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. Throughout today's call, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touch-tone telephone. Please press the star key followed by zero for operator assistance. 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 results conference calls, I would like to draw your attention to the safe harbor statement on page two of the results presentation. As usual, it applies throughout this call.
It's now my pleasure to hand over to Olaf.
Thank you, Juliana. Ladies and gentlemen, welcome to our conference call. Let me start with an overview of the first quarter. As usual, Ingo will 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 returned 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 standard.
Based on the solid first quarter results and taking into account microeconomic uncertainty, we confirm our guidance for the fiscal year 2020. Let's have a closer look at the first quarter results on slide number four. As mentioned, revenue for the period between October and the end of December increased slightly by half percent year-over-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%. I'm also pleased to see that DI, our Digital business, breaking even in the quarter. Free cash flow improved by EUR 180 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 number five. 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 number six. 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. To what extent, we don't know. Yet there are also some positive signs possible. 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. 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. Let's move to the last chart seven. 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 products, such as the lidar systems and the driver assistance solutions, received great attention, as did the Rinspeed car that we showcase on our booth 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.
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's continued operations that you can see summarized on page eight. First quarter revenue was slightly up by half a % 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 Automotive, and a break-even performance at Digital. 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 2020, in line with our expectations. 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 number nine. Movements in foreign exchange rates, 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 seasonally 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 Digital, Fluence's revenue growth continued to be strong. While 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 three reporting segments. Opto's revenue in the first quarter was slightly lower, with 0.7% when compared to the first quarter of fiscal 2019.
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 2019. 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. For our traditional light source business, revenue levels in the OEM channel declined as expected, but a strong aftermarket performance in the high season helped 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 at a low double-digit level. Moving on to profitability on slide 10. In Q1 fiscal 2020, 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 impacts. Higher volume, together with a positive impact from the application of IFRS 16 of approximately EUR 40 million, drove the year-over-year improvement in absolute EBITDA. Compared to first quarter 2019, 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 one-time, non-recurring 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 2019. 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 break-even 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 and presentation of net debt now includes the impact of IFRS 16. The adoption of the new accounting standard as of this reporting quarter technically increased 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 a range of between -3% to +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 program. Total special items are expected to be similar to the level of fiscal year 2019, with a significant part related to transformation charges expected to be incurred in the second quarter of 2020. 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 webpage. 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. Now, Juliana, back to you.
Thank you, Ingo. Now we are looking forward to your questions. Stuart, please go ahead.
Ladies and gentlemen, at this time, we will begin the question-and-answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. To withdraw from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selection. In the interest of time, please limit yourself to two questions only. Anyone who has a question may press star followed by one at this time. One moment for the first question.
First question is from the line of Lucie Carrier from Morgan Stanley. Please go ahead.
Hi. Good afternoon, gentlemen and Juliana. Thanks for taking my question. 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. The improvement 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?
Thanks, Lucie. I think it's a mixture. If I compare and see what's happening in our first quarter, I think it started with a restocking. Many distributors moved down the line of the minimum of capital employed. We had a restocking issue. Nevertheless, we had clearly a higher demand from the market coming. I got a lot of good signals from the Chinese OEMs who had a higher production in cars. In this case, we had clearly a higher demand. On the other hand, and that's the reason we are a little bit more cautious now, is that if I take all the signals now what's happening in China with the 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.
Thank you. Actually, my second question was going to be on the coronavirus. Can you maybe highlight 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? Is the factory in Wuxi, for example, still closed or it has reopened after the Chinese New Year?
Again, it's a mixture of information. First of all, the Wuxi factory will be open next Monday. That's the latest information we got today from the Chinese local government. That means we would have only an impact by one week with closed down. To be honest, Lucie, we have to see how many people really will come on next Monday. It's a little bit of situation. We do not have a clear view. Coming to your second question, there are some areas where customers had production. Their production will be down for another one or two weeks. In the end, we have to see what does it mean if my customer cannot produce, we cannot deliver. Again, it's not a clear situation in these days, and we have to follow day by day.
Thank you. I'll go back in the queue.
The next question is from the line of Jürgen Wagner from MainFirst. Please go ahead.
Yeah, good afternoon. Thank you for taking my question. You mentioned rising production, what were the costs of underutilization on group level and in Opto? As a follow-up to this, you had 24.5% in Opto on flat sales, basically. What could or would happen if revenues grow again significantly, let's say next year? Thank you.
Thank you, Jürgen , for your question. We do not see really an impact, definitely not on my next quarter. Our book-to-build situation is excellent for the next quarter. Again, it's not so easy to have really a clear view for the full year. Today, I would say if the coronavirus run like the SARS in 2001, it will be a move in demand. It's not that the world economy is going down. It is, again, a little bit later. Today, we do not see a real impact on our sales for the next quarter.
Okay. On the margin in Opto, and we know your midterm targets. Are they really?
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. I'm very optimistic that the margins will be in this range.
Jürgen , just to add on this. I said in my prepared remarks that out of the 24.5%, 220 basis points were one time non-recurring. Obviously, that gives you sort of an operating level where we are right now. Of course, if volume were to pick up again, the operating leverage that went down last year should go up this year. That we would expect. Next to that, we have supported the cost structure by taking out costs in a significant way. I told you how much we brought down headcount in Opto as compared to the last year. 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.
Therefore, we really have to see now how the coronavirus will affect 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 because they themselves want to be flexible in a situation of uncertainty. That's why it's not feasible for us at this point in time to give you a very specific outlook, as we simply don't know enough at this point in time.
