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European luxe electronics maker B&O sounds warning as shares dive 20%

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The front of luxury electronics goods store Bang & Olufsen in Riga, Latvia. B&O is in the midst of a turnaround plan, the company said.

Copenhagen

LUXURY consumer electronics maker Bang & Olufsen cut its outlook for the third time in six months after it sold fewer TVs in Europe than expected in recent months, sending its shares plunging 20 per cent on Tuesday.

The Danish company's profit warning comes as subdued consumer spending has hit retailers across Europe, but also reflects slow progress on B&O's turnaround plan.

It now expects revenue to drop 13 to 14 per cent in its 2018-2019 financial year, which ended in May, it said late on Monday. This follows warnings in March and December from an initial outlook for 10 per cent growth.

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B&O, whose TVs can sell for up to 96,000 Danish crowns (S$19,700), is in the midst of a turnaround plan that aims to cut its distribution network, leaving it with fewer selling points in a bid to boost margins.

However, the company cut its EBIT margin forecast for the financial year ending next May to 2-3 per cent, against a previous forecast of 4-5 per cent. "Clearly our financial performance this year has not been satisfactory, and we are very disappointed with the development," chief executive Henrik Clausen said. He added that the company expects profitable growth in the 2019-2020 financial year.

"Despite a disappointing development the past quarters, it is important to stress that we have come a long way with the transformation of Bang & Olufsen," Mr Clausen said. "But we are far from finished with the transformation and know that we still have a great deal of work ahead of us."

Mr Clausen has been trying to turn around the company but consumers are increasingly reluctant to pay premium prices for Bang & Olufsen products, which include US$15,000 BeoVision Eclipse TVs.

Weak demand in Europe hurt the fourth-quarter results, and TV sales are still suffering, Mr Clausen said late on Monday.

B&O's share price is now down roughly 70 per cent over the past year with its shares falling around 20 per cent in early trading on Tuesday, at one point hitting their lowest level since January 2015.

"Investors' patience came to an end a long time ago," Nordnet analyst Per Hansen said in a research note.

The company was founded in 1925 and built its initial success on innovative audio technology.

B&O's biggest shareholder is Chinese investor Qi Jianhong, who owns just under 15 per cent in the company through his Sparkle Roll companies, Refinitiv data showed. In April 2016, Bang & Olufsen rejected a takeover bid by Sparkle Roll.

The stock plunge could reignite takeover speculation, and top shareholder Sparkle may consider a bid for the ailing company, Per Hansen, an investment economist at Nordnet AB, wrote in a note to clients.

Free cash flow was negative 275 million kroner to 300 million kroner in the fiscal year, Bang & Olufsen said, compared with the 200 million to 250 million kroner predicted. Earnings margins also were narrower than projected, the Struer, Denmark-based company said.

Mr Clausen still expects to return to profitable growth in the coming year. The company plans to release its complete results for the just-ended fiscal year on July 11. It will also publish financial targets then. BLOOMBERG/REUTERS