Interim Report 3rd Quarter 2018/19 (1 June 2018 - 28 February 2019)
“The third quarter was a challenging quarter, resulting in a revenue decline of 18 per cent. The ongoing transformation of the sales and distribution network combined with lower than expected revenue from the Staged category were key factors contributing to the decline,” said CEO Henrik Clausen, and he continued: ”In spite of an improved gross margin, the results we have delivered in the third quarter are clearly not satisfactory. We have overestimated the speed at which we have been able to drive change. However, the transformation is necessary to create a strong foundation that will enable us to deliver profitable growth in the future, and we are satisfied that our operating model has proven that we have become more resilient when unforeseen challenges occur”.
Third quarter 2018/19
Revenue for the third quarter was DKK 710 million, corresponding to a decline of 18 per cent (19 per cent in local currencies) compared to same quarter last year.
Revenue in the Staged category declined 34 per cent compared to the same quarter last year, mainly driven by lower than expected TV revenue. The decline was primarily seen in the EMEA region. The retail sales of TV units continued to grow in the third quarter. However, retailers reduced their level of inventory on TVs resulting in a significant decline in sell-in TV revenue. The sell-in TV revenue is expected to normalise during the fourth quarter, but the outcome is associated with a considerable level of uncertainty.
Furthermore, the company’s ability to execute on the transformation of the sales and distribution network has not been at the level expected in several geographies.
The gross margin increased to 49.2 per cent from 44.4 per cent last year, driven by improved product profitability and positive currency developments.
Capacity costs declined by 5 per cent compared to last year. The company continued to invest in brand awareness and strengthening key organisational capabilities. In addition, the revised operating model enabled a significant reduction in development costs compared to the same quarter last year as the company leveraged the capabilities of technology partners to help drive innovation and achieve scale.
Despite the significant shortfall in revenue, the improved gross margin and lower capacity costs meant that the company achieved a 4.2 per cent EBIT margin compared to 5.7 per cent last year.
Free cash flow in the quarter was negative DKK 13 million compared to positive DKK 34 million last year. The cash flow was lower than expected primarily driven by the shortfall in revenue and a higher than expected inventory at the end of the quarter.
The company acquired treasury shares corresponding to DKK 106 million in the third quarter, bringing total buybacks under the company’s current share buyback programme to DKK 251 million. Bang & Olufsen held a total of 2,113,439 treasury shares corresponding to 4.9 per cent of the total share capital and total voting rights in the company at 28 February 2019. In light of the third quarter results and the expectations for the remainder of the financial year and the review of the long-term targets, the Board of Directors has decided that it is prudent to discontinue the current share buyback programme.
As announced in company announcement 18.49, on 26 March 2019, the company has revised its outlook based on the results for the third quarter and the expectations for the development in the fourth quarter. The company expects revenue for 2018/19 to decline around 10 per cent compared with the previous financial year (revenue was previously expected to be at the same level as 2017/18). EBIT margin is expected to be approximately 4-5 per cent (previously 7-9 per cent). Free cash flow is expected to be negative DKK 200-250 million (previously above DKK 100 million).
Due to the slower than anticipated execution of the transformation of the sales and distribution network and the consequential adjustment of the financial outlook for the year, the company has decided that it can no longer maintain its current 3-year targets. The company will assess and restate its long-term financial targets and will disclose revised targets in connection with the announcement of the annual report for 2018/19.
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 4 April 2019 at 10:00 CET. The webcast can be accessed through our website, www.bang-olufsen.com/da/corporate/investors