Earnings Call: Q2 2019

May 8, 2019

Thank you, operator. Good afternoon and good morning, ladies and gentlemen. A very warm welcome to the Ostrand conference call on our Q2 2019 results. With me are Doctor. Olaf Berline, our CEO and Ingo Bank, our CFO as well as Doctor. Stefan Kampmann, our CTO. Olaf and Ingo will comment on the market development and our financial performance and will be available for Q and A afterwards. As a reminder, today's call is being recorded. You can follow the webcast on our website at ophthalm.com/ir, where you will also find the slides available for download. Regarding forward looking statements, I would like to draw your attention to the Safe Harbor statement on Page 2 of the management presentation. And with that, I'm pleased to hand over to Oleksna. Yes. Thank you, Rehan. Yes, good afternoon, ladies and gentlemen, and maybe good morning to the U. S. Colleagues. Welcome to our conference call. Let me start with an overview of the Q2 of our fiscal year. Ingo will then provide you with more details on the financial figures, and of course, then we are looking forward to your Q and A session. So we move to Slide number 3. Our performance in the Q2 was as expected. We continued to face a challenging environment in the 1st 3 months of the calendar year 2019. Continued market weakness in automotive, general lighting and mobile devices clearly impacted OSRAM. And in addition, business was facing the ongoing impact of the general economic slowdown and, of course, political uncertainties. This has affected demand and led to inventory buildups, especially in China. We respond systematically to the operational challenges, and we are coming to that. Our performance programs are in place and running at full speed. This gives us confidence for the rest of the year, and we confirm our adjusted full year targets. So let's have a closer look at the 2nd quarter results on Slide number 4. In the period from January to March, revenue declined by 13.5% on a comparable basis of €862,000,000 Adjusted EBITDA before special items was €70,000,000 resulting in a margin of 8.1%. Free cash flow was mainly impacted by CapEx and of course of inventory. It amounted better than last year, but to minus €76,000,000 The Managing Board is taking action and announced in March that we have expanded our various initiatives to reduce our annual cost base, we now expect savings of more than €200,000,000 by 2021. I will come to this later on Slide 9, and Ingo will do it in a deeper way as well. So let's have first a more detailed look at the environment and especially economic environment on Slide 5. The outlook for the global economy continues to decline. The IFO World Economic Climate Index fell from minus 2 points in the previous quarter to minus 13. This is the 4th decline in a row and the worst figure in 7 years. The same trend was mirrored by the global PMI index provided by JPMorgan. Global manufacturing expectations further slowed down, as you can see on the right. We clearly noticed this trend in our revenue development in the second quarter, as have many of our customers, particularly in the automotive industry. If we look at Slide number 6, we can see on the left that car production continued to decline across all regions. The biggest impact was once again in China, where car sales has been declining for 10 secondret 20 months. NAFTA car production has also slowed down, now making a sidestep. Consequently, IHS has reduced its forecast for global light vehicle production, as you can see from the chart on the right. Yearly production worldwide is now expected to reach less than 93,000,000 cars in 2019 compared to 99,000,000 back in April last year. Together with the inventories that have been built up, especially in China, as I said, that and this has hit us hard. China is for our most important market. And accordingly, our China revenue year on year dropped by 1 third in the last quarter. This is also why we are less optimistic at this point in time regarding the second half of the fiscal year and the main reason why we adjusted our guidance in March. And as you can see on Slide number 8, this assumption is backed by the actual order volumes from our customers. In February, I showed you the order volume agreements for calendar year 2019 shown on the left. The majority of our automotive customers then indicated higher order volumes for 2019 compared to 2018. On the right, you can see the actual deviations of what our customers intended to order and what they have actually ordered year to date. As a large part of our customers fall behind their expectation order volumes, we currently see no indications for a quick recovery. And this takes me to Slide number 9. The Managing Board has responded actively to this situation. We have stepped up our efforts to cut costs. Our various performance initiatives are now expected to reduce the annual cost base by more than EUR 200,000,000 by fiscal year 2021. On the slide, you can see our operational programs, which we report to you on a regular basis. Overall, execution is on track, and I want to highlight our performance programs to reduce headcount and global footprint. Our Fit for the Future initiatives at Opto, for example, that we announced last time takes effect already. The targeted worldwide headcount reduction has already been implemented by 80%. At this point, one comment about the talks with Bain and Carlisle, which you are probably most interested in. In February, we announced that management was in a detailed discussion with Bain and Carlisle about the possible takeover of