Bang & Olufsen a/s Group Annual Report 2014/15 and interim report 4th quarter 2014/15
The fourth quarter of 2014/15 was financially challenging for Bang & Olufsen’s continuing business, which showed healthy revenue growth but unsatisfactory underlying earnings. A number of significant steps, including a brand license agreement and the sale of the Automotive assets were taken to sharpen the company’s strategic focus, thereby strengthening the capital structure and creating a leaner, more agile business model on which a profitable, growing company can be built.
On 31 March Bang & Olufsen entered into an Automotive brand license agreement with HARMAN International Industries, Incorporated and an agreement to transfer its Automotive assets to HARMAN. The agreement enables Bang & Olufsen to focus on building the Bang & Olufsen and B&O PLAY consumer brands as well as strengthening the company’s financial position, while maintaining a strong brand presence in the Automotive industry. The transaction was closed on 29 May and impacted the free cash flow positively by DKK 1,105 million in the fourth quarter.
Revenue of the continuing business grew 14 per cent in the fourth quarter, driven especially by B&O PLAY as strong customer demand for newly launched products, as well as continued expansion of the third party distribution drowe growth. The revenue growth for the continuing business was in line with the guidance for the quarter.
Earnings before interest and tax for the continuing business was a loss of DKK 410 million in the fourth quarter, of which DKK 357 million related to the non-recurring and aperiodic items and costs for shared functions and license fees previously allocated to Automotive as detailed below. The underlying EBIT for the continuing business was negative DKK 53 million, which was below guidance of a positive EBIT in the quarter.
The free cash flow adjusted for the sale of assets was DKK 43 million compared to negative DKK 73 million for the same period last year, and was in line with guidance. The free cash flow for the quarter was DKK 1,166 million, of which DKK 1,123 million relates to the sale of assets.
As a result of the Automotive transaction and the sale of the 33 per cent stake in Medicom as well as the revised strategy, the company has reassessed the value of certain assets of the continuing business. This resulted in value adjustments of the tangible assets, investment property, inventory, and specific trade receivables.
The gross margin of the continuing business was 9.2 per cent in the fourth quarter. The underlying gross margin (i.e. adjusted for non-recurring and aperiodic items and cost and license fees previously allocated to the Automotive business) was 38.9 per cent. The gross margin was 40.1 per cent in the same quarter last year in the continuing business. The decline in gross margin was mainly related to a higher share of revenue from B&O PLAY and a change in product mix in the Bang & Olufsen segment.
In accordance with IFRS and as no external Automotive related licence fee income is expected in 2015/16, no internal license fee has been charged to the Automotive division. The internal license fee charged to the Automotive division in previous periods have been reversed in the unadjusted figures.
The capacity costs of the continuing business increased by DKK 214 million compared to the same quarter last year, of which DKK 131 million were non-recurring and aperiodic, non-cash items.
In addition, the capacity costs were negatively impacted by DKK 19 million related to shared costs and license fees, previously allocated to discontinued operations. These shared costs will be mitigated during 2015/16 through cost reduction measures such as footprint optimization, streamlining of supply-chain related areas and reduction in service and support functions as described in Company Announcement no. 14.26 (31 March 2015).
Reported EBIT in the continuing business was negative DKK 807 million for the 2014/15 financial year. The underlying EBIT for the continuing business was negative DKK 323 million. This was below guidance of negative DKK 230 – 260 million. EBIT for the continuing business was negative DKK 261 million last year.
Earnings after tax for the Group including earnings from the sale of assets and businesses was positive DKK 221 million in the fourth quarter.
Any enquiries about this announcement can be addressed to:
Investor contact, Claus Hojmark Jensen, tel.: +45 2325 1067
Press contact, Jan Helleskov, tel.: +45 5164 5375
A webcast will be hosted on 13 August 2015 at 10.00 CET. Access to the webcast is obtained through our home page www.bang-olufsen.com