cash, and crumbling profit margins — all reflecting financial difficulties of the coronavirus pandemic.

The company's fiscal 2020 ends on Sept. 30. Its ongoing third quarter ending June 30 will be particularly hard hit, with revenue likely to plummet by up to 35%, Osram said.

Osram's sales outlook prior to the health crisis was not great, as until mid-March it had been predicting revenue growth of between -3% and +3% amid difficulties in the automotive market, among other areas. It had, however, been expecting adjusted EBITDA margins of between 9% and 11% and a positive free cash flow in the mid-double-digit range.

The Munich company erased that outlook on March 18, and did not replace it until this week. 

Adjusted EBITDA margins for the year will be between 3% and 6%, the company said, noting that cash flow will register negative “in the mid-double-digit to lower-triple-digit million range.”

On the brighter side, “the managing board now expects a slight demand recovery in the upcoming months,” the company stated, although it noted that “the profound weakness of the global automotive business as well as a demand weakness in Osram's core markets in Europe and the US will burden the development also in the 4th quarter.” The ongoing weaknesses to some extent will be “countered by currently increasing revenues in China and the early measures taken by the company, which helped to moderate the impact of the COVID-19 pandemic on liquidity and financial results,” it said.

Those measures will continue. They have included work hour reductions and other actions.

Osram lost €39M ($43.5M) after taxes in its second quarter ending March 31, when revenue slipped 7.9% on a comparable basis, to €821M ($917.6M).

It is due to report its third quarter on July 29.

Prior to that, its acquisition by Austrian sensor company ams could gain regulatory approval — something which ams expects to happen by the end of this month.

Ams' takeover of Osram has not been smooth, as the sensor specialist failed to purchase enough of Osram to gain “domination” under German takeover law. That has hampered the ability of the two companies to discuss how to integrate. As Osram becomes more of a photonics company and less of a lighting operation, it potentially makes a good match with ams' sensors and photonics mission, but the two companies seem to also have product overlaps.

Osram has been busy tailoring optical chips for specific applications, such as the infrared VCSEL chip it introduced recently for smartphone cameras.

The nature of the ams Osram acquisition has also deprived ams of access to Osram's cash, although given this week's financial warning, that cash is dwindling anyway.

The cash would help pay off the loans that ams took to buy Osram. The company is now considering other financing methods.

Meanwhile, Osram's third and fourth quarter activity could include an uptick in sales of UV-C lamps targeted for disinfection of the novel coronavirus. Watch for LEDs Magazine's story early next week.

MARK HALPER is a contributing editor for LEDs Magazine, and an energy, technology, and business journalist ([email protected]).

*Editor’s note: Currency is provided in both EUR and USD for consistency and rounded up as appropriate except where directly quoted. Currency is provided at the latest valuation as of time of publication.

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