Osram. This discussion and the due diligence process is still ongoing. As communicated from the beginning, it remains open whether an agreement will be reached. The Managing Board is conducting the discussions on the interest of the company and that's of its shareholders, employees and other stakeholders such as business partners and customers. Please understand that we cannot comment in a more detail at this point in time as the talks are ongoing. We will inform the capital market and the public in due course. So let me summarize, ladies and gentlemen. While market weakness and political uncertainties continue, we have actively taken countermeasures. We are addressing our cost structures consequently. Our medium and long term strategy is clear and intact, despite the current challenges. We are pushing ahead with our photonics strategy and continue to involve in a high-tech company with a clear vision of the digital future. So that's from my side. Thank you very much. And now I would like to hand over to Ingo. Yes. Hello also from my side. Thank you for joining the earnings call today. Let me go right into the numbers for Alstom continued operations summarized on Page 9. Revenue growth continued to be very challenged in all business units, turning comparable growth to be a negative 13.5 percent for the company as markets for automotive and general lighting continued to show weakness. Our business in China faced further declines in the Q2, particularly for all segments in offshore as well as our traditional automotive business as well. Meaningful recovery for our business in China is not visible at this point in time. Adjusted EBITDA came in at €70,000,000 or 8.1 percent of revenue, below last year. The volume decline in combination with price erosion could not be offset by cost productivity. The high operating leverages in Opto, but also in traditional automotive, were the clear driving forces accounting for the drop in our adjusted EBITDA margin year over year. Special items were at €59,000,000 largely driven by the structural cost measures currently being implemented at Opto. Free cash flow was negative with €76,000,000 CapEx was €61,000,000 For the year, we expect CapEx spend to be between €220,000,000 EUR 240,000,000, of which more than 70% has been spent year to date March. Net income for the quarter was negative with €91,000,000 including an impairment Let's now take a closer look into our revenue development in the Q2 on Slide 10. The impact of foreign exchange as well as the additions to the business portfolio of OSRAM made a slight positive impact on revenue growth. Particularly, the acquisition of Fluent contributed well to the revenue generation as part of our digital reporting segment. Top line growth continued to be challenged in all regions. EMEA growth was impacted by ongoing weakness in our automotive business, both for traditional as well as LED light sources. In NAFTA, growth for automotive LED components was positive year on year, but could not offset negative growth in automotive traditional light sources and a strong revenue decline in our digital systems business as part of DI. In APAC, China continued to be a challenging market environment. For the company, revenue growth in China declined close to onethree when compared to prior year, at the same time also representing a further sequential decrease when comparing to Q1 of this fiscal year. As a reminder, China represents approximately 20% of the overall company's revenue. One positive highlight in China for us was Traxin that managed to grow the business in double digit territory, both year over year as well as sequentially. The impact of IFRS 15 in the quarter was at approximately 0.6%. Moving on to profitability on Slide 11. In Q2 of 2019, absolute adjusted EBITDA was EUR 70,000,000, translating into 8.1% in margin terms. The drop in revenue and with it, the drop in overall volumes took a significant toll on our profitability, largely a reflection of the operating leverage effects in our Opto Semiconductor and Traditional Automotive business. In addition, we reduced our inventory levels further due to the market outlook, creating additional negative effects of missing cost absorption. This is particularly true for Opto, where the impact of inventory reductions compared to the same period in the prior year represent more than 30% of the volume digression impact shown here in the bridge. The pricing environment in the quarter overall was largely as expected, yet elevated for Opto when compared to a year ago. Foreign exchange had a positive impact for Opto. Savings from our performance programs amounted to approximately €24,000,000 in the quarter. Adjusted EBITDA in corporate items for Osram continued operations was negative with €22,000,000 in line with our expectations. Moving now to Slide 12. Before I go into the financial details of our reporting segments, let me provide you with an update of our performance programs. As communicated, we have increased our savings targets from our performance programs to be above €200,000,000 by 2021. This increase is related to further structural measures taken at Opto to also reflect the significant volume declines combined with limited business visibility at this point in time. The targeted saving areas are unchanged, overheads and our industrial footprints. For fiscal year 2019, we are now targeting gross savings of between €85,000,000 to €95,000,000 up from the earlier communicated ambition of €65,000,000 to €85,000,000 Approximately 40% of these savings have been realized fiscal year to date. Our expectation as to