Transcript
Update 31 March 2015
DISCLAIMER This presentation does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities issued by Bang & Olufsen A/S in any jurisdiction, including the United States of America, Canada, Australia, Japan or the United Kingdom, or an inducement to enter into investment activity in any jurisdiction.
This presentation does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities issued by Bang & Olufsen A/S in any jurisdiction, including the United States of America, Canada, Australia, Japan or the United Kingdom, or an inducement to enter into investment activity in any jurisdiction.
This presentation contains forward looking statements. Such statements concern management’s current expectations, beliefs, intentions or strategies relating to future events and hence involve substantial risks and uncertainties. Actual future results and performance may differ materially from those contained in such statements. This presentation does not imply that Bang & Olufsen A/S has undertaken to revise these forward looking statements, except what is required under applicable law or stock exchange regulation.
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KEY HIGHLIGHTS
Automotive brand license agreement with HARMAN Transfer of the Automotive assets to HARMAN
Focus on Bang & Olufsen and B&O PLAY brands Leverage brand value through select partnerships Restructuring to a new operating model
Non-core B2B activities
Agreement regarding sale of minority stake in Medicom signed ICEpower considered non-core and future ownership to be investigated
Financials and guidance
Estimated historical financials and guidance for continuing business Automotive transaction financials
Automotive
New consumer focused strategy
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License agreement
Automotive Transfer of assets
Financials and guidance
AGENDA 1.
Automotive
2.
New consumer focused strategy
3.
Other non-core B2B activities
4.
Continuing business
5.
Near-term events
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AUTOMOTIVE BRAND LICENSE AGREEMENT WITH HARMAN New Automotive brand license agreement and transfer of Automotive assets to HARMAN
Focus on value creation
Automotive share of Group revenue
Future cash flow from license payments
Automotive 21%*
Upfront cash payments
Reduce complexity
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Potential significant increase in Automotive volumes Effective expansion of Bang & Olufsen and B&O PLAY brand awareness
Brand awareness
Attractive valuation
Upfront cash payments Future license payments per unit sold to new brand partners
Maximise shareholder value Create strong capital base in order to support new consumer focused strategy Reduce the company’s bank facilities Future capital structure communicated at announcement of full year results for 2014/15
Use of proceeds
* Full year 2013/14
Significant reduction of organisational complexity Enable stronger consumer focused strategy
A UNIQUE BRAND LICENSE AGREEMENT…
High-end and premium consumer brands
Acoustics
Distribution and scale
…leveraging key strengths and competencies of Bang & Olufsen and HARMAN
Design and craftsmanship
Car integration and technology
Financial strength
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KEY PAYMENT TERMS OF THE TRANSFER OF AUTOMOTIVE ASSETS AND BRAND LICENSE AGREEMENT WITH HARMAN Represents a significant license revenue opportunity potentially exceeding the upfront payments
Cash payment to be paid at closing of approx. DKK 1,170 million
Payment for the transfer of Automotive assets
Variable license payments subject to volumes sold • Fixed per unit license payment • After 20 years, an aggregate threshold of DKK 3 billion determines the future terms of license payments
Fixed license pre-payment
DKK ~1,095m
DKK ~75m
DKK ~255m
Upfront cash payment
Upfront cash payment
Future license payments
Transfer of the Automotive assets
Automotive brand license agreement
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Guaranteed annual minimum license fee of DKK 12.7 million for a duration of 20 years
SMOOTH TRANSITION OF COMPETENCIES AND ACTIVITIES Transition objectives
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The overall aim is to carry out the transition of Automotive competencies and activities as smoothly and efficiently as possible The planned transition process will minimise disruption for OEMs and create an even stronger and more efficient setup All Bang & Olufsen Automotive employees will be transferred to HARMAN to ensure the delivery of the level of unique innovation, visual design, and craftsmanship, which Bang & Olufsen is known for
High-level transition process Signing 31 March 2015
Closing 6-10 weeks after signing
▪ Bang & Olufsen continues to operate all Automotive activities
▪ Detailed transition actions are agreed with HARMAN for each functional area
Following closing
▪ Bang & Olufsen continues to supply key components, incl. aluminum parts
▪ Integration of the Bang & Olufsen Automotive business with HARMAN’s Car Audio business
Transfer of employees
Full
High Bang & Olufsen involvement
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Low
AGENDA 1.
