Danish luxury electronics maker Bang & Olufsen is confident it can turn around its lackluster core audio-video business and will not rule out divestments, its new chief executive said.

Turning lackluster sales in its core business around was a challenge, but could be done, Chief Executive Tue Mantoni told Reuters as the company reported third quarter results on Wednesday. He added divestments could not be ruled out.

I definitely think we can turn the development in audio-video around. I don't think it will be easy, but I definitely believe we can, Mantoni said.

He added more details would be given in a few months time when a strategic review of the group would be presented. In its third quarter report it said the review had been launched in connection with the appointment of Mantoni in March, and would be presented with the annual results in August.

Considering that we are now reviewing our strategy I cannot say that we will sell anything off, nor can I rule out that we will divest, Mantoni said.

Its third quarter result missed analysts' expectations despite a rise in profits, hurt by static sales in its core audio-video business, which accounted for slightly over 80 percent of total group sales in the quarter.

Other non-core activities include telephones, digital media and car audio equipment.

The result was also dragged down by a one-off payment associated with the departure of its former CEO, the group said.

Sales in the automotive division rose by 123 percent in the three months to end November compared with the same quarter the year before.

Shares in Bang & Olufsen rose 7.6 percent at 10:10 a.m. EDT, against a flat Copenhagen Bourse's Benchmark index.

B&O has indirectly improved its results as they have booked some costs, 21 million crowns, of which a large part are related to the exit of their chief executive, said Sydbank analyst Nicolaj Jeppesen. But we still see that they are not managing to grow their core business (audio-video) and that automotive still drives the result.

We need to see its core business beginning to grow soon as this is what ought to drive the group in the future, Jeppesen said.

BRACING FOR FLAT FY SALES

Bang & Olufsen has grown as a supplier of audio systems for upmarket cars including Aston Martin, Audi and Mercedes, but while sales in the automotive division are rising steeply it still accounted for just 113 million crowns out of 820 million in total group sales in the third quarter.

The producer of sound systems and high-end televisions -- such as the top-of-the-line 103-inch BeoVision4 that costs roughly 100,000 euros -- said it expected sales for the full 2010/11 financial year of 2.85 billion Danish crowns which was roughly in line with an average 2.97 billion crowns forecast in a Reuters poll of analysts, and slightly higher than 2.76 bln reported the year before.

Full-year pretax profit was expected to land at 40-50 million crowns, it said, lagging 52.8 million expected by analysts in the poll.

The company had not previously given any figures for the 2010/11 full-year, but had said it expected a positive development in turnover and positive result before tax.

Third-quarter pretax profits rose to 30.3 million Danish crowns in the three months to end-February from 28.4 million in the same quarter a year earlier, but lagged an average 36.4 million estimated by analysts in the Reuters poll.

The result was negatively affected by 21 million crowns, of which 14 million was attributed to costs associated with the departure of its former chief executive Kalle Hvidt Nielsen, the company said in the statement.

The group said it had been necessary to postpone the launch of its new product, BeoSound 5 Encore, until the first quarter of the 2011/12 financial year.

(Additional reporting by Teis Jensen and Jakob Vesterager Editing by Mike Nesbit)