the transformation related charges for this fiscal year has not changed. Out of the €80,000,000 to €90,000,000 anticipated for fiscal year 2019, approximately 80% have been occurred fiscal year to date. I'm going to summarize now our Q2 performance for the business segment on Slide 13. Let me start with Opto. Opto's revenue decline continued into the Q2. Lower volume and pricing drove the reduction of 18.8%, with volume carrying a slightly higher share than pricing. The biggest contributor to the absolute year over year reduction in revenue for Opto was recorded in the Industry and Mobile segment. This was by and large driven by its distributor business, covering a rather broad and diverse portfolio of applications. Distributors continue to destock, also given a weak Chinese market. The emitter sensor laser portfolio of INM showed a small year over year decline as tough comps with respect to the iris scan from fiscal year 2018 could only be partially offset by new business in biometric sensors and 3 d. Overall, however, comparable growth in I'm declined significantly. In Automotive, revenue declined. Next to pricing impacts in the low double digit range, volume declined by mid single digits, reflecting by and large a weaker market environment in China. The revenue decline in automotive in the region EMEA was like for like in the mid teens, whereas we recorded a like for like mid single digit growth in the Americas. In Opto's general lighting business, we saw a sequential improvement in revenue generation, driven by outdoor and horticulture demands. Still, year over year business declined largely due to weakness in indoor lighting, reflecting a weak Chinese market and destocking efforts in the industrial supply chain. Market price pressure remained elevated, particularly in China. The combination of overall strong volume decline, price erosion and a lower inventory build when compared to prior year's quarter, reduced Opto's adjusted EBITDA profitability to 14.6% in the quarter. The year over year impact on profitability from negative cost absorption effect due to lower inventories in the quarter was close to 5 percentage points. As mentioned, we put additional structural measures for optosemiconductors in place to actively manage in an environment of limited forward visibility. For those measures, we took a restructuring accrual in the Q2 of approximately €44,000,000 We do expect savings for these measures to be between €30,000,000 to €40,000,000 within this current fiscal year. Moving to our segment automotive, or AM. Comparable growth was negative with 10.6% in the quarter. Volume continued to decline, particularly in China and Europe, both for the traditional as well as the LED business. The aftermarket business was in line with expectations. AM's adjusted EBITDA profitability was 9.7% in the quarter. The decline in margin compared to the same period a year ago was largely a reflection of lower volumes and the corresponding operating leverage impact. Price erosion and inflation were compensated by productivity measures. The inclusion of the OSRAM Continental Financials in Automotive had a dilutive effect of approximately 200 basis points. Looking into our 3rd reporting segment now. DI managed to slow down the revenue decline when compared to the Q1 of this fiscal year, with close to all of its underlying businesses contributing to a sequential improvement in absolute revenue generation. Still, comparable growth was negative with 8.5% when comparing with the same period a year ago. The decline was largely driven by our Electronic Vanas and Controls business, also known as Digital Systems, or DS, were elevated customer inventory levels in the U. S. And to some extent also in EMEA, combined with a rapid decline in traditional balance, drove negative growth, albeit at a slower rate when compared to the Q1 of this fiscal year. When looking at the other business activities within DI, we saw a sequentially improved performance in our entertainment business on the back of well received new product introductions. In our industrial portfolio, Fluence continued to perform well, whereas our projection business continued its expected decline given its stage in the technology maturity curve. DI's dynamic lighting business picked up momentum and delivered sequential growth. Year over year, it recorded a low single digit decline. DI's adjusted EBITDA stayed negative at €4,000,000 yet improved from the Q1 of this fiscal year. Compared to the prior year, the reduction in profitability was largely driven by comparatively lower revenues in digital systems and the corresponding volume digression impact, including the impact of lower plant utilization rates. Pricing and inflation were offset successfully by productivity measures. Moving now to cash flow on Slide 14. Free cash flow was negative with EUR 76,000,000 including CapEx spend of €61,000,000 More than 70% of such spend related to Opto. The reduction in trade payables was mainly related to Opto, amongst others, due to lower purchase volume, given the reduced business activity levels and less capital expenditure spending. Net debt increased to €350,000,000 as per end of March, reflecting the negative free cash flow in the quarter and the dividend payout for fiscal year 2018. And now on Slide 15, the outlook. On March 28, we published our revised guidance for fiscal 2019 that you see again summarized here. This outlook for fiscal 2019 reflects, on the one hand, a second quarter below original expectations. It also reflects the lack of substantial improvement in business activity, factoring