Okay. Thank you.
We have a follow-up question from the line of Lucie Carrier from Morgan Stanley. Plea se go ahead.
Oh, hi. Hello again. Well, I'm happy to be back so quickly. I just have a follow-up on the OS margin. Ingo, can you maybe indicate what was the 200 basis point one time? Are you able to split the IFRS benefits between the division? 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 basis points versus last year. I'm just trying to understand what's the real improvement specifically in OS in terms of the margin. Like for like.
Yeah. In the meantime, we updated the document on the webpage where you can see the impact for Opto. I think out of my head, the positive impact from IFRS was one percentage point, 1.25 percentage points, probably on a margin level. The one-off items I was referring to were releases of accruals that were no longer necessary for statistical reasons, and hence they are not expected to recur again. In the meantime, if you look at the document on page 17, we have now also included information which shows you also the IFRS impact per reporting segment.
Is it fair to say that, if we look at it like for like between the 200 basis points and then the IFRS impact, 100 to 150 basis points, the margin in an underlying basis was up, let's say, by about 150, 200 basis points in OS?
Yes. That's correct. Yeah.
Okay. Thank you very much for the confirmation. 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 sales 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. 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. 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, Lucie, we've invested quite heavily into Opto's base in the last two, three years. Also there, maintenance CapEx typically isn't at the same level of depreciation in the first two or three years of such an influx of new capital. That's all reflected in the numbers.
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. No worries there.
Are you able to guide us somewhat on a range as a 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.
Okay.
Yeah.
Okay. Thank you very much.
The next question is from the line of Sven Weier from UBS. Please go ahead.
Yes, good afternoon. There's 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 yet, I guess. What's your opinion on that? When it comes to realizing the synergies, would you insist on that being struck first? What's your opinion on that situation? Thank you.
Thank you, Sven. As you said, it's not officially announced, I cannot speculating when they announce it. If you take a look in the official offer documents, there was an original plan to do it, when, I do not know. The second question is the synergies. They had it in the offer document as well. They expect around $300 million. 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 we can do in this phase, because before we do not have the antitrust approval, we are still competitor, for this reason, we cannot share detailed information. In this case, it means we do not have detailed numbers.
Again, the official number is around EUR 300 million.
Let's say when it would come to making significant reductions, obviously that sum would be also on the OSRAM end. Would you insist that there needs to be a domination agreement first before you agree to significant adjustments at OSRAM?
Yeah, of course.
Is that a prerequisite or?
I think, again, it's speculating. 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. There will be no advantage for one shareholder. 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. We strict follow the legal requirements.
Okay. Thank you, Olaf.
Next question is from the line of Sebastian Growe from Commerzbank. Please go ahead.
Yes. Hi, good afternoon, Olaf and the rest of story. I've been busy with other stuff. 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. Can you just really give us the buckets here? What is price mix related? Is it really Automotive doing the trick here? When it comes to Automotive in particular, have you seen some sort of windfall gains, especially on the price side? For the Automotive segment as such, can you give us a sense of the Conti JV and what you would expect in terms of incremental revenues for the full year?
Obviously, we had a bit of a tailwind in the quarter one already. What's your thinking and planning for the rest of the year? 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. Two questions on that one. The first one is the charges. What's the current guide that you would have out here? We obviously had some charges in the first quarter already. For DI in particular, what is your planning here and how to get the business finally on track? Obviously, noticed that you had a EUR 10 million improvement year-on-year. That shouldn't be the end of the story, I guess.
Okay. Thanks, Sebastian. I think some of these questions, 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 the EUR 57 million this year. Maybe Ingo.
Let's start with the 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 in the first quarter. We are indeed in discussions about new performance programs that of course need an alignment with our stakeholders on the employee side, and that currently discussion is ongoing. 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. 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.
That sort of assessment, 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're not happy with the way things are running, and we're currently in discussions with the other partner in the joint venture on 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 for also here. We don't know yet what the impact is of the coronavirus, as Conti is of course also delivering into the automotive industry.
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 impacts in also Automotive, but also in other areas like illumination, and 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 BPAs and there are some contracts where it's in the high single digits. There are a 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.
For Opto, if you look at the quarter, I'd say that the productivity programs, largely together with a higher R&D efficiency, compensated for price erosion, and then we had positive impacts of volume. For the first time in many quarters for Opto that helped to uplift the margins next to the one-time issues that I mentioned to Lucie and the IFRS 16 impact.
Okay. That's helpful. Thank you, Ingo. If I just may ask on a specific number, if possible, on the Conti JV, what you would expect in terms of incremental revenues or it's completely impossible to put a number behind that?
Yeah. I wouldn't like to put a number behind that right now. There should be some improvements, but how much it will be, we still have to see also there, what the market value is. We started the year with a solid order book and a good visibility on the year, so that we clearly have. 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.
All right. Okay. We'll leave it there. Thanks.
Next question is from the line of Sebastian Ubert from Société Générale. Please go ahead.
Yes, good afternoon, and thanks for taking my question, which has been just answered in the question from Sebastian before. It would have been around the additional restructuring measures and with that, the question to Ingo, but fully understand that you will not comment at this stage. Thank you.
Thank you, Sebastian.
There are no further questions at this time, and I would like to hand back to Juliana Baron for closing comments. Please go ahead.
Yes. Thank you very much for your participation. 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 is now concluded, and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.