B&O is hit by decline in luxury spending

By David Ibison in Stockholm
Published: Jul 08, 2008

Bang & Olufsen, the maker of high-end entertainment systems, was forced yesterday to issue its third profit warning this year as sales in its main markets continued to drop sharply.

B&O, which has suffered a 71 per cent plunge in its share price over the past year, said economic concerns in the US and western Europe were undermining sales of luxury goods.

B&O's televisions and loud speakers can cost €30,000 ($47,166) each and grace designer lofts and apartments in financial centres such as London, Frankfurt and New York.

"Even rich people have to be in a good mood to spend money," said Peter Thostrup, B&O's executive vice-president.

He added: "There is no doubt that in a downturn price competition gets more fierce - and competing on price is not one of our strengths."

The Danish group has also been hit by rivals such as Sony and Samsung offering B&O-like flat-screen products and sleek surround-sound systems at lower prices.

"B&O's traditional selling point has been design, and it is increasingly difficult to differentiate yourself when the product is something flat that hangs on the wall," said one analyst who asked not to be named.

B&O said it expected to report an operating profit of about DKr195m ($41m) for the year ended May 31, down sharply from its earlier forecast of between DKr225m and DKr275m.

In spite of its weak share price, the group is virtually immune to a takeover.

It has a dual-class share structure whereby unlisted A shares owned by Danish institutions account for 10 per cent of the capital and 50 per cent of the votes.

The company has already parted ways with Torben Ballegaard Sorensen, its former chief executive, in January after a decline in global sales. The company replaced him with Kalle Hvidt Nielsen, who will take over on August 1.

The company's largest markets are Denmark, the UK and Germany, which account for 80 per cent of turnover. Sales in these markets fell 26 per cent in the first three quarters of the year to February 29.

B&O's next largest market is the US, accounting for about 8 per cent of turnover, where sales are also falling.

Despite rising sales in markets such as Russia and Asia, they represent only a small part of B&O's current market. "There is no way that growth in these markets can compensate for what is happening in our main markets," said Mr Thostrup.

The company was planning to trim costs and said it was confident that this year's results would be better than last year's, which will be announced on August 13.

This helped B&O shares rise 1.6 per cent yesterday to DKr191.