in the absence of a revival of our order intake during the course of the Q2. The guidance implies no meaningful recovery or improvement in the second half of the year, but rather a stabilization of what is currently still a business environment with very limited visibility. Juliana, now back to you. Thank you, Ingo. We are now looking forward to your questions. Operator, please go ahead. Thank you. First question comes from the line of Sven Weier with UBS. Please go ahead. Yes, good afternoon. Thanks for taking my question. The first question would be related to your revenue decline in the first half and the mid teens organically. I was just wondering if you had kind of an estimate how much of that was related to your clients destocking and how much of it was really the weakness in the end customer demand? That would be the first one. Thank you. Thanks, Sven. I think Ingo will deal with it. Well, it's always a bit difficult to do an estimate there. I mean, we saw destocking in the general lighting business, particularly in China. We also saw some destocking with distributors. So I would quantify that type of destocking impact that we expect for kind of the year, which indeed took place mostly probably in the first half somewhere between €30,000,000 to €40,000,000 And as you just said, it's do you think it's largely concluded now, yes? Well, we have I wouldn't call it completely concluded now because we still have I mean, we've seen people coming down with their stock levels. In some areas, they're still a bit higher than they are normally are also compared to prior years. So there's still a chance that some destocking will still take place. I think what's also more important then is, of course, what they themselves have in their point of sale and whether then they see momentum coming to restock again. And that momentum, we haven't seen yet. And the 30 to 40 you said was on Q2 specifically or the whole first half? You asked me for the first half, so Yes, okay. Good. The follow-up was just on the Beyncarle situation. I understand you wouldn't say anything more, but I think previously you said the discussions are going well or making good progress. I mean, would you repeat that qualitative comment? Yes, absolutely. Absolutely. We have good progress. We have good discussions. And yes. Good. Thank you. I go back in line. Next question comes from the line of Peter Olofsen with Kepler Cheuvreux. Please go ahead. Yes, good afternoon. I had a question on automotive. On the Slide 7, you also mentioned share of wallet as a key reason. I guess that dates back to 2017 when you were on allocation and some of your clients started to qualify other suppliers. Could you maybe give some idea how material the impact from changes in share of wallet is? And given the time it takes for an automotive customer to qualify a new supplier and to see volume ramp, how likely is it that this headwind becomes even more meaningful next year or so in 2020? Yes, it's a fair and good question. I think Ingo and me will answer this. I think, first of all, what we said, and that's still proven that we it seems to be that we lost around between 3% 4% market share. And that's happened because we are unable in 2017 to deliver what our customer wanted. And at that time, they qualified a competitor. And I think what we see is that we have lost around between 3% 4% market share. The share of wallet is the same. In the current customer, we have the same share of wallet. Of course, we have sometimes a new model is coming, the share of wallet is a little less, but we don't see any issue in the share of wallet. What we clearly have is to win back the market share. And so especially for 2020, there's a clear target that we will win every year between 1% and 1.5% market share back. That's our target for the year 2019 2020. Ingot, anything I have to add? I think that answers the question. Yes, that is helpful. Maybe on General Lighting, 3 fold question. Can you provide an update where you stand with the sale process of C Taco? And then considering that DI is loss making, are you happy with the current portfolio in DI? Or could there be potential further disposals? And lastly on DI, there was around €40,000,000 crude oil impairment in DI. Can you disclose which units within DI this relates to? And what triggered this impairment? Okay. A lot of questions. I'll start with your first one was LS on SITECO. I think I said it in February, and this is still valid that we expect to come to a final stage between April May. We still have a clear timetable to have these final stage in May. That means I'm expecting in the next 2, 2.5 weeks, final proposals. And then I have a clear view which bidder could be go in the last round of the M and A process. So this is still on track, and I'm optimistic because we still have enough bidder in the round. The second point came to DI. I think I do it shared with Ingo. First sentence is, I clearly said all the time that we are looking for portfolio measurements. So that is a permanent progress. If we see that a business field or company is not achieving the agreed results. We are going immediately in a portfolio optimization process. That's what we are doing in the last years. Last year, we sold our process technology. It was a business in automotive. And if we find something in DI, we will do so in the same area. But maybe Ingo, you add something on DI and on the results and on the impairment. Yes. So on your the question relating to impairment in my prepared remarks, I said that we impaired assets of goodwill in DS, digital systems. And the trigger