Osram became the latest lighting company to register a quarterly loss amid the coronavirus pandemic, reporting a €39 million ($42M) after-tax hit while saying it will step up a working hours reduction program as part of its efforts to keep further losses in check.
The industry’s second-largest company said revenue for its second fiscal quarter ending Mar. 31 slipped 7.9% on a comparable basis to €821M ($889M) from the same period a year earlier, when the company’s €91M after-tax loss was more than twice this year’s.
Osram attributed the improvement to “structural measures” and to a conversion to the IFRS 16 accounting standard.
The structural measures related largely to 800 job cuts that have now been agreed upon in Germany after lengthy trade union talks, and which are beginning to take hold. While those cuts are overall money savers, they also carry a severance cost.
The plans for the job reductions predate the health pandemic, which has now taken a toll, as it did at Signify and Fagerhult among others. Osram reported a headcount of 22,000, down from 25,000 a year ago.
“It has been a challenge to maintain production largely on a regular basis in recent weeks, as our top priority is and remains the health and protection of our employees,” said Osram CEO Olaf Berlien.
Back in March, the Munich-based company said it will probably miss its financial targets for the year. It reaffirmed that outlook today.
“In the medium and long term, the effects of COVID-19 on the global economy cannot yet be predicted,” the company stated. “The situation is accompanied by operational and financial challenges for the entire economy. In particular, production shutdowns on the part of customers and disruptions in global supply chains are very likely to affect Osram’s business development. As already announced in mid-March, the company therefore expects not to be able to achieve its original corporate targets for the 2020 financial year. Osram will only be able to update its forecast when the general market situation allows more clarity.”
Trimming the workload
As LEDs Magazine reported a month ago, Osram was in early April considering reducing employee hours. It confirmed for LEDs today that it did indeed cut hours by between 10% and 30%, with the percentage varying by locations around the world. Earlier measures included reducing overtime and requiring employees to take a third of their annual vacation allowances by the end of June.
The so-called “working time measures” and other coronavirus-related moves have kept the financial impact from getting worse, the company said.
“As part of company-wide crisis management, additional liquidity volume of around €200 million was identified until the end of the fiscal year through working time measures, the review of investments and consistent financing management, among other things,” Osram reported in its earnings statement.
It also said that the work reductions will now pick up, affecting “a larger number of Osram employees.” The managing board, which includes Berlien, is waiving 10% of its May salary.
The spokesperson told LEDs that Osram has had no coronavirus-related layoff yet, and it hopes to keep it that way.
Production slowdowns currently include two outright factory stoppages, one in Exeter, NH, and the other in Austin, TX at Osram’s Fluence Bioengineering horticultural lighting group.
Meanwhile, Osram declined again to say exactly how it is reshaping Lightelligence, the erstwhile centerpiece of its Internet of Things (IoT) lighting plans.
It confirmed that it is disbanding the central Innovation department that had been developing Lightelligence, which former head of Innovation Thorsten Mueller had managed until he left last summer. Each of Osram’s three business units — Opto Semiconductors (OS), Automotive, and Digital (DI) continues to have its own R&D, which had in some instances overlapped with central Innovation, an Osram spokesperson told LEDs. By reverting to a spread-out and segment-focused R&D approach, Osram hopes to speed up development and bring it closer to customers.
Osram made the decision to close Innovation a while ago pre-pandemic, but the actual dismantling began just this week and will entail job losses, a spokesperson told LEDs. Innovation had operated from two locations in Germany — one in Munich and the other in nearby Garching.
Lightelligence news is on the horizon
The company said news is forthcoming on Lightelligence, but did not give an indication of when. The fate of IoT lighting is somewhat tied up in the acquisition of Osram by Austrian sensor company ams, which has given mixed signals on it. The acquisition itself awaits regulatory approval.
Osram introduced Lightelligence over two years ago. The overarching IoT initiative is aimed both at software developers and end users, and with its multiple layers has possibly suffered from a what-is-it-exactly quandary, which would be ironic given that it is meant to establish a certain amount of simplicity in IoT ecosystems, including cloud analysis of data collected in a building.
Lightelligence has made a few appearances in the marketplace, but Osram has yet to move it into a business segment with profit and loss responsibility. The most logical landing place would be Digital (DI), which handles IoT lighting — be it Lightelligence or not — by embedding systems with chips and sensors and tying them to digital controls. DI has for the most part exited luminaires, although its horticultural operations offer them. DI also includes Osram’s entertainment lighting business, such as Clay Paky.
DI even has been known to wander outside of lighting. In 2018, when Osram called the division LSS, it outfitted the offices of two property firms in Vilnius, Lithuania with sensors and software that had nothing to do with lights but were aimed at improving building operations.
It is possible than any recasting of Lightelligence might recognize a broader, non-lighting role for the IT-oriented stable.
Meanwhile, in reporting the second quarter results, Osram said that DI revenues fell by 11.5% (12.3% on a comparable basis) to €200M ($216M) from €227M a year ago. “The pandemic-related decline in the entertainment and cinema lighting business and in building illumination projects in China became noticeable,” Osram said, while also noting that the division eked out a €2M ($2.2M) adjusted EBITDA.
OS revenue nudged down to €362M ($392M) from €363M, a 1.8% decline on a comparable basis as adjusted EBITDA surged 46.6% to €76M ($82M) from €52M.
Automotive revenue declined 8.7% on a comparable basis to €431M ($467M) from €437M, and adjusted EBITDA tumbled 30.6% to €30M ($32.5M) from €43M.
“Comparable sales in the Automotive sector were significantly lower than in the previous year,” Osram said. “The cause for this is, among other things, the initial effects of the COVID-19 crisis on the automotive industry, which was already weakened before the corona crisis.”
Company-wide, Osram said that “targeted cash management” led to a free cash flow of €64M ($69M). A year ago it showed a negative cash flow of €76M.
“As part of company-wide crisis management, additional liquidity volume of around €200 million was identified until the end of the fiscal year through working time measures, the review of investments, and consistent financing management, among other things,” Osram said. Total liquidity is around €700M ($758.8M).
*Editor’s note: Current financials at current exchange rates are provided in Euros and US dollars. Past financials have not been converted.
MARK HALPER is a contributing editor for LEDs Magazine, and an energy, technology, and business journalist ([email protected]).
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