Automotive
2.
New consumer focused strategy
3.
Other non-core B2B activities
4.
Continuing business
5.
Near-term events
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NEW CONSUMER FOCUSED STRATEGY
Vision for the future consumer business
Strategy for the future consumer business
Further strengthen the position of Bang & Olufsen as a luxury brand
Leverage the new generation of Audio and Video products combining our unique design with our modern digital wireless platforms
Strengthen the position of B&O PLAY as a premium brand for portable audio and headphones, based on superior design and acoustics
Further strengthen areas of core competencies within acoustics, design and craftsmanship
Continue to focus on leveraging technology partnerships and platforms
Optimise supply-chain and manufacturing footprint to reduce complexity and enable scale
Continue to lift quality and customer experience in exclusive B1/SiS network and expand TPR distribution
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THE LEADING BRAND IN LUXURY CONSUMER ELECTRONICS …to be leveraged in the new consumer focused strategy
The unique brand…
Back bone of the company Coolbrands rated B&O as the UK’s 11th coolest brand in 2014/15 and B&O has been in top ~10 since 2008
Focus’ in German market rated B&O as no. 1 in 2014 based on product quality and workmanship
Luxury AV experience
World class, luxury brand proposition High-end retail network Driver of innovation
by
Premium portable audio and headphones
Extension of the Bang & Olufsen brand to: Attract new and younger audience Increase brand awareness
Gain volume and generate cash flow
by Leverage brand value Targeted brand licencing
3 Red Dot design awards within last 3 years to Bang & Olufsen and B&O PLAY products
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Increase brand awareness Enable even stronger growth and awareness of the brand
STRATEGY TO BUILD A FUTURE CONSUMER FOCUSED BUSINESS Secure new profitability model
Reduce complexity
Build future operating model
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Reduce complexity and maximize shareholder value through divestments of noncore assets
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Ensure profitability and complexity reduction of consumer business
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Strengthen position as luxury consumer brand
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Launch significant structural changes to build future operating model
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Transfer of the Automotive assets
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Divestment of Medicom
Continue to strengthen retail operating model and invest in marketing
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Ensure strong revenue from strategic brand licensing partnerships, e.g. the recently announced Hewlett-Packard partnership
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Consumer focus with AV and B&O PLAY
Focus AV on the home and interior design and focus B&O PLAY on design and sound
Increased use of partnerships to transform current operating model and significantly increase scale and reduce complexity
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Accelerate third party revenue (TPR) partners for B&O PLAY
Main focus Key activities
Strengthen brand position
Future ICEpower ownership to be investigated
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Address costs Optimise the footprint and deliver significant cost reductions
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AGENDA 1.
Automotive
2.
New consumer focused strategy
3.
Other non-core B2B activities
4.
Continuing business
5.
Near-term events
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OTHER NON-CORE B2B ACTIVITIES
Divestment of minority stake in Medicom
ICEpower ownership alternatives to be investigated
Bang & Olufsen has signed an agreement to divest the minority stake (35 per cent) in Medicom to Maj Invest As a result of the transaction, Bang & Olufsen expects to book a nonrecurring gain of DKK 6.6 million in the fourth quarter of the 2014/15 financial year The cash flow effect of the divestment is estimated to DKK 16 million The transaction is subject to customary closing conditions
As a consequence of the new consumer focused strategy, it has been decided to investigate the future ownership alternatives of ICEpower ICEpower is the leader in the audio engineering market providing class D audio solutions to manufacturers of professional and consumer audio products. Approx. 10% of ICEpower’s sales is to the Bang & Olufsen Group
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AGENDA 1.
Automotive
2.
New consumer focused strategy
3.
Other non-core B2B activities
4.
Continuing business
5.