for that was simply that when we had to update our guidance, we also saw a reduced outlook for DS. And that is typically a trigger for an impairment test. And as a result of that impairment test, we had to incur €40,000,000 of the goodwill that was still residing in DS acquisition back in 2011. Okay, that's clear. Thank you. Thanks, Peter. Next question comes from the line of Sandeep Deshpande with JPMorgan. Please go ahead. Yes, hi. Thanks for letting me on. My question is, I mean, when you look at the margin guidance, EBITDA adjusted EBITDA margin guidance for the full year, it does seem like second half adjusted EBITDA margin is declining half second half versus first half. Can you talk us through what is happening on the adjusted EBITDA margin inventory or price pressure or any other impacts there? And I have one short follow-up after that. Thanks. Thanks, Sandeep. I think that's a great question for our CFO. Yes. Hi, Sandeep. Yes, so Stefan can do it as well, isn't it? Well, if you look at the next 6 months, as we said, the visibility is still limited. The results year to date are heavily impacted by the operating leverage effects that we've seen both in traditional OEM Automotive as well as LED. We now go into the summer period more or less where we don't know yet how long the summer furlough will be of some of the OEM manufacturers. So maybe some caution here. Against that, of course, we will have a bit of a higher run rate of savings we generate through the performance programs where roughly 60% of what we said will is expected to come into the second half. So if you take all these pluses and minuses together, we still have to see a little bit how this eventually will evolve. Thank you. And one quick follow-up on VCSELs. I mean, you had bought this VCSEL company last year and said that you have potential to have significant volumes at somewhere in the mobile phone market this year. Can you give us an update? Yes, I can. We are we have ordered and we are in current discussion with mobile companies in Asia. You know that we always had our main focus on Asian companies, mainly in China, Korea and Taiwan and Japan. So we already have we already delivered and deliver VCSEL chips to Asian companies, and we are in the process to get more. But maybe Stefan, would you like to say something about that? Maybe 2 d, 3 d, that's a little bit a change in the mobile industry, a lot of price pressure for mobile companies, mobile device companies. And for this reason, it's a little bit a change from 3 d to more 2 d, but we are in this process as well. I think the rationale to buy Wixa is still very valid and will support our business in the future. The Wixa is a light source for all these sensing elements. It's according our planning in the applications, which Olaf mentioned before, mainly consumer electronics talking about smartphones. But we see also more and more interest in the automotive sector for Wixel for interior positioning, scanning of driver and passengers. So VCSEL will be regarded as an appropriate illumination source for a lot of sensing applications. That's basically the market demand from our capabilities. I think that we saw a big serve company is developing as we have planned. We have excellent resources in regards to engineering capacities, and we can basically follow-up on all the needs which the different applications you show for the future for VCSEL as a light source for sensing applications. Okay. Thank you. Thanks, Sandeep. Next question comes from the line of Lucie Carrier with Morgan Stanley. Please go ahead. Hi. Good afternoon, gentlemen. Thanks for taking my question. The first one I would have is on the OS profitability. I was hoping you could give us a little bit more granularity in terms of when we look at the drop in the margin, which is roughly, I mean, going from 24.5% to roughly 14.5%, are you able to segregate for us what has been really what I would call operating deleverage, I. E. The volume impact, what has been the inventory and what has been possibly other factors like price or cost inflation? And related to that, I think, of course, you have added a lot of fixed assets in this division over the last 3 years in Regensburg, in Kulim and other places. And so it's a little bit difficult for us to have a sense of what is really the operating leverage or deleverage impact that you are facing on this kind of a relatively new fixed asset base. So can you help us maybe do the bridge a little bit more precisely for this division, please? Okay. Yes. Hi, Lucie. So I think maybe the best one is that Ingo and Stephan, would you like to start with this part? Yes, sure. Hi, Lucie. So if you go back to my prepared remarks, I said that the year over year impact on profitability from cost absorption effects around inventory is roughly 5 points, 5 percentage points. The operating leverage of Opto at this point in time is high, indeed also because of the additions of the fixed asset base that we've made with the utilization being not at the levels that we, of course, wanted it to be. So at this point in time, the operating leverage is somewhere probably between 60% to 65% or so. And obviously, going forward, we will work very much on trying to lower that again because it's very high at this point in time. And that was basically this plus price erosion where the effect price erosion, however, if you then compare that with the productivity programs that we still have in place was more or less compensated, but it was not possible to then also compensate for the volume regression impact. And the volume regression impact