B&O Issues Layoff Among Moves To Eliminate Loss

By Joseph Palenchar -- TWICE, 1/15/2009

Struer, Denmark — Bang & Olufsen announced a second round of personnel cuts, plans to raise $70.3 million by issuing preferential stock, and an accelerated product-launch schedule to cope with the world economic crisis, turn around a first-half operating loss, and carry through restructuring plans announced last October.

The luxury A/V brand also secured operational financing with its existing banks.

The action plan won’t put B&O into the black for the current 2008 to 2009 fiscal year, ended May 31, but will enable it to break even during the 2009 to 2010 fiscal year, according to company forecasts.

As announced last December, B&O forecasts sales of $544.3 million to $579.4 million in the current fiscal year and a loss before taxes of $45.7 million to $66.7 million, excluding restructuring costs expected of about $17.6 million. The effect of restructuring and other cost savings will amount to $43.9 million in the next fiscal year “when the aim is to break even,” the company said.

Sales during the current fiscal year’s first half, ended Nov. 30, fell 29.2 percent to $380.6 million, producing a loss before taxes of $36.4 million, compared with a year-ago profit before taxes of $26.3 million. The company’s operating loss came to $36 million in the first half, compared with operating income of $29.2 million during the year-ago period.

“The global economic and financial crisis and the comparatively small number of product launches were the main causes of the recent decrease in turnover,” said Bang & Olufsen president/CEO Karl Kristian Hvidt Nielsen.

The share issue, he noted, “will give the company an economic backup to carry through the plans to restructure and strengthen the sales organization and focus the product development, including the development of a digital technology platform as the primary element for a future stronger product portfolio.”

To reduce expenses while it accelerates product launches, the company will lay off up to an estimated 220 people, 90 of them in Denmark, following last October’s layoff of 165 employees in Europe and the planned reduction of 135 more staff positions through attrition and leaving open positions unfilled.

Also last October, the company said it would consolidate seven regional independent sales organizations around the world into one organization, and:

reduce the number of digital platforms per core category in future products to accelerate product development and increase sales and marketing efficiencies;
focus R&D resources on three core categories — TV/video, audio (home and OEM car), and home integration — to deliver higher profits from fewer product categories and to accelerate product development;
ease out of such non-core product categories as MP3 players, cellphones, DVD players and standalone hard-drive recorders; these products accounted for only about 5 percent of total sales. Among these products, only MP3 players and cellphones are available in the United States; and
focus greater resources on B&O-branded stores “with the strongest growth potential,” while other stores would “be given renewed attention when resources are available.”

Before the October announcement, the company posted two quarters of net losses and a worldwide sales decline of about 7 percent in the fiscal year ending May 31, to around $707.4 million. The previous year, the company posted the highest sales in its 83-year history.