Interim Report 3rd Quarter 2014/15 (1 June 2014 - 28 February 2015)
“Third quarter was a strong quarter, driven by demand for the new and innovative AV and B&O PLAY products launched. The demand was seen across most markets, including key markets in Europe and in China. At the same time we saw our profitability improving, as our initiatives to strengthen gross margin and reduce costs began to take effect. The strong quarter gives us confidence that we are on the right track, but we still have many challenges ahead of us. We will continue to focus our efforts on creating new, exciting products, expanding the distribution channels and creating a profitable and sustainable company”, says CEO Tue Mantoni.
Key financial highlights Q3
|DKKm||Q3 2014/15||Q3 2013/14||Change|
|Group gross margin||39.9%||42.7%|
|Earnings before interest and tax||-10||-28|
|Free cash flow||28||94|
- Revenue was positively impacted by continued focus on launching new innovative products, especially the BeoVision Avant, the 90 year anniversary special edition the Love Affair Collection and the innovative new music system BeoSound Moment. The wireless speaker BeoPlay A2 and the wireless noise cancellation headphones BeoPlay H8 were also important drivers of the revenue growth in the quarter.
- Gross margin decreased compared to the same quarter last year but showed significant improvement from the level in the first half of the 2014/15 financial year. This was driven by an increased share of large screen sizes of the BeoVision Avant, a higher average price on several AV products and reduced ramp-up costs. Gross margins were also positively affected by a higher share of sales of premium sound systems in Automotive.
- Free cash flow was positive in the quarter which was mainly due to the improved net earnings. Last year was positively impacted by DKK 79 million from the sale and leaseback transaction in the Czech Republic.
- After the end of the reporting period Bang & Olufsen announced a restructuring of the AV business, which is expected to result in full year cost savings of DKK 100 million, and non-recurring costs of DKK 15-20 million in the fourth quarter of the 2014/15 financial year. Refer to Company announcement 14.25 from 12 March 2015.
- Furthermore, as announced in Company Announcement 14.26 from 31 March, Bang & Olufsen has entered into an Automotive brand license agreement and a transfer of the Automotive assets to HARMAN International Industries, Incorporated. The transaction includes an upfront cash payment of approximately DKK 1,170 million, as well as future license payments containing minimum annual payments and a per unit license fee for a minimum of 20 years. The future variable payments for the first 20 years of the brand cooperation represent a significant license revenue opportunity for Bang & Olufsen potentially exceeding the upfront payment. The agreement has been signed, but remains subject to certain closing conditions.
- Bang & Olufsen will now focus on creating a strong consumer business based on the Bang & Olufsen and B&O PLAY brands complemented by brand licensing partnerships within selected categories to further support the long-term brand building of the company and to strengthen the financial performance.
- An agreement has also been signed regarding the sale of the minority stake (33 per cent) in Medicom and it has been decided to investigate the future ownership alternatives of ICEpower.
- The Board of Directors will decide on the future capital structure of Bang & Olufsen in connection with the release of the Annual Report for 2014/15.
- The outlook for the 2014/15 remains unchanged compared to the outlook previously given (refer to Company Announcement 14.25 from 12 March 2015). According to IFRS, Automotive and ICEpower will be reclassified as discontinued business in the Annual Report for the 2014/15 financial year. The continuing business (i.e. AV and B&O PLAY) is expected to show high single digit revenue growth for the 2014/15 financial year. Estimated earnings before interest and tax for the continuing business are expected to be negative DKK 230-260 million for the 2014/15 financial year. This estimated EBIT assumes a positive EBIT from the continuing business in the fourth quarter. This guidance does not include costs related to the restructuring announced in Company Announcement 14.25, potential impairments, costs for shared functions which are currently allocated to Automotive and gains from the Automotive transaction.
Any enquiries about this announcement can be addressed to:
Investors, Claus Højmark Jensen, tel.: +45 2325 1067
Press, Jan Helleskov, tel.: +45 5164 5375
A webcast will be hosted on 16 April 2015 at 10.00 CET. Access to the webcast is obtained through our home page www.bang-olufsen.com.