you see is, on the one hand, the lack of absorption because of lower volumes, plus, in this case, the delta in inventory compared to prior year. Thank you, Ingo. So, 500 basis points, is it inventory and operating deleveraged together or is solely inventory? It's together basically because again, it's I mean, at the end of the day, it's all leverage because either you sell something or you build inventory for the sale in the next month or so. And given the volume outlook, it means that if you don't produce, you don't absorb fixed costs in your balance sheet, they run straight through your P and L. So overall, it's all basically the same topic. It just doesn't run through your sales line. And that's why when you look at the revenue drop relative to the EBITDA drop, it's not really proportional. That's why we sort of mentioned the inventory reduction as well. Okay. Because 500 basis points is about half of the effect you have. So this is why I'm trying to kind of add up. So the rest is what precisely? Well, what I said is pricing. Against that is productivity a little bit and then volume progression of the volume difference to last year. Okay. And you were mentioning the capacity utilization in the factory currently is low. Are you able to kind of give us a percentage roughly? Because of course, I remember 3 years ago, it was almost I mean, very close to 100%. So where are we now precisely? Lucie, I certainly could give you that number, but if you allow me, I will not because there's many people listening to our calls and that's an information that it's not at the level that where we are able to run without underutilization. Okay. My second question was around the comment you made actually. It's a follow-up on the market share and that you were aiming to win back 1% to 1.5% market share per year starting next year. I'm assuming this is on the auto LED portfolio or the OS auto portfolio. Can you maybe give us a little bit more color on how you're are gaining that market share kind of regain? Yes, it's clear. I think as I said, we lost between 3% 4%, and it's clear to the sales force, we cannot and I cannot accept it. So we have to regain with 2 things. First of all, I think we are as a technology leader, we are coming with new innovation. So I do not want to do it through prices. So to gain market share is easy if you reduce price, but that's not the way I would like to do it. There's a new system coming up, Matrix headlands, for example. So we are going to our customer and promote a new technology. And with this new technology, I'm quite sure that we can regain our market share on the old level that we had it in 2017. And I think it's not too aggressive to get 1% market share back. Okay. Thank you very much. Thank you. Thank you, Lucy. Bye. Next question comes from the line of Sebastian Grover with Commerzbank. Please go ahead. Yes, good afternoon, everybody. Thanks for taking my questions. And also a follow-up on the market share discussion we had before. Where do you stand currently after this 3% to 4% market share loss? And the question that I have is why shouldn't the OEMs eventually continue to balance the supplier structure further, I. E, supplier accounts? And can you also comment on how pricing has developed since these share losses occurred? And would you say that it has normalized now after eventually what was the stronger price erosion in the more recent past? Yes. Thanks, Sebastian. I think again, I think it's not so aggressive to gain market share by 1% year over year on your current level. So I think as a market leader in LED and in halogene, I think one of our advantages is that we can deliver to the customer both products. And again, today, still 70% to 75% of all brand new cars are equipped with halogen. So if you sit with your customer together, he needs both products and it's still a good solution to have it from one hand from Osram. And I think that's the reason we are market share. The second point why I am optimistic to gain market share is clearly that the number 2 and number 3 in the market acting weaker. I think it's in this situation sometimes easier to gain market share. And your third point is that with the share of wallet, as you described, I think most of my customer had a well balanced position between my competition, 2nd source, 3rd source and Osram. And as you know, it takes a long time to qualify any supplier. So as a long time company, trusted company with less failure and good quality, I'm quite sure that we can get these 1% year over year additional market share. Your third question was on prices. I would say prices are normalized. I think we had especially in a declining market, you always have more pressure on prices. It's clearly, but what we expected for our planning that we had around 8% price decline in this range between 8% 10%, we still finished our contracts. And again, most of the contracts will be finished in December 2018 for the year 2019. So I do not expect additional price pressure for 2019. Okay. That's clear. And just on the share as such, so are we talking 30% give or take? Or where are we currently? I know I understand your question and we never gave an exact number because competition is listening in my call. What we always said is, it is in a range above 30%, and that's still valid. Okay. And if I may quickly move on to automotive. Just within the mix for what you have in terms of LED revenues, which on my numbers should be around €800,000,000 or so on an annual basis. Can you just comment on the structural outlook from here, I. E, what is happening if in especially