1. automotive and vehicles

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.
2
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
3
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
4
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

5
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
6
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
7
Guaranteed annual
minimum license fee of
DKK 12.7 million for a
duration of 20 years
SMOOTH TRANSITION OF COMPETENCIES AND ACTIVITIES
Transition objectives
▪
▪
▪
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
8
Low
AGENDA
1.
Automotive
2.
New consumer focused strategy
3.
Other non-core B2B activities
4.
Continuing business
5.
Near-term events
9
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
10
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
11
 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
▪
Reduce complexity and
maximize shareholder value
through divestments of noncore assets
▪
Ensure profitability
and complexity reduction of
consumer business
▪
Strengthen position as
luxury consumer brand
▪
Launch significant structural
changes to build future
operating model
▪
Transfer of the Automotive
assets
▪
▪
Divestment of Medicom
Continue to strengthen retail
operating model and invest in
marketing
▪
▪
▪
Ensure strong revenue from
strategic brand licensing
partnerships, e.g. the recently
announced Hewlett-Packard
partnership
▪
▪
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
▪
Accelerate third party revenue
(TPR) partners for B&O PLAY
Main
focus
Key
activities
Strengthen brand
position
Future ICEpower ownership to
be investigated
▪
▪
Address costs
Optimise the footprint and
deliver significant cost
reductions
12
AGENDA
1.
Automotive
2.
New consumer focused strategy
3.
Other non-core B2B activities
4.
Continuing business
5.
Near-term events
13
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
14
AGENDA
1.
Automotive
2.
New consumer focused strategy
3.
Other non-core B2B activities
4.
Continuing business
5.
Near-term events
15
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
19
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
▪
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
▪
- (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
16
▪
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
17
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
–
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
18
AGENDA
1.
Automotive
2.
New consumer focused strategy
3.
Other non-core B2B activities
4.
Continuing business
5.
Near-term events
19
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
•
20
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
•
Status on restructuring
•
Updated financial and strategic targets