Near-term events
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HISTORICAL REVENUE AND ESTIMATED EBIT (DKK million)
2014/15
3rd quarter 2013/14
Change, %
Year to Date Q3 2014/15 2013/14 Change, %
Revenue by segment Continuing Business AV B&O PLAY Total continuing business
457 172 629
406 122 528
13 41 19
1.217 412 1.629
1.149 408 1.557
6 1 5
Discountinued Business Automotive ICEpower Total discountinued business
128 24 152
129 23 152
(1) 4 (0)
406 69 475
444 75 519
(9) (8) (9)
(2) 20
(3) (2)
-
(6) 32
(9) (3)
-
800
675
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2.130
2.063
3
-
-
- (280) - (260) 15 - 35 10 - 15
(140) - (120) 40 - 60 15 - 20
-
(20) - 0
(28)
(61)
-
Elimination of internal revenue Exchange rate adjustments Revenue Group
EBIT Group
Following the closing of the Automotive transaction and the decision to divest non-core assets, Bang & Olufsen’s continuing business will comprise the AV and B&O PLAY segments
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Estimated EBIT for the continuing business for the first nine months of the 2014/15 financial year is negative DKK 260-280 million
–
Estimated EBIT by segment* Continuing Business Automotive ICEpower
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- (244) - (224)
* I) Ranges in Estimated EBIT relate to the indirect cost allocation and highly integrated, complex processes between the segments. II) The Estimated EBIT figures are not in accordance with IFRS as costs for shared functions are currently allocated to Automotive based on historical allocations. A part of these will be reclassified from discontinued business to continuing business in accordance with IFRS 5 in the annual report for the 2014/15 financial year
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▪
Ranges in Estimated EBIT relate to the indirect cost allocation and highly integrated, complex processes between the segments
In addition to the recently announced restructuring activities and related cost reduction measures further cost reduction measures such as footprint optimisation, streamlining of supply-chain related areas and reduction in service and support functions will be implemented in the current financial year and in 2015/16 to mitigate costs for shared functions which are currently allocated to Automotive
A STRONG GROWTH IN THIRD QUARTER Supply chain issues resolved
New products launched
Strengthened distribution
Strong growth in consumer business
TV production and other supply chain issues have been solved
Strong B&O PLAY supply situation
Strong portfolio introducing new B&O PLAY products, with great reception
Exclusive Love Affair Collection launched
Continued expansion of the Third Party distribution
Net increase in the number of B1/SiS stores while increasing sales per store
Growth primarily driven by new, innovative products in the consumer segment –
AV segment revenue for the third quarter 2014/15 increased 13% compared to the same period last year and B&O PLAY revenue increased 41% during the same period
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GUIDANCE, USE OF PROCEEDS AND FUTURE CAPITAL STRUCTURE
The outlook for the 2014/15 financial year remains unchanged compared to the outlook previously given (see 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 and the guidance for the continuing business can be further specified as follows
Full year 2014/15 outlook
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The continuing business is expected to show high single digit revenue growth for the 2014/15 financial year
–
Estimated EBIT for the continuing business is expected to be negative DKK 230-260 million for the 2014/15 financial year o
Use of proceeds and future capital structure
This Estimated EBIT assumes a positive Estimated EBIT from the continuing business in Q4
This guidance does not include costs related to the restructuring announced 12 March 2015, potential impairments, and costs for shared functions which are currently allocated to Automotive and gains from the Automotive transaction
The Board of Directors will seek to maximise shareholder value by creating a strong capital base to support the new consumer focused strategy
The proceeds from the transaction are expected to be partly used to reduce the company’s bank facilities
The future capital structure will be communicated in connection with the announcement of the full year results for 2014/15
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AGENDA 1.
Automotive
2.
New consumer focused strategy
3.
Other non-core B2B activities
4.
Continuing business
5.
Near-term events
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NEAR-TERM EVENTS AND COMMUNICATION Mar
Apr
May
Jun
Jul
Aug
Sep
Fiscal year-end 2014/15 31 March 2015
16 April 2015
Signing •
Announcement of Automotive brand license agreement and transfer of Automotive assets to HARMAN
•
Announcement of new consumer focused strategy
•
Divestment of Medicom and investigation of future ICEpower ownership
13 August 2015
~6-10 weeks after signing
Q3 2014/15 •
Release of Q3 2014/15 interim report
Closing •
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Expected closing of the transfer of Automotive assets and brand licensing agreement
AR 2014/15 •
Release of 2014/15 Annual Report
•
Future capital structure
•
Presentation of the new consumer focused strategy and the new operating model
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Status on restructuring
•
Updated financial and strategic targets