interior lighting, I think it was a topic on prior calls, is growing faster than, for example, for the headlamp lighting, how that would affect the overall profitability level at the LED part within automotive? I understand your point. Well, I mean, if I can chip in a little bit. So overall, if you look at our revenue base, the exterior part is always the major part of the automotive LED base. And the margin difference between interior and exterior is there, that's correct. But at the same time, also the pricing on interior is less or the price erosion on interior is less elevated than it is on exterior. So in that sense, you have some mixed impact, but also some for different dynamics. What is growing right now in interior is very much display technologies in that sense, and it will take a while still until new functionality, RGB will go into more sophisticated lighting will come into the interior. So, from that perspective, yes, there is some growth, but it's very specific to display technology and the other areas, they will still need some time before they pick up pace. And within this play part, would you consider yourself being greatly positioned? Or are simply others better off for the time being? I'm not sure how you would classify that. So in that sense, I would say maybe all of catastrophe. I think you have to put in your mind in the display business, the technology is changing as well. In the former and the old technology for displays Osram was and is not in. But the chip size are moving and maybe you heard about these mini LED and micro LED And moving in this phase of the smaller chips, of course, OSRAM is in, in this technology, but not in the old one. Okay, fair enough. Thank you. Next question comes from the line of Jurgen Wagner with MainFirst. Please go ahead. Yes, good afternoon. Thank you for taking my question. Actually, I have a follow-up on Ostro on Opto margins. What other measures are you taking in Colim to achieve a better utilization, let's say, over the next 2 years, except taking back market share that you mentioned? Thank you. Thank you, Jurgen. I think it's a great question for Stefan. You are the faculty guys. Thank you. That you put the focus on COLIN. As you know, we have planned to pull in for some technology, but the advantage is that the machines which we have bought and that's normal for semiconductors have a high versatility. And with the versatility, you can basically generate different solutions and different they can support different applications. And we are currently looking into sapphire based products, which basically feed different applications. One was just mentioned, backlighting for displays. And besides the general lighting and the automotive business, which we already talked about for Qulim, we see now also a third area of applications, which will take advantage of the installed capacity. So we are looking confident into the next 24 months that we will have additional business for Colim, and we can basically use the capacity which we have installed already. Okay. Is it okay, Jern? Okay. Yes. Okay. Thank you. Thank you. Next question comes from the line of Leo Carrington with Credit Suisse. Please go ahead. Thank you for taking my question. Roughly small follow-up on Lucy's question. The inventory balance in June, the unchanged sequentially slightly down but only slightly down. Does this lead to an ongoing risk of underproduction and future under absorption of overheads into H2? And if so, is this already captured in the guidance? Well, the inventory movement that you see is on the overall level of OSRAM. What I was talking to with Lucy was just the impact on Okta. And let's also remember that when we talk about bridges, we look at the comparison to prior year. So in the prior year, in the quarter, there was an inventory build, which had positive impact because you absorb fixed costs. In the current quarter, we had an inventory reduction, which has a lower fixed absorption impact. And if you add the positive and the negative together, you see the total absolute difference to a year ago. So that's how the bridges work, number 1. Number 2 is that we saw indeed an inventory reduction at Opto. At the same time, inventories in DI were staying at a rather high level. So in the guidance we gave, we have assumed that, that inventory level for the DE especially will come down in the second half, which typically does. Also, historically, if you go back, that's always what kind of seasonality would suggest and what the plans are. And the absorption effects in digital, particularly in DS, are nowhere near comparable to Opto because DS has a completely different cost structure. It's the bill of material is a very, very, very significant part of the S. So there, it's almost negligible from an absorption perspective. But of course, when we gave guidance, we also looked into our good movements for the balance of the year. Okay. Thank you. We have a follow-up question from Mr. Sven Vayer of UBS. Please go ahead. Yes. Thanks for taking the follow-up. So those are 2. The first one is because you mentioned you expect to gain share also on Matrix LED, if I understood it correctly. There was one thing I was interested, maybe that's a question for Stefan, because Heller mentioned earlier this year in terms of their market expectations that they haven't changed the LED market share assumptions, but they said they would expect it to be more with standard LED solutions, so whereas the more sophisticated ones. So my question would be basically how you look at the longer term LED penetration. Have you also