Interim Report 2nd quarter 2018/19 (1 September 2018 – 30 November 2018)
Company announcement No 18.36
“It was a challenging second quarter for Bang & Olufsen. Revenue declined 9 per cent and 7 per cent in local currencies, but profitability improved thanks to our changed operating model. We are confident that we have the right strategy. The progress we are making on our key strategic initiatives will enable us to overcome the short-term challenges and reestablish the growth momentum towards the end of the financial year,” said CEO Henrik Clausen.
All numbers reflect change compared to the same period last year:
Second quarter 2018/19
• Overall, revenue declined by 9 per cent (7 per cent in local currencies).
• Second quarter revenue was adversely impacted by the transformation of the sales and distribution network, primarily in multibrand retail. The roll-out speed of the new retail setup, especially in department stores, airports and selected retailers, was slower than originally anticipated. Further, the ability to sustain momentum with key partners in the existing multibrand retail and distribution setup was weaker than expected, impacting revenue.
• At the beginning of the second quarter, the company transitioned to a new outsourced logistics setup for its monobrand distribution, which is located centrally in Europe and managed by a professional global logistics partner. Contrary to expectations, this new logistics setup did not establish well-functioning and stable operations during the quarter. This resulted in significant delivery issues especially towards the end of the quarter, impacting revenue.
• Revenue in the On-the-go category declined by 4 per cent, driven by the sales and distribution transformation issues. Revenue in the Flexible Living category grew by 27 per cent, positively impacted by new product launches as well as good performance of existing products. Revenue in the Staged category declined by 23 per cent. Despite the implications related to the logistics setup, performance of the existing Staged portfolio was on a par with last year. However, this was not enough to compensate for the decline in revenue related to products with older, unprofitable platforms that were discontinued in 2017/18.
• Revenue in EMEA declined by 3 per cent (3 per cent in local currencies) and in Americas revenue declined by 30 per cent (31 per cent in local currencies). EMEA and Americas were heavily impacted by the transition of the logistics setup and by the multibrand sales and distribution transformation. In Asia, revenue declined by 7 per cent (6 per cent in local currencies). The decline in Asia primarily came from Australia and New Zealand where the Group changed distributor during the quarter. The Greater China Region and Japan both reported double-digit growth in the second quarter. Development plans for key mono- and multibrand partners have been established and will be rolled out during the second half of the financial year.
• The gross margin increased to 47.2 per cent from 41.2 per cent last year, driven by improved product profitability and positive changes in foreign exchange rates – primarily USD.
• Capacity costs decreased by 2 per cent compared to last year. The Group continued to invest in building brand awareness, and strengthening the mono-, multi- and ecom platforms. The transformed operating model enabled a significant reduction in development costs compared to the same quarter last year as the Group leveraged on the capabilities of leading technology partners to help drive innovation and achieve scale.
• As a result of the company’s new operating model, profitability improved in the quarter despite the revenue challenges. EBIT was DKK 90 million against DKK 83 million last year, corresponding to a 2-percentage-point improvement of the EBIT margin.
• The free cash flow was negative at DKK 84 million against positive DKK 44 million last year. The decrease was due to higher trade receivables, primarily related to the short-term extension of credit terms to retailers due to the challenges experienced in the monobrand logistics setup, and the fact that revenue in the second quarter was more skewed towards the end of the quarter compared to last year.
• The Group acquired treasury shares corresponding to DKK 131 million in the second quarter, bringing total buybacks under the company’s current share buyback programme to DKK 145 million. Bang & Olufsen held a total of 1,070,939 treasury shares corresponding to 3 per cent of the total share capital and total voting rights in the company at 30 November 2018.
• Based on the weaker than expected revenue in the second quarter and an assessment of the implications for the second half of the year, the Group revised the revenue outlook for 2018/19 on 19 December 2018. The Group now expects revenue for 2018/19 to be at the same level as in 2017/18 (revenue was previously expected to grow by more than 10 per cent). The outlook for an EBIT margin of 7-9 per cent and a free cash flow above DKK 100 million is unchanged.
Please address any enquiries about this announcement to:
Investor contact, Malene Richter, tel.: +45 2974 1609
Press contact, Jens Gamborg, tel.: +45 2496 9371
Bang & Olufsen will host a webcast on 8 January 2019 at 10:00 CET. The webcast can be accessed through our website, www.bang-olufsen.com