have a different view on the structure of that? Or hasn't that really changed? Okay, Sven. I think great question for Stefan. I think if you look in the front light, it's where we differentiate and put a little bit more detail into the subject. But you will see on the one hand side, innovation driven, feature driven solutions when we talk about increasing the resolution here to go from an adaptive front side system to what we call projection. And what Olaf mentioned, the virus generation, which we are launching in the next year, generation 1 and then in the following year, this generation 2 is basically increasing significantly the number of pixels to go basically versus this projection feature. And on the other hand, we will see higher penetration of LED based front light systems with more standardized solution. It's more likely what Heller mentioned in their comment. These applications will be fitted with more standardized LEDs. So we have basically a 2 fold development or 2 fold driven penetration of LEDs in the automotive sector. 1 is feature driven and the other one is more, let's say, the commodity driven, where we go into the high volume segments. This is increasing the number of LEDs overall, but this will also be, let's say, more a cost or price driven segment. And therefore, our development strategy and our business strategy is twofold as well. We have on the one hand side an innovation driven path. We go for the feature where we expect basically higher margin, higher prices, but we have also basically to take advantage of the penetration in the more commoditizing business, which we are supporting with the appropriate manufacturing cost basis to keep our margin also in this segment. And I think if you look into the future business of Automotive Headlights, you will see these two trends. And business wise, you have to be prepared for two approaches into the business. And when you look at the standard segment, I mean, is it same happening as we had it maybe with the backlight, where initially you also started with more sophisticated stuff and then over time, the kind of barriers to entry solutions solutions. Yes, clear. But I think this business, especially in this volume, in this commoditizing business, you will be paid by photons. So you can take advantage of your know how in the semiconductor business if you can generate the same output with a smaller chip, then you have lower manufacturing costs and you have to basically drive your margin by this innovation in the semiconductor field. So it's not that it's the cheapest manufacturing and you have to go to the cheapest location. You can basically gain also advantage by innovation, the cost innovation based on the semiconductor know how simply by getting the same number of photons from smaller chips, get the same price because you get the same feature or you sell the same feature, but have advantage on the manufacturing cost side by using smaller chips. So I think it's a normal behavior. You will have standardized products with a commoditizing business behavior, but you still can also make your fortune out of that by driving innovations on semiconductor level. Okay. Thank you for that, Stefan. The other question was on the Conti JV because I think in Q1, we already had a fairly small revenue contribution and it seems in Q2 as well. So and I think back then you mentioned some technical reasons for that. So is it now that you expect that for the second half that there's more meaningful revenue? Or how should we look at that? Yes. That's exactly the expectation. We had some more delays than we had hoped for. Also, with certain transfers of customer contracts that took a bit longer. Also, at the customer side, it turned out to be a fairly complicated process. But we've now moved further. Therefore, indeed, we should see more revenue flowing through OSRAM in the second half. Let me also just point out, as we did in prior calls on this topic, that the economic value of that revenue still accrues to us. And that means that we get a reimbursement of the corresponding margin from Conti, and that is run through the numbers of AM in our numbers. Okay, understood. Thank you. Thank you, Sven. We have a follow-up question from Peter Olofsen with Kepler Cheuvreux. Please go ahead. Yes, thank you. It's for Ingo. It's on the share buyback. In January, you announced the 1st tranche of up to 9,500,000 shares. But so far, you've only been buying about 1,000 shares a day. So for our modeling, should we assume it remains at a current low level? Or is there potential for the buyback activity to pick up? Well, when we commissioned the bank back in December and announced it in January, we obviously had different circumstances because today a lot of what's happening with the Ostrom share price is related to the speculation and rumors around Bain Carlisle. And we believe, as a result, the trading volume in the share buy program is, at this point in time, very low. It's the commission but with the bank, as I said. So it's a decision the bank takes, not really, not involved in that. So, I can't tell you what the future will bring. But right now, we believe this is because of the rumors underlying the stock movement. Okay. Thank you. Thanks, Peter. Ladies and gentlemen, due to time limitations, I hand back to Julianna Baron for closing comments. Thank you very much for your participation. With that, we would like to conclude this conference call. If you do have further questions, please get in contact with our Investor Relations team. We hope you enjoy the rest of the day. Thank you and goodbye.